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SEC APPROVES CORPORATE GOVERNANCE RULES FOR THE NYSE AND NASDAQ; SOME WILL APPLY TO FOREIGN PRIVATE ISSUERS

On November 4, 2003, the Securities and Exchange Commission approved the proposed corporate governance rules previously submitted by the New York Stock Exchange and by the NASD, through its subsidiary, The Nasdaq Stock Market, Inc.

Companies with securities listed on the NYSE or Nasdaq must comply with the new rules by the earlier of the first annual meeting after January 15, 2004, or October 31, 2004.

Here are some of the provisions of the new rules:

• Majority of Independent Directors:

Under the new rules, independent directors must comprise a majority of the board of directors. This rule applies to both NYSE and Nasdaq-listed companies. The NYSE and Nasdaq each define “independent” differently, so issuers must evaluate the status of each current independent director to determine whether the director will be “independent” under the new rules.

Foreign private issuers are not required to comply with this new rule.

• Nominating Committees:

The NYSE will require a company to have a nominating committee comprised solely of independent directors. In contrast, Nasdaq will require that nominees for the board of directors be selected or recommended by a majority of the independent directors or by a nominating committee comprised solely of independent directors.

• Audit Committees:

Under the Sarbanes Oxley Act of 2002, foreign private issuers are required to comply with the audit committee requirements contained in Rule 10A-3 under the Securities Exchange Act of 1934. That rule prohibits a member of the audit committee from accepting any consulting, advisory or other compensatory fee from the issuer, other than as a member of the audit committee or the board of directors. In addition, an audit committee member cannot be an “affiliated person” of the issuer or any subsidiary of the issuer, apart from being a member of the board of directors. This rule applies to foreign private issuers with securities listed on the NYSE or Nasdaq.

• Corporate Governance Rules:

The NYSE corporate governance rules permit foreign private issuers to follow home country practice, rather than comply with the new rules proposed by the NYSE. However, the foreign private issuers would still be required to have an audit committee that complies with Rule 10A-3, described above. In addition, foreign private issuers that do not comply with the new rules would have to provide a brief description of the significant differences between their home country corporate governance rules and the rules required for domestic companies listed on the NYSE.

In contrast to the NYSE, foreign private issuers with securities listed on Nasdaq must comply with all Nasdaq corporate governance rules. However, Nasdaq rules do not require foreign private issuers to do anything that is contrary to their home country rules. Nasdaq may provide exemptions from its corporate governance rules to comply with this principle. Foreign private issuers with securities listed on Nasdaq, must comply with the audit committee requirements of Rule 10A-3 as described above.

If you have questions about this article or any of the new rules approved by the SEC, please feel free contact any of the following attorneys at our firm:

This article was prepared as a service to our clients and friends. This article does not constitute legal advice and should not be relied upon as legal advice by the reader or any other party.