Regulation S-K

SEC Adopts Amendments To Business Descriptions, Risk Factors And Legal Proceedings

Just eight months following the rule proposal (see HERE), on August 26, 2020, the SEC adopted final amendments to Item 101 – description of business, Item 103 – legal proceedings, and Item 105 – Risk Factors of Regulation S-K. The amendments make a more principles-based approach to business descriptions and risk factors, recognizing the significant changes in business models since the rule was adopted 30 years ago. The amendments to disclosures related to legal proceedings continue the current prescriptive approach. In addition, the rule changes are intended to improve the readability of disclosure documents, as well as discourage repetition and disclosure of information that is not material.

The Item 101 and Item 103 amendments only apply to domestic companies and foreign private issuer that elect to file using domestic company forms. The forms generally used by foreign private issuers (F-1, F-3, 20-F, etc.) do not have references to Items 101 and 103 of Regulation S-K but rather refer

November 3, 2020

SEC Adopts Amendments To Disclosures Related To Acquisitions And Dispositions Of Businesses

One year after proposing amendments to the financial statements and other disclosure requirements related to the acquisitions and dispositions of businesses, in May 2020 the SEC adopted final amendments (see here for my blog on the proposed amendments HERE). The amendments involved a long process; years earlier, in September 2015, the SEC issued a request for public comment related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates which was the first step culminating in the final rules (see HERE).

The amendments make changes to Rules 3-05 and 3-14, 8-04, 8-05, and 8-06 of Regulation S-x, as well as Article 11. The SEC also amended the significance tests in the “significant subsidiary” definition in Rule 1-02(w), Securities Act Rule 405, and Exchange Act Rule 12b-2. Like all recent disclosure changes, the proposed rules are designed to improve the information for investors while reducing complexity

October 27, 2020

Covid-19 Disclosures – Not Just Speculation Anymore

Now that the market can review and dissect two quarters of Covid-related disclosures and reporting companies are gearing up for third-quarter reporting, Covid disclosures are no longer pure speculation. Following the two official guidelines released by the SEC (Disclosure Guidance Topic No. 9A which supplemented the previously issued Topic No. 9), a new CD&I issued on Covid-19 executive employment benefits, and numerous unofficial statements and speeches on the topic, the investment community and reporting companies are navigating the areas that require the most attention and thoughtful disclosure. Not surprisingly, the areas requiring the greatest consideration are management, discussion and analysis (including human capital disclosures and forecasting), risk factors, and internal controls over financial reporting.

Covid-19 “Benefits” – SEC Issues New C&DI

On September 21, 2020, the SEC issued a new compliance and disclosure interpretation (C&DI) related to the reporting of compensation perks or benefits. In particular, the SEC stated that:

In reporting compensation for periods affected by Covid-19,

October 20, 2020

New CDI On Mining Company Disclosures

In the 4th quarter of 2018, the SEC finalized amendments to the disclosure requirements for mining companies under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). See HERE. In addition to providing better information to investors about a company’s mining properties, the amendments were intended to more closely align the SEC rules with industry and global regulatory practices and standards as set out in by the Committee for Reserves International Reporting Standards (CRIRSCO). The amendments rescinded Industry Guide 7 and consolidated the disclosure requirements for registrants with material mining operations in a new subpart of Regulation S-K.

The final amendments require companies with mining operations to disclose information concerning their mineral resources and mineral reserves. Disclosures on mineral resource estimates were previously only allowed in limited circumstances. The rule amendments provided for a two-year transition period with compliance beginning in the first fiscal year on or after January 1, 2021.

October 13, 2020

SEC Final Amendments On Disclosures For Registered Debt Offerings

Writing a blog once a week during a time when almost daily events are publish-worthy means that some topics will be delayed, at least temporarily. Back in March, the SEC adopted final amendments to simplify disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities, as well as for affiliates whose securities collateralize a company’s securities. The proposed rule changes were published in the summer of 2018 (see HERE).

The amendments apply to Rules 3-10 and 3-16 of Regulation S-X and are aimed at making the disclosures easier to understand and to reduce the cost of compliance for companies. The SEC also created a new Article 13 in Regulation S-X, renumbered Rules 3-10 and 3-16 to Rules 13-01 and 13-02, and made conforming changes to related rules in Regulations S-K and S-X and Securities Act and Exchange Act forms.

As stated in the SEC press release on the new rules, the amended rules focus on

August 11, 2020

SEC Adopts Amendments To Accelerated And Large Accelerated Filer Definitions

In March, 2020 the SEC adopted amendments to the definitions of an “accelerated filer” and “large accelerated filer.” The amendments were adopted largely as proposed in May 2019 (see HERE).

A company that is classified as an accelerated or large accelerated filer is subject to, among other things, the requirement that its outside auditor attest to, and report on, management’s assessment of the effectiveness of the issuer’s internal control over financial reporting (ICFR) as required by Section 404(b) of the Sarbanes-Oxley Act (SOX). The JOBS Act exempted emerging growth companies (EGCs) from this requirement. Moreover, historically the definition of a smaller reporting company (SRC) was set such that an SRC could never be an accelerated or large accelerated filer, and as such would never be subject to Section 404(b) of SOX.

In June 2018, the SEC amended the definition of an SRC to include companies with less than a $250 million public float (increased

July 14, 2020

Disclosures Related To COVID-19 – SEC Updates

Last week the SEC Office of the Chief Accountant (OCA) made a public statement on the importance of high-quality financial reporting for investors in light of Covid-19 on the same day that the Division of Corporation Finance issued an updated Disclosure Guidance Topic No. 9A on operations, liquidity, and capital resources disclosures related to the virus. Disclosure Guidance Topic No. 9A supplements the previously issued Topic No. 9 (see HERE) and follows the SEC’s virtual Investor Advisory Committee (“IAC”) meeting where investors testified as to additional information that should be relayed to the capital markets by public companies (see HERE).

OCA Statement on Financial Reporting

On April 3, 2020, the SEC Office of the Chief Accountant (OCA) made its first public statement on the importance of high-quality financial reporting for investors in light of Covid-19. At that time, many companies were in the process of preparing Q1 results and reports. Now that Q2 is coming to a

June 30, 2020

Disclosures Related To Covid-19 – What Investors Want To Know

I’ve written several times about the need for Covid-19 disclosures including public statements by Chair Clayton and William Hinman, the Director of the Division of Corporation Finance and the SEC Division of Corporation Finance Disclosure Guidance Topic No. 9 regarding the SEC’s current views on disclosures that companies should consider with respect to COVID-19. For my summary blog on the topic, see HERE.

As I’ve previously mentioned, my personal thought is that although there are many reasons why disclosure is important, it is especially important now to support investor confidence, activity in our markets and capital raising efforts. If investors are kept informed of the impact of COVID-19 on companies, see that these companies are continuing on and meeting their requirements and that the markets haven’t just fallen into Neverland, they will continue to invest through the trading of securities, and direct investments through PIPE transactions. Further on the broader economic level, transparency and information will bolster confidence on

June 2, 2020

SEC Proposes Amendments To MD&A Disclosures

Continuing its disclosure effectiveness initiative, on January 30, 2020, the SEC proposed amendments to Management’s Discussion & Analysis of Financial Conditions and Operations (MD&A) required by Item 303 of Regulation S-K. In addition, to eliminate duplicative disclosures, the SEC also proposed to eliminate Item 301 – Selected Financial Data and Item 302 – Supplementary Financial Information. Like all recent disclosure effectiveness rule amendments and proposals, the rule changes are meant to modernize and take a more principles based approach to disclosure requirements. In addition, the proposed rule changes are intended to reduce repetition and disclosure of information that is not material.

On the same day the SEC issued an Interpretive Release on MD&A. A week earlier the SEC issued three new compliance and disclosure interpretations on the subject.

Among the proposed changes, the new rule would add a new Item 303(a) to state the principal objectives of MD&A, replace the specific requirement to disclose off-balance-sheet arrangements with

February 11, 2020

Incorporation By Reference

During lulls in the very active rule changes and blog-worthy news coming from the SEC and related regulators, it is great to step back and write about basics that affect SEC attorneys and market participants on a daily basis. In the realm of securities laws, the concept of “incorporation by reference” is simple enough – information from another document, registration statement or filing is included in a current document, registration statement or filing by referring to the other without repeating its contents. Similarly, “forward incorporation by reference” means that a document is automatically updated with information contained in a future SEC filing.

Although the concepts are relatively straight forward, their application is complex with differing rules for different classes of companies (such as an emerging growth company, smaller reporting company, or well-known seasoned issuer) and different filings such as a registration statement filed under the Securities Act of 1933 (“Securities Act”) or a periodic report filed under the Securities

October 29, 2019

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SEC Adopts Amendments To Accelerated And Large Accelerated Filer Definitions

Incorporation By Reference

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