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 Exchange Act of 1934 (“Exchange Act”).  Although rule changes to Regulation S-K enacted in March of this year (see HERE) revised several rules and forms to help simplify the incorporation-by-reference puzzle and facilitated access to incorporated documents by requiring hyperlinks, the provisions are still complicated and spread among a variety of rules and forms.  This blog unwinds and summarizes the various rules and eligibility criteria to benefit from incorporation by reference.  I’ve also included a chart for quick reference at the end of the blog.

As an aside, incorporation by reference can also include referencing disclosures in another part of the same registration statement or report to avoid repetition.  The ability to incorporate by reference in the same document is universal to all reports and classes of companies and is encouraged by the SEC.

Securities Act Rule 411

Securities Act Rule 411 is a part of Regulation C governing registration statements and prospectus requirements.  Rule 411 generally prohibits incorporation by reference in a prospectus unless the particular form being used specifically allows it.  However, as discussed below, most forms of registration statements specifically allow it in some instances.  In any financial statements, incorporating by reference, or cross-referencing to, information outside of the financial statements is not permitted unless otherwise specifically permitted or required by SEC rules or by GAAP or IFRS rules. Hyperlinks must be included to any information that is incorporated by reference.

Rule 411 further provides that incorporation by reference is allowed in parts of a registration statement that do not include the prospectus.  Exhibits may be filed by incorporation by reference to any other exhibit in a SEC filing, whether filed by the same company or a different company, but a hyperlink must be included to that exhibit.

Rule 411 also contains a general statement that incorporation by reference may not be used in any case where such incorporation would render the disclosure incomplete, unclear, or confusing. For example, unless expressly permitted or required, disclosure must not be incorporated by reference from a second document if that second document incorporates information by reference to a third document.

Rule 411 does not mention forward incorporation by reference.

Exchange Act Rule 12b-23

Rule 12b-23 governs incorporation by reference for Exchange Act registration statements and periodic reports.  Where Rule 411 prohibits incorporation by reference unless expressly allowed in a form, Rule 12b-23 allows incorporation by reference unless expressly prohibited in the rule or a particular form.

The remainder of Rule 12b-23 is substantially the same as Rule 411, including related to financial statements, exhibits, hyperlinks and general requirements related to unclear or confusing references.

Exhibits

Incorporation by reference to exhibits has been allowed by all issuers since the enactment of the Securities Act and Exchange Act.  Subject to the requirements of Rules 411 and 12b-23, any exhibits required to be filed pursuant to Item 601 of Regulation S-K (the Exhibits Rule), all exhibits may be filed by incorporation by reference.  On March 1, 2017, the SEC passed final rule amendments to Item 601 to require hyperlinks to exhibits in filings made with the SEC.  The amendments require any company filing registration statements or reports with the SEC to include a hyperlink to all exhibits listed on the exhibit list. In addition, because ASCII cannot support hyperlinks, the amendment also requires that all exhibits be filed in HTML format.  See my blog HERE on the Item 601 rule changes and HERE related to SEC guidance on same.

Although it would seem common sense, Item 601 also specifically provides that an exhibit filed by incorporation by reference, must not have thereafter been materially amended or changed.  In other words, when filing an exhibit today by using incorporation by reference, make sure the referenced exhibit is up to date.

Form S-1

The rules related to the ability to use incorporation by reference and forward incorporation by reference in a Form S-1 are confusing.  The eligibility requirements to use incorporation by reference in a Form S-1 include:

• The company must be subject to the reporting requirements of the Exchange Act (not a voluntary filer);
• The company must have filed all reports and other materials required by the Exchange Act during the prior 12 months (or such shorter period that such company was reporting);
• The company must have filed an annual report for its most recently completed fiscal year;
• The company may not currently be, and during the past 3 years neither the company nor any of its predecessors were, (i) a blank check company; (ii) a shell company other than a business combination shell company (SPAC), or (iii) have offered a penny stock;
• The company cannot be registering an offering for a business combination transaction; and
• The company must make its reports filed under the Exchange Act that are incorporated by reference, available on its website, and include a disclosure of such availability and that it will provide such document upon request.

If a company elects to incorporate by reference, it must include specific language regarding the incorporation by reference and forward incorporation by reference.

The FAST Act, passed into law on December 4, 2015, amended Form S-1 to allow for forward incorporation by reference by smaller reporting companies that meet the eligibility requirements to use historical incorporation by reference.  In what was probably unintended in the drafting, the FAST Act changes only included smaller reporting companies and not emerging growth companies. Prior to the FAST Act, forward incorporation by reference was only available for companies that use Form S-3 or F-3. The FAST Act change has created an anomaly whereby a smaller reporting company can utilize forward incorporation by reference but other classes of company, including emerging growth companies and large accelerated filers, cannot.

The SEC is aware of the continuing confusing distinction between the obligations of smaller reporting companies vs. emerging growth companies and has included forward incorporation by reference on Form S-1 on its long-term action list (see HERE).  Unfortunately, this topic is not new to the long-term list.

Form S-3

Form S-3 allows for both incorporation by reference and forward incorporation by reference for all companies that are eligible to use the form.  In particular, a company’s latest annual report on Form 10-K and all other reports filed pursuant to the Exchange Act following the latest annual report are specifically incorporated by reference into a Form S-3.  Furthermore, all documents filed under the Exchange Act following the filing of the Form S-3 are incorporated by reference and the future annual reports on Form 10-K act as a prospectus update requiring a review of continued eligibility to use the Form S-3.

Companies filing the Form S-3 are required to include specific language regarding the incorporation by reference and forward incorporation by reference and must agree to provide copies of any documents incorporated by reference upon request.

For more on Form S-3, including eligibility requirements, see HERE.

Form S-4

Form S-4 allows for both incorporation by reference and forward incorporation by reference for all companies that are eligible to use Form S-3 with substantially the same requirements as Form S-3.

Form S-8

A Form S-8 registration statement can be used by issuers to register securities to be offered to employees and certain consultants underwritten employee benefit plans.  For more on a Form S-8, see HERE and HERE.  A Form S-8 registration statement is popular with all public companies, but particularly with small public companies as it becomes effective immediately upon filing and allows for incorporation by reference, both of which benefits are not always available to smaller public companies.

A Form S-8 allows for incorporation by reference of both previously filed Exchange Act reports and Securities Act registration statements in the Form.  As a Form S-8 is effective upon filing, any requests for confidential treatment of the incorporated document must be fully resolved prior to the filing of the Form S-8.  For more on confidential treatment requests, see HERE.

Likewise, a Form S-8 is updated by forward incorporation by reference to future filed Exchange Act reports for all companies, including smaller reporting companies.  A Form S-8 even goes one step further and allows certain documents that are required to be delivered to an employee as part of an employee incentive plan, to be incorporated by reference into a Form S-8 and not be filed with the SEC at all.

Form 10-K Incorporation by Reference to Proxy Statement

A company may elect to omit Part III information from its Form 10-K and incorporate this information by reference from its proxy statement if the proxy statement is filed within 120 days after the end of the fiscal year. In such case, the company must provide a statement to that effect in the Form 10-K under each item under Part III. If the company is then unable to file its proxy statement by the 120th day, it must amend its Form 10-K, and file a Form 10-K/A by the 120th day after the end of its fiscal year to include all of the Part III information that was previously omitted.

Part III information includes: (i) information related to directors, executive officers and corporate governance; (ii) executive compensation; (iii) security ownership of certain beneficial owners and management and related stockholder matters; (iv) certain relationships and related transactions and director independence; and (v) principal accountant fees and services.

Furthermore, if a company prepares an annual report to shareholders separate from its Form 10-K, it may incorporate some or all of the Part I and Part II information required to be in Form 10-K by reference from its annual report as long as the annual report is filed as an exhibit to the Form 10-K.

Quick Reference Chart

I created the below quick reference chart.

The Author

Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including sitting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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