Q&A Discussion Forum For TheCorporateCounsel.net

Is it typical for companies to use 1.01 and 2.03 for amendments to undrawn credit facilities?

RE: Yes, I think it is. Here's one that Palantir filed in April:

Even if no amounts are outstanding under a credit facility, the company has already determined that it is a material definitive agreement for purposes of Item 1.01, and material amendments to that agreement will prompt another 8-K filing requirement. I don't think it's particularly uncommon to have an undrawn line of credit available, and they may well be identified as an important potential source of liquidity or capital resources in the company's public disclosure.
-John Jenkins, Editor, TheCorporateCounsel.net 6/3/2021

An issuer has recently completed an exchange offer where unregistered senior secured notes were exchanged for an equal amount of registered senior secured notes. A few noteholders missed the exchange offer deadline and are inquiring whether they may be able to exchange the notes now. Is it possible to do this exchange under Rule 144 assuming the noteholders are not affiliates?

RE: Rule 144 doesn't really come into play here. You've got a registration statement covering the exchange offer, and laying out its terms. If you want to now reopen an expired offer, that will require changes to the disclosure in the registration statement, either through a prospectus supplement, post-effective amendment or the filing of a new registration statement. My guess is that something like this would be regarded as a fundamental change requiring either a post-effective amendment or a new registration statement.

I'm no expert on Exxon Capital exchange offers, but I know the Staff has some pretty stringent conditions when it comes to them & I don't know whether reopening a completed offer might cause them some heartburn.
-John Jenkins, Editor, TheCorporateCounsel.net 6/3/2021

A Company determined as of December 31, 2020 that it would no longer be a smaller reporting company in 2021. The Company filed a Form 10-K/A with Part III information using the scaled disclosure rules in April 2021. Does the Company need to re-determine its named executive officers and provide a full CD&A in a proxy statement that it files a few weeks later or can it use the same disclosure that was included in Part III of the Form 10-K? I don't think that CDI 104.13 would apply here because the disclosure is not being incorporated by reference into the Form 10-K and the proxy filing is being made after the Company's first quarter Form 10-Q, but it seems like once the NEOs have been determined for 2020 they should stay the same.

RE: I think the answer should be that the proxy should include the same disclosure that was included in Part III of the Form 10-K, which seems to be the general concept underlying CDI 104.13.
-John Jenkins, Editor, TheCorporateCounsel.net 6/3/2021

The Company amended an agreement during the three month period ended June 30 such that the amendment terminated the agreement during the three month period ending June 30. The agreement falls under item 6.01(b)(4). In the Q for the three months ended June 30, does the company have to file the original agreement and amendment even thought it is now terminated?

RE: If that's all the amendment did, and it has no implications for the company or its security holders moving forward, then I think the answer is no, you don't have to file it under Item 601(b)(4) and you no longer have to incorporate the original agreement by reference in the filing. See the discussion on p. 93 of our Form 10-K/10-Q Exhibits Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 6/1/2021

Special Meeting – Proxy Materials Distribution Facts: A Delaware public company, listed on the Nasdaq, is holding a special meeting of stockholders. At the special meeting, no directors are being elected. There are several proposals – and each of them relates to amendments to the registrant’s charter (like increasing the number of shares authorized and governance change to remove anti-takeover measures). The registrant has the standard Del Co bylaws, which require notice of the special meeting to be sent to the stockholder entitled to vote. The registrant will file a preliminary proxy statement w/r/t the governance proposals. The registrant has a very large retail base of stockholders, many of them beneficially own less than 20 shares (“Small Stockholders”). The registrant does not believe that these Small Stockholders will vote at the special meeting. Based on preliminary results, the registrant is OK if these Small Stockholders do not vote at the special meeting (no impact to quorum or the anticipated voting results). The costs associated with distributing the proxy materials to the Small Stockholders is significant. Question: Under this scenario, is the registrant required to mail the definitive proxy materials to the Small Stockholders? And, if yes – why? Any guidance you can give is greatly appreciated.

RE: I suppose Nasdaq might take the position that Rule 5620, which requires you to solicit proxies, requires you to solicit them from all of your stockholders, but I haven't seen that anywhere. I think the bigger fly in the ointment is likely to come from Regulation 14C. Rule 14c-2 requires a company to transmit an information statement "to every security holder of the class that is entitled to vote or give an authorization or consent in regard to any matter to be acted upon and from whom proxy authorization or consent is not solicited on behalf of the registrant pursuant to section 14(a) of the Act." I've never seen this come into play with a company that is soliciting proxies, but that language seems to require an information statement be provided to any shareholder from whom the company didn't solicit a proxy, which would pretty much wipe out the cost savings the company was hoping to realize.
-John Jenkins, Editor, TheCorporateCounsel.net 6/1/2021

Is there any reason that a PIPE being signed-up simultaneously with the signing of a merger agreement between a SPAC and target could not be priced below $10/share (especially if the pre-signing/pre-announcement market price for the SPAC shares has been consistently below $10)? With many SPACs now trading below $10 but SPAC PIPEs likely to continue, it seems like this is going to be an issue that's likely to come up with some frequency.

RE: I don't know of any reason why the PIPE has to be priced at the IPO price, but since the PIPE won't be funded until closing, presumably the valuation that the PIPE investors are looking at is the combined enterprise that will result from the de-SPAC, not the pre-signing market valuation of the SPAC without a deal.
-John Jenkins, Editor, TheCorporateCounsel.net 5/28/2021

A public company board director plans to resign on the last business day of the second quarter. This director is affiliated with a large fund (around 10%). If the director had not resigned, we would have counted both him and the affiliated fund as affiliates for purposes of the public float calculation. Given the date of the resignation, should we count the director and the affiliated fund as affiliates for the public float? If the resignation happened on the first day of the third quarter or in some short period thereafter, is there a lookback for affiliate status for purposes of the public float calculation (similar to the three month look back for affiliate status under Rule 144)?

RE: I guess the first issue is to clarify when the director's resignation is effective. Will the director's service terminate at the end of the day prior to the last business day of the quarter, or will he or she continue to serve through the final business day of the quarter? If the former, and if you've determined that the resignation is all that is necessary to sever the affiliate relationship notwithstanding the fund's large ownership position, then I think you have a basis for including those shares in the public float on that date. If the director is still serving as a director on the last day of the second quarter, then I think the answer is different.

Determining affiliate status is a “facts and circumstances” or “case-by-case” determination, and there's no formal requirement to apply a lookback for that determination outside of Rule 144.
-John Jenkins, Editor, TheCorporateCounsel.net 5/28/2021

If a NEO (but not CFO or CEO) retirement is announced at Company's investor day (properly announced in accordance with Reg FD), does the 5.02 8-K for NEO's notice to Company of such retirement need to be filed with the SEC before or concurrent with the announcement? Seems to me that it can just be filed later that day but thanks for any thoughts.

RE: In order to be timely, the Item 5.02 8-K needs to be filed within 4 business days of the date that the NEO communicates his or her decision to retire, not the announcement date. If you are trying to use the Form 8-K as "belt & suspenders" to ensure that you have a Reg FD safe harbor notwithstanding the prior notice of the event, then I think you'd want the 8-K filed no later than the time of the announcement.
-John Jenkins, Editor, TheCorporateCounsel.net 5/28/2021

It doesn't look like S-K Item 601 has any requirements for exhibits to be filed with an 11-K - is the only exhibit required to be filed the auditor consent (per the Note to Form 11-K)? Thanks.

RE: Yes, that's the only exhibit required.
-John Jenkins, Editor, TheCorporateCounsel.net 6/10/2020

RE: It seems like some companies file plan amendments as exhibits - any sense of whether this is best practice or not? Does there get to be a point when an amendment (or series of amendments) to a plan warrants re-filing the plan, or is this just handled in regular periodic reporting (to the extent required, realizing that most of these plans fall under the exceptions in 601(b)(10))? Thanks as always.
-5/27/2021

RE: I don't think that's regarded as a best practice, particularly since the plan is generally filed as an exhibit to the issuer's filings & the form doesn't contemplate exhibits aside from the consent & the plan's annual report (if you opt to incorporate by reference financial information from that report). I suppose I could see filing the plan and amendments to it if for some reason it wasn't subject to filing under Item 601(b)(10).
-John Jenkins, Editor, TheCorporateCounsel.net 5/28/2021

Q: A director and executive officer of a client is interested in providing consulting services to several private companies. The executive officer's "principal occupation" is with the client - but under Reg S-K 401(e), do these consulting arrangements with other companies need to be disclosed as well? I would expect they are each no more than 5/10 hours of work per month and the compensation is not material to the officer.

RE: I don't think the line item should be interpreted to require that disclosure - after all, it requires only disclosure of a principal occupation. While the word "principal" isn't defined in the rule, Webster's Dictionary defines it as "matter or thing of primary importance." That kind of definition makes it hard to conclude that the line item requires disclosure of minor side gigs.

But I also think there is usually an expectation among investors that a position as a company's CEO is a full time job. So you may want to give some thought to the potential materiality of the CEO's overall commitments to these other engagements and decide whether there should be some disclosure of their existence. If you've got several companies that the CEO is working 5-10 hours a month on, that can add up to a lot of time.

That being said, I think a lot of companies get comfortable that business activities that executives engage in outside of their positions with the company. I've encountered many CEOs who are active in angel investing, serve on private company boards, etc. and haven't seen a lot of disclosure around those activities.
-John Jenkins, Editor, TheCorporateCounsel.net 5/27/2021

We will file a Form 8-K to disclose the entry into a definitive agreement to purchase another business. I understand that we don't need to file the definitive agreement as an exhibit at the time of the 8-K filing, but can do so with the next 10-Q. Where can we find that rule? Item 601(a)(4)?

RE: Item 1.01 of Form 8-K only requires certain disclosures related to entering into a material definitive agreement not made in the ordinary course of business of the registrant, or into any amendment of such agreement that is material to the registrant, and does not require filing of that agreement or amendment as an exhibit to the Form 8-K (you can infer this from the instructions to Item 1.01 of Form 8-K, "To the extent a material definitive agreement is filed as an exhibit under this Item 1.01, [...]"). The filing requirement arises, as you correctly noted, as a result of Item 601(a)(4), which requires the filing of any material agreements that were executed or became effective during the reporting period in question.

You can also refer to C&DI 202.01 for Form 8-K which provides an example of timing requirements for filing a material agreement that is otherwise not filed with the Item 1.01 Form 8-K.
-5/27/2021

The Company eliminated preferred stock such that they filed a certificate of elimination. They filed the certificate of elimination in an 8-k. In the next Q, do they need to keep the Certificate of Designation for such preferred stock in the next Q or can it be removed? Similarly, would they need to file an updated Description of Capital or wait until the K?

RE: I believe the certificate of elimination is technically an amendment to your certificate of incorporation. Item 601(b)(3) of Regulation S-K says that when you amend the certificate, the entire document as amended must be filed as an exhibit in the next periodic report that calls for it (which Form 10-Q does). The description of securities is only required in the Form 10-K, so a new version reflecting the elimination of the preferred could wait until then.
-John Jenkins, Editor, TheCorporateCounsel.net 5/27/2021

Our client is a WKSI issuer and has an effective universal primary/secondary shelf registration statement on file. The registration statement says that information about selling securityholders will be set forth in a prospectus supplement or post-effective amendment. The issuer plans to file a resale prospectus supplement to issue shares to stockholders in connection with an M&A transaction that includes stock consideration. Do we have to affirmatively name each selling stockholder in the resale prospectus supplement or can we rely on CD&I 240.01 below and aggregate holders that own less than 1% of the outstanding shares? We have seen some WKSI issuers include the names of every holder, even if under 1%, so are curious if there is a reason why you would need to name each selling stockholder. See the guidance we have found below. Thanks for the guidance in advance. Question 140.03 Question: How should registration statements for secondary offerings reflect the addition of selling shareholders or the substitution of new selling shareholders for already named selling shareholders? Answer: If the company is eligible to rely on Rule 430B when the registration statement was originally filed, the company may add or substitute selling shareholders to a registration statement related to a specific transaction by prospectus supplement. The supplement is filed under Rule 424(b)(7). If the company is not eligible to rely on Rule 430B when the registration statement is initially filed, it must file a post-effective amendment to add selling shareholders to a registration statement related to a specific transaction that was completed prior to the filing of the resale registration statement. A Rule 424(b) prospectus supplement may be used to post-effectively update the selling shareholder table to reflect a transfer from a previously identified selling shareholder. The new investor's shares must have been acquired or received from a selling shareholder previously named in the resale registration statement and the aggregate number of securities or dollar amount registered cannot change. [Apr. 24, 2009] 240.01 Item 507 of Regulation S-K requires certain disclosure concerning each selling shareholder for whose account the securities being registered are to be offered. The Division staff has permitted this disclosure to be made on a group basis, as opposed to an individual basis, where the aggregate holding of the group is less than 1% of the class prior to the offering. Where the aggregate holding of the group is less than 1% of the class but for a few major shareholders, the disclosure for the members of the group other than the major shareholders also may be made on a group basis. [July 3, 2008]

RE: I think many companies simply find it easier to track and manage the use of a registration statement if all the selling shareholders are identified in the prospectus.
-John Jenkins, Editor, TheCorporateCounsel.net 5/27/2021

What do companies do to enforce their insider trading policies when employees accidentally trade during a blackout period?

RE: I've had this come up a few times. The first thing that needs to be done is to review the facts and circumstances surrounding the violation in order to assess its seriousness and to determine whether there's a potential control issue. Then, there needs to be some kind of sanction, even if the violation was accidental and did not result in any violation of the law. In the case of minor violations, there's usually been some sort of formal reprimand and additional training in the policy's requirements.

The really key thing is that you need to enforce the policy in order to get any credit for it from the SEC and other regulators. There are discussions of issues associated with enforcement of insider trading policies throughout our Insider Trading Policies Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 5/26/2021

A client has just had its PPP loan forgiven. Is that a required Form 8-K event? I have seen a few issuers report it under Item 1.02. To me, it seems it is not necessary since I view the loan terminating in accordance with its terms. (The PPP loan provided for a forgiveness mechanism and most issuers disclosed that mechanism when disclosing the PPP loan was incurred.) To me, it would seem that PPP forgiveness would be reported under Item 7.01 or item 8.01, if desired. Any thoughts? Thanks.

RE: I think you're probably right. My guess is that some companies stumble over the phrase excluding from Item 1.02 terminations that result from the parties "completing their obligations under such agreement." Since the borrower's obligations are forgiven, some companies may decide that in this scenario, they haven't "completed" their obligations under the terms of the agreement.

But the possibility of forgiveness and what companies must do to obtain it are baked into the terms of the loan itself, so I think the better view is that if the borrower satisfies the requirements for forgiveness and obtains it, it has "completed its obligations" under the agreement.

I don't think filing under Item 1.02 instead of Item 8.01 is going to be viewed as some sort of foot fault. Many PPP borrowers filed Item 1.01 8-Ks at the time of borrowing, and there is a certain symmetry to filing the 8-K reporting loan forgiveness under Item 1.02.
-John Jenkins, Editor, TheCorporateCounsel.net 5/25/2021

For purposes of the public float test of Rule 12g5-1(a)(7)(iv), what constitutes a “market” when an issuer is trying to identify its “principal market” and thus calculate its public float? Is it the same standard articulated in Securities Act Forms CDI Question 116.08, which requires that common equity be traded “on a public market, such as an exchange, the OTC Bulletin Board, or the Pink Sheets” in order for the issuer’s securities to have a market and be able to calculate a public float? Specifically, would an alternative platform in which isolated secondary transactions are executed by a registered broker-dealer constitute a “public market” for such purposes, or would trading need to occur on an established market (like a stock exchange or the OTC) in order to constitute a “public market”?

RE: Unfortunately, that CDI appears to be the only statement from the SEC or commenters on what should be regarded as the "principal market" for an issuer's securities. I think it probably makes sense to approach the Reg A Tier 2 public float determination by reference to the same standards, but I think you're going to need to reach out to the Staff on this issue.
-John Jenkins, Editor, TheCorporateCounsel.net 5/24/2021

What is the thinking behind referring to a Restated Certificate vs. an Amended and Restated Certificate? Background is an IPO. Startup is on its 4th A&R Cert after multiple fundraising rounds. Now in the process of going public. I see some similarly situated companies refer to their (to-be-adopted) public-company certificate as their "restated certificate" and some refer to this as their "amended and restated certificate". Is this just semantics? Or is there anything implied in the difference? Is one more technically accurate than the other? Thank you!

RE: I think the technical distinction is that a "Restated" Certificate simply compiles the original document and all previous amendments into a single document, while an "Amended & Restated" Certificate includes a compilation of existing provisions and additional amendments made at the time of filing into a single document. The distinction does potentially matter, because under Delaware law, no stockholder approval is required if a corporation is merely restating its certificate without adopting further amendments, but if it does both, then it is subject to the same stockholder approval requirements that would apply to any other amendment. See Section 245 of the DGCL.
-John Jenkins, Editor, TheCorporateCounsel.net 5/21/2021

Does anyone have suggestions on how a company that has recently “gone dark” (no longer a public company) can track its 5% shareholders? I am aware of the 90 day period after going dark during which Schedule 13G/Schedule 13Ds are still required to be filed but wanted to get thoughts on what options a company might have after the 90 days. Thank you.

RE: It gets tougher after that. One thing that sometimes happens - and that can be of some help - is that your record holder list becomes a lot more reflective of true ownership than it has been in the past. Many brokerage firms won't allow unregistered shares to be held in street name, so they'll kick them out and have them reissued in the names of the beneficial owners.

Another thing that I've seen is that market for these companies dwindles to a couple of brokers, and they may be the best source of information about where the shares are going, assuming their customers will permit them to share that information. Companies often establish some sort of relationship with these brokers, because they are often the individuals to whom they'll refer people interested in purchasing shares of stock.
-John Jenkins, Editor, TheCorporateCounsel.net 5/20/2021

Q: A client issued notes that are both (i) convertible by holders into shares of common stock and (ii) redeemable by the company. If the Company redeems the notes, the holders are entitled to receive, among other things, warrants exercisable for the same number of shares of common stock of the company for which the notes were convertible. The note holders have resale registration rights covering both the shares of common stock issuable upon conversion of the notes and the shares of common stock issuable upon exercise of warrants that are issuable upon redemption of the notes. If a holder's notes are convertible into 10 shares and the holder would receive warrants for 10 shares if the company redeemed the notes, how many shares of common stock should be registered for this holder on the resale registration statement? Is it 20 shares or 10 shares? It is possible, that a portion of such holder's note may be converted and a portion may be redeemed, but it no instance will any more than 10 shares ever be issued for that holder's notes. It seems like the answer should be that the resale registration statement covers 10 shares for such holder (not 20 shares), but I'm curious whether anyone is aware of guidance/commentary on this topic. We are checking precedent.

RE: I think that although you have a lot of ways to get there, since there isn't a scenario where an investor would ever end up with more than 10 shares, that amount should be used to determine the total number of shares that you register for resale.
-John Jenkins, Editor, TheCorporateCounsel.net 5/20/2021

Q: Good Morning, What should I be thinking about when a director requests company tickets to a sporting event? Many thanks!

RE: I think the big thing to keep in mind is that you may well be dealing with a "perk" that is potentially subject to disclosure under Item 402(k) of S-K. One issue to consider is valuation of the potential perk, which in some cases may not involve any incremental cost to the company (as in the case of the use of season tickets) but nevertheless is a perk. In some instances, where a director pays the full incremental cost of the tickets to the company, it may be possible to conclude that the arrangement doesn't involve a perk.

See the discussion in Chapter 7 of the Executive Compensation Disclosure Treatise and the SEC's 2018 Dow Chemical enforcement action, which also highlights some things companies should consider in ensuring the adequacy of perk disclosures.
-John Jenkins, Editor, TheCorporateCounsel.net 5/19/2021

RE: Thanks! So, if the cost of the tickets is less than $10,000 then no perk for the director and no disclosure, correct?
-5/19/2021

RE: Not necessarily. If the total value of all perquisites and personal benefits is $10,000 or more for any director, then each perquisite or personal benefit, regardless of its amount, must be identified by type. So, once you cross that $10K threshold in the value of all perks, you will have to disclose each type of perk that an individual director received, regardless of its incremental cost. See Instruction 3 to Item 402(k).
-John Jenkins, Editor, TheCorporateCounsel.net 5/19/2021

Q: It appears that insufficient disclosure on low-tax jurisdictions is a topic of increasing interest to some institutional shareholders; do these have any legs as eventual proposals (or are these letters in the non-proposal stage easily dismissed by citing compliance with applicable laws, etc.)?

RE: This is very much a live issue among investors.

I think trying to dismiss an investor who raised the issue by simply citing the company's compliance with existing law would be a big mistake. Everything is a potential shareholder proposal, but more importantly, dismissing something that a significant investor has raised as a disclosure concern isn't going to make that investor feel warm and fuzzy about management. That kind of posture could prove to be quite useful for an activist looking to drive a wedge between the board and the company's investor.
-John Jenkins, Editor, TheCorporateCounsel.net 5/19/2021

Q: We are pre-recording our annual stockholder meeting for the first time. Our proposals include director elections, say-on-pay, and auditor ratification. How do issuers typically handle that portion of the script that discusses the number of shares represented at the meeting and the percentage of outstanding those shares constitute? We usually get final voting numbers the morning of the meeting, but since we are pre-recording we obviously won't have that information. Our thought would be to just share those numbers as of a few days before the meeting date where quorum has already been reached and the proposals have already passed. The increase in the number of shares is likely to be immaterial anyways. Any issues here? Or any alternatives suggested?

RE: The scripts I've seen use phrases like "at least" when referencing the number of shares present at the meeting & votes received before the final data has been provided. The Chair also usually indicates that final information on voting will be publicly announced after the meeting.
-John Jenkins, Editor, TheCorporateCounsel.net 5/10/2021

RE: Publicly announced = Form 8-K filing?
-5/10/2021

RE: Typically, yes.
-John Jenkins, Editor, TheCorporateCounsel.net 5/10/2021

RE: How do you script the part of the meeting where polls are opened and any votes are counted in the final tally?
-5/11/2021

RE: I think you just have the Secretary announce the preliminary results based on the votes received by whenever you're taping, and tell shareholders that if they voted at the meeting, that vote isn't reflected in those results, but will be included in the final results publicly disclosed after the meeting. There are a number of annual meeting transcripts posted on the Internet and a review of those may give you some specific drafting ideas.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2021

RE: Any thoughts on the necessity of stating this is a pre-recorded meeting in the script?
-5/12/2021

RE: Hopefully, the entire thing isn't on autopilot. I mean, the remarks and the formalities may be prerecorded, but presumably you will have a chair present and an inspector of elections and the corporate secretary participating and representatives able to respond to questions?
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2021

RE: Yes, everyone will still be present, especially for the live Q&A portion.
-5/12/2021

RE: One item to check...we had planned to do the same BUT the video was a full overlay (took up the entire screen) and the shareholders would be unable to click the "Vote Here" button -- just confirm this is not the case for the system you are on. Shareholders likely need to be able to vote during the meeting.
-5/18/2021

Q: Can anyone provide examples of S&P 500 companies that incorporate a mandatory retirement age with tenure? For example, I am aware of two large companies (Microsoft & GE) that use a age 75 mandatory retirement with a 10/15 year tenure limit.

RE: According to the 2020 Spencer Stuart Board Index, there are only 29 S&P 500 boards with term limits. I'm not aware of a resource that breaks them down further along the lines you're looking for, but the list of those companies appears on p. 14 of the Index, so you may want to take a look at the governance pages of their websites for information about the specifics of those policies.
-John Jenkins, Editor, TheCorporateCounsel.net 5/17/2021

Q: I'm pretty sure the answer to this is "no" but I would be interested in others' views since it would make life easier if the answer is yes. Could an officer give a Rule 10b5-1 instruction to sell to cover all tax withholding obligations arising from the vesting of all current AND FUTURE future RSU awards granted to such officer? I think the answer is no because the number of shares to be sold isn't fixed with respect to the future awards, but I'm wondering if based on the guidance in CDI 120.21, a plausible argument can be made that this is a formula, despite the fact that the amount of future RSUs awards is unknown. Thanks in advance! Question 120.21 Question: A person purchases employer stock through her participation in the employer’s 401(k) plan. These purchases are made pursuant to bi-weekly payroll deductions. The 401(k) plan also allows employees to transfer the assets in their accounts among funds within the plan (including the employer stock fund) through fund-switching transactions. Is a Rule 10b5-1(c) defense available for payroll deduction purchases under the 401(k) plan? Answer: If an employee acts in good faith and is not aware of material nonpublic information at the time she provides written or oral instructions as to payroll deduction purchases, a defense would be available for those purchases under Rule 10b5-1(c). See Securities Act Release No. 7881 (Aug. 15, 2000), text at fn. 117-121. [Mar. 25, 2009]

RE: Similar question to the above - any issues covering sales of shares from future potential option grants/RSUs on a 10b5-1 plan? My read is that you can if no discretion or sales made pursuant to a formula.
-7/2/2019

RE: Bumping this up. Any thoughts on this?
-5/14/2021

RE: You can use a formula to determine the number of shares to be sold, the price and the dates of sale under a 10b5-1 plan, and it seems to me that the desire to sell a number of shares awarded under a comp plan at the time of vesting in an amount sufficient to satisfy tax withholding obligations applicable to the vesting event are all things that can be expressed in a formula. I don't think there's a prohibition on covering shares that have not yet been awarded under a 10b5-1 plan. See the discussion of the treatment of after-acquired shares under McKesson's RSU plan on p. 28 of the Rule 10b5-1 Trading Plans Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 5/17/2021

Q: For a consent solicitation filed as a preliminary proxy statement, is it ok to blank out the record date (i.e. fill in that date when the company files the definitive proxy statement 10 days later (assuming no SEC Review))? As far as when the record date should be, are there any rules that govern such a decision or is it up to the Board?

RE: Yes, companies sometimes file preliminary proxy materials before the record date is set and it's a common practice when filing a preliminary merger proxy. Record dates are generally within the discretion of the board, subject to the provisions of charter documents and the corporate statute. In Delaware, the place to look is Section 213 of the DGCL.
-John Jenkins, Editor, TheCorporateCounsel.net 5/13/2021

Q: Would the current gasoline shortage in states like Florida, Georgia and others in the Southeast be grounds to postpone annual meetings in those states scheduled for the next few days? May seem a little crazy, but then again, maybe things get worse later? Welcome any input from the esteemed members of this group.

RE: I think the board always has the authority to postpone an annual meeting, and if they conclude there's a potential for disruption justifying a postponement, then that's usually a matter of their business judgment. Of course, you may have some issues if you're running up on record date expirations (which may mean you need to resolicit shareholders) or if someone can claim that what you're doing is a pretext (e.g., you don't have the votes to pass one of management's proposals and you're using the postponement to round up more votes).
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2021

Q: We are trying to do a search for scores of our peer group. Does anyone know if these QualityScores are publicly accessible and, if so, how we may obtain them? I did a preliminary search on ISS website and it appears paid registration is required?

RE: ISS QualityScores are reported on certain public sites. For example, you can often find company "pillar" scores (not the detailed ISS QualityScore scoring report) on Yahoo Finance when pulling up the "company profile." You need to scroll all the way to the bottom of the company profile and then you'll see the individual pillar scores.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 5/12/2021

Q: Can anyone suggest how we can find out what sustainability reporting framework our largest stockholders may use? (Short of calling them directly?)

RE: I'd suggest you read their investor stewardship reports. Most of the recent ones refer to engagement on ESG topics and reference SASB, TCFD, or other frameworks. We have a number of these posted in our "Shareholder Engagement" Practice Area. You should also review their websites.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2021

Q: An affiliate would like to transfer his restrictive shares between his personal accounts without an immediate plan to resale the shares. Transfer Agent says that he needs to remove the restrictive legend to initiate the transfer. However, to the best of my knowledge, a counsel cannot issue a 144 opinion for an affiliate without an intention of the immediate sell of securities. Please let me if I am wrong here.

RE: Check with the transfer agent and confirm what they really need here. I think that they are likely looking for an opinion that the transfer may be effected without registration under the Securities Act. This isn't a Rule 144 transaction - is there even any change in beneficial ownership? If they are being bureaucratic and insist on having the legend removed, then assuming you can give an opinion that the transaction is exempt because there's no change in beneficial ownership, I think I'd accompany it with a statement that the legend can be removed, but instruct the Transfer Agent that the identical legend should be attached to the shares held in the new account.
-John Jenkins, Editor, TheCorporateCounsel.net 5/11/2021

Q: Per the Non-GAAP Financial Measures Handbook, pages 5-34 and 5-35: "... if the non-GAAP financial measures are the same as those included in the Form 10-K that is incorporating by reference the proxy statement’s Item 402 disclosure as part of its Part III information, the staff will not object if the registrant complies with Regulation G and Item 10(e) by providing a prominent cross-reference to the pages in the Form 10-K containing the required GAAP reconciliation and other information." What if the script is flipped and the registrant has filed its Part III information on a Form 10-K/A and later intends to file its Proxy Statement for its Annual Meeting of Shareholders after the 120-day window has closed? Can the registrant nevertheless comply with Regulation G and Item 10(e) by providing a prominent cross-reference to the pages in the Form 10-K containing the required GAAP reconciliation and other information? Granted, the above question may be too nuanced for the Q&A Forum, in which event repetition in the Proxy Statement may be the best route. Thank you

RE: I'm not sure. There doesn't seem to be any substantive reason not to permit something like this, but one thing that concerns me is that you're not incorporating the Part III information by reference to the proxy statement, so the link that would otherwise exist between the two filings isn't there. I also know that the current SEC may be somewhat more hostile to the traditional approach to non-GAAP measures included in the CD&A, so the Staff may be less likely to show flexibility here than in the past. See the discussion on p. 65 of the Handbook.

By the way, from now on I think I'm going to use "too nuanced for the Q&A forum" as my go-to response when I'm stumped by a question. Thanks!
-John Jenkins, Editor, TheCorporateCounsel.net 5/11/2021

RE: Thanks John (of course. we were stumped too).
-5/11/2021

Q: What is the common approach for these events these days? Companies hate posting the deck/filing the deck on a 7.01 8-K before the presentation starts, because although that is best for FD, companies don't want participants flipping ahead, and don't want to cede control of content and sequence of presentation (understandably so). I think some companies issue a press release with the high points/what would otherwise be MNPI in the actual deck, and issue/file that press release before the program starts as a middle ground. Is this the common approach, or is there something else, or should the Legal Department insist on filing the deck on a 7.01 8-K before the presentation starts? Thanks for any thoughts.

RE: I think it varies. I've been involved with some companies that announce an investor day along with information about how to access the webcast, and inform investors that presentation materials will be available on its website. I think that's probably fine in ordinary course situations, but I think if you're rolling out a transformational strategic initiative or something that is in the category of "big news," then I think it makes sense and is a best practice to ensure that the company's disclosure is protected by the safe harbor that applies to an 8-K filing.
-John Jenkins, Editor, TheCorporateCounsel.net 3/17/2021

RE: Hi, I am also interested in this discussion and have a follow-up question. If one of the Reg FD compliant methods is in fact via a webcast or a conference call, where reasonable notice is given prior to such webcast, why would an 8K need to be filed even in the case of "big news" or a "different strategy" presented at an investor day?
-5/10/2021

RE: I think it's simply a function of companies wanting to be sure that they have the protection of the safe harbor when dealing with a major piece of news or strategic initiative, particularly if the company hasn't held investor day events in the past or hasn't used this forum to discuss a topic of this magnitude.
-John Jenkins, Editor, TheCorporateCounsel.net 5/10/2021

RE: If you have an investor day but do not expect disclosure of any mnpi, does it have to be made available via webcast/conference?
-5/11/2021

RE: I think the narrow answer to your question is no, but I think it's a very bad idea not to webcast the event. The problem is that it is impossible to guarantee that information that might be regarded as MNPI won't slip out during a presentation or as part of the Q&A process, and if you haven't given notice and made the presentation available via a webcast, you're setting yourself up for a Reg FD problem that you could've avoided. I also think that in today's environment, investors would be scratching their heads over a company's decision not to webcast its investor day.
-John Jenkins, Editor, TheCorporateCounsel.net 5/11/2021

Q: When a company is considering implementation of a poison pill, it is advisable or best practice for the company's board to have its own counsel? Trying to get a sense of how common it is for a board to engage its own counsel separate from company counsel in this context. Thanks.

RE: In my experience, it's very uncommon, particularly if the pill is being adopted on a clear day.
-John Jenkins, Editor, TheCorporateCounsel.net 5/11/2021

Q: Certainly 13D's and 13G's provide visibility for accumulation of shares of a company's stock, but is there any software or other device/surveillance use by public companies to track or learn of shareholders accumulating shares prior to the public filing of a 13D or 13G?

RE: Don't know of any off the shelf software, but proxy solicitation firms (e.g., Innisfree) provide market surveillance services designed to provide insight into who is buying and selling shares.
-John Jenkins, Editor, TheCorporateCounsel.net 5/10/2021

Q: Rule 13d-1(d) generally allows the holder of more than 5% of a class of newly registered equity securities to report beneficial ownership on a Schedule 13G within 45 days after the end of the calendar year in which the registration occurs, even if the shares were acquired with the purpose or effect of changing or influencing control of the issuer. CD&I 103.09 considers the application of Rule 13d-1(d) to a spin-off and notes that the exception from the Schedule 13D filing requirement would not be available to persons who influence or control the decision to effect the spin-off, including, but not limited to, officers and directors of the entity effecting the spin-off, because "[the] exception only applies to those security holders that became beneficial owners as a result of an involuntary change in circumstances" (a qualification that does not appear in Rule 13d-1(d)). Can a director and executive officer of an issuer that beneficially owns more than 5% of a class of newly registered equity securities at the time the issuer's Form 10 becomes effective, and who substantially influenced the issuer's decision to file the Form 10, rely on Rule 13d-1(d) to report beneficial ownership on Schedule 13G rather than Schedule 13D?

RE: I haven't seen that addressed, but my gut reaction is that the situation is different than in the case of a spin-off. I think the CDI reflects the Staff's view is that a spin-off transaction in which the people driving the process acquire their ownership interests involves a reportable acquisition. To me, the decision to file a Form 10 is akin to the decision to file a Securities Act registration statement for an IPO. In the IPO context, people universally take the position that pre-effectiveness holders can file 13Gs, even if they are the ones making the decision to go public, because there's no "acquisition" within the meaning of 13d-1. I think that same argument would apply to a decision to File a Form 10.
-John Jenkins, Editor, TheCorporateCounsel.net 5/7/2021

Q: Facts: Issuer, listed on Nasdaq, completes its initial public offering on April 15, 2007. Issuer is filing its Form 10-Q for the second quarter. Item 1A of Form 10-Q requires that Issuer set forth any material changes to its risk factors from that disclosed in Issuer's Form 10-K. Question: Does Issuer report anything under Item 1A since Issuer has not previously filed a Form 10-K? Or should Issuer assume that its Form 8-A pulled its risk factors from the IPO prospectus to the '34 Act side and therefore, Issuer should note any material changes from the risk factors in the IPO prospectus?

RE: As you note, the 10-Q item only contemplates disclosure of any material changes to the risk factor disclosure in the 10-K, so I think that you have a pretty good argument that no disclosure is required if no 10-K is on file.

However, if there has been some material change in the risk factor information disclosed in the registration statement, then I think that you may want to reflect that change under Item 1A of Form 10-Q to protect against anyone later arguing that they were somehow misled.

As noted in the responses to Question #2856, you rarely see any discussion of material changes to risk factors in 10-Qs; rather, you see incorporation by reference of 10-K risk factors or restatements of 10-K risk factors.
-Dave Lynn, Editor, TheCorporateCounsel.net 7/3/2007

RE: Following up on this thread. In circumstances where the first report post-IPO is a Form 10-Q, I'm seeing filers restate all the no-deal specific risk factors from their IPO prospectus into Item 1A of the 10-Q. Does anyone have a reason why this would be necessary?
-5/7/2021

RE: I think some companies just decide that since they haven't included risk factor disclosure in a prior Exchange Act filing, it is prudent to include that disclosure in their initial periodic report.
-John Jenkins, Editor, TheCorporateCounsel.net 5/7/2021

Q: Is there any guidance for when director signatures (direct signatures, or those by POA) can be omitted on a 10-K/A? The "any amendment" language of most powers of attorney on a 10-K signature page (or filed as an exhibit) would seem to capture every amendment but it seems like the vast majority do not include any director signatures (I am searching precedent of large companies and very few have the directors signing (even by POA), and instead just have a company signature (from the CEO, and sometimes, in addition, the CFO)). Thanks for any insight.

RE: Rule 12b-15 provides that amendments to Exchange Act filings "must be signed on behalf of the registrant by a duly authorized representative of the registrant," so many companies simply have an executive officer sign the 10-K/A.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2021

RE: Thanks, and I just found this C&DI to further the point:

Question 133.02
Question: Is it necessary for a majority of the board of directors of the registrant to sign an amendment to a Form 10-K?

Answer: No. An amendment to Form 10-K does not require signatures of the majority of the board of directors. Rule 12b-15 provides that amendments may be signed by a duly authorized representative of the registrant. [September 30, 2008]
-5/6/2021

Q: A company plans to file a Form S-1 registration statement for the resale of securities. Soon after, the company plans to file at least one more Form S-1 (which would also be a resale registration statement) relating to separate financings. What are the limitations with respect to filing multiple registration statements, if any? Particularly, could the registration statements be filed simultaneously (or with very little delay)?

RE: I'm not aware of any limitations on the number of registration statements that may be filed, but it's my understanding that Corp Fin is pretty swamped right now, so you may want to call the Staff and let them know what you're planning to do in order to avoid any potential for confusion in processing the filings.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2021

Q: Are bylaws & charters required to be filed with every 10-Q? CD&I Question 146.03 appears to suggest that you can limit the exhibit index (although to what extent, it is not clear), but Item 601(a)(2) seem to suggest that you include them. Practice varies as noted in one of the corporate counsel handbooks. Is there anything more that can shed light on this? Question 146.03 Question: Must a Form 10-Q include the full exhibit index specified by Item 601(a)(2)? Answer: No. The exhibit index in a Form 10-Q can be limited to those exhibits actually filed as part of, or incorporated by reference into, the Form 10-Q. [July 3, 2008] Item 601. Exhibits. (a) Exhibits and Index Required. (1) Subject to Rule 411(c) (§ 230.411(c) of this chapter) under the Securities Act and Rule 12b-23(c) (§ 240.12b-23(c) of this chapter) under the Exchange Act regarding incorporation of exhibits by reference, the exhibits required in the exhibit table must be filed as indicated, as part of the registration statement or report. (2) Each registration statement or report shall contain an exhibit index, which must appear before the required signatures in the registration statement or report. For convenient reference, each exhibit shall be listed in the exhibit index according to the number assigned to it in the exhibit table. If an exhibit is incorporated by reference, this must be noted in the exhibit index. Each exhibit identified in the exhibit index (other than an exhibit filed in eXtensible Business Reporting Language or an exhibit that is filed with Form ABS-EE) must include an active link to an exhibit that is filed with the registration statement or report or, if the exhibit is incorporated by reference, an active hyperlink to the exhibit separately filed on EDGAR. If a registration statement or report is amended, each amendment must include hyperlinks to the exhibits required with the amendment. For a description of each of the exhibits included in the exhibit table, see paragraph (b) of this section. Exhibit Table Instructions to the Exhibit Table. 1. The exhibit table indicates those documents that must be filed as exhibits to the respective forms listed. 2. The "X" designation indicates the documents which are required to be filed with each form even if filed previously with another document, Provided, However, that such previously filed documents may be incorporated by reference to satisfy the filing requirements.

RE: More often than not I've seen companies file 10-Qs with very abbreviated exhibit indices. I don't think this is a huge priority for the Staff in the comment process, but I also don't think that this approach is technically compliant. The way I read the requirement, if there's an X marked next to an exhibit under the heading of the applicable form in the Item 601(a) exhibit table, then that exhibit is required to be filed or incorporated by reference in the corresponding filing as per instruction 2 to the exhibit table, even if it has previously been filed.

So, as to your specific question, I think the answer is yes, the certificate & bylaws would technically need to be referenced in the exhibit index for each 10-Q, and incorporated by reference in each filing. I think the CDI stands for the proposition that if there's not an X for a particular exhibit, then you don't have to include a full exhibit index referencing that particular exhibit in the table you include in your filing.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2021

Q: We (a Delaware issuer on NYSE) have customarily prepared the following documents to be executed either prior to or after our Annual Meeting: 1. Certificate of Judge of Voting 2. Oath of Judge of Voting 3. Secretary's Certificate of availability of stockholder list A question has been raised as to whether these documents are mandatory under the law? After doing some research, I'm unable to locate the source of these requirements. Is this more tradition as opposed to legal requirement?

RE: Take a look at Section 231 of the DGCL. Paragraph (a) of that section requires companies to appoint an inspector or inspectors of election (which I think is what your "judge of voting" reference refers to). The inspectors must take a written oath and file a written report covering the matters addressed in Section 231(b). I don't think the 3rd document stems from a statutory directive, but is intended to provide evidence that the corporation complied with its obligation under Section 219 of the DGCL to make a stockholder list available at least 10 days before the meeting.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2021

Q: Section 219 of DE Gen Corp. Law requires a complete list of the stockholders entitled to vote to be available at least 10 days before every meeting of stockholders. How do issuers generally make these lists available? Do some issuers actually print hard copies and make them available in the lobby of the corporate headquarters? Curious what practice is like here. How to comply?

RE: Yes, in my experience it's typically made available in hard copy format at the corporate headquarters. See Topic # 10321 for examples of how companies have been handling this in the virtual meeting format.

We also have a checklist on stockholder lists, although it's more for the "demand" situation vs annual meetings.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 5/5/2021

Q: In connection with making disclosure under Item 2.05 (exit and disposal charges) or Item 2.06 (material impairments) of Form 8-K, is there any requirement to also issue a press release in addition to making the Form 8-K disclosure? I cannot seem to locate one, but it seems that a number of issuers also issue a press release.

RE: There's not an express requirement, but I think many companies opt to issue press releases in these situations as a matter of good disclosure hygiene - they want to get the word out, and a press release will help ensure that the news is widely disseminated. The NYSE used to require press releases, but now permits companies to disclose material information in any Reg FD compliant manner.
-John Jenkins, Editor, TheCorporateCounsel.net 5/5/2021

Q: Delaware corporation's bylaws provide that directors are elected by plurality vote. Practice seems to be under such circumstances that the proxy card gives stockholders the option to vote for or withhold authority to vote for the nominees, and not an option to vote "against" a nominee. Where directors must be elected by a majority vote, it appears more typical to provide an option to vote against a nominee. Are you aware of any basis under Delaware law for providing only the "for" or "withhold authority" options on proxy cards for director elections by plurality vote, or is it simply a practice that has evolved given that "against" votes are not meaningful in plurality voting?

RE: I don't think there's anything expressed in the Delaware statute or otherwise that addresses the use of "withhold" votes. I think it just has to do with the nature of plurality voting. There are a fixed number of open seats on the board, and whoever receives the most votes for those positions is deemed to be elected under Section 216 of the DGCL, regardless of whether they receive a majority vote. As you point out, in a situation like this, a no vote isn't meaningful.
-John Jenkins, Editor, TheCorporateCounsel.net 5/5/2021

Q: A company's balance sheet in its filed Form 10-K includes in the column heading that the information in the column for the current year is "(unaudited") and for the prior year is "(audited)". This is clearly a clerical error that occurred as a result of creating the table using the balance sheet template included in the most recent 10-Q filing and failing to update the heading from unaudited to audited. Is the view that this would fall under the category of the "minor typo" type error that does not require an updated 10-K be filed?

RE: Financial statement typos always give me pause, but I think this one can probably fall into the "minor typo" category, since it should be clear from the independent auditor's opinion and from other disclosures throughout the 10-K that it's an audited number.
-John Jenkins, Editor, TheCorporateCounsel.net 5/4/2021

Q: For a company's earnings release pursuant to item 2.02 on Form 8-K, does the company need to include exhibit 104 in its exhibit list? The only other exhibit is the 99.1 press release. The company is a large accelerated filer.

RE: The Staff's position seems to be that if you file or furnish any exhibits to a Form 8-K, then you need to include Exhibit 104.
-John Jenkins, Editor, TheCorporateCounsel.net 5/3/2021

Q: If an Issuer is filing a Form 10-K/A only to report Item III information, and has filed a report on and attestation by its auditors in the original Form 10-K that the Issuer is amending, though it's not being included in the amendment itself, should the issuer leave the following cover page item unchecked on the Form 10-K/A? "Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report."

RE: Yes, you should continue to check that box.
-John Jenkins, Editor, TheCorporateCounsel.net 4/30/2021

Q: Issuer had received a books and records inspection demand and stockholder did not consider issuer's response satisfactory. Stockholder has now initiated legal proceedings in Delaware Chancery Court seeking an order under Section 220 to compel additional production and pay reasonable legal fees. Given the limited nature of the relief sought, we do not believe this would be a material legal proceeding required to be disclosed under S-K 103, but would appreciate any different thoughts.

RE: In the absence of other relevant factors, I think many companies would take a similar position with respect to a garden variety books & records lawsuit. If the books & records request represents fallout from another material legal matter, such as an SEC enforcement proceeding, then that might complicate the materiality analysis.
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2021

Q: Company A wants to implement incentive compensation program pursuant to which it will buy shares of Company B on the open market and give these shares to its qualifying employees at the end of every quarter. Company B's common stock is NYSE-listed, registered under 12(b)). Company A's employee base is large and program would be ongoing. Unsure whether all employees would qualify as accredited investors. We've been thinking through underwriter status, resale issues, but since these are open market purchases of unrestricted securities, we're not sure where all of this gets us. Company A is not in the business of buying and selling securities. Are we missing something? Or can this happen?

RE: That's certainly an unusual scenario - so unusual that it prompts the question, "what's the relationship between Company A and Company B?" I think that may be important, because if Company A is buying these shares and distributing them to large groups of employees, the nature and extent of that relationship may impact the analysis of whether Company A is participating in a distribution of Company B shares. If it's regarded as an affiliate of Company B, then the further distribution of shares acquired on the open market may still raise questions of whether it is acting as an underwriter within the meaning of Section 2(a)(11).
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2021

Q: If a company has filed a universal shelf registration statement that has gone effective, is it subject to gun jumping or other restrictions on how it can talk about the registration statement with analysts and on earnings calls and the like (the company doesn't have any near term plans to use the shelf but I'm wondering how cautious it needs to be in saying that or if there is other standard language to use in these circumstances when asked about it).

RE: The SEC's rules give the company a lot of leeway to discuss ordinary course of business information without running afoul of gun jumping restrictions. This Latham memo is probably the best thing I've seen on what is and isn't an offer and the various safe harbors that are available.

If you don't plan to commence an offering in the near term, I think a response to an analyst question about the filing in an earnings call to the effect that the filing "is intended to permit the company to capitalize on capital markets financing opportunities that may arise from time to time" won't cross the line. If the questioner continues to press the issue, a response along the lines of "we do not think it is appropriate to comment further on any potential transaction at this time" is appropriate.

It occurs to me that the Latham piece pre-dates the "test the waters for all" rule. We have a number of resources discussing that provision in our Gun-Jumping Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2021

Q: We are issuing a press release after market hours to disclose the acquisition of an immaterial business (i.e. no 8-K filing). Is it common practice for an issuer to provide a copy of the press release where (i) the transaction isn't material, and (ii) it's filed after market hours? Just wanted to get a sense of what other issuers are doing.

RE: I can't speak for all public companies, but if it's important enough news to prompt the company to issue a press release, then I think it's prudent to treat the information as if it might be considered material and to comply with the NYSE rules on releasing material information after trading hours. That way, you don't have an issue with the Exchange if there's an unexpected reaction to the announcement.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2021

Q: Will the SEC review an S-1 with no underwriter on the cover? Our understanding is that there may have been a recent policy shift that hasn't been published stating that, while the filing will be accepted, there is a high chance it gets bounced back without review because of the high deal volume. Can someone confirm if this is accurate?

RE: I haven't heard of any change in policy, but it wouldn't surprise me that the Staff might opt not to process a registration statement for an underwritten offering that doesn't identify an underwriter. Even DRS filings are generally expected to be substantially complete, and Item 501 & 508 of S-K requires the underwriter to be named in the prospectus. Unless one of our members has some insight into this, I'd suggest you contact the Chief Counsel's Office.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2021

Q: Based on the guidance below, if a director tenders a governance policy resignation in April 2021 to be effective at a July 2021 date, can the company's board of directors decide in April 2021 to accept the resignation effective as of a July 2021 date - the result being that the 8-K trigger would be in July as opposed to April - or does this not pass muster? Thanks for any thoughts. Question 117.15 Question: If a company has a corporate governance policy that requires a director to tender her resignation from the board of directors upon the occurrence of an event — such as reaching mandatory retirement age, changing jobs or failing to receive a majority of votes cast for election of directors at the annual meeting of shareholders — when must a company file a Form 8-K under Item 5.02(b)? Answer: Under these circumstances, in which a director tenders her resignation only because she is required to do so in order to comply with a corporate governance policy, the company must file a Form 8-K under Item 5.02(b) within four business days of the board's decision to accept the director's tender of resignation. If the board does not accept the director's tender of resignation — and thus, the director remains on the board — the company should consider informing shareholders as to whether and to what extent corporate governance policies are being followed and enforced. [June 26, 2008]

RE: I don't think that CDI supports that conclusion. I think the CDI says that the date the governance policy resignation is accepted is the 8-K trigger.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2021

Q: With the recent change to NYSE Listed Company Manual Section 314, a lot of Related Party Transaction Policies will need to be revised (to remove the $120,000 threshold, which was the previous requirement for a RPT going up to the Audit Committee (or other charged committee) for review/approval. Are folks revising for anything else at the same time? Presumably these policies can retain the pre-approval concept?

RE: Some related party transaction policies may have been drafted more broadly and may not have tracked Item 404 of Regulation S-K exactly. For those policies that include the $120,000 threshold of Item 404, the policy most likely should be amended to note that the NYSE rule disregards that threshold.

The NYSE rule requires prior review of related party transactions by the audit committee (or another independent body of the board) to make sure the transactions aren’t inconsistent with interests of the company and its shareholders. Depending on how a company handles pre-approval of potential related party transactions, that portion of the policy may require a revision as well. For example, some companies include a list of transactions for the independent board committee to pre-approve each year. In these situations, if some transactions haven’t been included due to the low dollar amount, companies might want to consider adding them to the list.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 4/26/2021

Q: An issuer has discovered that it needs to restate its financial results for years 2015, 2016 and 2017. As a result of the restatement, certain bonuses issued to executives may be clawed back. The restatement does not involve any fraud. The issuer has already filed its proxy statement and mailed its proxy statement and 10-K to shareholders. The issuer’s annual meeting is scheduled for May 31st. It is uncertain whether the restatement will be complete before May 31st. Three questions: 1) If the company decides to claw back the bonuses, and say-on-pay is a proposal to be voted on at the annual meeting, must it file a proxy supplement? We have been unable to find a proxy supplement or a revised proxy statement stating that bonuses were clawed back during the period after the 10-K is filed and before the annual meeting. 2) Can the company hold an annual meeting before the restatement of the financials is completed? 3) If the company must restate before it can hold its annual meeting, must the restated financials be mailed under either the full set delivery requirements or the 40 day advance mailing requirement for notice and access? Greatly appreciate any insight.

RE: I don't think you can continue to solicit proxies or proceed with the annual meeting until the restatement has been addressed.

Putting aside the clawback issue, if you're restating financial statements, the impact of that decision is likely to flow throughout your proxy statement - consider your discussion of performance based comp in the CD&A, for example. That may well require revision based on the fact that the numbers upon which the awards were based aren't what your comp committee presumed them to be. It wouldn't surprise me if there were extensive revisions to that disclosure.

Even if the changes to the proxy statement were relatively small, remember that you're required to deliver an annual report containing audited financial statements under Rule 14a-3 before you can solicit proxies for your annual meeting. Since you've already decided to restate and have likely filed or will soon file an 8-K telling people no longer to rely on those numbers, what you've got now doesn't satisfy those requirements. Other information requirements set forth in Rule 14a-3 may also be lacking. In any event, I think you've got to provide the corrected financial information to shareholders before you continue to solicit proxies.

I think you need to file amended proxy materials that address the changes resulting from the restatement. If the revisions to the proxy statement result in a fundamental change, then you'd also have a new 10-day waiting period. See the link to the Latham memo below for further information on amending v. supplementing a proxy statement.
-John Jenkins, Editor, TheCorporateCounsel.net 5/10/2018

RE: John, Do you still feel that an annual report is deficient for purposes of compliance with Rule 14a-3(b) while a restatement is pending? Might there be room for a facts and circumstances evaluation? Our client filed its annual report and proxy statement but then decided it was necessary to restate audited 2020 due to the SEC staff statement regarding accounting for warrants issued by SPACs. This client is a de-SPAC'd public company with a series of outstanding warrants that are being reclassified from equity to liability. The timing of the SEC staff statement is unfortunate. Treating the warrants as a liability actually results in better results for the company for 2020, so does not have a negative impact on compensation for 2020. If we need to move the annual meeting to restart a 40-day notice period after filing the 10-K/A, in our client's case, for timing reasons, we'll need a new record date too.
-4/26/2021

RE: I'm afraid I wouldn't be comfortable taking any other position without some sort of sign-off from the Staff. The problem is that Rule 14a-3 says that you have to furnish an annual report containing "audited balance sheets as of the end of the two most recent fiscal years and audited statements of income and cash flows for each of the three most recent fiscal years prepared in accordance with Regulation S-X."

If you're restating, then I think you've essentially concluded that the financials you've included in the annual report don't comply with S-X. Even though the revised financials may be "better" than those included in the annual report, they haven't been provided to the shareholders and I don't think you're technically compliant with Rule 14a-3.

The timing of the SPAC guidance is unfortunate, to say the least, so perhaps the Staff will show some flexibility here.
-John Jenkins, Editor, TheCorporateCounsel.net 4/26/2021

Q: How do I need to think about whether an acquisition transaction should be disclosed on Form 8-K? Is this a purely subjective materiality analysis?

RE: I think this Bass Berry blog from a few years back covers that topic about as well as anything I've seen.
-John Jenkins, Editor, TheCorporateCounsel.net 4/26/2021

Q: It looks like any US based company that imports products into Russia may now have to make an IRANNOTICE filing. For context, section 13(r)(1)(D) of the 1934 Act requires an IRANNOTICE filing by any issuer that knowingly conducts a transaction or dealing with “any person the property and interests in property of which are blocked pursuant to Executive Order No. 13382.” On March 2, the Secretary of State designated FSB (formerly the KGB) as a person “the property and interests in property of which are blocked pursuant to Executive Order No. 13382.” No product can be imported into Russia without a permit from FSB. While OFAC General License 1B authorizes U.S. companies to obtain permits from FSB, which would otherwise be prohibited, there is nothing in section 13(r) that obviates the reporting requirement by virtue of a lawful interaction with FSB (such as pursuant to General License 1B). I would appreciate hearing from anyone who has looked at this issued and determined whether or not their company is required to make the IRANNOTICE filing (and related disclosures in the quarterly filings). Surprisingly, I have not seen much discussion on this from law firms.

RE: It appears that an IRANNOTICE filing is now required. Here's an excerpt from a recent Baker McKenzie memo dealing with products with encryption functions:

"Section 219 of the Iran Threat Reduction Act of 2012 amended section 13(r) of the Securities Exchange Act to impose a disclosure requirement in filings to the US Securities and Exchange Commission by issuers, where those issuers, or any of their affiliates, “knowingly conduct any transaction or dealings with” persons and entities that are subject to certain OFAC economic sanctions. Importantly, section 219(a)(1)(D)(ii) of the Iran Threat Reduction Act applies that SEC disclosure requirement to transactions and dealings with “any person the property or interests in property are blocked pursuant to Executive Order No. 13382.”

Thus, when an issuer or its affiliate files a notification with respect to its encryption products with the FSB, or registers its encryption products with the FSB, the issuer will be required to disclose those “dealings with” the FSB in its SEC filings. The fact that filing of such a notification or registration with the FSB is authorized under OFAC General License No. 1B does not exempt the transaction from the SEC disclosure requirement. Although section 219 of the Iran Threat Reduction Act does exempt transactions with certain sanctioned parties which are authorized under OFAC general or specific licenses, that exemption does not apply to transactions or dealings with a blocked party that has been designated under the NPWMD sanctions and Executive Order 13382."
-John Jenkins, Editor, TheCorporateCounsel.net 4/24/2021

For purposes of computing the public float under Gen. Instr. I.B.6 to Form S-3, you can use the market price "as of a date within 60 days prior to the date of sale”. For an at the market offering (ATM), is the “date of sale” the date of the prospectus supplement (and not the date the sales agreement is executed)? So you could use a stock price within 60 days of the date of the prospectus supplement to calculate the public float? C&DI 116.21 would appear to relate to equity lines.

RE: I'm not aware of anything specifically addressing this in the context of an ATM offering, but see the discussion on page 83 of our "Form S-3 Handbook" regarding the calculation of the date of sale for takedowns off a baby shelf. We understand that the Staff has informally confirmed that the date of sale in the context of a takedown is the date of the preliminary prospectus supplement (i.e., the time of launch).

Again, I've not seen anything definitive on this, but I think there's a difference between the typical best efforts sales arrangements for an ATM provides and the binding contractual commitment to purchase put securities contained in an equity line agreement that likely is of substance in determining what the appropriate date of sale for a takedown should be.
-John Jenkins, Editor, TheCorporateCounsel.net 5/22/2017

RE: For a best efforts ATM with a baby shelf issuer, is the only 1/3 of public float I.B.6 calculation that is done at the time the ATM is launched and the prospectus supplement is issued? If so, how long does that calculation and locked-in availability last, especially if an S-3 can survive for three years and ATMs typically have an indefinite term (so long as the offering amount isn't exceeded)? Or does that initial 1/3 of public float I.B.6 calculation have to be re-calculated prior to each sale under the ATM, taking into account any prior sales in the last 12 months?
-4/23/2021

Investor purchased shares in a PIPE. Pursuant to the PIPE subscription agreement, Issuer duly filed a resale S-3 registering Investor’s PIPE shares and naming Investor as one of the selling shareholders. The staff now has declared the S-3 effective. However, Issuer has not filed a final prospectus—the only prospectus on file is the prelim contained in the S-3. Issuer says that because there were no substantive changes to the content of the prelim between the S-3 filing date and the effectiveness date, it is not necessary to file a final prospectus; and that the absence of a final prospectus has no effect on Investor’s ability to resell under the effective S-3. Does that make sense? Should Investor have any concern about reselling under the S-3—which apparently is indeed effective—in the absence of a final prospectus? Thanks for any thoughts.

RE: That's correct. See Rule 424(b) - while an issuer generally has to file a copy of the final prospectus, that's only required if there are substantive changes to the form of prospectus included in the registration statement in the form in which it was declared effective. In a scenario involving a resale registration statement in which all the selling shareholders have been identified in the prospectus prior to effectiveness, there may well not be any substantive changes requiring a final prospectus to be filed.
-John Jenkins, Editor, TheCorporateCounsel.net 4/23/2021

Every year we mail to our stockholders full traditional sets containing our proxy statement, proxy card, and 10-K wrap. This year, we don't want to include the 10-K wrap but insert a communication that directs shareholders to our website to obtain a digital copy. Seems to me that we either mail out all or none (and go notice and access). Does anyone have a POV?

RE: No, I'm afraid splitting up the delivery like that to an individual shareholder isn't allowed. In the adopting release, the SEC made it clear that companies can't stratify by document type (e.g., they can't use notice-only for the annual report and full set delivery for proxy statement). See the discussion on p. 13 of our E-Proxy/Notice & Access Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/23/2021

Is there any consensus or guidance on how long the actual content (webcast/presentation piece, as well as the slides piece) should be made available on the company's website, assuming it discusses topics such as strategy, near-term outlook, growth plan, etc. (not just soft stuff)? Perhaps a year is too long but a few weeks seems inadequate. Thanks for any insight/direction to guidance (other than the "reasonable period of time" cited in the FD release).

RE: We've got some survey data on retention of content in our Website Disclosure Archiving Checklist. 57% of companies provide archived investor presentation slides in PDF for two years or more, while just 20% provide audio or video webcasts of their three most recent non-earnings presentations. As noted on the checklist, investors are interested in these materials for longer than you think - some value investors prefer to have ready access to 10 years of information.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2021

Recently received information regarding AnnualReports.com. Anyone have any experience or insight regarding this site?

RE: I am also interested to know if anyone has any information on this website. My company was asked to provide them with hard copy annual reports to distribute to those who request them. The website looks questionable.
-4/20/2021

Would a VC firm of a director be considered an affiliated purchaser for 10b-18 purposes? No direct involvement on the part of the director/VC firm for buyback administration. Thank you!

RE: I'm afraid that's a very fact intensive question, and while it's helpful that the VC firm and the director and his or her firm aren't directly involved in administering the buyback, that doesn't resolve the affiliated purchaser issue.

Under Rule 10b-18, an “affiliated purchaser” is defined as a person acting in concert with the issuer for the purpose of acquiring the issuer’s securities, or any affiliate that, directly or indirectly, controls the issuer’s Rule 10b-18 purchases, whose purchases are controlled by, or are under common control with, those of the issuer. In addressing the status of the VC firm as an "affiliated purchaser" under Rule 10b-18, you need to consider the VC firm's relationship with the company, and the director's role at both the company and the VC firm. For example, relevant questions may include:

- Is the VC firm considered to be an affiliate of the company in other contexts?
- Does the director play a role in the VC firm's decisions to purchase or sell shares?
- Did the director play a significant role, beyond just participating in the board's decision to authorize the buyback plan, in the company's decision to implement a repurchase plan or the size and potential timing of the plan?
- Has the VC firm expressed its views about the desirability of repurchasing the company's stock, either publicly or privately to members of the board or management?
- What communications are there between the director and others at the VC firm who may be involved in the entity's purchasing decisions?
- Are there relationships between the VC firm and its portfolio companies and other officers and directors that might be worth considering when assessing its ability to influence corporate decisions about repurchasing shares?
- Are there any other facts and circumstances that might allow someone to contend that there is a control relationship between the director, the company and the VC firm or that there is coordination between the VC firm's purchasing decisions and those of the company?

This may not be an exhaustive list, but I think it's an example of the kind of questions that the company should be asking when determining whether the VC firm might be an affiliated purchaser. We discuss affiliated purchaser issues in numerous places in our Stock Buybacks Handbook, and you may find those discussions helpful.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2021

Does anyone here have a recommendation for a consultant to assist an S&P 500 company in preparing an ESG program and disclosure document? It would be important for this consultant to work well with the company's existing environmental consultant. Thanks as always.

RE: Sustainable Governance Partners (SGP) is very good. The team originally comes from Vanguard, etc.
-4/20/2021

RE: I agree the SGP team is very strong. Rob Main just spoke on a webcast for us a couple weeks ago.

Our new Editor Lawrence Heim, who has been in the ESG space for 30+ years and used to be a consultant himself, has a few specific recommendations too.

Lawrence says that finding the right fit is really important, so who you hire kind of comes down to what you're looking for. There are so many firms that claim to provide ESG consulting. Some smaller, lesser known firms may do an excellent job. He suggests screening firms for:

• Alignment with the company’s position on ESG. Not every company is on the leading edge of ESG implementation and that is okay. Your consultant should not try to make you into something you are not – or don’t want to be.

• Their approach to disclosure. The market has moved beyond pretty reports with lots of pictures that are primarily marketing brochures. Brevity, clarity, and data presentation should be today’s goals in ESG disclosure and your consultant should reflect that.

• Technical subject matter knowledge. While they don’t have to be stand alone experts in environmental matters for instance (especially since they will work with the company’s existing environmental consultant), they should have a reasonable understanding of ESG topics in order to help guide you through various decision points.

• Knowledge of various reporting frameworks – pros/cons, intended primary users and differences of each. If your company is not already committed to a specific disclosure framework, the consultant should assist you in making the decision that is most appropriate for you. A consultant that only knows one framework has a limited perspective that may not be best for your situation.

• Understanding materiality in today’s variety of definitions. Again, a good consultant should give you information that allows your company to make the choice that is best for its situation.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 4/20/2021

Shareholder approval was obtained years prior for a purchase agreement which allowed for earnout payments either in cash or in shares of common stock of the company at the prevailing market price. The company would now like to essentially pre-pay the earnout in shares at a slight discount below market price. My question is what rules determine whether the previous shareholder consent is still valid with such amendments? I assume there is some type of materiality qualifier for amendments to a deal which take place after shareholder approval, but am having trouble narrowing down the applicable considerations from NASDAQ / NYSE.

RE: Unfortunately, I haven't seen anything from the NYSE or Nasdaq addressing this particular situation. My gut is the same as yours - that there should be some sort of overall "materiality" concept that might come into play when evaluating the need to seek shareholder approval.

I also think that the disclosure provided to shareholders at the time the issuance was originally approved may be a relevant factor in the analysis. If the disclosure made clear the possibility that the terms under which shares could be issued under the earnout could be amended by the parties, then I think there's an argument that the shareholders signed off on that possibility when they approved the original issuance. Unless one of our members has dealt with this situation and can weigh in on it, I'm afraid you're likely to have to run this scenario past the relevant exchange.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2021

Would you think a director's purchaser of the issuer's securities from the Initial Purchaser thereof in a 144A transaction would constitute a reportable transaction under 404 if the amount involved exceeded the threshold? I recognize that the issuer would not be a "party" to the resale transaction but would be concerned it could be viewed as a "participant" nonetheless. Obviously the terms will have been negotiated between the IP and the issuer and the director's interest in the offering would be less than .5%, but not sure that would matter if the threshold is exceeded. Thoughts? Thank you.

RE: I think this is a transaction that would be disclosable under Item 404, and I think you put your finger on the reason for that conclusion. The SEC views the "participation" concept broadly, and I think it's hard to argue that the issuer isn't participating in the resale of its securities by the initial purchaser that's contemplated by the typical Rule 144A offering. The issuer was involved in arranging the 144A offering and is benefitting from the transaction in which the director is acquiring the securities, and those are the key considerations, regardless of whether there's contractual privity. See the discussion on pages 18-19 of our Related Party Transactions Disclosure Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2021

Rule 251(d)(3)(i)(F) under Reg A generally permits continuous (but not delayed) offerings under Reg A. If the issuer were to offer the right for investors to purchase common stock in 12 equal monthly tranches for 12 months, would such an offering be "delayed" or "continuous" with regarded to the purchases in months 2 through 12? It would appear that the investment decision (and the obligation to invest) is being made immediately, so the fact that the exchange of cash for stock does not actually occur until later would not cause the transaction to be "delayed" for the purposes of Rule 251(d)(3)(i)(F). But is there any precedent in support of that analysis? Could one fairly analogize from any precedent in support of this concept applicable to Rule 415(a)(ix)? - that rule likewise seems to permit continuous but not delayed offerings. Alternatively, could the issuer take the position that the initial offer and sale is for a "right" to purchase stock in months 2-12, but the actual purchase itself in months 2-12 represent the exercise of such right as permitted by Rule 251(d)(3)(i)(C)?

RE: As you've described this, it doesn't sound like either a delayed or a continuous offering. If the investment decision is being made upfront, such that the investor is contractually committed at the outset to purchase all of the tranches offered, then it seems that the "sale" of the securities would be deemed to take place no later than the date of such a commitment, even though the payments would be made and the shares issued over the ensuing 12 months.

In order for the transaction to involve a "right" to purchase the shares, I think there would need to be some optionality on the investor's behalf - in other words, if the contract granted the investor the ability to purchase a set amount of shares at his or her option each month for the next 12 months, then I think you're dealing with a "right to purchase."
-John Jenkins, Editor, TheCorporateCounsel.net 4/19/2021

RE: Thank you!
-4/19/2021

I would like to know if it would be permissible for a registrant who is desiring to streamline disclosure (with the goal of making its filings easier to read for investors), to generally use, in its Form 10Q, cross references to similar discussions in its Form 10-K. This approach is common for risk factors, but specifically, I am wondering if it would be permissible, in a Form 10-Q, to cross-reference to the definition of its non-GAAP financial measures in its prior Form 10-K, and how it is calculated, in cases where the definition is repeated word-for-word in the prior Form 10-K. Here's my thinking on this issue: 1. Question 102.07 of the SEC's Non-GAAP Financial Measures CD&I states that a description should accompany a measure without a uniform definition where such measure is used (in the context of free cash flow). However, it does not address whether that definition/calculation can be provided in a cross-reference to its Form 10-K. 2. Item 10(e)(1)(iii) of Regulation S-K permits a registrant to cross reference to (i) a statement disclosing the reasons why the registrant's management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant's financial condition and results of operations and (ii) to the extent material, a statement disclosing the additional purposes, if any, for which the registrant's management uses the non-GAAP financial measure that are not disclosed pursuant to paragraph (e)(1)(i)(C) (in other words, (i) of this #2). 3. Item 10(e)(1) of Regulation S-K requires that the presentation of the most directly comparable financial measure and reconciliation be included in the filing, rather than by a cross-reference. 4. The definitions of non-GAAP financial measures, however, are neither reasons why management believes the measures are useful (addressed by the rule in 2 above) nor the reconciliation (addressed by the rule in 3 above). So, it is unclear if we are permitted to cross-reference to the definition and related calculation in an earlier 10-K. 5. The language regarding the non-GAAP financial measure is in the MD&A, not the financial statements, so this is unaddressed by the new FAST Act rules stating that an issuer is not permitted to cross-reference in its financial statements.

RE: I'm skeptical that the Staff would sign-off on a simple cross-reference to a prior filing. Item 10(e) requires the information to be "included" in the filing. While the definitions may not fit strictly into the information covered by Item 10(e), I think not including the definitions in the filing would leave a pretty big hole in the donut of the disclosures contemplated by Item 10(e), and could potentially render them misleading. My guess is that because of those concerns, simply cross-referencing prior disclosure probably would not be acceptable.

However, while I haven't seen the Staff address this issue, I do think it should be permissible to incorporate the definitions by reference and include a hyperlink to the filing in which they are contained. I don't see anything in Rule 12b-23 that would prohibit this approach, although I still think that the safest practice when it comes to non-GAAP disclosure is to include all the information necessary to understand what is being disclosed in a single filing.
-John Jenkins, Editor, TheCorporateCounsel.net 4/16/2021

RE: Consider whether Instruction D.1 to Form 10-Q would require you to put the Form 10-K in your 10-Q exhibit list, were you to take the approach you suggest. The MD&A is in Part I of the Form 10-Q, and Instruction D-1 seems to imply anything incorporated by reference in Part I needs to be an exhibit.
-4/16/2021

RE: I put in a question to the SEC staff about this and they came back and said that they could not sign off on a cross-reference (even if incorporated by reference) here because Item 10(e)(1)(iii) of Regulation S-K only permits cross-references in those narrow circumstances. So, here, you would repeat the definition and calculation in the filing itself.
-4/19/2021

RE: Thanks for letting us know!
-John Jenkins, Editor, TheCorporateCounsel.net 4/19/2021

Hello - hoping you all may have thoughts and be able to help give insight. S-K item 403(b) requires disclosure of equity security holdings by certain management. Equity security is not defined in S-K to my knowledge, though it is defined in Reg 13D-G, which definition excludes non-voting equity securities (assume this is the case for the preferred stock - no voting rights, except the usual ability to vote for directors on default of dividends or something that effects the rights of the class). Would such preferred stock, which is not registered under the Exchange Act nor convertible into common stock (or convertible, but not in the 60 day time period), still qualify as an equity security for which security holdings must be included in the beneficial ownership table? I haven't found guidance on discussion on this, but it looks like the rule language would seem to say it should. I don't know if issuers include, however.

RE: I think the disclosure provided in response to Item 403(b) should include non-voting preferred stock. One of the reasons for that position is that Item 403(a) only requires disclosure of beneficial ownership of "voting securities" by 5% owners, which suggests that the SEC is looking for something more when it comes to the disclosure of beneficial ownership of "equity securities" by directors and executive officers called for by Item 403(b).

While Item 403 calls for beneficial ownership to be determined in accordance with Rule 13d-3, it does not say that the definition of "equity security" in Rule 13d-1 should be used. Since that's the case, I think the better approach in determining what is an equity security is to apply the broader definition of the term set forth in Securities Act Rule 405 and Exchange Act Rule 3a11-1, which is broad enough to encompass preferred stock:

"The term equity security is hereby defined to include any stock or similar security, certificate of interest or participation in any profit sharing agreement, preorganization certificate or subscription, transferable share, voting trust certificate or certificate of deposit for an equity security, limited partnership interest, interest in a joint venture, or certificate of interest in a business trust; any security future on any such security; or any security convertible, with or without consideration into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any put, call, straddle, or other option or privilege of buying such a security from or selling such a security to another without being bound to do so."
-John Jenkins, Editor, TheCorporateCounsel.net 4/16/2021

Practically speaking, who in the company is typically considered to be in a financial reporting oversight role? Know the examples included in Rule 2-01, but how to companies interpret this? Broadly or narrowly? How do companies conduct diligence of relationships between individuals in FROR and the auditors? Thank you!

RE: I think the SEC's examples are illustrative of the type of positions that generally involve a financial reporting oversight role, but the answer is going to vary from company to company. Most companies have policies that apply to hiring of former auditor employees in any FROR position, and I think because the stakes are high, the positions they take on who is encompassed by the definition are usually conservative.

In terms of due diligence, in many cases, the relationships are self-evident - you know the position the individual held at the audit firm, and you know the position for which you intend to hire that individual. Some of the intake procedures are laid out in the hiring policies themselves, and we address these in our Auditors - Independence Hiring Policies Checklist.
-John Jenkins, Editor, TheCorporateCounsel.net 4/15/2021

RE: Do companies check with FROR on an ongoing basis for any new relationships with auditors?
-4/15/2021

RE: Yes. The auditor independence assessment is required to be made every year, and while it's a shared responsibility, ISB Standard No. 1 requires auditors to disclose to the audit committee in writing all relationships between the audit firm and the company that may reasonably be thought to bear on the audit firm's independence.

The SEC has addressed this process, and recommends that audit committees discuss the processes the audit firm uses to ensure complete disclosure of all relationships with the company and its affiliates, relationships the audit firm may have with officers, board members and significant shareholders, and relationships not included in the communication because they were deemed immaterial.
-John Jenkins, Editor, TheCorporateCounsel.net 4/15/2021

We were asked to benchmark whether companies have policies that address the abilities of officers to make statements on behalf of the company (who is authorized, in what circumstances) other than with respect to Regulation FD. For example, do companies have policies that restrict the CEO to comments that are directly related to the business, and preclude the CEO from commenting on topics that are not directly related to the business? If you are aware of any survey or other data on this topic, would you please share? Thank you.

RE: I haven't seen any hard survey data on the existence of formal policies addressing CEO speech outside of Reg FD, but the whole concept of "CEO activism" has attracted a lot of commentary in recent years. We have a number of resources in our "Political Contributions" practice area that address broader issues relating to board oversight of political activities.

In particular, I'd point you in the direction of a very recent Perkins Coie memo setting forth a checklist for companies considering speaking out on political issues.

Cydney Posner recently blogged about a new Conference Board Report on oversight of corporate political activity that you may find helpful.
-John Jenkins, Editor, TheCorporateCounsel.net 4/15/2021

Issuer has a class of convertible preferred stock that is not convertible at the option of the holders for another 12-some months (i.e. the preferred stock is not convertible within 60 days of determination). The preferred stock is not Section 12 stock but the preferred stock is convertible into common stock, which is Section 12 stock. One preferred stock holder (not all) obtained board designation/appointment rights when acquiring the preferred stock. For holders who didn’t acquire board designation/appointment rights, the issuer is not planning to include the shares of common stock underlying the preferred stock in the Item 403 Reg S-K beneficial ownership table because the preferred stock is not convertible within 60 days at the election of these holders. The question is whether the issuer have to include the underlying shares of common stock in the beneficial ownership table for the preferred stock holder who also obtained board designation/appointment rights. Item 403 of Regulation S-K requires an issuer to include in the beneficial ownership table securities deemed outstanding pursuant to Exchange Act Rule 13d-3(d)(1). Rule 13d-3(d)(1) generally requires an issuer to include securities a beneficial owner may acquire within 60 days. Rule 13d-3(d)(1) also says that if a beneficial owner acquires a convertible security “with the purpose or effect of changing or influencing the control of the issuer,” then the underlying securities (the common stock) shall be deemed to be beneficially owned immediately upon the acquisition at least for Section 13 purposes. Based on the foregoing, it would seem that an issuer would need to include the underlying shares of common stock in the Item 403 Reg S-K beneficial ownership table for the preferred stock holders who obtained board designation/appointment rights even though these holder cannot convert the preferred stock within 60 days (assuming the issuer believes the intent to change/influence control is met). Is that correct? Thank you!

RE: I think that reporting the underlying shares as you suggest is appropriate, since a right to designate a director appears to put the holder in a position to influence the control of the company. This seems to me to be a situation that would be covered by the proviso to Rule 13d-3(d)(i) that you reference.
-John Jenkins, Editor, TheCorporateCounsel.net 4/15/2021

For a deferred compensation plan (does not require shareholder approval), is the Form 8-K trigger event the date of the adoption of the plan by the Board or the date the plan is executed?

RE: The Item 5.02(e) 8-K is triggered when the plan is adopted by the board. See Form 8-K CDIs 117.08 & 117.09.
-John Jenkins, Editor, TheCorporateCounsel.net 4/15/2021

We have an immaterial mistake on a graphic in the proxy statement (unrelated to comp or directors or anything else). It has been filed with the SEC and mailed to stockholders already. However, we would like to fix the graphic to have it be right at least in digital form with our transfer agent and for beneficial holders when they access it online. We were thinking of filing the whole proxy again as a DEFR14A with a short explanatory note that the proxy is being filed again to swap this graphic. Then we can send the corrected proxy to be swapped out with our transfer agent. Does this make sense? I don't think we would do a DEFA14A and we don't want to do a one page call-out to the change. A supplement also doesn't seem to be as neat of a solution - I don't want two files with the transfer agent, I just want one correct document. Thank you.

RE: I think you could address it through a DEFR14A filing if you wanted. If the error was material, then the proper way to correct it would be through an amendment, not through a supplement. I don't think there's any reason you couldn't voluntarily opt to fix an immaterial error in this fashion.
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2021

Consider the following hedge fund structure in connection with a required 13G filing: A limited partnership (“Fund”) has acquired more than 5% of Issuer’s publicly traded common stock. Fund’s investment adviser (“Adviser”) is an LLC and an RIA. Fund’s general partner (“GP”) is an LLC. Two individuals (the “Individuals”) are the 50/50 economic owners and managing members of each of Adviser and GP. Fund has contractually delegated to Adviser all investment and voting power over Fund’s portfolio securities, and Fund may not revoke that delegation on less than 61 days’ notice. The Individuals together make all voting and investment decisions on behalf of Adviser with respect to Fund’s portfolio. Neither Individual personally holds any Issuer shares. Neither Individual is a limited partner of Fund. If possible, the above parties would like the required 13G to be filed on the basis of Rule 13d-1(b) not (c). The ordinary-course-of-business and no-control-intent requirements of 13d-1(b)(i) are not at issue. My question is therefore how to assess whether Rule 13d-1(b)(ii) can be satisfied in the above structure. With respect to each actor in the structure: (A) Adviser: Clearly has beneficial ownership of the Issuer shares held by Fund. As an RIA, Adviser fits within item (E) of 13d-1(b)(ii). (B) GP: Does not fit any of the categories of 13d-1(b)(ii). However, I believe that if GP has no beneficial ownership of the Issuer shares held by Fund, GP’s presence in the structure does not undermine the availability of 13d-1(b). Is that correct? If so, is it legitimate to conclude that GP indeed does not have beneficial ownership, on the basis that Fund has delegated to Adviser all voting and investment power over Fund’s portfolio holdings? (C) Fund: Also does not fit any of the categories of 13d-1(b)(ii). However, as with GP, I believe that if Fund has no beneficial ownership of the shares it holds, the availability of 13d-1(b) is not undermined. Again, is that correct? If so, is it legitimate to conclude that Fund indeed does not have beneficial ownership, on the basis that Fund has delegated to Adviser all voting and investment power over its portfolio holding and such delegation is not revocable within 60 days? (D) Individuals: They clearly are beneficial owners of the shares held by Fund, due to their co-decision-making role at Adviser. That means that in order for 13d-1(b) to be available, the Individuals must fit within one of the categories of 13d-1(b)(ii). The only potential option is item (G) thereof. For purposes of item (G): 1. Who do the Individuals have to be “control persons” of? They certainly have control over the policies and management of Adviser, as its sole managing members. Does that give them the requisite “control person” status for purposes of item (G)? 2. In connection with the 1% limit on the amount of Issuer shares directly or indirectly “held” by the a control person, am I correct that “hold” does not mean “beneficially own”? Logically it seems it must be. 3. If that’s right, does one assess whether each Individual satisfies the 1% limit by tracing up the org chart (excluding the RIA) to calculate what number of Issuer shares he’d be seen as indirectly owning? For example: If Fund holds 1,000,000 Issuer shares, GP has a 20% interest in Fund and each Individual has a 50% interest in GP, does that mean each Individual indirectly “holds” 100,000 Issuer shares for purposes of item (G)? And then you need to figure out whether 100,000 is 1% or less of Issuer’s outstanding shares? Apologies for the lengthy post. I’d be grateful for any thoughts.

RE: Would be helpful to have a response to this for the situation I'm dealing with as well...
-4/14/2021

RE: We try to be as responsive as possible to the questions that we receive, but every now and then these things cross the line that separates a Q&A topic from a request for us to perform a full blown research project. Sometimes that's a judgment call, and we try to err on the side of being responsive, but I think this one clearly falls into the latter category.

I'd refer you to our Schedule 13G checklist and the other materials in our Schedule 13G Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2021

We understand an issuer will cease to be considered an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act and unable to take advantage of the accommodations for such issuers set forth in the Jumpstart Our Business Startups Act if it has issued more than $1.0 billion of non-convertible debt securities over a rolling three-year period (not limited to completed calendar or fiscal years). In calculating whether an issuer exceeds this $1 billion debt limit, does the SEC Staff interpret all non-convertible debt securities issued by the issuer's consolidated subsidiaries, including any debt securities issued by such issuer’s securitization vehicles, to count against the $1 billion debt limit? Does it make a difference if the issuer did not issue or guarantee the debt in question? Assuming all of the other EGC conditions are still being met, can such issuer continue to consider itself an EGC or did the issuer's subsidiary's issuance immediately terminate the issuer's EGC status?

RE: OP here. restating the question in case helpful to differentiate between the subsidiary that issued the debt and the parent company, which is the reporting entity seeking to know whether it can keep its EGC status.

We understand a reporting entity will cease to be considered an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act and unable to take advantage of the accommodations for such entities set forth in the Jumpstart Our Business Startups Act if it has issued more than $1.0 billion of non-convertible debt securities over a rolling three-year period (not limited to completed calendar or fiscal years).

In calculating whether a reporting entity exceeds this $1 billion debt limit, does the SEC Staff interpret all non-convertible debt securities issued by the reporting entity's consolidated subsidiaries, including any debt securities issued by such reporting entity's securitization vehicles, to count against the $1 billion debt limit? Does it make a difference if the reporting entity did not issue or guarantee the debt in question?

Assuming all of the other EGC conditions are still being met, can such reporting entity continue to consider itself an EGC or did the subsidiary's issuance immediately terminate the reporting entity's EGC status?
-4/8/2021

RE: I'm not aware of anything directly addressing this specific situation, but the way that the FRM treats subsidiary debt incurred subsequent to an acquisition suggests to me that the non-convertible debt of the subsidiary would count against the $1 billion limit. See Section 10120.2 of the FRM.
-John Jenkins, Editor, TheCorporateCounsel.net 4/9/2021

The effective date for the MD&A amendments is February 10, 2021. The SEC's release states that early compliance is permitted after the effective date; however, I have seen a number of law firm memos state that voluntary compliance is permitted on or after February 10, 2021. I have a call in to the SEC for clarification because I have a client that may file on February 10, but I wanted to see if anyone has heard definitively whether it is acceptable for registrants to voluntarily comply on the effective date.

RE: The SEC confirmed via phone that registrants can voluntarily comply beginning on February 10, 2021.
-1/27/2021

RE: Thanks for letting us know!
-John Jenkins, Editor, TheCorporateCounsel.net 1/27/2021

RE: Can a company voluntarily comply with the S-K MD&A amendments beginning with its Q1 10-Q even if it decided not to voluntarily comply with its 10-K filed at the end of February 2021?
-4/12/2021

RE: Yes. The adopting release says that companies "may provide disclosure consistent with the final amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety." See pages 104-105 of the adopting release.
-John Jenkins, Editor, TheCorporateCounsel.net 4/13/2021

Company files new S-8 to register additional shares being added to an existing option plan. As requited by S-8 instructions, the new S-8 incorporates the prior S-8 by reference. Is that old S-8 still alive, requiring a new auditor's consent (i.e. listing of the prior S-8 in the consent included as an exhibit to the 10-K or 20-F which includes the audit report) each year? For how long? Till those shares originally registered under the prior S-8 have been issued? Or until all shares under the combined S-8's have been issued? If the answer is the former, can I use FIFO to determine when the old reg has been "used up"?i

RE: Yes, it is still alive, and you'd need to keep it alive so long as you had securities awarded under the plan that were covered by that registration statement. Because the contents of that registration statement are incorporated by reference and made part of the subsequent registration statement covering the additional shares, I think you could technically let the original S-8 lapse after all of the shares that were the subject of awards covered by that S-8 had been issued. As a practical matter, since the Staff hasn't addressed this issue, the burden of keeping the S-8 alive is pretty minimal, and keeping track of which shares were issued under which registration statement can be a pain, I think most companies just keep both registration statements alive and continue having them covered by the accountants' consent.

In determining when shares have been issued, I think a FIFO approach makes sense, but haven't seen any guidance from the Staff on that issue either. One word of caution - share counting issues under Form S-8 can become very complicated, and I'd encourage you to review the discussion beginning on p. 51 of our Form S-8 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/12/2021

Has anyone ever dealt with a situation where a late filing (past the extension period) will result due to the SEC releasing updated guidance that causes the auditors to halt the filing? Any thoughts on how to handle?

RE: I think you need to get your arms around exactly what you're dealing with - does it affect the presentation of prior period financial statements? If so, a restatement may be necessary. See our Restatement Checklist and the other materials in our "Restatements" Practice Area for considerations associated with a potential restatement.

Even if you aren't considering a restatement, you're going to be a delinquent filer until the filing is made, with all the consequences attendant to that status. See our Late Filings checklist:
-John Jenkins, Editor, TheCorporateCounsel.net 4/12/2021

The Company recently appointed new executive officers. I understand that for the beneficial ownership table "group" disclosure, it should included all NEOs, executive officers and directors. But would that also include the new executive officers? What if the date the table is "as of [date]" and that date is before the new executive officers were appointed?

RE: Yes, the newly hired executive officers should be included in the group number. The cutoff date for inclusion is the date of the proxy statement, even if your cutoff date for the beneficial ownership determination is earlier. See the discussion on pages 8-10 of our Beneficial Ownership Table Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/9/2021

RE: Thank you! In the group number, would you also include NEOs, even if the NEOs have since left the company?
-4/9/2021

RE: Thank you!
-4/9/2021

RE: Yes, see page 28 of the Handbook (deleted earlier response referencing page 10).
-John Jenkins, Editor, TheCorporateCounsel.net 4/9/2021

Section II.F states: Although registrants will not be required to apply the amended rules until their mandatory compliance date, they may provide disclosure consistent with the final amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety. For example, upon effectiveness of the final amendments, a registrant may immediately cease providing disclosure pursuant to former Item 301, and may voluntarily provide disclosure pursuant to amended Item 303 before its mandatory compliance date. In this case, the registrant must provide disclosure pursuant to each provision of amended Item 303 in its entirety, and must begin providing such disclosure in any applicable filings going forward." Is it clear from this example, that a registrant may cease providing Item 301 disclosure without complying with amended Item 303. The first sentence references "an amended item in its entirety" and not all amended items. Further, the example doesn't refer to any of the other amended disclosure items.

RE: Yes, I believe that was the SEC's intent.
-John Jenkins, Editor, TheCorporateCounsel.net 1/6/2021

RE: Separate but related follow-up. Let's assume that a registrant did not early adopt any of the new requirements in its recent 10-K. It is now preparing an S-4 registration statement. Target is not S-3 eligible and/or not a filer. Is there a reason why the registrant is prohibited from dropping the 301 selected financial data for itself and the target now? The tricky part is the registrant is incorporating its information by reference so the 301 selected for the registration would "get into" the document so there is, technically, a mismatch. Should we specifically not incorporate the selected financial data into the S-4? Am I overthinking this?
-4/8/2021

RE: I think you may be kind of stuck when it comes to the buyer, absent some sort of discussion with the Staff. The problem with trying to carve-out the Item 301 information you provided in your 10-K is that if you opt to incorporate by reference, Item 13 of Form S-4 calls for you to incorporate "the registrant’s latest annual report on Form 10-K filed pursuant to Section 13(a) or 15(d) of the Exchange Act which contains audited financial statements for the registrant’s latest fiscal year for which a Form 10-K was required to be filed." The form doesn't appear to permit incorporation by reference of only selected sections of the document.

To my knowledge, there's no guidance on this, but I'd argue that the SEC's statement in the adopting release about early adopting the revised line items in their entirety shouldn't be interpreted to require Item 301 information about the target if the registration statement includes that information about the buyer. I think since there are separate line item disclosures that apply to the buyer and to the target, the decision as to whether or not to include Item 301 information for the target should be considered to be distinct from the buyer's decision concerning whether to disclose that information about itself.

I'd recommend you run this scenario past the Staff. If you do, please let us know what they say.
-John Jenkins, Editor, TheCorporateCounsel.net 4/8/2021

Can an issuer lock in a higher 1/3 limitation by filing the Form S-3 within 60 days after a day where the closing price was high or does it not matter since the 1/3 limitation for practical purposes of doing an offering is measured at the time of a takedown such that if the public float has since decreased that reduces the amount the issuer can offer and sell under General Instruction I.B.6? Thank you!

RE: No. You may be able to "lock in" your ability to use Form S-3 without limitation if you file within 60 days of a date on which a high closing price took you over the $75 million public float requirement (at least through the next 10(a)(3) update date), but the baby shelf limit is calculated at the time of the takedown. So, what matters in determining your limit under the baby shelf rule is the high closing price within 60 days of the date of sale & the amount you've sold during the prior 12 months under the rule. See the discussion on pages 68-70 of our Form S-3 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/8/2021

We recently filed a resale registration statement on Form S-3 on behalf of selling stockholders. We are aware of the "all public offerings in which a member participates must be filed with FINRA for review" FINRA requirement (FINRA Rule 5110) and there are no exemptions that would apply as far as we can tell. Some of the selling stockholders are FINRA members. Do companies typically file secondary resale registration statement numbers with FINRA for its review where sales can be made into an existing trading market? Is a pure secondary offering conducted pursuant to a resale registration statement considered a "public offering"?

RE: I've not encountered that situation, but the term "public offering" is defined very broadly in Rule 5110(j)(18), and it seems to encompass any registered primary or secondary offering. Instead of arguing that the transaction doesn't involve a public offering, a better argument might be that a FINRA member whose role in the transaction is limited to being a selling stockholder should not be regarded as a "participating member" subject to a filing requirement. Rule 5110(j)(16) defines the terms “participate,” “participation” or “participating” in a public offering to mean "involvement in the preparation of the offering document or other documents, involvement in the distribution of the offering, furnishing of customer or broker lists for solicitation."

I haven't seen any guidance from FINRA on this, but it might be worth reaching out to the OGC at (202) 728-8071.
-John Jenkins, Editor, TheCorporateCounsel.net 4/8/2021

We will be filing an agreement relating to the terms of securities we're issuing, but would like to keep some of the terms confidential. Is the streamlined process under S-K 601(b)(10) available to agreements/instruments filed under S-K 601(b)(4) or would a traditional confidential treatment request under Rule 406 or 24b-2 be required in this circumstance?

RE: No, only exhibits filed under Item 601(b)(2) and Item 601(b)(10) are eligible for the streamlined process. See pages 20-25 of the adopting release. The SEC raised the possibility of applying the procedure to exhibits filed under other paragraphs of Item 601, but only added Item 601(b)(2) to the list.
-John Jenkins, Editor, TheCorporateCounsel.net 4/7/2021

Our client is a Nasdaq listed issuer and is considering issuing a stock dividend. We understand that Nasdaq will use the information in the notification form to determine an ex-dividend date and will notify the issuer of this date (see Nasdaq Continued Listing Guide). We understand that date is typically two business days before the record date because purchases of publicly traded securities typically settle on the second trading day after the purchase (see Nasdaq Glossary). Our question relates to whether Nasdaq’s determination of the ex dividend date controls or whether FINRA does? We read 1140 to suggest we can either go through Nasdaq or FINRA, but we wouldn’t go through both entities to obtain stock dividend approval. If we are required to go through FINRA, what would we need to do? 11140. Transactions in Securities "Ex-Dividend," "Ex-Rights" or "Ex-Warrants" (a) Designation of Ex-Date All transactions in securities, except "cash" transactions, shall be "ex-dividend," "ex-rights" or "ex-warrants": (1) on the day specifically designated by the Committee after definitive information concerning the declaration and payment of a dividend or the issuance of rights or warrants has been received at the office of the Committee; or (2) on the day specified as such by the appropriate national securities exchange which has received definitive information in accordance with the provisions of SEA Rule 10b-17 concerning the declaration and payment of a dividend or the issuance of rights or warrants The reason for the question is that FINRA appears to have a different ex dividend determination date – see below: (b) Normal Ex-Dividend, Ex-Warrants Dates (1) In respect to cash dividends or distributions, or stock dividends, and the issuance or distribution of warrants, which are less than 25% of the value of the subject security, if the definitive information is received sufficiently in advance of the record date, the date designated as the "ex-dividend date" shall be the first business day preceding the record date if the record date falls on a business day, or the second business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date. (2) In respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25% or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date. We are trying to determine whether the FINRA rules control or the Nasdaq rules. Any help would be greatly appreciated.

RE: We found that Nasdaq has an analogous rule (also 11140) to the FINRA rule and that both are consistent with one another. The Nasdaq rule controls for a Nasdaq listed company. The Nasdaq Glossary was just worded differently. Thanks!
-4/7/2021

RE: Well, it appears my work here is done. Another satisfied customer. . . :)
-John Jenkins, Editor, TheCorporateCounsel.net 4/7/2021

Is it mandatory that the Compensation Committee to take formal action via Unanimous Written Consent to recommend that the full Board adopt the CD&A? We provide a copy of the CD&A to the members of the Compensation Committee for review and comment, and they finally get to a point where they have no further comment. Does this review suffice? I have a feeling that issuer practice varies in this regard. Since we have no more Committee meetings scheduled from now until the Annual Meeting (and because it's silly to send out a Consent merely for this reason), any issue with just ratifying the CD&A at the next quarterly meeting to be held the day before the Annual Meeting but after the filing of the proxy statement?

RE: I'm sure practice varies, but I think that formal approval of the Comp Committee Report is the better approach. I know your question focused on the CD&A, but it's the Comp Committee Report in which the committee is required to state whether it has reviewed and discussed the CD&A and recommended to the board of directors that the report be included in the annual report on Form 10-K and the proxy or information statement.

There are a couple of reasons for this. First, it's a core Comp Committee function, so having a formal record that the Committee has discharged its responsibility is advisable. Second, if you get a books & records demand, a plaintiff who can demonstrate that the board has a practice of acting informally may be able to persuade a judge to permit a fishing expedition through your directors' email accounts. Check out this DealLawyers.com blog for more details on that.
-John Jenkins, Editor, TheCorporateCounsel.net 4/7/2021

On the inside back cover of our 10-K wrap, we have traditionally listed our executive officers who are the individuals identified in our proxy statement. This year, IR would like to list all senior management in addition to our executive officers because supposedly while investors know the differences between execs and senior management, our employees do not. (I believe the reverse is true.). Is there a requirement that the officers listed in the 10-K wrap be identical to the officers in the proxy statement? IR says that a "larger percentage" of companies list senior management in addition to execs. I don't know where IR got this information from so I'm unable to independently verify if that is the case, but I find that hard to believe.

RE: No, there isn't. You're required to identify your executive officers in Part III of the 10-K (which may be incorporated from your proxy statement), but your 10-K wrap also serves as your annual report. Over the years, I've seen a number of companies include a list of officers that extends beyond those identified in the 10-K and proxy statement on the back cover page of their annual reports.
-John Jenkins, Editor, TheCorporateCounsel.net 4/7/2021

Item 404(a)(2) requires disclosure "including the related person's … ownership in, a firm, corporation or other entity that is party to, or has an interest in the transaction." Is it sufficient to simply note that the related person has an ownership interest in that firm, corporation or other entity on the other side of the transaction, or is more information required – particularly the level of ownership and any changes to that ownership that result from the transaction?

RE: I think the key language in Item 404 is (a)(6), which calls for "Any other information regarding the transaction or the related person in the context of the transaction that is material to investors in light of the circumstances of the particular transaction." When it comes to related party transaction disclosure, I think you run a risk of omitting potentially material information if you are too terse. My view is that it would prudent to include the details about the person's ownership, and the impact of the transaction on it.
-John Jenkins, Editor, TheCorporateCounsel.net 4/6/2021

Would there be any issues with including stale interim financials in a confidential S-1 filing? The interim financials would be updated to be timely in a subsequent S-1 amendment, but aren't going to be ready by the desired filing date.

RE: The SEC says it won't require the inclusion of financial statements in the draft registration statement that won't be required in the live filing, but I've seen nothing to indicate that the Staff will process a draft filed with stale financials.
-John Jenkins, Editor, TheCorporateCounsel.net 4/6/2021

A company is considering issuing a stock dividend. When does it need to close its trading window, assuming an individual has knowledge of the dividend and what would be the scope of the blackout in terms of its application to directors, officers and employees? We note that the dividend does not require stockholder approval but will require board approval.

RE: Your insider trading policy should provide some guidance on these questions, so I'd recommend you check there. Generally, I think a company that is considering a potentially material stock dividend would be prudent to treat that information as MNPI at an early date, and impose a blackout on its directors and executive officers (as well as those other employees who are aware of the matter) in advance of a board decision to declare the dividend.

I'm afraid I can't tell you a precise moment when that information might be regarded as MNPI, but I certainly wouldn't wait beyond the point when management has decided to recommend that the board declare the stock dividend. An even earlier point in time might be appropriate - such as when management or the board starts to seriously examine the possibility of such a dividend. In terms of when to end the blackout, I think most companies would adhere to the customary two trading days after the announcement that usually applies in the context of earnings releases.

See the discussion of event specific blackout periods beginning on p. 17 of our Insider Trading Policies Handbook for some additional considerations.
-John Jenkins, Editor, TheCorporateCounsel.net 4/5/2021

Director of Public Company is a non-executive officer at healthcare insurance firm. Healthcare insurance firm pays Public Company in excess of $120,000 annually for patients who use the Public Company’s products. Director of Public Company plays no role in the purchase or sourcing of Public Company’s products at healthcare insurance firm, the transaction is a small part of Public Company’s revenue (<1%) in each of the last 3 years and a small part of expenses of healthcare insurance firm <1%; the rates paid for Public Company’s products are commonly available to others; Director’s compensation at healthcare insurance firm is not affected in any meaningful way by relationship with Public Company; and Director’s ownership of both Public Company and healthcare insurance firm is less than 1%. No payments are made by Public Company to healthcare insurance firm. Based on the above facts, do you think it is reasonable to conclude that director has no material interest in the transaction and there is no disclosure required under 404? Do you also think it is reasonable to conclude that director is a non-employee director for purposes of 16b-3 and service on the Compensation Committee?

RE: I think you have a pretty good argument for a position that the director doesn't have a direct or indirect material interest in the transaction. First of all, it's helpful that the transaction is at market rates. On pp. 165-166 of the 2006 adopting release, the SEC said the following: “[w]e note that whether a transaction which was not material to the company or to the other entity involved and which was undertaken in the ordinary course of the business of the company and on the same terms that the company offers generally in transactions with persons who are not related persons, are factors that could be taken into consideration when performing the materiality analysis for determining whether disclosure is required under the principle for disclosure.”

I think your analysis appropriately identifies the other issues that need to be taken into account in deciding whether the individual in question has a material interest in the transaction. If the amount involved isn't material to either party, the individual's ownership interest is insignificant, and his or her compensation is not affected by the transaction, and there are no other business relationships between the two entities, then I think you have a pretty solid argument.

Since the business appears to provide healthcare products, one additional question that might be relevant is whether the relationship between the director and the company influenced any allocation decisions with respect to products that were scarce due to pandemic-related demands or otherwise. If preferential access to such products was provided to this customer, then I think that's another factor that should be considered in your assessment.
-John Jenkins, Editor, TheCorporateCounsel.net 4/2/2021

RE: Sorry, I forgot to address the second part of your question. The amount involved here wouldn't trip the categorical independence standards of the NYSE or Nasdaq, nor do these transactions appear to involve a relationship of the type that would disqualify a director from service on the compensation committee under NYSE or Nasdaq rules or Rule 10C-1 of the Exchange Act. You would also need to look at any independence standards that the company has in place in addition to those laid out in the NYSE or Nasdaq rules. There are always a lot of moving parts to independence determinations, and I would recommend that you review the discussion of these topics in our Director Independence Handbook.

If you determine that disclosure of these transactions is not required under Item 404, then, since the the director is not an officer of the company and is not receiving compensation in connection with transactions, it doesn't appear that they will implicate either of the other two potentially disqualifying prongs of Rule 16b-3(i)'s definition of "non-employee director."
-John Jenkins, Editor, TheCorporateCounsel.net 4/2/2021

We have a client that has formed an LLC (the “LLC”) to raise equity to invest in a LP that will be purchasing and developing real estate. The LLC will be conducting a private offering under Regulation D and will be filing a Form D in connection with the offering. Given the LLC will likely meet the definition of “investment company” under the Investment Company Act of 1940, as amended (the “Company Act”), the LLC will be relying on the Section 3(c)(1) or 3(c)(7) exemptions from the definition of investment company. Accordingly, our questions regarding the Form D are as follows: 1. Instructions to Item 4 to Form D provide as follows: “Industry Group. Select the issuer’s industry group. If the issuer or issuers can be categorized in more than one industry group, select the industry group that most accurately reflects the use of the bulk of the proceeds of the offering. For purposes of this filing, use the ordinary dictionary and commonly understood meanings of the terms identifying the industry group.” However, we note that the boxes for “pooled investment fund” are located under the "Agriculture Banking and Financial Services" heading of Item 4. Although the LLC may be considered a pooled investment fund because it will be relying on the 3(c)(1) or 3(c)(7) exemption for certain purposes, it is more accurate that the LLC’s industry be categorized as “other real estate” as the purpose of the LLC is to invest the bulk of the proceeds of the offering in a LP that will own, hold and develop real estate of a certain type. 2. If the LLC does not check the “pooled investment fund” box under Item 4, should the LLC still consider whether it must check the “pooled investment fund interest” under Item 9? As you will note, the instructions to Item 9 state that the filer must check all boxes that apply. The LLC will be issuing equity and, if considered a 3(a)(1) or 3(a)(7) fund for purposes of the Company Act, will potentially be issuing pooled investment fund interests. Instruction 9 possibly suggests the “equity” interests may be different than “pooled investment fund interests” as the instruction speaks of them separately in different terms. However, it would seem inconsistent to check this box and not check the “pooled investment fund” box above. 3. If we do not check the “pooled investment fund” box under Item 4 and do not check the “pooled investment fund interest” box under Item 9, does that impact the Company’s ability to rely on those exemptions for other purposes? Or are these answers “informational” in nature rather than “binding”?

RE: There's some ambiguity in Form D and the instructions aren't a lot of help sometimes. Based on what you've said, I would probably check the "pooled investment fund" box in Item 4, because I think the focus should be on your offering and what you are using the proceeds for, not what the LP in which your fund is going to invest is ultimately going to invest in. As to Item 9, I think I'd check both - and here's some precedent for that:

Given the ambiguities involved, I don't think the SEC is looking to skewer people who make good faith judgment calls about how to classify a particular entity or investment when completing the Form. I think you've articulated the reasons for the judgment calls you've made, and I doubt very much that the SEC would call into question the appropriateness of your reliance on Reg D on the basis of those judgments.
-John Jenkins, Editor, TheCorporateCounsel.net 4/1/2021

Does anyone know Corp Fin's current process for when a company wants to change its SIC Code? We have read the other Q&As on here on SIC Codes and it seems like the process is somewhat unclear with experience being mixed. We just wanted to see if anyone has dealt with this issue recently and knows the process. Thanks.

RE: I don't, but the EDGAR filer support page has a phone number (202) 551-8900 and has a specific option (#4) for questions about SIC codes. I guess I'd give that a shot. Let us know how it goes if you do.
-John Jenkins, Editor, TheCorporateCounsel.net 4/1/2021

This is probably a dumb question but assuming you are not using a 134 press release to solicit an offer to buy the securities in accordance with 134(d), are you allowed to put a link in the 134 release to the Section 10 prospectus on EDGAR?

RE: Yes. There's no requirement in the rule that says you may only link to the EDGAR filing if you're actively soliciting offers to buy. Paragraph (d) just says that you "may" solicit if you comply with its requirements.
-John Jenkins, Editor, TheCorporateCounsel.net 4/1/2021

The compensation committee of a client is considering a one-time change to the LT equity grant value executives to reward extraordinary performance. The one-time change would be fairly significant--instead of annual cycle normal grant value equal to 150% of base salary, for example, it would be 225% to 250% of base salary. Practice has been that normal annual cycle equity grant doesn't trigger a new 8-K. However, per 5.02(e), material changes do. It's one thing if the one-time change was insignificant but this certainly seems material. Any reason to conclude that this doesn't require an 8-K under 5.02(e)?

RE: Possibly. It depends on whether the award is consistent with the previously disclosed terms of the plan. See Instruction 2 to Item 5.02(e) and the discussion on pages 236-238 and 241-243 of our Form 8-K Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 3/31/2021

RE: Thanks. I had looked at those as well as that instruction. The registrant had previously disclosed LTI targets that are annual targets and have forms of award agreements on file so no issue there. In my example, 150% of base salary. The one-time new target of 225% to 250% has never been disclosed. It seems the answers on whether the new target grant is "materially consistent with the previously disclosed" grant. It seems to me that a 100% jump is material and not consistent with prior disclosed level. Would appreciate your views.
-3/31/2021

RE: Does the LTI plan disclose a maximum percentage of base salary for awards under the plan? If so, and if that maximum award percentage is addressed in public disclosures, then if your larger grant values are within that range, I think you still have an argument for relying on the instruction even if the grants are larger than they have been in the past. If there's been no disclosure or the plan is silent, then I think there should be an 8-K filing.
-John Jenkins, Editor, TheCorporateCounsel.net 3/31/2021

RE: From my observation and experience, practice varies as to whether this fits within the instruction. You will see companies lean conservative and file 8-Ks for changes like this, while others read the instruction more broadly and get comfortable that it fits within the existing instruction and interps and no 8-K is required. Your comp consultant could probably give insight on what they are seeing also.
-3/31/2021

RE: It does not. And I agree--if the range had been previously provided/disclosed and/or is in the equity plan document that is filed, then no 8-K would be required. In this case, such upper range has never been disclosed. One way to address this in the future is for the compensation committee to "pre-approve" a range and disclose that such that any future awards within that range doesn't trigger an 8-K.
-3/31/2021

Public issuer completes a private placement of convertible preferred stock under Rule 506(b). The preferred stock is convertible into common stock (which is quotes on a OTC market but not listed on an exchange). I have a few basic question about the integration issues surrounding the subsequent conversion. If the preferred stock is immediately convertible by the holders, my understanding is that the offer of the underlying common stock is ongoing and would need to integrated with the 506(b) offering of the preferred stock. Conversely, if the preferred stock is not convertible at the option of the holder until 6 months or more after original issuance, my understanding is that the offer of the underlying commons tock would not be integrated with the 506(b) offering of the preferred stock because of the Reg D 6-month safe harbor. I'm also aware of the SEC's long-standing position to integrate underlying securities issuable within one year but I imagine that position must be trumped by the express 6-month safe harbor in Reg D. Is my understanding correct or am I missing something? Further, is it possible to rely on Section 3(a)(9) for the conversion from day one without causing any integration problems, or would that only work in a scenario where the preferred stock was not convertible until after 6 months? Thanks!

RE: In the case of an immediately convertible security, you are right - the offer of the underlying security is viewed as ongoing. The Staff's view of the application of the integration concept to such an offering would preclude the company from registering the underlying common stock for its original issuance. If the securities were not convertible until a later date, then it is possible that the original issuance of the underlying common could be registered, notwithstanding the fact that the original security was issued in a private offering. In terms of how long a period must elapse, Securities Act Sections CDI 139.01 suggests at least a year, although commentators (Stan Keller in particular) have noted that some counsel have been able to get comfortable with a shorter period.

However, it is also my understanding that the exercise of a an immediately exercisable conversion right exempt under Rule 3(a)(9) would not raise integration issues with respect to the initial Reg D offering of the convertible securities, and that there's no prohibition on relying on Section 3(a)(9) for an immediate exercise (assuming the other conditions of the exemption are satisfied).

See the discussion beginning on p. 10 of Stan Keller's Integration Outline:
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

RE: Do you think the SEC's new integration Rule 152 would permit a shorter delay in the exercisability of a privately issued warrant for there not to be an ongoing offering of both such warrant and the shares to be issued upon exercise of such warrant? C&DI 139.01 suggests one year. Before the SEC adopted new Rule 152, we were comfortable with six months. Could the delay now be as short as 31 days?
-3/29/2021

RE: Conceptually, that seems to make sense to me, although the Staff hasn't issued any new guidance on this topic. The idea is that a sufficient period of time needs to lapse to break the link between the offering of the convertible securities and the underlying securities. The CDI says a year is necessary, but I know that some practitioners took the position that - as with other integration issues - 6 months was sufficient. In light of the 30-day safe harbor, I don't know why more time than that should be needed under the current approach to break that link and regard the offering of the underlying securities to be separate from the initial offering of the convertible securities.

However, I also think that in many instances, the availability of the Section 3(a)(9) exemption for conversion will allow companies to avoid the integration issue.
-John Jenkins, Editor, TheCorporateCounsel.net 3/30/2021

If Company is appointing a new principal accounting officer, and modifies that individual's compensation arrangement in connection with the appointment, I think the modification needs to be disclosed under 8-K Item 5.02(c)(3), but does the document providing for the same need to be filed (either with the 8-K or with the next 10-Q or 10-K)? It would seem to me yes if the individual/PAO is an executive officer of Company (per S-K 601(b)(10)(iii)(A), but if the individual/PAO is not an executive officer of Company, does Company still need to file the document (seems like no to me per (b)(10)(iii)(A), but (b)(10)(ii)(A) gives me a little pause since it talks just about "officers" (though it would seem that compensatory arrangements are not governed by (ii) but rather by (iii))). Thanks for any thoughts.

RE: The wording of Item 601 is imprecise at times, to say the least. I agree that people usually look to Item 601(b)(10)(iii)(A) when it comes to the need to file comp agreements, but I'm not comfortable taking the position that it completely preempts the prior paragraph when it comes to comp in the absence of guidance to that effect. If it were me, I think I'd file the agreement with the PAO.
-John Jenkins, Editor, TheCorporateCounsel.net 3/29/2021

From time to time, stock analysts ask our executives to comment on the valuation of our stock. Most of the time, our execs give a very generic response. Sometimes, they take the bait and give a more detailed answer as to their opinion which can be interpreted as facts. How should we go about thinking whether or not and how to answer this question?

RE: One of the problems with answering a question like this is the moral hazard it creates for an executive. Can you conceive of a situation in which the executive is going to say "hey, I'm glad you asked - we're really overvalued!" The only person I can recall doing that in the recent past is Elon Musk, who tweeted that about Tesla's stock last December. The stock promptly dropped by 10% and his inventory of investor lawsuits increased. I think even the GameStop folks kept their heads down.

If executives take the bait, they're almost always going to say - or leave the impression - that they think the stock is undervalued or that the price has room to move upward, which is basically the same thing. At the very least, comments like these have the potential to undermine management's credibility, and in the worst case might serve as a nice quote for a plaintiff to throw in a disclosure lawsuit.

Although there are situations, such as an activist campaign, where management may be compelled to address the current price, I think that in the ordinary course it's generally better to respond, "we generally don't comment on the price of our stock at a particular point in time, since that can be influenced by so many factors that are extraneous to our performance."
-John Jenkins, Editor, TheCorporateCounsel.net 3/26/2021

RE: Thank you for that. The backlash I get from the people in the ivory tower is that it is their opinion supported by the facts.

So, if the "facts"/opinion turn out to be wrong, then this could lay the groundwork for a disclosure lawsuit because the exec is speaking on behalf of the issuer? I just want to be able to properly relay the risk here.
-3/26/2021

RE: I think in most situations, it's more of a potential credibility issue. They've also opened the door to the topic. If they speak to market valuation now, what are they going to do if the question comes at a less propitious time? I suppose it's also possible that some plaintiff could make a claim that by addressing the matter, you've somehow created a duty to update, which is sort of the legal downside to the business/credibility issue of being asked to respond to the question again at an awkward time.

From a liability standpoint, expression of opinions are generally viewed as false under the federal securities laws only if they are not subjectively believed by the person who expressed them, although they can be misleading if the speaker omits information that, in its full factual context, would cause the statement to mislead a reasonable investor.

As lawyers, it's our job to apprise executives of the potential downside of addressing issues like this, but it isn't illegal for an executive to comment on the stock price. If they want to address the topic after you've discussed those issues with them, there's no reason to throw yourself under the bus trying to stop them.
-John Jenkins, Editor, TheCorporateCounsel.net 3/26/2021

Is there any change to the guidance provided in Topic 2176 with regards to if a company has under 300 shareholders of record, then a repurchase plan does not pose any danger of tripping up 13e-3 unless the repurchases actually threaten to cause involuntary delisting? I want to make sure that if a company with under 300 record holders conducted a repurchase program and then decided to voluntarily delist, there's no 13e-3 issue, since only the delisting (and not the 300 record holders) could create the 13e-3 issue and the repurchases had no bearing on the delisting? You can assume that the exchange on which the company is listed does not have a minimum shareholder requirement or it is otherwise met. If, as a consequence of the repurchase program, the Company acquired more than 90% of the outstanding stock and decided to go private (via a short form merger) are there any tender offer issues? Assuming that there was not an intent to go private at the time of the initial share repurchase but as a consequence of the program the Company now has the ability to do so?

RE: I'm not aware of any updated guidance on these issues, but I think that the caveats and limitations in Jim's comments continue to apply as well (particularly those around Rule 10b-5 and potential step transaction claims). I don't think the back end squeeze out has any implications on the classification of the front-end repurchase as a tender offer. There's no definition of the term tender offer in the rules, so that's something that you'll need to evaluate at the time of the repurchase, based on the Wellman and Hanson tests. Below is a link to some correspondence that Fried Frank sent to the SEC walking through the application of those tests for your reference

One additional word of caution - there are several Delaware cases where plaintiffs have survived motions to dismiss by alleging that the delisting and deregistration was done for the purpose of eliminating the market for the shares and facilitating a squeeze-out at a lower price, in breach of the board's and controlling shareholders' fiduciary duties. I know your question assumes that there's no intention to go private at the time of the buyback & delisting, but I think the risk of these kind of claims is increased if you attempt to accomplish the front-end of the transaction in a stealthy fashion, without disclosing the possibility of a going private transaction.

Finally, keep in mind the potential for a broker kick-out, which could dramatically increase the number of your record holders. Even if you get comfortable conducting the repurchase program without disclosure of a potential delisting or deregistration, the exchanges require you to publicly announce your intention to delist 10 days in advance, so there will be public disclosure, and that may prompt your street name holders to transfer their shares into the names of their beneficial owners.
-John Jenkins, Editor, TheCorporateCounsel.net 3/25/2021

Parent company is registering toggle notes on Form S-1. The notes are guaranteed by a number of wholly owned subsidiaries. The SEC's position seems to be that the guarantees of the notes are separate securities; therefore, financial statements would be required for each of the subsidiaries (within the parent's Form S-1). Recently revised Rule S-X 3-10 allows a parent company to omit the subsidiary financial statements if certain criteria are met. One of these (3-10(a)(1)) requires the registered security to be "debt or debt-like." We are wondering if the toggle notes would satisfy the requirement. The interest owed on the notes is variable (within a specified range) at the company's election to pay in cash or PIK; the rate escalates if the company elects to PIK instead of cash. We are wondering whether the notes could meet the debt-like requirement. The SEC's guidance in the Adopting Release indicates that it might not be debt-like because it would not be "outside the discretion of the obligor." But it seems unlikely that the SEC would have intended to exclude these types of notes. Thanks

RE: I have not seen any formal guidance, but it appears that at least one registrant, Servicemaster, has in the past treated certain PIK toggle notes as debt like securities, and provided only the consolidating information on guarantor and non-guarantor subs contemplated by Rule 3-10 instead of full blown subsidiary financials.

I haven't seen anything much more recent than this, so you may want to contact the Staff to discuss this.
-John Jenkins, Editor, TheCorporateCounsel.net 3/25/2021

I understand that SOX prohibits loans and extensions of credit to insiders. Insider inadvertently made personal charges (~$250) on her company credit card. I do not know at this time whether the issuer paid these charges and the insider repaid the issuer, or if the insider was able to get the charges removed/transferred the issuer paid it. This was disclosed in a D&O Questionnaire. Is SOX triggered and if so, where do I go from here? I didn't see an applicable Handbook, but I may have missed it.

RE: Unfortunately, there's no handbook because there isn't really any guidance on most of this stuff. I think the most comprehensive source of guidance on recurring Sarbanes Oxley 402 issues is the 25 Law Firms Memo from 2002. Personal use of company credit cards is one of the topics addressed in that memo, and you may find the position taken there helpful. Here's an excerpt:

"Personal use of company credit card, required to be reimbursed Permissible – If company policy permits only business use and limited ancillary personal use (e.g., personal items included in hotel room charges) and requires settlement within a reasonable period (e.g., monthly). Personal items should be paid by the employee within a reasonable period after such charges have been presented. (not a personal loan because primarily for business purpose)."

You may want to look at the other materials in our Loans to Insiders Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 3/24/2021

It seems that equal prominence and Reg G applies to these letters included in proxy statements, as they are public disclosures, but is the SEC focus (in terms of comments and enforcement) not as strong, given context (seems like an equal prominence issue in a letter shouldn't draw the SEC's ire)? Thanks for any thoughts on the matter.

RE: I haven't catalogued all of the SEC comment letters touching on Reg G, but I think it would be a mistake to assume that a letter to shareholders included as part of a proxy statement would be of less concern to the Staff from a Reg G compliance perspective than any other part of the document.

There are some comp related disclosures in the proxy statement that are carved out for special treatment under Reg G (see p. 65 of our Non-GAAP Financial Measures Handbook), but I don't think there's an assumption that the CEO's letter is somehow of less concern.
-John Jenkins, Editor, TheCorporateCounsel.net 3/24/2021

When doing the blue sky exemption analysis for a private offering where an investment manager has made an investment decision on behalf of multiple investors from different states, should exemptions be analyzed only in the state where the investment decision was made (i.e., the state of the investment manager), or in each state where the investors are physically located (usually we would look to principal business address / primary residence in this case)? I can see an argument that offers and sales are only made in the state where the investment manager is located, if that is entirely where the investment decision is made, but not sure if that is a safe approach. Thank you!

RE: I think the most prudent approach is to look through the investment manager and comply with the notice requirements applicable to each state in which investors reside. The boundaries of each state's blue sky laws are uncertain, and when they become an issue, most courts look to whether the transaction has a "sufficient factual nexus" to the state. As you might imagine, that's a squishy test. The leading case is Lintz v. Carey Manor Ltd., 613 F.Supp. 543 (W.D. Va. 1985), and the fact that multiple states might have jurisdiction over a single transaction didn't bother the court a bit.
-John Jenkins, Editor, TheCorporateCounsel.net 3/24/2021

Client is a private LLC which manages medical clinics with two classes of units, Class A and Class B. Class A is limited to non-physician owners and Class B to physician owners. Manager of the LLC intends to purchase Class A Units from a third party and shortly thereafter conduct a private placement of Class B Units at a slightly higher price. The use of proceeds will be to redeem the repurchased Class A Units and working capital. Is there an issue that client purchased the Class A Units "with a view to resale?" Thank you

RE: I don't think so. It isn't the fact that an affiliate of the issuer purchased the shares with a view to reselling them to the issuer that would raise concerns. Section 2(a)(11) says that a person who purchases securities "with a view to . . .[their] distribution" is a statutory underwriter. That focuses on whether the purchaser will serve in an intermediary capacity and distribute the shares to the public. Here, the manager is acquiring the Class A shares as a conduit for their ultimate redemption by the LLC. That's essentially the opposite of a "distribution" and I don't think the fact that the issuer will fund that redemption through the offering of a different class of securities influences the analysis.
-John Jenkins, Editor, TheCorporateCounsel.net 3/24/2021

We are reviewing D&O Questionnaires recently submitted from our directors and officers. As is always the case, when reviewing the Questionnaires we have seen some questions not answered, skipped, or answered incorrectly. Just curious as to what is the procedure that issuers usually follow? I usually will email the officer and director, point out the issue (without telling them the answer) and asking them to confirm if that is the response they intended? They would then admit to me they forgot to answer that question or answered it incorrectly. Then, I usually ask permission from the officer or director to cure the response for them? When they tell me "yes", I update their Questionnaire accordingly and print and keep a copy of the email. Is my practice customary and in line with what others do?

RE: Yes, I think so. The key thing is following up in some fashion when you know the answer on the questionnaire doesn't match reality. The details may vary, but you've created a record of following up and a paper trail supporting the revised response.
-John Jenkins, Editor, TheCorporateCounsel.net 3/23/2021

A client will be using a hybrid method for delivering its proxy materials. Some stockholders will receive only the notice, while others will get a full set of materials. With respect to the notice, they've been told that Broadridge includes FAQs on the back of the notice that provides information on how to view proxy materials online, how to receive a paper copy of the materials, how to request materials be sent via email in future years, etc. In looking at other companies' additional solicitation materials, like the notice, it doesn't appear that the back of the notice with these FAQs is filed. Broadridge indicated that filing the FAQs with the notice isn't necessary. Similarly, a FAQ flyer will be included in the full-set mailing. Does anyone know whether (i) these FAQs are permitted to be included on the back of the notice and (ii) if these FAQs should be filed as part of the DEF14A and DEFA14A filings? Thanks for your thoughts.

RE: Yes, something like that can be sent with the notice. Rule 14a-16(f)(iv) permits the notice to be accompanied by "an explanation of the reasons for a registrant's use of the rules detailed in this section and the process of receiving and reviewing the proxy materials and voting as detailed in [Rule 14a-16]." In terms of its status as "soliciting material," I think if the contents are limited to a neutral presentation of the topics you identify, many companies would take the position that this is a purely ministerial communication that does not fall within the definition of a solicitation under Rule 14a-1.
-John Jenkins, Editor, TheCorporateCounsel.net 3/19/2021

RE: This makes sense. Thanks so much!
-3/19/2021

Company A is a business partner of Company B. Company B is a reporting company with listed common stock. Company B issues stock to Company A as equity compensation per terms of its equity plan. Equity plan shares of Company B are registered on S-8. Company A wants to incentivize its own independent contractors by offering them Company B stock that Company A acquires. Company A has thousands of independent contractors, financial sophistication unknown but extremely unlikely all are accredited. There is no way to do this unless Company A’s resale is registered, right? Not even with holding period implemented for Company A would seem to help given large number of offerees, financial sophistication, etc. Sections 4(a)(1), 4(a)(1/2), et al—roadblocks all over the place unless I’m missing something. Not even getting into state law.

RE: Maybe I'm missing something, but it's not clear to me how Company B could use Form S-8 to issue shares to Company A in the first place. Company A doesn't seem to fit the definition of an "employee" in General Instruction 1(a) of Form S-8. If you're taking the position that its business relationship makes it a consultant or advisor to Company B, then it must be a natural person in order to be eligible to have the shares to be awarded to it registered on Form S-8.

I think this arrangement raises other issues that implicate the use of Form S-8. It is intended to cover securities issued as compensation to those persons who fall within the definition of the term "employee" in Form S-8. Putting aside the issue of whether Company A is a party to whom shares could be issued under Form S-8, I think the purpose of the transaction strains the definition of compensation.

It looks like the purpose of the transaction is ultimately the distribution of the shares to persons who would not be entitled to receive them under Form S-8. While a person who receives registered shares is generally free to dispose of them as he or she sees fit, this arrangement makes Company A look like a statutory underwriter, in that it is purchasing the shares with a view to their further distribution. That's not what S-8 is for.

I think that that in order to allow Company A to engage in the distribution to its own independent contractors, the issuance would need to be registered on another form (either S-1 or S-3), the proposed use of the shares to incentivize the independent contractors would need to be disclosed in the plan of distribution section, and Company A would have to be identified in the prospectus as a potential statutory underwriter.

The bottom line is that I don't think the transactions that Company A wants to engage in can be accomplished without registration, and even if Company A didn't plan to distribute the shares, I'm unclear how the original issuance can be accomplished using Form S-8.
-John Jenkins, Editor, TheCorporateCounsel.net 3/18/2021

Pursuant to the definition of "smaller reporting company" in 17 CFR § 240.12b-2, I believe that an entity that has no revenues will continue to be an SRC until its public float reaches $700 million because clause (2) of that definition says "had annual revenues of less than $100 million..." (i.e between $0 and <$100 million). But in the table under the heading "What are the relationships between smaller reporting companies and non-accelerated, accelerated, and large accelerated filers under the amendments?" at this SEC link, the first row could be interpreted that if you do not have any revenue at all, than you are subject to the $75 million public float test rather than $700 million public float test. Does anybody interpret this this way? It doesn't really make sense given the purpose of the filer status amendments but I don't understand what this row is supposed to mean and figure it is there for some reason. Thanks in advance.

RE: No, I don't read it that way. I think all that's intended to show is that if you're under $75 million in public float you're a non-accelerated filer regardless of your revenue.
-John Jenkins, Editor, TheCorporateCounsel.net 3/18/2021

Our client filed an S-3ASR in 2019. It is currently a non-WSKI and is contemplating an ATM offering. The plan of distribution section of the original S-3ASR did not describe any ATM offering with specificity since Rule 430B permits WKSI issuers to exclude information about the plan of distribution in ASRs. My understanding is that the rule doesn’t extend that ability to non-WKSI issuers. The original S-3ASR did include generic disclosure that the Company "may offer and sell securities in one or more transactions from time to time to or through underwriters, who may act as principals or agents, directly to other purchasers or through agents to other purchasers or through any combination of these methods." We are contemplating filing a post-effective amendment to reflect the loss of WKSI status and are wondering whether the plan of distribution section of the post-effective amendment should be updated to reflect a potential ATM offering. Alternatively, should we file a new S-3?

RE: You need to address the ATM offering in the plan of distribution section and elsewhere. If timing isn't a factor, then you may want to go ahead and file a post-effective amendment to convert the existing S-3ASR, and then drop an updated plan of distribution section and other information about the ATM offering in a subsequent prospectus supplement when you're ready to go (as an S-3 issuer, your Item 512 undertakings allow you to disclose material changes to the plan of distribution section by means of a pro supp).

It's probably just as easy to file a new Form S-3 using the same procedure laid out above. The advantage of this approach is that a new registration statement would start the three year clock over, which I don't believe a post-effective amendment would do - under Rule 415, the three year clock starts running on the "initial effective date" of the registration statement. There are also some other reasons why companies might opt to file a new S-3 in this situation, and those are laid out on p. 110 of our Form S-3 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 3/18/2021

Pubco has a previously announced buyback program under 10b-18 for both market and privately negotiated transactions. Can Pubco purchase shares under the buyback program from its own directors? Does it matter if the individual director has a 10b5-1 plan in place? I am aware of the references to related party transactions in the Stock Buybacks Handbook, but just wanted to get a broader sense of the issues and whether practitioners generally think this is a good idea. Thanks.

RE: I assume you're talking about a privately negotiated purchase, since you wouldn't know the source of shares acquired in the open market under Rule 10b-18.

Privately negotiated repurchases from insiders aren't unheard of, although there's a lot of baggage attached to them and as noted in the Stock Buybacks Handbook, we generally discourage them. Beginning on p. 64 of the Handbook, we have devoted to the issues that arise under privately negotiated transactions (which aren't covered by the Rule 10b-18 safe harbor). That has a section specifically addressing some of the considerations applicable to repurchases from insiders.

In addition to the issues identified there, depending on your state law and charter provisions, there may be other hoops to jump through. As a threshold matter, you're going to want to make sure you comply with your state's statute governing approval of transactions with D&Os. I would also give some thought to your paper trail & the optics of the situation and putting your directors in the best position from a fiduciary duty standpoint in the event that you get a books and records request from a plaintiff unhappy about the use of corporate funds to repurchase an insider's shares.

If the director has a 10b5-1 plan, transactions outside the plan raise a number of issues. See the discussion beginning on p. 36 of our Rule 10b5-1 Trading Plans Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 3/17/2021

An issuer has filed a Form S-8 for an equity incentive plan. That plan was later amended and restated and the issuer filed a Form 8-K disclosing the changes to the plan and included the amended and restated plan as an exhibit (there was no increase in the shares reserved under the plan - just changes to some of its terms). Must the issuer file anything with respect to its Form S-8 like a post-effective amendment, or did the Form 8-K satisfy the disclosure requirements with respect to the Form S-8 via incorporation by reference?

RE: I don't think that a post-effective amendment would be triggered in this case. The updated plan information that is required under Part I of Form S-8 would be updated as specified in Rule 428(b)(1), per General Instruction G.1. of Form S-8.

If the plan amendments increased the amount of securities of the same class to be offered under the plan, then you could file a short-form S-8 under General Instruction E to register the offer and sale of those additional securities.
-Dave Lynn, Editor, TheCorporateCounsel.net 1/31/2008

RE: If the board approves (i) an increase in the number of shares available for issuance under the plan (which increase is subject to shareholder approval) and (ii) other amendments to the plan (the "Other Amendments") that did not require shareholder approval, can you rely on General Instruction E to Form S-8 to file a short-form S-8 to cover the additional shares following shareholder approval? In this case, the issuer amended and restated the plan to capture all of the amendments. Or did the amendment and restatement constitute some sort of "new plan" not allowing reliance on General Instruction E?
-9/21/2015

RE: As a purely and very hyper technical matter, it may depend on whether the plan was filed as an exhibit and, if so, what exhibit it was filed under. However, my practical answer is that you should be able to rely on General Instruction E under the circumstances.
-Broc Romanek, Editor, TheCorporateCounsel.net 9/22/2015

RE: I am very interested in the "technical" answer to this. We are dealing with the same situation, except that it involves a plan amendment (increasing shares and making other amendments) rather than an amendment and restatement, although I assume the manner of amendment isn't determinative. We included the plan as Appendix A to the proxy statement when it was approved by shareholders, then incorporated it by reference as Exhibit 99 in the Form S-8.

My thought is that changes to the plan by virtue of the amendments would be described in an updated prospectus which would then be circulated to plan participants. Because the description of the terms of the plan doesn't get filed, none of the information in the Form S-8 would change. From an SEC-filing perspective, the "only" change is the increase in the number of shares, as to which General Instruction E would be available, and a new, short-form registration statement could be filed. I believe this is consistent with your earlier answer on this post, but I'm curious as to how the exhibit number impacts this, and whether our use of Exhibit 99 is helpful or harmful! Thanks in advance.
-5/11/2016

RE: I am interested in this situation. I see a lot of long “short-form” S-8s to register additional shares under a plan that has also been amended and restated to change some plan terms. Those S-8s tend to include all or most of the Part II disclosure. I had wondered if changing the plan terms (in addition to adding shares) might make some companies feel the need to essentially re-do the entire S-8, but that does not seem required by General Instruction E.

Any thoughts on what is driving the long short-form S-8s? Thanks.
-3/16/2021

RE: I can't think of a substantive reason to take that approach. I have a feeling that one reason you see a lot of these filings is because lawyers have the original S-8 on their word processing system and that it's just easier to mark it up for the amendment without giving a lot of thought to what they are permitted to delete from it.
-John Jenkins, Editor, TheCorporateCounsel.net 3/17/2021

What is the common approach for these events these days? Companies hate posting the deck/filing the deck on a 7.01 8-K before the presentation starts, because although that is best for FD, companies don't want participants flipping ahead, and don't want to cede control of content and sequence of presentation (understandably so). I think some companies issue a press release with the high points/what would otherwise be MNPI in the actual deck, and issue/file that press release before the program starts as a middle ground. Is this the common approach, or is there something else, or should the Legal Department insist on filing the deck on a 7.01 8-K before the presentation starts? Thanks for any thoughts.

RE: I think it varies. I've been involved with some companies that announce an investor day along with information about how to access the webcast, and inform investors that presentation materials will be available on its website. I think that's probably fine in ordinary course situations, but I think if you're rolling out a transformational strategic initiative or something that is in the category of "big news," then I think it makes sense and is a best practice to ensure that the company's disclosure is protected by the safe harbor that applies to an 8-K filing.
-John Jenkins, Editor, TheCorporateCounsel.net 3/17/2021

C&DI 104.11 provides that an issuer with a pending Securities Act registration statement is permitted to incorporate by reference into the Form 10-K information from the pending registration statement (assuming the conditions set forth therein are met). But if it wanted to, could the issuer still incorporate the Part III information from a definitive proxy statement filed no more than 120 days after fiscal year end (even though that information is already included in a filing on EDGAR)? I haven't been able to find anything addressing this particular scenario.

RE: Yes, General Instruction G. 3. to Form 10-K specifically permits companies to incorporate the Part III information by reference to a definitive proxy statement. The fact that it is also included in another EDGAR filing should not impact a company's ability to incorporate that information from the proxy statement.
-John Jenkins, Editor, TheCorporateCounsel.net 3/17/2021

I see an option provided in many proxy statements for MD REITs to be able to revoke your proxy by written request to the secretary. I looked at some org docs for such companies and MD law and could not find a requirement to do so, was just curious if anyone knew what was driving this or if it is just best practice?

RE: That's a fairly common alternative in the corporate world as well. See, e.g. p. 63 of Microsoft's 2019 proxy statement.

Some states, including New Jersey and Ohio, have the option of revoking the proxy by notice to the corporation or corporate secretary baked in to their statutes. That language often gets incorporated into bylaw provisions. I'm not familiar with Maryland's REIT statute, so I don't know if there's something unique there. But in any event, this kind of language doesn't strike me as unusual.
-John Jenkins, Editor, TheCorporateCounsel.net 3/15/2021

Is anyone aware of a survey or general market data regarding how often a NYSE- or NASDAQ-listed public company has made public disclosure of a waiver of the Code of Ethics for a conflict of interest? Seems to me it would be incredibly rare. And does a company that concludes that a particular relationship is not a conflict and therefore no waiver is necessary ever voluntarily disclose a summary or their analysis in order to pre-address any concerns that might arise if it is discovered, especially if the relationship involves two public companies? Again, would seem to be very rare, if at all.

RE: Nothing recent. There was a Virginia Law Review article published about 10 years ago that surveyed ethics waivers. It found that they were rare, but it also suggested they were underreported.
-John Jenkins, Editor, TheCorporateCounsel.net 3/12/2021

Issuer desires to do business with a company where one of its independent directors is an executive. The dollar value of the transaction will be completely immaterial to the revenue of this company. From our perspective, we believe it is possible that the director will not have a direct or indirect material interest as the contract value represents less than 1/2 of 1% of the director's company's revenue. I know that this is a judgment call, but was curious if others have used similar logic or seen similar logic used to determine that the transaction is not a Related Party Transaction.

RE: Given the amount involved, I think you can make an argument that the director doesn't have a material interest in the transaction, assuming it doesn't have any effect on the executive's compensation, it's on terms that are the same as provided to other customers and there are no other factors that might suggest that the executive's status as a director influenced the decision to engage in the transaction or its terms.

A number of the Q&A's in our Related Party Transactions Handbook address issues relating to the existence of a direct or indirect material interest, and I suggest you may want to review those. In particular, the discussion on p. 74-75 may be relevant to your situation.
-John Jenkins, Editor, TheCorporateCounsel.net 3/12/2021

The company has a board observer who once was a director of the company. The board observer was invited to serve in such capacity once his term as a director came to an end. The board observer attends meetings and has access to material non-public information and other company information. The board observer does not vote on any matters before the board. Recently, his broker reached out to the company inquiring whether the board observer is an insider for Section 16 purposes or an affiliate for Rule 144 purposes. My thinking is that the board observer is not an affiliate under Rule 144 because of his lack of voting power and lack of power to direct or cause the direction of management. For Section 16 purposes, I’ve read that a person who has a contractual right to attend board meetings as an observer generally isn’t considered to be a director for purposes of Section 16. Further, the determination is usually based on whether the observer “functions” as a director, and the observer’s inability to vote on board resolutions, or in some cases even participate in discussions, usually drives the conclusion. It would seem to me that the board observer wouldn’t be a Section 16 insider because he isn’t able to vote on any matters that come before the board. Despite the fact the board observer can’t vote, he still has possession of inside information. I would appreciate any thoughts you may have on whether you think this board observer is an affiliate for Rule 144 purposes or an insider for Section 16 purposes.

RE: There is some case law, most notably the 3rd Circuit's 2019 decision in Obasi v. Tibet Pharmaceuticals, that supports a conclusion that a board observer is not necessarily a Section 16 officer, and it cites the factors that you reference. But I think the answer is very much based on the facts and circumstances of each case, and I'd encourage you to read the dissent in that case for some of the countervailing arguments.

Assuming the former director doesn't have an ownership position or other business relationships with the company that might impact the analysis, I think the affiliate issue turns on the extent to which the observer influences board policy, and I don't think the fact that he doesn't vote is dispositive. This is a former director who was invited to serve as an observer after he left the board. That suggests that his input is valued by the other directors. It really requires a facts and circumstances assessment of the boardroom dynamics, which is why affiliate determinations can be so difficult to make.
-John Jenkins, Editor, TheCorporateCounsel.net 3/12/2021

I've noticed several former SPACs confidentially submitting Form S-1s after completion of their de-SPAC business combination, even though it has been over a year since the SPAC's IPO. Do you know what SEC guidance is being relied on for these confidential submissions?

RE: I'm not sure, but it may be that companies are relying on the implications of Securities Act Forms CDI 115.18. While the CDI addresses S-3 eligibility, it appears to support the view that if the entity resulting from the de-SPAC is not a successor issuer, it will not inherit the SPAC's reporting history:

Question 115.18

Question: Following the merger of a private operating company or companies with or into a reporting shell company (for example, a special purpose acquisition company), may the resulting combined entity rely on the reporting shell company’s pre-combination reporting history to satisfy the eligibility requirements of Form S-3 during the 12 calendar months following the business combination?

Answer: If the registrant is a new entity following the business combination transaction with a shell company, the registrant would need 12 calendar months of Exchange Act reporting history following the business combination transaction in order to satisfy General Instruction I.A.3 before Form S-3 would become available. If the registrant is a “successor registrant,” General Instruction I.A.6(a) would not be available because the succession was not primarily for the purpose of changing the state of incorporation of the predecessor or forming a holding company. General Instruction I.A.6(b) also would not be available because the private operating company or companies would not have met the registrant requirements to use Form S-3 prior to the succession. Where the registrant is not a new entity or a “successor registrant,” the combined entity would have less than 12 calendar months of post-combination Exchange Act reporting history. Form S-3 is premised on the widespread dissemination to the marketplace of an issuer’s Exchange Act reports over at least a 12-month period. Accordingly, in situations where the combined entity lacks a 12-month history of Exchange Act reporting, the staff is unlikely to be able to accelerate effectiveness under Section 8(a) of the Securities Act, which requires the staff, among other things, to give “due regard to the adequacy of the information respecting the issuer theretofore available to the public,…and to the public interest and the protection of investors.” [September 21, 2020]
-John Jenkins, Editor, TheCorporateCounsel.net 3/11/2021

What approaches have issuers used to account for the differences between US and non-US directors with respect to attainment against stock ownership guidelines? We are having issues due to the mandatory withholding on non-US directors causing those directors to come up very tight on attainment of the stock ownership level. The comp program is competitive so increasing the stock grant is not really an alternative.

RE: I reached out to Mike Melbinger, and here are his thoughts:

I have not seen this precise situation – although I have worked with several companies with foreign executives and/or directors (usually in connect with converting foreign currency figures for proxy reporting). However, my answer, without hesitation would be that SOG are something the board (or a committee) establishes on its own, with no legal rules. Therefore, the board/committee can resolve this problem in any reasonable manner it chooses (the possibilities seem obvious, but happy to add a few if it would help). This is not unlike the situation we faced temporarily in April 2020, when the stock market crashed and many execs and directors no longer satisfied the SOG.
-John Jenkins, Editor, TheCorporateCounsel.net 3/11/2021

Hello, We had someone who served as Interim CFO and Interim PFO for about a week during the 2020 fiscal year. We know that Item 402 of Reg S-K defines "named executives officers" to include all individuals serving as PFO or acting in a similar capacity during the last completed fiscal year. But we were wondering if you knew of any support to exclude as an NEO someone who served in that role for such a short period of time? Thanks!

RE: No, I'm afraid that I don't. I think the intent of the rule is to cover short-timers as well as those who served for a longer period.
-John Jenkins, Editor, TheCorporateCounsel.net 3/10/2021

Any view on whether it is required and/or better practice to list out by specific filing the SEC filings incorporated by reference into a plan prospectus or whether to just refer to the latest Form 10-K and all subseuently filed reports? The latter is more flexible going forward.

RE: If have always preferred actually listing each of the past reports that is specifically incorporated by reference, rather than a general statement referring to all reports filed since the end of the fiscal year. In my mind, the Item is calling for a listing of the actual reports, so I think that is the best practice. There should then be a separate statement indicating that all documents subsequently filed pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act shall be deemed incorporated by reference.

Any other views out there on this one?
-Dave Lynn, Editor, TheCorporateCounsel.net 9/14/2007

RE: Dave, does the CD&I below, which relates to Item 2 of Form S-8 rather than Item 3, change your view on whether the actual filings should be listed under Item 3?

Question 126.25
Question: Item 2 of Form S-8 requires a statement indicating the availability without charge, upon written or oral request, of documents required to be delivered to employees pursuant to Rule 428(b). Do all Rule 428(b) documents need to be described pursuant to Item 2 of the Form S-8?

Answer: No. [Feb. 27, 2009]
-5/14/2014

RE: New spin on this very old question:

As we all know, Item 12 of Form S-3 requires the documents listed therein to be "specifically incorporated by reference . . . listing all such documents." For that reason, issuers list and specifically identify all of documents incorporated by reference (identifying each 10-K, 10-K and 8-K).

Item 3 of Form S-8 does not use that kind of exacting language, which has led many issuers to specifically name the 10-K only while generally incorporating "all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by" the 10-K. Others, of course, specifically name/identify all of the incorporated reports--which has always been my personal practice.

Under the hyperlink rules, is the ability to generally incorporate "all other reports" an acceptable practice? Rule 411(d) under the '33 Act requires us to "[i]nclude an active hyperlink to information incorporated into a registration statement or prospectus by reference if such information is publicly available on the Commission's Electronic Data Gathering, Analysis and Retrieval System." All of our 10-Qs and 8-Ks are on EDGAR, so how can we satisfy this requirement if we incorporate (without naming them individually) "all other reports"? Because of the hyperlink rule, it seems that we must individually list all of the reports incorporated by reference to allow for the hyperlinking.
-3/10/2021

RE: I think your approach is the correct one. I also took a spin through the latest EDGAR filings section of the SEC's website and based on that rather random review, it appears that although the practice isn't universal, most companies do include hyperlinks to the filings that are incorporated by reference in their S-8s.
-John Jenkins, Editor, TheCorporateCounsel.net 3/10/2021

We received a query on the following. Company A has a director nominated to Company B's board. Does Company A have to disclose the nomination as part of the proxy statement? If yes, is there SEC guidance/examples that help illustrate the approach?

RE: Item 401 only requires disclosure of directorships, and I think many companies would be inclined to take that requirement at face value, and be comfortable not disclosing a situation in which a director has been nominated, but not yet elected, to another board.

That may be a defensible position in many instances, but I think it is important to consider all of the surrounding facts and circumstances before concluding that this information isn't material. For example, if the other company was a related party, or if the company waived a limitation on board service to permit the individual to serve on an additional board, a determination may be made that the information is material and should be disclosed in order to avoid the proxy statement being misleading.

One example that occurs to me is Sprint, which was controlled by Softbank prior to the T-Mobile deal. Its 2017 proxy statement contains detailed disclosure about its ties to Softbank, and also includes disclosure that its CEO had been nominated to serve as a director of Softbank. See p. 5 of Sprint's Proxy Statement.
-John Jenkins, Editor, TheCorporateCounsel.net 3/9/2021

Of course these are a hot item this season, but what is the usual process for eliciting the requisite information - actually attaching the matrix as an appendix to the D&O questionnaire? Asking the matrix questions in narrative form in the D&O questionnaire? Something else? Thanks as always for any insight!

RE: I'm sure there are a number of different approaches taken, but the D&O questionnaire likely has a role to play in most. I think the process starts with the board's or governance committee's development of a list of the skills that it believes are necessary to have represented on the company's board of directors. Assessing that would be a process that involves input from individual directors concerning the skills they believe they bring to the table and from the board or governance committee as a whole.

The D&O questionnaire is a useful tool in gathering that information, particularly in the case of a new nominee to the board. See the discussion beginning on p. 24 of our "D&O Biographical/Director Qualifications & Skills Disclosure Handbook" and the sample question that appears in Appendix B to the handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 3/9/2021

On the cover page of Form 10-Q and Form 10-K, a SRC checks the "smaller reporting company" box. (It has always been a SRC, even after the recent rule changes to the SRC definition). Should the issuer also check the box for "non-accelerated filer"? It is my understanding that, after the SRC definition was revised, some issuers may be SRC but also be an accelerated filer (if they have public float of $75 million or greater). I was just wondering if SRCs should now also check the appropriate box to designate their accelerated or non-accelerated filing status. Thoughts?

RE: Yes, it is possible for an issuer to be both. It should check all applicable boxes on the cover page. See this Kilpatrick Townsend memo.
-John Jenkins, Editor, TheCorporateCounsel.net 1/30/2020

RE: John's answer sounds correct to me, but I am curious because in reviewing several recent SRC 10-K filings, none of them had both boxes checked, only the SRC box. It seems to me that in addition to being a SRC, each SRC would be either a NAF or AF. But the ones I reviewed only had the one box checked. I wonder why that is the case? I know there used to be an instruction on the cover that said don't check the NAF box if you're an SRC, but that instruction was removed. I wonder if it's just habit that SRCs aren't checking the NAF box or is there a reason? Any thoughts?
-3/9/2021

An insider at a public company has a tax obligation to that company. The amount of the tax obligation is around $250K and the public company is considering forgiving the repayment obligation. There is a written tax obligation letter between the company and the insider. Would this be considered a modification to a loan to an insider for SOX 402 purposes?

RE: I preface all answers to SOX 402 questions with an acknowledgement that I don't know the definitive answer, and I'm not sure anyone does. I do know that the 25 firms memo took the position with respect to grandfathered loans that forgiveness should not be regarded as a modification, and you may want to review the analysis there to see if it may have some application to your situation. Depending on the facts and circumstances, you may be able to argue that the tax obligation does not involve a "personal loan" - and that topic is also discussed in the 25 firms memo.

However, this is an area where the prohibition is very broad, and the interpretive guidance practically non-existent, so I think any decision to forgive this obligation would carry a meaningful risk of violating Section 402's prohibition on loan modifications.

The 25 firms memo and other resources on Section 402 are available in our "Loans to Insiders" Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 3/9/2021

If a director ceased being a director sometime during 2020 (whether because he/she did not stand for re-election or resigned), he/she would not have to be included in the beneficial ownership table for the 2021 Proxy Statement correct?

RE: That's right. See p. 9 of our "Beneficial Ownership Table Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 3/9/2021

We are trying to clean up the exhibit list for a pubco's Form 10-K and want to make sure we are approaching the new Item 601(b)(10) standard the right way. I understand that Item 601(b)(10)(i) defines material contracts to include agreements that are to be performed in whole or in part after the filing date. This suggests that contracts for which performance has been completed can be deleted from the exhibit list (assuming this is not a newly reporting registrant). There are several contracts that have been terminated, that when entered into were material to the pubco, but have some remaining provisions that survived termination like reps and warranties, and indemnification obligations. If the pubco no longer views these "terminated" contracts as material, I assume they can be removed from the exhibit list. In addition, a few contracts have been recently terminated (since the beginning of 2021) and they are described in the Form 10-K relating to transactions in 2019 and 2020. The way I read Item 601(b)(10), the performance standard relates to the date of filing, not the date of the report. Therefore, if there is no performance after the date of the Form 10-K filing, these can also be removed from the exhibit index. Do you agree?

RE: If performance has been completed prior to the filing date and you're not dealing with a newly reporting registrant, the contract no longer needs to be filed. I also think that your analysis of terminated contracts is the right way to look at them. If the registrant has determined that they are no longer material, then the fact that some lingering post-termination obligations survive should not preclude it from determining that they no longer need to be filed.
Item 601(b)(10) speaks of contracts that are to be performed in whole or in part "at or after the filing," so I think your approach to the recently terminated is consistent with the requirements of the line item.

For more information, see the discussion beginning on p. 50 of our "10-K & !0-Q Exhibits Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 3/9/2021

We are a publicly-traded company. 3 years ago we sold convertible preferred stock to a handful of investors from a registration statement. All of the preferred shares are still outstanding. We would now like to induce the holders of the preferred stock to convert their preferred shares into common shares. In order to facilitate the conversion, we are planning to offer the preferred shareholders warrants to purchase common stock if they convert their preferred into common. My question is (tender offer issues aside) whether we can offer the warrants to the holders on a private placement basis - i.e., are we somehow prohibited from doing this under an integration analysis because the preferred shares were sold in a registered transaction and the warrants would be issued in a private placement? Thank you.

RE: I've never seen this directly addressed, and it doesn't seem to fit neatly into the revised integration regime. Nevertheless, I think the answer to this is yes, the warrants could theoretically be offered in a private offering, without that offering being integrated with any ongoing offering of the underlying shares issuable upon conversion. That's because I think there is a good argument that this proposed transaction should be viewed as a separate and distinct offering from the ongoing offering of the underlying securities.

I think what causes concern from an integration standpoint is the temptation to conclude that you're modifying the terms of an existing registered offering by using the warrants to induce conversion. Viewed that way, the transaction looks like a single offering, and thus could be viewed as running afoul of the concept that "what starts as a registered/exempt offering must finish as a registered/exempt offering."

But there really aren't any changes to the registered offering - investors will still have the right to convert on existing terms. I think this situation is better analogized to an exchange offer. Rather than tinkering with the terms of an existing offering, you're instead making a separate offering of a new security in exchange for the existing convertible securities. That new security includes an amount of common shares equal to those that may be acquired upon conversion of the outstanding securities, together with a warrant to purchase additional shares.

The purpose of the offering may be to induce conversion, but it is not being accomplished through any alteration of the terms of the existing offering. Instead, the company is making a separate offer, which I think may be structured as a private placement if the other conditions of Reg D are met.
-John Jenkins, Editor, TheCorporateCounsel.net 3/8/2021

What has the SEC done to the EDGAR filings page?! A few days ago it was very easy to locate filings....now it is cluttered with all kinds of distracting information.

RE: Wow, that is a shock to the system. It looks like you can still search for filings in the "search table" box in the bottom half of the page, if you click on "view filings" in that top left box. Maybe this is a baby step toward the "company landing page" that they've been talking about for a while. On the plus side, it's exciting that you can now search text in documents right from the Edgar page...
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 3/6/2021

Is there any impact on the proxy statement filing deadline at all when a SRC transitions to a SRC & Accelerated Status filer? or does it simply remain as 120 days from the fiscal year end?

RE: Nope. The 120 day filing deadline for incorporating Part III information by reference to the proxy statement is contained in Instruction G. 3 to Form 10-K and is unrelated the the company's filer status.
-John Jenkins, Editor, TheCorporateCounsel.net 3/6/2021

We are trying to determine which states do not recognize electronic voting as a last contact for escheatment purposes. Does anyone know of a handy resource / survey that provides this information? In particular, we are interested in DE law (but would like to know generally if there are other states we should be concerned about).

RE: I'm not aware of any such resource, but I think you'll likely find a lack of clarity on that issue and others relating to the treatment of online contacts. Here's a quote from Equiniti's 2018 document "Escheatment 101" that's one of the resources available in our "Escheatment" Practice Area:

"Melissa McCarthy, VP Product Management at EQ, explains, 'States will often tell you what ‘isn’t’ contact, but are not at all clear or consistent as to what is. For example, we see that many states will accept online contact as owner-initiated contact when analyzing information during an audit, but most states do not have specific language on online-contact when it comes to examining accounts for annual reporting. With so many forms of digital communication now available, we would appreciate clearer guidance here.'”

Your best bet may be to reach out to an unclaimed property service provider. We have a list of those in the Escheatment PA as well.
-John Jenkins, Editor, TheCorporateCounsel.net 3/5/2021

If a company has "gone dark" but subsequently wants to become a reporting company again (by filing a Form 10), I've heard that it may need to get its 1934 Act filings "current" again, but I have not been able to locate the basis for this assertion. Am I understanding correctly that a company would need to file all of the 1934 Act reports that would have been required to be filed during the "dark" period if it wishes to re-register? If so, I would appreciate reference to the appropriate rule or guidance. Thanks in advance.

RE: I don't think there is any rule or guidance out there, rather my experience has been that this comes up in the course of the review of the registration statement. First off, the Staff may try to figure out in the course of that review if the company actually can file the Form 10, because if the company never filed a Form 25 or 15 or had its registration revoked under Section 12(j), then its registration never actually went away so there is no need to "re-register." Also, in the course of the review, the Staff may be concerned about a company seeking to "re-register" when the company had disregarded its reporting obligations in the past by ceasing to make required filings.
-Dave Lynn, Editor, TheCorporateCounsel.net 4/18/2013

RE: Back to this topic -
(1) if the company did, however, properly file a Form 15 years ago (over 10 years ago) to suspend its obligation, do you think it is reasonable to take the position that they do not have to go back to file all of the 10-Ks and 10-Q since the Form 15. I am hoping that either a Form 10 or a Super 8-K could solve this for them.

(2) Assuming you agree with the above, the company, which has had little to no operations in recent years, would comply with full disclosure for a shell / smaller reporting company and follow scaled disclosure. Agree?
Thank you.
-3/5/2021

RE: Yes, I do. If you've properly filed a Form 15, your reporting obligations were suspended, and there's no need to go back and make up filings that you were not under an obligation to file in the first place. If you've now exceeded the Section 12(g) threshold, then you'll be required to file a Form 10 registering the shares under the Exchange Act. If you qualify as a smaller reporting company within the meaning of Item 10(f) of Regulation S-K, then you could provide scaled disclosure.
-John Jenkins, Editor, TheCorporateCounsel.net 3/5/2021

The ever-so-helpful CCR Handbook states that “Directors and Executive Officers as a Group” Includes Departed NEO. The handbook goes on to say that "The disclosure of securities owned (as of a recent date) by the “directors and executive officers as a group” should encompass those persons serving as executive officers and directors as of the date of the proxy statement (i.e., persons named under Item 401), and therefore might not include some of the individuals named in the table.” What categories of "individuals named in the table" might not be included in the "directors and executive officers as a group" disclosure?

RE: A departed NEO will show up individually in the table, but that person's shares would not be included in the "all directors and executive officers as a group" disclosure. Here's an excerpt from the March 2005 issue of The Corporate Counsel:

"As discussed above, the beneficial ownership table includes a line for all directors and executive officers as a group. We take this to mean all persons who are directors or executive officers as of the date of the table. Thus, a person who dies or is terminated before the date of the table would not be included in this category (even if an NEO), and a person who becomes an executive officer just prior to the date of the table would be included."
-John Jenkins, Editor, TheCorporateCounsel.net 3/5/2021

We have a situation where the board is evenly divided. Each half wants to remain on the Board, and neither wants the other half to be nominated for election at the next annual meeting. 1) Am I correct that it must be the Board that nominates the directors for election (unless someone is doing a shareholder proposal under 14a-8)? 2) If the Board is unable to act because they are split 50/50, it would seem that they are unable to nominate directors for the meeting - correct? 3) If #2 is true, then presumably they would need to postpone the proxy / meeting until such time as the board is able to act. ---> Management cannot act instead of the Board to nominate directors (unless acting as a 14a-8 shareholder), right? --- > No benefit in filing a proxy and having a meeting for ratification of the auditor and say on pay, right? And regardless, the Board would need to approve, management could not just unilaterally act. --- > Client is not on the NYSE or Nasdaq but of course could get dinged by the OTC or an investor could petition for a meeting under state law. Any other thoughts on this situation or anything I've missed / misstated? Thank you!

RE: That's a real mess. In terms of who can nominate directors, that's a matter for state corporate law and your charter documents. Typically, shareholders would have a right to nominate directors, subject to whatever advance notice or other procedures are laid out in your bylaws. The board controls the proxy process, so they decide who will be on the board approved slate that appears in the proxy statement.

Unless you have a means of resolving board deadlock in your charter documents, then I don't know how the board nominates a slate. Generally, boards are required to act by a majority vote at a meeting at which a quorum is present, and you don't appear to have a majority either way. You should confirm the vote required by reviewing your state of incorporation's corporate law and charter documents.

Rule 14a-8 does not provide a mechanism for nominating directors. See Rule 14a-8(I)(8). Shareholders would have the right to include their nominees in the company's proxy statement only if you had some sort of proxy access bylaw.

Postponing the meeting seems like the logical step, although you are correct that (at least in Delaware), a shareholder could march in to Chancery Court if it's been more than 13 months since your last annual meeting and petition the court to order one to be held.

There are likely many other issues that you need to consider, and there's no way I can address this situation comprehensively in a Q&A forum. I would advise you to check with your internal ethics counsel if you're in a law firm or consult with outside counsel if you're in-house about some of the potential ethical pitfalls associated with being counsel to a company with a divided board.
-John Jenkins, Editor, TheCorporateCounsel.net 3/4/2021

A shareholder submitted a proposal and includes a title for the proposal. Does a company need to include the title verbatim in the proxy (e.g., in the description of the proposal in the TOC and Board recommendation re: proposal)? Proposal says "Proposal to improve energy efficiencies" but can we instead say, "Proposal to change energy usage" or something like that? The title of the proposal is not included in the resolution part. Thanks!

RE: No, I'm afraid the Staff views the title as part of the proposal and the company is not permitted to change it unilaterally. You'd need to go through the no-action letter process. See the discussion on p. 38 of our Shareholder Proposal Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 3/4/2021

At the last Audit Committee meeting, the Committee failed to approve the Report of the Audit Committee as they ran out of meeting time. If the Audit Committee chair simply circulated the Report of the Audit Committee by email to the other Committee members to approve, do you think that is sufficient? Hate to circulate a unanimous written consent solely to approve what is considered a ministerial act. Or perhaps the Audit Committee can simply ratify this in the next quarterly meeting which would occur after the proxy statement filing? Again, ministerial.

RE: Preparing the report required by Item 407(d)(3) is one of the committee's fundamental responsibilities (if you're an NYSE-listed company, it's one of the things that needs to be laid out in your charter). That being said, there's no explicit requirement for the committee to formally approve the report at a meeting or by written consent. Since that's the case, I think you could circulate the report among the committee members as you suggest and get an informal sign-off in advance of the filing. However, I would recommend ratifying that action at the next audit committee meeting so that you have a formal record of the fact that the members of the committee had signed-off on it before it was included in the proxy statement.
-John Jenkins, Editor, TheCorporateCounsel.net 3/4/2021

The principal auditor of a public company does not assume responsibility for the audit of one prior year of financials for a wholly-owned subsidiary of the public company and the audit report of the principal auditor notes that the opinion, as it relates to that subsidiary for that one year is based solely on the report of the other auditor. Both the principal auditor report and the subsidiary auditor report are filed with the annual report for the public company for that year. In the subsequent annual reports for the two years following, the principal auditor's report continues to include the language that, regarding that one prior year of financials of the wholly-owned subsidiary, the principal auditor does not assume responsibility and its report is based solely on the audit by the other auditor. Does the same audit report of the "other auditor" need to be re-filed in every year that it is referred to by the principal auditor report? Or is it sufficient (and does it satisfy the S-X 2.05 filing requirement) to file the report once with the initial annual report?

RE: I've never encountered that particular situation, but my gut reaction is that a signed report would continue to be required for any period required to be covered by the main auditor's report that relies on it.
-John Jenkins, Editor, TheCorporateCounsel.net 3/4/2021

Is anyone aware of the practices used by ISS/Glass Lewis/other institutional shareholders to make diversity assessments with respect to company directors? Clearly, self-identified characteristics described by a company in a proxy are dispositive, but for companies without diversity graphics, pictures (which are not always dispositive) or narrative self-identified characteristics, do ISS/Glass Lewis/others use other procedures (Internet searches and the like) to obtain this information, or is the proxy a company's only vehicle to convey this information? I recall ISS launching an NEO/direct "data confirmation" information gathering last summer, but my thinking is focused around board additions since such time (or for companies that didn't respond at that time).

RE: ISS's new QualityScore methodology incorporates racial and ethnic diversity among directors, so one important source of that information is likely to be companies themselves through the data verification process.
-John Jenkins, Editor, TheCorporateCounsel.net 3/4/2021

If an equity award distribution or other similar administrative event is a day or two before a company's cash dividend payable date, is it common for the company to apply the dividend payment to the event (even though it precedes the payable date to all shareholders)? This doesn't treat all shareholders the same, but I'm wondering if as a practical matter it makes a difference, or if this is a customary practice given that it is, or at least seems, low risk and offers significant administrative convenience. Thanks.

RE: I've never seen it, and the optics aren't very good.
-John Jenkins, Editor, TheCorporateCounsel.net 3/3/2021

What is everyone seeing with respect to whether companies are allowing shareholders to call in and ask questions on a live telephone line? That was not common last year, but with the Glass Lewis and ISS statements and emerging best practices, it seems like something that would be encouraged in the spirit of allowing shareholders to participate as much as they were able to in person before. However, there are obviously some risks associated with giving shareholders a live line. Thoughts?

RE: I haven't heard specific reports about this year's meetings, but some companies did that in 2020. Check out the section of Doug Chia's blog on GM's annual meeting that discusses the Q&A session, which included a dedicated telephone line for shareholders.

Given the criticisms of Q&A sessions last year and the fact that the mantra is "make the virtual meeting as close to the physical meeting as possible," I assume that more will use a live phone line in 2021.This piece from the Shareholder Service Optimizer contains some suggestions on how to incorporate a telephone questions into your Q&A session.

You may also want to take a look at some of the materials in the "Best Practices" section of our "Virtual Shareholder Meeting" Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 3/3/2021

Rule 253(b) of Reg A permits an issuer to adjust the offering price by up to 20% by means of an offering statement supplement if the initial offering price was omitted and only a price range provided. May an issuer likewise adjust the offering price of a Reg A offering statement by means of an offering statement supplement under Rule 253(g) (rather than by amendment) if the initial offering price is a set amount rather than a price range?

RE: I think the answer to that is yes, although I'd recommend you contact the Staff to confirm. Rule 253(b) and its instruction aren't a model of clarity, but I think the concept is that you can increase by up to 20% over the existing maximum offering price. I don't think whether it's expressed as a range or as a fixed price should matter. See Securities Act Rules CDI 182.13:

"Question: How does an issuer calculate whether the change in price in an offering exceeds 20% of the maximum aggregate offering price?

Answer: The Note to Rule 253(b) provides that a change in price representing no more than a 20% change in the maximum aggregate offering price in a qualified offering statement may be made pursuant to an offering circular supplement and does not require a post-qualification amendment. The 20% change may be measured from either the high end (in the case of an increase in the offering price) or the low end (in the case of a decrease in the offering price) of that range. In no circumstances, however, may this provision be used to offer securities where the maximum aggregate offering price would result in the offering exceeding the limit set forth in Rule 251(a) or if the change would result in a Tier 1 offering becoming a Tier 2 offering. [November 17, 2016]"
-John Jenkins, Editor, TheCorporateCounsel.net 3/2/2021

Do you have a sense of whether the large accelerated filers that have been filing their 10-Ks have been doing anything differently with regards to disclosure of "critical accounting estimates," in light of the recent Item 303 amendments? Depending on which law firm memo you read on the new rules, the Item 303(a) amendments are really looking for analysis and disclosure beyond copying the notes to the financials, or they are just more of the same thing the SEC has been asking for since 2003 but not getting.

RE: Probably the biggest change that the Item 303 amendments bring to the MD&A is to eliminate the contractual obligations table. However, to take advantage of that you have to adopt the whole new item 303. The biggest addition is to add Critical Accounting Estimates (CAE). There was previous SEC guidance that suggested companies should include this but now it’s added to Item 303. One wrinkle is that the new item says companies should include both qualitative and quantitative disclosure about CAEs. I don’t think most companies have done a good job with the quantitative part. Frequently this section in MD&A is just a copy-over of the accounting policies FN from the financial statements. If you examine the new language in 303 I think you may find many CAE disclosure to be deficient.

In my experience, most clients have not early-adopted the amendments.Part of the problem was that the adopting release did not get published in the Federal Register until mid-January and at that point people were not inclined to change gears and do the work to ensure compliance with the new rules (in part because of the new CAE disclosures but also because there are changed disclosures surrounding the comparison of financial results and capital resources).

I’ve been perusing recently filed 10-Ks and it looks like most of them are using the old version of 303 rather than early adopting the amended version. They have retained the contractual obligation table and most of the CAE disclosures don’t look compliant with the new rule. Although companies weren’t doing a great job of following the prior guidance on CAEs, which was included in a 2003 interpretive release. Below is an excerpt from the final MD&A release in which the staff summarizes some of the 2003 guidance:

This guidance further stated that if critical accounting estimates or assumptions are identified, a registrant should analyze, to the extent material, factors such as how it arrived at the estimate, how accurate the estimate/assumption has been in the past, how much the estimate/assumption has changed in the past, and whether the estimate/assumption is reasonably likely to change in the future. This guidance also stated that a registrant should analyze its specific sensitivity to change based on other outcomes that are reasonably likely to occur. Any disclosure should supplement, not duplicate, the description of accounting policies that are already disclosed in the notes to the financial statements, and provide greater insight into the quality and variability of information regarding financial condition and operating performance.

I don’t see many disclosures that include much quantitative information at all, much less any sensitivity analysis. One that I saw filed yesterday was Quaker Chemical. They did a good job on a couple of the CAEs giving quantitative sensitivity analysis. But, they also had it in their 2019 10-K under the former SEC guidance.

I saw Iron Mountain which I think is using the amended Item 303 and includes some sensitivity and other quantitative information about CAEs.

I’d say that the staff is probably hoping for more analysis and disclosure, but may end up getting more of the same.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 3/2/2021

How do you handle financial statements that go stale in between the date of effectiveness of the registration statement (S-4) and closing the merger? In this scenario, a non-reporting entity is merging with a SPAC so I'm curious if we need to file fresh financials for the non-public entity and, if so, when such filing is required.

RE: The timeliness of the financial statements included in a registration statement is determined by reference to the effective date. See Rule 3-12 of Regulation S-X. In many situations, if a company is approaching a staleness date, it will update the registration statement to include more recent financial information, if available, or if full financials aren't available, the company will at least provide some sort of summary of the information about the more recently completed quarter that is available. That's done either on the company's own initiative or in response to Staff comments. (If you are close to a staleness date, the Staff may not accelerate effectiveness of the registration statement without some sort of updating information.)

Whether or not to provide further information after effectiveness and prior to the shareholder vote depends on an assessment of its materiality. In some cases, new financial information that is determined to be material may be provided by means of a prospectus supplement. If the changes to the registration statement resulting from the new financial information are so significant that they involve a "fundamental change" to the registration statement, then a post-effective amendment may be required.
-John Jenkins, Editor, TheCorporateCounsel.net 3/2/2021

Having been familiar with the old system where you would find the S-3 to do a takedown off of in the FINRA deal cabinet and then set up a filing off of that, I am just looking for confirmation that if you have an effective shelf for which you have done the base FINRA filing and paid the fees associated with the amount registered under that shelf, that when you do a takedown off of that shelf there is nothing that you need to do in terms of filings unless FINRA requests information?

RE: I haven't worked on a deal that requires a filing since the rule changes went into effect, but I think that's correct. Here's an excerpt from FINRA's Notice to Members on the implementation of the amendments to Rule 5110:

"Shelf offerings by issuers that do not meet the “experienced issuer” definition continue to be subject to Rule 5110’s filing requirement. However, to facilitate the ability of issuers to take advantage of favorable market conditions on short notice and to quickly raise capital through takedown offerings, the amendment streamlines the filing requirements for shelf offerings to require that only the following documents and information must be filed: (1) the Securities Act of 1933 (“Securities Act”) registration statement number; and (2) if specifically requested by FINRA, other documents and information set forth in Rule 5110(a) (4)(A) and (B).

For these shelf offerings, FINRA will access the base shelf registration statement, amendments and prospectus supplements in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and populate the information necessary to conduct a review in the FINRA’s Public Offering System. Upon filing of the required registration statement number pursuant to Rule 5110(a)(4)(E)(i), FINRA will provide the no objections opinion. To further facilitate issuers’ ability to timely access capital markets, FINRA’s review of documents and information related to a shelf takedown offering for compliance with Rule 511023 will occur on a post-takedown basis."
-John Jenkins, Editor, TheCorporateCounsel.net 3/2/2021

I'm wondering how common it is for analysts to give companies a preview of the types of questions they plan to ask on earnings calls. Of course, Reg FD and other practicalities, along with good sense, would prevent analysts and company IR from coordinating on specific questions - at least I would think, but let me know if I am incorrect - but I'm wondering if I am missing accepted or common practices that are in place outside of the clients with whom I work.

RE: McDermott Will did a survey on earnings call practices about 5 years ago. You may find it useful to take a look at it and the other materials in our "Earnings Releases" Practice Area. Here's what they had to say about interactions with analysts in advance of the call:

Companies appear to be uniformly averse to publishing their call scripts ahead of time (97 percent don’t do it). There is a split, however, on the approach taken once earnings results are published. During the brief period between an earnings release and the earnings call, 43 percent of the companies surveyed take questions from analysts, while 57 percent do not take any calls from the Street. Those respondents that do accept calls are split on the topics discussed. Half reported that they place no restrictions on topics discussed, which seems perilous from a Regulation FD perspective.
-John Jenkins, Editor, TheCorporateCounsel.net 3/1/2021

We have reviewed the recent changes to New York's Martin Act (https://ag.ny.gov/sites/default/files/text_of_revised_adopted_regulations_part_10.pdf) which provide for the filing of a Form D via EFD to satisfy the Rule 506 notice filing requirements. It appears that there may still be a lingering broker-dealer registration requirement for Non-FINRA members under Section 10.3(d). Are you aware of any supplemental filings (including BD filings) required in NY if an Issuer files its Form D via EFD in NY to satisfy its Rule 506 notice filing obligations?

RE: There's a fact sheet that the AG put out in December on broker registration issues.
-John Jenkins, Editor, TheCorporateCounsel.net 3/1/2021

RE: Thank you. Do you take the text of this release (specifically, that "All issuers of non-covered securities shall register as Broker-Dealers by filing...") to mean that Issuers of "Covered Securities" need not register if the offering has been filed via a "Rule 506 Offering [under Sections 18(b)(4)(F) of the Securities Act of 1933])] Notice File Form D through NASAA’s EFD system."?
-3/1/2021

RE: It appears that the Form D filing essentially serves as an issuer's dealer registration. Here's what McGuire Woods' memo on the changes in NY had to say about issuers filing obligations:

"Prior to adopting the amended rules, the New York Department of Law required an issuer conducting a Rule 506 offering of securities in New York to register as a dealer prior to making the first offer or sale in New York by filing a Form 99 with the Investor Protection Bureau. This dealer registration was valid for four years. The Form 99 filing was required to be accompanied by a State Notice and Further State Notice filed with the Miscellaneous Records Bureau and a Form U-2, Consent to Service of Process, filed with the Division of Corporations. However, a number of securities practitioners had taken the view that New York’s filing requirements for Rule 506 offerings were inconsistent with, and pre-empted by, The National Securities Markets Improvement Act of 1996 (NSMIA). Consistent with this position, many issuers in Rule 506 offerings relied on federal pre-emption in lieu of registering as a dealer in New York. This view was supported by a position paper prepared by The Committee on Securities Regulation of the New York State Bar Association in August 2002.

The amended rules eliminate the Form 99 filing requirement, as well as the requirements to file a Notice and Further State Notice with the Miscellaneous Records Bureau and to file a Form U-2, Consent to Service of Process, with the Division of Corporations.

The Form D filing in New York provides a four-year dealer registration period that begins on the date of such filing. The state filing fee associated with the new Form D filing will be either $300 or $1,200, depending on the size of the offering, which is consistent with New York’s historical filing fees."

Refer to the other materials in our "Blue Sky Laws" Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 3/1/2021

Hello, We have a client who has historically had a separate proxy card for its ESOP holders. However, this year, they would like to eliminate the need for a separate ESOP proxy card by including information regarding how ESOP holders can vote on the registered holder proxy card. Is this something you've heard of before? It seems like ESOP holders should be getting their own voting instruction form so that they can direct the plan trustee on how to vote their ESOP shares. Any insight would be very helpful. Many thanks.

RE: Raymond James used a single proxy card for both registered holders & ESOP participants last year. Here's what it looked like:
-John Jenkins, Editor, TheCorporateCounsel.net 3/1/2021

We've received boilerplate correspondence from a shareholder organization that purports to highlight the requirement to include disclosure of related party transactions with our 13G filers. I am aware of this SEC interp: 2.06 A contract between a reporting company and the fund manager of the company’s pension plan, who is also a more than 5 percent beneficial owner under Rule 13d-3, should be disclosed under Item 404(a) where the amount involved in the contract exceeds $120,000. [March 13, 2007] We do not have this situation. The only arguable transaction we have with our 13G filers is that our 401k plan has some of their index funds as investment options and so our plan participants pay fees under those funds. (The 401k plan is administered by a financial service provider that is not a 13G filer). The amount is is right around the RPT disclosure threshold. I am not convinced this situation is analogous to the interp or triggers disclosure under 404(a). First, is the registrant really a participant in the transaction? This seems like a stretch. Second, Instruction 7 to 404(a) says "7. Disclosure need not be provided pursuant to paragraph (a) of this Item if: (a) The transaction is one where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority;" Here, the rates are just the standard competitive 0.0X% that index managers charge and participants have other options. It's not a perfect fit, but I just don't think this is relevant disclosure that was intended to be picked up by 404(a). Thoughts?

RE: I think I agree with you, and I know that this is a situation that hundreds (if not thousands) of public companies may find themselves in and haven't provided any proxy disclosure about, but I also think this may be exactly the kind of situation that could serve as the basis for a strike suit - particularly if you've already been singled out.

I know that the idea of the company being a participant in a transaction involving a plan participant's elections among the 401(k) plan's fund options seems like a stretch, but plan sponsors are ERISA plan fiduciaries, even if the plan is administered by a third party. The definition of the term "participation" is very broad for purposes of Item 404(a), and it seems like an argument could be made that because of its fiduciary responsibilities and role in selecting and monitoring the plan administrators and the investment options they provide, the plan sponsor is a participant in the investment transactions made by a plan participant with a particular fund. See the discussion on p. 18 of our "Related Party Transactions Disclosure Handbook" to get a sense of how broad the "participant" concept is.

Personally, I think that this scenario stretches the participation concept farther than it was intended to go, and I think your analogy to the concept behind Instruction 7 is a fair one. But I'm not aware of any Staff guidance on that topic, and I would suggest that you raise the issue with the Staff. My concern is that a plaintiff's firm may have done some digging on this issue and may be considering making it this year's "flavor of the month" for proxy disclosure strike suits.
-John Jenkins, Editor, TheCorporateCounsel.net 2/28/2021

If an issuer was delisted and then deregistered, and is now in the process of re listing, but has been keeping current with its reports, assuming they can incorporate by reference in their Form 10 the disclosures made in their most recent 10-K and 10-K/A (for Item III) disclosures? Most examples I see only incorporate by reference to information statement - I think its just an uncommon fact pattern to have 10K and/or proxy on file, but is there anything out there on this?

RE: I haven't seen this fact pattern addressed, but based on the language of Form 10 and Rule 12b-23, I don't see any reason why you couldn't do that.
-John Jenkins, Editor, TheCorporateCounsel.net 2/26/2021

If one director resigns midway through 2020 and another director did not stand for re-election at the 2020 annual meeting, do either of those directors need to be included in the 2021 proxy statement director compensation table since they are no longer directors?

RE: Yes. See Reg S-K CDIs 127.01 & 127.02

Question 127.01

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director for part of the last completed fiscal year, even if the person was no longer a director at the end of the last completed fiscal year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [January 24, 2007]

Question 127.02

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director during the last completed fiscal year but will not stand for reelection the next year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [January 24, 2007]
-John Jenkins, Editor, TheCorporateCounsel.net 2/26/2021

Options are granted pursuant to a formula plan and vest immediately upon grant. The number of options to be granted (and vested) are based on the market price, but the dollar value of the options is fixed. How should this be disclosed in the beneficial ownership table? While we know the value of the options to be granted/vested within 60 days, because the number is based on market price, we don't know how many shares are subject to the option as of the beneficial ownership table date. How should this be disclosed in the beneficial ownership table?

RE: I'm not aware of any guidance on this issue, but it seems to me that the only practical way to approach it would be to include in the table the number of shares that would be issuable based on the market price on the date as of which information is provided in the beneficial ownership table. The table should then be appropriately footnoted to describe the terms of the award, the fact that the amount in the table reflects the number of shares that would be issuable under the formula plan based on the market price on that date, and that the actual number of shares awarded under the formula will depend on the market price on the date of the award.
-John Jenkins, Editor, TheCorporateCounsel.net 2/26/2021

"Company A", a public company, creates a shell company, "Company B" into which it plans to merge in order to change the domicile of incorporation. Company B will be the successor issuer to Company A, and plans to file a Form 8K12B announcing the succession transaction under Company A's file number. No Form 25 will be filed by the stock exchange, as the succession transaction is deemed by the staff of the exchange to be a substitution listing event not requiring delisting securities. Following the 8K12B, what, if any, filing obligations does Company A have? CDI 150.1 states that "When two reporting companies consolidate, each of the predecessor companies should file a Form 15 in connection with the succession." I assume that by highlighting the need for a Form 15 in this instance would mean a Form 15 would not be required when the succession transaction involves just one successor entity and one predecessor entity. Is this correct?

RE: I think Company A needs to file a Form 15. For example, when Google did its holding company reorganization with Alphabet, Google filed a Form 15. I think the reference in the CD&I is meant to address the unique circumstances presented by a state law "consolidation," which is a merger alternative where two companies are consolidated into a new, third entity.
-John Jenkins, Editor, TheCorporateCounsel.net 7/13/2017

RE: Thanks, John. I've seen many samples of companies filing a 15, but can't find the "why"- and we don't want to be in a position where we're deregistering securities that shouldn't be, given the successor status. can you point to any C&DIs or regs that would clarify this position?
-7/13/2017

RE: I think the answer is that the original filer still has a Section 15(d) reporting obligation that it needs to address - which springs back into existence once its shares are no longer registered under Section 12. You're kind of "going dark," and if you want to suspend the company's reporting obligations prior to year end, you need to file a Form 15. Take a look at SLB 18 & Rule 12h-3.
-John Jenkins, Editor, TheCorporateCounsel.net 7/13/2017

RE: On a related note, a Nasdaq-listed company is forming a holding company (Company X), which will constitute a substitution listing event with Nasdaq. The holding company (Company Y) will be a successor issuer and will file a Form 8-K12B. For Company X, we plan to file a Form 15 and Nasdaq said they would file a Form 25 "if requested." We planned on requesting the Form 25.

We noticed that in Google's holding company formation, the Form 25 and the Form 15 for the common stock were both filed on October 2, 2015. In a holding company formation context, do you not have to wait 10 days after the Form 25 to be able to file the Form 15?
-2/24/2021

RE: Sorry, I overlooked this one. Because Google delisted in connection with the formation of a successor issuer that would be listed on the exchange the Form 25 was filed under Rule 12d2-2(a)(3). There's a proviso to that rule that provides an exception to the 10 day requirement in the case of a delisting that is being effected under that section if "the exchange has admitted or intends to admit a successor security to trading under the temporary exemption provided for by § 240.12a-5." In that case, then the effective date of the Form 25 will "not be earlier than the date on which the successor security is removed from its exempt status."
-John Jenkins, Editor, TheCorporateCounsel.net 2/25/2021

Can someone clarify what Audit Committee requirements apply to a "Controlled Company" under Nasdaq rules in connection with an IPO? Nasdaq Rule 5615(c) appears to suggest that these companies must have at least 3 fully independent audit committee members at the time of the IPO ("It should be emphasized that this controlled company exemption does not extend to the audit committee requirements under Rule 5605(c)"), but another section in the same rule states "that a Company that has ceased to be a Controlled Company within the meaning of Rule 5615(c)(1) must comply with the audit committee requirements of Rule 5605(c) as of the date it ceased to be a Controlled Company". Thanks.

RE: I wish I could - that language seems like a complete non-sequitor to me, because it's pretty clear that the audit committee requirements in Rule 5605(c) apply to controlled companies as well. My best guess is that it may have something to do with not allowing controlled companies to back into the exception in 5605(c)(5), which provides that 50% owned subsidiaries of companies listed on another exchange that list non-equity securities on Nasdaq don't have to comply with the audit committee rules. (The more I think about it - I'm probably pretty off base with this last part)
-John Jenkins, Editor, TheCorporateCounsel.net 2/25/2021

RE: Here’s a transcript from our 2017 webcast on "controlled companies" might also be helpful as you work through issues: https://www.thecorporatecounsel.net/member/Webcast/2017/08_09/transcript.htm
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 2/25/2021

If a company reimburses a director for HSR filing fees associated with that director's personal HSR obligation, would that implicate the bright-line 120K compensation rule under Nasdaq/NYSE -- i don't think is director comp -- and audit committee prohibition against payments other than director fees?

RE: Having the company pick up the cost of an HSR filing that's a personal obligation looks a lot like a perk to me for purposes of Item 402 of S-K, so I'd be hard pressed to conclude that the NYSE would say it's not comp.
-John Jenkins, Editor, TheCorporateCounsel.net 2/25/2021

Subsidiary (non-reporting) of a Parent/Issuer (SEC reporting company) issues in a private placement Subsidiary warrants exercisable for Subsidiary shares. The Subsidiary shares are then exchangeable (via the Subsidiary charter) for Parent/Issuer Shares. Can Issuer register the primary issuance of those shares as opposed to the resale of the shares issued upon exchange of Subsidiary Shares? We are aware of the the metaphysical position that if the warrants are issued in a private placement, then the underlying shares, too, are considered to be offered in a private placement that may not be converted into a registered (i.e., public) offering by filing a registration statement covering exercise of the warrants. However, we understand that REITs used to register primary issuance of their shares in connection with the exchange of Units. We have also seen the primary registration of shares underlying warrants (although those warrants may have been registered and sol din a public offering). Since, in our case, there is an exchange of the Subsidiary Shares for Issuer Shares, is the analysis different so that the Issuer shares can be registered on a primary basis (as opposed for resale)?

RE: I'm not a REIT expert, but to my knowledge the concept that an offering that starts as a private placement must be completed as one is still the Staff's view.

Are the warrants immediately exercisable? If they are not exercisable for a period of one year, then even if you take he position that the subsidiary shares are equivalent to an ownership interest in the parent shares, you may be able to argue that the original issuance of the parent shares may be registered on a primary basis, because the warrant issuance would not be regarded as an ongoing offer of the underlying common stock.
-John Jenkins, Editor, TheCorporateCounsel.net 2/24/2021

The new S-K item on human capital requires a description of human capital resources and human capital measures and objectives "that the registrant focuses on in managing the business", in each case to the extent material to an understanding of the business. Statements by Jay Clayton and others have indicated that the SEC expects this to include quantitative disclosure. In last year's interpretative release on KPIs in MD&A, the SEC noted that "when preparing MD&A, “companies should consider whether disclosure of all key variables and other factors that management uses to manage the business would be material to investors, and therefore required.” The Commission also previously stated that companies should identify and address those key variables and other qualitative and quantitative factors that are peculiar to and necessary for an understanding and evaluation of the individual company. Such information could constitute key performance indicators and other metrics." The question this raises in my mind is whether, having concluded that a particular human capital metric warrants disclosure for purposes of Item 101(c), a company would logically next have to conclude (or would be on shaky ground if it did not conclude) that the same metric warrants disclosure in the MD&A, since the materiality analysis seems in the SEC's view to be the same in either case. And a related question is whether, in light of that, one ought to take into consideration the SEC's guidance on KPI disclosures in MD&A in how one characterizes human capital metrics for purposes of Item 101(c)?

RE: There certainly might be some situations in which the metrics used to provide the disclosure called for by Item 101(c) might have implications for the disclosures called for in Item 303, but I think despite the similar language used by the SEC in describing the disclosure obligations under the two line items, there’s not necessarily a presumption that the metrics relevant to the human capital discussion are also relevant to the MD&A section.

I think the reason for that is the basic principle that materiality isn’t determined in the abstract, but in context – and I think the subject matter of the line item disclosure called for by Item 303 governs the materiality assessment. In that regard, Item 303(a) says that “The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The discussion and analysis must focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition.”

Given the objective of the MD&A discussion, the fact that a company uses a particular metric to manage its human capital resources and that the SEC says that it is material in the context of the disclosure called for by Item 101(c) doesn’t necessarily mean that the same metric will be material to the discussion of financial information called for in the MD&A section.
-John Jenkins, Editor, TheCorporateCounsel.net 2/24/2021

For companies using electronic signatures (e.g., through DocuSign), what date are companies including on the signature page of the SEC-filed document? Historically, for Form 10-Ks for example, directors and officers would manually sign undated signature pages and the company would ultimately date the signature page the day of the filing. This has been a very common practice for companies. With electronic signatures where there is an electronic record of the signature date, what date should be included on the signature page of the filed document? In practice, companies submit the Form 10-K for signature a few days in advance of the actual filing (to ensure all signatures are received in time). How should the signature date on the filed document be handled in this instance? Are companies still dating it the date of the filing? Would the timing of obtaining signatures create any issues for the auditors?

RE: Here's the answer that Bryan Cave gave to that question in a recent blog, and in the absence of anything from the Staff to the contrary, I think it's a good one:

"If a company collects electronic signatures in advance of the filing date, when should the signatures be dated?

The company’s authentication process will be required to record the actual date and time of signature. However, a company should provide for the signature page to be undated and inform the signatory that the filing date will be added to his or her signature on the date of filing with the SEC (or if electronic signatures are solicited on the filing date, the company can add that date to the signature page)."
-John Jenkins, Editor, TheCorporateCounsel.net 2/23/2021

Say a registrant filed a Form S-3 shelf registration statement with $115M remaining. In a takedown involving an unwritten public offering, I'm thinking the maximum amount of securities that can be sold is $115M, such that it would be $100M in the main offering and $15M for the over-allotment option. In other words, we couldn't do a $115M main offering, and then issue additional shares in the shoe (i.e., such that the total amount sold would exceed $115M). Can I get a sanity check on this one? I suppose there could be some flexibility to upsize the offering under C&DI 244.03/Rule 462(b), to the extent the takedown depletes all the remaining amount registered on the shelf, but my main question is on the over-allotment option above, and whether that needs to be within the $115M registered maximum.

RE: You can't sell more than the amount of securities you have registered on a universal shelf, so if you're not a WKSI, unless you upsized through the Rule 462(b) process, you couldn't sell more than $115 million in the offering, including the value of shares sold upon exercise of the overallotment option. If for some reason the shoe wasn't exercised, then you would have $15 million in remaining availability on your shelf.

But if you do an offering and experience more demand, Rule 462(b) provides a mechanism by which you can increase the amount of the offering by 20%, which would allow you to increase both the primary shares and the overallotment shares.

WKSIs can file a new S-3ASR if they find themselves within insufficient shares under Rule 462(e). That new registration statement isn't subject to the 20% limitation applicable to registration statements filed under Rule 462(b) and will be effective immediately.
-John Jenkins, Editor, TheCorporateCounsel.net 2/23/2021

An NEO of the public issuer is planning on sending an email to all employees stating, among other things, that employee stockholders should vote their shares in connection with the annual meeting if they haven't already. There is no statement by her indicating HOW to vote. Does anyone see any issues? Thank you for your time.

RE: The communication as described likely does not constitute a solicitation for the purposes of the proxy rules. At its core, it doesn't appear to be intended or reasonably likely to result in the provision or revocation of a proxy for the purposes of Rule 14a-1. Instead, it appears to be a ministerial communication that falls outside the definition of "solicitation." But you know all the facts...
-Broc Romanek, Editor, TheCorporateCounsel.net 2/7/2014

RE: Just to clarify, is there an issue with posting a message on the company's internal site encouraging employees to vote their shares (both shares held directly and shares held through the company stock fund)? We have a situation where employees may be receiving two different sets of proxies, one as a beneficial owner of shares held through a brokerage account and one as a holder of units in a company stock fund (which only holds company shares). Frequently, employees vote only once and therefore fail to vote their 401(k) shares, which contributes to a low 401(k) turnout. We would like to post a message to encourage employees to vote and explain that they may need to vote more than once. Is that something we would have to file with the SEC?
-2/21/2021

RE: If it is just a reminder to vote, then I think you may be able to treat the communication as ministerial in nature as Broc suggested. But I also think many companies routinely file these reminder notices out of an abundance of caution given the breadth of Rule 14a-1. I've also found few companies that could resist including management's recommendation as to how to vote, and that kind of statement blows the argument that the communication is just ministerial out of the water.
-John Jenkins, Editor, TheCorporateCounsel.net 2/22/2021

Form S-3 requires a prospectus summary under item 503, however, many issuers exclude that from a universal shelf. Is there formal guidance that says that you can exclude it, or is it just market practice?

RE: Form S-3 just points registrants in the direction of Item 503 of S-K, which only requires a summary "where the length or complexity of the prospectus makes a summary useful." So, it isn't necessarily required. I think many companies that file a universal shelf conclude that it isn't useful to include a summary in the base prospectus, but instead include a summary with a prospectus supplement for a takedown off the shelf.
-John Jenkins, Editor, TheCorporateCounsel.net 2/22/2021

I suspect my search skills are simply failing me, but curious if anyone has encountered a situation where they need a board of directors to execute a unanimous written consent, but one director is unavailable due to a health condition. The "easy" answer is to call a meeting and have the board approve, but I'm curious if there statutory or other mechanisms that would allow approval by the unanimous consent of those directors who have the ability to act. I suspect not, but interested if anyone has experience to the contrary.

RE: I don't believe that would be permissible under Delaware law. Section 141(f) is pretty clear that a written consent action must be taken by "all members of the board," and I think the reason for that is that Delaware wanted to limit these situations to those actions that are not controversial, and as to which board members views would be unlikely to be swayed by potential discussion and debate at a board meeting.

I'm not aware of a mechanism to permit a written consent action to proceed without the vote of an incapacitated director. Even Delaware's statutory provisions authorizing emergency bylaws don't contemplate giving the board authority to act by less than unanimous written consent. Here's an excerpt from a recent Bryan Cave memo:

"Although sustained periods where multiple directors are incapacitated would limit the ability of a board to pursue action by unanimous written consent, Section 110 does not contemplate that the authority under that section to “make any provision that may be practical and necessary for the circumstances of the emergency” would include the ability to override the requirement under Section 141(f) that action by written consent be taken by “all members of the board or committee, as the case may be.”"

However, depending on the nature of the action and the scope of its charter or authorizing resolution, it may be possible for a board committee (such as an executive committee) to authorize the action by unanimous written consent.
-John Jenkins, Editor, TheCorporateCounsel.net 2/21/2021

The issuer's Form 10-K ordinarily includes all information required to be contained in a 14a-3(b) annual report to shareholders (ARS), so the company uses its 10-K as its ARS and a copy is mailed to shareholders with the proxy statement. They are printed together, in a combined booklet under one cover, with the 10-K immediately following the proxy statement. This year the company is replacing its independent accounting firm, which will be reported as required on Form 8-K and will be disclosed in the company's proxy statement. The change in accountants disclosure is not a required Form 10-K disclosure, but it is a required ARS disclosure. Since the 10-K will serve as the company's 14a-3(b) ARS, is the company required to repeat the disclosure in the 10-K even though it will also appear in the proxy statement portion of the bound booklet? If it does need to be repeated, is an alternative to include the disclosure in the booklet, immediately following the 10-K, with an explanation that it is included for purposes of Rule 14a-3(b) and is not a part of the 10-K? Thanks for any thoughts.

RE: I think most people take the position that Instruction 1 of Item 304 applies to annual reports as well as Form 10-K, so the annual report required by Rule 14a-3(b) would not be required to include the information required by Item 304(a) if it had been previously reported. In other words, Rule 14a-3 says disclose the information required by Item 304, and the instructions to Item 304 say that information doesn't have to be disclosed if it has previously been reported, so Item 304 doesn't require disclosure. The proxy statement would be required to include that information. See the discussion on p. 16 of our "Accountant Changes & Disagreements Disclosure Handbook."

Even if the Instruction for some reason was construed not to apply to the ARS, I can't imagine there would be an issue with a single bound volume containing both the proxy statement and the ARS, with the proxy containing the Item 304 disclosure.
-John Jenkins, Editor, TheCorporateCounsel.net 2/21/2021

We are a Delaware public issuer. The current GC has announced her retirement with her last day in March. The new GC will not commence employment until April. Is there a need to appoint an interim GC? Would it be prudent to do so and what should we be thinking about?

RE: There's no legal requirement to have a GC in place at all times, but the question of whether you should have someone performing those functions in an interim capacity during the period between her retirement and the new GC's arrival depends on the facts and circumstances. In making that decision, some of the things you may want to think about include:

- How will the Company's legal function be managed during the interim period?
- Does the GC also function as the corporate secretary? Are there board or committee meetings that will be held during the interim period, and how will the GC's role in those meetings be handled?
- What is the GC's role in the overall compliance function, and how will that be handled?
- What role does the GC play in the company's disclosure controls and procedures and internal controls over financial reporting, and what plans have been made to address that role in the interim?
- Are any significant legal, compliance or regulatory events anticipated to arise during the interim period?

Obviously, there may be other considerations specific to your company. My gut reaction is that, most of the time, the easiest way to ensure that these areas are properly addressed during the interim period would be to designate someone in the law department to serve as an acting GC (what title you use is irrelevant), but I can certainly see situations in which these oversight responsibilities might be delegated to more than one person given the relatively short period of time involved. I've also seen some companies use someone seconded from their outside law firm to play this role on a temporary basis. The most important thing is to know what roles need to be handled and who is responsible for handling them.
-John Jenkins, Editor, TheCorporateCounsel.net 2/19/2021

Beginning on February 1, 2022, ISS will recommend a vote against or withhold votes from the chair of the nominating committee if the board of directors does not have clear racially or ethnically diverse members. Where can I find more information on what constitutes lack of diversity? And how would ISS even know the racial/ethic makeup of our boards (or do they merely look at pictures of our members on our websites?) I've read the full ISS policy update the ISS voting guidelines and I'm not able to find anything helpful. In our case, we have 12 directors only one of which is considered a minority. In our upcoming nominating committee meeting, I need to be able to tell the committee whether we do or do not satisfy this condition. Separately, do I understand correctly that starting in 2022, Glass Lewis will start recommending a vote against the chair of the nominating committee if the board consists of less than 2 females (excepting boards with 6 or fewer members)?

RE: Under ISS's policy, Russell 3000 and S&P 1500 companies will need at least one racially or ethnically diverse director in 2022 to avoid the withhold recommendation. You are correct that, starting in 2022, Glass Lewis will generally recommend voting against the nominating committee chair of a board that has fewer than two female directors. For boards with 6 or fewer members, Glass Lewis's existing policy requiring at least one female director will remain in place.

ISS's new QualityScore methodology incorporates racial and ethnic diversity among directors, so while they may initially get their diversity information through a number of sources (which I'm guessing could well include things like photos), one important source is likely to be companies themselves through the data verification process.

For copies of other ISS & Glass Lewis policies and other resources relating to them, check out our Proxy Advisors Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 2/18/2021

Has anyone heard anything about potential filing relief for companies in Texas? Some of our Texas-based executives are struggling to protect their families right now. And, there have been significant power outages.

RE: I haven't seen any announcements on that yet, but it seems like reaching out to Filer Support would be warranted.

Many of our HQ folks are in Texas and it sounds pretty bad - they've been without power for several days now. Please let us know what you hear from the SEC, and hope all of your team members are able to stay safe.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 2/17/2021

RE: Hi- This is what I was told today by the SEC staff (Office of Chief Counsel). By the way, I am in Austin and we have no water, over 48 hours no power and I am working from a phone hotspot/makeshift solar panel attached to batteries, so yes, it is truly a survivalist situation out here in Texas-- I hope everyone is staying safe!

• The SEC is aware of the power grid failures/inclement weather and related challenges in Texas and wants to help issuers experiencing the effects of these challenges.

• If you are an issuer with a filing deadline that you cannot meet due to the situation in Texas, such as an 8-K or Section 16 filing, the SEC encourages you or your counsel to contact the SEC staff to make them aware of the situation (via edgarfilingcorrections@sec.gov and follow-up with a call to the staff) and you can request a date adjustment of the filing per Rule 13(b) of Regulation S-T: “If an electronic filer in good faith attempts to file a document with the Commission in a timely manner but the filing is delayed due to technical difficulties beyond the electronic filer’s control, the electronic filer may request an adjustment of the filing date of such document. The Commission, or the staff acting pursuant to delegated authority, may grant the request if it appears that such adjustment is appropriate and consistent with the public interest and the protection of investors.” The filing should be made as soon as it is practicable to file and the staff can assist the issuer in adjusting the filing date afterwards.

• For the upcoming 10-K filing deadline (March 1 for LAFs), the SEC is monitoring the situation and *may* issue more broad filing relief (as it did last year around this time at the beginning of the COVID pandemic), but they will not make that call unless there are still issues going into next week and it believes that broad relief is warranted by the situation.

• In short, they are monitoring the situation but in the time being, they are only working with issuers on a case-by-case basis.

That being said, issuers may want to be judicious about requesting relief, because it might suggest that the company does not have sufficient contingency plans to continue normal operations during emergencies such as prolonged power outages. But the SEC will work with issuers who are experiencing a hardship.
-2/17/2021

RE: Thank you very much for letting us know! You've undoubtedly helped a lot of people.
-John Jenkins, Editor, TheCorporateCounsel.net 2/17/2021

RE: Yes, thank you. Good point about the contingency plans.

Hope that you have plenty of bottled water and blankets. Our thoughts are with you and everyone who is dealing with this!
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 2/17/2021

RE: We are thinking of you folks & hope that you and all our colleagues and friends in Texas get some relief soon.
-John Jenkins, Editor, TheCorporateCounsel.net 2/17/2021

Our company grants performance shares to executives, which payout 50% stock and 50% cash if they vest (they expire after 4 years). Depending upon the level of achievement of performance conditions, they will pay out between 50% (threshold) and 200% (max.) plus associated dividends with respect to the vesting percentage of shares. The actual payout value is also impacted by the stock price on the date of grant. The finance people tell me the grant date fair value of these awards is equal to the closing sale price of our stock on the closing day prior to grant multiplied by the number of performance shares granted. I'm trying to understand what the maximum potential award would be for footnote disclosure. Finance has suggested that it is just 2 times the grant date fair value, since we do not know what the stock price will be or dividends that will be credited and paid if earned, and has suggested that our footnote just state that the max is based on 2x the grant date fair value, but the actual maximum potential depends upon the dividends credited before vesting and the stock price on the vesting date.

RE: I agree with your finance team (subject to note at end). The rule says you disclose the value of the award AT THE GRANT DATE assuming the highest level of performance conditions will be achieved (assuming you're not showing that already in the table).

But just to be clear, they are probably reporting based on target performance, correct? So they are assuming that the target number of shares will be issued? If that's true, then I'm tracking with them because all you would do for max is multiply by 2. I don't think you need to add the extra fn disclosure you're talking about, because footnotes this year are already difficult enough to report, and you are reporting what is specifically required (i.e., grant date fmv based on max performance). And later on in the other tables, these awards will be showing up using year end stock price dates (e.g., equity awards at year end) and you have to report performance shares here based on actual performance in the prior year. So I don't think there is any issue in terms of not disclosing that stock prices go up and down and therefore the value of the equity award is as of the grant date.
-2/19/2010

RE: I take the point that it depends on what the stock price is at the time of vesting. But what is "highest level of performance" if you have a value cap on the grants?

For instance, if awards payout between 50% (threshold) and 200% (maximum) and the grant is subject to an overall $ value cap of 1000% of the value of the award as of the grant date, would "highest level of performance" look to the 1000% value cap (i.e. grant date value x target shares x 10)?
-2/17/2021

RE: Just to clarify, Instruction 3 to Item 402(c)(2)(v) and (vi) says that for awards that are subject to performance conditions, you are supposed to report in the Summary Compensation Table the value at the grant date based upon the "probable outcome" of those conditions. This amount should be consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC 718, and it may not be the maximum amount of the award.

Instruction 3 goes on to say that if the maximum award is not the probable outcome of the performance conditions, then you should include a footnote disclosing what the maximum value is as of the grant date. If the NEO's award is subject to an overall cap on its value, I think the maximum value you disclose in the footnote would need to reflect the impact of the cap. The way you lay out the approach seems logical to me, but I would consult your accountants as to the way in which the maximum comp expense for the award would be determined under ASC 718.
-John Jenkins, Editor, TheCorporateCounsel.net 2/17/2021

In reading my company's report from last year, Glass Lewis indicated that my company's risk profile is "Medium". Considering this rating didn't affect GL's recommendations to our proposals, how else does this affect my company? Is the rating meant to give a reader a second thought on voting by following GL's (positive) recommendation on our proposals? Is it meant to generally shame us? ESG newbie here.

RE: You should check out the materials in our ESG Practice Area. The bottom line is that your ESG performance can affect your company in a variety of ways, and its importance is growing. Some investor use ESG ratings in their proxy voting and investment decisions, and that's likely to increase. Investors will also use ESG information in developing priorities for engagement and as a screening mechanism for potential investments in companies and industries. Activists may also use ESG shortcomings in their own campaigns, as a means of broadening their base of support.
-John Jenkins, Editor, TheCorporateCounsel.net 2/17/2021

An issuer closed a PIPE and is filing a resale registration statement. In the prospectus therein, there is discussion of an upcoming special meeting of stockholders at which several proposals must be approved in accordance with the PIPE transaction agreements. At present, there is a preliminary proxy statement on file with respect to the special meeting, but no definitive proxy statement. Because we were unable (based on quick research under time constraints) to find any authority definitively stating that such a statement in a prospectus would NOT be considered a "solicitation" under Rule 14a-1, we decided to be conservative and went ahead and included the Rule 14a-12 legends next to the prospectus disclosure about the special meeting, and also excerpted such language and separately filed under cover of Schedule 14A. Has anybody encountered this situation before? I'm curious as to whether others would have handled differently, or if perhaps there is authority on point that we did not locate in the brief research window we had.

RE: I don't know that there's anything directly on point, although in the business combination context, I think the sometimes overlapping provisions of Rule 165 and Rule 14a-12 suggest that something that is an "offer" for purposes of the 1933 Act can be "soliciting material" for purposes of the 1934 Act. I think like everything else, it's a facts and circumstances analysis and there are situations in which a prospectus might be deemed to involve a solicitation of proxies.
-John Jenkins, Editor, TheCorporateCounsel.net 2/16/2021

Executive wants to acquire shares in a Rule 701 offering through his revocable trust. The executive is the settlor and trustee, and the trust is revocable by the executive in whole or in part. Under Rule 144 and Reg D, a revocable trust is treated as the same person as the trustee -- see Allied Telesyn International Corp., March 3, 1995), and Letter re Rule 501(a)(8) of Regulation D, dated July 16, 1982 (revocable trust is deemed not to exist separately from the grantors for Reg D purpose). Under Rule 701, I see that shares may be directly issued to an IRA (Marshalls Finance Limited, avail. 4/11/91), similar to the treatment of an IRA under Reg. D, per CDI 255.23. And I see that shares may be issued under Rule 701 directly to an employee and thereafter transferred to a revocable living trust (Allied Telesyn International Corp., March 3, 1995). I have not found anything that expressly states that an executive can buy in a Rule 701 offering through their revocable trust. I think that it would make no sense to me to treat a wholly revocable trust, where the executive is the trustee and settlor, differently under Rule 701 than it is treated under Reg D and Rule 144. And if the executive's revocable trust were not permitted to acquire directly in a Rule 701 offering, then the executive could simply acquire the stock and immediately contribute/gift it to his revocable trust and achieve the same outcome as if the revocable trust had acquired it directly (it would just require extra administrative burden/expense for the second step) (see Allied Telesyn International Corp., March 3, 1995). Are you aware of guidance that expressly addresses the issue of a director, officer or employee acquiring shares in a Rule 701 by causing his/her revocable trust, for which the director/executive/employee is grantor and trustee, to acquire the shares directly? Thanks for any thoughts on this.

RE: Wanted to see if anyone had thoughts on this - whether a trust could be a permitted recipient of a grant under Rule 701 or S-8
-7/20/2018

RE: I'm not aware of anything from the Staff directly addressing this, but I find the original poster's analysis pretty persuasive and think that Rule 701 should extend to purchases by an irrevocable trust in which the employee is the settlor and trustee.
-John Jenkins, Editor, TheCorporateCounsel.net 7/20/2018

RE: Quick follow-up regarding John Jenkins response above. Should the response have said "revocable trust" or was he in fact addressing purchases by an irrevocable trust?
-2/16/2021

RE: No, I'm just kind of an idiot. I should have said "revocable." Sorry for the confusion.
-John Jenkins, Editor, TheCorporateCounsel.net 2/16/2021

Company recently restated its 10-K from a previous year and is getting caught up on its periodic filings that were never filed after the 10-K requiring restatement, including a 10-K from a previous year that was not previously filed. Should the exhibit list for the new late 10-K present the applicable exhibits as of the end of the relevant reporting period or should it be brought up to date?

RE: I believe the correct approach is to include all exhibits that were required to be filed in the periods covered by the delinquent reports. Item 601(b)(4) provides that "if a material contract or plan of acquisition, reorganization, arrangement, liquidation or succession is executed or becomes effective during the reporting period reflected by a Form 10-Q or Form 10-K, it shall be filed as an exhibit to the Form 10-Q or Form 10-K filed for the corresponding period." To the extent that those exhibits were not filed on a timely basis, this suggests to me that the exhibits should be brought up to date to reflect those that should have been filed, but were not.
-John Jenkins, Editor, TheCorporateCounsel.net 2/15/2021

In the 10-K table of contents, is it now necessary to refer to Item 16 (even if the company is not including a summary per Item 16)?

RE: Yes, here is what we said on the topic in the November-December 2016 issue of The Corporate Counsel:

Don’t Forget Item 16!

Our July-August 2016 issue (at pg 8) discussed the SEC’s adoption of the FAST Act-mandated optional summary disclosure section for the Form 10-K (see Rel. No. 34-77969 (2016)). New Item 16 to Part IV of Form 10-K allows an issuer, at its option, to include a summary page in the Form 10-K, with each summary topic be hyperlinked to the related, more detailed disclosure item in the Form 10-K. The rule change was effective in June 2016.

Whether or not an issuer decides to include the summary page, the Form 10-K will need to be revised to reference Item 16. As we noted in our January-February 2012 issue (at pg 1) when discussing the adoption of mine safety disclosure requirements, Rule 12b-13, “Preparation of Statement or Report,” applies to the preparation of Form 10-K and Form 10-Q, and provides guidance regarding the inclusion of item numbers and captions in all 1934 Act reports. It states, in part—“The statement or report shall contain the numbers and captions of all items of the appropriate form, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or instructions thereto… Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.” Form 10-K does not include an instruction that “expressly provide[s] otherwise” with regard to inapplicable items. As a result, every issuer filing a Form 10-K must include all of the item headings, regardless of their applicability to the issuer. Issuers that do not elect to include the new summary page must, therefore, include the new Item 16 heading in their Form 10-K and then state that the item is “not applicable.”
-Dave Lynn, TheCorporateCounsel.net 1/23/2017

RE: I assume the same would apply this year to Item 6 if the company decides to early adopt the new S-K rule? Do you think it makes sense to note why that item no longer applies?
-2/12/2021

RE: Yes, I think the best approach would be to continue to show Item 6 and add a brief explanatory note about its inapplicability. I think the 10-K Zillow filed today might be a good model for you.
-John Jenkins, Editor, TheCorporateCounsel.net 2/12/2021

Is cross-referencing from the Financial Statement Footnotes in a Form 10-K into Management's Discussion and Analysis of Financial Condition and Results of Operations generally permitted to avoid repetition? The handbook, with regard to off-balance sheet arrangements, notes that registrants need not repeat information provided in the footnotes to the financial statements, provided that such discussion clearly cross-references specific information in the relevant footnotes and integrates the substance of the footnotes in a manner designed to inform readers of the significance of the information. Would that apply likewise to other matters discussed in the Footnotes, such as Critical Accounting Estimates? Even if a registrant cross-references to the Footnotes from the MD&A, would the registrant still need to describe what is in the Footnote to put the information into context in the MD&A rather than just directing readers to the Footnotes? Would the registrant need to say that it is incorporating by reference the language into the MD&A? Thank you in advance.

RE: Despite the fact that there isn't an express instruction permitting cross-referencing aside from the one relating to off balance sheet items. I think that you can cross-reference in the MD&A to disclosure in the footnotes where appropriate, and in my experience, it's a fairly common practice. In that regard, the instructions to the newly amended version of Item 303(b) indicate that companies "may use any presentation that in the registrant’s judgment enhances a reader’s understanding." Since you're technically incorporating the required disclosure by reference, the location of the information should be appropriately identified as required by Rule 12b-23.

However, bear in mind that the information contained in the footnotes may not be sufficient to satisfy the requirements of the disclosure obligation in Item 303. For example, in the S-K Financial Disclosures adopting release, the SEC pointed out that the disclosures required in MD&A concerning critical accounting estimates are intended to supplement, not duplicate information contained in the financial statements. That concept is also embodied in Instruction 3 to new Item 303(b), which says that "for critical accounting estimates, this disclosure must supplement, but not duplicate, the description of accounting policies or other disclosures in the notes to the financial statements."

Note: It doesn't work the opposite way. You can't incorporate information from outside the financial statements into the financial statements to satisfy a disclosure requirement unless GAAP specifically permits it.
-John Jenkins, Editor, TheCorporateCounsel.net 2/11/2021

RE: Thank you. That clarifies the issue.
-2/11/2021

An issuer has been subject to the baby shelf limitations; however, its stock price jumped to an amount that would result in its public float exceeding $75 million. The issuer would like to do a deal on the same day that the price went up. Our question is whether the issuer can use the intraday pricing for purposes of calculating the public float and price a deal on the same day it went up. In other words, does the baby shelf limitation lift during mid-day trading to allow the issuer to price a deal outside the baby shelf limitations on that day? The instruction to General Instruction I.B.1 to Form S-3 states, "The aggregate market value of the registrant's outstanding voting and non-voting common equity shall be computed by use of the price at which the common equity was last sold, or the average of the bid and asked prices of such common equity, in the principal market for such common equity as of a date within 60 days PRIOR to the date of filing." If the issuer priced a deal on the same day the price jumped, the prospectus supplement would be filed after the price jump, which seems to suggest that the issuer could rely on its desired interpretation - to allow it to price a deal on the day the price jumped without being limited by the baby shelf limitations. Does anyone have any insight or experience with this scenario?

RE: I assume you're talking about pricing a deal after the close of the market, and that you continue to exceed the market value threshold based on last sale or bid and ask information at the close. I would not be comfortable staking a claim to being a I.B.1. eligible issuer based on intraday pricing. I think the intent of the instruction is to look at last sale information as of the close of the trading day.

In any event, I haven't seen anything specifically addressing this, but it seems to me that your approach would work if you met the threshold based on the applicable closing information, priced a deal after the close, and subsequently filed the pro supp. That scenario seems to fall squarely within the language of the instruction.

One potential curveball might involve a situation in which you filed a preliminary pro supp prior to becoming eligible under I.B.1. I think that preliminary pro supp would need to include only the maximum amount you could sell under I.B.6. See Securities Act Forms CDI 116.22:

Question 116.22

Question: May a company with an effective shelf registration statement on Form S-3, in reliance on General Instruction I.B.6, file a prospectus supplement for a new offering of an amount of securities that exceeds the 1/3 limit of the instruction, so long as the actual amount sold does not exceed the limit?

Answer: No. The capacity remaining under the 1/3 limit in General Instruction I.B.6 is measured immediately prior to the registered takedown and applies to the amount of securities offered for sale pursuant to the prospectus supplement, not the amount actually sold. The concept of rolling measurement dates is limited to different takedowns, not individual sales within a takedown. When measuring the amount available for a later takedown, only those securities actually sold are counted against the 1/3 limit. [Aug. 11, 2010]

So, if you circulated a red prior to the close, I think this CDI would suggest that you couldn't offer more than what was available under I.B.6. I don't think you'd be prohibited from upsizing after the market closed and you qualified.

You may want to run this scenario past the Staff to see if they have a different perspective.
-John Jenkins, Editor, TheCorporateCounsel.net 2/10/2021

We are contemplating switching from full set delivery to notice and access. We have been informed that we need to check our bylaws to determine if they allow notice and access. What exactly am I supposed to look for in the bylaws?

RE: Sometimes the bylaws (or state law) could require materials to be delivered in paper format, or require shareholders to consent in advance to electronic delivery, or could require the notice to include particular information like how shareholders can participate in the meeting. Those are the types of things you'd be looking for.

See our checklist on notice & access
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 2/8/2021

An issuer plans to file a Form S-3, but is currently subject to the baby shelf rules. The issuer sold shares under its old S3 over the past year, but at the time of those sales the baby shelf rule did NOT apply. Going forward, do any new sales get aggregated with any sales within the past year, when those prior sales were pursuant to a prior S3? Seems like the answer is yes (at least subject to my next question below). Also, the instruction language seems to say that only sales sold pursuant to the baby shelf rule get aggregated for the 1/3 limitation. So, any sales while the issuer was not under the baby shelf rules would not count, even within the last 12 months? "the aggregate market value of securities ( sold by or on behalf of the registrant pursuant to this Instruction I.B.6. *** during the period of 12 calendar months immediately prior to, and including, the sale is no more than one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant;"

RE: The only sales that are aggregated for purposes of determining the amount of securities available for sale under the baby shelf rule are those made pursuant to General Instruction I.B.6 during the prior 12 months. If you were previously eligible to use Form S-3 under General Instruction 1.B.1 because your public float exceeded $75 million, then the shares you sold under that provision of Form S-3 are excluded from the calculation because they were not sold pursuant to General Instruction I.B.6.
-John Jenkins, Editor, TheCorporateCounsel.net 2/8/2021

We have been working in good faith with a proponent to withdraw a shareholder proposal; however, the goal post keeps getting moved on us. Therefore, we may need to include the proposal in our proxy materials. Is anyone familiar with a company’s’ opposition statement that nicely said that they attempted to work with the proponent but…? I would like to include some simply/nice statement to inform the shareholders and proxy advisors that we attempted to negotiate.

RE: There are some no-action letters involving John Chevedden and Kenneth Steiner where they didn't show up at the company's meeting and then resubmitted proposals for the following year. The companies involved sought to exclude the resubmitted proposals, and as part of their arguments, walked through their efforts to communicate with the shareholder and accommodate the shareholder at the prior meeting. Links to a couple of those letters are provided below.

If the proponent you're dealing with is experienced, chances are this isn't the first time he or she has played this kind of game. You may want to look at other no-action requests involving the proponent to see how other companies have - or haven't - addressed these issues in their own requests.
-John Jenkins, Editor, TheCorporateCounsel.net 2/8/2021

My client would like to file a registration statement on Form S-8, registering (i) shares to be issued under an equity incentive plan as well as (ii) the resale of shares already issued under the plan. My past experience with resale shelf registration statements is that all selling securityholders must be named, unless, in the aggregate, their holdings amounted for less than 1% of shares available for issuance under the equity incentive plan. Due to the sensitive confidential nature of past equity issuances, the Company would like to avoid listing the names of any selling security holders (note, the Company is not a WKSI, it is a foreign issuer). Are you aware of any way to avoid having to list the names and amounts held by each selling security holder under these circumstances? Many thanks for any advice.

RE: No, I'm afraid not. If the sellers are unknown at present, you may defer naming them, but they must be ultimately be named in a prospectus supplement. Also, the ability to exclude the names of de minimus selling shareholders is limited to non-affiliates. See General Instruction C. 3. to Form S-8.
-John Jenkins, Editor, TheCorporateCounsel.net 2/8/2021

The Form 10-K Cover Page has a check mark requirement that is "Applicable only to Registrants Involved in Bankruptcy Proceedings During the Preceding Five Years." If a Registrant emerged from Chapter 11 bankruptcy Six Years Ago, yet still has lingering legal proceedings pending that are related to that bankruptcy, can that Registrant nevertheless elect to not include the bankruptcy language on the Form 10-K Cover Page given that its been more than Five Year's since that Registrant's emergence?

RE: I'm not aware of anything from the Staff addressing this, but I've always understood the requirement to be tied to the date a company emerged from bankruptcy, regardless of whether loose ends remain.
-John Jenkins, Editor, TheCorporateCounsel.net 2/7/2021

RE: Thank you John!
-2/7/2021

Hi - An issuer entered into a stock purchase agreement and filed a prospectus supplement to register the issuance of $x of common stock to a single investor. Nine months later, the investor has not yet paid for the stock, and so no shares have been issued under that pro supp. The old shelf registration statement has recently expired. The new S3 will be filed soon but has not yet been filed. The investor would now like to pay the money and close the deal. This seems like it's technically just an extremely delayed closing and so the transaction could still be properly registered - is that right? The investor is also asking to change the terms - which seems like it could NOT be done since the old S3 has expired and we can't file a new prospectus supplement or anything like that. Finally, any resale prospectus supplements under the expired S3 remain in effect and can still be used without filing a new pro supp under a new S3? Thank you.

RE: I think the Staff would have a lot of questions about taking the position that a deal that didn't transpire for more than 9 months after a purchase agreement was entered into simply involved "an extremely delayed closing" of the original transaction. I also think it's inconsistent to take that position while at the same time contemplating a change in the terms of the original deal between the investor and the company.

Narrowly, if a "sale" did indeed occur at the time of the original purchase agreement, then I suppose the fact that the closing occurred after the S-3 expired would not present a problem. If you're changing the deal - which suggests that no "sale" occurred 9 months ago - then you couldn't use the expired S-3. What's more, since you don't have an effective registration statement now, I think you need to consider whether you can structure the revised deal as a registered transaction or if you need to rely on an exemption and file a resale S-3.
-John Jenkins, Editor, TheCorporateCounsel.net 2/7/2021

An executive officer was not a named executive officer in the 2020 proxy statement. For the 2021 proxy statement, he will be a named executive officer due to his compensation he received during 2020. The officer is transitioning to retirement and an active search for his replacement is being done. Per Item 5.02 8-K instructions, because the officer isn't an NEO, no disclosure of his retirement is necessary. However, we know that he WILL be an NEO for the upcoming proxy so if he retires prior to the filing of our 2021 proxy statement, I'm wondering if it makes sense to go ahead and file an 8-K disclosing his retirement even though technically we don't need to? (Although I can see an argument that since the proxy will be filed anyways disclosing his retirement there is no need to file an earlier "optional" 8-K). Any thoughts?

RE: I think it's probably simpler just to wait until the 8-K has been triggered, because you'll have more time to capture any post-retirement arrangements that may be entered into between now and then in a single 8-K filing. If you do it now, then if his post-retirement arrangements are amended or new arrangements are made, you may need to amend the filing to disclose them.
-John Jenkins, Editor, TheCorporateCounsel.net 2/7/2021

Has anyone come across any discussion regarding whether membership on a SPAC board (before the SPAC has acquired an operating business) might be seen as less of a burden in terms of determining whether a director is "overboarded" for purposes of ISS/Glass Lewis and similar voting policies and guidance?

RE: I have not, and I would be very surprised if either of them took a position like that. I think there is an expectation that the SPAC's board will play an active role in overseeing the process of identifying an acquisition candidate and the de-SPAC transaction.
-John Jenkins, Editor, TheCorporateCounsel.net 2/7/2021

Can you point me to the sections of the securities law and NYSE Listing Standards that governs Complaint Procedures for Accounting & Auditing Matters?

RE: I assume you're talking about whistleblower complaint procedures. Those are required to be part of the code of ethics mandated by Rule 303A.10 of the Listed Company Manual. Section 406 of the Sarbanes-Oxley Act mandates a code of ethics.
-John Jenkins, Editor, TheCorporateCounsel.net 2/5/2021

Q: A company subject to iXBRL rules inadvertently files an 8-K without tagging the cover page. Does the company need to file an amended 8-K if the only error in the 8-K was the missed tagging of the cover page? If the company does not file an amended 8-K to include cover page tagging, does this affect its S-3 eligibility? I would not think so as the relevant S-3 eligibility requirement speaks of timely filing of reports required to be filed and here the 8- was timely filed. I also don't think that not tagging the cover page of the 8-K renders the filing so deficient that it would be deemed to have not been filed.

RE: I think you need to amend it to address the tagging issue. One of the eligibility requirements for Form S-3 is that the registrant has "submitted electronically to the Commission all Interactive Data Files required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement on this Form (or for such shorter period of time that the registrant was required to submit such files)."

At the time the original XBRL rules were adopted, the SEC said that "a filer that is deemed not current solely as a result of not providing or posting an interactive data exhibit when required will be deemed current upon providing or posting the interactive data. Therefore it will regain current status for purposes of short form registration statement eligibility, and determining adequate current public information under Rule 144. As such, it will not lose its status as having “timely” filed its Exchange Act reports solely as a result of the delay in providing interactive data." See p. 25 of the adopting release.
-John Jenkins, Editor, TheCorporateCounsel.net 2/4/2021

Q: We were recently the victim of a cyber event where a threat actor infiltrated our network, downloaded some data, and posted it on a public website. Assume that the data that is posted on the website includes material financial information. What obligations, if any, does the issuer have to make regarding the financial information? I am not asking about whether to disclose the breach generally under Item 8.01 (which is a general materiality analysis), but the financial information itself. If the information relates to earnings, would we need to consider a pre-release of earnings under 2.01 or any other 8-K disclosure? What do we need to be thinking about?

RE: Wow, that's no fun. I suppose somebody could write a law review article on whether or not you have a duty to disclose this information based on the fact that it was stolen from you - generally, you're only responsible to address leaks of MNPI for which the company or its insiders are responsible. However, I can certainly see someone alleging that your IT defenses were inadequate, which resulted in the information being "leaked," and therefore you're responsible.

Putting the resolution of that issue aside, the bottom line is that the information is now out there, and you know it's out there, and some people are going to have preferential access to it unless you take affirmative steps to broadly disseminate it to the market. I think your legal risk if you don't take that kind of action is pretty high, and the investor relations risk may be even higher.

In terms of how you get it out, if the information relates to a completed quarter, then an Item 2.02 8-K is appropriate. I think you'd want to issue a press release as part of that disclosure. Even if you don't have to file under Item 2.02, you may want to consider filing a 7.01 or 8.01 8-K along with a press release to ensure you have a Reg FD safe harbor for the communication. In any event, your whole objective here is to get the information out in an FD compliant fashion.
-John Jenkins, Editor, TheCorporateCounsel.net 2/3/2021

Q: If a registrant acquires a company after fiscal year end but prior to the filing date of its Form 10-K, is the Item 103 legal proceedings disclosure in the Form 10-K required to include pre-existing litigation of the acquired company? It is not entirely clear from looking at the text of Form 10-K whether the Item 103 legal proceedings disclosure is intended to speak as of the end of the period or as of the filing date. The Instruction below to Form 10-Q implies that at least for Form 10-Q it is just for the period ended, but there is no similar instruction in Form 10-K, but it would be logical for a similar instruction to apply to Form 10-K. "Instruction. A legal proceeding need only be reported in the 10-Q filed for the quarter in which it first became a reportable event and in subsequent quarters in which there have been material developments. Subsequent Form 10-Q filings in the same fiscal year in which a legal proceeding or a material development is reported should reference any previous reports in that year." We are aware of the CorporateCounsel.net handbook commentary on newly initiated legal proceedings that are post-period but wondered if the same holds true for pre-existing litigation of a post-period acquired company.

RE: Personally, I take a little more conservative view on this kind of thing, because regardless of the timing, a new lawsuit big enough to trigger Item 103 that shows up after the end of a period (whether it involves a recently acquired business or not) is likely to trigger some sort of disclosure in your contingencies footnote under ASC 450. Just from a disclosure hygiene perspective, I wouldn't want something that shows up in the contingencies footnote not to be addressed in the legal proceedings section (of course, if you included all the info required by Item 103 in the footnote).

I think the absence of language in the Form 10-K instruction limiting Item 103 disclosure to a particular period supports the view that subsequent litigation should be disclosed. That's because Form 10-K says to disclose what Item 103 requires, and Item 103 requires disclosure of "material pending legal proceedings," so the absence of a temporal limitation could be read to compel disclosure of any Item 103-level litigation that's pending when the report is filed. In that regard, note that Instruction Instruction C 2 of Form 10-K indicates that except where information is required to be given for the fiscal year or as of a specified date, it shall be given as of the latest practicable date.
-John Jenkins, Editor, TheCorporateCounsel.net 2/2/2021

Q: Does anyone have any guidance from the SEC on how to calculate the 'the price at which the common equity was last sold' under instruction 1 of General Instruction I.B.6 of Form S-3? It seems simple, but I recently ran into a situation where NYSE.com, Nasdaq.com, Yahoo.com, etc. all show one value as the 'last sales price' and a Bloomberg terminal shows a different last sales price (lower by a few cents)(different volume traded as well). I wasn't able to find any guidance from the SEC as to which 'last sold' price an issuer is able to rely on.

RE: I'm not aware of any specific guidance from the SEC, aside from this general advice about closing prices on its Investor.gov site. Since the volume is different as well, I suspect the Bloomberg Terminal may reflect after hours trades. I think in the absence of Staff guidance, I'd be inclined to use the closing sale price on the consolidated tape, which wouldn't include those trades. But if your S-3 eligibility hangs on the answer to this question, I'd recommend that you contact the Staff and see if they've got a view on this issue.
-John Jenkins, Editor, TheCorporateCounsel.net 2/2/2021

Q: A company's second half results in 2020 were better than the company's first half results. In addition to full year results, the company would like to speak to second half results in certain of its filings to show that 2020 was a tale of two years - for example in its proxy statement summary of financial performance. The company would only present numbers based on previously released GAAP (e.g., sales, net income, EPS, etc.). So long as first half results are not ignored (and, ideally, are presented in a similar fashion) and the company sticks to GAAP, I do not believe this is problematic, but I wanted to see if anyone has thoughts or similar experiences.

RE: People make six months comparisons fairly frequently (MD&A sections are full of them), and some CD&As address financial performance for six month periods due to the nature of the company's compensation plans. So I don't think presenting six months results in a proxy filing in the manner you suggest is a problem, so long as the presentation isn't misleading in some fashion.
-John Jenkins, Editor, TheCorporateCounsel.net 2/2/2021

Q: Does the 10 day period for filing a Form 3 run from the date the Board appoints a new executive officer or from the date the new executive officer begins serving as an executive officer? The Board will make the appointment, with a delayed effective/start date for the new officer. Thoughts?

RE: This question is a better fit for our Q&A forum with Alan Dye on Section16.net - we cover all sorts of Section 16 issues over there.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 2/1/2021

Q: We are filing an automatically effective shelf registration statement on Form S-3 and a corresponding 424(b)(5) prospectus immediately after the 10-K for the year ended Dec. 31, 2020 is filed and before our proxy statement is filed in 2021. Do we need to incorporate by reference the sections of our 2020 proxy statement that are incorporated by reference in Part III of our 10-K for the year ended December 31, 2019 or will the 2021 proxy, when filed, be automatically incorporated into the S-3 and 424(b)(5) prospectus?

RE: You don't need to incorporate by reference the Part III information from the prior year's 10-K. If you're a WKSI, the Staff won’t object to the filing of a automatic shelf registration statement or a takedown during the gap period between the filing of the most recent 10-K and the proxy statement, but you need to decide whether the missing Form 10-K Part III information is material. See Securities Act Forms CDI Question 114.05.

Non-WKSIs can file a shelf S-3 during the gap period, but cannot go effective on it until the Part III information is filed. See Securities Act Forms CDI Question 123.01.
-John Jenkins, Editor, TheCorporateCounsel.net 1/29/2021

Q: We received an email through our IR website from an alleged German professor who asked to formally apply for a seat on our board. He claims to be a long-term shareholder (but has not provided any documentation evidencing his ownership) and owner of our public debt. He then goes on to share his work experience in banking and provides a CV in an attachment. (I note that his CV doesn't seem to match the bio of a similarly named individual at a German university but the pictures of the individual are similar.) He concludes by asking to get in contact with the nomination committee. Should I treat this as a shareholder proposal and go through the formal SEC process of excluding this proposal? Since our proxy was delivered in April 2020, the 120 deadline for stockholder proposals has lapsed.

RE: Sometimes it can be hard to figure out what you're dealing with. In some ambiguous situations, I've seen companies reach out to the proponent to try to clarify what his or her intentions are. When in doubt though, it's best to treat it as a proposal and submit a no-action letter request to exclude it. See the discussion on p. 41 and pgs 218-219 of the Shareholder Proposals Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 1/28/2021

RE: We have had clients receive the same letter and others similar to it (self-serving board nomination outside the normal window). In that situation and when we have no reason to suspect an activist investor, we suggested acknowledging receipt, thank him for his interest and note that the nomination will be considered as part of the Board’s ordinary course review of candidates, but not promise a specific timetable. We didn't view this self-serving board nomination matter as a 14a-8 proposal.
-1/29/2021

Q: Once a company starts repurchasing shares under a Rule 10b5-1 Plan, if it makes the decision to cease purchases for whatever reason, does it need to/is it customary to wait until the window opens to resume purchases? Seems like this isn't necessary/would defeat the purpose of a plan but thanks for any thoughts.

RE: Terminating a 10b5-1 plan other than in accordance with its terms is always potentially problematic. We discuss this on page 41 of our Rule 10b5-1 Trading Plans Handbook:

"Adopting a Rule 10b5-1 trading plan doesn’t obligate the plan holder to maintain the plan in effect and engage in the planned securities transactions. CDI 120.17 affirms that the act of terminating a plan and thus not following through on planned trades—even while aware of material nonpublic information—doesn’t alone subject the person to Section 10(b) and Rule 10b-5 liability. Section 10(b) and Rule 10b-5 only apply to fraudulent conduct coincident with a purchase or sale of a security, whereas a plan termination represents a decision not to sell.

However, as specified in Rule 10b5-1(c)(1)(ii) and addressed in CDI 120.18, termination of a plan—or cancellation of one or more plan transactions—could affect the availability of the affirmative defense for prior plan transactions if it calls into question whether the plan was “entered into good faith and not as part of a plan or scheme to evade” the insider trading rules. In addition, plan terminations won’t be viewed in isolation in the context of entry into a new plan. CDI 120.19 implies that a waiting period between termination of a plan, and entry into a new plan, bolsters a demonstration of good faith relating to both the plan termination and the plan transactions prior to termination—and this is precisely what practitioners advise."

Since the issue is "good faith," I think the best approach to terminating the plan is to do so under circumstances in which you minimize the risk that someone might view what the company is doing as gaming the system. That suggests that, if you're going to terminate a plan, doing so during a window period is likely to be the preferred approach. I also suggest that you review the discussion on pages 37-42 of the Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 1/28/2021

Q: I have a client who is a public company that is planning to file an S-4 in connection with an acquisition of a private company. Our stockholders are not approving the transaction so it is a consent solicitation of their shareholders to approve the deal. If we file the S-4 after our 10-K, I am reading Item 18 to require us to provide 401, 402, 404 and 407 info. We usually don't include Part III information until the filing of the proxy and not in our 10-K. Can we file the S-4 without the Part III information having been filed? I assume we can only go effective once we drop in the Part III information either via a 10-K/A or in the proxy.

RE: I'm not aware of any Staff position to the effect that filing an S-4 without this information is permissible, but I know this approach has been taken on deals that I've worked on without objection from the Staff. If you look at Securities Act Forms CDI 123.01, the idea of filing a registration statement to get the review process started and then incorporating information by reference to the subsequently filed proxy statement prior to effectiveness is implicit in the Staff's response. Here's the CDI:

"Question: A registrant intends to file a non-automatic shelf registration statement on Form S-3 on April 10, hoping to become effective by April 25. The registrant intends to incorporate its most recent Form 10-K which will be filed on March 31. Certain information required in the Form S-3 concerning officers and directors is not intended to be furnished in the 10-K, but will be incorporated by reference from the registrant's definitive proxy statement which will be filed on April 30. What must the registrant do in order to become effective by April 25?

Answer: In order to have a complete Section 10(a) prospectus, the registrant must either file the definitive proxy statement before the Form S-3 is declared effective or include the officer and director information in the Form 10-K. [Feb. 27, 2009]"

Of course, this addresses Form S-3, and not Form S-4. One difference that might be important to the analysis is that Form S-4 has a specific line-item requirement calling for Item 401,402, 404 and 407 information, while Form S-3 does not. However, Item 18 of Form S-4 also says that if you're an S-3 eligible registrant, any information required paragraph (7) (i.e., the stuff you're putting in your proxy statement) may be incorporated by reference from your latest annual report on Form 10-K. Since that report expressly permits you to incorporate by reference from the subsequent proxy statement, I'd argue that a preliminary S-4 filing by a company eligible to do that need not contain that information if it's filed prior to 120 after the end of the fiscal year.
-John Jenkins, Editor, TheCorporateCounsel.net 1/28/2021

Q: I thought that ISS or GL (or both) had a policy where a company is to post answers to questions on their website asked during a virtual annual meeting and where the company was unable to answer during the meeting due to time restrictions or otherwise. Can anyone point me to such a policy (or is my memory not as good as it once was!)?

RE: The updated Glass Lewis policy on virtual meetings is set forth in this blog: https://www.glasslewis.com/glass-lewis-updated-approach-to-virtual-meetings-globally/ Here's what it has to say about responding to shareholder questions:

"In particular where there are restrictions on the ability of shareholders to question the board during the meeting – the manner in which appropriate questions received prior to or during the meeting will be addressed by the board; this should include a commitment that questions which meet the board’s guidelines are answered in a format that is accessible by all shareholders, such as on the company’s AGM or investor relations website."
-John Jenkins, Editor, TheCorporateCounsel.net 1/28/2021

Q: The effective date for the MD&A amendments is February 10, 2021. The SEC's release states that early compliance is permitted after the effective date; however, I have seen a number of law firm memos state that voluntary compliance is permitted on or after February 10, 2021. I have a call in to the SEC for clarification because I have a client that may file on February 10, but I wanted to see if anyone has heard definitively whether it is acceptable for registrants to voluntarily comply on the effective date.

RE: The SEC confirmed via phone that registrants can voluntarily comply beginning on February 10, 2021.
-1/27/2021

RE: Thanks for letting us know!
-John Jenkins, Editor, TheCorporateCounsel.net 1/27/2021

Q: How long is it customary/appropriate to leave a resale S-3 registration statement number (for holders who received company shares in an acquisition) on an auditor consent for a 10-K - 3 years? Something less or more? Thanks for your thoughts.

RE: The duration of the obligation to keep the resale S-3 effective is usually laid out in a registration rights agreement. The terms of those agreements vary, but I think the most common provision calls for the issuer to keep the S-3 effective until the shares are sold or can be freely resold under Rule 144 without restriction.
-John Jenkins, Editor, TheCorporateCounsel.net 1/27/2021

Q: Item 701 requires disclosure of all securities of the registrant sold by the registrant within the past three years which were not registered under the Securities Act. Item 5 of Form 10-K requires disclosure of all equity securities of the registrant sold by the registrant during the period covered by the report that were not registered under the Securities Act. In January 2021, the Company issued (i) shares of restricted stock to employees as 2020 annual bonuses that vest in January 2022 and such shares were not covered by a Form S-8, and (ii) shares of common stock issued to a SPA that did not require additional consideration at the time of the additional issuance pursuant to the terms of the SPA. Am I correct in thinking that no disclosure is required on the Form 10-K for 2020 since these unregistered issuances occurred in 2021 even though Item 701 of Reg. S-K states to disclose all unregistered sales within the past three years? I believe disclosure would be required in the first quarter 10-Q since the 8-K disclosure threshold was not triggered.

RE: Yes, I think that's correct. I believe the language of Item 5 of Part II of Form 10-K limits the scope of the information required to be disclosed in response to Item 701 of S-K to "equity securities of the registrant sold by the registrant during the period covered by the report that were not registered under the Securities Act." In contrast, the full three year disclosure called for by Item 701 would be required in connection with a Form S-1 filing, since the instructions to Item 15 of Part II of that form don't contain any limitation on the period covered.

Under your scenario, since the equity securities were sold after the end of the fiscal year, the transaction occurred after the end of the period covered by the Form 10-K. Since that's the case, the issuance could be disclosed in the first quarter 10-Q.
-John Jenkins, Editor, TheCorporateCounsel.net 1/27/2021

Q: Has anyone come across any studies or memos that discuss how common it is (if at all) for a public company to include a stock ownership threshold requirement (i.e., 1-5%) in its otherwise standard advance notice bylaw provisions? ISS and Glass Lewis don't seem to take a stance on this (assume they'd frown on them) but curious if a survey or anything has been done or if its been a discussion topic.

RE: I haven't seen anything like that, and it strikes me that a provision like that may be subject to challenge under Delaware law. If implemented, it would essentially eliminate the right of holders below the threshold to put forward a proposal at a shareholder's meeting. That seems like it would be a tough sell to the Chancery Court.
-John Jenkins, Editor, TheCorporateCounsel.net 1/27/2021

Q: To follow-up on this issue and Topic 4168 with a slightly different scenario, the issuer's Board of Directors' authorized a stock repurchase program pursuant to which the issuer may repurchase up to $10 million of common stock over a 12-month period. The issuer’s Board of Directors authorized and directed to, in the name and on behalf of the issuer, cause the issuer to repurchase, from time to time, on the open market or otherwise, shares of issuer’s common stock in such quantities, at such prices, in such manner and on such terms and conditions as the issuer’s CEO or CFO determine are in the best interests of the issuer and its shareholders. We were thinking the members of the board would not be deemed “affiliated purchasers” due to the last portion of Rule 10b-18(a)(3)(ii), regarding not including an officer or director of the issuer “solely by reason of that officer or director’s participation in the decision to authorize 10b-18 purchases by or on behalf of the issuer.” However, we are inclined to think that the issuer’s CEO and CFO would be deemed “affiliated purchasers” as the CEO and CFO seem to control the issuer’s purchases or whose purchases are controlled by, or under common control with those of, the issuer. It seems that the powers authorized to the CEO and CFO extend beyond the above carve-out in Rule 10b-18(a)(3)(ii). Therefore, if deemed "affiliated purchasers," purchases of the issuer's common stock by the CEO or CFO, even for their own account, would be included in 10b-18 calculations and Item 703 of Reg. SK, correct? Please provide guidance as to whether the board members, CEO, and CFO in question above would be deemed to be an “Affiliated Purchaser” pursuant to Rule 10b-18. Further, if the CEO and CFO are deemed to be “affiliated purchasers,” and the issuer enters into a 12-month 10b5-1 plan in connection with the repurchase plan, would the CEO and CFO effectively be frozen out from selling (or potentially buying) issuer’s shares while the 10b5-1 plan is in effect, if the company follows best practices? Thanks

RE: I think it would be prudent to proceed under the assumption that the CEO and CFO would be regarded as affiliated purchasers. It seems to me that there's a decent argument that if the board has no role in the implementation of the plan or decisions about the timing or amount of repurchases, then individual directors should not be regarded as affiliated purchasers. That being said, there's not much guidance from the Staff on this, and the exemption is a narrow one. Furthermore, as a practical matter, transactions by directors on days when the company is in the market may well be viewed with the proverbial "gimlet eye" if compliance concerns are raised.

Due to these concerns, we don't recommend that directors or executive officers buy or sell stock while the company is in the market under a 10b-18 plan. See the discussion on pgs. 39-40 of the Stock Buybacks Handbook. However, I don't think that directors and officers need to be frozen out of the market for the entire duration of a repurchase plan. The concern is with these persons engaging in transactions on days when the company is also in the market.
-John Jenkins, Editor, TheCorporateCounsel.net 1/24/2021

Q: A company initially filed a Form S-3 shelf registration statement registering up to $100 million when it was eligible to use this form pursuant to Instruction I.B.6. In May 2020, the company, while subject to baby shelf limitations sold $10 million pursuant to the Form S-3. The company subsequently had a public float of over $75 million and conducted an offering pursuant to the Form S-3 not subject to baby shelf limitations in November 2020. Upon filing its Form 10-K for fiscal 2020 in February 2021, the company will again be subject to the baby shelf limitation due to a decrease in its public float. The company is planning a takedown off of the Form S-3 in March 2021, which will be subject to baby shelf limitations. Does the $10 million May 2020 offering count against the company's March 2021 one-third threshold because it was an offering conducted pursuant to Instruction I.B.6 during the prior 12 calendar months or did the intervening non-baby shelf period "reset" the baby shelf calculation for sales subsequent to the baby shelf limitation being re-imposed on the company?

RE: The rules are certainly ambiguous, but I don't think you could disregard the prior sales made under the baby shelf rule during the prior 12 months. I don't think the Staff would sign off on a reading of Instruction 3 to 1.B.6. that would allow it to serve a "reset" permitting a company with a float that's fallen under that threshold at the time of the 10-K filing to disregard sales made during the prior 12 months in reliance on the baby shelf rule.

Instruction 3 to 1.B.6 says that if you cross the $75 million threshold, "the registration statement shall be considered filed pursuant to General Instruction I.B.1." I think that language would allow any sales made after the $75 million threshold is crossed and before the 10-K was filed to be disregarded in calculating the amount that could now be sold under 1.B.6., but I don't read it to implicitly permit a company that again seeks to rely on the baby shelf rule to avoid its 12 month look back for other sales to be made made in reliance on the rule.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

RE: Thanks for the quick response!
-1/22/2021

Q: What are the mechanisms for inquiring from DTC participants regarding the jurisdiction where there customers are located, as per Rule 12g3-2(a)?

RE: My guess is that your best approach on a back-office issue like this would be to reach out to a proxy solicitor and see what insight they might be able to provide.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

Q: Note 1 to Rule 14a-6(a) provides that if a company revises its preliminary proxy materials, the 10-day waiting period is recommenced if the revised filing contains material revisions or a material new proposal that constitutes a “fundamental change.” Any thoughts on whether filing the preliminary assuming an in-person meeting but then changing to a virtual-only meeting for the definitive proxy filing would constitute a "fundamental change" for purposes of Rule 14a-6(a), such that it would restart the 10-day waiting period? Such a change would clearly result in a lot of wording changes in the proxy statement (nuts and bolts of meeting mechanics), but the agenda items, vote requirements and date and time of the meeting would be the same.

RE: We've discussed the "fundamental change" concept a few times in the registration & proxy context (see the May and July 2018 issues of The Corporate Counsel). While information relating to changing the meeting to a virtual-only meeting is certainly material, in the absence of substantive changes to the proposals, I'd be hard pressed to conclude that this involves a fundamental change that would recommence a 10-day waiting period.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

Q: Does this rule require a hyperlink whenever a description in an 8-K is qualified by reference to an exhibit which is incorporated by reference? I don't typically see in 8-K's hyperlinks to the exhibits which are incorporated by reference in the narrative disclosures. thx

RE: If the exhibits that are incorporated by reference in the line-item narrative are included as exhibits to the filing itself, then I believe the hyperlinking requirement is satisfied. If the 8-K is incorporating information from another filing, then a hyperlink to the relevant document is required.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

Q: Effective May 2, 2019, Form 10-K was amended to delete the second sentence of General Instruction G.(4). I did not see any explanation in either the adopting release or the rule proposal. The deleted sentence referred to Rule 12b-23(e). General Instruction G.(1) continues to reference Rule 12b-23. Lately, I have seen registrants file Form 10-Ks in which the information required by Part III is incorporated simply be reference to the proxy statement (without identifying the location within the proxy statement). Was the amendment to General Instruction G.(4) intended to allow for this practice or does the requirement in Rule 12b-23(e) that the location of the information be disclosed continue to apply?

RE: I don't think that's what it was intended to accomplish. My guess is that the SEC thought the language was duplicative in light of the earlier reference to Rule 12b-23 and deleted it for that reason. Unfortunately, I've found no explanation for the change either.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

Q: Can a company which previously filed an S-3 use Rule 462(b) to increase the size of that offering, even if they no longer meet the public float requirement for an S-3 (and are therefore no longer eligible to file new a S-3)?

RE: That's an interesting question, and one on which I've never seen any guidance. For what it's worth, I think you probably could do that, but you'd need to file your Rule 462(b) registration statement under cover of Form S-1. I'll explain my reasoning below, but I'm making this up as I go along, so I would definitely encourage you to discuss this option with the Staff before proceeding.

A Rule 462(b) filing represents a new registration statement. Since you're no longer eligible to use Form S-3 for a new registration statement, you'd have to look to the requirements of Form S-1 as to what is required to be in that registration statement. General Instruction V to Form S-1 says the following with respect to a Rule 462(b) filing:

"With respect to the registration of additional securities for an offering pursuant to Rule 462(b) under the Securities Act, the registrant may file a registration statement consisting only of the following: the facing page; a statement that the contents of the earlier registration statement, identified by file number, are incorporated by reference; required opinions and consents; the signature page; and any price-related information omitted from the earlier registration statement in reliance on Rule 430A that the registrant chooses to include in the new registration statement. The information contained in such a Rule 462(b) registration statement shall be deemed to be a part of the earlier registration statement as of the date of effectiveness of the Rule 462(b) registration statement."

This language is identical to the language of General Instruction IV to Form S-3. The instruction does not require a Rule 462(b) registration statement to be filed on the same form as the registration statement to which it relates. nor does it require a registrant to provide any of the other information called for by the line items in Form S-1. There also doesn't appear to be any language in Rule 462(b) itself requiring the new registration statement to be on the same form as the prior registration statement. Since that's the case, I think a Rule 462(b) filing under the cover of Form S-1 could be used to increase the size of an offering originally registered on Form S-3.

All of the foregoing assumes that we're dealing with an offering that is taking place between the time that S-3 eligibility is lost and the date of the required Section 10(a)(3) update.
-John Jenkins, Editor, TheCorporateCounsel.net 1/22/2021

Q: If a registrant provides a non-GAAP financial measure of a different company (whether public or private), do Reg G and Item 10 apply? Thanks.

RE: There are exceptions to Reg. G and Item 10(e) applicability for non-GAAP measures used in Rule 425 and 14a-12 communications (including those relating to entities party to the business combination). The staff issued a CDI that limited the scope of the exception to just 425/14a-12 filings (so if the same measure is used in 33 Act/proxy statements, then Item 10(e) applies)). Other than this, I believe both would apply to non-GAAP measures used in a public disclosure/filing by a reporting company.
-7/27/2015

RE: It may be worth calling the Staff on this question for clarity, but "Non-GAAP financial measure" is defined in the rule as "a numerical measure of a REGISTRANT'S historical or future financial performance, financial position or cash flows that..." (emphasis added). To be conservative, I would consider information within the consolidated registrant as part of the registrant (i.e., like a spinco situation), but not clear that it would go outside the registrant.
-7/29/2015

RE: Any updates on this question/post? I agree with the prior commenter regarding the definition of non-GAAP financial measure being limited to the registrant. So what say you about third parties (e.g., a material customer) of the registrant?
-1/21/2021

RE: I don't think this has been addressed by the Staff, but it doesn't seem like non-GAAP information about a third party should be subject to compliance with Regulation G. As noted, this information does not appear to be encompassed by the definition of the term "non-GAAP financial measure" in Rule 101 of Reg G, since that definition specifically references information that is excluded from that "included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) OF THE ISSUER."

I think the answer might be different if disclosure of non-GAAP information about a customer somehow serves as a proxy for non-GAAP information about the issuer or was being disclosed to somehow allow the customer to avoid compliance with its own obligations under Reg G. I also think it's important to keep in mind that this information would still be subject to Rule 10b-5, even if compliance with Reg G was not required.
-John Jenkins, Editor, TheCorporateCounsel.net 1/21/2021

Q: Has anyone come across any statistics/memos/discussions regarding the number of directors whose resignations have actually been accepted vs. rejected in connection with a resignation that is required to be tendered as a result of such director not receiving the majority of votes cast in an election for a public company that has a majority voting bylaw? The language of these bylaws usually state that the tendered resignation is expressly contingent upon acceptance by the Board and wondering how common this is in practice for a Board to accept (or not accept) such a resignation.

RE: The CII published some data back in 2017, but I haven't seen anything more recent than that. Here's an excerpt from the CII's FAQs on Majority Voting:

"Is there any evidence that having majority voting in place makes a difference in actual director turnover when directors fail to obtain majority support?

Yes. Based on uncontested elections from 2013-2016 in which at least one director did not receive majority support, the vote requirement matters. Overall, a rejected uncontested director left the board 25 percent of the time. At “plurality plus” companies, the departure rate was nearly the same—24 percent, as of the close of 2016.

By contrast, at companies with majority voting, seven of nine directors who lost elections in the same period permanently left the board. The numbers involved are small but encouraging. Of course, any majority-opposed director at a company with consequential majority voting would have a 100 percent departure rate for unelected directors."
-John Jenkins, Editor, TheCorporateCounsel.net 1/21/2021

Q: We would like to rely on a POA for director signatures. Some time has passed since the original registration statement, but we're still able to have half the signatories from the original filing. If we have 4/8 directors under the POA, does that satisfy the majority of directors signing the registration statement? This is for a post-effective amendment. Or do we need 5/8? Thank you.

RE: I haven't seen anything in the statute or rules defining the term "majority" of the directors. Since that's the case, I think the plain English meaning would likely apply and you'd need more than half of the board to sign. So, I think the answer is 5 directors.
-John Jenkins, Editor, TheCorporateCounsel.net 1/19/2021

Q: If Company is negotiating a commercial agreement whereby the counterparty, a foreign national, is to receive Company stock in an earnout provision, does Company need to take steps to comply with Regulation S (for Category 3 transactions)? It seems like it does based on my read of the statute, but I'm wondering if I am overlooking an exemption or not thinking about Section 5 correctly. Thanks.

RE: If the earnout involves a security, then you need to find an exemption for it, and if you're a Category 3 issuer, then that seems to be the right place to look if your seller is a foreign national. But not every earnout involves a security In a series of no-action letters, the SEC has identified the following key features of an earnout that will result in it not being considered a security:

– The earn-out right is part of the consideration in the transaction and the parties do not view the right as an investment by the sellers;
– The earn-out right is not represented by any certificate or instrument;
– The holder of the earn-out right has no voting or dividend rights, nor does the earn-out right bear a stated interest rate;
– The earn-out right does not represent an equity or ownership interest in the buyer; and
– The earn-out right cannot be transferred, except by operation of law.

The prohibition on transferability is probably the most important of these conditions.
-John Jenkins, Editor, TheCorporateCounsel.net 1/18/2021

Q: An issuer has an effective Form S-3 on file. About a year ago, it filed a prospectus supplement to register the sale of convertible securities and the issuance of the underlying common stock. The terms of the convertible security are going to be amended. However, the issuer is NOT S-3 eligible any longer. Can they file a 1-page prospectus supplement to reflect the new terms, or do they need to use a Form S-1?

RE: No. If the issuer is no longer eligible to use Form S-3 at the time of its 10(a)(3) update (typically, the time of its 10-K filing), it may no longer use its existing S-3 for a primary offering. See the discussion on p. 67 of the Form S-3 Handbook and Securities Act Forms CDI 114.02.
-John Jenkins, Editor, TheCorporateCounsel.net 1/17/2021

RE: And regardless of the amendment, the issuer cannot rely on the old pro supp (filed when S3 eligible) anymore either since it's not S3 eligible, right?
-1/17/2021

RE: Yes. The pro supp relates to the specific registration statement, which is on a form that the issuer is no longer eligible to use.
-John Jenkins, Editor, TheCorporateCounsel.net 1/18/2021

Q: I have not seen this type of SEC Staff response approach to 14a-8 no-action requests before and not sure if it is new? See https://www.sec.gov/divisions/corpfin/shareholder-proposals.pdf Does anyone have any feel for how ISS/Glass Lewis will view this type of more "informal" response? If the Staff concurs and it is documented on this site would ISS/Glass Lewis still consider recommending against the nominees if the company excluded such as proposal?

RE: The Staff has been doing this for a little over a year now. I'm not aware of any distinction between how these responses and more traditional responses are treated by third parties.
-John Jenkins, Editor, TheCorporateCounsel.net 1/16/2021

Q: Company is currently an accelerated filer and a smaller reporting company. As of June 30, 2020, their public float was between 75 and 250 million (approx. 100 million). Its FY 2019 revenue was above 100 million; however, its FY 2020 revenue is below 100 million. My question is for determining whether it transitions to non-accelerated status, should the company use the FY 2019 or FY 2020 revenue for the SRC revenue test exception to accelerated filer status? The rule says it is the revenue as of the most recently completed fiscal year but do not know if that determination is made as of June 30 like with public float or now. If company uses FY 2019, then they would still be an accelerated filer but using FY 2020 I believe they would be a non-accelerated filer.

RE: Under Rule 12b-2, accelerated filer status is assessed at the end of the issuer's fiscal year, and the applicable SRC revenue test is based on the most recently completed fiscal year for which financial statements are available. Since the 2020 financial statements won't be available at the time when the assessment is made, I believe that you will continue to look at the 2019 financials in determining whether the issuer remains an accelerated filer during 2021.

I think that position is also consistent with footnote 149 of the adopting release, which indicates that a company will know of any change in its SRC or accelerated filer status for the upcoming year by the last day of its second fiscal quarter. Here's an excerpt:

"Public float for both SRC status and accelerated and large accelerated filer status is measured on the last business day of the issuer’s most recently completed second fiscal quarter, and revenue for purposes of determining SRC status is measured based on annual revenues for the most recent fiscal year completed before the last business day of the second fiscal quarter. Therefore, an issuer will be aware of any change in SRC status or accelerated or large accelerated filer status as of that date."
-John Jenkins, Editor, TheCorporateCounsel.net 1/15/2021

RE: Thank you very much for your helpful response
-1/15/2021

Q: We represent a company that entered bankruptcy and subsequently exited bankruptcy as a wholly owned subsidiary of a newly formed entity. The newly formed entity subsequently went public and now needs to file a 10-K. We are wondering if the below portion of form 10-K applies to the new public entity. The new entity is not technically the registrant that was involved in the bankruptcy proceeding and didn't continuously report with the SEC, though it now owns the membership interests of the entity that went through bankruptcy. Is anyone aware of guidance on whether this portion of the 10-K would still be applicable to our registrant? -- APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court

RE: I'm not aware of any guidance on this topic. My gut feeling is that unless the new entity has the same Commission file number as the bankrupt entity, this check box would not apply to it. I suggest you contact the Staff.
-John Jenkins, Editor, TheCorporateCounsel.net 1/15/2021

Q: If an executive officer is currently serving as interim CFO and disclosed that it would be acting as the Principal Accounting Officer in the 8-K announcing his appointment, does it need to have a second 8-K when the current CFO (and current PFO) resigns and the new interim CFO takes over the PFO roles?

RE: Yes. The retirement of the PFO triggers an Item 5.02(b) 8-K, and the appointment of the current PAO to the PFO position triggers an Item 5.02(c) 8-K.
-John Jenkins, Editor, TheCorporateCounsel.net 1/14/2021

RE: Thank you - just to be clear, the initial 8-K stated that the current CFO would be resigning (effective date to be later on, which was disclosed), that the new interim CFO would be serving as CFO and PAO. Based on my understanding, the definition of PFO hinges on the substantive duties of the officer, therefore, do we really need another 8-K saying that the new interim CFO will be PFO?
-1/14/2021

RE: If you've laid that all out and provided the other disclosure required in Item 5.02(c), then I think you can certainly argue that the PFO function is implicit in the permanent CFO title which the interim CFO is assuming and that nothing more needs to be said.
-John Jenkins, Editor, TheCorporateCounsel.net 1/14/2021

Q: Item 401(f) of Reg. S-K appears to provide that if an issuer's director sits on the board of another public corporation and he is not an executive officer of that other corporation, the director is not required to disclose in his proxy statement bio for the issuer that the other public corporation filed for bankruptcy within the past 10 years. Thoughts on whether this is too narrow of a reading the rule?

RE: You're correct, that's what the line item requires. The SEC considered expanding the disclosure requirement to cover service as a director of a bankrupt company in 1995, but opted not to do it. See p. 13 of the attached release.
-John Jenkins, Editor, TheCorporateCounsel.net 1/14/2021

Q: Anyone happen to know why Form 13H filings (Large Trader Registrations) do not appear on Edgar anywhere? I believe this filing requirement has been in place for a couple of years now, but I cannot seem to locate any precedent 13H filings using normal Edgar search techniques. Thanks in advance for any input.

RE: The applicable rules provide that while Form 13H filings are processed through the SEC’s EDGAR system, once filed, the Form 13H filings are not accessible through the SEC’s website or otherwise be publicly available.
-Dave Lynn, Editor, TheCorporateCounsel.net 7/15/2014

RE: 13H filer forgot to make the annual filing and realized one year later when it was time to make the next annual filing. No amendment was required but the annual filing was skipped. Filer will make the annual filing one year late. What are the implications of a single late 13H/A annual filing (no amendment required) w/r/t S-3 eligibility and disclosure in registrant's '34 Act reports? Secondary resources suggest no implications on the issuer given these are filings by the holder not the company. Realize there are enforcement actions for repeated late filings but not coming across for a single late filing.
-1/13/2021

RE: Instruction I. A. 3. to Form S-3 focuses on the registrant's compliance with its own reporting obligations in assessing eligibility, not on a third party's compliance with reporting obligations imposed as a large trader in the registrant's stock.
-John Jenkins, Editor, TheCorporateCounsel.net 1/13/2021

RE: Many thanks
-1/13/2021

RE: FYI as you're making your 13H filings, SEC Filer Support just issued an announcement saying that some folks are experiencing technical problems with that Form right now and offering some tips. https://www.sec.gov/oit/announcement/form-13h-issues
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 1/13/2021

Q: Does anyone know if Release No. 33-10890 is expected to be published in the Federal Register soon (so that, after 30 days of such publication, it will be effective in time for 10-Ks filed later in February)? I expected it to have been published by now but don't see it (let me know if I missed it, too). Thanks.

RE: See the response to Topic 10531. It doesn't appear to have been published yet.
-John Jenkins, Editor, TheCorporateCounsel.net 1/5/2021

RE: The compliance date is September 8, 2021 which is 210 days after the effective date of February 10. But didn't the adopting release provide that the compliance date would be for fiscal years ending on or after 210 days after the publication date (and not the effective date which is 30 days later), which would then mean that companies whose fiscal years ending on or after August 9, 2021 would be required to comply?
-1/12/2021

RE: Here is the language from Section II. F. of the release as published in the Federal Register (p. 2109). The mandatory compliance date is August 9, 2021, not September 8, 2021:

"The final rules are effective February 10, 2021. After considering feedback from commenters,registrants will be required to apply the amended rules for their first fiscal year ending on or after August 9, 2021 (the ‘‘mandatory compliance date’’). Registrants will be required to apply the amended rules in a registration statement and prospectus that on its initial filing date is required to contain financial statements for a period on or after the mandatory compliance date."
-John Jenkins, Editor, TheCorporateCounsel.net 1/12/2021

RE: The version on the SEC Website reads as follows:

The final rules are effective February 10, 2021. After considering feedback from commenters, registrants will be required to apply the amended rules for their first fiscal year ending on or after September 8, 2021 (the “mandatory compliance date”). Registrants will be required to apply the amended rules in a registration statement and prospectus that on its initial filing date are required to contain financial statements for a period on or after the mandatory compliance date.
-1/12/2021

RE: Oh well, at least we've got some time to sort it out. The adopting release originally said that the compliance date would be 210 days after publication in the Federal Register, instead, the SEC's updated version dropped in the date that was 210 days after the effective date.
-John Jenkins, Editor, TheCorporateCounsel.net 1/12/2021

RE: August 9th it is! The SEC has updated the version of the adopting release appearing on its site to conform to the Federal Register's version.
-John Jenkins, Editor, TheCorporateCounsel.net 1/13/2021

Q: The Company is planning to issue shares under its compensation plan to 2 officers and a few employees. The shares will be unregistered and the Company is relying on the 4(a)(2) exemption because there is not enough registered shares on the existing S-8 to cover such shares (a new S-8 will be filed later in the year). The shares will vest in one year. The Company uses a plan administrator that will DWAC shares to the employee's brokerage accounts upon vesting (the brokerage account is one that the Company has set up for its employees and works hand-in-hand with the plan administrator). The Company would like to not place legends on the shares so that upon vesting, the shares can get DWAC'd to the employees' brokerage accounts. The Company feels that no legends are necessary given that employees cannot sell shares until the Company lifts the restriction with the broker. In other words, an employee must contact the General Counsel for approval, who in turn then notifies the broker to lift the restriction for selling. Given the Company's control over sales, is a restrictive legend required to be placed on the shares being issued to the employees/officers under the compensation plan? In essence, the Company would/would not allow the shares to be sold until the employee/officer has met the 144 resale requirements. My thought is that so long as the Company has control over the sale of shares, it would help employees/officers from stepping in a legal landmine.

RE: In general, an issuer has an obligation to exercise reasonable care to assure that the purchasers of the securities are not underwriters within the meaning of section 2(a)(11) of the Act (see, e.g., Rule 502(d) of Reg D). Placing a restrictive legend on a certificate is one way of establishing that the issuer is acting with reasonable care, but it is not the only way. I think you need to consider whether the contractual restrictions on transfer that you've imposed are reasonable to prevent the employees from reselling the securities.

Personally, I don't think I'd be comfortable relying solely on a contractual rep from the employees. I think that the argument is stronger if the broker has agreed not to permit the sale of the shares without your permission and the employees have consented to you issuing stop transfer instructions and those instructions have been provided to the transfer agent.

On a related issue, I'm no expert on the back office side, but it has always been my understanding that in order to be held in a DWAC account, shares have to be freely tradable or eligible to have their restrictions removed. You may want to reach out to your transfer agent on this topic.
-John Jenkins, Editor, TheCorporateCounsel.net 1/12/2021

RE: If the shares of restricted stock were issued with a restrictive legend and subsequently registered on a Form S-8 before they vest, am I wrong in thinking that the shares of restricted stock are no longer restricted securities and, therefore, the legend can be removed and the shares are freely tradeable on vesting?
-1/12/2021

RE: I'm afraid the answer is complicated when dealing with restricted stock or RSUs. See the discussion on pp. 41-43 of the Form S-8 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 1/12/2021

Q: I have reviewed the repurchase handbook and am familiar with the cooling off period for traditional repurchase plans. Is this concern relaxed in the accelerated share repurchase (ASR) context (given the structure and mechanics of such programs, including that the repurchase calculations are ultimately done over a period of time in the future (far removed from the signing of/entry into the ASR))? Thanks for any thoughts.

RE: I think that despite the fact that the repurchases will be made by the dealer over time, the bulk of the economic impact and the acquisition of 80% of the shares by the company occurs upfront, so I suppose the arguments in favor of some kind of cooling off period for an ASR program structured as a 10b5-1 plan would theoretically apply.

That being said, I've only been involved in a few of these, but in my limited experience, companies haven't observed a cooling off period after entering into an ASR agreement. In fact, many of these agreements are signed up & executed on the same day. I also haven't seen any references to a delay between signing the agreement and executing the front end of the transaction in public announcements of ASR programs. My sense is that because these programs are opportunistic and time is often of the essence in being able to achieve the desired accounting result, a cooling off period is not market practice.
-John Jenkins, Editor, TheCorporateCounsel.net 1/12/2021

Q: I understand that the Contractual Obligations Table is no longer required, and it seems like Broadcom was the last larger company of sorts to disclose such a table on December 18, 2020, but is practice that issuers are quickly abandoning the table, or rather is it that issuers will continue to use the table in addition to the new required disclosure in the liquidity section? Thank you.

RE: The contractual obligations table is still required. Release No. 33-10890 has not yet been published in the Federal Register and will go effective 30 days after publication in the Federal Register, and then there is a further transition period after that, but early compliance is permitted once the rule changes are in fact effective. We will discuss this in detail in an upcoming webcast on TheCorporateCounsel.net on January 12, 2021.
-Dave Lynn, Editor, TheCorporateCounsel.net 1/9/2021

Q: What is disclosure practice for Part II, Item 2 with regard to the Instruction that states: Working capital restrictions and other limitations upon the payment of dividends are to be reported hereunder?

RE: Some companies include the disclosure in Item 2 itself, but my anecdotal experience suggests that it is more common to see a cross reference to a discussion in the footnotes to the financial statements or in the MD&A section.
-John Jenkins, Editor, TheCorporateCounsel.net 1/8/2021

Q: Issuer is doing an IPO. At the time of submission, issuer is an EGC. Prior to effectiveness, the issuer crosses $1.07B in revenue in a fiscal year and relies on the guidance provided by the Staff that you can still take advantage of the benefits of an EGC for purposes of the S-1. At time of S-1 effectiveness (in the fiscal year after crossing the revenue threshold), there are 2 years included in S-1. After IPO, issuer wants to do a follow-on offering. Is it able to include 2 years of financial statements in the follow-on offering, or would it need to have 3 years? In other contexts like selected financials the Staff has said that an issuer that loses EGC status doesn't need to present audited financials for a period earlier than the first year in the IPO registration statement. Also, see below from FRM: Securities Act Registration Statements Filed Subsequent to the Initial Public Offering of Common Equity Securities An EGC is not required, in subsequent filings, to include audited financial statements for any periods prior to the earliest audited period presented in connection with its initial public offering of common equity securities. Not sure if the FRM language applies in this situation since issuer crossed over 1B in revenue. It would seem counterintuitive for a company to have to file an extra year of financials for a follow-on that wasn't in the IPO prospectus. Any thoughts on this or guidance?

RE: This is yet another EGC transitional issue that I haven't seen any guidance on. Unfortunately, the general approach to companies that have lost EGC status seems to be to abruptly throw them into the deep end of the disclosure pool. That being said, the Staff has stated that, when an issuer ceases to be an EGC, it won't object if the issuer does not present selected financial data in its Form 10-K filings for periods prior to the earliest audited period presented in its initial registration statement. That seems to suggest that when it comes to financial disclosure, the general approach is to roll forward from the IPO registration statement, even in the case of a company that has lost EGC status.

I suggest you discuss this with the Staff. See this Gibson Dunn memo for more information on transitional issues and the cite for the guidance I referenced above.
-John Jenkins, Editor, TheCorporateCounsel.net 1/8/2021

Q: For a public company with a recently revamped records retention policy and schedule, does this group have any recommendations for consultants/contractors to assist with implementation/deployment of the same (getting started, getting into legacy systems, etc.)? Thanks as always.

RE: I'll defer to others on a specific recommendation, but we do have a list of service providers in our "Document Retention" Practice Area.
-John Jenkins, Editor, TheCorporateCounsel.net 1/7/2021

Q: Section II.F states: Although registrants will not be required to apply the amended rules until their mandatory compliance date, they may provide disclosure consistent with the final amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety. For example, upon effectiveness of the final amendments, a registrant may immediately cease providing disclosure pursuant to former Item 301, and may voluntarily provide disclosure pursuant to amended Item 303 before its mandatory compliance date. In this case, the registrant must provide disclosure pursuant to each provision of amended Item 303 in its entirety, and must begin providing such disclosure in any applicable filings going forward." Is it clear from this example, that a registrant may cease providing Item 301 disclosure without complying with amended Item 303. The first sentence references "an amended item in its entirety" and not all amended items. Further, the example doesn't refer to any of the other amended disclosure items.

RE: Yes, I believe that was the SEC's intent.
-John Jenkins, Editor, TheCorporateCounsel.net 1/6/2021

Q: A calendar year company is transitioning out of being a smaller reporting company to an accelerated filer. As permitted, it will file its 10-K for 2013 using the scaled down financial statement requirements. If during 2014, when it will be an accelerated filer, it files a shelf registration statement or does a takedown off an existing shelf, is there a problem in the fact that the 10-K incorporated by reference only includes two years of financial statements instead of three years?

RE: This issue has also come up for our client. Identical fact pattern. Any insight would be much appreciated.
-3/28/2014

RE: This is an issue that our client is also dealing with. Any insight? The 10-K will include SRC scaled down disclosure, including two years of audited financials instead of three.
-1/7/2019

RE: I'm not aware of any guidance from the Staff, but it's interesting - if you look at the line item requirements of Form S-3, it does not contain the elaborate and highly-specific language contained in Item 11(e) of Form S-1 that calls for "Financial statements meeting the requirements of Regulation S-X (17 CFR Part 210) . . . as well as any financial information required by Rule 3-05 and Article 11 of Regulation S-X. "

Instead, while Item 11(b) of Form S-3 does call for 3-05 and Article 11 information, as well as restated financials in certain instances, there isn't the same call for "financial statements meeting the requirements of Regulation S-X" that's found in S-1. Instead, Item 12 of Form S-3 simply calls for companies to incorporate by reference "the registrant’s latest annual report on Form 10-K (17 CFR 249.310) filed pursuant to Section 13(a) or 15(d) of the Exchange Act that contains financial statements for the registrant’s latest fiscal year for which a Form 10-K was required to be filed."

That seems to me to suggest that based on the language of Form S-3 itself, you have a good argument that you should be able to incorporate that 10-K by reference without adding a year of financials in conformity with Form S-3's line item requirements. But this is definitely one I'd want to talk through with the Staff.

As we've noted on page 99 of our Form S-3 Handbook, the Staff has advised us that incorporation by reference of a 10-K containing scaled comp disclosures by a WKSI is okay - but the big reason for that is that comp information isn't an S-3 line item. Any line item requirements applicable to an accelerated filer would need to be complied with at the time of filing.
-John Jenkins, Editor, TheCorporateCounsel.net 1/7/2019

RE: We have a client who is dealing with this issue. Did you receive any guidance from the staff regarding this?
-1/5/2021

Q: A disgruntled former employee of a Delaware corporation submitted a proposal pursuant to the corporation's advance notice bylaw and not under Rule 14a-8. Had the proposal been submitted under Rule 14a-8, it likely could have been excluded because the proposal essentially relates to a personal grievance (the former employee wants to amend the corporation's option agreement going forward and retroactively. He had a period of time to exercise options after he left the corporation and he missed the deadline, so the options expired and cannot be regranted because former employees are not eligible participants in the equity plan). Delaware law is pretty broad when it comes to floor proposals. We have discussed potential grounds from exclusion under Delaware law and have not come up with anything solid to this point, so I wanted to reach out to see if anyone has any thoughts.

RE: There's not much out there on issues directly addressing the conduct of an annual meeting, and I've not seen anything relevant to your situation addressing the grounds upon which a shareholder floor proposal may be excluded. However, you may want to look at some of the case law addressing what constitutes a "proper purpose" for a Section 220 books and records demand.

As you suggest, this looks like a classic personal grievance, and I know there's some fairly recent case law that says a shareholder's personal interests unrelated to its interests as a stockholder are insufficient to establish a "proper purpose" for a books and records request. Perhaps that can be used to support an argument that a personal grievance should not be regarded as a proper subject for shareholder action under Delaware law.
-John Jenkins, Editor, TheCorporateCounsel.net 1/5/2021

Q: Company is entering into an employment agreement with an officer who was not an NEO as of the last publication of the Summary Compensation Table and, as a result, Item 5.02(e) is not triggered. The compensatory terms of the employment agreement are such that they would vault the officer to the status of the second highest paid executive officer for the current year and include some out-of-the-ordinary change of control terms. Is there any argument that this agreement should be disclosed under Item 1.01 of Form 8-K? The instructions as to compensatory arrangements are clear that if the subject matter of the agreement is covered in Item 601(b) (10)(iii)(A) or (B) of S-K that it need not be disclosed under 1.01, but because the agreement is with an officer, does 601(b)(ii)(A) somehow bring you back into Item 1.01?

RE: To the extent that you're dealing with a compensation agreement of the kind that would be subject to disclosure under Item 601(b)(10)(iii)(A) or (B), I think the adopting release is pretty clear that it isn't required to be disclosed in response to Item 1.01. I don't think I'd read Item 601(b)(ii)(A) as reopening the issue when it comes to comp agreements with executive officers who don't fall into the NEO definition at the relevant time. Of course, non-comp related agreements with an executive could still trigger an Item 1.01 filing.

But even if you don't trigger Item 1.01 or Item 5.02, if this individual is an executive officer, you'll still need to file the agreement as an exhibit to your next Exchange Act report due to the last clause of Item 601(b)(10)(iii)(A). If you're concerned about the potential materiality of the arrangements, you may want to consider filing an Item 8.01 Form 8-K in order to ensure that the appropriate information about the new arrangements is incorporated by reference in any registration statements that the issuer may have outstanding.
-John Jenkins, Editor, TheCorporateCounsel.net 1/4/2021

Q: Hi. A client is party to several legal proceedings, which also name the directors and officers. There are standard indemnification arrangements in place, and the company and the individuals are not currently adverse to each other (and not expected to be in the future). We're thinking this does NOT trigger the requirement to disclose a material interest of the individuals. Any other place that disclosure might be required (besides the general disclosure that always appears anyway)? Much appreciated.

RE: I don't think that the existence of such arrangements would necessarily trigger that disclosure. When it comes to other disclosure triggers, particularly Item 404, the answer is complicated, but the bottom line is that there is room for judgment. Here's a blog that Alan Dye wrote about the issue on Section16.net back in 2007:

"I mentioned in the December 2006 issue of Section 16 Updates that an issuer’s reimbursement of a director’s legal expenses or indemnification of a director’s liability in connection with shareholder lawsuits or an SEC investigation might be disclosable under Item 404(a) of Regulation S-K and therefore might render the director ineligible to serve as a “non-employee director” for purposes of Rule 16b-3. That warning was based on a staff interpretation that appeared in Corp Fin’s July 1997 Telephone Interpretations Manual (No. J.48), which said that an issuer’s payment of an officer’s legal expenses in connection with an action brought against the officer in her capacity as an officer was not disclosable as compensation under Item 402, but instead was disclosable as a related person transaction under Item 404. I addressed the issue in Updates because several people had called me in recent weeks questioning whether indemnity and legal expense reimbursements really should be considered disclosable under Item 404(a).

Today, someone asked a similar question during my annual Section 16 Teleconference (sponsored by the National Association of Stock Plan Professionals), and I repeated what I said in Updates. Afterward, a colleague at a San Francisco law firm who had dialed into the Teleconference kindly emailed me to say that the telephone interpretation I had referred to was restated in the staff’s executive compensation interps published yesterday, but without the reference to the Item 404 issue. Sure enough, Interpretation 1.11, on page 15 of the new interpretations, repeats that reimbursed legal expenses are not compensation for purposes of Item 402, but drops the statement that reimbursement is disclosable under Item 404(a). I don’t know if the staff is backing away from its prior position, or instead just recognized that, in a principles-based system, there are no absolutes, and instead each case of reimbursement or indemnification must be analyzed to determine the materiality of the related person’s interest. In either case, the staff’s omission of the 404 interpretation may leave some room to maneuver."
-John Jenkins, Editor, TheCorporateCounsel.net 1/4/2021

Q: Can you please confirm that an immaterial amendment to a material contract must be filed as an exhibit to the next Exchange Act periodic report filed in accordance with S-K 601(a)(4) (which provides in relevant part that "...Any amendment or modification to a previously filed exhibit to a Form 10, 10-K or 10-Q document shall be filed as an exhibit to a Form 10-Q and Form 10-K? Such amendment or modification need not be filed where such previously filed exhibit would not be currently required...."), notwithstanding that it does not trigger an Item 1.01 8-K filing obligation. Seems clear on its face to me, but have been asked to for further confirmation on this point. Thanks.

RE: I agree with your analysis of Item 601(a)(4). I have often noted for folks that you could trigger an Item 601(a)(4) exhibit filing requirement for an amendment even though no Item 8-K triggering event occurs.
-Dave Lynn, Editor, TheCorporateCounsel.net 9/7/2007

RE: We executed a non-material amendment (it did not trigger an 8-K) to a material contract during this quarter. The material contract was originally filed in an S-4, then listed in the following 10-K exhibit listing, with the incorporation by reference to the form S-4. Under the S-K rule, is this non-material amendment required to be filed with this upcoming 10-Q? Since the original material agreement was filed in an S-4 and only referred to by reference in the form 10-K? Thanks.
-12/11/2007

RE: Yes, I believe that under Item 601(a)(4) of Regulation S-K you would have to file the amendment unless for some reason the original material agreement would, for instance, no longer be material or is no longer in effect.
-Dave Lynn, Editor, TheCorporateCounsel.net 12/11/2007

RE: Given the "previously filed exhibit to a Form 10, 10-K or 10-Q document" language of S-K Item 601(a)(4), if a merger agreement was filed with an 8-K (not a 10, 10-K, or 10-Q), and that agreement is being incorporated by reference in a 10-Q/K (since it was entered into during the period), does an amendment to that same material merger agreement (though the amendment itself was immaterial and did not trigger an 8-K) also need to be filed as an exhibit to that 10-Q/K if it was entered into during the period (or is the answer "no" because the merger agreement was not a previously filed exhibit to a Form 10, 10-K or 10-Q (but an 8-K instead))? I looked at Item 601(b)(2) for more guidance, and it looks to capture "any material plan...and any amendments thereto described in the statement or report" - I assume that this captures all amendments (not just those amendments explicitly "described in the statement or report")? Thanks.
-1/4/2021

RE: While your situation arguably falls into a potential gap in the instructions, I think the concept that Item 601(a)(4) is trying to express is that immaterial amendments to a material plan of acquisition should be filed as exhibits. I'd recommend filing it when you incorporate the prior 8-K exhibit by reference in the 10-K or 10-Q filing. See the discussion on p. 84 of our 10-K & 10-Q Exhibits Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 1/4/2021

Q: I represent a large cap company that will be entering an agreement to sell a small subsidiary. The sale price is not material to the company. But the potential accounting treatment will be a gain that might be material to net income. Historically, when evaluating whether an agreement is material and for the purposes of the 8-K rule, we have considered the transaction price and not the accounting treatment. Is that the correct way to think about it?

RE: That's an interesting question. I don't think I've ever seen it addressed, but I do think you're looking at it the right way. From my perspective, the mere fact that you're going to recognize an outsized one-time accounting gain on the sale of a small subsidiary doesn't transform an insignificant transaction into a material one requiring an Item 1.01 Form 8-K filing. To me, that's particularly true in the case of a large cap company with an analyst following and a relatively efficient market for its stock. Companies like that don't tend to be valued on one-time "blips" in after tax earnings, particularly when they relate to a business that is no longer part of their ongoing operations.
-John Jenkins, Editor, TheCorporateCounsel.net 12/31/2020

Q: How do public companies handle overboarding and capacity concerns caused by private company directorships? Are there formal or informal policies that limit the number of private and non-profit boards on which directors can serve?

RE: At our company, our Corporate Governance Guidelines cover service on other for-profit boards. We don’t require any kind of pre-clearance or approval for directors’ service on non-profits (obviously, we gather that info in the D&O Questionnaire, but there’s no formal or informal process for approval).

Here’s what our Guidelines say:

“A Director who intends to join another for-profit company board of directors, whether public or private, will pre-clear service on that other company board of directors with the Chair. The Chair will make a determination on whether to permit or deny that additional service, taking into consideration the time commitments related to the director’s other boards, the expected time commitment to the Company, the potential for any conflicts with the Director’s duties to the Company, and any other factors deemed relevant. All memberships on other for-profit company boards by the CEO will be considered and decided by the full Board based upon the Corporate Governance and Nominating Committee’s recommendation. Exceptions to this policy may be made in exceptional cases by the Board with the advice and counsel of the Corporate Governance and Nominating Committee.”
-12/30/2020

RE: At our company, we don't require official notice from directors to join private company or non-profit boards. With that said, given they must disclose all board service (public, private, and nonprofit) on the D&O questionnaires, the directors tend to notify the corporate secretary group before joining any board. Our Corporate Governance Guidelines just say that board members are expected to devote sufficient time and attention to their duties and that the board will take into account the nature and extent of a director’s other commitments when determining whether it’s appropriate to renominate them to the board. We also do not disclose in our proxy statement any private company or nonprofit board positions for any of our directors.
-12/30/2020

Q: Company has on file a Registration Statement on Form S-3 that registers (i) shares that may be issued by the Company under Rule 415 and (ii) the resale of shares that may be sold by selling stockholders. The selling stockholder component relates to a purchase right by certain stockholders to acquire shares from the Company and, if the purchase right is exercised, the S-3 would register the resale of shares acquired as a result of the purchase option. The Company is exploring whether to file a Registration Statement on Form S-3 to upsize the number of shares that can be issued by the Company. None of the parties that have the purchase right have exercised their purchase rights, and no sales off of the shelf have otherwise been made. Based on the SEC's CD&Is, and other postings in this forum, it would appear that, if the right set forth in (ii) had been exercised and the stockholders subsequent sold even a single share, because a confirmation would have been given as a result of the resale, Rule 462(b) would no longer be available. However, since the shelf has not been used, it appears that Rule 462(b) is still available. Does this seem accurate to you? Also, under these circumstances, how would the SEC calculate the 20%? Would it be based on the maximum aggregate offering price attributable to the Company shares? Or, the maximum aggregate offering price attributable to all shares registered (i.e., Company + Selling Stockholder)? It would seem to make more sense to me to only count the maximum aggregate offering price attributable to Company shares. On a related note, the Company's stock price has dropped dramatically since the filing of the registration statement. I have not seen any guidance from the SEC when faced with this situation, but does the SEC have a policy in this situation that would limit the 20% in some ways? For example, let's assume a Company originally registered 1,000,000 shares on S-3 at a price of $20 per share, for a maximum aggregate offering price of $20,000,000. If the price was the same, a Rule 462 registration statement could register an additional 200,000 shares (20% x $20,000,000; divide by $20). However, if the current price is at $5, the Rule 462 registration statement can register 800,000 shares. Does the SEC have a policy of limiting the otherwise 800,000 shares? My take is that, because Rule 462 operates based on the maximum aggregate offering price, and not shares, the SEC would not take issue to registering the full 800,000 shares.

RE: If I understand the question correctly, the intent here is to upsize only the amount available for a primary offering by the company on a delayed basis. As a threshold matter, I would note that Securities Act Rules CDIs 244.03 and 644.07 specify that Rule 462(b) can only be used once per delayed shelf registration statement and only at the time of the final takedown. For the purposes of measurement of the 20%, I believe that you would segregate the primary offering and the resales, because the Staff expects the amount for secondary offerings to be specifically allocated when registered as part of a universal shelf. Securities Act Rules CDI 244.03 indicates that the dollar amount is based upon “the amount remaining on the shelf immediately prior to the final takedown,” so I think that you would be looking at the aggregate offering amount initially registered, less any takedowns (which would be zero in this situation).
-Dave Lynn,Editor, TheCorporateCounsel.net 7/19/2009

RE: Just to confirm, in the situation described above, one would calculate the 20% off the aggregate offering amount initially registered for the primary component less any primary takedowns? Also, if Rule 462(b) were used to increase the size of the primary component as described, could Rule 462(b) later be used for the secondary component at the time of its final takedown?
-6/21/2012

RE: Any comment?
-7/10/2012

RE: It was noted above that "For the purposes of measurement of the 20%, I believe that you would segregate the primary offering and the resales, because the Staff expects the amount for secondary offerings to be specifically allocated when registered as part of a universal shelf." What about for purposes of the Staff's position that Rule 462(b) can only be used in connection with a final take-down of all of the securities off of a shelf? Must the final takedown take down all of both the primary and secondary securities or only all of the primary securities off the shelf? Surely the latter is what is intended but CDI 244.03 is not worded very clearly in this regard. Any thoughts? Thanks.
-12/30/2020

Q: Is there anything prohibiting a WKSI from maintaining two effective universal shelf registration statements covering the same classes of securities, and doing a concurrent takedown of one security off of one shelf and another security off of the other shelf? (Note that the primary inquiry is whether there would be any impediments to this approach; we acknowledge that a takedown off of one universal shelf would be the typical approach. We also are aware of the EDGAR system’s “duplicate” filing error issue, which is, in part, driving the consideration of this approach).

RE: I can't think of any impediments to doing it this way. I am sure you have your reasons for having to go down this path.
-Dave Lynn, Editor, TheCorporateCounsel.net 10/12/2012

RE: Could you please elaborate on the "duplicate" filing error issue referenced above? We have a client considering taking this approach and this issue wasn't on our radar. Thank you.
-12/30/2020

RE: This was an issue around the time of the original question, but I have not heard anything about a duplicative filing error for a WKSI automatic shelf filing in quite some time.
-John Jenkins, Editor, TheCorporateCounsel.net 12/30/2020

Q: A foreign private issuer and EGC has an effective F-3 on file. It's possible that the issuer may lose EGC status at year end. If so, can the issuer still use the F-3 filed while it was an EGC, and incorporate by reference reports filed while it was an EGC, for an underwritten takedown offering after it loses EGC status and prior to the filing of its next 20-F? What if the takedown is an ATM offering?

RE: Unfortunately, the Staff hasn't said much about transitioning from EGC status, but I'd argue that you could continue to use the F-3 prior to the date of the 20-F while incorporating by reference filings that included scaled disclosure. That's because EGCs are generally permitted to provide scaled disclosure with respect to financial information and the compensation information required under Item 402 of S-K, and there doesn't appear to be a Form F-3 line item disclosure requirement that would compel an issuer to provide full blown disclosure prior to the filing of the next 20-F.

In that regard, unless you need to provide financial information under Item 5(b) of Form F-3, Item 6 simply says that "The registrant’s latest Form 20-F, Form 40-F, Form 10-K or Form 10 filed pursuant to the Exchange Act shall be incorporated by reference." Along the same lines, Form F-3 doesn't specifically call for compensation disclosure. As we've noted on p. 112 of our Form S-3 Handbook, the Staff has advised us that incorporation by reference of a 10-K containing scaled comp disclosures by a WKSI into an S-3 is okay, and that's because comp information isn't an S-3 line item. My guess is that there's no reason that the same position wouldn't apply in the case of a Form F-3.

Again, this is an area where there isn't a lot of guidance, and I would urge you to confirm this analysis with the Staff.
-John Jenkins, Editor, TheCorporateCounsel.net 12/28/2020

Q: I'm sorry, but I am staring at the Form 8-K from the SEC's website and I do not see Item 5.02(e). It is almost as if it has gone missing. I've gone document searches, etc. to make sure that I am not crazy, but I think I'm going crazy.

RE: The version of Form 8-K or the SEC website that comes up in a Google search is long expired and does not include 5.02(e). You will need to click through to the forms section of the corp finance section of the SEC website to get to the current version.
-12/27/2020

Q: An operating subsidiary of a public company files a bankruptcy petition. This subsidiary is not the only operating subsidiary of the company. The revenues of this operating subsidiary are material to the company. Is an 8-K filing under Item 1.03 required, given that this is not a bankruptcy of "the registrant or its parent"? We note that there is no specific reference in Form 8-K FAQ Question 2 (November 23, 2004) to Item 1.03, nor is it clear that Item 1.03 is among the items that "obviously apply only at the registrant level."

RE: I would really appreciate any guidance you may have. Thanks.
-12/28/2009

RE: Notwithstanding the guidance in the FAQ that you cite (which is now Exchange Act Form 8-K Compliance and Disclosure Interpretation Question 101.02), I think that Item 1.03 has been interpreted to be specifically limited to the registrant and its parent, as opposed to also picking up bankruptcy or receivership of a subsidiary.
-Dave Lynn, Editor, TheCorporateCounsel.net 12/31/2009

RE: Do you have a specific cite as to where you have seen the SEC interpret Item 1.03 in this way? Specifically, that Item 1.03 is triggered only by the filing for bankruptcy by the registrant or its parent (as provided for in Item 1.03 of Form 8-K) and not triggered by the filing for bankruptcy of a subsidiary of the registrant despite C&DI 101.02.

We have a registrant who has an operating subsidiary that will be filing for bankruptcy. The operating subsidiary is not a significant subsidiary and the amount involved in the filing for bankruptcy is immaterial to the registrant. It would seem as though Item 1.03 of Form 8-K would not be triggered but since the failure to file a required Item 1.03 Form 8-K will impact a registrant's Form S-3 eligibility, we want to be sure that the registrant does not need to file an Item 1.03 Form 8-K in this instance. We have a call into the Office of Chief Counsel too.

Any feedback would be greatly appreciated.
-6/18/2012

RE: Hi. If anyone has any more specific insights on the above questions about bankrupt subsidiaries, I would be most grateful. Thank you!
-6/21/2018

RE: To my knowledge, there's nothing specific from the Staff on this, but bear in mind that "registrant" and "parent" are both defined terms under Exchange Act Rule 12b-2. If you look at those definitions, it is pretty hard to construe them as encompassing a subsidiary (also a defined term in 12b-2).

In the absence of specific guidance to the contrary, I think companies are entitled to presume that when the SEC uses terms in a form that are defined in the regulations, it does so knowing that companies will look to those regulations in interpreting what those terms mean.
-John Jenkins, Editor, TheCorporateCounsel.net 6/21/2018

RE: Flip the facts: a significant subsidiary that holds substantially all of the assets of the registrant/parent will file for bankruptcy, but not the registrant/parent. Seems hard to imagine that no 8-K disclosure of this would be required,in light of the "registrant or parent" language. I would think at the very least it should be disclosed in Item 8.01 as an Other Event, if not in Item 1.03. In this situation, we are leaning toward 1.03 anyway. Thoughts? Isn't there a sort of global "include subsidiaries in 8-K disclosure requirements" - see 8-K C&DI 101.02 - it doesn't mention Item 1.03, but seems logical to me to apply a disclosure requirement to the sub in the facts I described above - only the fact the Item 1.03 specifies registrant and parent gives me pause.

Question 101.02
Question: Some items of Form 8-K are triggered by the specified event occurring in relation to the “registrant” (such as Items 1.01, 1.02, 2.03, 2.04). Other items of Form 8-K refer also to majority-owned subsidiaries (such as Item 2.01). Should registrants interpret all Form 8-K Items as applying the triggering event to the registrant and subsidiaries, other than items that obviously apply only at the registrant level, such as changes in directors and principal officers?

Answer: Yes. Triggering events apply to registrants and subsidiaries. For example, entry by a subsidiary into a non-ordinary course definitive agreement that is material to the registrant is reportable under Item 1.01 and termination of such an agreement is reportable under Item 1.02. Similarly, Item 2.03 disclosure is triggered by definitive obligations or off-balance sheet arrangements of the registrant and/or its subsidiaries that are material to the registrant. [April 2, 2008]
-12/3/2018

RE: I would be inclined to file it under both, because of the rather novel factual setting here sort of pushes the interpretive envelope. I'd file it as an 8.01 and cross-reference to Item 1.03, to the extent applicable.
-John Jenkins, Editor, TheCorporateCounsel.net 12/4/2018

RE: Note my firm received informal guidance from the SEC. The staff member said he does read CDI 101.02 to apply to Item 1.03 of Form 8-K. In other words, he does not think that Item 1.03 of Form 8-K is one of the Form 8-K items that “obviously apply only at the registrant level” so Item 1.03 applies to the filing for bankruptcy of a subsidiary as well as the registrant or its parent.

However, he did state that it would then turn on an analysis of whether the filing for bankruptcy of the subsidiary is “material” to the registrant. We pointed out that there is no mention of a “materiality threshold” in Item 1.03 of Form 8-K since it is drafted assuming the bankruptcy is at the registrant or parent level but he still said it would be a materiality analysis.

We discussed the example of the bank holding company as the registrant and the filing for bankruptcy of its operating subsidiary. This example being one where it was obviously material to the registrant since in effect the filing for bankruptcy is the filing for bankruptcy of the registrant as a holding company.
-12/23/2020

RE: Thank you for letting us know! Much appreciated.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 12/23/2020

Q: Another electronic signature question: Does anyone have thoughts regarding whether, following the amendments to Rule 302(b) of Regulation S-T facilitating the use of electronic signatures, how the requirement that individuals manually sign a document agreeing to the use of electronic signatures would apply in connection with Section 16 filings, in respect of which it is customary for the filing to be signed by a non-Section 16 person through the use of a power of attorney? Specifically, if a filer desires to utilize electronic signatures in connecting with Section 16 filings in which a power of attorney is used, would the electronic signature authorization document referenced above need to be signed by the Section 16 filer (i.e., the individual granting the power of attorney), the person executing the Section 16 (i.e., the recipient of the power of attorney), or both?

RE: I think the authorization document would be required from the person who is actually signing the document. I think the answer might be different if the Section 16 report represented the first time in which the Power of Attorney was being exercised, since the Power of Attorney must be filed as an exhibit to the report. In that case, I think the authorization document would need to be provided by both parties.
-John Jenkins, Editor, TheCorporateCounsel.net 12/23/2020

Q: Has anybody considered whether the new electronic signature requirements can be satisfied by a signatory replying to an email that attached a draft of the filing and confirming in the reply that his or her conformed signature may be added to the filing?

RE: Filers will need to determine whether an electronic signature process it intends to follow meets the requirements the SEC set out when it adopted the amendments:

- Require the signatory to present a physical, logical or digital credential that authenticates the signatory’s individual identity – examples of authentication include a physical driver’s license, a credential chip on a workplace id, etc.;

- Reasonably provide for non-repudiation of the signature (e.g., through public key encryption tools provided by e-signature platforms);

- Provide that the signature be attached, affixed or otherwise logically associated with the signature page or document being signed (i.e., the signature page must be attached to the document to be signed and the signatory must be able to read the document prior to signing); and

- Include a timestamp to record the date and time of the signature.

Whether an email response satisfies these requirements may require input from your IT department. Perkins Coie issued a memo about the SEC's amendments allowing electronic signatures and it includes this Q&A about use of an email response in the electronic signature process:

Can An Email Response Be An Electronic Signature (I.E., Can We Send The Document To Be Signed Over Email And State We Will Use Their Affirmative Email Response As An Electronic Signature)?

Companies should confer with their information technology (IT) department, but an email response alone may not meet these four e-signature process requirements and if it does not, could not be used as an electronic signature. Note that the SEC’s requirements are designed to ensure verification and security, including through authentication and nonrepudiation. A simple email response without added security measures may not satisfy the authentication requirement and may be subject to later repudiation by the officer. However, an email that is signed with a digital certificate may meet the SEC’s four e-signature process requirements. Companies that opt to use electronic signature process other than a commercially available e-signature platform should work with their IT department to understand whether they have a tool for secure electronic certifications that complies with the new rule. There may also be limitations to such tools, such as requiring an officer or director to use a single device for all emails that contain digital certificates.

Also, you may find our "Signatures - SEC Filings" Checklist helpful.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 12/23/2020

Q: I've noticed a lot of filers appear to be filing their investor decks as exhibits to Form 8-K in image format without searchable text. Has anyone considered the applicability of Rule 304 of Reg. S-T to taking this approach? Does Reg S-T CDI 118.01 give you a pass because the content of the presentation is not "information that the filer is required to include in the particular filing, such as disclosures in response to applicable form and Regulation S-K items and any additional information required to be included under Securities Act Rule 408 or Exchange Act Rule 12b-20"? Thanks in advance.

RE: I suppose it might, depending on the content of the graphics in the deck. I also think people look at other parts of the 8-K filing in addition to the exhibit and take the position that if the graphic information in the deck is included in searchable form in some other part of the filing, it should be regarded as complying with Rule 304.
-John Jenkins, Editor, TheCorporateCounsel.net 12/22/2020

Q: Company has physical stock certificate of a former subsidiary (incorporated under Delaware law), which was dissolved 15+ years ago; I don't see any requirement under Delaware law or SEC guidance for Company to retain such certificate (and am concluding that destruction of such certificate would be permissible), but thanks for any thoughts on the topic.

RE: I'm not aware of anything that would suggest you'd need to retain a copy of the stock certificate for a dissolved subsidiary in perpetuity, but you may want to check out the resources in our Document Retention Practice Area,
-John Jenkins, Editor, TheCorporateCounsel.net 12/21/2020

Q: Is there a disclosure principle that if a company chooses to voluntarily comply with a Regulation S-K disclosure Item, then it needs to comply with the Item in full? For example, if a smaller reporting company decides to voluntarily disclose risk factors in its Form 10-K, does it need to provide a two-page Risk Factor Summary (assuming its risk factor section is longer than 15 pages) in compliance with Item 105? I thought there was a general disclosure principle out there on voluntary compliance with a Regulation S-K Item, but I am having trouble finding a citation or support for this principle.

RE: Item 10(f) of Regulation S-K says that a smaller reporting company "may comply with either the requirements applicable to smaller reporting companies or the requirements applicable to other companies for each item, unless the requirements for smaller reporting companies specify that smaller reporting companies must comply with the smaller reporting company requirements."

The 2007 adopting release speaks of this as permitting an a la carte approach, but it also indicates that the a la carte approach applies on a line item by line item basis. In light of that, I think that if an SRC opts to furnish risk factor disclosure in its Form 10-K, it should do so in conformity with all applicable requirements Item 1A of Form 10-K, which calls for disclosure in accordance with Item 105.
-John Jenkins, Editor, TheCorporateCounsel.net 12/18/2020

Q: Rule 144(b)(2) covers sales of restricted and other securities for the account of a person who was an affiliate within the past 90 days. But the volume limitation in 144(e) addresses only securities sold for the account of an affiliate, and does not include the 90 day lookback language. If a director resigns, does she remain subject to the volume limitations of 144(e) if she wants to sell shares that are not restricted securities?

RE: Bob Barron has addressed a number of questions regarding sales by former affiliates in our Rule 144 Forum. You should take a look at his responses there.
-John Jenkins, Editor, TheCorporateCounsel.net 12/17/2020

Q: An NEO for 2019 (and appears to be for 2020), retires mid-year (June).Registrant enters into separation agreement that pays retired executive officer bi-weekly for 12 months starting in June 2019. Should the full 12 months of severance pay be reported under Item 402(c)(2)(ix) for the FY 2020 proxy statement or just the severance payments made in 2020 (not including the remaining six months of severance pay to be paid in 2021)? The executive is not be required to perform any work in order to receive the compensation and benefits provided for in severance agreement, except that, during the period of time executive is receiving severance pay, executive is expected to, and will, provide any cooperation and assistance reasonably requested by company to transition his work and responsibilities. The separation agreement contains language about a non-compete for a year (the same period when weekly payments are made). From my reading of SEC Question 119.13 from March 1, 2010 and Instruction 5 to Item 402(c)(2)(ix) it seems somewhat obscure if the 2021 payments would be deemed "accrued." I have seen companies disclose the full severance amount in the table and footnote that only a specified amount was paid in the year covering the proxy statement and the remainder will be paid in future year(s). Thanks

RE: Yeah, the CDI and instructions aren't exactly a model of clarity, are they? I think the instruction and the CDI would permit a company in this position to disclose only the amount paid or accrued in 2020 in the "All Other Compensation" table for its upcoming proxy statement, if the payment obligation under the contract was truly contingent upon the executive's compliance with his contractual obligations.

The guiding principle of the CDI and Instruction 5 seems to be that if the former executive must comply with ongoing contractual obligations to become entitled to payment, then only when those are satisfied would the payment be accrued. In this situation, the payments are being made on a bi-monthly basis, so assuming that the contract would entitle the company to stop paying him if he did not cooperate or breached his non-compete, then I don't think those payments to be made in 2021 would be viewed as being accrued for fiscal 2020.

However, as a business matter, this sometimes doesn't make a lot of sense, particularly in situations where cooperation and non-compete obligations are viewed as being somewhat perfunctory (as is often the case with a retired executive). I think that's why some companies opt to report the full severance amount and note that a portion of it will be paid in subsequent periods.
-John Jenkins, Editor, TheCorporateCounsel.net 12/17/2020

Q: Company X, a non-reporting company, is acquired by Company Y, an SEC reporting company. Company X executives earned large compensation payments for services rendered to Company X prior to the acquisition, but Company Y made the payments to the executives after the acquisition. Some of the former Company X executives may be NEOs of Company Y if these payments are counted as compensation paid by Company Y in 2007. I saw the SEC's compliance and disclosure interps on Item 402 particular situations, Q 1.02. This suggests that payments made by Company X aren't counted as compensation paid by Company Y, but does this analysis change if Company Y actually made the payments? Or, is the key that the payments were "earned" prior to the acquisition?

RE: I have just encountered a similar issue. Any resolution on this? Thanks
-12/16/2020

RE: I don't think the Staff has addressed this head-on, but despite the references to the ability to exclude compensation "paid" by the predecessor in Question 1.02 (now Reg S-K CDI 217.02), I think the right answer is that you may exclude compensation that was "earned" from the seller but paid by the buyer. My reason for this conclusion is how the Staff approached reporting of equity awards of the seller that were assumed by the buyer as part of the merger agreement in Reg S-K CDI 119.27:

"Question: In 2010, Company A acquires Company B and, as part of the merger consideration, agrees to assume all outstanding Company B options. The Company B options have not been modified other than to adjust the exercise price to reflect the merger exchange ratio. For Company B executives who are now Company A executives: Should the Company B options that were granted in 2010 be included in total compensation for purposes of determining if an executive is a named executive officer of Company A for 2010 and reported in the Summary Compensation Table and Grants of Plan-Based Awards Table for 2010? Should Company A report the Company B options in its Outstanding Equity Awards at Fiscal Year-End Table and Options Exercised and Stock Vested Table, as applicable, for 2010 and in subsequent years?

Answer: Because the assumed Company B options are part of the merger consideration, they do not reflect any 2010 executive compensation decisions by Company A. Therefore, Company A should not include Company B options granted in 2010 in total compensation for purposes of determining its 2010 named executive officers, and should not report the Company B options in its 2010 Summary Compensation Table and Grants of Plan-Based Awards Table. Because the Company B options are now Company A options, Company A should report them in its Outstanding Equity Awards at Fiscal Year-End Table and Options Exercised and Stock Vested Table, as applicable, for 2010 and subsequent years, with footnote disclosure describing the assumption of Company B options. [June 4, 2010]"

It may not be appropriate to view all compensation earned from the seller but paid by the buyer as merger consideration, but I don't think that's the key distinction. To me, the key point in this CDI is that the payments earned from the seller do not reflect any executive compensation decisions made by the buyer. Accordingly, I think the better view is that such payments may be excluded in determining the compensation of those seller executives who joined the company after the merger.
-John Jenkins, Editor, TheCorporateCounsel.net 12/17/2020

Q: I have a question regarding the reporting obligations of a Regulation 13G reporter whose ownership drops below 5% and then increases above 5% during the same fiscal year. Assume an investor reports on 13G pursuant to Rule 13d-1(c) and thus is required to file an annual amendment by 2/14. The investor has not had any activity in the company's stock since its last 13G amendment, but as a result of additional issuances by the company since the beginning of the year the investor's ownership has dropped below 5% (since this has occurred during the current year, the investor has not yet amended its 13G to note that it is below 5%). Prior to the end of the year, the investor may purchase additional shares that will increase its ownership above 5% as of 12/31. Am I correct that since the investor has (properly) not yet reported that it is below 5% and since the 13G rules focus on updates as of the last day of the year (provided none of the triggers requiring "prompt" amendment under Rule 13d-2(d) apply), the investor can amend its current 13G filing by 2/14 to report ownership as of 12/31 without falling back under Rule 13d-1(c), which would require a new Schedule 13G to be filed within 10 days of once again crossing the 5% threshold? Appreciate any thoughts on this question. Thanks

RE: I think that's the position I'd take. Regulation 13D-G CDI 104.02 indicates that a Schedule 13G doesn't need to be amended if the only change in the percentage ownership resulted solely from a change in the number of the issuer's shares outstanding. Since you're not looking to make an exit filing, I think that gives you some basis for treating the decrease resulting from the new issuance as a non-event when it comes time to amend your 13G to reflect the additional purchases. Here's the CDI:

Question 104.02

Question: Are all Schedule 13G filers required to file an annual amendment to the Schedule within 45 days after the end of the calendar year to report any changes in the information previously disclosed, or is this obligation limited to institutional investors who file on Schedule 13G pursuant to Rule 13d-1(b)?

Answer: All Schedule 13G filers must file an annual amendment to report any changes in the information previously disclosed. The Schedule 13G does not need to be amended if there has been no change to the information disclosed in the Schedule or if the only change is to the percentage of securities owned by the filing person resulting solely from a change in the aggregate number of the issuer's securities outstanding. See Rule 13d-2(b) and Exchange Act Release No. 19188 (October 28, 1982). [Sep. 14, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 12/16/2020

Q: A 12(g) reporting company that first sold securities to the public in 2012 under a self underwritten S-1 is now planning to file an S-1 for a firm commitment underwritten offering (its first underwritten offering that was not self underwritten). Is there any way to submit the registration statement confidentially? Is the 2012 self underwritten offering considered its initial public offering and since we are more than one year from that offering, we are precluded from confidential submission? If there is any guidance you can point me to that would allow a confidential submission, it would be greatly appreciated.

RE: I'm afraid I've seen no guidance suggesting that the 2012 S-1 filing somehow wouldn't count as the company's "initial Securities Act registration statement" under the SEC's draft registration statement review policy.
-John Jenkins, Editor, TheCorporateCounsel.net 12/17/2020

Q: We submitted a Rule 14a-8 request for no-action on day 1, and it subsequently bounced back due to the file size exceeding the 15 MB size limit (which we were not aware of). The bounce-back went into the spam filter and we did not see it until day 2. The second submission on day 2 went through successfully after reducing the file size. Do you know if Corp Fin will give us the day 1 submission date? We will need to move back our meeting a day if we receive the day 2 submission date. I am skeptical they will give us day 1 because we didn't receive the official confirmation of receipt until day 2. However, one "good" fact is that the proponent, who was copied on the day 1 submission, submitted a response to the SEC on day 1, which is proof we submitted it on that day. Thanks in advance!

RE: I'm afraid I don't know, but I would check with the Staff. My guess is that they won't turn back the clock for you, but a potential alternative may be to request a waiver of the 80-day requirement. That requires you to show "good cause," which has been interpreted narrowly. However, note that in some cases, the Staff may decline to grant the waiver but nevertheless respond favorably to the no-action request. See the discussion beginning on p. 41 of our Shareholder Proposals Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 12/16/2020

Q: An issuer maintains a 401(k) plan for its employees. Currently, the plan does not permit investment in the company’s securities. However, the company is considering instituting matching contributions in the form of shares of its common stock. These would be original issue (or treasury) shares, not shares purchased on the open market. I am trying to sort through the various registration and other issues related to this proposal, and would appreciate your thoughts on the following: (1) If investments in company securities are limited to the company match – no employee contributions may be used to purchase company stock – is the issuance exempt from registration under Section 3(a)(2)? (2) Alternatively, is the matching portion of the plan considered “involuntary and non-contributory” (i.e., bonus shares), such that registration would not be required under the “no sale” theory? This makes sense to me and I have seen a few posts here which seem to support this idea (#6164, #5836), but it seems to be in direct conflict with the interpretation given by the SEC in the 5/4/2004 Technical Session between SEC Staff and the JCEB. The SEC distinguished between matching contributions and “non-elective” (automatic) contributions, and found that matching contributions would require registration while non-elective contributions would not. (3) CDI 226.13 indicates that the Pension Protection Act of 2006 conditions IRC Section 401 qualification on employees being able to diversify out of, and reinvest diversified funds back into, company stock, which may render the 3(a)(2) exemption unavailable unless the company segregates employee-contributed funds from employer-contributed funds so that the 3(a)(2) limitation may be preserved. Anyone have any experience dealing with this? Is this standard practice with unregistered plans? (4) If the shares are issued to plan participants without registration, either under 3(a)(2) or under a “no sale” theory, would the participants acquire restricted securities? (5) If we conclude that the shares need not be registered, will that also mean that the related plan interests need not be registered? (6) The shares would be issued on dates and at market valuations predetermined in accordance with the terms of the plan. I assume that the issuer would not need to observe trading window/blackout restrictions in connection with the company matching contributions, because (a) there’s no purchase/sale of the securities, and/or (b) the requirements of Rule 10b5-1 are essentially met by virtue of the terms of the plan? (Participants receiving the shares would, of course, have to observe such trading restrictions with respect to their subsequent transactions in the stock received under the plan). I would appreciate any thoughts/guidance on any or all of the above issues. Thanks in advance.

RE: A 20-page research memo that a lawyer would charge $10-20k for? This Forum is not for that.
-Broc Romanek, Editor, TheCorporateCounsel.net 3/13/2014

RE: Yikes! Sorry, I thought that these questions might have obvious answers that a more seasoned attorney would have a quick answer to. I will keep my nose to the grindstone and continue my research. I have always found this forum (and the EP websites/publications in general) to be an invaluable resource,and I apologize for wasting your time.
-3/13/2014

RE: I wanted to check-in here to see if anyone has run into a similar situation and determined whether registration of company match shares was required.
-12/14/2020

RE: The SEC has a longstanding position that stock awarded under an employee benefit plan at no direct cost to “a relatively broad class of employees” does not constitute a “sale” for purposes of section 2(a)(3). Release 33-6188 indicates that this position is premised on the fact that employees do not “individually bargain to contribute cash or other tangible or definable consideration to such plans.” Form S-8s are required for 401(k) plans only if the plan has a company stock fund and employee participation is voluntary and contributory (e.g., even if a company has a stock fund, if employees receive an automatic match or profit share, then registration isn’t required).

However, there are a lot of nuances here, because the SEC has issued several interpretive releases (33-4790, 33-6188 and 33-6281) addressing securities registration issues relating to employee benefit plans. There are some situations involving variations on the matching contribution that an employer might argue involve "bonus stock," but that the Staff might view differently. I think the 2004 Q&A between the ABA's Joint Committee on Employee Benefits and the Staff on Form S-8 continues to illustrate these potential areas of difference.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

RE: Thank you. Would you deem an S-8 to be required for a 401K where the company matches up to 5% in company stock and employee funds cannot be used to purchase company stock and no funds in the plan contain company stock? Would your analysis change if the company previously filed an S-8 to use for company match shares (the company no longer desires to go through the process of putting an S-8 on file if it's not necessary)? Also, if the company previously filed an S-8 to be used for company match shares would that have automatically triggered an 11-K filing or would such not be deemed a registration of plan interests?
-12/15/2020

Q: A fund that owns over 10% of the shares of a public company is looking to make a pro rata distribution of the shares to one of its limited partners. The distribution would not cause the fund's ownership to drop below the 10% so the fund would remain a 13D filer. The parties have agreed that the fund would retain voting power over the LP's shares through the grant of an irrevocable proxy to the fund or possibly a voting agreement. Would the fund and the LP be considered a "group?" Would the fund and the LP have to file a joint 13D, or can the fund simply file a 13D/A reflecting the distribution and that the fund retains sole voting power over the LP's shares?

RE: For added clarification, the fund owns over 5% (not 10%) and is not a passive investor, which is why the fund is a 13D filer.
-12/15/2020

RE: I think that there's likely to be a group established here with its own reporting obligations as a result of the irrevocable proxy, but applicable Staff guidance indicates that the individual limited partners may not be deemed to beneficially own the shares held by the group. Here's the relevant CDI:

Question 105.06

Question: Certain shareholders have entered into a voting agreement under which each shareholder agrees to vote the shares of a voting class of equity securities registered under Section 12 that it beneficially owns in favor of the director candidates nominated by one or more of the other parties to the voting agreement. Under Rule 13d-5(b), the shareholders have formed a group because they have agreed to act together for the purpose of voting the equity securities of the issuer. Under what circumstances is the beneficial ownership of a party to the voting agreement attributed to one or more other parties to the agreement?

Answer: The formation of a group under Rule 13d-5(b), without more, does not result in the attribution of beneficial ownership to each group member of the securities beneficially owned by other members. Under Section 13(d)(3) of the Exchange Act, the group is treated as a new “person” for purposes of Section 13(d)(1), and the group is deemed to have acquired, by operation of Rule 13d-5(b), beneficial ownership of the shares beneficially owned by its members. (Note that the analysis is different for Section 16 purposes. See Section II.B.3 of Exchange Act Release No. 28869 (February 8, 1991).)

In order for one party to the voting agreement to be treated as having or sharing beneficial ownership of securities held by any other party to the voting agreement, evidence beyond formation of the group under Rule 13d-5(b) would need to exist. For example, if a party to the voting agreement has the right to designate one or more director nominees for whom the other parties have agreed to vote, the party with that designation right becomes a beneficial owner of the securities beneficially owned by the other parties under Rule 13d-3(a), because the agreement gives that person the power to direct the voting of the other parties’ securities. Similarly, if a voting agreement confers the power to vote securities pursuant to a bona fide irrevocable proxy, the person to whom voting power has been granted becomes a beneficial owner of the securities under Rule 13d-3. See Q & A No. 7 to Exchange Act Release No. 13291 (February 24, 1977). Conversely, parties that do not have or share the power to vote or direct the vote of other parties’ shares would not beneficially own such shares solely as a result of entering into the voting agreement. Note, however, that a contract, arrangement, understanding or relationship concerning voting or investment power among parties to the agreement, other than the voting agreement itself, may result in a party to the voting agreement having or sharing beneficial ownership of securities held by other parties to the voting agreement under Rule 13d-3. [Jan. 3, 2014]
-John Jenkins, Editor, TheCorporateCounsel.net 12/15/2020

RE: Thank you. The CDI speaks to shareholders entering into a voting agreement with all shareholders agreeing to vote a certain way. The scenario above is a little different in that the LP would be granting the Fund a one-way irrevocable proxy and there is no mutual obligation. Presumably, the Fund would have beneficial ownership of the shares held by the LP because of the ability to vote those shares and would have to include them in the Fund's separate 13D filing. Would the LP and the Fund really have formed a group under this scenario where there is a one-way irrevocable proxy and have to report on 13D as a group?
-12/15/2020

RE: The CDI does address the irrevocable proxy scenario, albeit one associated with a voting agreement:

"Similarly, if a voting agreement confers the power to vote securities pursuant to a bona fide irrevocable proxy, the person to whom voting power has been granted becomes a beneficial owner of the securities under Rule 13d-3. See Q & A No. 7 to Exchange Act Release No. 13291 (February 24, 1977)"
-John Jenkins, Editor, TheCorporateCounsel.net 12/15/2020

Q: We represent an OTC company. They have hired an investor relations firm to help create awareness in the market (among other services). Part of the compensation will be in cash, part will be in stock. They raised the question about whether there is a securities law violation if the OTC company paid them in stock, particularly if they were deemed to be a promoter. Does anyone have any thoughts / any suggestions of resources to review. I can't figure out what exactly the violation would be and I think with small companies with limited resources, payment in stock is typically among consultants. Thank you in advance.

RE: Paying for promotional activities - whether with cash or stock - can raise issues under the antifraud provisions of the 1934 Act and under Section 17(b) of the 1933 Act's anti-touting provisions. I'm not aware of an outright prohibition under the securities laws on paying stock-based compensation to an investor relations firm providing promotional services, but the issuance of stock or securities convertible into stock as payment for activities that involve promoting that stock is viewed with suspicion.

The OTC has a policy on stock promotions that requires public disclosure and disclosure to the OTC Markets Group. Among other things, that policy indicates that the OTC may not approve a company for trading on OTCQX or OTCQB if it is the subject of an active promotion campaign or if the security has a significant history of misleading and manipulative promotion. The OTC has also published "best practices" guidance for issuers regarding stock promotions.
-John Jenkins, Editor, TheCorporateCounsel.net 12/15/2020

RE: Thank you so much! This is extremely helpful.
-12/15/2020

Q: There are a number of disclosure items in Reg S-K that state that the information being disclosed is "not deemed to be soliciting material or to be filed with the Commission...". (e.g. stock performance chart) Is there any advantage to repeating that statement in the document to be filed when making the required disclosure? I've seen 10-Ks and proxy statements that are done both ways - some repeating the statement, and some that are silent. I'd prefer to take it out of our filings if there's no reason for us to actually include the statement, which I believe is the case. Just looking for a sanity check here. Thanks in advance!

RE: I think the only advantage is that if you get sued, you can point the judge to the language in the proxy statement itself, in addition to the rule. Some litigators might tell you that doing this would marginally decrease the chance that a judge might get it wrong.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: NYSE corporate governance requirement 802 (c) requires "Each company shall hold meetings of its Board of Directors on at least a quarterly basis." We have a client wondering if an action by written consent in lieu of a meeting would meet this requirement, or would they need to hold a board meeting every quarter?

RE: I think the intent is to require the board to actually meet, not just take some sort of corporate action to show they exist.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: What is the general practice on the upper limit for these? It seems like 10-12 years is high, 15 years is not even worth talking about, and 20 years is unheard of? Thanks for any feedback.

RE: According to Spencer Stuart's 2019 Board Index, only 27 S&P 500 boards (5%) report having explicit term limits for non-executive directors, with terms ranging from 10 to 20 years. Just under three-quarters (74%) of the policies set limits at 15 years or more. 65% of boards explicitly state in their corporate governance guidelines that they do not have term limits. 30% do not mention term limits. Page 18 of the Index lists each S&P 500 company with term limits, and the number of years of service that will trigger them.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: Subject to compliance with Rule 14a-4(c), a proxy may confer discretionary authority. Since most shares are voted through voting instructions, both by record holders and by beneficial owners, what is the mechanism whereby voting instructions would confer such discretionary authority. The typical Broadridge form simply provides "Note: Such other business as may properly come before the meeting or any postponement thereof." From a proxy plumbing standpoint, does this work?

RE: I've never heard of it being questioned. That language tracks the wording that's customarily used on the proxy card itself to confer discretionary authority to vote on other matters that may arise at the meeting, but aren't known at the time.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: A trustee of a trust is an executive officer of an issuer and has set up a trust for her children. The trust does not have total assets in excess of $5,000,000. Is the trustee’s purchase of the issuer’s securities for the trust that of an accredited investor under Rule 501(a)(4)?

RE: I don't believe so. Generally, the trust itself is viewed as the purchaser and the accredited investor determination is based on the trust's status (unless the trustee is a bank acting in its fiduciary capacity. See Securities Act Rules CDI 255.20:

Question: A trustee of a trust has a net worth of $1,500,000. Is the trustee’s purchase of securities for the trust that of an accredited investor under Rule 501(a)(5)?

Answer: No. Except where a bank is a trustee, the trust is deemed the purchaser, not the trustee. The trust is not a “natural” person. [Jan. 26, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: This year, the Company has elected to issue shares of stock in lieu of cash bonuses. As such, the CEO will receive shares of common stock in lieu of cash. However, per the CEO's employment agreement with the Company, it states that during the term of such employment agreement, the Company CEO shall pay the CEO an annual cash bonus, except that for 2017 and 2018, the bonus should be paid in stock. The employment agreement was timely disclosed in a Form 8-K. Assuming that the CEO agrees to be paid the annual bonus in stock in lieu of cash, it would seem to me that a Form 8-K disclosure is required given that the form of bonus payment (equity) is not consistent with the filed employment agreement and that payment of the bonus in shares is a material change from the employment agreement. Plus, the bonus payment would trigger a Form 4, which would include details of the bonus. Thoughts?

RE: I think the change in the form of bonus compensation from that specified in the employment contract is potentially material and that an Item 5.02(e) 8-K filing would be prudent.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: Public reporting company is externally managed. The company wishes to enter into a new equity compensation plan and include the external manager entity as a recipient of plan shares. If entities aren't eligible recipients, what is the impact on the company's ability to use Form S-8? Can the company still file on S-8 and just exclude any shares that are issued to the manager, or does the fact that the manager is a possible recipient mean that the entire plan fails to qualify for S-8? If the company decides to move forward with the plan and no S-8, do holders just have to rely on Rule 144 when it is available to them, or must the company use a resale S-8/S-1 to register the resale of the shares issued to eligible recipients?

RE: I think you can use Form S-8 to register the shares to be issued under the plan that are eligible to be registered on Form S-8 (but as discussed below, there may be an integration issue lurking if you bifurcate the offering, even under the new rules). If you don't file a Form S-8, you'll have to either rely on Rule 144 for resales or file a resale registration statement on whatever form you're eligible to use.

If you do opt to register the shares being issued to the plan participants, but issue shares to the manager entity under a claim of exemption, I think you'll need to sort through potential integration issues. When new Rule 152(b) goes into effect, securities offered under employee benefit plans won't be integrated with certain other offerings, even if they're being made concurrently. However, I'm not sure this would apply if you're attempting to bifurcate concurrent exempt/registered offerings that are purportedly being made under the same compensation plan.

You may want to reconsider the use of your new comp plan to issue shares to the entity and to your employees.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: What is the reason for including the Legend "Important Notice Regarding the Availability of Proxy Materials...." in the proxy statement, as many registrants do (as opposed to in the actual Notice of Internet Availability)? The disclosures otherwise don't include what's required by Rule 14a-16.

RE: I suspect that those proxy materials are likely from companies that have elected the full set delivery option and that are opting to comply by incorporating the information that would be required in their Notice in the proxy materials themselves. Under Rule 14a-16(n)(4), the proxy statement doesn't need to include certain information that would ordinarily be required in a Notice of Internet Availability, including language indicating that the communication isn't a proxy, instructions on how to request copies of the proxy materials, and instructions on how to access the proxy card or other form of proxy.

Aside from that information, most of what's required under Rule 14a-16(d) is stuff that would appear in a proxy statement in any event (e.g., information about the time, date and location of the meeting, identification of each matter to be voted on and the soliciting person's recommendation, etc.) There's no requirement that the information that's required by Rule 14a-16(d) must be included all in one place in proxy statements, so my guess is that the proxy statements you're looking at have the required information located in various places throughout the document.
-John Jenkins, Editor, TheCorporateCounsel.net 12/14/2020

Q: If a large accelerated filer registrant acquires a private company (both companies have 12/31 fiscal year ends) at the end of February 2021 and the significance level is 30%, can the Form 8-K/A include more recent f/s for the target company than technically required under the rules so for example could the Form 8-K/A include audited financial statements for 2020 for the target company instead of audited financial statements for 2019 and 3Q YTD unaudited f/s for 2020?

RE: You may want to check with the Staff to confirm, but I don't see why you couldn't. Rule 3-05 of S-X provides that the general requirement is to provide acquired company financial statements for the most recently completed fiscal year and any interim periods. Although Section 2045.13 of the FRM generally provides that the period for which acquired company financial statements are to be included in the 8-K/A is based on the date of the filing of the initial 8-K, I don't know why the Staff would object to including audited information for 2020 in the 8-K/A filing. You are technically complying with the requirements of Rule 3-05 by providing audited information for the most recent fiscal year, and you're providing the market with more current information about the target than is required.
-John Jenkins, Editor, TheCorporateCounsel.net 12/11/2020

Q: A director of Company A has a son who is employed by Company B making more than $120,000 per year. Company A is the survivor in a merger of equals with Company B during 2020. The son's employment relationship continues with Company A after the merger, but the director retires as a director of Company A upon the closing of the merger. That is, at the instant that the son becomes an employee of Company A, the director is no longer a director of Company A. Would the son's employment relationship be disclosable as a related person transaction under S-K Item 404 in Company A's 2021 proxy statement? We have a practice of having our board determine the independence of all directors who have served as directors during any part of the previous year, even if they are no longer serving at the end of the year. Will the son's employment have any impact on the independence of the director for the portion of the year in which he was a director of Company A (i.e., prior to the beginning of the son's employment with Company A? Thanks so much for any insight you have.

RE: Item 404(a) calls for disclosure of any transaction with a "related person" since the beginning of the most recent fiscal year. Instruction 1(a) to Item 404(a) says that a "related person" includes any person who served as a director "at any time during the specified period for which disclosure under paragraph (a) of this Item is required" and any immediate family member of such a person.

While the director and the director's son may have been two ships that passed in the night when it comes to their service, the director was a "related person" during the relevant fiscal year, and I think the way that the instruction reads, it is difficult to conclude that the transaction with a member of the director's immediate family member during the fiscal year is not subject to disclosure.

I think support for that interpretation is provided by Instruction 1(b), which addresses 5% shareholders and takes a different approach. Under that instruction, disclosure is only required if the person was a 5% holder when the transaction in which he or she had a direct or indirect material interest occurred or existed.

See the discussion of a somewhat analogous situation on p. 41 of our "Related Party Transactions Disclosure Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 12/10/2020

Q: With respect to the amendments to the MD&A and other financial disclosures that the SEC adopted in November, does anybody have any sense of when the amendments will be published in the federal register and become effective? Is it safe to assume that they will be effective prior to 10-K season for a calendar year company (i.e., mid-Feb.)?

RE: I haven't seen anything yet, but it usually takes a month or so to publish the new rules in the Federal Register (the S-K 101, 103 & 105 amendments were published about 6 weeks after their adoption). The rules become effective 30 days after publication, so it seems likely that they'll be in place by early February.

However, while the rules may become effective prior to the date your 10-K might be due, companies are not required to comply with the new rules until the first fiscal year ending on or after the date that is 210 days after publication in the Federal Register. Early adoption of the new rules is permitted after the effective date, so long as the company provides disclosure responsive to an amended item in its entirety.
-John Jenkins, Editor, TheCorporateCounsel.net 12/9/2020

Q: Where are the requirements set forth for who can sign an 8-K on behalf of an issuer? And specifically must it be signed by an officer or executive officer? I see the general Instructions for Form 10Q and 10K specify who must sign — CEO/CFO (as applicable) etc. but not the same specificity for 8-Ks. Thanks.

RE: The form has the following statement at the end: "Print name and title of the signing officer under his signature."
-10/25/2010

RE: Given the lack of specificity around the term "officer" for a Form 8-K signature, can a person who is not an executive officer or Section 16 officer sign a Form 8-K?
-12/9/2020

RE: I believe the 8-K may be signed by any authorized officer of the company, regardless of whether the individual in question is an "executive officer" for purposes of Rule 3b-7 or an "officer" under Rule 16a-1. But control over who signs an 8-K is an important component of your disclosure controls and procedures, so I think you want to make sure that if someone other than one of the "usual suspects" (i.e., the CEO, CFO, or CAO) is signing the filing, there are procedures to ensure that it has been appropriately reviewed prior to that time, and that those procedures address the officers who are authorized to sign the filing. See the discussion on p. 156 of our "Form 8-K Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 12/9/2020

Q: If the board establishes a fee arrangement when appointing a special committee to review a related party transaction, does that trigger an 8-K reporting obligation under 5.02(e)?

RE: Not unless the CEO, CFO or an NEO is a member of that committee. Item 5.02(e) isn't triggered by a decision to pay compensation to non-employee directors. If you elected a new director other than at a shareholders' meeting and designated that individual to serve on the special committee, then the compensation arrangements for that person would need to be disclosed under Item 5.02(d).
-John Jenkins, Editor, TheCorporateCounsel.net 12/9/2020

Q: What are the implications of selling stockholders being considered underwriters in the context of a registered offering? I think the two main things are that they would be subject to Section 11 liability and have prospectus delivery requirements. On the prospectus delivery requirements, following the Securities Act reforms, is there anything they need to actually physically do upon a sale of shares or can they rely on the filing of the final prospectus by the issuer to satisfy those requirements. It seems like 173 would require them to physically provide either an actual prospectus or a notice that the shares were sold pursuant to a registration statement. Not entirely clear to me how they do that if these transactions are effected through brokerage accounts. It looks like some resale registration statements say that the selling stockholders "may" be deemed to be underwriters and maybe that then puts the obligation on the selling stockholders to determine whether they are underwriters. Also, if you are registering the resale on an S-1 does a selling stockholder being deemed an underwriter take you out of Rule 415(a)(1)(i) and into 415(a)(1)(ix)?

RE: Yes, Section 11 liability based on their potential status as statutory underwriters under Section 2(a)(11) is the main concern. In terms of prospectus delivery, selling shareholders are entitled to rely on Rule 172's access equals delivery model in satisfying their obligations. See Securities Act Rules CDI 171.04

"Question: Is Rule 172 available to satisfy prospectus delivery obligations of selling security holders if the requirements of the rule are met?

Answer: Yes. Selling security holders with a prospectus delivery obligation may rely on Rule 172. [Jan. 26, 2009]"

I think the use of the term "may" to describe the potential status of a selling shareholder as an underwriter is intended to avoid an admission that a selling shareholder is a statutory underwriter. That is a facts and circumstances issue.

I don't think a selling shareholder's potential underwriter status would preclude the issuer from filing under Rule 415(a)(1)(i). The potential for such a characterization is greatest when a selling shareholder is an affiliate of the issuer, and issuers are not prohibited from relying on Rule 415(a)(1)(i) for registration statements covering shares held by affiliates. See Securities Act Rules CDI 212.15:

Question: May parents, subsidiaries or affiliates of the issuer rely on Rule 415(a)(1)(i) to register secondary offerings?

Answer: Rule 415(a)(1)(i) excludes from the concept of secondary offerings sales by parents or subsidiaries of the issuer. Form S-3 does not specifically so state; however, as a practical matter, parents and most subsidiaries of an issuer would have enough of an identity of interest with the issuer so as not to be able to make “secondary” offerings of the issuer’s securities. Aside from parents and subsidiaries, affiliates of issuers are not necessarily treated as being the alter egos of the issuers. Under appropriate circumstances, affiliates may make offerings which are deemed to be genuine secondaries. [Jan. 26, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 12/8/2020

Q: I noticed that in Section 7.08[A] of your Shareholder Proposals Handbook, you note that the following as two of the items that should be included in the documentation provided by a shareholder to its designated representative for submission of a SH proposal (or in other words, to justify a proper representation letter) — (i) the shareholder's statement authorizing the designated representative to submit the proposal and otherwise act on the shareholder's behalf; and (ii) the shareholder's statement supporting the proposal. However, I do not see these two items listed in Staff Legal Bulletin 14I, Section D, as being requirements for the representation letter. Can you please explain where I can find the source/precedent for these additional two requirements ? Thank you!

RE: Thank you for asking on this. We just updated the handbook for the amendments to Rule 14a-8 — so those requirements come from Release No. 34-89964. But, the amendments aren't effective until January 4th. We'll clarify that in the handbook, for those processing deficiency letters over the next couple of weeks.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 12/8/2020

Q: A company misses an Item 5.02(e) Form 8-K with respect to a compensatory plan during Q4. When the company files its Form 10-K, it inadvertently does not include Item 9B disclosure regarding the missed Form 8-K and also does not file the compensatory plan as an exhibit. The company discovers the error before its actual Form 10-K deadline. Since the agreement is a compensatory plan, would it automatically be considered "material" (per Item 601(b)(10)(iii)(A)) such that an amendment to Form 10-K is advisable to include the Item 9B disclosure and the exhibit? Or would a very late Form 8-K with the exhibit filed be sufficient?

RE: Given the language of General Instruction I. A. 3. to Form S-3, I think that if a company files the late 8-K prior to the time the 10-K would be required to be filed with the safe harbor disclosure provided in Item 9B of 10-K, then it meets the requirement of this instruction. However, I think if the 10-K has already been filed, then the 10-K itself is at least technically non-compliant because the disclosure required by Item 9B has not been included. I don't know that this omission is automatically material, but I think there's at least an argument that it is. So, in this situation, I think the better approach would be to file an amended 10-K with Item 9B and the exhibit addressed before the due date of the 10-K, instead of filing an 8-K.
-John Jenkins, Editor, TheCorporateCounsel.net 12/8/2020

Q: Has there been any discussion of the practical effect of the amendment that replaces "most significant" risk factors with the "material" risk factors? How should we be thinking about the difference between "most significant" and "material"?

RE: We'll be discussing this in our webcast tomorrow at 11am ET, "Modernizing Your Form 10-K: Incorporating Reg S-K Amendments." If you can't make the live program, the audio archive will be available on demand within a day or two afterwards.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 12/7/2020

Q: I'm following up on Liz's August 24 Proxy Season blog about the impact of Robinhood trading on proxy distribution fees. So on point for us! I'd be grateful for any insights or anecdotes as to how companies are handling these types of proxy distro fees — particularly given the lack of contract privity. I understand that discussions are underway with the SEC and NYSE to cap these fees — but what’s the advice in the meantime? All thoughts welcome!

RE: Unfortunately I don’t think there’s much companies can do in the absence of rulemaking that caps the fees, other than track trading volume to get a sense of whether there will be an increase in the number of shareholders. And as Carl pointed out in that blog, you can say no to fees from “proxy distribution” outfits that are trying to collect fees for distribution to “managed accounts” or who try to submit bills even if they haven’t distributed materials.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 12/5/2020

RE: Thanks, that's consistent with the conclusion we've reached based on all of our collective research and phone-a-friends — the answer seems to be pay the bill or some negotiated version thereof… And make noise to the NYSE and Nasdaq that they need to cap these fees! If anyone else has any strategies or thoughts — would appreciate the intel.
-12/5/2020

Q: A calendar year issuer that has qualified as a smaller reporting company for several years exceeded $75 million in public float for the first time as of June 30, 2010 (i.e., the last day of its most recently completed fiscal quarter). Per the "smaller reporting company" definition in Rule 12b-2, the similar provisions of Reg. S-K Item 10(f)(2)(i) and pages 45-46 of the adopting release, it seems clear that the issuer may continue to use scaled disclosure for its Form 10-K for the year ended December 31, 2010. Since the issuer remains "eligible to use the the requirements for smaller reporting companies" for its Form 10-K for the year ended December 31, 2010, it would not appear to satisfy the definition of "accelerated filer" in Rule 12b-2 with respect to such Form 10-K. However, the SEC's CDI Questions 130.04 seem to come to the opposite conclusion. Is this issuer an accelerated filer for purposes of its Form 10-K for the year ended December 31, 2010? If so, what is the meaning of the requirement in Rule 12b-2 that, to be an accelerated filer, "the issuer is not eligible to use the requirements for smaller reporting companies"?

RE: After posting this request, I received a call from the Office of Small Business Policy in belated response to a previous inquiry. They confirmed that the issuer was eligible to use scaled disclosure for its Form 10-K for the year ended December 31 2010. Nonetheless, I was advised that the position of the Division of Corporation Finance is that the issuer is considered an accelerated filer as of December 31, 2010, and, therefore, must file such Form 10-K within 60 days. I was further advised that Corp. Fin. has effectively "interpreted out of the rule [12b-2]" the provision that an accelerated filer not be eligible to use the requirements for smaller reporting companies.
-12/7/2010

RE: Thanks for reporting back.
-Broc Romanek, Editor, TheCorporateCounsel.net12/7/2010

RE: I have the same circumstances this year for one of my companies. How does Corp Fin. just "[interpret] out of the rule [12b-2] the provision that an accelerated filer not be eligible to use the requirements for smaller reporting companies"? Would seem that this is what that provision is precisely meant to address!
-2/10/2011

RE: My recent experience with Corp. Fin. is that they are not terribly concerned about their own regulations in these situations. For a registrant transitioning out of smaller reporting company status, it seems clear that the cover page of Form 10-K for the most recently completed fiscal year should continue to reflect the registrant as a "smaller reporting company" rather than an "accelerated filer." In this regard, the second sentence of Paragraph 4(i) of the Rule 12b-2 definition of smaller reporting company states:

"An issuer in this category [i.e., required to file reports under section 13(a) or 15(d) of the Exchange Act] must reflect this determination [of reporting status] in the information it provides in its quarterly report on Form 10-Q for the first fiscal quarter of the next year, indicating on the cover page of that filing, and in subsequent filings for that fiscal year, whether or not it is a smaller reporting company...."

It seems incongruous to me that the registrant should both reflect that it is a smaller reporting company on the cover page and use smaller reporting company scaled disclosure in the Form 10-K, but be subject to the filing deadline for an accelerated filer. Nonetheless, this is apparently the Staff's position.
-2/16/2011

RE: What about the opposite situation -- accelerated filer now realizes that as of 6/30/10 it qualifies as a smaller reporting company. It can and should mark the "smaller reporting company" box on the first page of its Form 10-Q for 1Q2011. But can it use the scaled back disclosures for its Form 10-K for the year ended 12/31/10 (and file such a report within 90 days, and not 75 days after FYE)?

I would think yes because "Changeover to the SEC's New Smaller Reporting Company System by Small Business Issuers and Non-Accelerated Filer Companies - A Small Entity Compliance Guide" from Jan. 2008 states that a newly qualified smaller reporting company is permitted to provide scaled disclosures as soon as it wishes to do so (even in the Form 10-Q for the second fiscal quarter in which it made its eligibility determination.)

Can you confirm that this company's Form 10-K for 2010 can use the smaller reporting company standards and timing - thanks in advance.
-2/17/2011

RE: Is there a consensus that, where a calendar year issuer is transitioning from smaller reporting company to accelerated filer status (due to exceeding $75 million in public float as of June 30, 2012), but will rely on the scaled disclosure for smaller reporting companies for its 2012 10-K as contemplated by CDIs 130.04 and 104.13, would it check BOTH boxes (accelerated filer and smaller reporting company) on the cover of the 10-K, or only the accelerated filer box?
-10/17/2012

RE: Was there an answer to this last question? What box would be checked on the 10-K cover page for a company transitioning from a smaller reporting company to an accelerated filer? In this case, the company will continue to use scaled disclosures permitted for smaller reporting companies through the 10-K but will file the 10-K within 75 days of fiscal year end and will include an auditor attestation on internal controls. Just not clear to me what box needs to be checked on the 10-K cover page. Does it check the accelerated filer box, even though it will included scaled disclosures?
-2/4/2015

RE: Yes in that scenario you would check both the accelerated filer and smaller reporting company (SRC) boxes. Of course you would stop checking the SRC box when you filed the first quarter 10-Q with the non-scaled disclosures. This anomaly exists because of the differences in the transition rules for accelerated filers and SRCs.
-2/4/2015

RE: Do you all know if it is still the case that a former SRC that becomes an AF based on 6/30/17 public float >$75 million would check the SRC box on its 2017 10-K and would comply with SRC scaled disclosure requirements for that 10-K, but would be required to file the 10-K within 75 days after FYE 12/31/17, rather than the 90 days that applies to SRCs?
-10/30/2017

RE: Yes. See Exchange Act Rules CDI 130.04 and this excerpt from Section 5120 of the Financial Reporting Manual:

"Although the annual report may continue to include scaled smaller reporting company disclosure, the due date for the annual report will be based on the registrant’s filing status as of the last day of the fiscal year. Division of Corporation Finance’s C&DIs for Exchange Act Rules, Question 130.04, clarifies that although the transition period for a company moving to the larger reporting system includes the end of the fiscal year, the company is no longer considered “eligible to use the requirements of smaller reporting companies” for purposes of determining its filing status under Exchange Act Rules 12b-2(1)(iv) and 12b-2(2)(iv)."
-John Jenkins, Editor, TheCorporateCounsel.net10/31/2017

RE: Would the same transition rules apply for a smaller reporting company that is transitioning out of SRC status and will be a large accelerated filer next year? I believe (based on Rule 12b-2 and Section 5120.1(c) of the Financial Reporting Manual) that such a company could continue to use the scaled disclosure rules for SRCs in its Form 10-K, but the filing would be due within 60 days after year end but if I am missing something please let me know.
-12/2/2020

Q: A company with a 12/31 fiscal year end will issue more than $1 billion in debt on 1/1/21 and as a result lose its EGC status. Should the company file its Form 10-K for FY2020 as an EGC? It was an EGC for the full period covered by the report, but will not be one by the time the 10-K is filed.

RE: There aren't any express transition periods in the JOBS Act, and I think the consensus is that once you no longer qualify as an EGC, you're immediately thrown into the deep end of the pool. So, in your case, I think the company would be required to comply with all requirements applicable to its new status as soon as its next Exchange Act filing. There's a Gibson Dunn memo with that firm's perspective on timing issues associated with transitioning from EGC status.
-John Jenkins, Editor, TheCorporateCounsel.net12/2/2020

Q: A company has filed an information statement in connection with a vote by security holders on a corporate action and planned to mail to the non-voting shareholders on a specific date. Rule 14c-2(b) states that "[t]he information statement shall be sent or given . . . at least 20 calendar days prior to the earliest date on which the corporate action may be taken." Does Rule 14c-2(b) require that all mailings be "sent or given" in order to start the 20 day clock to take the action? Or could the filer send a majority of mailings on the initial mailing date, with the remainder of the mailings sent on a subsequent date, and still start the 20 day clock as of the initial mailing date?

RE: I don't think that this issue has been addressed by the Staff or the courts, but in the absence of guidance, I would not be comfortable taking the position that the 20 day clock would start until materials had been mailed to all shareholders. I think it's hard to square the idea that it's enough to mail materials to most shareholders with the language of Rule 14c-2(b) that says that the information statement "shall be sent or given. . .at least 20 calendar days prior to the earliest date on which the corporate action may be taken."

I think the answer might be different if the language said "first sent or given," as some provisions of Regulation 14A do, but the idea that the notice needs to be sent to everyone entitled to it seems to be implicit in the language of Rule 14c-2.
-John Jenkins, Editor, TheCorporateCounsel.net12/1/2020

Q: A company is preparing to file a Form S-3, but realized that it's Form 10-K (filed back in March) omitted the signatures of the directors (so, only the CEO and PFO signed - both of whom are on the board, but that didn't get them to a majority of the directors). There were no other signature blocks. Would you feel comfortable filing a Form S-3 in this situation? Would a simple amendment cure the problem, or would the issuer still be in the penalty box for not being timely with an exchange act report? We have reviewed TOPIC # 743 and C&DI Questions 161.08 and 161.09. Not seeing any comment letters directly on point.

RE: No, I wouldn't. I haven't dealt with this, nor am I aware of guidance on it. However, that seems to me to be something that the Staff may well regard as a major defect in the filing. I would recommend discussing the situation with the Staff before filing an S-3.
-John Jenkins, Editor, TheCorporateCounsel.net11/25/2020

RE: Thanks very much. That was our impression too, and wanted to be sure nothing changed since that last Q&A from a while back. We'll revert if we receive specific guidance on this point.
-11/25/2020

Q: Registrant is filing a 10-K/A to its 2008 10-K to amend Part III, Item 10 as a result of a subsequently discovered error to address one of the disclosure requirements under Part III, Item 10. Registrant is a calendar-year company that filed the original 2008 10-K in March 2009 ("Original 10-K") and at the time of both the Original 10-K and the 10-K/A, the Registrant had effective registration statements on Forms S-8 and S-3 (the "Prior Registration Statements"). The Original 10-K included as an exhibit thereto the auditor's consent to the incorporation by reference in the Prior Registration Statements of its report included in the Original 10-K. We are assuming that a new auditor consent to the incorporation by reference in the Prior Registration Statements of the auditor's report included in the Original 10-K is NOT required to be filed with the 10-K/A since the only thing being amended in the 10-K/A is Part III, Item 10, and none of the auditor's report or the Registrant's financial statements are being amended in the 10-K/A. Is that a correct interpretation? If so, going forward, it is also correct that the auditor consent filed with any new registration statements would only need to refer to the report included in the Original 10-K? Thanks.

RE: No auditor's consent should be required with the 10-K/A in this circumstance, and going forward the consent would refer to the filing in which the audited financial statements are included, which in this case is the original Form 10-K.
-Dave Lynn, TheCorporateCounsel.net 12/8/2009

RE: Just a point of clarification (which might already be clear to everyone), but if you file at 10-K/A and the financials will be included (though there are no changes to them or to the date of the audit report) would a new auditor's consent be required?
-11/24/2020

RE: As a practical matter, I think that the most likely source of a consent requirement in your situation is going to be your engagement letter with the auditor. Audit firms generally impose a contractual obligation on the client to obtain their consent before using their report in an SEC filing.

That being said, it is possible that a new consent could be required under SEC rules. Section 4810.3 of the FRM says that a new consent will be required with an amended filing "if there have been intervening events since the prior filing that are material to the company," even if the financial statements are unchanged. The FRM addresses this issue in the context of a registration statement, but it seems to me that the same concept would apply in the context of an amendment to a document that serves as a Section 10(a)(3) update to an effective registration statement.
-John Jenkins, Editor, TheCorporateCounsel.net11/25/2020

Q: Public company consummated a PIPE with reg rights. The company is NOT Rule 144 eligible for another 10 months. Company has filed a resale registration statement that has been declared effective, and a number of institutional PIPE investors are demanding that the company arrange for the legends to be removed from their PIPE shares so they can move them into brokerage accounts before they actually sell. Since the shares may only be sold when the resale registration statement is effective, and in accordance with the plan of distribution, how can a firm provide a de-legending opinion to the transfer agent if not in connection with a sale? Investors claim that law firms do it all the time, but two law firms consulted say they won't provide those opinions. What is the current practice here? Is there a way to provide a cleanup opinion that insulates the law firm and issuer from liability if the holder goes and transfers those cleaned up shares improperly? Some of these investors are frequent PIPE participants, so we don't want to deny them anything that they get in other deals, but not sure how to bridge the gap with firms that say that cleanup is not appropriate except in connection with a sale.

RE: I haven't done a PIPE in some time, but I believe market practice has been to include provisions in the purchase agreement calling for the issuer to instruct the transfer agent to release legends on registered shares if the investors provide a certificate to the issuer and the transfer agent undertaking to comply with prospectus delivery requirements. As I recall, investors often insisted on having these procedures in place prior to closing in transactions that were conditioned on having a resale registration statement declared effective.

If that's not in your purchase agreement or registration rights agreement, I would reach out to the transfer agent as to precisely what they would require an opinion to address when it comes to releasing legends on registered shares. Some of the concerns you raise might be addressed through a combination of investor certifications and assumptions in the opinion itself.
-John Jenkins, Editor, TheCorporateCounsel.net11/24/2020

Q: For companies that don't provide guidance, wouldn't they be in a difficult position to keep their trading window open if their internal expectations are below Street consensus. For example, the company releases Q3 results and analysts update Street consensus for Q4. Company does not provide Q4 guidance, but it's internal budget is below Street consensus. For companies that only provide annual guidance, and only update when the annual guidance is materially off, it would seem that they would have the same issue. Thanks for your thoughts.

RE: That's certainly a legitimate concern. SAB 99 suggests that missing analysts estimates may be a factor in assessing materiality, at least when it comes to misstatements in financial statements. But I also think that there's room to argue that the fact that internal estimates may be lower than analysts' estimates isn't always going to be regarded as MNPI. If a company has declined to provide guidance and otherwise hasn't endorsed the estimate, then there's a case to be made that it has no responsibility for those estimates and isn't under a duty to disclose its own projections before insiders trade during an otherwise open window.

The case law outside of the 3rd Circuit tends to be skeptical of the materiality of projections, at least early on in the quarter. For example, the 6th Circuit says that projections generally need to be "virtually as certain as hard facts" before they will be held to be material (Starkman v. Marathon), and that's not too far from the approach that the handful of other circuits that have addressed the issue have taken. The 3rd Circuit has taken a facts and circumstances approach to materiality of projections (Flynn v. Bass Bros.), and that's influenced how Delaware approaches the issue from a state law fiduciary duty perspective.

This is a nice academic argument, but the bottom line is that at the very least, a company whose analysts have run away from it in terms of their estimates has a business problem to address, and there's a risk that it and its insider sellers could face a legal one as well. In these situations, there's usually something about the business that analysts are missing in their analysis, and putting aside the issue of the materiality of projections, the item of information they're missing may itself be MNPI.

Companies in this situation can frequently tell from analysts reports what they don't understand, and it may be prudent to provide additional information in an FD compliant manner to give them a better picture of the business, even if they aren't commenting directly on the estimates.
-John Jenkins, Editor, TheCorporateCounsel.net11/24/2020

Q: In the context of an MLP buyout by the controlling corporation for stock in the controlling corporation, would cash in lieu of fractional shares pull it into 13e-3 category?

RE: It can, and the issue is frequently raised by the Staff in comment letters. However, companies are sometimes able to persuade the Staff that cash in lieu of fractional shares should not result in the classification of a transaction in which shareholders receive equity securities as involving a "going private" transaction subject to 13e-3. See, e.g., this response from Forest City Realty Trust to a Staff comment along these lines. The Staff did not comment further.
-John Jenkins, Editor, TheCorporateCounsel.net11/23/2020

Q: If an officer decides to authenticate his/her signature electronically (once the new rule goes into effect) via DocuSign, and does so a day or two in advance of an electronic filing with the SEC, should the signature page filed with the SEC bear the date that matches that date/time stamp. Or can it still bear the date of the filing? Also, I'm curious to see what other digital signature tools (other than DocuSign) would meet the SEC requirement of a digital credential that authenticates the signatory's individual identity.

RE: I don't think there's ever been a hard and fast rule regarding the date of an individual's signature on a 10-K or 10-Q filing. Rule 302 of S-T simply requires (as it always has) that the authentication document "shall be executed before or at the time the electronic filing is made." That being said, I think the more common practice is to date the signature page with the date of the filing, and I think that's a better practice in this situation.

The reason I say that is that the filing speaks as its date, and the officer's responsibility for the accuracy of its contents does not end prior to the time that the document is filed. While obtaining signatures (electronically or otherwise) a few days in advance may be a matter of convenience, I think the company's procedures should make it clear that a signatory's responsibility for the filing do not end on the date that he or she has authenticated their signature, and that the signature in the filing will be dated as of the filing date.

The potential problem with not taking this approach can be illustrated by a situation in which the company obtains an officer's signature a few days in advance of filing the 10-Q, but during the interim, there is a development that requires a subsequent event footnote. Now the company would find itself in a situation in which the officer has signed a document as of a date that precedes the date of a specific disclosure included in the document. I think a situation like that may well implicate the company's disclosure controls and procedures unless it is clear from its policies that the signatories understand as of what date their signatures speak, and that their responsibility for the accuracy and completeness of the filing does not end on the date they sign it.
-John Jenkins, Editor, TheCorporateCounsel.net 11/20/2020

Q: Public company that was an accelerated filer and NOT a smaller reporting company is having a rough year in the market. At 6-30-20, the company's non-affiliate public float slipped to $80 million. We calculated at the time that the company was eligible to check the SRC box and provide scaled disclosure, but the company did not elect to do so; it filed its 6-30 and 9-30 10-Qs without checking the box or scaling its disclosure. In its upcoming filer status analysis, the company will have over $60 million public float (the threshold for transitioning out of Accelerated Filer status), but it will have had less than $100 million total revenue in its most recently audited financials (2019). Based on the amended definition of Accelerated Filer, relying on the SRC revenue test, I believe that this means that the company will be a Non-Accelerated Filer. Is this analysis correct? If the company continues to NOT avail itself of the SRC scaled disclosure, can it continue to not check the box? Section (C) of the Smaller Reporting Company definition would seem to indicate that it could avoid checking the box for the upcoming 10-K, but it will have to check the box starting with its 3-31-21 10-Q. Is that the case even if the company does not wish to ever avail itself of the scaled disclosure rights?

RE: Rule 12b-2 says that once an issuer becomes an accelerated filer, it will remain one unless the issuer determines, at the end of a fiscal year, that the aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates was less than $60 million, as of the last business day of the issuer's most recently completed second fiscal quarter; OR "it determines that it is eligible to use the requirements for smaller reporting companies under the revenue test in paragraph (2) or (3)(iii)(B)" of the SRC definition.

So, the $100 mm revenue test provides an independent basis for determining non-accelerated filer status, and if you're under that on the relevant date, you don't have to also be below the $60 mm market cap threshold to be classified as a non-accelerated filer. In your scenario, the issuer could begin taking advantage of its non-accelerated filer status when it filed its Form 10-K for the 2020 fiscal year. (See the discussion in Topic #10261).

While an SRC may opt not to take advantage of the ability to provide scaled disclosure, I don't think checking the box is optional even in that case. That's because the language of 12b-2's definition of an SRC provides that "an issuer MUST reflect the determination of whether it came within the definition of smaller reporting company in its quarterly report on Form 10-Q for the first fiscal quarter of the next year, indicating on the cover page of that filing, and in subsequent filings for that fiscal year, whether it is a smaller reporting company."
-John Jenkins, Editor, TheCorporateCounsel.net 11/19/2020

RE: Thank you so much for the prompt response. It turns out that the annual revenue figure is not entirely straight forward. Virtually all of the company's revenues are Interest income. In the company's most recent audited financial statements, its Total interest income was over $100 million, but the Total revenue line netted out a significant amount of Interest expense, which resulted in the company having less than $100 million in Total revenues.

For the revenue test under the SRC definition, do we just look to the Total revenue line, or do we look to the income number before netting out interest expenses?
-11/19/2020

RE: I would check with the Staff on this one. The only guidance I've seen suggests that the top line number is the one to look at. Here's the relevant CDI:

"202.01 In calculating an issuer's annual revenues to determine whether the issuer qualifies as a "smaller reporting company" as defined in Item 10(f)(1)(ii) of Regulation S-K, the issuer should include all annual revenues on a consolidated basis. As such, a holding company with no public float as of the last business day of its second fiscal quarter would qualify as a smaller reporting company only if it had less than $100 million in consolidated annual revenues in the most recently completed fiscal year for which audited financial statements are available (i.e., as of the fiscal year end preceding that second fiscal quarter). [November 7, 2018]"
-John Jenkins, Editor, TheCorporateCounsel.net 11/19/2020

Q: Public company is structuring a significant acquisition that will be partially funded with a PIPE that will be fully subscribed before the acquisition agreement is signed. The PIPE won't close until the day before the acquisition closes, and there are a number of contingencies to the PIPE closing, including stockholder approval of the acquisition. After the PIPE subscription agreement is signed and the deal is announced, but before closing, may a PIPE subscriber elect to transfer/assign its rights under the subscription agreement to a new party (assuming the terms of the subscription agreement permit such transfer or issuer consent is obtained)? In short, does the subscription agreement itself represent a security that can't be transferred/assigned without an exemption, or has no security been created because no consideration has changed hands, nor will it change hands if the agreement is assigned? Does the analysis change if the initial PIPE subscriber that wishes to assign it is an affiliate of the issuer?

RE: Determining when a "sale" of a security has been made is sometimes a complex process. I think that the prudent position here would be to assume that a sale of a security occurred at the time the subscription agreement was entered into, despite the existence of conditions to closing. Any transfer of rights under that agreement should be treated as a transfer of a security. See the discussion in Topic #7388.
-John Jenkins, Editor, TheCorporateCounsel.net 11/19/2020

Q: Although uncommon, is it still permissible/not wrong to have a record date on a weekend or a holiday? Thanks for any thoughts here.

RE: There's no corporate law prohibition against setting a record date on a weekend or holiday, at least in Delaware. But if you're a listed company, it may well be a problem. For example, NYSE Rule 204.21 says that "Saturdays, Sundays, and holidays should be avoided as record dates. Their use may be misleading, as most transfer agencies and brokerage firms are closed and transfers cannot be effected on those days."

Sometimes, the terms of the securities themselves have dividend record dates baked into them, and so a record date will fall on the weekend at some point. In this situation, the NYSE advises companies as follows: "In rare situations, where the terms of a security mandate a record date that falls on a Saturday, Sunday or Exchange holiday, the company’s announcements should make clear that the effective record date is the immediately preceding business day."
-John Jenkins, Editor, TheCorporateCounsel.net 11/19/2020

Q: Investor acquired issuer's debt securities in a Rule 144A transaction in 2019. From the time of the transaction until now, Investor has not been affiliated with issuer. Investor is now considering acquiring convertible debentures of the issuer that are convertible into approximately 20% of issuer's aggregate common stock (within 60 days). I understand that the acquisition of the convertible debentures could cause Investor to be affiliated with the issuer (if that's patently wrong, please let me know!). If Investor does become affiliated with issuer, will Investor's existing debt security holdings become subject to the limitations on resale by affiliates under Rule 144 (volume limitations, etc.)? The existing debt securities still have the 144A restrictive legend, but the six-month holding period for non-affiliates has long passed. Thank you for your advice!

RE: Affiliates of an issuer run the risk of being classified as statutory underwriters within the meaning of Section 2(a)(11) of the Securities Act. As a result, unless an affiliate's shares are registered for resale, most counsel advise the affiliate to sell its securities in compliance with the applicable provisions of Rule 144. That's true even if the affiliate acquired their securities in a registered offering, acquired them before becoming an affiliate, or held the securities acquired in an exempt transaction long enough that they would otherwise be regarded as being eligible for resale without further restriction.

However, since the securities were issued in a Rule 144A transaction, the purchaser may well be able to resell them to QIBs in compliance with that rule without compliance with Rule 144. Section 4(a)(7) or the non-statutory "4 (1 1/2)" exemption may also be an alternative. See this MoFo memo on Rule 144A (it also touches on 4(1 1/2) and 4(a)(7).
-John Jenkins, Editor, TheCorporateCounsel.net 11/17/2020

Q: Good evening. Our client recently received a deficiency letter from NASDAQ for failing to meet the minimum bid price requirement. The client subsequently has filed an 8-K. We were curious whether such disclosure should also be included in their 10-Q for the quarter. We don't see a requirement or reason, as the 8-K should suffice. However, we are curious as to what standard practice is. Appreciate the help.

RE: There's not a specific 10-Q line item that calls for disclosure about a potential delisting, but because the consequences of a delisting can be significant, it seems to me to be a prime candidate for a new or updated risk factor in response to Item 1A of Part II. Some companies may also want to consider MD&A disclosure about the potential impact of a delisting on their capital resources.
-John Jenkins, Editor, TheCorporateCounsel.net 11/17/2020

Q: Since 2014, has the Staff issued any significant interpretations to substantial implementation under Rule 14a-8(i)(10)? I found a successful SEC No-Action request from 2014 that is on point with a recent shareholder proposal that we received and wanted to reference it. I am unaware of any significant interpretations since 2014 but have not closely tracked this in a while. Also, any feel if Rule 14a-8(i)(10) is where the Staff will typically concur, disagree or decline to state a view?

RE: The Staff has addressed many no-action requests based on 14a-8(i)(10) in recent years. Most of the action in recent years has been around ESG and proxy access "fix-it" proposals. See the discussion beginning on p. 231 of our "Shareholder Proposals Handbook" for a discussion of substantial implementation arguments in the proxy access context.
-John Jenkins, Editor, TheCorporateCounsel.net 11/16/2020

Q: An executive officer of a listed company would like to enter into a 10b5-1 plan with respect to the purchase of the listed company's stock in the market after the filing of the Company's upcoming 10-Q. The Company has recently announced that it entered into an acquisition agreement with a target company that is much larger than the Company and that the terms of such acquisition involve the issuance of shares of the Company to the stockholders of the target company as partial consideration for the acquisition. Assuming that following the filing of the 10-Q the executive officer is not otherwise in possession of material nonpublic information, would it be okay for the executive to enter into the 10b5-1 purchase plan while the acquisition is pending? I believe that if the company desired to enter into a 10b-18 program while the acquisition is pending it would not be able to (or only able to on a very limited basis), but I am not sure how this applies to an executive officer who desires to enter into a 10b5-1 purchase plan while an acquisition involving the issuance of stock to the target shareholders is pending. Any help you can provide on this matter would be greatly appreciated.

RE: I don't think that's a good idea. Rule 10b5-1 plans should only be entered into at a time when the insider is not in possession of MNPI, and you don't want this to be a gray area. With a huge acquisition pending, it seems to me that there is a significant risk that an insider will have information about the transaction that hasn't been made public and that could be regarded as MNPI. I think that's true even if the basic terms of the transaction have been announced. It's simply too easy for someone to second-guess the insider's knowledge at the time the plan was established based on hindsight. See the discussion on p. 64 of our "Rule 10b5-1 Trading Plans Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 11/12/2020

Q: If an Issuer has withheld payment of dividends to preferred stockholders pursuant to a certificate of designations that requires mandatory quarterly dividend payments but permits a payment to roll over to another quarter where such dividends may not be paid under applicable law (i.e., due to a lack of surplus under the DGCL), is the Issuer still required to disclose the missed dividend payment as a “material arrearage in the payment of dividends” under Item 3(b) of Part II of Form 10-Q?

RE: I haven't seen any guidance on this, but I think that if GAAP would require disclosure of this as an arrearage in the financial statement footnotes (which I believe — based on the accounting expertise I acquired with my History major — it would), then disclosure would be required under Item 3(b).
-John Jenkins, Editor, TheCorporateCounsel.net 11/12/2020

Q: As a result of the amendments to Rule 12b-2 earlier this year, the definitions of accelerated filer and large accelerated filer exclude any issuer that is eligible to be an SRC and had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available. Our client, a former SPAC, completed its business combination in the first half of 2020, prior to the determination date at the end of Q2. For purposes of the revenue test, should the client look to the SPAC's revenue or the operating company's revenue (as if those financial superseded the SPAC's historical financials). The operating company had over $100 million in revenue. The SPAC was the legal and accounting acquirer. We're trying to assess when the company will have to report as an accelerated filer and lose its smaller reporting company status. For example, if SRC status is lost at the end of 2020 (due to an excess of revenue), I assume that the company can take advantage of SRC status through the 10-K (including the proxy) for the year ended December 31, 2020, although that 10-K would be due within 75 days as an accelerated filer. If we can look to the SPAC's revenue, which is non-existent, these are all 2021 events.

RE: The answer based on existing guidance appears to be unclear, although I think the better view is that the SPAC should not be required to consider the target's revenues for the prior fiscal year. I would encourage you to contact the Staff and discuss this issue with them. In any event, here's how I get to my conclusion.

The Financial Reporting Manual suggests that, in the case of a previously reporting company, the answer generally is that it's only the actual revenues for the prior fiscal year that matter. Here's an excerpt from Section 5110.2: A previously reporting company must meet the revenues test based on its annual audited financial statements as originally filed with the SEC (not restated for subsequent discontinued operations) for its most recent fiscal year."

The answer is different in the case of a company without a previous reporting history. Here's what Section 5110.2 of the Financial Reporting Manual says:

"A company that has not previously reported to the SEC must meet the revenues test based on the most recent fiscal year for which audited financial statements are included in the initial registration statement. However, if, consideration of the pro forma effect of (1) businesses acquired during the latest fiscal year, and (2) consummation of business combinations identified as probable at the time of filing the initial registration statement would result in the issuer exceeding the revenue limit, the issuer would not qualify as a smaller reporting company."

So, based on those two sections, it looks like the answer is that unless you're dealing with a company that hasn't reported previously, you don't have to worry about a pro forma adjustment to the prior year's annual revenues to reflect the transaction. However, in the case of a shell company, here's what the FRM says about determining smaller reporting company status:

"A reporting company that meets the definition of a shell company as defined in Rule 12b-2 of the Exchange Act and Regulation C, Rule 405 also will generally qualify as a smaller reporting company and be eligible to use the scaled disclosure. Upon a transaction that causes the reporting entity to lose its shell company status (typically a reverse merger), the surviving entity must file a Form 8-K. The information that must be provided is what would be required if the registrant were filing a general form for registration of securities under Form 10. Scaled disclosure would be appropriate only if the surviving entity qualifies as a smaller reporting company. This Form 8-K, including the financial statements of the accounting acquirer, is due within four business days of the completion of the transaction. Exchange Act Rule 12b-25 does not permit an extension of the due date for filing this Form 8-K."

This seems to stand for the general proposition that SPACs need to give effect to the de-SPAC transaction when determining their reporting status. However, it does not specifically address whether there is a need for the surviving entity to look back at the target's historical results in determining whether it satisfies the applicable revenue test. Given the general position about the application of the revenue test to previously reporting companies, my sense is that, if the surviving entity is the SPAC, the better view is that determining annual revenues for the prior fiscal year on a pro forma basis should not be required.
-John Jenkins, Editor, TheCorporateCounsel.net 11/11/2020

Q: Does anyone have thoughts on the "conventional wisdom" on the registration/exemption analysis when a public company issues warrants to one or more lenders in connection with executing a loan agreement? It seems to me that it would be difficult to argue that there is no sale at the time of issuance given that the lender(s) agree to make a loan (consideration) and the warrant coverage is specifically negotiated (see SEC guidance re options). Let me know if you disagree/have heard otherwise form the SEC staff. Either way, the cash exercise of the warrants would require an exemption. Assuming it is a securities offering, if the issuer negotiates with one lender and the agent plans to act as agent to syndicate the loan to a handful of other lenders with which the issuer has no pre-existing relationship, if the facts work, do you have any thoughts on relying on Section 4(a)(2) and/or "Section 4 1 1/2" because all lenders are banks/institutional accredited investors? Or, in that situation, would it be prudent to rely on Rule 506(c)? Any other thoughts would also be greatly appreciated. Thanks!

RE: Frankly, I don't think people give a whole lot of thought to these issues when dealing with lenders, although you raise some good points. I'm not a commercial lawyer, but I think a lot of issuers rely on the statutory 4(a)(2) exemption for the warrant issuances, because issuing securities to a bunch of sophisticated banks in a contractual lending relationship presents about as strong an argument for reliance on the statutory exemption as you're likely to find.

That being said, I agree that there is potentially an issue concerning the lack of a preexisting relationship with the syndicate banks that might create some issues for a Rule 506(b) offering, so relying on Rule 506(c) would probably be the safest route. However, I don't view a typical situation like this as being particularly high risk. I also think that, depending on how the transaction is structured, Section 4 (1 1/2) or even Rule 144A might be available for the agent's redistribution of warrants to syndicate members.
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

Q: Can an NYSE listed company request a review of a delisting notice that is based on failure to satisfy the minimum price condition during the cure period provided under the NYSE rules if the company can present a credible argument regarding business developments that it reasonably believes will increase the trading price? Is anyone aware of any guidance from the NYSE as to whether this would be an exception to the "ordinary" step of staying a suspension pending the review?

RE: I know that it is sometimes possible for Nasdaq to grant an additional 180 day grace period to address minimum bid price issues, but I am not aware of a comparable NYSE practice. It's been a long time since I've been involved in a delisting based on the failure to satisfy the minimum share price requirement, but my limited experience has been that the exchanges aren't terribly interested in a business plan to regain compliance- they're looking for a reverse stock split. I would encourage you to reach out to the company's listing rep.
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

Q: We will be hiring a new GC who will be an "executive officer" and will appear in next year's proxy statement. She will be a Section 16 insider. She will not be an NEO. We usually ask an incoming NEO to complete a D&O. Do you think one is warranted for the new GC? There will not be an 8-K filing for the appointment.

RE: Yes, I'd recommend that you do that. Not every disclosure requirement addressed in a D&O questionnaire is limited to NEOs (e.g., Item 403 and Item 404 information), and it is helpful to have a baseline response to work off of in future years.
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

Q: The entire board of directors signed the signature page to a registration statement. The registrant now has to file a pre-effective amendment. In the interim, the registrant's annual meeting was held and one of the directors is no longer on the board. My presumption is that I remove the director entirely from the signature page (as opposed to just deleting the director's conformed signature; that is, the director's name will appear on the signature but it will not be signed). Thoughts are appreciated.

RE: I would delete all the references to the former director on the signature page.
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

Q: A company has a Form F-3 on file. Subsequently the Company furnishes/files several Form 6-Ks with the SEC and does not specifically note on such Forms that they should be incorporated by reference into the Form F-3. The Company now is considering doing a shelf takedown (primary offering). In the prospectus supplement for the offering, can the Company choose to incorporate by reference the Form 6-Ks that were furnished/filed since the Form F-3 went effective into the prospectus supplement (even though they were not specifically incorporated into the underlying registration statement)? Or does a post-effective amendment to the F-3 need to be filed (if the information in the filings is deemed material)?

RE: I don't think you'd need a post-effective amendment, because including the incorporation by reference language for those 6-Ks in the pro supp doesn't seem to be the kind of change that would trigger a need to file a post-effective amendment under your Item 512 undertakings. In fact, under Item 512(a)(1)(B), even something that would ordinarily trigger a post-effective amendment (e.g., a "fundamental change") can be addressed through the incorporation by reference of Exchange Act reports or the filing of a 424(b) prospectus in the case of a Form F-3.

However, I think you'd need to address the fact that the 6-Ks don't include the language flagging the fact that they'll be incorporated by reference in the filing. It seems to me that you could address that by filing 6-K/As and including that language in them prior to filing the pro supp.
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

RE: Okay. But the Form 6-Ks would all need to be amended in order for the Company to be able to incorporate them by reference into the prospectus supplement for the offering.
-11/10/2020

RE: Yup. See the second paragraph of my original response
-John Jenkins, Editor, TheCorporateCounsel.net 11/10/2020

Q: If a company is buying back stock pursuant to a 10b-18 repurchase program, can a director of the company also be buying stock at the same time? The director has no control over, or responsibility for, the repurchases made by the company. It would seem to me that the director is not an "affiliated purchase" because the term does not include "an officer or director of the issuer solely by reason of the officer or director's participation in the decisions to authorize Rule 10b-18 purchases by or on behalf of the issuer". Is it reasonable to think that the director is not an "affiliated purchaser" and can buy outside of the company's repurchase program?

RE: It's not prohibited, but we don't recommend that directors buy or sell stock while the company is in the market. See the discussion on page 39 of our "Stock Buybacks Handbook."
-John Jenkins, Editor, TheCorporateCounsel.net 3/11/2020

RE: Following up on John's reply.
If you don't recommend that directors (or, presumably, executive officers) buy or sell while the company is in the market, is this recommendation a day-to-day analysis, or at all while the company's repurchase program is in effect and can be used, even if it is not being used?

Company's board just authorized a repurchase plan, delegated authority to the CEO and CFO, and they entered into a 10b-18 plan with a broker. The CEO wishes to purchase for his own account on the open market. Can the CEO rely on the 'Affiliated Purchaser' carveout ("solely by reason of the officer or director's participation in the decision to authorize Rule 10b-18 purchases"), or is he truly an Affiliated Purchaser because he has the actual authority to instruct the broker to make repurchases on any given day? If the answer is that he can't make trades for his own account on any day when the company effects a repurchase, then doesn't that put him in the role of having to decide which days he can purchase versus which days the company can repurchase?
-11/9/2020

RE: I don't think the concern is an executive being in the market during any period in which the company has a 10b-18 repurchase plan in effect. The issue is buying or selling while the company is in the market. The affiliated purchaser exemption is very narrow, and depends on the facts and circumstances, and that's why we don't recommend that an insider be in the market at the same time as the company is buying back shares. I think the situation you describe, in which the CEO is calling the shots, makes his or her position even riskier. See the discussion beginning on p. 39 of our Stock Buybacks Handbook.

If the CEO has been delegated the authority to decide when the company should buy back stock under the repurchase plan, then yes, the CEO is in a position of having to decide when he or she can purchase vs. when the company can purchase. But the CEO is also a fiduciary with a duty of loyalty, so in resolving that conflict, he or she will need to put the company's interest first. If you have a company with a CEO who is interested in making regular open market purchases of the company's stock, then it may be prudent to revisit the delegation policy in order to address the conflict of interest it creates.
-John Jenkins, Editor, TheCorporateCounsel.net 11/9/2020

Q: If an issuer has already satisfied Regulation FD by means of a widely disseminated press release by wire service, and then wishes to submit the press release as an Exhibit to Form 8-K afterwards, can the issuer still furnish the press release under Item 7.01 or must it file the press release under Item 8.01 (since the issuer is not utilizing the Form 8-K to satisfy Regulation FD)?

RE: There's no prohibition on that, and I think some issuers decide to file an 8-K in addition to a press release in order to avoid any dispute over whether the release satisfied the dissemination requirement and to claim the Reg FD safe harbor that comes from an Exchange Act filing.
-John Jenkins, Editor, TheCorporateCounsel.net 11/9/2020

Q: Is there a customary/best practice way of handling/identifying company insiders subject to a company's regular quarterly blackout? Certainly an easy case with directors and management, but as you work down the rungs of management, is there a usual approach to determine who is (and who is not) deemed an insider for a particular reporting period? And even if there is a "cut-off" and lines are drawn in terms of rank or internal reporting structure, how should a company account for information communicated by word of mouth or through other channels (and then making those recipients - who would not otherwise be subject to trading restrictions by rank or internal reporting structure - subject to the company's blackout trading restrictions)? Seems like relying on those employees or their managers to report the communication by word of mouth or through other channels might be too significant a leap of faith? Thanks for any thoughts.

RE: I think it varies from company to company, but in concept the quarterly blackout should extend to all individuals who would be expected to have access to non-public information about the quarter. I don't think it's necessarily a big leap of faith to assume that people won't inappropriately share information if they know they could lose their jobs and potentially face legal sanctions if they do. The key is putting appropriate policies and education programs in place. See the discussion beginning on page 12 of our Insider Trading Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 11/6/2020

Q: Once a company files a Form 15 to deregister with the SEC, are the obligations of the officers and directors to report about their trades in company securities by filing a Form 4s under Section 16 of the Securities Exchange Act of 1934 relieved? Would appreciate any insight or guidance. Thank you!

RE: Your duty to file periodic reports is suspended when you file the Form 15, but deregistration doesn't become fully effective until 90 days later. During that 90 day period, the stock is still registered under the Exchange Act, so Section 16 filings continue to be required.
-John Jenkins, Editor, TheCorporateCounsel.net 11/6/2020

Q: In its release adopting final rules amending Items 101, 103 and 105 of Regulation S-K, the SEC included footnote 41 reminding practitioners that rules regarding incorporation by reference may limit the utility of new Item 101(a)(2), stating that "a filing that includes an update and incorporates by reference the more complete Item 101(a) discussion could not be incorporated by reference into a subsequent filing, such as a Form S-3 or Form S-4." Does the use of the word "subsequent" in this note mean that it would not be problematic to include the update and incorporation in a Form 10-K or other filing that is automatically incorporated into a previously filed Form S-3 or Form S-8?

RE: It could be, but I'm not sure that's what is intended. I think footnote 41 is just intended to provide a reminder that the general prohibition on double incorporation by reference would apply to filings that opt to use that approach to complying with new Item 101(a). Rule 411(e) and 12b-23 already apply to information that's forward incorporated by reference in an existing filing, so I don't know that the reference to "subsequent filings" is meant to limit their application to new filings.

See the discussion in Topic 10462 for some other nuances on the double incorporation by reference issue. I honestly don't think the SEC thought about all of those incorporation by reference issues when they drafted that footnote.
-John Jenkins, Editor, TheCorporateCounsel.net 11/4/2020

Q: We have a client that is looking into placing term limits on the top-level executives (e.g., CEO, CFO etc.) or instituting a mandatory age for retirement. I know this is fairly common with directors, but I haven't heard it before with respect to officers. Does anyone have any insight or experience with this? Thank you!

RE: I've never seen term limits for executive officers, but a minority of public companies have mandatory retirement policies that apply to CEOs. Here's an excerpt from this 2019 Harvard Governance blog summarizing a report from The Conference Board on mandatory retirement in the context of CEO succession planning:

"Few companies force their CEOs to leave when they reach a certain age, as retirement policies tend to be viewed as an overly rigid, one-size-fits-all solutions that would deprive the business of experienced and well-performing leaders. Researchers established that every additional year in CEO age is associated with a 0.3 percent decrease in firm value. Older CEOs are also found to be less active (in terms of engagement in M&A activity, for example) and less innovative. Nevertheless, most companies choose not to institute a CEO retirement policy based on age, possibly because a one-size-fits-all approach may unnecessarily restrict the tenure of well-performing executives.

Retirement policies are seen in only 18 percent of non financial services companies, 21.9 percent of manufacturing firms, and 25.1 percent of financial institutions. The analysis by size shows a correlation between the use of CEO retirement policies and the annual revenue of the business: While about one-quarter of larger manufacturing and non financial services companies do require CEOs to step down upon reaching a certain age, a similar policy is used only in 7.8 percent of companies with revenue under $1 billion. Instead, in the financial sector, the smallest companies are more inclined to use a mandatory retirement policy than the largest ones (28.6 percent of those with asset valued $10 billion or less and 16.7 percent of firms with $10 billion and over in asset value). When a retirement policy is adopted, the typical limit is set at 65 years of age."
-John Jenkins, Editor, TheCorporateCounsel.net 11/4/2020

Q: The Jan-Feb 2009 issue of The Corporate Counsel notes that in connection with a reverse stock split, Rule 416(b) provides for automatic adjustment of outstanding registration statements. Does that mean regardless of whether the issuer specifically references 416(a) of (b) or similar language regarding anti-dilution matters on the cover of the registration statement that a post-effective amendment is not required as noted in Rule 416(b)? I have never seen a registration statement that specifically mentions reverse stock splits.

RE: I have this same question with effective Form S-3s resale registration statements and Form S-8s for incentive plans. We have the Rule 416(a) language for a forward split in the Form S-3, but nothing in the Form S-3 regarding a reverse split (or reduction in shares), and nothing at all in the Form S-8. The 10(a) prospectus for the incentive plan is not filed with the SEC, but it does mention that adjustments will be made to the plan for stock splits and similar transactions. Are post-effective amendments required for these types of filings under Rule 416(b), since they are not covered by Rule416(a)? Any thoughts would be appreciated.
-9/20/2013

RE: I know this is a rather old question, but I was wondering if anyone had any current guidance on this? Thanks.
-11/2/2020

RE: I think that unless you've included the appropriate Rule 416(a) language, you'll need to file a post-effective amendment. The only guidance on Rule 416(b) of which I'm aware is contained in Securities Act Rules CDI 213.03:

"Question: When a registrant splits its stock prior to the completion of the distribution of securities included in a registration statement, and the registration statement does not specifically refer to the existence of anti-dilution provisions for such situations, must the registrant file a post-effective amendment to the registration statement to reflect the change in the amount of securities registered?

Answer: Yes. In this situation, the use of Rule 416(b) is premised upon the filing of a post-effective amendment. Similarly, a pre-effective amendment would have been required to use Rule 416(b) if the split had occurred prior to effectiveness and no mention had been made of anti-dilution provisions in the registration statement. No additional filing fee is required. [Jan. 26, 2009]"

While this CDI addresses a stock split, I think the same reasoning would apply to a reverse stock split. I also think that interpretation is consistent with the language of Rule 416(b) itself, which says that if Rule 416(a) is not applicable, the registration statement "shall be amended prior to the offering of such additional or lesser amount of securities to reflect the change in the amount of securities registered."
-John Jenkins, Editor, TheCorporateCounsel.net 11/4/2020

Q: In addition to stock ownership and retention policies, do you see companies restrict executives from selling more than X% of their shares (assuming stock ownership guidelines compliance) during an open window or other time period, in order to limit the amount of executive selling?

RE: I've heard of some companies using a general guideline (e.g., not more than 25% of vested holdings), but I don't think it's common to have a hard and fast rule. The issue that you run into with having a guideline is that people will then feel it's acceptable to regularly sell up to whatever maximum you've set. You'll also be faced with having to oversee compliance and respond to the inevitable requests for exceptions. Sometimes there are valid reasons for large sales, like the executive is buying a house, but you don't necessarily want to be the arbiter of that. Most companies, even those who have some sort of guideline in place, emphasize that the size of the sale is ultimately the executive's decision, but there are negative market perceptions of large sales and they trust the executives will act with that in mind.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 11/3/2020

Q: Client is using the Notice and Access model. The transfer agent has provided the Notice of Internet Availability that will be sent to record holders. This will be filed with the SEC as Additional Soliciting Materials. Broadridge, of course, has prepared a Notice of Internet Availability that will be sent to street holders. Does this notice need to be filed with the SEC as well? I have seen mixed practice. Thanks.

RE: In the absence of definitive guidance, I'd proceed under the assumption that both notices are going to be regarded as soliciting material under Rule 14a-6(b) and should technically be filed in accordance with Rule 14a-16(i), even if they are substantially the same.
-John Jenkins, Editor, TheCorporateCounsel.net 11/2/2020

Q: In a SPAC business combination transaction, can a Form S-4 be used to register newco shares issuable upon exercise of options of the Target assumed in the transaction? A SPAC cannot file a Form S-8 until 60 days post-closing of the business combination, so I’m trying to understand the mechanics of what, if anything, can be done in the interim period for Target options if they are assumed and converted into New Pubco options and the parties want to register any New Pubco shares issuable upon exercise of those options. It seems like there is some precedent out there for a Form S-4 being used for this purpose, but I’m not sure if that is proper/permissible. Any thoughts would be appreciated!

RE: You can register shares issuable upon exercise of awards made under an employee benefit plan on Form S-4. If your agreement calls for existing awards to be accelerated and converted into the right to receive the merger consideration, then it's pretty straightforward. I think the answer is a little more complicated, and probably less helpful, if you're rolling the awards over into awards of options to acquire New Pubco shares under its plan.

In that situation, you still can register the New Pubco shares to be issued to Target option holders upon exercise, but I think you're going to need to file a post-effective amendment on Form S-8 to include the information that form calls for about the New Pubco plan. I don't think you'd be eligible to file such an amendment until you were eligible to use Form S-8. See Securities Act Forms CDI 125.02:

Question: A registrant included in its Form S-4 registration statement securities to be issued subsequent to the merger, in connection with a dividend reinvestment plan and an employee benefit plan. After the merger, can the registrant amend the registration statement for use by the two plans, providing a separate prospectus for each?

Answer: Yes, the registrant could file a post-effective amendment to the Form S-4 (on Form S-8) for the employee benefit plan, and a second post-effective amendment to the Form S-4 (on Form S-3) to cover the dividend reinvestment plan. [Feb. 27, 2009]

I haven't seen anything specifically addressing SPACs, so it may be worth a call to the Staff to see whether this CDI would apply to a situation where the issuer isn't immediately eligible to use Form S-8.
-John Jenkins, Editor, TheCorporateCounsel.net 10/30/2020

Q: Are there any issues to stratifying N&A Notices and/or reminder letters for proxy mailing by state (as opposed to share count, etc.)?

RE: I'm sure there are logistical issues that somebody like Broadridge would be in a better position to assess than we are. I don't think there's any legal prohibition on it — to my knowledge, the SEC's only prohibition on stratification is that you can't do it by document type (e.g., not permitted to use notice-only for the glossy annual report and full set delivery for the proxy statement).

I haven't heard about U.S. issuers that have opted to do this (although some may), but I believe some Canadian companies opt to stratify by geographic location.
-John Jenkins, Editor, TheCorporateCounsel.net 10/29/2020

Q: Company has had a repurchase plan in place for a while. Company has rarely used it, but has disclosed its existence in every periodic report. Company is looking to disclose in its next 10-Q that they will be utilizing the plan more significantly over the next two quarters. It is likely that this disclosure will positively impact the company's stock price. Is the company under any type of obligation to wait for the market to absorb this information and price the stock accordingly before the company begins its repurchases? Obviously waiting for the price to increase is not in the best interest of the company or its stockholders, but should the company be engaging in transactions at a time when the price is still fluctuating from the news that the company put out?

RE: Disclosure that the company intends to make significant purchases may well move the price upward, particularly if the stock is not particularly liquid and the market isn't efficient. Still, I think most companies take the position that once they've announced publicly the parameters of their buyback plan, there's no obligation to provide additional disclosure before they enter the market. The market's on notice that they can buy back shares under the disclosed terms of the plan at any time.

But some companies want to get that kind of information out for business reasons, and in some instances, the amount of the company's capital resources to be committed to the repurchases may be sufficient to trigger an independent disclosure obligation in the MD&A section of the filing. For a company that wants to announce that its going to make significant purchases under a plan that hasn't seen any activity, and even more so for one that finds itself with an independent disclosure obligation about the cash being devoted to that purpose, I think it would be prudent to delay making purchases under that plan for a few days in order to let the market absorb the news.
-John Jenkins, Editor, TheCorporateCounsel.net 10/29/2020

Q: Is there a rule out there that companies are following when deciding whether to disclose their proxy cybersecurity risk management in a visual form? From the few companies that have a standalone section on cybersecurity risk management in their proxies, I have not seen even one company include a visual aid to assist the reader understand the balanced approach or the full circle process the company is taking on cybersecurity.

RE: I don’t think there are any rules other than the S-T requirement that graphics must be text searchable (See Reg S-T CDI 118.01). My guess as to why you're not finding a lot out there is that this isn’t an area that many companies want to highlight through a graphic. Most of the proxies I’ve seen just make a passing reference or two to cybersecurity in the discussion of board committee responsibilities and/or risk oversight. This EY memo gives stats about where cyber info is appearing in the proxy statement and includes a few sample narrative disclosures.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 10/27/2020

Q: We are wondering whether ISS (or anyone else) would require any kind of waiting period between the expiration of a short-term poison pill due to COVID-19 (which was adopted in April 2020 and will expire in March 2021) and the adoption of a new short-term pill, which would be adopted due to continued low stock prices as a result of the pandemic? Any insight would be very helpful.

RE: I don't think they've addressed this. But just reading their COVID-19 policy guidance about pills, I think that they'd be skeptical about supporting a decision to renew a short term pill without seeking shareholder approval, even if the argument is that the stock continues to be depressed due to the pandemic.
-John Jenkins, Editor, TheCorporateCounsel.net 10/23/2020

Q: Our audit committee preapproval policy allows for the preapproval of certain permissible non-audit services. The audit committee has delegated this preapproval to the chair. How does the issuer need to obtain such preapproval? Can the CFO simply request by email to the Chair such preapproval? I think that if a formal committee consent is required that it would take away from the efficiency of having a preapproval policy. Second, with respect to approval of an annual audit engagement letter, your Handbook states that it needs to be "specifically approved by the audit committee real time." What does that mean? Can an email to the Committee suffice or do they need to sign a committee consent?

RE: Sure, the CFO could email the Audit Committee Chair with the request, but I also think it would incumbent upon the Chair to make sure that he or she has enough information about the proposed services to ensure compliance with the requirements of the policy. The audit committee doesn't have to approve services as to which it has delegated authority to an individual committee member, but it must be informed of those services. Most delegation policies that I've seen require the Audit Committee to be informed of services that have been approved at the next meeting.

Preapproval of non-audit services is an area that the PCAOB looks at very closely, and they have raised independence issues in the case of procedures that they don't think are sufficient. While the PCAOB's focus is on the auditor's compliance with independence requirements, potential independence issues are a problem for the company as well.

Approving the audit engagement letter is a core Audit Committee responsibility, and I think some sort of formal process that makes it clear that the engagement has been duly authorized by the Committee is required. To me, that means approval at a meeting or — and I think this is much less preferable — by a written consent action. I don't think just circulating the engagement letter to the Committee and asking if anybody has a problem with it is sufficient. I doubt the auditors would accept something like that either.
-John Jenkins, Editor, TheCorporateCounsel.net 10/23/2020

Q: Does the NYSE view a reverse stock split as a change covered by 204.13 (changes in form or nature of listed security) or 204.23 (changes in rights or privileges of listed security) such that 20 days advance notice and a new listing application are required?

RE: Yes, I believe that's correct. Here's an excerpt from a recent Winston & Strawn memo summarizing the NYSE requirements applicable to reverse stock splits:

NYSE-listed companies are required to (a) immediately notify the exchange regarding the calling of a stockholders’ meeting and provide the meeting date, record date and the matters to be voted on at least 10 days prior to the record date, (b) provide written notice of at least 20 days prior to the effective date of the reverse stock split, (c) prepare and file a supplemental listing application for each class of stock affected by the reverse stock split at least two weeks before the effective date of the stock split, and (d) notify the exchange at least ten minutes prior to releasing any public information regarding the stock split. With respect to stockholder approval of a charter amendment, such approval must be obtained by no later than a company’s next annual meeting and the action must be implemented promptly thereafter.
-John Jenkins, Editor, TheCorporateCounsel.net 10/22/2020

Q: A well-known proponent is now requesting companies to include a thumbs up graphic with his/her 14a-8 shareholder proposal. Is a company required to include such a graphic in its proxy statement for this shareholder proposal?

RE: Graphic images may be used in a shareholder proposal. See the discussion in SLB 14I on their permissibility and potential grounds for exclusion.
-John Jenkins, Editor, TheCorporateCounsel.net 10/22/2020

Q: Which party generally prepares the Notice of Availability of Proxy Materials? Does the transfer agent prepare one for the record holders, and Broadridge then prepares something for the beneficial owners? Just not sure practically how the Notice of Availability of Proxy Materials gets prepared. Thanks.

RE: In my anecdotal experience, Broadridge has typically prepared the document and the company reviews it.
-John Jenkins, Editor, TheCorporateCounsel.net 10/19/2020

RE: It depends on which level of service you engage Broadridge for. If you engage Broadridge to do only the bare minimum, then yes, the transfer agent would prepare the Notice for record holders, and Broadridge would do it for the beneficial holders. In my experience, the transfer agent works similarly to a financial printer, i.e., they send you a proof, you review it and mark it up, the transfer agent prepares a revised proof, etc. until you are satisfied with it. On the other hand, Broadridge is less flexible. You log into their website, input the details about your meeting, proposals, etc. and then it auto-generates a Notice for your approval. It's a pretty rigid process with minimal opportunities to customize the Notice to your own preferences.

If you sign up for Broadridge's "full service," then Broadridge prepares the Notice for both types of holders. We did this a few years ago, and Broadridge was more flexible in allowing me to customize the card.
-10/21/2020

Q: If a company recently amended its charter to change the rights of holders of common stock and plans to register a new class of securities on form 8-A, may the company file its charter amendment as an amendment to the 8-A registering the new class of securities. Or must it file both an 8-a/a for the charter amendment and an 8-A to register the new class of securities?

RE: The Staff takes the following views with respect to amending a Form 8-A:

- you cannot amend an effective Section 12(b) registration statement to register an additional class of securities under Sections 12(b) or 12(g), to change the exchange on which you have registered securities, or to register the already-registered class of securities on an additional national securities exchange; and

- you cannot amend an effective Section 12(g) registration statement to register an additional class of equity securities under Section 12(g), to register the same class of securities under Section 12(b), or to register another class of securities under Section 12(b);

In each of these cases, the Staff takes the view that you have to file a new registration statement. That registration statement can be on Form 8-A if you are eligible. If you are not eligible for Form 8-A, then you must register on a Form 10.

As for the charter amendment, I think that should be filed under Item 5.03(a) of Form 8-K. With that filing, I would not think that there is a need to go back and amend the Form 8-A.
-Dave Lynn, Editor, TheCorporateCounsel.net 11/8/2007

RE: Should a registrant file a new 8-A to move a class of securities from 12(g) to 12(b), must it submit a formal withdrawal request of the initial 8-A filing?
-10/15/2020

RE: Yes, you need to file a new Form 8-A12B to register the shares transferred from Nasdaq to the NYSE, as well as a Form 25 delisting the shares from the Nasdaq. An Item 3.01 8-K would also be required. See the various filings that Ambac Financial made in late January and early February of 2020:
-John Jenkins, Editor, TheCorporateCounsel.net 10/15/2020

Q: Has anyone gotten comfortable signing registration statements via Docusign or similar electronic signature tool? I.e., that it satisfies the manual signature requirement?

RE: The SEC said that you had to have paper copies of manually signed signature pages in the E-Sign interpretive release, and I don't believe they've changed that position.
-John Jenkins, Editor, TheCorporateCounsel.net 11/17/2017

RE: if you search this Forum for "E-Sign," there's been a few queries over the years related to this, and all those answers remain the same. The SEC hasn't changed its position as John has noted...
-Broc Romanek, Editor, TheCorporateCounsel.net 11/17/2017

RE: Has there been any indication that the SEC has changed its position on this? Thank you.
-9/21/2018

RE: Nope, no indication of a change.
-Broc Romanek, Editor, TheCorporateCounsel.net 9/21/2018

RE: In light of the prevalence of Docusign, as well as issues of having a remote workforce due to COVID-19, has the view on this changed?
-10/15/2020

RE: Not really. Earlier this year, the Staff issued guidance temporarily cutting people some slack on the document retention requirement contained in Rule 302(b) of S-T. Wilson Sonsini, Fenwick & West and Cooley also filed a rulemaking petition asking the SEC to amend rules under Reg S-T that would permit companies to obtain electronic signatures for documents filed with the SEC. To my knowledge, there's been no action on that petition.
-John Jenkins, Editor, TheCorporateCounsel.net 10/15/2020

Q: Founder/promoter contributes cash to help organize an LLC in exchange for membership interests. A few days/weeks later, the LLC sells the same class of membership interests to third parties in a Reg D offering. For purposes of the Form D, (1) did the first sale in the offering begin with the founder's contribution or the sales to third party investors, and (2) should the issuer include the founder's contribution as part of the offering amount and amount sold in the offering?

RE: I think the most straightforward approach would be to include the founder's purchase as part of the Reg D offering, and take the position that the offering began with the founder's purchase. Alternatively, some might take the position that the initial investment didn't involve the purchase of a security, because the founder is actively involved in the management of the business (you'd also need to check if this is viable under applicable blue sky law).

I've seen people take the latter position, but I much prefer the former, particularly given how close in time the initial investment and subsequent financing are. Assuming you can fit both of the issuances within the Reg D exemption, I think this approach provides more certainty and avoids potential issues down the road with subsequent investors.
-John Jenkins, Editor, TheCorporateCounsel.net 10/14/2020

RE: Thank you. Totally agree that that would have been the best approach from the beginning, but now that 15+ days have passed since the founder's investment, that position has become less attractive.
-10/14/2020

Q: Our client has entered into a transaction agreement and prepared a proxy statement to send to shareholders. Our client will vote on the issuance of stock to serve as consideration for the acquisition at a special meeting. My question is: In this situation, does the proxy statement fall within the phrase "proxy solicitation in connection with a business combination" as used in Rule 14a-16(m) such that our client would not be able to use notice & access? Thank you in advance for your response.

RE: I have always assumed so, although I'm not aware of any Staff guidance directly addressing this issue. Here's why I think this falls within the scope of Rule 14a-16(m).

First, the proxy rules themselves treat a vote on the issuance of the shares as a vote on the business combination, because they require companies to comply with the same disclosure obligations that they would need to comply with if they were seeking approval of the deal itself.. See Note A to Schedule 14A:

"Where any item calls for information with respect to any matter to be acted upon and such matter involves other matters with respect to which information is called for by other items of this schedule, the information called for by such other items also shall be given. For example, where a solicitation of security holders is for the purpose of approving the authorization of additional securities which are to be used to acquire another specified company, and the registrants' security holders will not have a separate opportunity to vote upon the transaction, the solicitation to authorize the securities is also a solicitation with respect to the acquisition. Under those facts, information required by Items 11, 13 and 14 shall be furnished."

Second, with that kind of disclosure obligation imposed by Schedule 14A, it seems very hard to argue that the vote on issuing new shares for the deal doesn't involve a solicitation "in connection with a business combination." I think it's even more clear that a solicitation such as this "relates" to a business combination within the meaning of Rule 14a-3(a)(3)(i).
-John Jenkins, Editor, TheCorporateCounsel.net 10/13/2020

RE: Thank you. Would your answer change if the acquisition is not a “business combination” as defined in Rule 145(a)(3)?
-10/13/2020

RE: Yes. If it doesn't fit into that box, then it seems to be outside the scope of Rule 14a-16(m) and Rule 14a-3(a)(3)(i).
-John Jenkins, Editor, TheCorporateCounsel.net 10/14/2020

Q: Registrant is inside the earnings blackout for the fiscal year end by about 28 days. Based on the company's financial reporting structure, executive management does not yet have any visibility into fiscal year end earnings. There is no other MNPI and the insider trading policy does not have a waiver provision. Assuming that the issuer and management can get comfortable that there is no MNPI and the executives do not have any visibility into year end consolidated earnings, would the appropriate route be to seek a waiver from the Board? I do not think that the issuer would have any disclosure obligations, though it should document the file and the Board minutes with its lack of knowledge so to speak. Thoughts?

RE: I should clarify. The waiver being sought is by the Registrant itself (not any director or officer) which has a 10b-5 plan in place for company stock repurchases through its buyback plan. The Registrant would like to modify the plan at this point in time (i.e., in the earnings blackout). Technically, the Registrant is not subject to the Insider Trading Policy.

Sorry for the lack of clarity.
-10/13/2020

RE: I'm less concerned about the insider trading policy than with the concept of amending a 10b5-1 plan during a blackout period, even if management can say with a straight face that they don't have any visibility into earnings. It's just too easy to second guess the good faith of a company that modifies a plan outside of an open trading window, particularly if that permits the company to engage in transactions (or avoid transactions) that may be called into question with the benefit of hindsight.

The optics are potentially terrible, and you may attract attention from the plaintiffs' bar or the Division of Enforcement. If you do move forward, I would recommend public disclosure of the modification and the imposition of a "cooling off" period before transactions may occur under the modified plan. See the discussion beginning on p. 37 of the Rule 10b5-1 Trading Plans Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 10/13/2020

Q: Any thoughts on how the amendments will apply to outstanding shelf registration statements? If after November 9, 2020, a prospectus supplement incorporates by reference the risk factor discussion from a previously filed Form 10-K and that risk factor discussion does not comply with the amended rule (e.g., because it fails to include headings), must the prospectus supplement restate all risk factors in compliance with the amended rule? Although Form S-3 does not specifically require disclosure of Items 101 and 103, Form S-3 incorporates prior disclosure of these items because of the required incorporation by reference if the Form 10-K. Must the Form 10-K disclosures be updated to conform to the rule changes?

RE: That's an interesting question. For what it's worth, here are my two cents.

In the case of an already effective S-3, I don't think that updating to address the new requirements would be required. That's because the registration statement contained everything "required to be stated therein" under the rules applicable at the effective time, and that's when Section 11 speaks. The fact that information incorporated by reference into that registration statement no longer complies with the amended requirements of Item 105 wouldn't implicate Section 11.

I think the obligation to update the prospectus would instead be governed by the obligations imposed by the undertakings in Item 512 of S-K, Rule 10b-5, and Section 12(a)(2) of the Securities Act. My guess is that in most instances, issuers would likely conclude that the existing disclosure incorporated by reference into the filing doesn't need to be updated to conform to the requirements of amended Item 105 in order to comply with any of these potential updating obligations.

Obviously, the answer would be different in the case of a new Form S-3 filed after the effective date of the amendments.
-John Jenkins, Editor, TheCorporateCounsel.net 10/9/2020

RE: Along those lines, if a new Form S-3 registration statement is filed prior to November 9 but will go effective after November 9, is your understanding that the Form S-3 will need to comply with the amendments to Items 101, 103 and 105 at the time of effectiveness, and therefore would need to be filed in a form that complies with the amendments?
-10/10/2020

RE: I think the key date is the effective date, so my view would be that the S-3 would technically need to be amended to address the line item requirement in effect at that time. I would call the Staff though, to see whether they might be willing to provide transition relief to a company that found itself in this position.
-John Jenkins, Editor, TheCorporateCounsel.net 10/12/2020

Q: Would someone be able to direct me to guidance regarding (or offer some guidance on) what exactly is meant by the language from Rule 10A-3(iv)(A) and the exemption from the audit committee independence requirements? Is this only intended to capture newly-public companies filing an IPO or similar Form S-1-type registration statement? Is it possible this could be applicable to a company emerging from bankruptcy that would be filing a Form 8-A with its NYSE listing application, but otherwise no other registration statement? Having trouble breaking down the rule into plain English to figure out exactly what it's intending to cover. Language from Rule: (A) For an issuer listing securities pursuant to a registration statement under section 12 of the Act, or for an issuer that has a registration statement under the Securities Act of 1933 covering an initial public offering of securities to be listed by the issuer, where in each case the listed issuer was not, immediately prior to the effective date of such registration statement, required to file reports with the Commission pursuant to section 13(a) or 15(d) of the Act: (1) All but one of the members of the listed issuer's audit committee may be exempt from the independence requirements of paragraph (b)(1)(ii) of this section for 90 days from the date of effectiveness of such registration statement; and (2) A minority of the members of the listed issuer's audit committee may be exempt from the independence requirements of paragraph (b)(1)(ii) of this section for one year from the date of effectiveness of such registration statement.

RE: A Form 8-A is a registration statement under Section 12 of the Exchange Act, so if that's your issuer's situation and it was not subject to a reporting obligation under the Exchange Act (i.e., it didn't have to file Form 10-Ks, 10-Qs or 8-Ks with the SEC) prior to the effective date of the Form 8-A, it seems to me that the exemption would be available.
-John Jenkins, Editor, TheCorporateCounsel.net 10/9/2020

Q: An issuer has an effective Form S-4 outstanding in connection with a reorganization where the subsidiary stockholders will be voting on the reorganization. No mailing has occurred yet. The stockholder meeting as contemplated in the effective Form S-4 is set up to be a special meeting; however, the target is now contemplating pushing the stockholder vote to the annual meeting in 2021 (six+ months away). Could the material revisions required to the proxy statement be handled through a 424(b) filing, or would this be handled via a POS AM to the Form S-4? Any insight would be appreciated.

RE: It seems hard to conclude that you could do this with a prospectus supplement. You can update information in a prospectus to reflect material changes by means of a prospectus supplement, but generally, the undertakings in Item 512 require you to file a post-effective amendment to reflect in the prospectus "any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement."

Even if you're in one of those quirky situations where your 10-K doesn't trigger a Section 10(a)(3) update because of when the registration statement became effective, a new year of audited financial statements for the issuer is the kind of change that may well be regarded as a "fundamental change" requiring a post-effective amendment. But putting that aside, the sheer volume of information that you'd likely need to update just from a 10b-5 perspective over a period of more than six months makes me think that you're likely going to be dealing with a fundamental change to the prospectus in any event.

You may want to look at this article on "The Fundamentals of a Fundamental Change" that appeared in the May 2018 issue of The Corporate Counsel.
-John Jenkins, Editor, TheCorporateCounsel.net 10/8/2020

Q: Am I correct that this final rule on Modernization of S-K 101, 103 and 105 still hasn't been published in the Federal Register and won't be effective for 10-Q's filed before November 7?

RE: Based on a search of the Federal Register website, the final rule does not appear to have been published yet.
-John Jenkins, Editor, TheCorporateCounsel.net 10/7/2020

RE: Posting this in multiple threads so people get notifications.

According to the Federal Register website, the amendments will be published on October 8, 2020. Thirty days results in an effective date of Saturday, November 7th.

That means that Form 10-Q reports and other filings submitted after 5:30 p.m. Eastern time on Friday, November 6th must comply with the amendments to Items 101, 103 and 105, to the extent applicable.
-10/7/2020

RE: Note that the Edgar filing window for a same-day filing stamp closes at 5:30 p.m. Eastern time. The next filing day is Monday, November 9th, so filings made after the window closes but before 10 p.m. should comply with the amendments.
-10/7/2020

RE: As an update, as published today, the Federal Register lists the effective date as Monday, November 9. For all practical purposes, this doesn't change my reply above because the SEC Edgar system will show Monday as the filing date for filings accepted after 5:30 p.m. Eastern time on Friday, November 6. Form 10-Q filings submitted after 5:30 p.m. Eastern time on Friday, November 6 should comply with the amendments to Items 101, 103 and 105.
-10/8/2020

Q: I haven't been able to find any good examples or anything on point in the search forum, but I have a client who needs to amend some periodic reports filed a number of years ago to update the certifications to those reports [which will require a complete restatement of the original filings and financials]. No big deal, except that its name has changed since the date the original reports were filed. I can't find any guidance on how that is typically handled. We would of course prefer not to have to change the name throughout the entire document (including financials?). My thought was to update the name on the cover page, signature page and in the certifications (likely with formerly X language), and include a short discussion in the explanatory note about the name change and the fact that the name hasn't been updated, except in the above-referenced sections. Does anyone know of any guidance on that issue?

RE: The only example I found involved Bally Technologies, which changed its name from Alliance Gaming and subsequently restated its financials. The 10-K/A referenced the prior name in the explanatory paragraph and referenced the name elsewhere in the document, but used the new name in the filing (other than the exhibit index, which it left unchanged).

I think if you don't use the new name throughout, things may get confusing, because I think the accountant’s opinion is going to be directed to the board of the company under its new name, and the financial statements themselves would typically be issued with the new name in them, since that was the name of the company on the date that the report on the restated financial statements was issued.
-John Jenkins, Editor, TheCorporateCounsel.net 10/7/2020

Q: Has anyone ever seen any discussion or guidance regarding whether the identity of a new or potential director for a company could be considered material nonpublic information (MNPI)? It would seem that it would be dependent on the identity of the director and whether the identity would reasonably be expected to affect the price of the securities for that particular company. So, for example, if Elon Musk was being considered as a director, that could be MNPI. But if it was just a Mr. Smith potential director, probably not. Is that the right way to think about it? Wondering if any thought or discussion has been provided on this topic.

RE: I haven't seen anything on that topic, but I generally agree with your approach to the materiality assessment. However, one thing to bear in mind is that there is some case law out there to the effect that information required by SEC line-items is presumptively material. See, e.g., Howing Co. v. Nationwide, 927 F.2d 263, 265-66 (6th Cir. 1991); In re Craftmatic Securities Litigation, 890 F.2d 628, 641 (n. 17 (3d. Cir. 1989) (“[d]isclosures mandated by law are presumably material”).

In light of statements like that, since the appointment of a new director would trigger an 8-K filing, I think there's an argument that even the appointment of John or Jane Doe to the board could be MNPI pending its public disclosure. For what it's worth, the House passed the "8-K Trading Gap Act" earlier this year. If enacted, that statute would require companies to bar executive officers and directors from trading between the time a reportable event occurs and the Form 8-K filing about the event.
-John Jenkins, Editor, TheCorporateCounsel.net 10/7/2020

Q: A company is planning on filing an Schedule 14C Information Statement with respect to an action taken by a majority of its shareholders, which if the company was soliciting proxies from its shareholders would, under Item 13 of Schedule 14A, require including financial statements in the Proxy Statement. Can the company omit the financial statements in the Information Statement under Instructions to Item 13. 1 to Schedule 14A which states that, "Notwithstanding the provisions of this Item, any or all of the information required by paragraph (a) of this Item not material for the exercise of prudent judgment in regard to the matter to be acted upon may be omitted." The argument being that as the shareholders receiving the Information Statement are not acting on the matter, but merely being informed of an action already taken, the company's financial statements are thus not material and therefore not required to be included with the Information Statement? Thank you.

RE: I haven't seen anything on this, but I don't think so. I think the Staff's response would be that Item 1 of 14C requires you to "furnish the information called for by all of the items of Schedule 14A of Regulation 14A (17 CFR 240.14a-101) (other than Items 1(c). 2, 4 and 5 thereof) which would be applicable to any matter to be acted upon at the meeting if proxies were to be solicited in connection with the meeting."

In other words, Schedule 14C itself is saying "let's pretend you are asking for a vote" when it comes to everything required by 14A, so I don't think the fact that you aren't asking for one would allow you to exclude the financials that would be required if you were.
-John Jenkins, Editor, TheCorporateCounsel.net 10/5/2020

Q: A client is using notice and access. If they bring a new director on the Board after the notice materials are mailed and the proxy is filed, what are the next steps? (The bylaws provide that the term of the director ends at the annual meeting). - Mail a new proxy card - File an amended proxy statement on Edgar - Would a new notice need to get sent to stockholders? What if they can't meet the 40-day period before the meeting - would they need to move the meeting or else use full-set delivery?

RE: Unless you're dealing with a replacement nominee for someone who is unable or unwilling to serve and you've disclosed that your appointed proxies have discretion to vote for replacement nominees, I think the short answer is "all of the above." This excerpt from the Latham memo linked below addresses the situation involving a new nominee. While the memo is discussing a replacement nominee, the same considerations apply for a nominee for an open position:

"If the board instead decides to appoint a new board member and the company’s bylaws require the director to stand for election at the upcoming meeting, the company would be required not only to file supplemental proxy material but also to disseminate that material by sending a new Notice of Internet Availability (time permitting) or mailing the supplement and a new proxy card to stockholders. Most companies would allow previously submitted proxies voting for the remaining directors to continue to count. However, such proxies would be insufficient to confer authority to vote for the replacement nominee, except for the limited circumstances described in Rule 14a-4(c)(5), and therefore a new solicitation would be required. The company would also need to determine whether sufficient time remains for the stockholders to consider and vote on the additional director or decide to postpone the meeting. The only exception to the requirement to disseminate new materials is if the withdrawing nominee is unable to serve, or for "good cause" will not serve, and the proxy expressly confers discretionary authority to vote for a replacement candidate under such circumstances."
-John Jenkins, Editor, TheCorporateCounsel.net 10/5/2020

Q: I'm curious. Why do you need 20 business days for a broker search in connection with an annual meeting, when in all other cases a broker search can be done in a couple of days.

RE: I don't know for sure, but I assume it has something to do with the predictability of the timing of an annual meeting in comparison to special meetings. Those meetings may arise on short notice, and their timing isn't always under the company's control (i.e., in situations where meetings may be called by shareholders). I also think it probably relates to the fact that the burden on securities firms of complying with these requests was greater at the time the rule was put in place than is now the case with current technologies.
-John Jenkins, Editor, TheCorporateCounsel.net 10/5/2020

Q: Need your guidance on how to complete Item 13 in this scenario. Issuer filed a Form D for a $6M offering of debt. At the time of filing, $5M was sold to 10 investors and $1M was remaining to be sold. Fast forward a year, and now we need to file a renewal since this is a continuous offering of outstanding notes. During the year, half of the debt was converted to common stock and $2.5M remains outstanding between 4 investors. Rather than mess with the numbers in (a), (b) and (c) or Item 14, would it be reasonable to leave those numbers the same as in the original filing and include an explanation in the Clarification of Response that says, "This offering is complete. $2.5M remains outstanding [between 4 investors?] on the date of this renewal filing"? Thanks!

RE: I don't think you need to mess with the numbers. If you want to add a clarifying statement along the lines you suggest, I think that's fine.

The information in Item 13 of the Form D is tied to the securities that you sold under the terms of the exemption that you claimed in Item 6. (See the instruction to Item 13). To the extent an exemption was needed for an investor's subsequent decision to convert the note, most issuers would usually rely on the Section 3(a)(9) exemption. That's not one of the exemptions that Item 6 of Form D addresses.

Most garden-variety convertible notes conversions would be likely to qualify for the 3(a)(9) exemption, which involves conversions or exchanges by an issuer and its own security holders exclusively. In order to qualify, the securities also must be convertible into securities of the same issuer, no additional consideration may be paid by the security holder upon conversion, and no commission or compensation may be paid for soliciting the exchange.
-John Jenkins, Editor, TheCorporateCounsel.net 10/1/2020

Q: A client is considering implementing share withholding for tax purposes for recipients of restricted stock. This may result in a significant cash outflow for the company. How do other companies handle the cash flow issue created by withholding shares and paying the taxes on the employees' behalf? Have any companies filed S-3s to sell the withheld shares into the market? Thanks.

RE: As noted by Andrew Schwartz of BNY Mellon Shareowner Services in response to the same question raised on the NASPP Discussion Forum: “Seems to me that a prerequisite for using share withholding is that the company has enough cash on hand to fund the taxes. Otherwise the employees should sell enough shares upon vesting to cover the taxes. Having the company withhold the shares only to immediately resell them exposes the company to market risk, further delays the receipt of proceeds until the sale settles, and defeats the whole purpose of share withholding—which is to minimize dilution. (Aside from the possible securities law issues as you mention).”

I have not run into any situations where companies have filed registration statements specifically for the purpose of selling the withheld shares into the market to raise cash.
-Dave Lynn, Editor, TheCorporateCounsel.net 8/27/2008

RE: If the shares were already registered under an S-8, would the company reselling them trigger another registration?
-2/12/2010

RE: Conceivably it would be a different transaction if the resale of the shares is into the market as opposed to issued pursuant to an employee benefit plan on the Form S-8. Recall that each transaction in securities must be registered or exempt—the fact that the securities were registered for one purpose on Form S-8 would not obviate the need for registration in another transaction occurring in the same securities.
-Dave Lynn, Editor, TheCorporateCounsel.net 2/13/2010

RE: Couldn’t the company be viewed as selling the shares to cover withholding on behalf of the award recipient or as an agent of the award recipient, so that the seller in the transaction is still the award recipient? Couldn’t the award recipient report the sale price into the market obtained by the company on the award recipient’s Form 4? This is messy from an accounting, tax record/reporting and timing (execution risk) perspective (so probably not anyone’s plan A), but shouldn’t this characterization be possible/acceptable?
-9/25/2020

RE: I don't think the Staff would endorse a position that allowed an issuer to sell shares into the market as the purported "agent" of a shareholder without registering those shares under the Securities Act.
-John Jenkins, Editor, TheCorporateCounsel.net 9/28/2020

Q: Under the final Reg. S-K modernization rule, for filings subsequent to the initial registration statement, companies will be able to incorporate by reference the entire business development disclosure from a previously filed document where such disclosure appeared in its entirety. The caveat remains that double incorporation by reference is prohibited (i.e., incorporation by reference to a disclosure that itself incorporates by reference to another document). If companies elect to go down that path and include in its 10-K only the updates to the description of the business, what will those companies do with respect to the business development disclosure in the shelf registration statements they may file subsequent to that 10-K? Will the incorporation by reference section in the registration statement be revised to specifically incorporate by reference the business development disclosure from the filing where it appeared in its entirety?

RE: I think that's right. See footnote 41 of the adopting release:

"Securities Act Rule 411(e) and Exchange Act 12b-23(e), however, provide that information must not be incorporated by reference in any case where such incorporation would render the disclosure incomplete, unclear, or confusing, such as incorporating by reference from a second document if that second document incorporates information pertinent to such disclosure by reference to a third document. We remind registrants that, consequently, a filing that includes an update and incorporates by reference the more complete Item 101(a) discussion could not be incorporated by reference into a subsequent filing, such as a Form S-3 or Form S-4."
-John Jenkins, Editor, TheCorporateCounsel.net 9/28/2020

Q: Are there any issues with an issuer buying back the stock of a departing NEO (in one lump sum purchase)? There are disclosure considerations (8-K, related party, Item 402 proxy disclosure), fiduciary duty considerations and state law redemption considerations. Anything else to consider? Is there any issue because the shares are control securities? If the departing officer were selling his securities to a third party, then he would sell under Rule 144 (which has volume limitations). Thoughts? Thanks.

RE: If the issuer is repurchasing the shares, Rule 144 won't come into play. In addition to the issues you've flagged, you may also want to look at restrictions on buybacks or transactions with related parties contained in credit agreements or other contracts.
-John Jenkins, Editor, TheCorporateCounsel.net 9/28/2020

Q: If an issuer does not satisfy the definition of "foreign private issuer" in Rule 405 as of the end of its second fiscal quarter, are equity securities issued pursuant to Rule 506 or Rule 903 subsequent to the determination date but prior to the first day of the issuer's next fiscal year deemed to have been issued by a "domestic issuer" for purposes of Rules 905 and therefore restricted (including following a resale pursuant to Rule 904 that takes place prior to the expiration of the Rule 144 holding period)? Stated differently, (i) does the issuer cease to be a "foreign private issuer" on the determination date or on the first day of the issuer's next fiscal year and (ii) if it loses FPI status on the determination date, does the following statement in paragraph 3 of the Rule 405 foreign private issuer definition nevertheless mean that Rules 905 and Rule 144(a)(3)(ii) and (v) need not be applied until the first day of the succeeding fiscal year: "An issuer's determination that it fails to qualify as a foreign private issuer governs its eligibility to use the forms and rules designated for foreign private issuers beginning on the first day of the fiscal year following the determination date"?

RE: I'm not aware of anything directly addressing this issue, but I think the better view is that an FPI doesn't lose that status for purposes of the Securities Act exemptions until the beginning of the next fiscal year, except in the case of an FPI that reincorporates in the U.S. I read the third paragraph of the instruction to the definition of an FPI in Rule 405 as you suggest, and I think that position is consistent with the one the Staff has taken under the parallel Exchange Act rule in Exchange Act Rules CDI 110.01:

"Question: A foreign issuer qualifies as a foreign private issuer on the last business day of its most recently completed second fiscal quarter, which is the "determination date" for foreign private issuer status under Exchange Act Rule 3b-4(c). Shortly thereafter, the foreign issuer reincorporated in Delaware. May it continue to use the foreign private issuer forms and rules until it retests its foreign private issuer status on the next determination date?

Answer: No. Under Exchange Act Rule 3b-4(e), a foreign issuer generally may use the foreign private issuer forms and rules until the first day of the fiscal year following the determination date on which it no longer qualifies as a former private issuer. That provision, however, does not apply to domestic issuers. A U.S.-domiciled company can never be a foreign issuer or foreign private issuer, no matter how few U.S. shareholders it may have or where its assets, business, officers or directors are located. Therefore, as a successor to the foreign issuer's reporting obligations, the Delaware corporation must immediately begin filing Exchange Act reports on domestic issuer forms. [Aug. 11, 2010]"
-John Jenkins, Editor, TheCorporateCounsel.net 9/28/2020

Q: Company A (IPO 2017) undergoes a reverse merger with Company B, and Company B is the successor company. Company B has an IPO in 2020. Both A and B qualify/ied as emerging growth companies (EGCs). For purposes of the SOX 404(b) exemption for EGCs, when does the 5-year period start? Would it be the predecessor company's IPO in 2017, or the successor company's IPO in 2020?

RE: I don't know that the Staff has spoken directly to this in the reverse merger context, but I think the general proposition is that a successor entity under Rule 12g-3 inherits the reporting history of its predecessor. That seems to be the way the issue has been approached in recent SPAC transactions. See, for example, the disclosure that appears on p. 38 of the DraftKings S-4, which ties the expiration of its EGC status to the closing of its predecessor's IPO:

We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of DEAC’s initial public offering, (b) in which we have total annual revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period.
-John Jenkins, Editor, TheCorporateCounsel.net 9/28/2020

Is there any guidance that says an existing registration statement will terminate once all the shares are cancelled as in the case of a bankruptcy emergence, or do you technically need to file a post-effective amendment to terminate them? Company has an existing S-3 and S-8 for shares that will all be cancelled in bankruptcy, but I didn't see anything in the forms or elsewhere that addressed this topic.

RE: No, I don't think there is. You may want to take a look at this Galey & Lord no action letter, which involves a similar fact pattern. In granting the no-action request from a company whose outstanding shares had been cancelled in bankruptcy, the Staff specifically noted the filing of a post-effective amendment deregistering shares in granting the company's no-action request. That suggests that the Staff doesn't view the bankruptcy order as wiping the slate clean when it comes to existing registration statements.
-John Jenkins, Editor, TheCorporateCounsel.net 9/24/2020

Does the phrase "except the passage of time" in Instruction 2 to Item 2.04 include a circumstance when there is an explicit cure period? In other words, if a company received a notice of default, but the agreement expressly provides that the company has 30 days to cure before the notice is effective, is a Form 8-K required now?

RE: As noted in our May webcast, that "except the passage of time" phrase is troublesome because it seems to suggest that if there has been an event of default, and the company has received a notice but there's a cure period, then you still need to go ahead and file the 8-K. If the default is cured during the cure period, I would think you'd want to file another Form 8-K to make clear that the event of default never actually occurred. Hopefully, the SEC will come out with some clarification as to exactly how that is supposed to work.
-Broc Romanek, Editor, TheCorporateCounsel.net 10/29/2004

RE: Have you seen any additional guidance on the "except for the passage of time" language in Instruction 2 to Item 2.04 of Form 8-K? Is the accepted practice still to file the Form 8-K within 4 business days after the receipt of a notice of default even though the event of default (i.e., the triggering event) occurs only after the recipient fails to cure the default during a specific cure period which is not over yet?
-5/11/2009

RE: I know this is an old question, but is anyone aware of any developments on this front?
-4/19/2016

RE:I want to confirm that there is no informal SEC guidance or other updates on this question.
-9/23/2020

RE: I have not seen anything further on this.
-John Jenkins, Editor, TheCorporateCounsel.net 9/24/2020

Does anyone have any thoughts on when the new S-K amendments to “modernize” S-K 101, 103 and 105 are expected to be published in the Federal Register? The amendments do not become effective until 30 days after they’re published. Are they expected to be effective for companies with fiscal years ending September 30 (and filing 10-Ks in November and December)?

RE: See Liz's response in Topic #10435. The panelists at our conference today referenced this issue, but nobody had any information on the anticipated timing of publication.
-John Jenkins, Editor, TheCorporateCounsel.net 9/23/2020

In the 8/26/20 amendment to Reg S-K Item 101(c), the SEC added a requirement to disclose human capital resources, to the extent material. What factors should registrants be considering when crafting updated disclosures to meet this requirement? It seems difficult to evaluate the qualitative materiality of human capital resources. Does the SEC expect companies to disclose items, such as employee diversity characteristics, employee hiring practices, employee education and training, etc.? Because of the principles-based approach that the SEC is taking (rather than a more prescriptive approach), is it likely that many registrants will not have any changes to their current disclosure?

RE: Unfortunately, one of the side-effects of a principles-based approach is that many companies find themselves looking at a blank piece of paper while trying to determine what aspects of the somewhat amorphous "human capital" concept are material to their businesses. The SEC provided some guidance in the language of Item 101(c) itself, when it included a non-exclusive list of potential topics that might be materia, "such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel".

I think many of the topics that you identify are potentially fair game for disclosure — again, "to the extent material."

While the SEC didn't adopt a prescriptive approach, I think companies may find it helpful to take a look at some of the specific disclosure items suggested in the 2017 rulemaking petition that the Human Capital Management Association filed with the SEC (and which it referenced a number of times in the adopting release). The whole petition itself is worth reading, but in particular, this excerpt:

"Although we agree that it may be appropriate to tailor some disclosure requirements more precisely, there is broad agreement that certain categories of information are fundamental to human capital analysis, and some disclosures from each category, whether quantitative or qualitative (or both), should be required (examples, which are not intended to be exhaustive, are in parentheses after each category):

1. Workforce demographics (number of full-time and part-time workers, number of contingent workers, policies on and use of subcontracting and outsourcing)
2. Workforce stability (turnover (voluntary and involuntary), internal hire rate)
3. Workforce composition (diversity, pay equity policies/audits/ratios)
4. Workforce skills and capabilities (training, alignment with business strategy, skills gaps)
5. Workforce culture and empowerment (employee engagement, union representation, work-life initiatives)
6. Workforce health and safety (work-related injuries and fatalities, lost day rate)
7. Workforce productivity (return on cost of workforce, profit/revenue per full-time employee)
8. Human rights commitments and their implementation (principles used to evaluate risk, constituency consultation processes, supplier due diligence)
9. Workforce compensation and incentives (bonus metrics used for employees below the named executive officer level, measures to counterbalance risks created by incentives)."

Reviewing some of the comment letters received on that petition may also provide you with some food for thought on potential topics.

My guess is that you're not going to see many companies including disclosure that addresses every item on this or some other wish list, but I do think that there are likely to be changes in disclosure about human capital practices as a result of the new rules. First, Chair Clayton made it clear in his statement that the SEC expects "meaningful qualitative and quantitative disclosure, including, as appropriate, disclosure of metrics that companies actually use in managing their affairs.” Second, I think investors are increasingly looking for this kind of disclosure, so I do expect to see companies respond to this new requirement.
-John Jenkins, Editor, TheCorporateCounsel.net 9/23/2020

Management of a target is receiving stock of the Acquirer as merger consideration. The Acquirer is registering the transaction on Form S-4. If certain members of management or other employees are employed by the Acquirer post-closing, but are otherwise unaffiliated with the Acquirer, would the shares be "control securities" under 144A? I assume that none stay on as high-level officers. The question, I believe, revolves around whether the new employees are considered affiliates of the Acquirer. Is there guidance on what level an officer of a company needs to be in order to be considered an affiliate? If the officer is one of hundreds of VPs, is there any chance that could rise to the level of an affiliate and thus make the merger consideration "control securities" subject to rule 144A restrictions?

RE: The affiliate determination is essentially a "facts and circumstances" analysis, and it's an issue about which the Staff hasn't provided much guidance. The most detailed analysis of the affiliate issue that I've seen is contained in a comment response that Latham provided about 15 years ago.

That being said, in the public company M&A deals in which I've been involved over the years, I can't recall a situation where a conclusion was reached that mid- and lower-level target employees who joined the buyer in a similar capacity post-closing were regarded as "affiliates" of the buyer. The affiliate definition focuses on whether a person controls, is controlled by or is under common control with another person. I don't think that this definition would encompass a bunch of mid- and lower-level employees.

With respect to more senior officials, I don't know that a title like "vice president" is dispositive, particularly in the situation you cite where a company might have hundreds of people with VP titles (e.g., a financial institution). But, I think you need to look at the responsibilities of the individual in question. To me, it becomes very difficult to argue that an individual who is treated as an "executive officer" under Rule 3b-7 or a Section 16 "officer" of the buyer post-closing isn't in that "control" group, particularly since the people covered by those definitions are performing significant policy-making functions for the buyer.
-John Jenkins, Editor, TheCorporateCounsel.net 9/23/2020

For years, the threat of a pandemic was considered a "generic" and remote risk factor. Has that perspective forever changed given what we are living through now?

RE: I think that's probably the case. For example, the experience of the financial crisis continues to ripple through risk factors and other disclosures, and I would expect the same to be the case with the pandemic.
-John Jenkins, Editor, TheCorporateCounsel.net 9/22/2020

Curious if anyone is adding a diversity/demographic self-identification question to their D&O questionnaires this year. And, if so, what will they look like?

RE: Lynn blogged about that topic last week, and you can check out our (admittedly unscientific) poll of our members accompanying that blog on what they plan to do on a diversity question.
-John Jenkins, Editor, TheCorporateCounsel.net 9/21/2020

Under these new rules, it would seem that Section 11 liability is an issue for a qualified person only if there is a technical report summary or other naming of the qualified person (if there is no technical report summary, the qualified person would not otherwise be named in the disclosure/would not have to provide a related consent), but I would appreciate any thoughts here.

RE: Yes, it's the technical report summary that triggers Section 11 liability for the qualified person. Here's an excerpt from the adopting release:

"In the Proposing Release, we explained that if the filing that requires the technical report summary is a Securities Act registration statement, the qualified person would be deemed an “expert” who must provide his or her written consent as an exhibit to the filing pursuant to Securities Act Rule 436. In such situations, the qualified person would be subject to liability as an expert for any untrue statement or omission of a material fact contained in the technical report summary under Section 11 of the Securities Act."
-John Jenkins, Editor, TheCorporateCounsel.net 9/21/2020

I've noticed that these A/R purchase agreements are often described in notes to the financial statements, but the actual agreements are not filed with 10-Qs or 10-Ks and are only sometimes reported on Form 8-K. Is the usual reason that companies determine these are not material (though they sometimes have significant dollar amounts), or is it that these may be/are material but in any event are made in the ordinary course of business? Just trying to figure out what is driving the non-disclosure approach. Thanks!

RE: For smaller A/R facilities, I think companies may well decide both that the agreement is in the ordinary course and not material. It seems to me that a conclusion that a large A/R arrangement is in the ordinary course of business is probably an easier one to reach than a conclusion that the amounts involved aren't material.
-John Jenkins, Editor, TheCorporateCounsel.net 9/19/2020

Has anyone come across any general discussions/memos/articles regarding the general considerations for a U.S. reporting public company organizing in the Cayman Islands or jurisdictions like that (i.e., BVI). There are a lot out there that discusses the benefits/limitations of Cayman/BVI incorporation generally, but not necessarily from the U.S./SEC public company angle, so I was just looking for a different perspective, as this is not an area of familiarity. Thanks.

RE: Unless the company in question qualifies as a "foreign private issuer," I'm not aware of any special benefit that an SEC reporting company would gain from incorporating in the Cayman Islands or BVI (other than those that apply generally to any corporation).
-John Jenkins, Editor, TheCorporateCounsel.net 9/19/2020

Q: Are there Regulation FD requirements for a post-closing true-up?

RE: Reg FD applies to any communication of material information by a company or a person acting on its behalf to a Reg FD covered person (e.g., a broker deal, investment advisor, investor, analyst or other market participant). If information about the post-closing true-up is material, then a company would need to make public disclosure in a Reg FD compliant manner if it intended to disclose it to a covered person who has not agreed to keep it confidential.
-John Jenkins, Editor, TheCorporateCounsel.net 9/17/2020

Q: A public company target signs up a merger agreement. Pursuant to the merger agreement, the directors are required to resign at closing. If the directors submit resignation letters in advance of closing but the resignation letters are conditioned upon closing, does the submission of resignation letters trigger an 8-K obligation?

RE: Form 8-K CDI 217.03 suggests that the answer is yes. A resignation subject to a contingency should be disclosed when it is delivered:

"217.03 A director who is designated by an issuer's majority shareholder gives notice that he will resign if the majority shareholder sells its entire holdings of issuer stock. This notice triggers an obligation to file an Item 5.02(b) Form 8-K, which should state clearly the nature of the contingency and the extent to which the resigning director can control occurrence of the contingency. [April 2, 2008]"

The Staff hasn't addressed the situation involving a resignation letter delivered in connection with a merger, but my view is that this CDI doesn't makes a lot of sense in the context of a merger agreement that provides the directors of the target will resign at closing.

Viewing this as a contingent resignation akin to the situation in CDI 217.03 seems to unduly elevate what is essentially a ministerial act into a disclosure trigger. Signed resignations are usually a closing delivery, and typically take the form of a one sentence statement to the effect that "I hereby resign as a director of the target, effective upon the closing." They're usually held by the target's counsel and aren't released until closing. That seems different to me than the situation addressed in the CDI. And that doesn't even take into account the fact that in this situation, the director resignation requirement is built into the merger agreement that's been filed publicly, and will have been disclosed in the proxy statement well in advance of when the 8-K would be due.

Finally, my admittedly anecdotal experience also suggests that filing an 8-K under these circumstances is not customary. Director resignations are frequently addressed as part of the 8-K filing in conjunction with the closing, but I haven't seen an Item 5.02 8-K filed in advance just to address director resignations that will be effective on closing. See this Avon Products 8-K.
-John Jenkins, Editor, TheCorporateCounsel.net 9/17/2020

RE: Thank you. This was our thinking as well. Appreciate the quick reply.
-9/17/2020

Q: With respect to ISS recommendations, is a company that is once considered a "newly public company" always considered a "newly public company?" In other words, if a company completed an IPO in 2016 will it forever be subject to the ISS policy recommendations applicable to newly public companies? I can't seem to find any guidance that would suggest there is a threshold for aging out of the newly public company status, but it seems a bit peculiar to me that a company that has been public for 5, 10, 15 years would be considered newly public. Thanks in advance.

RE: To my knowledge, there isn't an express expiration date. The policies apply to governance or capital structure elements that ISS finds objectionable and that were put in place in connection with an IPO, and I think ISS's general approach with its newly public company policies is to cut these companies a little slack on governance and capital structure issues that would automatically result in a withhold recommendation if it was dealing with an established company.

For these newly public companies, ISS seems to be saying that if their objectionable practices in these areas have reasonable sunset provisions, it will think about not issuing such a recommendation based on its assessment of the overall facts and circumstances. So, one of the key things that a company needs to have in order to fit into this policy is a sunset provision, and I think that's what will effectively serve as the expiration date of their "newly public company" status in the eyes of ISS.

See the discussion on page 36 of our Proxy Advisors Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 9/15/2020

RE: Thanks for the quick response, John.
-9/15/2020

Q: If an insider has a 10b5-1 plan in place, can the insider make a bona fide gift outside of the plan (because it is not a purchase or a sale)? Thanks for any insight here.

RE: There's no prohibition on making a gift outside of the 10b5-1 plan, and the argument in favor of permitting it is the one you make. However, the status of gifts by insiders under the securities laws is a little complicated. See the discussion on page 63 of our Rule 10b-5 Trading Plans Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 9/15/2020

Q: An issuer has been making sales of its securities under a qualified Form 1-A offering statement. The offering period is about to end and the issuer would like to extend it. Can this extension be done by offering circular supplement or is a post-qualification amendment required (i.e., is this considered a fundamental change)? If a post-qualification amendment is required, can the issuer make offers (but not sales) during the period between the filing of the post-qualification amendment and when it is declared qualified? Any guidance on this point would be greatly appreciated!

RE: See the response to topic #10299 regarding the "fundamental change" analysis. I'm not aware of anything directly addressing this extension issue in the Reg A context and would recommend that you discuss this with the Staff (although they're unlikely to tell you that something is or isn't a fundamental change — they tend to leave that up to the issuer).

With that being said, here are my thoughts: If the offering is a contingency offering and you haven't hit the minimum or satisfied other applicable conditions to closing, then in addition to any 10b-9 or 15c2-4 issues that may be implicated in an extension, I think there's a pretty strong argument that you're dealing with a fundamental change. If that's not the case, and there's disclosure in the offering circular reserving the right to extend the offering, then I think you have a better argument that simply extending the offering, while material, does not necessarily involve a fundamental change.
-John Jenkins, Editor, TheCorporateCounsel.net 9/14/2020

RE: Thank you very much for your response! In our case, there was no minimum, but the language in the offering circular did not specifically provide the company with a right to make an additional extension.
-9/14/2020

Q: A foreign issuer wants to conduct a rights offering to ONLY its non-U.S. equity holders (excluding approximately 10-11% of its holders that are the U.S. holders from the rights offering). The issuer has previously filed a Form 15F terminating its registration with the SEC and Exchange Act reporting obligations and is no longer a U.S. listed company. The issuer continues to translate its shareholder communications and put them on the issuer website. It would seem that the issuer would be permitted to exclude its U.S. holders from the rights offering under Regulation S. Does that understanding seem correct? And, assuming that the issuer is permitted to exclude its U.S. holders, from a U.S. disclosure perspective, there doesn't appear to be any requirements or otherwise for the issuer to issue a press release or filing in the U.S. with respect to such a rights offering. I would appreciate it if there are any thoughts or differing views on this.

RE: I think the ability to exclude U.S. holders from participating in a foreign issuer's rights offering is an issue that's determined by reference to the laws of the foreign issuer's home jurisdiction. I'm no Regulation S expert, but as I understand it, the cross-border exemptions of Reg S were adopted to encourage foreign issuers to include U.S. holders in these transactions by permitting them to avoid more burdensome U.S. regulatory constraints if the conditions set forth in Reg S were satisfied. Here's an excerpt from this Cleary Gottlieb blog on the topic:

"A rights offering by a foreign private issuer may be exempt from the registration requirements of the Securities Act pursuant to Rule 801 under the Securities Act. This exemption is available if 10% or less of the class of stock in respect of which rights are being issued is held of record by U.S. holders and applies only to all-cash rights offerings made on a pro rata basis to all shareholders of the class (including American Depositary Receipts (“ADRs”) evidencing the shares). The exemption provided by Rule 801 is available to issuers only, and underwriters will not be able to rely on the exemption for resales of any rump shares. Accordingly, any such shares sold in the United States would have to be privately placed with QIBs or AIs. In addition, rights issued to U.S. shareholders under Rule 801 are not transferable except outside the United States in accordance with Regulation S, though the shares underlying the rights are freely transferable in the United States so long as the shares in respect of which the rights are issued are unrestricted securities. In addition, the issuer must consent to service of process in the United States. A rights offering under Rule 801 is not subject to liability under sections 11 and 12(a)(2) of the Securities Act, but is subject to section 10(b) of, and Rule 10b-5 under, the Exchange Act.

In circumstances where Rule 801 is not available or not feasible to use, and SEC registration is impractical or undesirable, a foreign private issuer may choose, subject to any applicable constraints under non-U.S. laws, to exclude U.S. holders from participating in a rights offering, or extend the rights offering to U.S. holders only on a private placement basis. In these circumstances, the issuer generally would arrange for the rights to be sold for the benefit of U.S. holders (other than any U.S. holders participating by way of private placement) and remit the cash to them."

You should also take a look at the SEC's cross-border exemption adopting releases.

If you aren't relying on the Reg S exemptions, then I don't believe you'd be required to make a Form CB filing in the U.S. If information about the rights offering is material, I think you would want that to be disclosed to your U.S. holders, although any such disclosure should clearly indicate that the offering is not being made to them. Your disclosure obligations to U.S. holders may also be significantly influenced by the laws of the foreign issuer's home jurisdiction.
-John Jenkins, Editor, TheCorporateCounsel.net 9/11/2020

Q: Issuer is filing a new shelf registration statement. Under a prior shelf registration statement, issuer issued debt under an indenture with a trustee. Under the new shelf, issuer may wish to issue additional debt under the same indenture. The new shelf registration statement will include as an exhibit the indenture (incorporated by reference) and the Form T-1 of the trustee (also incorporated by reference). Does this work in order to qualify the indenture under the Trust Indenture Act with respect to this new shelf registration statement? Thanks.

RE: You may incorporate the existing indenture by reference as an exhibit, but you'll need a new T-1. See Trust Indenture Act CDI 108.02:

"Question: May a Form T-1 be incorporated by reference?

Answer: No. A Form T-1 may not be incorporated by reference from a previous filing because the Form T-1 requires recent information. [March 30, 2007]"
-John Jenkins, Editor, TheCorporateCounsel.net 9/10/2020

Q: Investor is a shareholder and an affiliate of a public company. The company has registered Investor's shares for resale on an S-3 shelf registration statement. Assume a third party approaches Investor with an offer to purchase some of Investor's shares directly from Investor, at a negotiated price. Could Investor effect that sale under the registration statement, or would the sale instead have to be done privately, which, due to Investor's affiliate status, would make the shares restricted securities in the purchaser's hands? I seem to recall that the Staff has objected to, or at least called into question, the use of a resale registration statement to effect a direct, negotiated sale to a single purchaser. Am I correct that the Staff has taken such a position? If so, where is it expressed, and what is its basis? Thanks you very much.

RE: I'm not aware of any Staff position that would prohibit a selling shareholder from selling shares to a single purchaser in a privately negotiated transaction. I know there were some metaphysical issues at one time about whether a resale of a registration statement to a single purchaser or a small number of purchasers involved a "public offering," but I haven't seen that raised in quite some time.

It's my understanding that so long as the plan of the distribution section is broad enough to cover the transaction, then the registration statement may be used to cover it. I do think that the SEC still takes the position that if the registered shares are sold directly to a broker-dealer, it would need to be identified as an underwriter in a prospectus supplement.

I've seen some registration statements that explicitly address the possibility that a selling stockholder may sell directly to a single purchaser (although I think less specific language would probably suffice). See the language on p. 53 of this 2018 Hilton prospectus.
-John Jenkins, Editor, TheCorporateCounsel.net 9/9/2020

Q: Does TheCorporateCounsel.net have a handbook/checklist type resource that discusses the implications/considerations of becoming a large stockholder (say 30-40%) of a public company (mostly from an SEC disclosure perspective but also generally)? There are a lot of resources available that touch on the various rules separately, but I haven't come across something that discusses them all more comprehensively in one place. I was curious if anyone had come across something like this. The various implications/considerations that come to mind are: Section 13 Section 16 Affiliate status and use of Rule 144 for resales, etc. MNPI Related Party Transactions Stock exchange/independence/committee membership (to the extent applicable) Any others that are missing?

RE: We haven't compiled a handbook addressing "Major Stockholder" issues in a single volume, although many of those issues are addressed in a variety of places here and on CompensationStandards.com, DealLawyers.com and Section16.net. But that's definitely something we should consider. In the meantime, I think you may find this MoFo checklist helpful.
-John Jenkins, Editor, TheCorporateCounsel.net 9/9/2020

Q: In the debt context, is there a functional difference between a redemption of notes and a repurchase of notes? I realize that indentures usually provide for mechanics for the former and not the latter, but I'm curious as to why (and whether a repurchase can be effectuated without triggering the "optional redemption" provisions in an indenture). Thanks for any insight here.

RE: I think the difference between a redemption and a repurchase is that a redemption involves a transaction that either the issuer or the noteholders are compelled to undertake by the terms of the indenture, while a repurchase involves a transaction that's volitional on both sides. By its nature, an obligation to participate in a redemption is going to arise only under circumstances that are explicitly spelled out in the indenture. On the other hand, since a repurchase is volitional, the terms of the repurchase are up to the issuer, and the noteholders are free to participate or not.
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

Q: Does anyone have any insight/guidance regarding the impact of an issuer filing a prospectus supplement to an effective shelf registration statement pursuant to Rule 424(b)(8)? Issuer has an effective shelf registration statement on Form S-3 and has previously issued shares that were to be taken down off the shelf, but no prospectus supplement was filed to reflect the take downs. We would now like to take advantage of the apparent safe harbor in Rule 424(b)(8) but have questions regarding whether (a) the previous issuances will keep their original issue date, and (b) what the potential impact of the late filing of the prospectus supplement would be on any such shares that have been sold by the recipients. Also, can you please confirm that when filing the late prospectus supplement, the heading in the upper right-hand corner should refer to both 424(b)(8) and the paragraph of Rule 424(b) pursuant to which the filing would be made assuming it were timely filed? Is the date of the late prospectus supplement for filing purposes that date it is filed? Thank you in advance.

RE: I too am having trouble finding guidance on Rule 424(b)(8). We have an issuer that is having some technical difficulty and is concerned about missing the 5:30 p.m. filing deadline for a prospectus supplement. They are using every effort to get it filed on time, but if it ends up filed after 5:30 or in the morning, what are the practical implications?
-9/2/2020

RE: There isn't a lot of guidance on Rule 424(b)(8). I think the key place to look is in the Securities Act Reform Adopting Release's discussion of Rule 172, which begins at pg. 246.

Rule 172 provides an exemption from Section 5(b)(1) of the Securities Act for sending confirmations of sale if the requirements of paragraph (c) of that rule are satisfied. In turn, paragraph (c) requires, among other things, that "The issuer has filed with the Commission a prospectus with respect to the offering that satisfies the requirements of section 10(a) of the Act or the issuer will make a good faith and reasonable effort to file such a prospectus within the time required under Rule 424 (§ 230.424) and, in the event that the issuer fails to file timely such a prospectus, the issuer files the prospectus as soon as practicable thereafter."

There are a handful of CDIs addressing Rule 172 in the Securities Act Rules CDIs:

Rule 424(b)(8) is intended to implement Rule 172(c)'s provisions. Here's an excerpt from this S&C memo on the adopting release:

"The issuer good faith component and the “cure period” were added in response to comments and are designed to prevent retroactive violations of Securities Act Section 5 that might otherwise arise when an underwriter or dealer sends a written confirmation but the issuer fails to file the final prospectus with the SEC in a timely manner. See Rel. No. 33-8591, supra note 1, at paragraphs referencing nn.566 and 568. The Reforms also add new paragraph (b)(8) to Securities Act Rule 424 that specifically requires a prospectus to be filed as soon as practicable after discovery of the failure to file it as required. See Securities Act Rule 424(b)(8)."
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

Q: We've seen certain resale registration statements cover distributions from entities to members and limited partners in their plans of distribution. As a result, the non-affiliate members/limited partners receive unrestricted securities in connection with a distribution from the entity (which is named as a selling stockholder). I would have expected such a distribution to be a "no sale" that is not subject to registration. What is the basis for the approach to registration? Thank you.

RE: There are probably a number of reasons for that approach, but I think the biggest may be that it allows the fund to avoid any potential issues that may arise over whether or not it is a "closely held" entity. There isn't much guidance on this from the SEC, and if the fund isn't closely held, then the recipients would not be able to tack their holding periods for purposes of Rule 144. If the shares they receive are covered by a registration statement, then tacking isn't an issue.

I think registration also helps eliminate any potential issues about compliance with provisions in limited partnership agreements that require the securities received to be "freely tradeable" as a condition to the fund's ability to make in-kind distributions (although most people take the position that shares that may be sold under Rule 144 satisfy this condition).

I also think it's just kind of a "no brainer" for funds with registration rights. If you're registering the shares for resale by the fund anyway, why not cover in-kind distributions in the plan of distribution section of the prospectus?
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

RE: Thank you very much for your response. I agree that the registration is a no brainer if permissible but, more fundamentally, doesn't registration require a "sale" of securities? It's unclear to me how a distribution would qualify under the Securities Act definition of a sale (i.e., how is the value requirement being satisfied?).
-9/2/2020

RE: That's probably too narrow a view of the registration concept. Section 5 prohibits unregistered offerings in the absence of an available exemption, but it doesn't prohibit registering offerings for which an exemption may be available.

And I think "may" is the right word to focus on here. There's nothing in the statute or in the rules that etches in stone the idea that an in-kind distribution is always and everywhere exempt under a "no-sale" theory. That's just an interpretive position that private counsel and the SEC Staff have gotten comfortable with under appropriate factual circumstances. It isn't a blanket exemption, and the Staff hasn't hesitated to call a no-sale position into question in other contexts involving distributions of securities. See e.g., the recent enforcement actions involving ICO "airdrops."

I think that's one of the reasons that people get concerned about the "closely held" requirement for Rule 144 tacking. What's underlying that, I think, is a concern that if you start making in-kind distributions to a large number of people, you start to look like a statutory underwriter. If you are, then the distribution would need to be registered. But it isn't clear where the cutoff is, and a fund that may be comfortable that it could make an unregistered in-kind distribution at one point in its life cycle may find itself in a different position later. Conversely, the SEC's interpretive position could change in a way that adversely affects a particular fund's ability to make an in-kind distribution.
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

Q: Public issuer completes a private placement of convertible preferred stock under Rule 506(b). The preferred stock is convertible into common stock (which is quoted on an OTC market but not listed on an exchange). I have a few basic questions about the integration issues surrounding the subsequent conversion. If the preferred stock is immediately convertible by the holders, my understanding is that the offer of the underlying common stock is ongoing and would need to be integrated with the 506(b) offering of the preferred stock. Conversely, if the preferred stock is not convertible at the option of the holder until 6 months or more after original issuance, my understanding is that the offer of the underlying commons tock would not be integrated with the 506(b) offering of the preferred stock because of the Reg D 6-month safe harbor. I'm also aware of the SEC's long-standing position to integrate underlying securities issuable within one year, but I imagine that position must be trumped by the express 6-month safe harbor in Reg D. Is my understanding correct, or am I missing something? Further, is it possible to rely on Section 3(a)(9) for the conversion from day one without causing any integration problems, or would that only work in a scenario where the preferred stock was not convertible until after 6 months? Thanks!

RE: In the case of an immediately convertible security, you are right - the offer of the underlying security is viewed as ongoing. The Staff's view of the application of the integration concept to such an offering would preclude the company from registering the underlying common stock for its original issuance. If the securities were not convertible until a later date, then it is possible that the original issuance of the underlying common could be registered, notwithstanding the fact that the original security was issued in a private offering. In terms of how long a period must elapse, Securities Act Sections CDI 139.01 suggests at least a year, although commentators (Stan Keller in particular) have noted that some counsel have been able to get comfortable with a shorter period.

However, it is also my understanding that the exercise of a an immediately exercisable conversion right exempt under Rule 3(a)(9) would not raise integration issues with respect to the initial Reg D offering of the convertible securities, and that there's no prohibition on relying on Section 3(a)(9) for an immediate exercise (assuming the other conditions of the exemption are satisfied).

See the discussion beginning on p. 10 of Stan Keller's Integration Outline:
-John Jenkins, Editor, TheCorporateCounsel.net 9/2/2020

Q: The modernization amendment to Item 105 provides that if a registrant's risk factor discussion is longer than 15 pages it must include a two-page summary of the risk factors, which summary must appear "in the forepart of the prospectus or annual report, as applicable." Many registrants provide their full set of risk factors in each Quarterly Report on Form 10-Q even though the form does not require that. Does anyone have any thoughts as to whether registrants that disclose all their risk factors in their Quarterly Reports on Form 10-Q, which exceed 15 pages in length, will need to provide a summary in the forepart of the 10-Q? Thanks.

RE: This is another one of those areas in which the requirements of the amended S-K Item don't necessarily line up nicely with the line item requirements of the Form itself. I think the narrow answer to your question is that since Form 10-Q doesn't require compliance with Item 105, a company that opted to regurgitate all of its 10-K risk factors in lieu of just updating them as Form 10-Q requires would not be noncompliant with the requirements of Form 10-Q if it failed to include the two-page summary.

However, I think that as a matter of disclosure hygiene, if the company's practice is to include the entire risk factor disclosure from its 10-K filing in subsequent 10-Qs, it should also include the summary required by amended Item 105 of S-K. I think it's fair to say that failure to do so could raise a Staff comment or an investor question, and would be something that a plaintiff would draw attention to in an effort to portray the differences between the two filings in a negative light.
-John Jenkins, Editor, TheCorporateCounsel.net 9/1/2020

Q: A company filed a registration statement on Form S-8 to register shares pursuant to an employee stock plan. The stock plan is subsequently amended and restated (or otherwise not needed), at which time, the company files a post-effective amendment deregistering the shares which were reserved but unissued, but also states that the registration statement will remain in effect for purposes of outstanding awards already then granted. If the company is going dark and needs to have no active registration statements, would the company be required to file another post-effective registration statement relating to the above referenced S-8? As an example, please see (ii) from Anadarko's final S-8 POS AM (below). (ii) had already been de-registered, other than equity awards previously granted. Was this overkill on Anadarko's side or is another POS AM required if equity awards previously granted remain outstanding?

RE: I don't think that's overkill. You still have a registration statement that is active and being used to cover shares to be issued under outstanding awards, so you still have a Section 15(d) reporting obligation that is refreshed with each annual update of the registration statement pursuant to Section 10(a)(3) of the Securities Act.. You would need to file a post-effective amendment deregistering the shares that are still covered by the S-8 in order to be in a position to suspend that obligation under Section 15(d) or Rule 12h-3. See Staff Legal Bulletin 18.
-John Jenkins, Editor, TheCorporateCounsel.net 9/1/2020

Q: Hi. If an issuer enters into a material agreement on one day, and then on the following day the parties either (i) rescind the agreement or (ii) amend the agreement such that it is no longer material, what are the issuer's disclosure obligations? It would seem that the Form 8-K is technically triggered at the time of signing the agreement. However, if it's no longer material by the 8K deadline, is there an argument to be made that no 8K is required? It's not clear what investor interest would be protected by mandating disclosure, which could be more confusing than helpful.

RE: I think that the general rule is that materiality is assessed at the time the agreement was entered into for purposes of determining whether an 8-K has been triggered. See 8-K CDI 102.01. Given the timeframe here and the apparent ongoing dialogue between the parties, the best argument that an 8-K wasn't triggered may be that notwithstanding the documentation, the parties didn't actually reach a definitive agreement until the terms of the business arrangement were finalized or that they ultimately determined that they were unable to reach a meeting of the minds on key issues and terminated discussions. The strength of that argument depends on state law contract formation principles.
-John Jenkins, Editor, TheCorporateCounsel.net 9/1/2020

Q: I see that the recently approved S-K amendments are effective 30 days after publication in the Federal Register. Does anyone have guidance on what this means from a practical perspective — i.e., when does "publication" typically occur and would the changes potentially become effective for 10-Qs filed for the upcoming 9-30-20 quarter end?

RE: Publication in the Federal Register usually happens within a month, but sometimes it can be longer — for example if there are errors in the release that need to be fixed or if the release gets kicked back to the Staff because it doesn't conform to the Federal Register style guide. Or sometimes they just have to wait for room in the Federal Register. If it takes a month, that would put the effective date right around the end of October.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 8/31/2020

Q: The new rule amendments adopted by the SEC last week require disclosure of information material to an understanding of the general development of a company's business and replace the 5-year (or 3-year for SRCs) time period specified in S-K 101(a) with a materiality standard. How is this rule change intended to apply to Form 10-Ks? There is no discussion in the proposing or the adopting release, but Form 10-K, Item 1. Business is very clear that "the discussion of the development of the registrant's business need only include developments since the beginning of the fiscal year for which this report is filed." Does anyone have views on whether this was an oversight in the new rulemaking? The discussion in both the proposing and adopting releases appears to suggest that the new Item 101(a) amendments apply to all reports/registration statements subject to Item 101(a). But, there was no attempt in the rulemaking to amend the Form 10-K instruction quoted above. Therefore, based on a very plain and clear reading, the Form 10-K discussion is only required to include a discussion of the general development of the business since the beginning of the last fiscal year. Do others agree / have other thoughts?

RE: That's an interesting observation. I agree that there appears to be a disconnect between the new language of Item 101(a) and the current requirements of Item 1 of Form 10-K. In reading the adopting release, the intent of revised Item 101(a) appears to be that companies must either provide a full blown, principles based description of the development of the business that addresses the matters identified in Item 101(a)(1), to the extent material, or simply provide an update & incorporate the more complete disclosure by reference along with the link required by Item 101(a)(2). But the Form 10-K line item continues to require updating disclosure addressing only the fiscal year covered by the report, so some sort of clarification (or a revision to the 10-K line item) would be helpful.

For a fair number of companies, this issue probably isn't going to matter very much. That's because many companies have a practice of continuing to provide a discussion of the general development of their business over the previously required five year period in their 10-K filings, rather than just providing updating disclosure covering the most recent fiscal year. For example, check out GM's comment letter on the rule proposal in which it objected to the proposal to permit only updating disclosure. GM's letter noted that "this rule change would have a minimal impact on GM’s current disclosure," and stated the company's belief that "the entirety of this disclosure should be included in each filing."
-John Jenkins, Editor, TheCorporateCounsel.net 8/31/2020

Q: A reporting company (“issuer”) has agreed with three of its outstanding note holders to exchange notes/warrants held by the holders for a new series of preferred stock. As part of the exchange, the issuer has agreed to pay for the holders legal fees. Does the payment by the issuer of the legal fees obviate the exemption under section 3(a)(9) because “other consideration” is being paid?

RE: I don't know if the topic of the issuer's payment of the exchanging note holders' legal fees has been specifically addressed by the Staff, but my gut reaction is that this shouldn't necessarily result in the unavailability of the Section 3(a)(9) exemption.

Securities Act Rule 150 provides that "The term commission or other remuneration in section 3(a)(9) of the Act shall not include payments made by the issuer, directly or indirectly, to its security holders in connection with an exchange of securities for outstanding securities, when such payments are part of the terms of the offer of exchange." I think an agreement to pick up the legal fees incurred by an exchanging note holder should be viewed as an indirect payment to the note holder, and if it is part of the terms of the exchange offer, then it seems to me that it should be encompassed within Rule 150.
-John Jenkins, Editor, TheCorporateCounsel.net 8/31/2020

Q: I would love to hear thoughts on the following fact pattern: - Public company, recently market cap increased such that it is no longer subject to the baby shelf limitations. QUESTION: Even if its market cap drops, it can still NOT be subject to baby shelf limitations until the time it files its 2020 Form 10-K, correct? - Same PubCo wishes to file a Form S-3 or a prospectus supplement under the existing shelf to register an offering of Preferred to an investor. The issuance of share of common stock underlying the Preferred would also be covered by this registration statement. - The desire is to structure the offering such that after the registration statement is effective, the investor will have the right to make purchases over the course of 12 months. The investor would determine the timing of such purchases, and PubCo would NOT have any right to force the investor to purchase, other than the fact that the investor is obligated to buy a set number of shares in aggregate in the 12 month period. The pricing would be a set formula based on market price at the time of each take-down. QUESTION: Does this structure work, given that the investor is determining timing (and the price, since the price will be keyed off market at the time of a take-down)? If this were a resale registration statement the structure would NOT work, but it seems that since the original issuance is being registered we're okay. QUESTION: Could PubCo instead use a Form S-1 instead of a Form S-3? Believe the answer is Yes if PubCo is a smaller reporting company, and No if it isn't.

RE: If a company doesn’t have a public float of at least $75 million at the time the S-3 is filed, but the public float increases to $75 million after the effective date of the registration statement, the 1/3 cap no longer applies. If the public float later falls back below $75 million when the next Form 10-K is filed, the 1/3 cap is reinstated. For more details, see the discussion on pages 69-70 of our "Form S-3 Handbook."

I'm not in a position to say whether your structure "works," but if you're an issuer eligible to use S-3 for primary offerings, then I don't think there's anything that would prohibit you from using the existing S-3 to issue these preferred shares for cash, even if the terms of your deal with the investor give it some discretion as to the timing of the purchases. The key thing is that you've got an effective registration statement on file for the shares you propose to issue.

If you didn't use shares registered under the existing S-3, but instead struck a deal with the investor and then wanted to file a new primary S-3 covering the shares you propose to issue, my answer would be different, because I think you'd have an unregistered offer and would need to issue the shares in an unregistered, exempt transaction. You could only register the shares for resale after they'd been issued.

Your eligibility to use Form S-1 for a series of transactions like this depends on whether you can hang your hat on Rule 415(a)(ix), because an S-1 issuer generally may use Rule 415 for a primary issuance only if an offering is made on a continuous basis. I don't know the details of your offering, but it sounds like it may possibly involve a continuous offering. If you aren't a smaller reporting company, you would be ineligible for forward incorporation by reference into the S-1, which could make the transaction procedurally more cumbersome in terms of keeping the prospectus current.
-John Jenkins, Editor, TheCorporateCounsel.net 8/23/2020

RE: Perfect. Thank you for the sanity check!
-8/23/2020

RE: Hi. Follow-up question. If you have an existing resale Form S-1, but it ultimately is registering the resale of more shares than are needed (e.g., the original number of shares to be issued was based on a formula tied to closing price). Can you file a post-effective amendment to deregister ONLY the excess shares, such that the registration statement can continue to be used for the number of shares actually issued? Or does this trigger SEC comments as to how you calculated everything, etc.?
-8/27/2020

RE: I've never seen anything directly addressing this, but I don't know why you couldn't. I think you'd just include an appropriate explanatory note.
-John Jenkins, Editor, TheCorporateCounsel.net 8/28/2020

Q: Does filing under 425 also satisfy the 14a-6(b) obligation, or would one have to separately make a filing to satisfy 14-a(6)(b)?

RE: Rule 14a-6(j) provides that any proxy statement, form of proxy or other soliciting material required to be filed under Rule 14a-6 that is also filed under Rule 425 "is required to be filed only under the Securities Act, and is deemed filed under this section."
-John Jenkins, Editor, TheCorporateCounsel.net 8/26/2020

Q: I have several clients that are considering filing Form 10 registration statements rather than entering into shell reverse merger transactions to eliminate any residual taint from the Shell/Pubco's prior reporting and operations. The question that continually comes up is that, with a sophisticated legal/finance team, how long can one expect the process to take from initial filing to effectiveness? I have not been able to locate any quantitative data and would appreciate any insights. Thanks.

RE: I haven't seen hard data on the timing of a Form 10, but my guess is that for planning purposes, you should assume an IPO-type schedule (e.g., budget 90-120 days from the date of the initial filing) for addressing SEC comments. One wrinkle in the timing results from the fact that the Form 10 goes effective automatically in 60 days. In order to avoid going effective prior to clearing Staff comments, many companies opt to withdraw their filing before it becomes effective. Companies then file a new Form 10 responding to comments. Depending on the comment and response process, this may be repeated a few times.

Each transaction is different, but you may find VICI Properties’ 2017 Form 10 process helpful to look at. That company, which is a $1 billion REIT, was represented by Kirkland & Ellis and its audits were performed by Deloitte. The process took about five months, but it appears that the reason for that involved the company's desire to time the effectiveness of the Form 10 with its emergence from bankruptcy. It appears to have cleared all substantive Staff comments about three months after the initial filing.
-John Jenkins, Editor, TheCorporateCounsel.net 8/24/2020

Q: Can an executive designate a trust as the beneficiary of his options upon his death, or would that be a “no” because a trust is an entity as opposed to a natural person such that Form S-8 would not be available? In other words, does a named beneficiary of stock options covered under a Form S-8 need to be a natural person? If so, could the named beneficiary be "Jane Doe, as trustee of the ABC Trust"?

RE: See paragraph (a)(5) of General Instruction A.1. of Form S-8 for a list of the types of trusts and other entities that may exercise awards of securities registered under Form S-8. You can also see the discussion on page 40 of the Form S-8 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 8/23/2020

Q: I would love to hear thoughts on the following fact pattern: - Public company, recently market cap increased such that it is no longer subject to the baby shelf limitations. QUESTION: Even if its market cap drops, it can still NOT be subject to baby shelf limitations until the time it files its 2020 Form 10-K, correct? - Same PubCo wishes to file a Form S-3 or a prospectus supplement under the existing shelf to register an offering of preferred to an investor. The issuance of share of common stock underlying the preferred would also be covered by this registration statement. - The desire is to structure the offering such that after the registration statement is effective, the investor will have the right to make purchases over the course of 12 months. The investor would determine the timing of such purchases, and PubCo would NOT have any right to force the investor to purchase, other than the fact that the investor is obligated to buy a set number of shares in aggregate in the 12-month period. The pricing would be a set formula based on market price at the time of each take-down. QUESTION: Does this structure work, given that the investor is determining timing (and the price since the price will be keyed off market at the time of a take-down)? If this were a resale registration statement, the structure would NOT work, but it seems that since the original issuance is being registered, we're okay. QUESTION: Could PubCo use a Form S-1 instead of a Form S-3? I believe the answer is yes if PubCo is a smaller reporting company, and no if it isn't. Thank you!

RE: If a company doesn’t have a public float of at least $75 million at the time the S-3 is filed, but the public float increases to $75 million after the effective date of the registration statement, the 1/3 cap no longer applies. If the public float later falls back below $75 million when the next Form 10-K is filed, the 1/3 cap is reinstated. For more details, see the discussion on pages 69-70 of our "Form S-3 Handbook."

I'm not in a position to say whether your structure works, but if you're an issuer eligible to use S-3 for primary offerings, then I don't think there's anything that would prohibit you from using the existing S-3 to issue these preferred shares for cash, even if the terms of your deal with the investor give it some discretion as to the timing of the purchases. The key thing is that you've got an effective registration statement on file for the shares you propose to issue.

If you didn't use shares registered under the existing S-3, but instead struck a deal with the investor and then wanted to file a new primary S-3 covering the shares you propose to issue, my answer would be different, because I think you'd have an unregistered offer and would need to issue the shares in an unregistered, exempt transaction. You could only register the shares for resale after they'd been issued.

Your eligibility to use Form S-1 for a series of transactions like this depends on whether you can hang your hat on Rule 415(a)(ix) because an S-1 issuer generally may use Rule 415 for a primary issuance only if an offering is made on a continuous basis. I don't know the details of your offering, but it sounds like it may possibly involve a continuous offering. If you aren't a smaller reporting company, you would be ineligible for forward incorporation by reference into the S-1, which could make the transaction procedurally more cumbersome in terms of keeping the prospectus current.
-John Jenkins, Editor, TheCorporateCounsel.net 8/23/2020

RE: Perfect. Thank you for the sanity check!
-8/23/2020

Q: A resale registration statement on Form S-1 has been filed and is effective for the resale of (among other shares) a number of shares held by an affiliate of a registrant (CEO). The CEO would like to sell some of those shares to an unaffiliated third party under the S-1. Since the shares are not being sold under Rule 144 (i.e., they are being sold under the resale S-1), are sales still subject to the volume limitations of Rule 144? Thank you in advance for your help with this question!

RE: No, not if the shares being sold are registered for resale.
-John Jenkins, Editor, TheCorporateCounsel.net 8/21/2020

Q: Let’s talk customer concentration. S-K 101 requires disclosure of the name of any customer that accounts for 10% or more of a company’s consolidated revenues. Similarly (though I would argue at the other end of the spectrum), Section 2815.1 of the SEC Financial Reporting Manual states “[f]inancial statements of a significant customer . . . may be necessary to reasonably inform investors about the registrant’s financial position, results of operations and/or cash flows.” Thus, it looks like there is a sliding scale of disclosure — at one end, you name a customer and at the other end you include a customer’s full-blown financial statements. We have a prospective customer that will account for 80% of our revenues if we land the customer. Prospective customer is a private company with no publicly available financial information. We've seen lots of customer concentration disclosures where the customer is a publicly traded, SEC reporting company. In those cases, the company simply cites to the customer's publicly available filings on EDGAR. Assuming appropriate disclosure regarding the overall dependence on the customer’s own performance (e.g., MD&A and risk factors), how else do companies disclose major concentration with private, non-reporting customers? We haven't seen anyone disclosing customers financials (per FRM Section 2815.1) or even selected financial disclosure about the customer. At best, we’ve seen some stating "we rely on confidential information provided by the customer to assess their creditworthiness,” but no one giving detailed information regarding the performance or financial condition of their largest customer that we think seems like fair disclosure.

RE: That's my sense as well. For what it's worth, I did a quick search using the term "financial statements of a significant customer" and only found a single comment letter and response exchange where the Staff raised the possibility of a potential need for financial statements. The issuer was GEX Management Inc., and the back and forth came in connection with a 2016 S-1 filing. Here are the company's response letters, which include the SEC's comments. Comment 22 of the original response letter is the place to start:
-John Jenkins, Editor, TheCorporateCounsel.net 8/19/2020

Q: If a company solicits consent from holders of convertible preferred stock that is not a section 12 security but is convertible into common stock that is registered under section 12, would the company have to file a proxy statement? Seems like the answer is no if you just look at plain language of rule, but I’m curious if anyone knows of any specific guidance on this point. For context, preferred holders are able to vote on an as-converted basis on anything that the common stockholders would be able to vote on.

RE: Pushing this up. I would be interested in any thoughts on this topic. Would the answer change if the preferred holders did not have rights to vote on an as-converted basis?
-11/30/2017

RE: Pushing this up. Any thoughts on this? We have situations where preferred shareholders typically don't have voting rights but are required under merger agreement to approve merger (along with common). As practical matter, preferred shareholders have all agreed to vote for merger, but I’m curious if a proxy statement is required in connection with communications with preferred shareholders since preferred is convertible at-will into common.
-8/19/2020

RE: I'm not aware of any guidance on this point, but in its absence, I think the language of Rule 14a-2 leads to the conclusion that the proxy rules would not apply. Rule 14a-2 says that the proxy rules apply to "every solicitation of a proxy with respect to securities registered pursuant to section 12 of the Act," but unless you're dealing with a rollup transaction, there's no provision in the rule to apply it to solicitations involving a class of securities not registered under Section 12.

Although the fact that the securities are freely convertible into the registered class certainly matters in determining whether the holders beneficially own the underlying shares for purposes of Section 13(d), I don't think that fact or the fact that the class votes on an "as converted" basis matters in the Rule 14a-2 analysis. Those terms may give the holders of the unregistered class rights that are similar to those enjoyed by the holders of the registered class, but they are simply terms of the unregistered class of securities itself. Unless the securities independently exceed the thresholds for registration under Section 12(b) or 12(g), then I don't think it is appropriate to conclude that rules expressly limited to securities registered under Section 12 should apply to them.
-John Jenkins, Editor, TheCorporateCounsel.net 8/19/2020

Q: Does the filing of a post-effective amendment to a registration statement suspend the effectiveness of the underlying registration statement until the post-effective amendment is declared effective? In this case, there is a shelf offering for selling stockholders on a Form S-2 (because the issuer did not at the time qualify for an S-3 shelf but now does), and now the issuer is filing an amendment to Form S-2 on Form S-3, effectively converting the Form S-2 into an S-3. Can the selling stockholders still sell under the existing Form S-2 (provided it does not otherwise go stale) even while a post-effective amendment is pending?

RE: I believe it doesn't suspend the underlying registration statement, but you wouldn't ordinarily want to draw down because filing the amendment typically means that there is material updating information to add (but in the situation mentioned, that might not be true if it involves merely switching forms).
-Broc Romanek, Editor, TheCorporateCounsel.net 10/17/2005

RE: It had always been my understanding that a post-effective amendment needs to be declared effective.
-10/19/2005

RE: That is true in most cases (with exceptions laid out in Rule 462), but even when a post-effective amendment is not yet effective, the original registration statement is still effective; that's what the question above relates to.
-Broc Romanek, Editor, TheCorporateCounsel.net 10/20/2005

RE: This is a bit confusing to me. How can the original registration statement still be effective while the amendment is being reviewed?

In "Securities Law Techniques" by A.A. Sommer Jr (ed.), it provides that "there will be an interruption in the selling process during the period required for staff review and compliance with staff comments."

To put it more concretely, my question is this: If Issuer had a resale registration statement on SB-2 declared effective, then files a post-effective amendment to change the stated plan of distribution, can the selling stockholders continue to sell their shares covered under the original registration statement while the post-effective amendment is being reviewed?
-11/27/2007

RE: The Staff has historically taken the position the continuing offers and sales may be made after filing but before the effectiveness of a post-effective amendment if the prior prospectus is still current under Section 10(a)(3). This may be the case when the issuer has filed a post-effective amendment to update the prospectus under Section 10(a)(3) before it is required to do so under the statute, or in situations where the issuer has filed a post-effective amendment for reasons other than updating under Section 10(a)(3).

If the prospectus no longer satisfies the requirements of Section 10(a)(3), then no sales can be made after filing but before effectiveness of the post-effective amendment. Further, the adequacy of the prospectus needs to be evaluated from a Section 12(a)(2) and antifraud perspective before making any offers and sales.
-Dave Lynn, Editor, TheCorporateCounsel.net 11/27/2007

RE: Dave, is this still the Staff's position? Thank you.
-6/30/2015

RE: Bump,
-8/18/2020

Q: Do you have a sense where the SEC stands on the proposal it released in January 2020 (amendments to modernize certain financial disclosure provisions in Reg. S-K)? Do you think it might be something that may be up on the SEC agenda in the near term?

RE: Based on the latest Reg Flex Agenda, it looks like they're targeting April 2021 for action on it, but that schedule isn't etched in stone, and it wouldn't be shocking if it slipped.
-John Jenkins, Editor, TheCorporateCounsel.net 8/17/2020

Q: How long does your pre-clearance last for execs?

RE: At our company, it's usually 2-3 days; they can request longer, and we’ll revisit and extend after the first one expires.
-8/15/2020

RE: Our model insider trading policy suggests 5 business days as the amount of time that pre-clearance lasts, but I think it is very fact-specific and agree that 2-3 days with the possibility of extension sounds reasonable. We are also running a survey right now on insider trading adjustments due to COVID.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 8/15/2020

RE: Our company is pretty conservative on compliance issues like this, but our pre-clearance just lasts for 24 hours.
-8/17/2020

Q: I really enjoyed yesterday's blog post about the McDonald's lawsuit against Steve Easterbrook. Over the decades, I’ve drafted many “cause” termination provisions, mostly on behalf of executives (so I have some good examples of narrowly drawn provisions, due process, etc.). Your post mentioned the possible need for a “clear day” review of the cause definitions in executive employment agreements. Have you run across any updated examples? By “updated,” I mean something more than “dishonesty, fraud, illegality or moral turpitude” referenced in the complaint or failing to live up to the company’s culture, rules against fraternization, harassment, etc. The language I’d be interested in seeing would go into the definition of cause provision in the contract with the executive. Thanks in advance.

RE: Thank you. Glad to hear you enjoyed the blog. You may find it helpful to visit our "Clawbacks" Practice Area on CompensationStandards.com. We've posted memos there that walk through trends and give sample language. We also have a section about clawback trends and disclosure in the CD&A chapter of our Executive Compensation Disclosure Treatise, which is posted on CompensationStandards.com or available in hard copy:

Lastly, we have a panel at our fast-approaching Proxy Disclosure & Executive Pay Conferences that will be devoted to discussing clawback & forfeiture provisions — including the trend to broaden those provisions, the impact on recruitment & retention, interplay with advancement provisions, legal considerations and enforcement, and expectations for rulemaking. As I blogged on our “Advisors’ Blog” a few weeks ago, the SEC’s Reg Flex Agenda says that it plans to re-propose clawback rules by October.
-Liz Dunshee, Managing Editor, TheCorporateCounsel.net 8/15/2020

Q: Question about Amazon and Jeff Bezo's divorce: 1)Let’s say there is a transfer of Amazon stock to MacKenzie Bezos — she’ll be entitled to half his assets, after all — how might that be disclosed? What sort of transfer would trigger those disclosure requirements? 2) The market presumably wants Jeff B in control of the company. If MacKenzie B. gets a large amount of stock, is there a way to ensure control, voting rights or if that stays with Jeff B?

RE: This is a bit complicated, but the upshot is that I think Jeff or Amazon will want to make some kind of announcement when the transfer is about to occur, just to control the news and the spin? So, that might be a voluntary disclosure on a Form 8-K (with a press release as an attachment), not required by the SEC’s rules.

If they don’t go that route, the mandatory disclosure might be on a Form 4 under the Section 16 rules. But this is complicated and so it’s “maybe, but not necessarily.” Rule 16a-12 exempt from Section 16, including from the Form 4/5 reporting requirement, an insider’s transfer of securities pursuant to a domestic relations order. So, if the spouses agree to a property settlement and submit it for court approval as part of the divorce (the usual practice), or even if they don’t and a judge has to decide how to allocate the marital estate, the transfer of shares won’t be reportable. If Jeff just transfers the shares without a court order, that would be reportable (on Form 4 or Form 5, depending on whether Jeff wanted to characterize the transfer as a “gift”), but that’s a less likely scenario. If Jeff transfers in an exempt transaction, he might nevertheless, later, have a transaction reportable on Form 4 or Form 5. At that point, his total holdings reported in that report would reveal that he had transferred a bunch of stock, and most insiders explain in a footnote why their total holdings dropped.

You might also check to see if Jeff files on Schedule 13D (not 13G). If so, the transfer of more than 1% of the class would require a “prompt” amendment to the 13D.
Broc Romanek, Editor, TheCorporateCounsel.net 1/11/2019

RE: Wouldn’t it be MacKenzie — and not Jeff — that would have to file the 13D or 13G since she would be the one taking ownership? Or am I missing something?
-1/11/2019

RE: As Jeff already owns more than 5% of Amazon stock, he would have either a 13D or 13G on file already. A 1% change would require the “prompt” filing. If MacKenzie gets more than 5% of Amazon stock, she will be required to file either a 13D or 13G — but deadlines for either of those would be later than the “prompt” filing requirement for Jeff. So, Jeff’s filing would likely precede MacKenzie’s…
-Broc Romanek, Editor, TheCorporateCounsel.net 1/11/2019

RE: Has the SEC provided any guidance on what constitutes a "prompt" filing (i.e., how many days)? Alternatively, is there any practical guidance here?
-8/12/2020

RE: As far as the SEC is concerned, prompt means really fast. Here's what it said in Release 34-39538:

"In order to be prompt, an amendment must be filed "as soon as practicable" under the facts and circumstances of the case. In the Matter of Cooper Laboratories, Inc., Exchange Act Release No. 22171 (June 26, 1985), [1984-85] Fed. Sec. L. Rep. (CCH) 83,788 at 87,526-27. "Any delay beyond the time an amendment could reasonably have been filed may not be deemed to be prompt." Id. at 87,526."

In practice, I think many people take the position that you've potentially got an issue if you don't amend your filing within one business day of the change requiring an amendment. See this Davis Polk memo, which notes that "Generally speaking, an investor must file a Schedule 13D with the SEC within 10 days of crossing the 5% threshold, and thereafter report any material changes by filing an amendment within one business day of the change."
-John Jenkins, Editor, TheCorporateCounsel.net 8/13/2020

RE: Thank you. Seems like an onerous requirement on a holder whose percentage holdings change merely because of a change in the number of outstanding shares.
-8/13/2020

Q: Dealing with a question on target operating company financials in a SPAC transaction. For the Super 8-K, assuming the operating company is the accounting acquirer and the SPAC is an SRC (and for assumption purposes, that the operating company wouldn't qualify as an SRC), I am not sure if the two points below would result in a read that we can include only 2 years of audited historical financials for the operating company target in the Super 8-K or if we would need three of audited historicals. 5230.1 seems to suggest it would be 3 years if the operating company target was not an SRC at the time of the acquisition, but I’m not sure if 5230.2 allows you to use 2 years because it is clear that the combined company would be an SRC until the next determination date. FRM (5230.1) also states that: “In SEC Release No. 33-8587, the SEC determined that investors in operating businesses newly merged with shell companies should obtain the same level of information as provided for reporting companies that did not originate as shell companies. Therefore, they are required to include equivalent information as if they were registering under the Exchange Act. Accordingly, the Staff looks to the accounting acquirer's eligibility as a smaller reporting company at the time of the reverse acquisition for purposes of the disclosures to be provided in the Form 8-K.” FRM (5230.2) also states that: “If a reverse acquisition occurs in which a non-public operating company is the accounting acquirer of a smaller reporting operating company (registrant), the registrant (the legal acquirer) would continue to qualify as a smaller reporting company until the next determination date.”

RE: Sorry. Now that I am further reading 5230.2, it talks about an SRC OPERATING company, so it seems like 3 years of audits would be required in the 8-K unless the operating target qualified as an SRC.
-8/7/2020

RE: Looking into a related question, how are you calculating the public float for the target company? Is it just non-affiliate shares x the deal price per share (i.e., do you disregard the "in the case of an IPO" clause, or would you add in any other common shares issued in the de-spac'ing x the deal price per share)?

Everything I've come across so far references the target company's SRC eligibility, which leads me to believe you disregard the IPO clause, but have not found anything clearly confirming that read.
-8/13/2020

Q: What happens if a registrant fails to file the financials of an acquiree and pro formas on a timely basis. Does it affect their ability to use Form S-3?

RE: I found the answer on Form 8-K, but if anyone has more color, please let me know.

During the period after a registrant has reported a business combination pursuant to Item 2.01 of this form, until the date on which the financial statements specified by this Item 9.01 must be filed, the registrant will be deemed current for purposes of its reporting obligations under Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m or 78o(d)). With respect to filings under the Securities Act, however, registration statements will not be declared effective and post-effective amendments to registrations statements will not be declared effective unless financial statements meeting the requirements of Rule 3-05 of Regulation S-X (17 CFR 210.3-05) are provided. In addition, offerings should not be made pursuant to effective registration statements, or pursuant to Rule 506 of Regulation D (17 CFR 230.506) where any purchasers are not accredited investors under Rule 501(a) of that Regulation, until the audited financial statements required by Rule 3-05 of Regulation S-X (17 CFR 210.3-05) are filed; provided, however, that the following offerings or sales of securities may proceed notwithstanding that financial statements of the acquired business have not been filed:

(a) offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights;
(b) dividend or interest reinvestment plans;
(c) employee benefit plans;
(d) transactions involving secondary offerings; or
(e) sales of securities pursuant to Rule 144 (17 CFR 230.144).
-8/12/2020

RE: A couple of things. First, if you don't file the financial information within 71 days of the due date of the initial 8-K filing, then the issuer will be deemed to be late. Missing a deadline to provide an 8-K with required pro forma and acquired company financial statements will cause an otherwise eligible issuer to lose Form S-3 eligibility for at least 12 months. That means the issuer won't be able to file a new Form S-3 registration statement for at least a year. See the discussion on page 57 of our Form S-3 Handbook.

If you have an existing shelf S-3 on file, it is sometimes possible to continue to use it even if you're late (subject to the limitations addressed in the instructions to Form 8-K that you cited if the financial information still hasn't been provided) until the next required Section 10(a)(3) update. However, that is contingent on the issuer reaching the conclusion that the information in the missed report does not constitute a "fundamental change" to the prospectus, which may be difficult to do. In any event, you'd also need to get comfortable that you have enough information about the acquisition in the prospectus to conclude that it doesn't have a material omission. See the discussion on page 75 of the Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 8/12/2020

RE: Thank you!
-8/12/2020

Q: If the affiliate of an issuer wishes to engage in a dutch auction tender offer for its own account, is that still considered an issuer tender offer? I assume that if the shares are not going back to the issuer, then it is not an issuer tender offer. In the case of a third-party tender offer, can holders of restricted stock tender their shares?

RE: If the tender offer involves shares that are registered under the Exchange Act, then the affiliate would need to comply with Regulation 14D, not 13e-4. See the discussion in Topic #10238.

Since the shares aren't being resold to the issuer, a holder of restricted securities would need an available exemption to participate in the tender. If the shares are being acquired for investment purposes and the affiliate is accredited, then it might be possible to structure the sale in reliance on Section 4(a)(7),
-John Jenkins, Editor, TheCorporateCounsel.net 8/11/2020

Q: Although I am sure this has been addressed elsewhere, are issuers technically required to include file numbers in exhibit descriptions for exhibits they incorporate by reference? 12b-23 provides for the below, but I note that practice appears to vary pretty widely (some issuers including exhibit numbers, and some issuers choosing not to): (e) General. Include an express statement clearly describing the specific location of the information you are incorporating by reference. The statement must identify the document where the information was originally filed or submitted and the location of the information within that document. The statement must be made at the particular place where the information is required, if applicable. Information must not be incorporated by reference 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 pertinent to such disclosure by reference to a third document. Any thoughts would be much appreciated. Thank you.

RE: Not anymore. That requirement used to be in Item 10(d) with respect to incorporation by reference of documents that were more than 5 years old, but it was eliminated as part of the FAST Act amendments. See this blog from Cydney Posner:
-John Jenkins, Editor, TheCorporateCounsel.net 8/9/2020

Q: Company's stock plan administrator allows recipients of restricted stock awards to elect to sell shares to cover tax obligations when restricted stock awards vest. If an insider is blacked out at the time of vesting, can they still elect to sell to cover? If not, what alternatives are available so they don't get hit with a hefty tax bill?

RE: Unfortunately, there's no exemption from the prohibition on insider trading for tax- motivated transactions, so sales into the market during a blackout period are potentially a problem. However, transactions between the company and an insider don't raise those concerns, so one solution may be to include a net share settlement provision in the plan. Under a net share settlement, the company keeps a portion of the newly vested shares equal to the tax needed for withholding.
-John Jenkins, Editor, TheCorporateCounsel.net 8/7/2020

RE: Thanks, John. If the company were to allow net settlement, then isn't the company then responsible for paying the tax and, if so, wouldn't they have to sell into the market?
-8/7/2020

RE: I think the plans include these provisions because the company presumably has greater cash resources than individual plan participants and can bear the cash flow impact without having to sell the shares it is withholding. If that's not the case, then it doesn't work.
-John Jenkins, Editor, TheCorporateCounsel.net 8/7/2020

Q: If you went public in January of 2020 with 9 month numbers for 2019 and so needed to file a 10-K for full year 2019 numbers, would you be potentially an accelerated/large accelerated filer by December 31, 2020? I’m trying to figure out how to interpret the 12-month requirement in that scenario.

RE: I don't think so. See Exchange Act Rules CDI 130.01:

Question 130.01

Question: A condition for meeting the definitions of “accelerated filer” and “large accelerated filer” in Rule 12b-2 is that the issuer must have been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least “twelve calendar months” as of the end of its fiscal year. What is a “calendar month” for purposes of the definitions of “accelerated filer” and “large accelerated filer”?

Answer: The term “calendar month” under Rule 12b-2 is interpreted in a manner consistent with the term “calendar month” in determining Form S-3 eligibility. In both cases, a “calendar month” begins on the first day of the month and ends on the last day of that month. For example, if an issuer became subject to the requirements of Section 13(a) on January 15 and remains subject to Section 13(a) through the end of the year, it will have been subject to the requirements of Section 13(a) for eleven “calendar months” as of December 31. [September 30, 2008]
-John Jenkins, Editor, TheCorporateCounsel.net 8/7/2020

Q: For companies filing their initial Form S-8 after their IPO, is there a basis to use the IPO price for purposes of determining the proposed maximum offering price per share with respect to currently reserved shares (as opposed to outstanding awards) if the Form S-8 is filed after a full day of trading has occurred (i.e., after a market for the securities exists and it would be possible to obtain an average of the high and low prices consistent with Rule 457(c))?

RE: I don't think so. IPO filing fees are calculated under Rule 457(a), and are based on a bona fide estimate of the maximum offering price. It seems hard to me to provide that kind of estimate in the context of a registration statement filed for publicly traded shares that are to be used for future market price-based awards under the plan. I think in that case, Rule 457(h) tracks you into 457(c), which looks at the market prices of the shares.

Interestingly, Rocket Companies filed an S-8 yesterday and used the maximum aggregate offering price listed in the IPO S-1 ($22 per share) that it went effective on last week to calculate the fee. However, that deal wasn 't priced until after the market closed yesterday (at $18 per share), so trading didn't start until today. Technically, I think Rule 457(h) would have permitted them to use the book value of the securities, but since the S-1's dilution table suggests that, as usual, book value is much lower than the maximum offering price, I don't think anyone will second guess them.
-John Jenkins, Editor, TheCorporateCounsel.net 8/6/2020

Q: I saw Liz’s Proxy Season blogs about the request for board and C-suite ethnicity information that ISS sent to companies. Does anyone know whether companies are responding to that?

RE: ISS has indicated that this outreach is an effort to ensure accuracy of data that underlies its research and ratings, and the annual policy survey that they put out last week suggests that their investor clients are interested in info about broader forms of diversity. We don’t know whether a new voting policy is being contemplated, but since there’s already one on board gender diversity, and in light of the focus lately on racial and ethnic diversity, it may not be too far of a stretch to think that a broader policy will be coming.

To ensure the data that ISS has is accurate and to improve the chances that their circumstances are considered in crafting a potential policy and phase-in, I personally think it’s in companies’ best interest to respond if they have the bandwidth to do so. I predict ISS will do some targeted follow-up to encourage that.

As a heads up, we are partnering with ISS Corporate Solutions for a webcast onThursday, August 6th, and will be covering board diversity as one of the topics. If anyone didn’t get the invite and wants to register for that, feel free to email me.
-Liz Dunshee, Editor, TheCorporateCounsel.net 8/3/2020

Q: Due to issues with EDGAR, our 10-Q was filed/accepted last night after business hours which resulted in an EDGAR filing date of a day AFTER the date on the signature page and certifications. Does this violate any laws or regulations? I know many other filers were also impacted by the EDGAR issues, so I suspect that this is already on the SEC's radar and hopefully being addressed by them. However, we're wondering if we should proactively submit a request to adjust the filing date through EDGAR (there is a how-to for this on the SEC's website).

RE: Rule 302(b) of S-T just requires them to be dated "before or at the time the electronic filing is made," so I don't think you've violated any rule. There's no harm in reaching out to get the filing date adjusted, although I don't think that's an urgent matter unless you'd be late without the adjustment.

For what it's worth, I was involved in a couple of filings yesterday that were submitted before 5:30 p.m., but they weren't accepted (or at least we didn't receive notice of acceptance) until after that time, and the SEC gave us a 7/30 file date. Since we didn't need to do anything, perhaps the SEC overlooked your filing for some reason.
-John Jenkins, Editor, TheCorporateCounsel.net 7/31/2020

RE: Thank you!
-7/31/2020

Q: It's not required under Delaware law. Is it required under NYSE/SEC regs? I understand the 10-K and S-3/S-8 need to be signed by the CAO, but could the CFO maintain this position and attendant duties?

RE: Both roles may be filled by a single person. I've seen many situations where the CFO is both the PFO & CAO.
-John Jenkins, Editor, TheCorporateCounsel.net 7/30/2020

Q: It is noted that as a general rule, when measuring the amount of securities available for a later takedown, only those securities actually sold are counted against the 1/3 limit. However, in the context of multiple, concurrent continuous offerings, any securities that continue to be offered in other continuous offerings in reliance on General Instruction I.B.6 would also count against the 1/3 limit. That being said, if a Company has an outstanding continuous offering under its S-3 (and is subject to Baby Shelf rules) and engages in confidentially marketed public offering, do you have to count unsold securities available under the outstanding continuous offering (even though the CMPO is not a continuous offering) for purposes of determining availability under Baby Shelf? Or, alternatively, do you only consider the amount sold?

RE: I'm not completely sure, but assuming the other offering is separate and not a continuous offering, I think the better answer is that you would only consider the amount sold. The exception to the general rule that you only count securities that are sold in calculating the 1/3rd limit is laid out in Securities Act Forms CDI 116.23. That CDI speaks only to multiple concurrent continuous offerings:

"Question: A company is able to sell up to $10 million in securities using its effective shelf registration statement on Form S-3, in reliance on General Instruction I.B.6. On Monday, June 7, the company files a prospectus supplement to offer and sell up to $5 million of securities in a continuous offering. The company promptly begins its offering and has sold $2.5 million of securities to date. The company intends to file a prospectus supplement for another continuous offering on the following Monday, June 14. What is the maximum amount of securities that can be offered by the June 14 prospectus supplement, assuming the 1/3 limit in General Instruction I.B.6 continues to be $10 million?

Answer: The general rule is that, when measuring the amount available for a later takedown, only those securities actually sold are counted against the 1/3 limit. See Question 116.22. In the context of multiple, concurrent continuous offerings, however, any securities that continue to be offered in other continuous offerings in reliance on General Instruction I.B.6 would also count against the 1/3 limit. In this example, the company has sold $2.5 million of securities to date and therefore, as of June 14, can offer and sell up to $7.5 million of securities pursuant to General Instruction I.B.6. Because the company continues to offer up to $2.5 million of securities with the June 7 prospectus, it can only offer and sell up to $5 million of securities with the June 14 prospectus. To permit otherwise would allow a company to do in two or more transactions what it cannot do in one transaction. [Aug. 11, 2010]"

I'm not aware of this position being extended to a situation involving a discrete takedown in a separate offering that is not being made on a continuous basis but that takes place concurrently with a continuous offering. It seems to me that this would have been an easy thing to do when drafting the CDI. The concept appears to be that a different position could allow companies to offer, on a continuous basis, an amount of securities that exceeds the 1/3rd limit, which is prohibited (See CDI 116.22). I don't think the same concerns would apply to a takedown in a truly separate, non-continuous offering. I would recommend that you run this one by the Staff.
-John Jenkins, Editor, TheCorporateCounsel.net 7/30/2020

Q: I am working on what I think is a unique set of circumstances. Our client has several insiders who intend to adopt 10b5-1 plans once the trading window next opens. In the meantime, a financial publication has inquired about writing a story on the company. If the company were in registration with the SEC, this would be an easy answer to my mind. However, I have never thought of "conditioning the market" in the context of 144 sales under a 10b5-1 plan. Each of the plans will have at least a 30-day waiting period, but there is no telling when any story would be published. I'd appreciate any thoughts.

RE: That's a tough one. It's a very unusual situation, but I guess I'd approach the materiality analysis here in the same way I would with respect to a contingency — Basic's probability/magnitude test. In terms of probability, you know a financial publication may publish a (presumably favorable) article about the company at some point in the future. The magnitude of the impact of a favorable story on the company depends on a number of factors. Is the company a relatively unknown small cap or a widely followed larger company? What news will the story break? Is it consistent with the market's expectations about the company, or are you dealing with a Kodak or Moderna-type bombshell?

It appears that the company and its management will cooperate in the story, which suggests to me that they are going to have an informational advantage over the market when it comes to assessing the answers to these questions. Assuming you're dealing with an event that would likely be material if it came to pass, that's a warning light. Courts tend to determine that contingent events are material fairly early on in the process when insiders have an informational advantage over the market, in order to deprive them of a trading advantage.

Even if you can reach the conclusion that the potential story isn't material at the time the 10b5-1 plans are entered into, you've also got to factor in how risk averse the company and its executives are. When insiders appear to have fortunately timed trades under a 10b5-1 plan, it often results in close public scrutiny and a lot of criticism. Just ask the folks at Moderna.
-John Jenkins, Editor, TheCorporateCounsel.net 7/29/2020

Q: Our company included a rather fulsome COVID-19 risk factor in our Q1 10-Q. We were fortunate during Q2 that the company had a good quarter, and some of the risks we highlighted did not materialize. We have had some debate whether to revise that risk factor in our Q2 10-Q, or just leave it out this time, since the risks were already highlighted last quarter and no new risks are evident right now beyond what was already stated. What is best practice here? I haven't come across this problem before.

RE: Once risk factors are updated in a 10-Q, they should continue to be included in subsequent 10-Qs for the remainder of that fiscal year. The language of Form 10-Q provides the basis for this requirement. Form 10-Q expressly requires companies to set forth "any material changes from risk factors as previously disclosed in the registrant's Form 10-K" in response to Item 1A to Part 1 of Form 10-K.
-John Jenkins, Editor, TheCorporateCounsel.net 7/20/2020

RE: As a follow-up to this QA, do the 10-Q1 risk factors actually need to be repeated in the 10-Q2, or can the company incorporate by reference the risk factors previously disclosed (Rule 12b-23, Exchange Act) in the 10-Q1?
-7/20/2020

RE: It can be incorporated by reference.
-John Jenkins, Editor, TheCorporateCounsel.net 7/20/2020

RE: How does the language from the instructions to Part II play in here? "If substantially the same information has been previously reported by the registrant, an additional report of the information on this form need not be made." If there's no change from one quarter to the next, would the risk factors as included in the first quarter 10-Q not be considered "previously reported"?
-7/27/2020

RE: I think you could certainly make that argument, and I'm sure many people take that position. The potential problem is that there's a discrepancy between what was in the SEC's adopting release for the 10-Q risk factor requirement and what is contained in the current language of the form. In the 2005 adopting release, the SEC “set forth any material changes from risk factors as previously disclosed in the registrant’s Exchange Act reports." The current language of the form calls for disclosure of any material changes from the risk factors as disclosed in the 10-K.

In the face of that discrepancy, I think people are uncertain how to interpret the general statement permitting companies to avoid repeating disclosure of previously disclosed information versus the specific line item that calls for “10-Q disclosure of changes made to the risk factor language in the Form 10-K." See this Bass Berry blog.
-John Jenkins, Editor, TheCorporateCounsel.net 7/28/2020

RE: OK. Thanks, John! That's a helpful explanation. Certainly incorporating by reference as you suggested above is not too onerous, but this seems like a place where some disclosure simplification might be worthwhile!
-7/28/2020

RE: The Sept-Oct issue of The Corporate Counsel stated:

Despite the literal language of Item 1A of Form 10-Q, the Staff has now confirmed that a new or updated risk factor disclosure included in a 10-Q (e.g., the Q.1 Form 10-Q) does not need to be repeated in subsequent 10-Qs. The Securities Offering Reform adopting release uses broader language than in Item 1A, saying that risk factors should be included in Form 10-Q to reflect material changes "from previously disclosed risk factors," and even discourages "unnecessary restatement or repetition of risk factors in quarterly reports." While language used in an adopting release doesn't override the express requirements of a rule, we understand that the Staff takes the above position.

Anyone know of this position changing?
-7/28/2020

RE: The cited article was from 2010.
-7/28/2020

RE: Thanks. That's news to me. I have not seen that interpretation. I will check with Dave and Mike to see if they can shed some light on it.
-John Jenkins, Editor, TheCorporateCounsel.net 7/28/2020

RE: I did some checking internally, and was told that statement in the Sept. 2010 issue was likely the result of an informal discussion with someone in the Chief Counsel's Office. Unfortunately, nothing more formal came out confirming that view.
-John Jenkins, Editor, TheCorporateCounsel.net 7/29/2020

Q: The issuer's CFO is resigning. Until a new CFO is hired, is it possible for a consultant to serve as the PFO of the issuer (and hence sign the 10-Q certifications)? Also, are there any line item requirements as to the credentials or experience a PFO needs to have? Many thanks.

RE: There are no formal requirements as to the credentials or experience a PFO must have, but it is a position of significant responsibility as far as the securities laws are concerned, so the board would be well advised to have concluded that the individual is up to the task prior to selecting that person.

There's no prohibition on a consultant signing a certification as a PFO, if that person is performing the functions of a PFO. As this Exchange Act Rules CDI notes, that's what matters:

Question 161.06

Question: An issuer does not have a principal executive officer or a principal financial officer. Who must execute the certifications required by Rules 13a-14(a) and 15d-14(a)?

Answer: As set forth in paragraph (a) of Rules 13a-14 and 15d-14, where an issuer does not have a principal executive officer or a principal financial officer, the person or persons performing similar functions at the time of filing of the report must execute the required certification. [September 30, 2008]
-John Jenkins, Editor, TheCorporateCounsel.net 7/29/2020

Q: Public company client entered into a related party transaction in its third quarter. The dollar value of the transaction exceeds $120K, but the transaction itself is NOT material to the company. We are aware that the transaction would be required to be disclosed in the company's next annual meeting proxy statement and pursuant to Item 13 of Form 10-K. However, we do not see a rule that would require that the transaction be disclosed in the Form 10-Q for the third quarter. I'd appreciate the group's input on this to confirm. Thank you.

RE: Form 10-Q doesn't have a line-item that requires Item 404 disclosure of related party transactions in the narrative, but GAAP may require some disclosure of them in the financial statements. Of course, the transaction may trigger an 8-K filing obligation.
-John Jenkins, Editor, TheCorporateCounsel.net 7/28/2020

Q: We are a Delaware issuer. The board typically appoints executive officers to the board. Are "Chief Accounting Officers" considered executive officers? In other words, is it necessary to have the board approve the appointment and employment/compensation arrangement?

RE: In the first instance, whether the board has to elect a particular officer is a state law issue, and Delaware doesn't mandate such an officer position (see Section 142 of the DGCL). However, at the federal level, you need to look at Rule 3b-7 under the Exchange Act and assess whether the individual's functions render him or her an "executive officer" as defined by that rule. Because of the responsibilities and potential liabilities imposed on executive officers under the federal securities laws, I think that it would clearly be a best practice to have the board formally elect any officer that would be classified as an executive officer under the securities laws.

Regardless of whether the company considers its chief accounting officer to be an executive officer, Form 8-K CDI 117.06 makes it clear that the Staff considers the principal accounting officer to be an executive officer for purposes of Form 8-K reporting requirements.

"Question 117.06

Question: If the registrant does not consider its principal accounting officer an executive officer for purposes of Items 401 or 404 of Regulation S-K, must the registrant make all of the disclosures required by Item 5.02(c)(2) of Form 8-K?

Answer: Yes. All of the information required by Item 5.02(c)(2) regarding specified newly appointed officers, including a registrant’s principal accounting officer, is required to be reported on Form 8-K even if the information was not required to be disclosed in the Form 10-K because the position does not fall within the definition of an executive officer for purposes of Items 401 or 404 of Regulation S-K. [April 2, 2008]"
-John Jenkins, Editor, TheCorporateCounsel.net 7/28/2020

Q: Company will be holding its first annual meeting in November 2020. Company's advance notice bylaws provide that if there was no meeting in the prior year and the date of the meeting is first announced within 100 days of the meeting date, stockholder proposals must be submitted within 10 days after announcement of meeting date. Recognizing that 14a-8 deadlines and advance notice bylaws address different topics, if a stockholder proposal is not timely under the bylaws unless submitted within 10 days after announcement of the meeting date, is there any reason that could not also be the date by which stockholder proposals would need to be received to be eligible for inclusion in the proxy? We would propose to announce the deadline in the press release announcing the meeting date and record date, and include related disclosure in Item 7.01 of an 8-K.

RE: If you haven't held a meeting, then the deadline under Rule 14a-8 is a "reasonable time before the company begins to print and distribute proxy materials." Unfortunately, that's a facts and circumstances test that the SEC applies in a decidedly pro-proponent manner. In most cases, that means that a shareholder can submit a Rule 14a-8 shareholder proposal until the company has begun printing and distributing its proxy materials. See the discussion beginning on p. 100 of our Shareholder Proposals Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 7/27/2020

RE: Thank you. I had read through that discussion and appreciate it is a facts and circumstances test. For example, the company likely will need to file a preliminary proxy statement, which it would likely file within two weeks after a 10-day deadline. (I note one exclusion discussed in the guide where the proposal was submitted after preliminary materials were filed.) For various reasons, the company also does not have the flexibility of delaying the date of its meeting. I guess the bottom line is that we can announce a 14a-8 deadline, but the company would not be able to rely on that deadline to have a proposal excluded on the basis that it was untimely submitted and would need to persuade the staff that it was reasonable under the circumstances?
-7/27/2020

Q: An accelerated filer must file its 10-K today, otherwise it will be late. It appears as though the document will be ready to be filed today, but not by 5:30. Since a 12b-25 would not be required to be filed until tomorrow, couldn't the company file the 10-K tonight, albeit late, and not have to file the 12b-25?

RE: If the Form 10-K is not filed until after 5:30 p.m. EST on the due date, it will be assigned a filing date of the next day, and therefore would not be considered a timely filing. Rule 12b-25 provides an automatic 15-day extension of the Form 10-K filing deadline, as long Form 12b-25 is filed within one business day of the deadline. If you file the Form 12b-25 and the Form 10-K together on the evening of the due date, both the Form 12b-25 and the Form 10-K would be considered timely filed.
-Associate Editor, TheCorporateCounsel.net 3/16/2009

RE: Do you think the same would apply in this situation: issuer files a 10-Q after 5:30 on the due date, and then files the 12b-25 the next day. The 12b-25 was timely, so does it still act to make the 10-Q timely, even though filed after the 10-Q was filed?
-7/27/2020

I think so. Rule 12b-25 doesn't condition its extension of the due date on the periodic report not being filed prior to the time that the Form 12b-25 is filed. Assuming the Form 12b-25 is filed on a timely basis, I think that if you satisfy the conditions set forth in the rule, the extension should apply under these circumstances.

I think a different interpretation would encourage companies to delay the filing of the 10-Q, instead of encouraging them to file it as soon as possible. That's not a policy outcome that seems to make a lot of sense.
-John Jenkins, Editor, TheCorporateCounsel.net 7/27/2020

Q: In the SEC relief to the signature requirements of Rule 302(b), the Staff indicated that the SEC will not take enforcement action if, among others, the manually signed signature page contains a date and time of the signature. If the signatory emails the signature page but forgets to add the time and date of the signature, do you think the date and time of the email will suffice to show that the signature was executed prior to the filing (and thus avoid SEC enforcement, if it came to that)?

RE: This is just my gut reaction, but for what it's worth, I'm not entirely sure that it technically complies with the guidance. But, assuming this is a one-off situation, I don't think I would make the signatory re-sign the document and include the date and time under these circumstances. I think you could argue that the inclusion of the date and time of receipt on the email correspondence initiated by the signatory is sufficient.
-John Jenkins, Editor, TheCorporateCounsel.net 7/27/2020

Q: Company would like to refer to "positive EBITDA" in its earnings announcement, without disclosing a specific EBITDA amount. Does this type of disclosure require that we provide the corresponding GAAP measure (e.g., net income) with equal or greater prominence, or can we avoid this since we're not disclosing a specific EBITDA amount?

RE: It's not entirely clear as to whether the inclusion of a non-numerical reference to EBITDA would be regarded as a non-GAAP financial measure subject to Reg G, but we think the more prudent course is to treat it as if it was. There's an in-depth discussion of this issue on p. 113 of our Non-GAAP Financial Measures Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 7/27/2020

Q: A fully reporting and publicly traded (OTC) acquisition holding company (Holdco) has a controlling interest in several subsidiaries. One of those subsidiaries (Subco) has just completed an IPO and is now publicly traded on a national securities exchange (assume more than 90 days). Holdco would like to declare a pro rata dividend of the Subco shares that it holds to its stockholders. Holdco acquired a controlling interest in Subco about a year ago (less than two years). I have reviewed Staff Legal Bulletin No. 4. It goes all the way back to 1977. It requires a holding period of two years. Since we do not meet the holding period requirement, it seems we would have to register the distribution. First question is whether Staff Legal Bulletin No. 4 is still authority on spinoff transactions like this. The SEC has since modified several holding periods (e.g., 144 now 6 months). Is it true that this 1977 bulletin requiring two years is still authority? Second question is assuming we do have to register the distribution. Is there any reason you can think of that we cannot use Form 1-A (Regulation A) to register the distribution? Also, I did not see many examples on EDGAR of S-1s registering dividend distributions. If you are aware of any, I would love to take a look. Thanks in advance for your assistance with this matter.

RE: SLB 4 isn't quite that ancient. It goes back to 1997, not 1977, and it's still very much alive. In terms of using Form 1-A, I don't see anything in that form that would prohibit its use to register a distribution like this, but I would check with the Staff. One potential issue is that the Holdco distribution could well be regarded as a secondary offering, and thus subject to the 30% limitation on secondary sales under Form 1-A.
-John Jenkins, Editor, TheCorporateCounsel.net 7/27/2020

Q: An issuer has recasted some of its financial figures in a Form 10-Q as a result of the implementation of a stock split, and is planning to do the same for all of its financials in its Form 10-K for the current fiscal year. In addition, the issuer is seeking to file a Schedule 14A incorporating its financial statements by reference. If the issuer is required to recast historical financial information in an upcoming annual report as a result of an event during the fiscal year of the report, is the issuer able to incorporate the unadjusted financial information from its previous 10-K in the period between the date of the event and the filing of the subsequent 10-K? Or, must the issuer adjust the financial information now and present that in the Schedule 14A?

RE: The Staff doesn't require adjusting the historical financial information solely for a split in order to incorporate it by reference into a proxy statement, but it does require appropriate disclosure in the Selected Financial Data section of the document. Here's the relevant language from Section 13500 of the FRM:

"Stock splits also require retrospective presentation. Ordinarily, the staff would not require retrospective revision of previously filed financial statements that are incorporated by reference into a registration or proxy statement for reasons solely attributable to a stock split. Instead, the registration or proxy statement may include selected financial data which includes relevant per share information for all periods, with the stock split prominently disclosed."
-John Jenkins, Editor, TheCorporateCounsel.net 11/13/2016

RE: Hi, John.

Same scenario, except that the pre-split financial statements would be incorporated by reference into a new Form S-3 filed after the split. Does this change the analysis?
-7/23/2020

RE: I don't believe so. The language of FRM Section 13500 expressly applies to registration statements as well as proxy statements, and seems to represent a general exception to the requirement that financial statements must be retrospectively revised prior to filing in the event of the kinds of subsequent events referenced in Topic 13.
-John Jenkins, Editor, TheCorporateCounsel.net 7/24/2020

Q: Certain funds that own more than 5% of shares in an issuer have pledged certain of their shares under various arrangements. Those funds are ultimately controlled by the CEO, although his economic interest in the funds is only minimal. Would the pledges by the 5% holders need to be disclosed under 403 of S-X given the beneficial ownership of the CEO?

RE: Under Item 403(b), if the shares are listed as being beneficially owned in column 3, then any pledges related to those shares need to be disclosed. Beneficial ownership in Item 403 is determined by reference to Rule 13d-3, which looks to voting and investment control, not the existence of a pecuniary interest in the shares.
-John Jenkins, Editor, TheCorporateCounsel.net 7/23/2020

Q: Company X terminates one of the NEOs identified in its most recent proxy statement (which was the last time that Company X complied with S-K Item 402(c)). Pursuant to Instruction 4 to Item 5.02, Company X is not required to identify a "replacement NEO" unless it complies with S-K Item 402(c) again in a subsequent SEC filing. However, what if Company X (weeks or even months after the date of termination of the NEO) decides to enter into a consulting agreement with the terminated NEO? Does that consulting agreement trigger an Item 5.02(e) Form 8-K — in other words, would the "look back" period contemplated by Instruction 4 pick up NEOs no longer employed by Company X until such time as Company X again complied with S-K Item 402(c) in an SEC filing? Thanks in advance for any thoughts.

RE: This is a good question, for which I have not seen or heard any guidance from the SEC Staff.

By the straight operation of Instruction 4, it seems that the result would be that you would have to disclose any such post-termination arrangements, but that result seems to me to be completely inconsistent with the purposes of the Item. Has anyone received any guidance from the Staff on this point?
-Dave Lynn, Editor, TheCorporateCounsel.net 7/30/2008

RE: Any updated answers, insight or guidance on this question? Continuing disclosure would seem even more "odd" if the only reason a person is named in the proxy statement was because they served as the CEO or CFO during a portion of the fiscal year.

On its face, Instruction 4 would seem to require the issuer to disclose 5.02(e) transactions with any person who is named in the proxy as an NEO (even if they were named because they served for a portion of the fiscal year, but then retired) until a proxy statement including the 402(c) disclosure is filed.
-5/3/2010

RE: Same question. Years later. NEO, who appeared in the 2020 10-K executive compensation disclosure as an NEO, is terminated in June 2020. An 8-K was timely filed to announce his departure. He will be included in the 2021 executive compensation disclosure as one of the "plus 2" for whom disclosure would have been provided but for the fact he was not serving in such capacity at the end of fiscal 2020. The question is whether he is still considered an NEO for 8-K triggering purposes after his termination: he may enter into a separation agreement with the company, after the actual termination date, clarifying certain payments, etc., that he will get. I think this will trigger a new 8-K, but I welcome your thoughts. Thank you.
-7/22/2020

RE: I think so too, based on the language of Instruction 4. to Item 5.02. Dave Lynn ultimately reached a similar conclusion in his response to Topic #4125, based on some internal Staff guidance. See also the discussion on p. 206 of our Form 8-K Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 7/22/2020

Q: What is the current thinking on a company granting options and RSUs to executives and broader employee base during a blackout?

RE: We typically avoid granting options during a blackout period, primarily to avoid the risk of spring-loaded options. We wait until the blackout ends (or more specifically, until after our earnings release) to ensure that the option price reflects our latest earnings information. I am not aware of any similar issues with granting RSUs, but I am interested in others' views on that.
-7/22/2020

RE: Yes, that's the issue. Take a look at the discussion in Topic #10175. Spring loading of RSUs has been alleged in at least one piece of litigation involving equity awards. Bono v. O'Connor, (D NJ 2016):
-John Jenkins, Editor, TheCorporateCounsel.net 7/22/2020

Q: Our company included a rather fulsome COVID-19 risk factor in our Q1 10-Q. We were fortunate during Q2 that the company had a good quarter and some of the risks we highlighted did not materialize. We have had some debate whether to revise that risk factor in our Q2 10-Q, or to just leave it out this time since the risks were already highlighted last quarter and no new risks are evident right now beyond what was already stated. What is best practice here? I haven't come across this problem before.

RE: Once risk factors are updated in a 10-Q, they should continue to be included in subsequent 10-Qs for the remainder of that fiscal year. The language of Form 10-Q provides the basis for this requirement. Form 10-Q expressly requires companies to set forth "any material changes from risk factors as previously disclosed in the registrant's Form 10-K" in response to Item 1A to Part 1 of Form 10-K.
-John Jenkins, Editor, TheCorporateCounsel.net 7/20/2020

RE: As a follow-up to this QA, do the 10-Q1 risk factors actually need to be repeated in the 10-Q2, or can the company incorporate by reference the risk factors previously disclosed (Rule 12b-23, Exchange Act) in the 10-Q1?
-7/20/2020

RE: It can be incorporated by reference.
-John Jenkins, Editor, TheCorporateCounsel.net 7/20/2020

Q: In instances where the accounting team determined that certain legal proceeding is subject to disclosure under ASC 450, but the legal team concluded that disclosure of such proceeding is not required under Item 103, what do companies typically do? Do they only disclose it in the notes to the financial statements, or do they drop a cross reference to the contingency note in the Legal Proceedings section? What’s the harm in taking the latter approach? Would the analysis change if the legal team thought it was possible that the Item 103 threshold could be triggered in the future (albeit not the near future)?

RE: I don't think there's uniformity in the approach to situations like this. Since ASC 450 may require disclosure of contingencies involving much less than the 10% of current assets threshold under Item 103, some companies conclude that there is no reason to reference it in the legal proceedings section. Others take the position that the legal proceedings disclosure should always include a cross reference to the contingencies footnote. I've also seen some situations where the company opts to include identical disclosure in the legal proceedings section and the contingencies footnote, even if that footnote includes matters that aren't required to be disclosed under Item 103.

In my anecdotal experience, I've usually seen companies opt to include disclosure in the legal proceedings section of litigation matters that turn up in the contingencies footnote under ASC 450, at least by means of a cross-reference. Since there isn't perfect alignment between Item 103's disclosure requirements and ASC 450's, I don't think this is necessarily a good approach to disclosure of matters that are required to be addressed under Item 103, unless the company includes the expanded disclosure in the footnote.

As for matters that aren't required to be disclosed under Item 103, I think a cross-reference is not a bad idea, and I don't really see a downside. I've heard arguments from lawyers who have included the language of the contingencies footnote in the legal proceedings section argue that this avoids the risk of a plaintiff contending that it "buried" information in a footnote that it should have included in the description of legal proceedings. I guess that argument doesn't persuade me, since it seems unlikely to me that investors and analysts would overlook a contingencies footnote. I find it even less persuasive if the Item 103 disclosure is accompanied by language that essentially says, "hey, you also should look at the footnote."

One other point to keep in mind is that while a contingency that's subject to footnote disclosure under ASC 450 may not require disclosure under Item 103, depending on the particular situation, you may need to consider whether it triggers a disclosure obligation under MD&A's known trends & uncertainties disclosure requirement. Companies that feel a matter is important enough to address in MD&A will likely opt to include it in the legal proceedings discussion, even if there may be a basis for not disclosing it based on the line item provisions of Item 103.

You may find the discussion beginning on p. 14 of our Legal Proceedings Handbook to be of some assistance.
-John Jenkins, Editor, TheCorporateCounsel.net 7/17/2020

Q: Is anyone aware of the dates by which public companies wanting to have a governance/compensation review/discussion engagement session with ISS/Glass Lewis need to have such a session this year? Thanks.

RE: Glass Lewis simply says that they will engage outside the solicitation period, which begins when a company issues its notice of meeting and ends with the meeting.

I don't think ISS has a hard deadline, but it cautions that "during the annual meeting season, in-person meetings are typically limited to contentious issues, including contested mergers, proxy contests, or other special situations, while engagement on other topics is handled telephonically."

For more details on the practicalities of engaging with proxy advisors, see the discussion beginning on p. 42 of our Proxy Advisors Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 7/16/2020

Q: We just had this situation arise where a director who is up for nomination at the upcoming annual meeting of stockholders just informed us that he joined two public company boards. This doesn't pose an issue under our guidelines, but I’m wondering about additional disclosure that might be required in connection with his election at our upcoming meeting. The meeting is in just a few days.

RE: From a legal standpoint, the answer to that question depends on your assessment of how material the new information is. That depends on your situation, but unless the director is going to run afoul of major investor or proxy advisor overboarding policies, this doesn't sound too earthshaking to me. My answer would be different if the director joined the new boards before the proxy statement was mailed, in which case you'd be dealing with a proxy statement that didn't contain required disclosure.

Out of an abundance of caution, I think I'd probably file a proxy supplement disclosing the new board positions in advance of the meeting, but I don't think I would feel the need to disseminate it unless there's something else that's potentially problematic about the new directorships.

You may want to refer to the article on "Avoiding Proxy Panic: Tips for Dealing with Post-Mailing Surprises" in the July 2018 issue of The Corporate Counsel.
-John Jenkins, Editor, TheCorporateCounsel.net 7/16/2020

Q: I have a client who is thinking about doing a customer loyalty-type program where they issue shares to eligible customers. We were probably issued them without or for a nominal cost (at a fixed price and not through an at-the-market offering structure). The client is not S-3 eligible (and also wouldn't be eligible for incorporation by reference in the S-1, since it wouldn't have filed its 10-K yet), so I was thinking we would use an S-1 and conduct the offering under Rule 415(a)(1)(ix). Haven't found much literature on 415(a)(1)(ix). Any issues with this? I am not super familiar with this type of registration. It looks like it has to be continuous (i.e., we would have to keep it open for a period of time).

RE: There isn't a lot out there on Rule 415(a)(ix). The best description I've seen about what's required to be considered a continuous offering is in this excerpt from a MoFo memo:

In a “continuous offering,” securities are offered promptly after effectiveness (within two days) and will continue to be offered in the future. The term “continuous” only applies to offers of the securities, not to sales of the securities; sales can be made sporadically over the duration of the offering. In a “delayed offering,” there is no present intention to offer securities at the time of effectiveness. Generally, only more seasoned issuers that are eligible to use Form S-3 or Form F-3 on a primary basis may engage in delayed primary offerings.

Since you aren't eligible to incorporate by reference, you'll need to keep in mind applicable updating requirements for your prospectus and registration statement. Guidance on those requirements is provided in Securities Act Forms CDIs 113.01 & 113.02:

Question 113.01

Question: If a continuous offering under Securities Act Rule 415 is registered on Form S-1, is a post-effective amendment required to be filed in order to satisfy the requirements of Securities Act Section 10(a)(3), to reflect fundamental changes or to disclose material changes in the plan of distribution?

Answer: Yes. A post-effective amendment is required in these circumstances pursuant to the issuer's Item 512(a) undertakings. Form S-1 does not provide for forward incorporation by reference of Exchange Act reports filed after the effective date of the registration statement. Other changes to the information in the prospectus contained in the registration statement generally may be made by filing a prospectus supplement. [Feb. 27, 2009]

Question 113.02

Question: How should a registrant conducting a continuous offering on Form S-1 update the prospectus to reflect the information in its subsequently filed Exchange Act reports?

Answer: If Form S-1 is used for a continuous offering, the prospectus may have to be revised periodically to reflect new information since, unlike Form S-3, the form does not provide for incorporation by reference of subsequent periodic reports. For example, in a continuous offering on a Form S-1 pursuant to Rule 415(a)(1)(ix), a registrant wants to update the prospectus to include Exchange Act reports filed after the effective date of the Form S-1. Item 512(a)(1) of Regulation S-K requires certain changes, including a Section 10(a)(3) update, to be reflected in a post-effective amendment. Other changes may be made in a prospectus supplement filed pursuant to Rule 424(b). If the registrant files a post-effective amendment, it could incorporate by reference previously filed Exchange Act reports if it satisfied the conditions in Form S-1 allowing incorporation by reference. [Jan. 26, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 7/16/2020

Q: Nasdaq Rule 5635(a) provides that a company cannot issue 20% of pre-transaction shares outstanding to "purchase" stock or assets absent stockholder approval. We are trying to determine whether an in-license of IP/technology in exchange for stock would also be subject to this rule. Thanks in advance.

RE: What constitutes a purchase of assets subject to 5635's shareholder approval requirements hasn't been addressed in Nasdaq's FAQs or interpretive letters, but I would be surprised if the issuance of shares in connection with the acquisition of a license didn't require compliance with it. You should reach out to Nasdaq. It sounds like your licensing arrangement could be characterized as involving the purchase of an asset (the right to use intellectual property) that belongs to another entity. It seems to me that the wording of the rule is broad enough to encompass a transaction like this.
-John Jenkins, Editor, TheCorporateCounsel.net 7/15/2020

Q: A company is party to an agreement that is not material and is planning to amend this immaterial agreement to modify a term thereof. The agreement as modified will still not be material to the company, but a material payment is being made in consideration for the amendment. In this situation, where the only material part of the circumstances is the consideration for the amendment, is it reasonable to conclude that the payment does not make the agreement material, and therefore no 8-K is triggered (though the payment would of course be disclosed in the ordinary course where appropriate in periodic filings)? If not, and the company files an Item 1.01 8-K for the amendment, when the company files the amendment with its next Form 10-Q, would it also need to file the underlying agreement, even though the agreement, even as modified, is still not material to the company?

RE: If the agreement is one that's entered into in the ordinary course of business and thus removed from the material definitive agreement classification on that definitional basis as per instruction 1 to Item 1.01. I think it is possible that an amendment involving a large payment wouldn't necessarily alter the analysis, unless the amount involved somehow undermined the conclusion that the agreement should still be considered to have been entered into in the ordinary course of business. See the discussion beginning on page 51 of our 10-K & 10-Q Exhibits Handbook.

The Handbook cites Nike's decision not to file the $1 billion contract that it entered into with LeBron a few years ago as an example of a situation where a contract that has an enormous dollar value might still be an ordinary course contract. As a more mundane example, I can imagine changes to a large purchase order or similar ordinary course contract that might significantly alter the economics and impact a company's bottom line in a material way, but if the company enters into those purchase orders in the ordinary course of its business, I don't think the change in terms would necessarily transform the purchase order itself into a material definitive agreement. As you note, however, the impact of such a change may still require disclosure.

On the other hand, if the contract was not definitionally excluded and the materiality assessment of the initial contract turned on the economics, then the amendment might be sufficient to result in a reclassification of the original contract, in which case, I think an 8-K would be triggered upon amendment and the original contract, and the amendment should be filed. In terms of timing, Instruction 3 to Item 601(b)(10) requires the contract to be filed as an exhibit to the Form 10-Q or Form 10-K filed for the corresponding period during which it was entered into or became effective. In this case, I think you'd look to the date of the amendment that made the contract material.
-John Jenkins, Editor, TheCorporateCounsel.net 7/13/2020

Q: A public bank has registered securities under Section 12(g) of the 1934 Act and reports to the FDIC instead of the SEC (because it is a bank). The bank is in the process of creating a bank holding company structure, at which point it will be regulated by the SEC. My question is, when do XBRL reporting requirements kick in for the new holding company? With its first filing, or is there a phase-in period for a successor issuer who has not previously filed on EDGAR? The bank has not had to comply with XBRL requirements with its filings with the FDIC. From reading the adopting release, I think it is the former, but I wanted to confirm. Thank you!

RE: I think you're right. The XBRL adopting release contains extensive discussion of the transition to the new rule, so if the SEC wanted to carve out special provisions for successors, I think it would have done so there. That's also consistent with the general position that a successor stands in the shoes of its predecessor when it comes to reporting obligations and status.
-John Jenkins, Editor, TheCorporateCounsel.net 7/10/2020

Q: If a company has stopped an attempted ransomware attack, and had no loss (no material impact), it would seem that no 8-K would be needed and no 10-Q risk factor update would be needed (as the existing 10-K risk factor mentions that the company is subject to cyber attacks from time to time) under the 2011 and 2018 cybersecurity guidance (and general disclosure rules), but thanks for any thoughts here.

RE: It sounds like you’re on the right track for the analysis, though you may want to consider specifically identifying ransomware as a form of cyberattack that’s occurred. You may also want to be prepared for investors to ask about these events during engagements, and you would want your public disclosure to align with anything you expect to cover in those conversations.
-Liz Dunshee , Editor, TheCorporateCounsel.net 7/11/2020

RE: As a follow-up to Liz's response, we did a pretty deep dive on disclosure and internal control issues surrounding cyber incidents in the September-October 2018 issue of The Corporate Counsel.
-John Jenkins, Editor, TheCorporateCounsel.net 7/11/2020

Q: Where a registrant is relying on Rule 457(p) to offset filing fees in connection with the filing of a shelf Form S-3, should the registrant list the filing fee for that registration statement with or without the offset? Since the table is looking at expenses of the offering, it seems like it should reflect the offset , but it also seems that most companies include the full amount of the fee owing (without the offset) in the table. I did find one company who had included a footnote indicating that the fee in the table, "does not reflect an $X fee offset under 457(p)", which seemed to me to be a good approach. This may fall into the category of "it really doesn't matter that much," but I'm curious for thoughts on this and why general practice seems to be to include the full amount, even though some or all of it is not actually an "expense" of the offering.

RE: I think it's fair to characterize the entire registration fee as an expense of the offering, regardless of whether the fee is paid entirely in cash or through a rollover like that contemplated by 457(p). The fee is required to do the offering. You've simply paid it in part by applying the cash you used for a previous filing fee. It may not involve fresh cash, but it does involve crediting you for your unused prior cash payment.
-John Jenkins, Editor, TheCorporateCounsel.net 7/10/2020

Q: A public company, (incorporated in, e.g., Texas) that has been subject to the reporting requirements of Section 13/15(d) of the Exchange Act for many years, enters bankruptcy in July 2020 and then emerges after year end as a new issuer reincorporated in Delaware. For the new/successor issuer's FY 2021 Form 10-K filed in 2022 — assuming that it meets the public float conditions for accelerated or large accelerated filer status as of 6/30/2021 — can the successor issuer rely on the predecessor's reporting history to satisfy the accelerated/large accelerated filer conditions that (i) the issuer has been subject to the requirements of Exchange Act Section 13(a) or 15(d) for a period of at least twelve calendar months and (ii) the issuer has filed at least one annual report pursuant to Exchange Act Section 13(a) or 15(d)? The predecessor company is a large accelerated filer for FY 2020 but is transitioning to a non-accelerated filer for its FY 2020 Form 10-K due to its public float as of 6/30/2020. Pursuant to Instruction I.A.6. to Form S-3, it is clear that a successor issuer can utilize the predecessor's reporting history (together with its own) for S-3 eligibility. Based on multiple no-action letters, the Staff has also taken a similar position re: a successor issuer's ability to utilize a predecessor's reporting history for purposes of complying with Rule 144(c)(1) and Rule 174(b). So, it would seem logical that the same would be true for meeting accelerated filer status, but I haven't found any specific rule or guidance confirming that is the case. If that is not the case, then it seems that the successor issuer wouldn't become an accelerated or large accelerated filer until it's FY 2022 Form 10-K filed in 2023 regardless of its public float. Any guidance or thoughts on this matter would be greatly appreciated.

RE: I don't think this has been addressed in the bankruptcy context, but this comment letter response cites a couple of no-action letters (GulfMark Offshore, Inc. (available January 12, 2010) and Aether Systems, Inc. (available April 26, 2005)), supporting the proposition that a successor issuer inherits the predecessor's accelerated filer status.

There are technical issues about whether a company emerging from bankruptcy is a successor issuer, but there are a couple of Exchange Act Rules CDIs that suggest the successor company that emerges from bankruptcy could inherit its predecessor's reporting status.

"250.04 Following emergence from bankruptcy, the same issuer issues a new class of common stock that has substantially the same terms as its old common stock, except for a different par value. Under the bankruptcy plan, all shares of the old common stock are canceled simultaneously with the issuance of the new common stock to new holders. Although Rule 12g-3 technically does not apply because only one issuer is involved, the Division is of the view that the new common stock would succeed to the registered status of the old common stock, so that continuous Exchange Act reporting would be required. [September 30, 2008]

250.05 Rule 12g-3(a) would be available to effect Section 12 registration of securities of a successor issuer formed as part of the predecessor’s emergence from bankruptcy, even though the class of securities so registered will be issued to persons other than the holders of the registered class of the predecessor. [September 30, 2008]?"
-John Jenkins, Editor, TheCorporateCounsel.net 7/10/2020

Q: If a company is a new SEC filer (with common stock recently registered under Section 12 of the Exchange Act), would any web posting requirements (e.g., the requirement under Instruction 2 of Reg S-K, Item 407 to post committee charters) be applicable now, or would the requirements begin to apply at the next time the company filed a report requiring the relevant disclosure (e.g., the proxy statement)? Thanks in advance for your help.

RE: If you're listing on an exchange, then it's a listing rule, so you'd need to have the required materials posted at the time of listing. If you're not listed, then I think the proxy disclosure requirement would be the trigger for having the stuff referenced in Item 407 posted.

SEC rules also require companies to disclose in their Form 10-Ks whether they post their periodic (Form 10-K and Form 10-Q) and current (Form 8-K) reports on their websites, and if not, why not and whether they will provide electronic or paper copies free of charge upon request. Some stuff, like Section 16 reports and certain conflict minerals information, must be posted sooner. See our Website Disclosure Checklist for more details.
-John Jenkins, Editor, TheCorporateCounsel.net 7/9/2020

Q: For purposes of doing the calculation under Instruction I.B.1 of Form S-3, does anyone have any learning on whether the calculation of "common equity" could include common stock underlying outstanding warrants or convertible securities (preferred or debt) that has not yet been exercised/converted? I know that the Instruction points to Rule 405, but I was just wondering if anyone was aware of any formal or informal SEC guidance on this topic (or in any similar area, e.g., as used in the definition of WKSI). Thanks in advance for any feedback.

RE: Bumping this up to the top from 11 years ago. :)
-7/9/2020

. RE: I don't think shares underlying warrants or convertible securities would count because you can’t include shares in the public float computation until they are actually issued. See Securities Act Forms CDI Question 216.05:

"216.05 General Instruction I.B.1 of Form S-3 requires an issuer to have $75 million of voting and non-voting common equity held by non-affiliates. The instruction indicates that the $75 million public float requirement may be computed on the basis of the last price at which the issuer's common equity was sold as of a date within 60 days prior to the date of filing. An interim daily price may not be used instead of a closing daily price. In addition, an issuer may not include shares in the public float computation until they are actually issued. [Feb. 27, 2009]"
-John Jenkins, Editor, TheCorporateCounsel.net 7/9/2020

Q: Our public company client recently filed their Annual Report on Form 10-K and, in the course of preparing their proxy statement, we realized that they did not include a Description of Securities exhibit per the new requirement to do so in Rule 601(b)(4)(vi) of Regulation S-K. From our brief review of recently filed 10-Ks, it looks like a number of issuers have omitted this exhibit in error, and we have only seen one 10-K/A amending an issuer’s Form 10-K to include such exhibit. Do you have any opinion on whether it’s necessary to remedy the error and whether we should advise our client to (i) file the missing exhibit with an updated exhibit list as a 10-K/A, (ii) file the missing exhibit with a current report on Form 8-K explaining the discrepancy, (iii) add the exhibit to their next quarterly report on Form 10-Q, or (iv) wait and add the exhibit to their 10-K next year? Thank you in advance.

RE: I think a lot of early filers missed that requirement, and one reason may be a misprint in the Code of Federal Regulations that suggested the filing was only required in a Form 10-D. Many may have opted not to correct their filings on that basis (if they've even discovered the error). I don't know whether that's technically the legally correct approach, but I can certainly understand its attraction as a practical matter, and I don't think I'd throw myself in front of a bus to stop a client who decided to proceed without an amendment under these rather unusual circumstances.

Anyway, that misprint has been corrected. We generally think that if you don't file a required exhibit, you should amend the filing to include it. See the article on amending Exchange Act filings in the May-June issue of The Corporate Counsel.
-John Jenkins, Editor, TheCorporateCounsel.net 12/10/2019

RE: Has a best practice emerged to correct the omission of the Description of Securities exhibit? It has been a few months, and I've only found one 10-K/A correcting the omission. Thanks in advance.
-7/8/2020

Q: The Company received a stockholder proposal to include in the Company's next proxy statement. The stockholder proposal was deficient, and the Company sent a letter to the stockholder informing such stockholder that the proposal contained certain deficiencies. The stockholder sent a response to the deficiency letter; however, such response is still deficient and the stockholder has asked the Company if the response satisfies the Company's requirements. Question: does the Company have to respond to the stockholder informing the stockholder that its response is still deficient and identify those deficiencies again? My initial thoughts are (1) the Company fulfilled its obligation when it sent the first response letter containing the deficiencies and how to cure the deficiencies and (2) the Company should not be providing legal advice to a stockholder on whether the stockholder has satisfied SEC requirements for stockholder proposals. Accordingly, the Company does not need to respond to the stockholder's response. Any thoughts on this?

RE: If the proponent hasn't addressed the deficiencies within the relevant time period after you've provided proper notice of them, I don't think that you have to give the proponent advice on how to fix them, but you will still need to follow the no-action process under Rule 14a-8(j). The process of notifying a proponent of deficiencies and responding to the proponents efforts to address them is a complex process, and there are nuances that may be involved based on the nature of the deficiency. In the end, depending on the nature of the deficiency, the Staff may give the proponent another bite at the apple. I would encourage you to review the Shareholder Proposal Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 7/6/2020

Q: The 2(a)(11) definition of underwriter specifies that "as used in this paragraph the term ‘‘issuer’’ shall include, in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer." The definition of issuer in 2(a)(4) does not specifically reference control persons and would only seem on its face to refer to the company issuing the securities. Can 2(a)(4) be interpreted in a way that would also capture control persons? I am trying to figure this out in the context of whether a secondary transaction by a control person (like a director or executive officer) would fall with the 4(a)(1) exemption (assuming that the control person met the requirements of Rule 144 for the sale of a "control" security).

RE: Outside of the context of Section 2(a)(11), I've never seen anyone contend that a control person of a public corporation is an "issuer." The language of Section 2(a)(11) itself makes it pretty clear that the expansive definition of the term "issuer" is limited to how the term is "used in this paragraph." Such persons are encompassed within the term "issuer" in Section 2(a)(11) in order to allow an entity to avoid characterization as a statutory underwriter simply by not purchasing securities directly from the entity that originally issued them. I don't think there's anything in the statute that would require them to be treated as issuers in any other context.

As you know, control persons rely on Rule 144 all the time, and in doing so, they are in actuality relying on the Section 4(a)(1) exemption. (See, e.g., the preliminary note to Rule 144.) That's because Rule 144 provides a "safe harbor" under which corporate officers, directors and other control persons that trade in compliance with its requirements may avoid characterization as statutory underwriters and therefore permit those trades to qualify for the Section 4(a)(1) exemption for transactions by persons other than issuers, underwriters or dealers.
-John Jenkins, Editor, TheCorporateCounsel.net 7/6/2020

RE: Thanks John! Super helpful and is exactly where I was going with this, but wanted to make sure I wasn't missing something obvious.
-7/6/2020

Q: I am preparing a script for a public company's annual meeting. I noticed that the sample scripts posted to this site include the total number of shares present or for which proxies have been received at the meeting. Is this required by any Delaware law or other relevant rule? We are concerned about obtaining this figure as stockholders can vote up until the night before the meeting. Thanks!

RE: I usually throw the phrase "at least" into the script. It doesn't have to be up to the minute. You just want to indicate the basis for the determination that a quorum exists.
-John Jenkins, Editor, TheCorporateCounsel.net 7/3/2020

Q: Since the SEC went fully remote, has anyone submitted testing the waters materials or other supplemental materials to the SEC for which you have sought confidential treatment? If so, could you please share any practical steps on how you handled the submission process given the SEC’s limited capacity to handle physical deliveries at the moment? Thanks.

RE: We have provided both unredacted exhibits and TTW materials to SEC examiners on multiple IPOs via an electronic data room (either one set up just for this purpose or one with a folder for this purpose, which folder is the only one the SEC examiner would have access to). It has worked well so far, since mail is not being forwarded from the SEC's address and we certainly cannot send to the examiner's home. We have determined not to send via email so as not to ruin confidentiality (since SEC emails can be subject to FOIA requests).
-7/2/2020

Q: Company timely filed its Form 10-K, which included all Part III information. After the Form 10-K was filed, Company awarded NEO cash bonuses for last year. These bonuses were entirely discretionary and there was no expectation of, or contractual right to, bonuses by the NEOs at the time the Form 10-K was filed. Company is now filing its annual meeting proxy statement. The proxy statement will reflect the NEO cash bonuses in the compensation table. Does the company also need to amend its Form 10-K to reflect the bonuses for last year so that the compensation sections of the Form 10-K and proxy statement are identical? Thank you very much.

RE: Legally, I think the answer is no. There is nothing in the rules to suggest that a company has an obligation to amend an Exchange Act report that was accurate when it was filed merely because some significant development occurs subsequent to filing. There may be a business issue about whether it is advisable to file an amendment or highlight the updated disclosure in an 8-K based on the company's assessment of the potential for shareholder confusion.

You may want to refer to the article: "When, Why & How to Amend an Exchange Act Report" that appeared in the May-June 2019 issue of The Corporate Counsel.
-John Jenkins, Editor, TheCorporateCounsel.net 7/1/2020

Q: I am trying to determine how the $700 million worldwide market value for WKSIs is calculated. We took a company public late last year and since then have done a very large private placement of common equity. At the time the company becomes S-3 eligible we will file an S-3 shelf to register for resale all of the private common. All told, the company's outstanding equity will exceed $700 million, but a majority of that is the privately-held common that is registered for resale but possibly still held in restricted form by the private purchasers. Does the company become a WKSI at the time of effectiveness of the resell S-3? Does it have to wait until a sufficient number of private holders have publicly resold? Considering the company will not be notified each time a private holder resells pursuant to the S-3, how can the company know?

RE: As the SEC made clear in the adopting release for the WKSI definition, the non-affiliate equity market capitalization is calculated in the same manner as for Form S-3 primary offering eligibility. For both of these purposes, you need a market price from a public trading market and the aggregate amount of common equity (as defined in Rule 405) held by non-affiliates. I believe that unless the private placement investors that you describe are affiliates of the issuer, the securities that they hold should be included in the amount of outstanding common equity.
-Dave Lynn, Editor, TheCorporateCounsel.net 6/18/2007

RE: To confirm, it doesn't matter that the private placement investors had been affiliates of the issuer within the past three months (like for Rule 144), correct?
-6/30/2020

Q: Public company completed its fiscal 2019 audit with accounting firm A. Company is now re-auditing fiscal year 2019 with accounting firm B. The re-audit will not be complete at the time the company files its proxy statement for the current year. In the auditor fee table, in addition to disclosing the fees for the audit conducted by accounting firm A, should the company also disclose the interim fees for accounting firm B as part of the re-audit? Thank you.

RE: I don't think the interim number is what you want to disclose here. The Office of the Chief Accountant provided guidance on this in FAQ 2 issued in 2001:

"Q: In determining fees that are disclosed pursuant to Items 9(e) (1) – (e) (4) of Schedule 14A, should the disclosure be based on when the service was performed, the period to which the service applies, or when the bill for the service is received?

A: Fees to be disclosed in response to Item 9(e)(1) of Schedule 14A should be those billed or expected to be billed for the audit of the registrant’s financial statements for the two most recently completed fiscal years and the review of financial statements for any interim periods within those years. If the registrant has not received the bill for such audit services prior to filing with the Commission its definitive proxy statement, then the registrant should ask the auditor for the amount that will be billed for such services, and include that amount in the disclosure . Amounts disclosed pursuant to Items 9(e) (2) – (e) (4) should include amounts billed for services that were rendered during the most recent fiscal year, even if the auditor did not bill the registrant for those services until after year-end."

Since the guidance makes it pretty clear the Staff wants the final number, if that’s not possible to do by the time you file, the practical answer would be to use your best efforts to develop an estimate of the final number that your auditors and audit committee are comfortable with. The fact that it's an estimate should be appropriately footnoted, and if it changes materially, then you may need to supplement the proxy statement.

See the discussion on pgs. 16-22 of our Audit Fees Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 6/30/2020

Q: A public bank has registered securities under Section 12(g) of the '34 Act and, by virtue of being a bank, reports to the FDIC instead of the SEC. Bank-issued stock is exempt from '33 Act registration. We are creating a bank holding company structure — the bank's shareholders have agreed to exchange their bank stock for shares in the new bank holding company, which will own all of the bank's stock going forward. Now that the issuer is a corporation, our securities regulator will be the SEC. The securities issued in the bank holding company reorganization will be issued pursuant to an exemption from registration under the '33 Act. Accordingly, after the reorganization, the bank holding company will not have any shares registered under the '33 Act. The question is whether any new registration statements need to be filed under the '34 Act. Under Rule 12g-3(a), the bank holding company's newly issued securities are "deemed" to be registered pursuant to Section 12. We note that under Rule 12g-3(f), we must file a Form 8-K disclosing the transaction, but is there any reason to file a Form 8-A or other registration statement to register the shares under the '34 Act?

RE: Rule 12g-3 should be available for the succession by the holding company to the bank's '34 Act registration. Under Rule 12g-3, the succession happens by operation of law and no '34 Act registration statement on Form 10 or Form 8-A is required.

This conclusion is borne out by a few SEC Staff telephone interpretations. In interp. M.19., the Staff explains that succession under Rule 12g-3 happens by operation of law and it is implemented by the SEC's acceptance of the Form 8-K. Interp M.20. deals with succession in a holding company context, noting that the holding company is automatically deemed to be registered under Section 12, whether or not an 8-K or 8-A is actually filed. Finally, in interp. M.23., the Staff specifically contemplates the circumstances surrounding the formation of a one-bank holding company, noting that because the subsidiary bank has no '34 Act file number (presumably because it previously satisfied its '34 Act obligations by reporting to its banking regulator), the new '34 Act file number is assigned when the successor holding company file the Form 8-K required under Rule 12g-3(f).

One practical note: when you file the 8-K via EDGAR, make sure that you use the header submission type of "8-K12G3" in order to ensure that the 8-K is recognized as announcing the succession and getting a file number assigned.
-Dave Lynn, Editor, TheCorporateCounsel.net 6/30/2007

RE: Regarding your practical note, would you use submission type "8-K12G3" or submission type "8-K12B" to establish the succession pursuant to 12g-3 for a registrant with a class of securities registered under Section 12(b)?
-9/23/2009

RE: If the class of securities is registered under Section 12(b), then the issuer should use submission type "8-K12B" to file the 8-K.
-Dave Lynn, Editor, TheCorporateCounsel.net 9/23/2009

RE: Thank you.
-9/23/2009 RE: When you search EDGAR under a successor company’s new file number, will the predecessor company’s filings (i.e., all filings prior to the succession transaction) show up in the successor’s filing history? What if you search under the successor's name, rather than the file number? Would the answer change if the predecessor company is going to continue filing reports on EDGAR using its file number following the reorg?
-6/27/2013

RE: Keir Gumbs notes the following in his article "Understanding Succession Issues under the Federal Securities Laws," 19 INSIGHTS 4 (April 2005). I would also note that, in a change of position, the Staff will no longer give no-action relief in its successor line of letter whereby the successor is permitted to keep the predecessor's Exchange Act filing number.

When a new registrant files a registration statement with the Commission, the EDGAR system generates a new file number, which can then be used to identify the registrant. Thus, a successor issuer that wants a new file number must file a Form 8-K indicating that it is being filed pursuant to Rule 12g-3.27 Otherwise, the issuer will not receive a new file number after the succession is complete and must continue using the predecessor’s file number as though no change had taken place. In these circumstances, the succession will be equivalent to a name change. That is, the successor will continue to use the file number and EDGAR access codes (CIK, CCC and password) of the predecessor and the reporting history of the predecessor will show as the reporting history of the successor.
-Dave Lynn, Editor, TheCorporateCounsel.net 6/28/2013

RE: Thanks, Dave. Did the Staff expressly change its position re: succeeding to a predecessor's file number? If so, can you direct us to that? Interactive Intelligence, Inc. (available April 27, 2011) appears to be the last no-action letter where the SEC permitted the successor to keep the predecessor's file number. It's also the last no-action request we can find where the issuer requested use of the predecessor's number. We assume the change came about shortly after Interactive Intelligence but can't find anything definitive. Thanks in advance.
-7/2/2013

RE: I have seen a post-SPAC combined company file its Super 8-K with the 8-K12b designation (which makes sense for certain SPAC business combinations, depending on merger structure), and then immediately file an identical Super 8-K without the 8-K12b designation. Is there any reason to do that? It seems as if the filer holds the view that an 8-K with designation 8-K12b does not qualify as a current report on Form 8-K, as far as EDGAR goes.
-6/30/2020

RE: I don't think there's any reason that the 8-K12B wouldn't count for some reason. The requirements for successor issuers under Rule 12g-3 are to "indicate in the Form 8-K report filed with the Commission in connection with the succession, pursuant to the requirements of Form 8-K, the paragraph of section 12 of the Act under which the class of securities issued by the successor issuer is deemed registered."

I'm no SPAC expert, but it seems to me that the Super 8-K is likely in most cases to be the "8-K report filed . . . in connection with the succession," so I don't see why another identical filing would be necessary. I wonder if the practice has something to do with the limitations of the EDGAR System? The EDGAR Filer Manual says that up to nine items may be specified on a single EDGARLink Online Form 8-K submission. I noticed that the DraftKings filing had more than that, and that while the filings were identical, the EDGAR Page lists one as containing eight items and the other as containing two items.
-John Jenkins, Editor, TheCorporateCounsel.net 6/30/2020

Q: The statute requires that the slavery and human trafficking statement be approved by the board of directors and signed by a director, and published within six months of the end of a company's fiscal year. Are public companies for whom this applies making this part of their annual process, or have they delegated this responsibility such that the full board does not have to act on an annual basis (with the statement signed by a director in any event)? Thanks.

RE: I don't think the U.K. Act permits delegation, and actually requires the statement to reference that it has been approved by the board. But my understanding is that the level of compliance is not high. You should check out ModernSlaveryRegistry.org, which contains an inventory of over 15,000 MSA statements, and tracks their compliance with regulatory requirements. According to that site, only 46% of the MSA statements include explicit language indicating that the board has approved it, and only 29% of the statements are fully compliant with the law's requirements.
-John Jenkins, Editor, TheCorporateCounsel.net 6/29/2020

RE: Very helpful as always. Has anyone seen U.S. companies include COVID-related disclosure responsive to the U.K. guidance issued late this spring? There appear to be none when I search that language on the website, but I can't tell if this is due to a glitch. I would think that there would be at least some examples given that June 30 is tomorrow. Thanks for any thoughts.
-6/29/2020

Q: Is there a firm position on whether ownership of convertible notes that may be settled in either cash or stock, at the election of the issuer, could trigger a Schedule 13G or D filing (assuming other factors are triggered)?

RE: Not to my knowledge. But I think the better view given the language of Rule 13d-3 would be that since the determination as to whether the holder would receive cash or stock would be made by the issuer, the holder did not have the "right" to acquire voting or investment power with respect to the equity security and so shouldn't be regarded as the beneficial owner in advance of conversion.

I think the issuer's right to decide whether to issue shares or cash upon conversion introduces a contingency, and should have the same result on the beneficial ownership analysis as the registration contingency addressed in Regulation 13D-G CDI 105.02:

"Question: An investor receives a right to acquire more than five percent of an issuer's voting class of equity securities registered under Section 12 of the Exchange Act without the purpose or effect of changing or influencing control of the issuer. The right is exercisable within 60 days and conditioned upon the effectiveness of a related registration statement. Must the investor report beneficial ownership of the underlying securities?

Answer: The investor is not required to file a beneficial ownership report on Schedule 13D or Schedule 13G until the contingency to acquiring the underlying securities is removed and the right becomes exercisable by the investor within 60 days from that date. Under Rule 13d-3(d)(1), an investor is not deemed to be a beneficial owner of the underlying equity securities when satisfaction of conditions to an investor's right to acquire the securities, such as the effectiveness of a registration statement, remains outside the investor's control. [Sep. 14, 2009]"
-John Jenkins, Editor, TheCorporateCounsel.net 6/29/2020

RE: That makes good sense. Thank you
-6/29/2020

Q: Part II, Item 3(c) of the Form S-8 still requires an incorporation by reference of a description of securities filed in a registration statement. For companies that file a Description of Securities as an exhibit to their 10-K, should the S-8 now IBR that exhibit? Or would it make sense to IBR both (with the 10-K exhibit as a supplement or amendment of the registration statement description)?

RE: If the description in your exhibit is substantively the same as the one you used in your Form 8-A or Form 10, I'd continue to incorporate by reference to that filing.
-John Jenkins, Editor, TheCorporateCounsel.net 2/15/2020

RE: If the 8-A description is out of date, is the previous poster's solution (incorporating by reference the 8-A description as updated by the new 10-K exhibit) an acceptable solution? I've certainly seen companies doing some version of that, and I'm just wondering whether the 10-K exhibit constitutes an "amendment or report filed for the purpose of updating such description?” Amending the 8-A at this point seems somewhat pointless (or at least duplicative) given the 10-K exhibit; I understand that the two documents serve different purposes, but it seems to go against "disclosure simplification" to require a company to keep both descriptions — separately — up to date. I just haven't seen anything indicating either that the 10-K filing updates the 8-A description, or that the 10-K exhibit can be incorporated by reference in lieu of the 8-K description. I would appreciate your thoughts on this. Thanks in advance!
-6/28/2020

RE: I've seen a lot of companies do that. Although I haven't seen anything from the Staff, I think that approach is okay. It doesn't seem to me to be a huge stretch to say that the required exhibit to the 10-K should be regarded as "a report filed for the purpose of updating such description" within the meaning of Item 3(b) of Part II.
-John Jenkins, Editor, TheCorporateCounsel.net 6/29/2020

Q: Where the cover page of SEC forms calls for the address of the registrant's principal executive offices, does it matter whether this is a street address or a P.O. box? In other words, is the address requirement on the cover page designed to direct investors as to where to find the company physically, or is it where to direct mail to the company? I realize that this is somewhat obsolete in that currently most investors would contact the company via phone or email, but our company is trying to choose which one to put on the cover page, and I don't see any guidance on this very minute point. Also, I could see that it might potentially be an important distinction in giving the address for the agent for service of process. Thanks!

RE: I believe the intent is to set forth the address at which the company may be reached by mail. I've had clients that have used P.O. boxes for addresses without drawing a comment, and some pretty big companies only use a P.O. box as well. For example, see Kimberly Clark's most recent 10-Q.
-John Jenkins, Editor, TheCorporateCounsel.net 6/26/2020

RE: Thanks for the prompt response! Do you think the answer is the same for the agent for service? I'm just wondering if that's different because you'd be limiting the manner of service by providing only a mailing address (not that someone couldn't very easily find the street address).
-6/26/2020

RE: Never seen anything from the Staff on that, but for what it's worth, Kimberly Clark just uses the P.O. Box there too, and I'm sure they aren't alone.
-John Jenkins, Editor, TheCorporateCounsel.net 6/26/2020

RE: Helpful examples. Thank you!
-6/26/2020

Q: I'm looking for some insight on how to value profits interests for purposes of the Rule 701 issuance limitations. I do not see it addressed in Rule 701 (although the rule provides some guidance on valuing other derivative equity issuances, like options), nor have I found any SEC guidance on point. I have not had much luck researching this. Profits interests necessarily have a $0 value for tax purposes at the time of issuance since they only have residual equity value if there is an increase in the equity value of the company. Is it reasonable to use a $0 value for purposes of Rule 701 (meaning profits interests would not count against the $ limitations on issuances in a 12-month period under Rule 701)? This has come up multiple times with clients, so any insight you can provide would be appreciated. (I searched compensationstandards.com with no luck as well.)

RE: I have had the same problem. To determine the value for purposes of Rule 701 limitations, we ended up going with the accounting value under GAAP. We think the Staff would respect that in the absence of an exercise price, etc. and a tax value of $0. A few years ago, we contacted the Staff on this point, but they wouldn't take a position.
-6/23/2020

RE: This is a real problem, and there isn't anything from the Staff on it. Sometimes, I've seen companies limit participation in a plan involving profits interests to accredited investors in order to avoid the uncertainties of Rule 701. However, I don't think using GAAP accounting value is an aggressive position.

In terms of the reasonableness of the zero value approach, it's worth noting that Davis Polk made a comment in response to the SEC's 2018 concept release on Rule 701 arguing that this is the approach the SEC should take to valuing profits interests:

"In our view, the Commission could reasonably determine to apply the IRS' approach with regard to grant date valuation of profits interests, and treat qualifying profits interests as having zero value for purposes of Rule 701. This approach would have the effect of exempting such offerings from the additional information requirements of 701(e), but this result does not offend our sensibilities given that the recipient is not required to provide any payment beyond their services to acquire the interest, and profits in many circumstances are entirely uncertain. The effect would be similar to the application of the "no-sale" theory for registration exemption, which should be available for qualifying profits interests in any case where the acquisition of the interest is not voluntary, such that the recipient did not make an investment decision."

Although the idea of proposing amendments to Rule 701 did hit the Reg Flex Agenda last May, the SEC hasn't issued proposed rules (aside from the harmonization proposal issued in March, which addresses Rule 701 tangentially).
-John Jenkins, Editor, TheCorporateCounsel.net 6/23/2020

RE: Thanks. While Section 4(a)(2) is a viable position at the federal level, many states have tied their employee benefit plan exemptions to compliance with Rule 701, which makes the outcome of this analysis more pertinent. Otherwise, we are looking at complying with limited offering exemptions in states which could not work due to the number of employees in the state, or could require notice filings each time an issuance is made.
-6/23/2020

Q: The Reg FD Handbook provides an example of disclosure to a state agency as being exempt. Yes, the STOCK Act was supposed to make clear that Congress and its staff have obligations with regard to any information learned in their service. But we've seen how that has played out. Is anyone aware of other guidance on responding to Congressional staffer requests for information? We have discussed putting them on notice in a cover letter and requesting advance notice if the information will be used elsewhere. It seems very unlikely to me that staff would sign an agreement in advance. We will make a determination before disclosing to the staff if the information should just be publicly disclosed. Does anyone else have a process that has worked well that they are willing to share? I believe most of what we will be asked to provide will not really be MNPI, but our concern would focus on more of the "close calls" or 20/20 hindsight. Thanks.

RE: The STOCK Act does provide that covered Congressional personnel owe duties of trust and confidence with respect to information they receive in their official capacity. Since that's the case, I think you can draw some comfort from the language of footnote 27 to the FD adopting release, which says that even though it is conceivable that a governmental representative might be a stockholder, it ordinarily would not be foreseeable for the issuer engaged in an ordinary-course business-related communication to expect that person to buy or sell securities based on that information. In that regard, the footnote observes that someone who did trade under those circumstances could themselves face liability for insider trading under the misappropriation theory. See the discussion on page 59 of the Regulation FD Handbook.

As to other steps to take in responding to a Congressional investigation, there are a number of law firm memos that address confidentiality issues that you may find useful, and I've included the URLs for a couple below. Unfortunately, Congress holds most of the leverage here, but this excerpt from this Marten law firm memo provides some recommendations on protecting confidentiality:

"Without appearing to be hostile to the committee’s request, oversight counsel should certainly flag confidentiality as an impediment to voluntary production. The information asymmetries involved – e.g., committee staff will not be able independently to verify that a responding company’s assessment of the harm likely to be incurred by disclosure is reasonable – may prevent success, but companies are nevertheless well-advised to seek three accommodations as a condition of disclosure:

- that committee staff commit in writing not to release designated confidential materials outside of the committee without a compelling legislative justification not achievable by less burdensome means;

- that staff allow the responding company to affix durable watermarks on all such documents to designate them as subject to this understanding; and,

- if the committee nevertheless feels compelled to publicize the material further, that staff provide notification no less than 72 hours in advance.

It also worth arguing for some or all of these accommodations even where a subpoena is at issue, since none are legally binding in any case."
-John Jenkins, Editor, TheCorporateCounsel.net 6/23/2020

Q: Is there any survey or other information available as to the prevalence of companies including non-gaap measures (and reconciliations) in their Form 10-K/10-Q filings versus limiting non-GAAP disclosures to Item 2.02 Forms 8-K (and websites)? Do many companies prefer not to include the non-gaap disclosures in their periodic filings, so that these disclosures are not deemed filed?

RE: I haven't come across recent survey data, but there has been a push by Corp Fin in recent years to get more consistency between what measures are presented in the Form 8-K/earnings release and the Form 10-Q or 10-K. See question #8 on page 105 of our "Non-GAAP Handbook."

The Handbook also has a discussion on page 96 of the different types of liability that attach to these Forms.
-Liz Dunshee, Editor, TheCorporateCounsel.net 6/23/2020

Q: Company is planning to replace one of its NEOs. However, Company wishes to keep said NEO in her current role until a replacement is found. Moreover, in connection with this plan of removal, Company and NEO have negotiated new compensation and severance terms for NEO. Company would like to avoid disclosure of compensation adjustment/removal while NEO is still in current position. However, new terms must be agreed to now in order to protect NEO’s leverage. Is there a way in which Company can enter into the amendment now, but delay an Item 5.02(e) filing until after the replacement has been found/named? Can this be done under the instruction to 5.02(c) allowing for delay until announcement, under some form of contingency in the agreement, or otherwise? The answer to Question 117.05 in the 8-K Handbook says “Similarly, any disclosure required under paragraph (e) of Item 5.02 may be delayed to the time of public announcement consistent with Item 5.02(c).” Is that applicable here, or does that only apply to compensation agreements with the new incoming director/officer?

RE: I'm afraid that kind of information is tough to keep under wraps. You will trigger an Item 5.02(b) 8-K reporting requirement in connection with the termination of the NEO, regardless of when that termination is effective. The precise timing as to when that reporting requirement will be triggered depends on the facts and circumstances, but I think you'd be hard pressed to conclude that it hasn't been triggered once the termination decision has been communicated to the NEO.

You will also trigger a reporting requirement under Item 5.02(e) when you enter into a new compensation arrangement with that NEO. The instruction to Item 5.02(c) and the position in CDI 117.05 applies only to disclosures relating to an incoming executive.
-John Jenkins, Editor, TheCorporateCounsel.net 6/19/2020

RE: Thanks, John.

I just wanted to follow up with a couple questions:

(a) With respect to 5.02(e), is there any way that the agreement could be structured such that reporting is not triggered immediately? For example: the agreement springs into effect, if and when a certain event occurs (i.e., the selection of a replacement)?

(b) With respect to 5.02(b), I assume that reporting is not required so long as discussions are ongoing and there has not been a definitive decision made and communicated, correct?

Thanks!
-6/19/2020

RE: (a) No, I don't think that would work. A formal contract isn't necessary to trigger the 8-K requirement. An Item 5.02(e) 8-K would be if the company "enters into, adopts, or otherwise commences a material compensatory plan, contract or arrangement (whether or not written)" in which an NEO participates, or "such compensatory plan, contract or arrangement is materially amended or modified." It seems to me that if you've agreed informally that revised comp arrangements that will spring into effect once a replacement has been identified, then you've already modified the individual's compensation arrangements to address such a contingency.

(b) If you're at a point where the company has not decided to terminate the NEO, but is merely considering or engaging in discussions about that possibility, then I don't think you've triggered an Item 5.02(b) 8-K. But if the die is cast, and you're just talking about interim comp & severance arrangements with the NEO, then I think it has been triggered. Again, the Item 5.02(e) trigger may come at a different time.

When you look at these issues, you need to bear in mind that the SEC's purpose in adopting these rules was to encourage disclosure at an early time in the process, so they are intended to make efforts to structure around them very difficult.
-John Jenkins, Editor, TheCorporateCounsel.net 6/21/2020

Q: Do most companies take the time to answer and complete written ESG questionnaires sent by either current or prospective investors?

RE: I haven't seen any survey data on that. Most of the companies I've worked with have responded in some fashion to investor ESG inquiries and to rating services that they believe move the needle with their investors. But ESG ratings have become a cottage industry, and given how burdensome responding to all of the questionnaires a company might receive can be, I don't think most companies respond to all of them.

With growing investor interest in ESG, it makes sense for companies to consider which, if any, questionnaire requests they are going to respond to and develop a strategy for approaching them.
-John Jenkins, Editor, TheCorporateCounsel.net 6/19/2020

Q: An investor shorts the common stock of a chapter 11 debtor. On the effective date of the chapter 11 plan, the debtor issues to the investor shares of new common stock under 1145. Under the SEC's view of covering in compliance with Section 5, can the investor use those 1145 shares to cover its short position? Those shares are freely tradeable from the moment they are issued, unlike the PIPE cases where the SEC has objected to using newly registered shares to cover a short that was effected before the resale registration statement became effective. I haven't found any guidance on this and would appreciate your views. Thanks.

RE: I haven't seen anything on that either. I think the Staff's position on PIPEs was premised on its view that since the investor was shorting shares acquired in a private placement, the initial short sale that occured prior to the effective date of the resale registration statement itself involved a non-exempt "sale" of the security in violation of Section 5. I don't know what position the Staff would take here, but the circumstances surrounding receipt of securities in an 1145(a) public offering by an unaffiliated creditor seem different to me, particularly if a trading market exists for those shares at the time of the short.

I also recall that the SEC didn't have a lot of luck persuading the courts of the merits of its position on shorting PIPE shares, and incurred a few outright losses when it litigated the issue.
-John Jenkins, Editor, TheCorporateCounsel.net 6/19/2020

Q: Issuer would like to issue debt securities (say $25 million) on a Form S-1 registration statement. If the issuer had its druthers, the interest rate would be determined by the issuer at some point in the future. The range of the interest rate would be disclosed in the S-1 and at the election of the issuer. For example, the issuer may sell $10 million at 5%, $10 million at 6%, $5 million at 8%, etc. Any thoughts on whether this is possible would be appreciated.

RE: If you wanted to offer and sell these securities all at once, I think you could do that with a Form S-1, but it sounds like the issuer contemplates selling these securities in tranches over a period of time. That would mean it would have to meet the requirements applicable to primary shelf offerings under Rule 415.

I'm not aware of any guidance addressing this exact scenario, but I think its permissibility depends on whether what you're doing involves a "continuous" offering or an offering being made on a "delayed" basis. If the offering contemplates individual takedowns over time of multiple tranches of securities with different terms, my guess is that the Staff would take the position that you're engaging in a primary shelf offering at least a portion of which will be made on a delayed basis. That's not something that Rule 415 permits you to do with an S-1. Rule 415(a)(ix) permits any issuer to engage in a primary offering that's being made on a continuous basis, but only S-3 eligible issuers can engage in primary offerings on a delayed basis under Rule 415(a)(x).

You may want to look into the possibility of relying on the "baby shelf" rules for your transaction. Assuming that the issuer isn't a shell company, has been reporting for 12 calendar months, has a class of shares listed on an exchange and otherwise meets the registrant requirements under General Instruction I. A. to Form S-3, it may engage in a primary offering registered on Form S-3 in an amount not exceeding one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. See General Instruction I. B. 6. to Form S-3.
-John Jenkins, Editor, TheCorporateCounsel.net 6/19/2020

Q: Last year, a director notified the Company that he would resign as a director of the Company upon the earlier of two future events. A Form 8-K was filed to disclose such fact. The director has informed the Company that he has decided to resign as a director prior to the occurrence of either event. Given that the director will resign prior to the occurrence of the two events, which is different from what was previously disclosed in the Form 8-K, am I correct in thinking that another Form 8-K be filed to disclose the fact that he is resigning earlier than originally disclosed and in accordance with Item 5.02(b)?

RE: Yes, I think that's correct, given that the resignation was not prompted by either of the previously disclosed events and that the director will be leaving the board earlier than contemplated by the prior 8-K disclosure.
-John Jenkins, Editor, TheCorporateCounsel.net 6/17/2020

Q: Within the last 12 months, Fund purchased convertible preferred stock of a private issuer. The preferred is convertible into common at any time at the holder’s option and converts automatically upon an IPO. The issuer’s IPO will occur shortly, and accordingly the issuer has just registered the class of common under Section 12(b). As a result of the automatic conversion of the preferred when the IPO closes, Fund will beneficially own > 5% of the common outstanding upon completion of the IPO. Fund also has received an allocation from the underwriters to purchase shares in the IPO. Question 1: Am I correct that when evaluating whether such a purchase in the IPO would exceed the 2% limit expressed in Section 13(d)(6)(B), one should add the number of common shares Fund purchases in the IPO to the number of common shares underlying the convertible preferred that Fund purchased within the 12 months preceding the IPO (i.e., such that if that total exceeded 2% of the common outstanding at the beginning of the 12-month period, Fund would need to file a 13G within 10 days of the IPO date, rather than being able to rely on Rule 13d-1(d) to delay the 13G until 45 days after year end)? Question 2: If so, what would be the effect of Fund having engaged in grey market sales between the IPO pricing and closing, in an amount that would bring Fund to below 5% upon completion of the IPO? Would Fund still need to file a 13G (which would be both an initial and exit 13G)? Or, would the fact that the sales, which occurred effectively simultaneously with the purchase, brought Fund below 5% on the IPO date eliminate the need for a 13G? It would seem rather pointless for Fund to have to file such a 13G, but I’m not aware of any guidance on this fact pattern. Thanks for any thoughts.

RE: Question 1. I'm not aware of anything directly addressing this issue, but it seems to me that there's a pretty good argument that the conversion of the preferred should be disregarded. That's because Rule 13d-3 says that an entity beneficially owns shares that it has a right to acquire within 60 days. Since the shareholder had the right to convert the shares into common at its option, I think you could argue that the conversion merely represented a change in the form of beneficial ownership, from direct to indirect, and that the shareholder already was the beneficial owner of the underlying common. You may want to discuss this with the Staff.

Question 2. I believe that once you cross the 5% threshold, you have incurred a reporting obligation. I think that position is arguably implicit in the Staff's response in CDI 101.06.

“Question: A customer instructed its broker to purchase up to 4.9 percent of the outstanding class of a Section 12 registered voting common stock of a company. The broker mistakenly purchased over five percent for the customer's account. The customer refused to pay for the excess shares and instructed the broker to sell all shares in excess of 4.9 percent. Is the customer required to file a Schedule 13D or 13G pursuant to Rule 13d-3(a)?

Answer: Yes. The customer acquired beneficial ownership of greater than 5% of the class pursuant to Rule 13d-3(a) and, therefore, is required to file a Schedule 13D or Schedule 13G under Sections 13(d) and 13(g) of the Exchange Act. The absence of an intent to acquire in excess of 5% is not a consideration with respect to the applicability of Sections 13(d) and 13(g). [Sep. 14, 2009]"
-John Jenkins, Editor, TheCorporateCounsel.net 6/16/2020

Q: Our CAO tendered his resignation effective at the end of the month. I believe the "trigger" would be the date she tendered her resignation letter, and the disclosure is pretty straightforward — disclose the fact that she resigned and the date that occurred (last week). Another question in my mind is whether we need to discuss who is taking over temporary CAO duties? Although not a required disclosure, I thought I may have seen before issuers disclose something like the CFO taking over these duties in the interim period, or it may be that I'm thinking of who takes over duties of a resigned CFO/CEO? Appreciate any feedback.

RE: The date of the resignation is a facts and circumstances question, so it is possible that a resignation communicated prior to a formal letter may be sufficient to start the clock running. As to disclosure, I think Form 8-K CDI 217.02 does require disclosure of someone who is temporarily serving in that capacity.

"217.02 When a principal financial officer temporarily turns his or her duties over to another person, a company must file a Form 8-K under Item 5.02(b) to report that the original principal financial officer has temporarily stepped down and under Item 5.02(c) to report that the replacement principal financial officer has been appointed. If the original principal financial officer returns to the position, then the company must file a Form 8-K under Item 5.02(b) to report the departure of the temporary principal financial officer and under Item 5.02(c) to report the "re-appointment" of the original principal financial officer. [April 2, 2008]"

See the discussion beginning on p. 219 of our Form 8-K Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 6/15/2020

Q: As you know, Reg G requires that non-GAAP measures be accompanied by the most directly comparable GAAP measure and a related reconciliation. What do you think about a hyperlink in a press release to the comparable GAAP number and reconciliation — think that would satisfy the concept of "accompany" as used in Reg G?

RE: I don’t think that a non-GAAP measure in a press release would necessarily be deemed to be accompanied by the required reconciliation if the reconciliation is available solely through a hyperlink to the company’s website. Of course, when a company releases non-GAAP financial measures orally, telephonically or by webcast, broadcast or other similar means (as opposed to in writing), it may provide the Regulation G information and reconciliation by: posting the information on the company's website; and disclosing the location and availability of that information during the presentation.
-Dave Lynn, Editor, TheCorporateCounsel.net 4/18/2010

RE: Any CDIs or FAQs on this?
-4/22/2010

RE: Not that I have seen. If anyone has discussed this issue with the Staff, please let us know.
-Dave Lynn, Editor, TheCorporateCounsel.net 4/27/2010

RE: Has there been any change in this area in light of the recent trends in hyperlinking (and avoiding duplication)? In that context, is there a difference between hyperlinking to information on the company's website vs. to a previously filed document?
-6/12/2020

RE: I think the Staff is still fairly inflexible on hyperlinks, with the possible exception of tweets. See the discussion beginning on p. 61 of our Non-GAAP Financial Measures Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 6/12/2020

Q: A common construct we are starting to see is as follows: Issuer LLC sets up an equity incentive plan to grant compensatory units to persons that would be eligible under Rule 701. These compensatory units, instead of being awarded directly to the Rule 701 eligible persons, are instead granted to an LLC that is set up to hold all such units on behalf of the Rule 701 eligible persons ("Employee Holdco"). Ergo, Employee Holdco would be a member of Issuer LLC, not the Rule 701 eligible persons. Each Rule 701 eligible person would have an interest in Employee Holdco that tracks to the number of compensatory units to which such person would have been entitled to receive, but for the Employee Holdco construct. If the Rule 701 eligible person forfeits the award, they forfeit their interest in Employee Holdco, and Employee Holdco forfeits a corresponding number of compensatory units in Issuer LLC. The purpose of the Employee Holdco construct is to simplify the capital structure (i.e., get all employees under one umbrella), and also to make sure items that need to receive member approval are approved (the Issuer LLC designates a manager of Employee Holdco that is usually the Issuer LLC's CEO). Based on a plain reading of Rule 701, this does not seem to work. The LLC does not appear to be an eligible person under Rule 701(c) (i.e., "employees, directors, general partners, trustees (where the issuer is a business trust), officers, or consultants and advisors, and their family members who acquire such securities from such persons through gifts or domestic relations orders"). What am I missing? I understand many BigLaw firms are comfortable with this Employee Holdco construct, though I can find no support for it in CDIs, the Exempted Transactions under the Securities Act of 1933 treatise, this Q&A Forum and the no-action letters I've reviewed to date. Any ideas?

RE: I haven't seen anything from the Staff on this, but I agree that people do use the management holdco structure. I think there may be more flexibility in the language of Rule 701 than you might think at first. The exemption extends to any "written compensatory benefit plan (or written compensation contract) established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent, for the participation of their employees. . ."

People using the management holdco structure may take the position that the structure itself is a feature of the written compensatory plan established "for the participation" of only Rule 701 eligible people. Alternatively, they may view a pure pass-through entity in which the beneficial owners are all Rule 701 eligible as simply not being inconsistent with the limitations of the rule.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

RE: John, thank you! Very helpful.
-1:24:45 PM

Q: I am trying to figure out if the tender offer rules would be implicated in connection with a U.S. organized private company's repurchase of outstanding shares for cash. The one specific thing I wanted input on is whether in determining that the Wellman test is satisfied, and thus that the transaction would necessitate compliance with 14E, would we be able to ignore non-US stockholders that would be selling in the tender for purposes evaluating whether it was a widespread solicitation? We typically get comfortable that somewhere below call it 14-15 people wouldn't implicate the tender rules so trying to figure out if there's a view on whether you can exclude non-US person stockholders that would be participating from that count.

RE: My guess is that the starting point would be the Supreme Court's Morrison decision on the extraterritorial application of the securities laws. I think a foreign buyer would have a stronger case for claiming that U.S. securities laws applied to its transaction if the company was located in the U.S. and the transaction would be consummated here. Anyway, this is a complex issue and not one that I'm going to be able to shed a lot of light on for you in a Q&A forum. The materials on extraterritorial application of the securities laws in our "Securities Litigation" Practice Area may be helpful in researching the issues.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: Our client has an equity incentive plan that will be voted on during an upcoming annual meeting. The instructions to item 5.02 on Form 8-K state that the plan will need to be included upon approval. However, in practice, it looks like many companies just disclose the voting results for such plans when they are approved under 5.07. Is this practice permitted? Are we misinterpreting the rule?

RE: That's interesting to know about other companies. I would think that folks file the 8-K. Others must take the position that the information has been "previously reported" because it was disclosed in the proxy statement, but I thought actual approval was a different disclosure. Anyone else?
-Broc Romanek, Editor, TheCorporateCounsel.net 8/15/2013

RE: Any update on this topic? Thanks!
-6/11/2020

RE: My guess is similar to Broc's. Many people may be taking the language from the instruction to Item 5.02(e) that excepts grants or awards that are materially consistent with the plan terms disclosed in the proxy statement and simply assuming that it applies to the new plan adoption as well. I am not aware of anything from the Staff on this.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: If an issuer is reporting its meeting results under Item 5.07 of Form 8-K, and one of the proposals submitted to the shareholders included an amendment to the certificate of incorporation, does the amendment to the certificate which has been adopted by the shareholders need to be filed as an exhibit to the Form 8-K? Or, can it just be filed with the next periodic report?

RE: Because you haven't triggered Item 5.03 (since your proposed amendment was described in your proxy statement), I believe that you can file the amended certificate with the next periodic report. Item 5.03 specifically calls for the text of the amendment to be filed with the 8-K. Item 5.07 does not contain similar language, and General Instruction B. 4. provides that "copies of agreements, amendments or other documents or instruments required to be filed pursuant to Form 8-K are not required to be filed or furnished as exhibits to the Form 8-K unless specifically required to be filed or furnished by the applicable Item."

When you do file the exhibit, bear in mind that Item 601(b)(3) will require you to file a complete copy of the articles as amended.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: A public company that had fewer than 300 record holders on the first day of this fiscal year was delisted from the NYSE in April 2020. A Form 25 was filed, thus suspending the 12(b) filing obligation. It was my understanding that, because there were fewer than 300 record holders on the first day of fiscal year 2020, the 12(b) suspension would not revive the Company's 15(d) filing obligations because of the statutory suspension rules under 15d-6. However, following a conversation with the SEC, they seem to be taking the position that the Company cannot look back to January 1, 2020 to use the 15d-6 statutory suspension because it was subject to 12(b) reporting obligations at that time and must instead rely on 12h-3. Can anyone provide some color here? Is it possible that the SEC is incorrect on this, or that I have misunderstood their position? For additional context, our fact situation appears to be identical to the Scenario 3 described in a Latham article.

RE: I think the difference between your situation and the one in the Latham hypothetical is that you had a Section 12(b) reporting requirement at year end and the Latham piece only addresses companies with 15(d) reporting obligations. The Staff is basically saying that you can't look back to suspend an obligation in reliance on the fewer than 300 holders provision of 15(d) when, at the relevant time, your reporting obligation was suspended under another provision of 15(d) due to your Section 12 registration. In other words, you can't suspend that obligation because it was already on ice at the relevant time for another reason. It's only now that the other reason has been eliminated that the 15(d) reporting obligation has arisen.

It really comes down to interpreting how two sentences of Section 15(d) relate to one another, and I don't think there's much in the way of case law on this. So sure, the Staff's position may ultimately be incorrect, but you'd have to take the risk of an enforcement action if you wanted to fight it out on the merits.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: This "relaxed" policy is currently in place for virtual-only shareholder meetings through June 30, 2020. Does anyone know whether it will be extended (given more extended COVID impact than may have been thought when the policy was initiated earlier this year)? Many thanks.

RE: I tend to doubt that it will be extended. In the blog post announcing that it was relaxing its policy for meetings held before 6/30, Glass Lewis said that the standard policy would apply for meetings held after that date. Glass Lewis's rationale was that "even if the pandemic continues well beyond this date, companies have been given sufficient time to address shareholder concerns as outlined in our standard policy."

It's worth noting that Glass Lewis doesn't have a per se policy against virtual-only meetings. However, it wants those meetings to be conducted in a manner that affords shareholders the same rights and opportunities to participate that they would enjoy at a physical meeting, and it wants robust disclosure in the proxy that provides appropriate assurances of that. See the discussion beginning on page 48 of the 2020 Glass Lewis Policy Update.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: Our bylaws state the following: The Chairman of the Board, or in the absence of the Chairman, the President, or in their absence, the Vice Chairman, or if no such officer is present, a director designated by the Board, shall call meetings of the stockholders to order and shall act as chairman of the meeting. We are conducting a virtual annual stockholders meeting this year due to COVID. We are contemplating having the Chairman call the meeting to order, and then turn it over to our CEO to conduct the business. Is this appropriate? Recommendations?

RE: This isn't an area on which you'll find a lot of law, but I've seen a number of physical meetings held by companies with similar bylaw provisions conducted in this same manner. I don't think most practitioners interpret the role of the meeting chair to require the individual to take the lead in conducting the business of the meeting itself. Instead, I think the role contemplates that the chair will preside over the meeting.

In that role, I think the chair would be responsible for ruling on any objection to some aspect of the meeting and determining whether or not a particular matter is out of order (obviously, after consulting with counsel and other advisors). On the other hand, I don't see a problem with the chair calling the meeting to order, recognizing the CEO and delegating the responsibility for conducting the business of the meeting itself to that individual and other appropriate corporate officers.
-John Jenkins, Editor, TheCorporateCounsel.net 6/11/2020

Q: It doesn't look like S-K Item 601 has any requirements for exhibits to be filed with an 11-K - is the only exhibit required to be filed the auditor consent (per the Note to Form 11-K)? Thanks.

RE: Yes, that's the only exhibit required.
-John Jenkins, Editor, TheCorporateCounsel.net 6/10/2020

Q: I am trying to determine what the ISS policy is re: majority voting with a rejectable resignation policy. The ISS guidance I have reviewed does not get into the nuances of majority voting standards. My client, who currently has plurality voting, is trying to improve its ISS Quality Score while maintaining maximum flexibility. Any guidance as to ISS's view on this is much appreciated.

RE: The most in-depth discussion of this from ISS that I've seen begins on p. 79 of the 2020 QualityScore Methodology Guide.
-John Jenkins, Editor, TheCorporateCounsel.net 6/9/2020

Q: I am trying to figure out if an exchange or conversion right of one type of common stock for another type of common stock would necessitate either a registration statement or a tender offer. In doing so, I am trying to analogize to a couple situations where an exchange of one security for another security neither necessitates a registration statement nor a tender offer. Accordingly, wanted thoughts on the following questions: - In connection with an IPO, the preferred stock converts to common stock automatically. Is that considered an exchange under 3(a)(9)? I assume it technically falls within that exemption. I have seen some companies characterize it as such in their unregistered securities disclosure, but not all companies do. - Same question about a conversion from a high-vote class of common to a low-vote class of common, both automatically upon a transfer or voluntarily at the option of the high-vote holder. Do those fall under 3(a)(9)? Does it matter if it's voluntary or automatic? - Assuming the above qualify as an exchange offer under 3(a)(9), what's the theory of why that wouldn't necessitate a tender offer? Is it because these are open ended (not time limited), no pressure, there's not a price, we aren't making an affirmative solicitation but rather making it an optional conversion, it's not with respect to a fixed number of shares, etc. I am trying to analogize to a situation where we would potentially allow all stockholders to exchange one form of common stock for another form of common stock and vice versa. The two securities would have substantially similar rights. It seems to me that it would be an offer under 3(a)(9) but wouldn't necessitate a tender offer because of factors noted above.

RE: I think in the typical case, the exercise of a conversion right that's baked into the terms of a security would fall within the Section 3(a)(9) exemption. I think most practitioners also take the position that the exercise of a garden-variety optional conversion right doesn't involve a tender offer. It just seems to flunk way too many of the Wellman factors.

The Staff does, from time to time, question whether the kind of contingent conversion right that's attached to public converts may involve a tender offer, but even there, most companies seem to have persuaded them that it does not or to at least agree to disagree.

However, while the exercise of a conversion right may be exempt from registration under the Securities Act under Section 3(a)(9) and not involve a tender offer under the Exchange Act, I don't think that you can conclude that an exchange offer that qualifies for the 3(a)(9) exemption is automatically not considered a tender offer. You can have a valid 3(a)(9) for an exchange offer but still need to comply with applicable tender offer rules, and I think that's the position that many companies engaging in exchange offers take.
-John Jenkins, Editor, TheCorporateCounsel.net 6/9/2020

Q: In the Jan/Feb 2013 edition of The Corporate Counsel, you address different scenarios where there is a shareholder proposal and whether the company would have discretionary proxy voting authority. Assume the matter is not a Rule 14a-8 proposal and the proponent did not submit the proposal prior to the 45-day cut-off (or the advance notice bylaw provision cutoff). In that scenario, under Rule 14a-4(c), the company may have discretionary proxy voting authority if a specific statement to that effect is included in the proxy statement. Can you clarify how this would work and the utility of the discretionary proxy voting authority? Since the proponent would have missed the cut-off under the advance notice bylaw provision, the matter would not be a proper matter to take up at the meeting, so it's not clear to me why there would be any need to exercise discretionary proxy voting authority. On the other hand, if the company is relying on the 45-day cut-off period under Rule 14a-4(c), then in that scenario it would be possible that the matter could properly be raised at the meeting and the company would want to exercise discretionary proxy voting authority. In addition, Staff CDI 124.02 indicates that, for the company to exercise discretionary proxy voting authority, the company needs to include disclosure in the proxy as to how it will vote, but this doesn't appear to be required under Rule 14a-5. Further, the company might not even know of a late proposal at the time it mails its proxy statement. Would this require a supplemental proxy statement even if the late proposal is made on the floor of the meeting in order for discretionary proxy voting authority to be exercised (which wouldn't be logistically possible)?

RE: If the proponent has missed the advance notice bylaw deadline, then as The Corporate Counsel article says, the company should advise the proponent of that fact in advance of the meeting. Since it won't be properly brought before the meeting, the Rule 14a-4(c) analysis isn't relevant.

Assuming there's no advance notice bylaw, the company will retain discretionary authority to vote on a shareholder proposal if "specific statement to that effect is made in the proxy statement or form of proxy." That doesn't mean a company has to identify a proposal that it hasn't received or supplement a proxy statement to disclose one received after the 45-day cut-off date. All that's required is a specific statement that as to any other matter properly presented before the meeting, the proxy holders will exercise their discretion or vote "as they may deem advisable." That statement conferring discretionary authority as to those other matters appears on the proxy cards of most companies.

If you have received a non-14a-8 proposal by the relevant deadline, you will have to reference it in your proxy statement in order to exercise discretionary authority to vote against it. Last year, Bernie Sanders supposedly intended to submit a floor proposal at Walmart's annual meeting calling for employee representation on the board. The proposal was not a Rule 14a-8 proposal, but because the company knew about it prior to any applicable deadline, it included the following disclosure on page 103 of its proxy statement, under the caption "Other Matters." Here's the relevant language:

"There are no other matters the Board intends to present for action at the 2019 Annual Shareholders’ Meeting. However, the company has been notified that a shareholder intends to present a proposal at the 2019 Annual Shareholders’ Meeting concerning the consideration of hourly associates as potential director candidates. If this proposal is properly presented at the 2019 Annual Shareholders’ Meeting, the persons named as proxies in the accompanying form of proxy have informed the company that they intend to exercise their discretionary authority to vote against the proposal."
-John Jenkins, Editor, TheCorporateCounsel.net 6/9/2020

Q: Company filed a Form S-8 covering shares in a 401(k) plan. The S-8 has been exhausted whereby the full number of shares registered have been issued under the S-8 pursuant to the 401(k) plan. Does the company need to maintain the effectiveness of the S-8, or is it required to file a post-effective amendment to the S-8 showing that it's no longer available?

RE: If all the shares have been issued, there's no need to keep the S-8 effective. Your Item 512 undertakings would only require you to file a post-effective amendment deregistering any shares that remain unsold at the conclusion of the offering. If there are none, then you aren't required to file a post-effective amendment.
-John Jenkins, Editor, TheCorporateCounsel.net 6/8/2020

Q: A company (C1) became a subsidiary of another company (C2) in a reverse merger transaction in which the shareholders of C1 received shares of C2. The shares of C2 exchanged in the merger transaction were registered under the Securities Act of 1933 on a Form S-4. One of the shareholders of C1 prior to the merger is a company (C3) which is evaluating the possibility of the distribution of a portion of the C2 shares received in the merger transaction to the shareholders of C3. C3 was not an affiliate of C1 prior to the merger transaction and is not an affiliate of C2 as a result of or following the merger transaction. I am aware of Staff Legal Bulletin Number 4, but it does not appear to apply since C2 is not a subsidiary of C3. It seems that the distribution of C2 shares by C3 to the shareholders of C3 would not require a new separate registration under the Securities Act. Any input would be appreciated.

RE: I think you're right. Since C3 wasn't and isn't an affiliate of either party and received registered shares in the transaction, it may dispose of them as it sees fit, including by distributing them to its own shareholders.
-John Jenkins, Editor, TheCorporateCounsel.net 6/5/2020

Q: Can WKSIs use Rule 462(b) to upsize its last takedown from an S-3 (non-ASR S-3), or is that not permitted because, as a WKSI, the company is now eligible to file a new ASR S-3 with immediate effectiveness?

RE: I don't see any reason why a WKSI couldn't rely on Rule 462(b) if it had an existing S-3 with availability and wanted to use that registration statement instead of filing a new S-3ASR. I think the idea was to provide additional privileges to companies that qualify as WKSIs, not to narrow their ability to rely on more restrictive rules that are generally applicable to all S-3 issuers.
-John Jenkins, Editor, TheCorporateCounsel.net 6/5/2020

Q: Hi, I am wondering whether an inspector of elections and reps of the independent public accountant can properly attend remotely an annual meeting which is otherwise only available in-person (to shareholders). The company is a Delaware entity. I understand that DGCL Section 211(a)(1) allows stockholders and proxyholders to remotely participate in a meeting that is not otherwise fully electronic or virtual. However, the code seems to be silent when it comes to inspector of elections. Section 231 on the matter does not seem to provide much guidance. So, ultimately, I have two questions: 1) Will allowing the inspector of elections and reps of the independent public accountant to attend virtually (but not extending this option to shareholders - it is otherwise a standard in-person annual meeting) result in an invalid meeting? 2) Will the allowance of virtual attendance by the inspector and accountant reps require an update to proxy materials as a virtual or hybrid meeting, despite the fact that the meeting will otherwise be in-person only? Thank you!

RE: We spoke to Delaware counsel on this, and they advised that the Inspector of Election should be present. It is best if you could make someone there the Inspector of Election (such as the Chairman of the meeting), and then have your usual Inspector of Election call in and help them with their duties. But officially, the person present would be the inspector. Alternatively, you could have the Inspector of Election be on the phone, and have someone there in person as the "representative" of the Inspector of Election to help them complete their in-person duties. That isn't as solid as the first option though.

On the accountants, I don't think they need to be there in person; I don't think that would cause the meeting to be invalid. I also don't think you need to re-mail materials because of the way people are attending the meeting. I don't see that as being material.
-6/3/2020

RE: Thanks!
-John Jenkins, Editor, TheCorporateCounsel.net 6/4/2020

Q: In looking at what other "participants" may need to rely on Rule 165, as contemplated by Rule 165(d), I'm seeing discussion of whether that participant may be deemed to be "joining in the offer of securities by the acquiror." Is there any guidance as to what this means with respect to a target in a business combination transaction?

RE: Any responses to this?
-6/3/2020

RE: If it's a public acquirer of a private target, would target generally be considered as "joining the offer" such that they should consider their written communication an offer that needs to be filed under 425?
-6/3/2020

RE: This merited only a single sentence in the Reg M&A adopting release, and aside from one vague reference in Question B. 9. of the telephone interps on Reg M-A, I'm not aware of any guidance on this from the Staff. That being said, I don't think the idea of "joining in the offer" was meant to capture actions that a seller's board and management would take in the ordinary course of soliciting proxies from their own shareholders and complying with their other disclosure obligations in a deal in which the consideration involved the buyer's securities.

I've always thought that what this language is getting at is the "underwriter" concept embodied in Section 2(a)(11) of the 1933 Act. Does the seller look like its management and board are simply fulfilling their fiduciary duties and disclosure obligations to their own shareholders in connection with the deal, or are their activities more akin to those who are "participating in a distribution" of securities on behalf of the issuer?

Since that's my understanding, I think this was meant to capture situations in which the target's management or controllers were actively involved in promoting the deal to investors generally. For example, it seems to me that situations in which the seller's reps were planning to actively participate in "road shows" for the buyer's deal-related financings or other marketing efforts designed to promote the post-deal company (such as might be the case in a merger of equals or other situations in which members of the seller's management team would occupy key roles in the combined entity) might be what that language is getting at.
-John Jenkins, Editor, TheCorporateCounsel.net 6/4/2020

Q: Assume that an issuer is conducting a concurrent 4(a)(2) private placement and an IPO and the private placement was kicked off prior to the first public filing of the registration statement. The private placement will close at the time of the IPO closing. A lot of the materials that I have seen focus on integration in the light of an investor not being attracted to the private placement by way of the registration statement. My questions is a bit of the reverse, if an investor in the private placement decides that it wants to participate in the IPO rather than the private placement, assuming that investor is on equal footing in terms of information with the IPO investors, is there anything preventing that switch (e.g., gun jumping)?

RE: You're right - most of the commentary and all of the Staff guidance that I've seen focuses on the general solicitation issues raised by the filing of the registration statement. While this hasn't been addressed definitively, my own view is this isn't a concern with respect to an investor in the private offering that also wants to buy securities in the public offering. However, there still may be a problem in permitting private investors to purchase in the public offering, and it has to do with the information that may have been provided to investors in the private offering. Here's an excerpt from this Latham blog that explains the issue:

"The other issue that comes up in the context of concurrent public and private offerings is that potential private investors may expect information that is not typically part of the IPO disclosure package, particularly projections. Once a private investor has received projections from the issuer or placement agent in connection with the private offering, you will have to think carefully whether it will be wise to include that investor in the public offering. In most cases of concurrent public and private offerings, it can prove difficult to keep both the public and private options open as to the same institutional investor. At some point, you and your banks will need to decide which investors are exclusively private side and which are exclusively public side."

That isn't going to be an issue in every concurrent offering, and in its absence, I don't think participation of the private investors in the public deal raises concern. In that regard, although it's important not to draw too much comfort from an individual issuer's comment letter process, I would still refer you to this response from Ceres Inc. to a Staff comment raising integration concerns about concurrent private and public offerings. Investors in the company's private placements also purchased securities in its concurrent public offerings. The response letter addressed the Staff's comment solely by reference to the general solicitation issue relating to the private offering. The Staff did not raise any further comments.
-John Jenkins, Editor, TheCorporateCounsel.net 6/2/2020

Q: Our auditors have requested that we obtain and maintain a listing of immediate family members of related parties (i.e., directors and section 16 officers). Are public companies required to gather such information ? If so, do companies typically require related parties to provide this information on annual D&O questionnaires? If not, what are the pros and cons to requesting this information? It seems like an area where related parties may push back.

RE: I think auditors have become much more intrusive with their inquiries about related party transaction ever since the implementation of ASC 18. The auditor's need to perform the assessment of related party transactions required by ASC 18 is what is driving this request, and it's by no means an unprecedented one. As the discussion in Topic #8536 of this Q&A Forum reflects, companies have handled this in different ways, one of which is to include a request for this information in the D&O questionnaire.

You may find the discussion of related party due diligence practices on pages 20-25 of our D&O Questionnaire Handbook to be helpful. A discussion of ASC 18 due diligence procedures begins on page 23.
-John Jenkins, Editor, TheCorporateCounsel.net 5/29/2020

Q: Could a company do a universal S-3 shelf takedown and only file the pricing, use of proceeds and plan of distribution under Form 8-K and not file a Rule 424(b) supplement? I don't see the point of Rule 430B(d)(3) (which seems to permit), if Rule 430B(h) seemingly requires one anyway.

RE: It is awkward, but I think it has to do with making sure that information about basic terms of an offering that's incorporated by reference to Exchange Act reports is subject to Section 11 liability, and isn't just subject to prospectus liability under Section 12. The SEC has always taken the position that this information and information in a prospectus supplement is subject to Section 11 liability, but not everyone agreed with that position. So, when they adopted Rule 430B as part of Securities Act Reform, the SEC added this language to make sure that information was included in a prospectus supplement, which is subject to Section 11 under the rule. Here's an excerpt from this MoFo memo:

"The SEC’s position has always been that Section 11 liability under the Securities Act attaches to the prospectus supplement and incorporated Exchange Act reports, but some commentators disagreed. However, Rule 430B and Rule 430C, adopted in 2005, codify the SEC’s position (which was generally taken by the courts in the case of takedowns off a shelf) that the information contained in a prospectus supplement required to be filed under Rule 424, whether in connection with a takedown or otherwise, will be deemed part of and included in the registration statement containing the base prospectus to which the prospectus supplement relates."

It seems to me there may have been other, less clunky, ways to accomplish this than the approach used in Rule 430B(h), but perhaps something about the nature of the commentators' concerns and the fact that there was judicial precedent applying Section 11 liability to pro supps that led the SEC to think that this would be a more certain approach than deeming any Exchange Act filings incorporated by reference to be subject to Section 11 liability.
-John Jenkins, Editor, TheCorporateCounsel.net 5/28/2020

Q: Hi. I am dealing with the following situation: >> Issuer wants to issue convertible preferred stock to Buyer now in a private placement. >> Buyer would like to pay for the preferred in the form of a promissory note today so it can receive all of the preferred as soon as possible. >> Issuer wants to file a resale registration statement to register the resale of all of the shares of common stock underlying the convertible preferred shares. >> Unclear when or if Buyer will ultimately convert the preferred into common. Since the underlying shares of common stock are not yet outstanding, must Buyer be obligated to convert by a date certain in order to be "irrevocably bound" to pay for and receive the common stock before we file the registration statement? Or, is it sufficient that the convertible preferred itself is outstanding prior to the filing of a resale registration statement?

RE: If the promissory note is valid consideration for the issuance of the preferred (as I think would be the case for Delaware corporations under current law), I don't think the fact that the preferred is paid for by a promissory note would preclude a resale registration statement for the underlying common. Those shares would be currently outstanding, and the PIPE analysis for convertible securities looks to the status of those securities, not the shares into which they may be converted. See Securities Act Sections CDI #139.11.

I think the answer might be different if the parties got cute with the terms of the note itself. For example, if instead of being a straightforward promise to pay, the promissory note had payment conditions baked into it that went beyond what was contemplated by the Staff's PIPE interpretive position — for example, if there were contingencies to the payment obligation that were within the investor's control.
-John Jenkins, Editor, TheCorporateCounsel.net 5/26/2020

RE: Thanks. So, it's enough that the convertible preferred is outstanding in order to register the issuance of the underlying common, right? Even though there is no obligation that the preferred will ever get converted. Just checking.
-5/26/2020

RE: You cannot register the original issuance of the underlying common shares. If you are S-3 eligible, you may be able to register the underlying common shares for resale prior to their issuance upon conversion. Take a look at the CDI to which I referred in my prior response and the one immediately preceding it (CDI #139.10).
-John Jenkins, Editor, TheCorporateCounsel.net 5/26/2020

RE: Perfect. Thanks for confirming!
-5/26/2020

RE: Sorry, one more follow up. I think the same analysis would apply if only some portion of the preferred is currently outstanding, but the purchaser has an irrevocable obligation to buy the remainder, yes?

So, we could still register the resale of, say, 100 shares of common stock issuable upon conversion of 100 preferred shares, even if only 50 preferred shares are currently outstanding, so long as the buyer is obligated and no conditions within its control, etc.
-5/26/2020

RE: Hi. I am also curious to hear thoughts on this.
-5/27/2020

RE: I think this would be permissible if you qualified for the Staff's PIPE position, but please read the CDIs to which I referred in my previous responses. Note in particular the language of CDI #139.11 to the effect that unless a transaction meets the criteria for a PIPE, "if the company continues to sell privately additional convertible securities after it has filed the registration statement for the securities underlying the previously sold convertible securities, the continuation of the same offering may call into question the Section 4(2) exemption generally claimed for the entire convertible securities offering."
-John Jenkins, Editor, TheCorporateCounsel.net 5/27/2020

Q: Is there any formal SEC guidance that the Form 8-K items should be listed in numerical order (e.g., Item 1.01, 2.02, 5.02, 9.01, etc.)?

RE: I've never seen anything to that effect, but I've also never seen somebody shuffle the deck in terms of presenting line item disclosure. What I have seen is companies filing an 8-K under one item (where it most logically fits), and then referencing other items at the bottom of the disclosure and indicating that to the extent called for by Form 8-K, the information is incorporated by reference into those items.
-John Jenkins, Editor, TheCorporateCounsel.net 5/26/2020

Q: Compliance with the NYSE's Minimum Price rule is based on official closing prices on days tied to "signing of the binding agreement." Would a binding commitment letter that includes certain conditions (including execution of a customary purchase agreement and amendment of a prior registration rights agreement to include the shares to be purchased) constitute such a "binding agreement," or would the final purchase agreement need to be used for that purpose?

RE: I am not aware of any interpretation of 312.04's "binding agreement" requirement, but I wouldn't be comfortable taking the position that your agreement is binding without NYSE input. It's still contingent on a definitive agreement and the parties may not see eye-to-eye when it comes to what "customary" terms of the agreement are.
-John Jenkins, Editor, TheCorporateCounsel.net 5/22/2020

Q: Hello. I am trying to research whether a corporate reorganization to form a holding company would be considered a "sale" for Securities Act purposes. This situation involves a privately held LLC. The current equity holders of the LLC will contribute their outstanding membership interests in the LLC to a new holding company in exchange for corresponding equity interests in the holding company. All equity ownership amounts and equity holder rights, etc. will stay the same. Note that there is no merger in this structure, and that the current equity holders will be giving their consent by signing the contribution agreement providing for their exchange of securities. (For the avoidance of doubt, this is not a bank holding company scenario.) I have taken a look at Rule 145 which seems to suggest that this could be a "sale" for Securities Act purposes. However, I have also seen some discussion on this site suggesting that if the reorganization is not being done in connection with an acquisition, there is SEC guidance to support a "no sale" position. What are your thoughts, and can you please point me to any relevant SEC guidance? The only complicating factor here is that the current LLC's lender is requiring a guarantee of the existing debt by the new holding company (that is what is driving this reorganization since it was too much of an administrative burden to have each equity holder guarantee the debt). I'm not sure if that changes the analysis. Thank you!

RE: I think it is easier to make a "no sale" argument when you're dealing with modifications to non-fundamental terms of debt securities than when you're dealing with a holding company formation that's within the scope of Rule 145. I know there are a few no-action letters involving holding company formations where companies have been successfully able to argue that no sale is involved, but the path is narrow. The no-action letters referred to in the discussion of Rule 145 & Section 2(a)(3) in this no-action letter may help you get started.
-John Jenkins, Editor, TheCorporateCounsel.net 5/22/2020

Q: Struggling with deregistration issues in the context of a simple holding company merger where the transaction is to be approved by stockholders of the public company, and the shares of HoldCo are registered on S-4. With respect to handling outstanding S-8s, we've looked at lots of examples and it seems everyone does it differently. For purposes of 12h-3, the company's previously filed S-8 that was updated when the last 10-K was filed will be amended to terminate the plan before Form 15 is filed pursuant to SLB 18. Thereafter, what are the considerations in determining if the successor should: (i) assume the plan under a post-effective amendment to the original S-8--it looks like some companies have done this even though the language of the predecessor's S-8 POS "terminated" the plan, (ii) file a post-effective amendment on Form S-8 to the S-4 that was filed in connection with the merger or (iii) file a brand-new S-8 under HoldCo's name (as Alphabet did). Thank you.

RE: Unless you registered the shares that would fund the successor plan on your Form S-4, you can't add them in a post-effective amendment on Form S-8. (See Rule 413(a)).

If you qualify as a successor issuer under Rule 414, then you could adopt the S-8 by means of a post-effective amendment. Because the shares were previously registered, you wouldn't need to pay an additional registration fee.

If you qualify as a successor and file a new registration statement, you can carry over the fees paid on the unused portion of the registration statement that you terminated under Rule 457(p), but only if the original registration statement was filed within 5 years of your new one. That appears to be what Alphabet did, although it wasn't able to offset the entire amount of the fee payable because of the age of the registration statements involved and because it appears that Alphabet registered additional securities (deferred compensation obligations).

So, I think that alternative (i) may not be viable, but if it is, it would have the same result as alternative (ii). It seems to me that alternative (ii) and (iii) may both be viable, but alternative (iii) could end up costing you more if you can't wholly offset the filing fee under Rule 457(p).
-John Jenkins, Editor, TheCorporateCounsel.net 5/19/2020

Q: Our mail out date was Wednesday, April 29th; however, our stockholders have yet to receive traditional mailing sets in the regular mail. Our proxy mails out vendor is telling me he believes Broadridge mailings are about 2 weeks late this year. He thinks they are claiming that "Mailing is complete" actually means emails delivered to stockholders with control numbers. Has anyone been experiencing the same? This is unacceptable considering our annual meeting is on May 27. Some stockholders are old school and will only vote when they receive paper copies in the mail.

RE: There are apparently all sorts of problems with Broadridge this year, reportedly due to a tragic situation in their NY warehouse in which 6 employees died of COVID-19. I have been advised that they have reduced staffing significantly and instituted enhanced social distancing measures. That's apparently led to some significant delays. See the discussion in Topic # 10312.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

RE: Another item to note is that if materials are sent through USPS, there are sporadic delays. There's an article about mail delays in Michigan, albeit back at the beginning of April.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 5/12/2020

RE: Broadridge has informed our proxy solicitor that the mail out DID occur on May 1st. Acknowledging that these mailings were mailed via US Standard A (bulk) mail which may be delayed as a result of COVID-19, and as it is already May 13th, should we be concerned that our street stockholders have not received their proxy statements in the mail? What do we do about this?
-5/13/2020

RE: It has been 18 days since Broadridge allegedly mailed out our proxy materials and stockholders have still not received them in the regular mail.
-5/19/2020

Q: Hello, We have a situation in which we would like to elect a director to our Audit Committee but are not certain whether he would be considered independent under Nasdaq rules. He is an affiliate of an affiliate. He is a managing member of an entity that owns more than 10% of our company. Could you please let us know your thoughts on this? Thank you!

RE: I think Rule 10A-3 creates a problem for you here. Rule 10A-3(e)(1)(iii) provides that executive officers, employee directors, general partners and managing members of the company or any affiliated entity will be deemed “affiliates.” So, if you've already determined that the entity with which he's affiliated is an "affiliate" of the company, so is he. See the discussion on pgs. 69-71 of our "Director Independence Handbook."

If your affiliation determination with respect to the entity is based only on the amount of its ownership interest, then you may have some more wiggle room. The 10% number in Rule 10A-3 is just a safe harbor, and the Nasdaq has concluded in at least one instance that control over a 25% shareholder did not result in a person being regarded as an "affiliate" (although that didn't directly involve an audit committee position). See Nasdaq Staff Interpretation Letter 2010-10.
-John Jenkins, Editor, TheCorporateCounsel.net 1/7/2019

RE: John, that Nasdaq letter you cited weighs in on whether a director (who is affiliated with the 25% holder) would be considered an employee of the company. Can you please clarify how you concluded this indicates that Nasdaq did not view the 25% holder as an affiliate or deemed to control the company? Thank you.
-5/15/2020

RE: I see your point. Perhaps I should have simply said that the interpretation didn't necessarily preclude a finding that the person was "independent" under Rule 5605(a).
-John Jenkins, Editor, TheCorporateCounsel.net 5/17/2020

Q: Our mail out date was Wednesday, April 29; however, our stockholders have yet to receive traditional mailing sets in the regular mail. Our proxy mail out vendor is telling me he believes Broadridge mailings are about 2 weeks late this year. He thinks they are claiming that "mailing is complete" actually means emails delivered to stockholders with control numbers. Has anyone been experiencing the same issue? This is unacceptable considering our annual meeting is on May 27. Some stockholders are old school and will only vote when they receive paper copies in the mail.

RE: There are apparently all sorts of problems with Broadridge this year, reportedly due to a tragic situation in their NY warehouse in which 6 employees died of COVID-19. I have been advised that they have reduced staffing significantly and instituted enhanced social distancing measures. That's apparently led to some significant delays. See the discussion in Topic # 10312.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

RE: Another item to note is that if materials are sent through USPS, there are sporadic delays.
-Lynn Jokela, Associate Editor, TheCorporateCounsel.net 5/12/2020

RE: Broadridge has informed our proxy solicitor that the mail out DID occur on May 1. Acknowledging that these mailings were mailed via U.S. Standard A (bulk) mail, which may be delayed as a result of COVID-19, and as it is already May 13th, should we be concerned that our street stockholders have not received their proxy statements in the mail? And, what do we do about this?
-5/13/2020

Q: If an executive responding to shareholder questions at a virtual shareholder meeting discloses material non-public information, is the company required to make a replay of that meeting publicly available for a certain period of time? I see that in the footnote to Reg FD adopting release, the SEC encouraged companies to make such replay available (and to indicate how long it will be available), but is it required? If the replay is available for some time on the Broadridge VSM site, does the company also need to post it on its own website? If so, should it be up there for the same period of time as an earnings call replay?

RE: I think the first question that you have to ask is whether your virtual annual meeting is compliant with Reg FD's requirements in the first place. If the virtual meeting isn't made available to the public and advance notice of how the public may access the meeting is not provided, then it won't satisfy FD's requirements (just as most traditional annual meetings don't). See Reg FD C&DI 102.05. So, if your meeting isn't FD compliant and an executive inadvertently spills the beans on MNPI during the meeting, you will have to promptly disclose the information in an FD compliant manner (press release, Form 8-K, etc.).

Assuming that the virtual annual meeting is FD compliant, there's no specific requirement for a transcript to be posted, but it is clearly a best practice when it comes to earnings calls and other management presentations. Most annual meetings have not been structured to comply with Reg FD in the past, and the universe of virtual annual meetings is pretty small. That means there isn't a lot of precedent when it comes to posting transcripts. Since that's the case, my recommendation would be that companies post a transcript and keep it up for as long as they customarily keep earnings releases posted.
-John Jenkins, Editor, TheCorporateCounsel.net 5/13/2020

RE: Thanks, John. The company issued a press release announcing that it was switching to a virtual annual meeting and providing a link to a site where the annual meeting can be accessed (without having to register in advance). The press release was posted on the company website and filed as DEFA 14A. Wouldn't that notice be considered broadly disseminated to satisfy Reg FD obligations? Alternatively, if the company announced the virtual meeting in its proxy materials filed with the SEC, would that work under Reg FD? In both cases, assume that guests are allowed to listen in but not otherwise participate in the meeting.
-5/13/2020

RE: Yes. I think if you allow everyone to listen in and have provided advance notice informing the public that they may participate through a combination of a press release, website disclosure and an SEC filing, the virtual meeting should be FD compliant.
-John Jenkins, Editor, TheCorporateCounsel.net 5/13/2020

RE: As for just disclosing it in the proxy materials, that could work, but it needs to be prominently disclosed. See Reg FD C&DI 102.02:

Question: Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Answer: Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information and must not make the disclosure in a piecemeal fashion throughout the filing. [Aug. 14, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 5/13/2020

Q: Is there any learning on the meaning of "appoint" in 8-K Item 5.02(c)? For example, what is the 8-K trigger if an officer signs an employment agreement or an offer letter a month prior to joining the company or being formally elected to the position by the board? Alternatively, what if the board never formally appoints the individual to the position because the individual is effectively fulfilling the function of a CFO without a formal title? We are aware of instruction to paragraph (c) and the related interpretation as well as the very broad interpretation of 5.02 (b), under which notice is the 8-K trigger (even though "notice" is not mentioned in 5.02(b)). Your thoughts would be much appreciated.

RE: This is a good question, and, other than the guidance that you cite, there is not much out there from the staff that I am aware of.

I think that as a matter of principle, the triggering events under Item 5.02 are more often than not the earliest to occur of the possible chain of events that may be associated with the employment process. Further, it is notable that the triggering events are not specifically tied to any formal action on the part of the board in Item 5.02(c), unlike, say, in Item 2.05 or 2.06 where some action by the board, a board committee or an officer is required. Presumably if the SEC had wanted Item 5.02(c) to be limited to the formal process, it would have done so explicitly in the Item.

In the case that you describe, I think the appointment comes when the officer signs the employment agreement or offer letter or otherwise reaches an understanding as to his or her employment with the registrant, rather than the later time when some formal action is taken by the board. If you are in a situation where the public disclosure of the appointment is not made until the board action (or some other later time), then you could rely on the Instruction to paragraph (c) that permits a delay in filing the Form 8-K until the day of the public announcement.

The determination of whether a person is a “principal executive officer,” “principal financial officer,” “principal accounting officer” or “principal operating officer” is based upon the person’s function and not necessarily his or her title. These terms have not been specifically defined under the Exchange Act, whereas the terms “executive officer” and “officer” are defined under the Securities Act Rule 405 and Exchange Act Rules 3b-2, 3b-7, and 16a-1(f). The determination as to officer or executive officer is really a functional test in the sense of whether the person is performing the duties of that particular kind of officer.

Given these points, the Staff has generally said that an Item 5.02(c) 8-K is required when someone assumes the responsibilities of a "principal officer," even if only on an interim basis.
-Dave Lynn, Editor, TheCorporateCounsel.net 12/19/2007

RE: Does the answer to this change for a director offer letter? That one is keyed off of the "election" to the board. That seems stronger than appointment in the officer standpoint. For example, if we had the director sign an offer letter with the terms of the directorship, subject to his formal appointment to the board, is the signing of the offer letter or the appointment the trigger?
-5/12/2020

RE: I think it depends on the facts and circumstances surrounding the letter. If this "offer letter" is something that the bylaws require all individuals who are nominated to serve as directors to sign before their candidacy is considered by the board, then I can see an argument that the Item 5.02 clock hasn't started ticking. If, however, the board has essentially elected this person to the position subject to the execution of the offer letter, then I think it clearly has started ticking.

For situations in between these two extremes, I think you need to keep in mind Dave's point about the bias toward early disclosure. I also think that there's merit to establishing procedures designed to avoid these murky situations in the first place. For example, it might be appropriate to ensure that consideration of the individual's nomination for the vacancy and his or her execution of any required offer letter occur on the same day.
-John Jenkins, Editor, TheCorporateCounsel.net 5/13/2020

Q: Is there any SEC guidance that supports the below Q&A from the handbook regarding NEW proceedings that arise between the end of the period and filing? It seems odd that a company could not disclose a material legal proceeding because it happened between the end of the quarter and the filing date, so I’m just wondering where this came from. Disclosure “As of End of Period” or “Filing Date” Question: Any thoughts or insight on whether the legal proceedings disclosure in a Form 10-K/Form 10-Q must reflect developments that occurred in the proceeding after the end of the period covered by the report? Answer: While it is common practice to include post-period material developments to previously disclosed proceedings, it is rare to disclose newly initiated proceedings in a Form 10-Q/K after the period end. In other words, if a new proceeding arises between the period end for a report and the time it is filed, it is not included.

RE: Thanks for raising that. I'm trying to find out where that language came from. Personally, I've always thought that Item 103 spoke as of the filing date, and didn't think it distinguished between new proceedings and developments in existing ones.
-John Jenkins, Editor, TheCorporateCounsel.net 5/11/2020

RE: Thanks again for bringing this to our attention. I think the consensus here is that the better practice is to disclose new proceedings that are instituted prior to the filing date. We'll revise it when we update the handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

Q: I have been informed that a client has accelerated the vesting of time-based awards for certain employees. The client's equity compensation plan states that the client's comp committee shall have the right to accelerate the vesting of awards in its discretion. It appears that management did not get approval from the comp committee before accelerating the vesting of the time-based awards. The in-house attorney believes that the client must use Section 204 of the DGCL to ratify the action but my thought is (and I explained) that the comp committee can ratify the action taken by management with respect to the acceleration of the time-based awards outside of such section as such section is not the exclusive means for ratifying this unauthorized action. I would appreciate any thoughts on this topic. Thank you in advance.

RE: Section 204 is non-exclusive when it comes to voidable acts, but it is sometimes difficult to distinguish between "void" acts, which can't be ratified outside the statutory procedure, and "voidable" acts, which can be. My gut says that if none of the improperly vested shares have been issued, management's actions should be regarded as voidable, not void, and ratification by the committee is probably sufficient, but I have not researched the issue. You may find this Richards Layton memo on recent case law on the void v. voidable distinction to be of some help.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

Q: In connection with a SPAC merger, certain shares were returned by SPAC sponsor affiliates to the surviving company and held in treasury. The surviving company wanted to use those shares in the future for vendor payments, etc. The company then filed a Form S-1 resale registration statement, covering the resale of shares held by the SPAC sponsor affiliates and certain other stockholders and warrant holders. Client was advised that if it wanted to later issue the above-referenced treasury shares, and register the same for resale, it could do so by post-effective amendment to the Form S-1. Rule 413(a) would appear to prevent this. Instead, it seems that, if the Company issues the treasury shares to a party, their resale will need to be registered on a new registration statement. Do you agree?

RE: I think you're correct.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

Q: Going concern disclosure requires companies to evaluate their ability to continue as a going concern for the 1-year period after the date the financial statements are "issued." What is considered the date of issue? In the case of audited financials, for example, is it the date of the audit report, the date the audit committee approves the audit report for inclusion in a Form 10-K or the date of filing of the Form 10-K that includes the financial statements? Thanks in advance.

RE: You should consult with your accountants, but this is my understanding of when the Staff views financial statements to be issued:

"Generally, the staff believes that financial statements are "issued" as of the date they are distributed for general use and reliance in a form and format that complies with generally accepted accounting principles (GAAP) and, in the case of annual financial statements, that contain an audit report that indicates that the auditors have complied with generally accepted auditing standards (GAAS) in completing their audit. Issuance of financial statements then would generally be the earlier of when the annual or quarterly financial statements are widely distributed to all shareholders and other financial statement users4 or filed with the Commission. Furthermore, the issuance of an earnings release does not constitute issuance of financial statements because the earnings release would not be in a form and format that complies with GAAP and GAAS."

Refer also to ASU 2014-15.
-John Jenkins, Editor, TheCorporateCounsel.net 5/12/2020

Q: Registrant’s shares of common stock and warrants were registered under 1934 Act Section 12(b) and traded on Nasdaq. Nasdaq subsequently filed a Form 25 to delist Registrant’s warrants due to Nasdaq’s determination that the warrants no longer satisfy applicable listing requirements. Nasdaq checks the fifth box on Form 25 (Rule 12d2-2(b)). The Form 25 filing acts not only to delist the warrants but also to deregister them from the 1934 Act (generally 90 days after the filing of Form 25 based on Rule 12d2-2(d)(2) and General Instruction 5 to Form 25), right? Assuming that is correct, what if Registrant wants to maintain the 1934 Act registration of the warrants despite the delisting from Nasdaq? Both Rule 12d2-2(b) and Form 25 use the conjunction/disjunction “and/or” when referring to delisting/deregistration. Would Registrant have to file a Form 8-A re-registering the warrants under 12(b) or 12(g) as applicable, or can Form 25 provide for delisting only? Thank you.

RE: Check out Rule 13g-2. If the warrants would have been required to be registered under 12(g) except for the fact that they were listed on Nasdaq and registered under Section 12(b), then when that registration is terminated, they'll be deemed to be registered under Section 12(g) without the need to file another Exchange Act registration statement.
-John Jenkins, Editor, TheCorporateCounsel.net 5/5/2020

RE: Thanks. You probably mean Rule 12g-2, but that only applies if the warrants were otherwise subject to mandatory Section 12(g) registration, which is not the case here. Here, there would be no revived or automatic new (per 12g-2) Section 12(g) registration. Do you agree with the fourth sentence in the post above? Thoughts on the question in the fifth sentence? And, can Form 25 provide for delisting only, and what if Registrant wants to maintain 1934 Act registration under Section 12(b) (e.g., list on another exchange)? Thank you.
-5/5/2020

RE: Yes, thank you for correcting that reference. I've never encountered your exact situation, but I've always understood that delisting for a company that isn't listing on another exchange and doesn't have a dormant Section 12(g) registration will ultimately result in deregistration as well. You may want to reach out to the Staff, but if you can't fit into the 12g-2 box, it appears to me that a new registration statement under Section 12(g) would be required if you wanted the warrants to remain registered under the Exchange Act.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2020

RE: Thank you. Just to be clear, could you clarify what you mean by “that isn’t listing on another exchange and…?” What if the company is listing on Exchange #2 after being delisted from Exchange #1? Could the Form 25 provide for delisting only? Thanks again.
-5/6/2020

Q: Curious how other companies are handling the requirement that their stockholder list be made available in advance of the annual meeting with corporate headquarters being closed due to Covid-19.

RE: Here are some recent press releases announcing virtual meetings. Most indicate that the stockholder list may be accessed through the online platform for the meeting. As for pre-meeting access, some companies still tell shareholders that the list will be available at the company's business address, while others provide a contact email for shareholders who want to inspect the list.

Some press releases say nothing about pre-meeting access. My guess is that these companies have opted to simply rely on the existing disclosure about how shareholders may access the list during the 10-day period prior to the meeting that they included in their original proxy materials, notwithstanding the impact of closures.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2020

Q: On January 1, 2020, the Company had fewer than 300 record holders. On April 1, the NYSE filed a Form 25 delisting the Company's stock. The Company has no reporting obligations under 12(g). The Company has not yet filed its 2019 10-K. The Company is planning on using the statutory suspension to suspend its periodic filing obligations under 15(d). If I understand correctly, Form 25 suspended filing obligations 10 days after it was filed (April 10) at which point the Company's 15(d) obligations would have sprung to life (but they were already suspended as of January 1 from the statute). The Company now plans to file a Form 15 (to provide notice to the SEC). My question is: Does the Company have to file its late 10-K? The statutory suspension does not require the Company to be up to date on its filings (12h-3 does, but we are not going that route). Does the fact that the Company was a 12(b) reporting Company until April 10 (after the due date of the 10-K) carry with it a requirement to file the late Form 10-K?

RE: If you had a registration statement that was updated through the filing of your 2018 10-K, then I think it is pretty clear that you have to file the 10-K before you can suspend the Section 15(d) reporting obligation. See this C&DI.

Exchange Act Rules C&DI 153.03:

Question: Can a company suspend its reporting obligations under Section 15(d) with respect to “the fiscal year within which such registration statement became effective?”

Answer: No. A company must always file the Form 10-K for the fiscal year in which the registration statement is declared effective. The Form 10- K is required regardless of whether the company suspends its reporting obligation under Section 15(d) or Rule 12h-3. [September 30, 2008]

If that's not the case, then I think it boils down to the language of the statute, and I stumble over the fact that Section 15(d) says that the duty to file under 15(d) shall be "automatically suspended as to any fiscal year" if, at the beginning of that year, the company fell below the statutory threshold. The way I read that, even assuming you could suspend your reporting obligations going forward, you would not be excused from filing your Form 10-K for 2019, because it relates to the prior fiscal year.
-John Jenkins, Editor, TheCorporateCounsel.net 5/6/2020

Q: Our company's Investor Relations website has a tab labeled "Why Invest." When you arrive at that page, you read about certain operational facts under the categories of Customer Focus, Growth — Topline Revenue, Solutions Driven Technology, Employees, etc. I don't necessarily see anything here that violates 10b-5, but the whole concept of "Why Invest" gives me a little pause. Am I being overly concerned here?

RE: IR websites always make me uncomfortable, but if it's any consolation, lots of companies have a similarly captioned section on their IR websites.
-John Jenkins, Editor, TheCorporateCounsel.net 5/5/202

Q: Historically, we have allowed stockholders the opportunity to ask questions of management at an Annual Meeting after the formal business of the meeting is discussed (i.e., proposals) and before adjournment. Is there a legal requirement to do so? I know that Delaware law requires companies to “implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings," but does this mean stockholders have a right to ask questions? We are having our first virtual meeting this year, and Mediant (our proxy tabulator) is informing us that many issuers skip the Q&A session altogether and some state in their scripts that they will address any stockholder questions 1-on-1 with stockholders after the meeting by email. This was very surprising to hear.

RE: I have seen many companies structure their meetings to discourage Q&A until after the meeting has adjourned. The Chair will frequently announce at the outset of these meetings that the company will act on the formal business of the meeting, and then, after adjournment, provide management presentations and respond to shareholder questions. This allows them to avoid addressing the Q&A session and presentations in the minutes, and helps get the meeting over with quickly.

This is a fairly common approach to shareholder meetings, so it certainly suggests to me that lawyers have gotten comfortable with the idea that you don't have to include a formal Q&A period or otherwise invite shareholder questions in order to have a valid meeting. But, I think that a court would take a dim view of efforts to shut down a shareholder at one of these meetings who had the moxie to stand up and try to ask a question about a matter that was on the agenda.

So, while not having a formal Q&A session or not inviting questions might be legally defensible, affirmatively barring them seems to me to be a different matter. By the way, whatever may legally be permitted, your shareholders are very likely to get their noses out of joint if you did something like this. In that regard, the CII sent a letter to the SEC's Investor Advisory Committee over the weekend that catalogues investor complaints about virtual meetings. Q&A issues feature prominently.
-John Jenkins, Editor, TheCorporateCounsel.net 5/5/2020

Q: For at least the last 10 years, my company, a NYSE public issuer, has always allowed stockholders the opportunity to question our auditors regarding the audit of the Company's financial records. I have reviewed at least five transcripts of recent virtual annual meetings and have noticed that none of them allow stockholders to question the auditors. Do issuers typically NOT allow auditors to be questioned? Not sure why my company allows for this.

RE: Item 9(c) of Schedule 14A requires the proxy statement for an annual meeting to disclose the following information:

The proxy statement shall indicate: (1) Whether or not representatives of the principal accountant for the current year and for the most recently completed fiscal year are expected to be present at the security holders' meeting, (2) whether or not they will have the opportunity to make a statement if they desire to do so, and (3) whether or not such representatives are expected to be available to respond to appropriate questions.

I've never seen a proxy statement that didn't contain this disclosure, and most of the meetings I've attended have language in the script providing for the introduction of the representative from the auditor and a statement that the auditor will be available for questions. I don't think this is necessarily required, and some companies may take the position that proxy disclosure is sufficient, and that if a shareholder raises a question for the auditor, they'll let the representative address it — but they aren't looking to invite questions in the script.
-John Jenkins, Editor, TheCorporateCounsel.net 5/1/2020

RE: You mentioned how auditors would be available for questions. Should these be limited to matters involving their prior audit?
-5/4/2020

RE: I've never seen any guidance on what "appropriate questions" are. I think that in addition to questions about their audit, any disclosure in their opinion, the financial statements or in the MD&A relating to critical accounting policies would probably be fair game for a question. My gut reaction is that I'd probably say that questions that would require the auditor to address the content of confidential communications with the board or the audit committee should be out of bounds.
-John Jenkins, Editor, TheCorporateCounsel.net 5/4/2020

Q: We will be having our first virtual Annual Meeting. Unfortunately, none of our officers or directors will be meeting in person and everyone will be calling/logging in remotely through the use of our virtual meeting platform. We are scared that we may have technical difficulties in conducting the meeting or encounter some other unforeseen circumstance. For this reason, we are thinking about pre-recording this meeting similar to what we do for our quarterly earnings calls. Is this permissible or even advisable?

RE: I don't think that flies. I don't think there would be a problem pre-recording your CEO's speech, but I don't think you're allowed to put your entire meeting in a can before it's held. You need to have a real, live meeting in which shareholders have an opportunity to participate.
-John Jenkins, Editor, TheCorporateCounsel.net 5/4/2020

Q: To Delaware companies switching to a virtual annual meeting: If your proxy was filed after April 7, do you read this Order to state that you would have to provide another written notice in addition to a DEFA and press release? In summary, one reading of the Order provides that public companies that, as of the date of the Order, who have already given notice of a meeting of stockholders to be held at a physical location the means to switch to a “virtual meeting” and to give notice of the change by public filings and announcements, rather than giving a new written notice. Notably, the Order does not seem to apply with respect to public companies that, as of the date of the Order, have not given notice of their annual meeting or have given notice of a meeting to be held by remote communication. Could it be that an earlier press release announcing the annual meeting could be considered notice? Thank you.

RE: I don't think the order provides relief for companies that filed proxy materials after April 7.
-John Jenkins, Editor, TheCorporateCounsel.net 4/29/2020

RE: I'm surprised they didn't give some more time. Companies that filed on April 8, 9, etc. (a day after the Order) had most likely already started printing and notice cards were already at Broadridge. To double up on that cost does not seem fair.

Thanks again.
-4/29/2020

RE: This is really unfortunate. I understand that Broadridge is struggling right now to get materials mailed to shareholders. If reports are to be believed, they had an outbreak at a warehouse in New York that resulted in several deaths. Their staffing levels have been drastically reduced as they are trying to comply with social distancing efforts, and they are notifying clients of delays in mailings of material and fulfilling requests for hard copy materials. Requiring notices of changes to a virtual meeting format (rather than just press release/SEC filing) will only compound the problem.
-5/1/2020

RE: Under Delaware law, I was advised that a new notice would only be required to record holders and Broadridge should be left out of this with respect to the street holders. Anyone agree? Also, is anyone else hearing about this issue? There are probably a lot of companies stuck in the middle. Is there going to be a shareholder litigation over valid meetings after April 7? Seems really unfortunate if one group of companies gets relief and one doesn't for the exact same practice.
-5/1/2020

RE: Under state law, notice is generally only required to be given to stockholders of record, so it strikes me that this approach might be a viable workaround for companies that don't have large numbers of record holders and aren't setting a new record date. See Enstar v. Senouf, 535 A.2d 1351, 1355 (Del. 1987):

"As this Court stated in American Hardware Corp. v. Savage Arms Corp., Del. Supr., 136 A.2d 690 (1957): Under the General Corporation Law, no one but a registered stockholder is, as a matter of right, entitled to vote, with certain exceptions not pertinent here. If an owner of stock chooses to register his shares in the name of a nominee, he takes the risks attendant upon such an arrangement, including the risk that he may not receive notice of corporate proceedings, or be able to obtain a proxy from his nominee."
-John Jenkins, Editor, TheCorporateCounsel.net 5/3/2020

Q: Is the customary practice for a DE, NYSE-listed company to have the Board (or Nominating Committee) annually "appoint" (or re-appoint) the Chairman of the Board formally (i.e., in a consent/resolutions/minutes), or is the more common practice to appoint a Chairman (once), which remains in effect, until a successor is appointed?

RE: I think the typical approach is for the Chair to be elected annually along with the other corporate officers.
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2020

RE: Just as a follow-up, it may be the case that (notwithstanding the annual appointment) the Chair would not technically be deemed an officer (the treatment of the Chair as an officer, or not, varies by state of incorporation).
-4/30/2020

Q: I have read topics 9604 and 145 regarding underwritten secondary offerings using a Form S-1 resale shelf registration statement. I am having a hard time understanding why naming underwriters is viewed as an Item 512(a)(1)(iii) material change to the information in the plan of distribution requiring a post-effective amendment. In other words, I am not sure why — if you have an effective S-1 resale shelf registration statement that contemplates underwritten offerings — you could not just follow the same procedures that you would use when you have an effective S-3 resale shelf registration and file a prospectus supplement for the resale offering naming the underwriters and containing related marketing/pricing information. I understand that Item 512 at one time stated the following with respect to the plan of distribution "to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement, including (but not limited to) any addition or deletion of a managing underwriter other than as a co manager" but that the reference to the addition or deletion of a managing underwriter was deleted. I also note that the Loss treatise provides that "if a plan of distribution discloses that an underwriting may be distributed by an underwriting syndicate, the identity or changes in the identity of the members of the syndicate may be indicated by sticker." Given that John J. and Dave L. answered the question in topics 9604 and 145 the same way 10 years apart I feel like I must be missing something, but I am having a hard time understanding why I cannot just file a 424 prospectus supplement for a resale underwritten offering like I would if I had an effective S-3 resale shelf registration statement. Can someone shed some light on this subject for me? Thanks!

RE: I don't think you're missing anything. I think you've identified the issue on which reasonable people can disagree. If you're comfortable that identifying an underwriter is not a material change to the plan of distribution or the addition of material new information, then you could certainly supplement the prospectus. I'm generally not comfortable with that position.

My general position is that naming underwriters when none were named in the original prospectus represents the "addition of information with respect to the plan of distribution not previously disclosed in the registration statement" or a "material change to such information in the registration statement" within the meaning of Item 512(a)(1)(iii), and that an S-1 issuer that wasn't allowed to forward incorporate information by reference would need to file a post-effective amendment.

My basis for that position is that in this situation, the issuer is adding entities that are assuming Section 11 liability that weren't previously identified, and that this is something I believe would ordinarily be material to a reasonable investor.

I think that the answer might be different in a situation like the one contemplated by Loss in which the plan of distribution section already contemplates an underwriting syndicate (in which case lead underwriters are usually already named). After all, that's something that's already sanctioned in the context of the information required to be in the prospectus at the time of effectiveness through Rule 430A. I'm not sure about the more typical situation in shelf offerings where the possibility of an underwritten offering is raised as part of the plan of distribution laundry list, but no underwriters are identified. I think I'd probably come to the same conclusion as I did with respect to situations in which underwriters hadn't previously been identified.

Again, the materiality of these changes is only an issue for S-1 registrants that can't forward incorporate by reference and aren't authorized to provide the information by means of a 424(b) prospectus supplement as S-3 registrants are.

I do think the deletion of the language in Item 512 — which happened way back in 1982 — does help your argument. But even there, the issue is a change in a previously identified underwriting group, not the addition of underwriters in the first instance. Also, I think that change was prompted by interpretive issues about the term "managing underwriter," and I didn't see any language in the proposing or adopting release that addressed the broader issue of whether naming underwriters was a material change or the addition of material new information.
-John Jenkins, Editor, TheCorporateCounsel.net 4/30/2020

Q: At the time that we mail our annual proxy statement and annual report to stockholders, we send a copy of each to all participants in our 401(k) who have elected to be in the company stock fund, to all persons holding stock options or restricted stock, and to all participants under our ESPP. This is my understanding of Rule 428(b)(5). Is this the correct practice? Also, what is required with respect to people that are granted stock options or entered into the ESPP or company portion of our 401(k) plan after the annual proxy mailings? Do we need to send them a copy of the latest proxy statement and annual report when they sign up for the 401(k) (in general or only if they elect the company stock fund), the ESPP or granted stock options?

RE: Yes, that's what 428 requires. Regarding the second query, anyone holding stock (restricted stock, ESPP stock) will get the proxy statement and ARS in the ordinary course. People who get an option — or who elect to contribute to the ESPP or company stock fund of the 401K plan — have to receive a current prospectus. Rule 428 says that includes the proxy statement and 10-K (or glossy annual report).
-Broc Romanek, Editor, TheCorporateCounsel.net 6/6/2006

RE: Just so I am clear. We had our annual meeting in May (mailed our proxy statement in March). On August 1st, a new employee becomes eligible to participate in our 401(k) and ESPP. At that point we would need to send him a copy of last year's annual report and proxy statement (the one mailed in March). Would we send him these documents upon becoming eligible to participate in the 401(k) and ESPP, or only if he elects the company stock fund under the 401(k) or to participate in the ESPP?
-6/7/2006

RE: Yes, those documents should be delivered, even though incorporated by reference. They don't need to be delivered to someone who isn't electing to participate in the company stock fund, but most companies provide the documents to all new hires, so they can have a basis for determining whether to elect the company stock fund, initially or at some later time.
-Broc Romanek, Editor, TheCorporateCounsel.net 6/7/2006

RE: Thanks Broc. One last question. Is it possible to provide the annual report and proxy statement electronically and just give the employees upon hiring a notice that such documents are available on the website and in hard copy if they request?
-6/8/2006

RE: Yes, you should be able to do that. Check out the 1996 and 1995 electronic delivery interpretative releases for the specific conditions. 33-7288 (5/9/96) and 33-7233 (10/6/95) (available on sec.gov).
-Julie Hoffman, Associate Editor, TheCorporateCounsel.net 6/8/2006

RE: Ah, one of my pet topics. I wrote these FAQs many moons ago on my first site: http://www.realcorporatelawyer.com/faqs/faqed2.html. The SEC allows companies to imply consent for employee-stockholders if a few conditions are met, as noted by Julie. Among them, employees must be given opportunity to opt in to paper delivery and must have some indication that the document was in fact received.
-Broc Romanek, Editor, TheCorporateCounsel.net 6/9/2006

RE: Broc,

When you say they "have to receive a current prospectus," does that mean that the company should be updating its prospectus each time it has an ESPP offering period or grants options/RSUs? We include the "statement of availability of information" from Rule 428(a)(1)(ii) within the prospectus (statement of general information re: applicable plan), and that references incorporating the 10-K, 8-Ks, etc. by reference. Should we be updating that section every time we have an offering period or equity grant (i.e., referring to the most recent 10-K and 8-Ks filed), or can we rely on the fact that the document is dated as of a certain date and includes the reference to incorporating all documents subsequently filed with the SEC after the date of the document?

Thank you.
-4/29/2020

RE: I don't think you need to update the information contained in Item 2 of Part I of Form S-8 to add references to the latest documents incorporated by reference to the registrant's Exchange Act filings. Your obligation under Item 2 of Part I is to tell them that you'll provide, at their request, the materials that are incorporated by reference in Item 3, but I don't think that encompasses an obligation to provide an up-to-the-minute list of what those are.

I think that requiring otherwise would be contrary to the concept set forth in General Instruction G. of Form S-8, which basically says that you update information about the registrant through the incorporation by reference process and information about the plan in the physical prospectus itself.
-John Jenkins, Editor, TheCorporateCounsel.net 4/29/2020

Q: To Delaware companies switching to a virtual annual meeting: If your proxy was filed after April 7, do you read this order to state that you would have to provide another written notice in addition to a DEFA and press release? In summary, one reading of the order provides that public companies that, as of the date of the order, who have already given notice of a meeting of stockholders to be held at a physical location the means to switch to a “virtual meeting” and to give notice of the change by public filings and announcements, rather than giving a new written notice. Notably, the order does not seem to apply with respect to public companies that, as of the date of the order, have not given notice of their annual meeting or have given notice of a meeting to be held by remote communication. Could it be that an earlier press release announcing the annual meeting could be considered notice?

RE: I don't think the order provides relief for companies that filed proxy materials after April 7. See the discussion in a Morris Nichols memo.
-John Jenkins, Editor, TheCorporateCounsel.net 4/29/2020

RE: I'm surprised they didn't give some more time. Companies that filed on April 8, 9, etc. (a day after the order) had most likely already started printing and notice cards were already at Broadridge. To double up on that cost does not seem fair.

Thanks again.
-4/29/2020

Q: If a Delaware company postpones its annual meeting due to COVID-19 concerns but keeps the original record date, does it still need to ensure that there are fewer than 60 days between the record date and meeting date? I have not seen any relief coming out of Delaware that would indicate this is not the case. However, I see at least one DE company that has postponed its annual meeting but kept its record date and now has 86 days between the two. Perhaps I missed some guidance on this topic, or maybe they're just willing to take some risk on this one?

RE: I haven't seen anything from Delaware suggesting that companies can keep a record date that's older than 60 days for a postponed meeting. However, that might be possible if they adjourned the meeting instead of postponing it. See Section 213(a) of the DGCL and this excerpt from a recent Cleary Gottlieb blog:

"Under Delaware and New York law, the record date for an annual meeting must not be more than sixty (60) days or less than ten (10) days prior to the annual meeting. Accordingly, if a company incorporated in Delaware or New York postpones its annual meeting to a date that would result in its record date being more than sixty (60) days before the annual meeting, the board must change the record date. A change in record date would generally require the company to provide notice of the new record date to shareholders.[9] In the event that a company adjourns, rather than postpones, its annual meeting under Delaware law, it may not be required to change its record date, even if such date is beyond thirty (30) days from the date of the original annual meeting."
-John Jenkins, Editor, TheCorporateCounsel.net 4/8/2020

RE: Ah, yes. That is what they did. They announced in advance that they intended to adjourn the meeting immediately after it was convened. However, with an executive order in place preventing such an event from occurring, I'm not sure how they technically could have convened the meeting in the first place. I would have thought the only option in such a situation would be to postpone and set a new record date.
-4/9/2020

RE: I hear you. I've learned more about annual meeting law in the last three weeks than I'd learned in 34 years of practice.
-John Jenkins, Editor, TheCorporateCounsel.net 4/9/2020

RE: Does Delaware require that the company have a quorum at the annual meeting of stockholders before it can be adjourned, or is this strictly a matter governed by the company's bylaws (organizational documents)? Thanks.
-4/28/2020

RE: Like most states, Delaware has a statute permitting a meeting to be adjourned (Section 222 of the DGCL) but doesn't say much about who can adjourn a meeting or the circumstances justifying adjournment. Those are usually topics that are addressed in the bylaws and to a certain extent, case law. But, it's pretty clear that if you don't have a quorum, you can't transact business at the meeting, so you would need to look to the adjournment provisions of your bylaws for the mechanics of how you'd do that.
-John Jenkins, Editor, TheCorporateCounsel.net 4/29/2020

Q: Is it permitted to rely on both 506(b) and 4(a)(2) as our federal exemption in a small all-accredited offering when there are no commissions being paid? The 15 days to submit a notice filing has passed in one of the states, but it appears we meet the threshold of the 4(a)(2) exemption as well and could fit into a state self-executing exemption if this is permitted. I know we can use multiple exemptions at the state level but am not sure about the federal level. Thank you!

RE: I think you could do that because you are relying on Section 4(a)(2) at the federal level. Rule 506 is a safe harbor for the Section 4(a)(2) exemption, so that's the relevant statutory provision. Just bear in mind that if there are ever issues with the offering, a state may claim that because you relied on the 4(a)(2) exemption at the state level, it isn't preempted under NSMIA from challenging your offering's compliance with state blue sky laws the way it would be if you relied on Rule 506.
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2020

Q: Is the customary practice for a DE, NYSE-listed company to have the Board (or Nominating Committee) annually "appoint" (or re-appoint) the Chairman of the Board formally (i.e., in a consent/resolutions/minutes), or is the more common practice to appoint a Chairman (once), which remains in effect, until a successor is appointed?

RE: I think the typical approach is for the Chair to be elected annually along with the other corporate officers.
-John Jenkins, Editor, TheCorporateCounsel.net 4/28/2020

Q: I understand that, under Delaware law, the record date for a dividend must be within 60 days of the payment date. Is there anything which governs how far out the record date can be from the date the dividend is declared? Many thanks.

RE: No, but bear in mind that under Delaware law, you create a debtor/creditor relationship when you declare a dividend, so you're creating an obligation regardless of how far out you set your record date. Some companies that declared but haven't paid dividends are facing some issues due to the impact of the COVID-19 pandemic on their financial position. See the materials in the Dividend Payments section of our "COVID-19 Issues" Practice Area for some guidance on this topic.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2020

Q: What, if anything, should an issuer include for the contractual obligations table/disclosure in the first 10-Q it files after leaving the SB system? The contractual obligations table/disclosure was not required for the 10-KSB, but a 10-Q is only required to disclose material changes outside the ordinary course. Thanks!

RE: Item 303(a)(5) requires the contractual obligations table as of the latest fiscal year. However, Instruction 7 to Item 303(b) states that the table in (a)(5) is not required for interim periods and instead, the registrant should disclose material changes outside the ordinary course of the registrant's business in the specified contractual obligations during the interim period.

I haven't seen any interpretive guidance on this, and I could see the Staff going either way on this one. It's probably worth a call to the Office of Chief Counsel. Let me know what they say.
-Broc Romanek, Editor, TheCorporateCounsel.net 5/16/2005

RE: Has anyone spoken with the Staff on this topic or have an idea of how most issuers disclose the contractual obligations in the first 10-Q after leaving SRC status? It seems that disclosure of only material changes would suffice, but we can't seem to find any guidance on this.
-7/25/2012

RE: I don't understand how you would disclose only material changes when there is no table to refer to as the baseline. I would think the best practice from a disclosure perspective is to include the table.
-Dave Lynn, TheCorporateCounsel.net 7/26/2012

RE: I am wondering if there is any new insight into this question. SRCs are also not required to provide Item 305 disclosure, and the instructions in Item 305(c) are clear that no interim disclosure is required until after a completed fiscal year. I have not been able to locate any similar guidance to Item 303(b) for SRCs that have transitioned to accelerated filer status.
-4/26/2020

RE: I'm afraid I haven't seen anything further on this, and since the SEC has proposed to eliminate the table, I doubt there will be anything forthcoming in the way of guidance. Assuming there are changes outside the ordinary course, I think the options would be to weave the disclosure into the narrative, or to take the approach Dave suggested, which would probably be easier to follow.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2020

Q: We are a NYSE issuer who will have our annual meeting of stockholders next month. Due to COVID-19, we will have an online meeting only. Are there any resources on here for what an annual meeting script would look like in that setting? Perhaps sample docs related to such meetings such as rules of conduct, agenda, etc. I briefly skirted the Annual Meeting Practice Area, but it looks like there aren't any materials there on point but my eyes are old and could have missed it.

RE: You should look in our COVID-19 Issues Practice Area. We have an entire section devoted to annual meeting issues. I'm not aware of any sample scripts, but ConocoPhillips has posted an online transcript from its 2017 annual meeting, which was held virtually. You may find that helpful in tweaking your own script.
-John Jenkins, Editor, TheCorporateCounsel.net 4/27/2020

Q: Seems like these have to be filed with periodic reports under S-K 601(b)(10) because they are deemed material (as NEOs participate in them). It doesn't seem like most companies file amendments to 401(k) plans, but do you have any idea why (it's not like you can get out of the disclosure if the amendment is not material)? Thanks for any thoughts.

RE: When it comes to 401(k) plans, I think people often rely on the language of Item 601(b)(10)(iii)(C)(4), which says that you don't have to file "any compensatory plan, contract or arrangement which pursuant to its terms is available to employees, officers or directors generally and which in operation provides for the same method of allocation of benefits between management and non-management participants."
-John Jenkins, Editor, TheCorporateCounsel.net 4/26/2020

Q: Can you list an ADR only on Nasdaq and NYSE without having a foreign exchange involved? In other words, can you do an ADR Level II without raising a capital? It will be establishing a trading market for existing investors for a company that was not traded before, like a direct listing.

RE: I'm no expert on the ADR market and don't know whether the exchanges would entertain something like this, but I'm not aware of any company that's listed an ADR without having its shares listed on a foreign exchange. If you don't have a publicly traded stock on a foreign exchange, I don't know why an ADR listing would be preferable to simply doing a direct listing like Spotify — which is a foreign private issuer — opted to do.
-John Jenkins, Editor, TheCorporateCounsel.net 4/23/2020

RE: Talend S.A. is an example of a company with an ADR listed on Nasdaq without having its shares listed on a foreign exchange.
-4/24/2020

RE: Thank you very much. You said the company's stock wasn't listed on any foreign exchanges. Do you know if Nasdaq is the only place where trading occurs?
-John Jenkins, Editor, TheCorporateCounsel.net 4/24/2020

RE: Nasdaq is the only place trading occurs.
-4/24/2020

Q: Is there any practical difference between a company saying that they are "withdrawing" guidance as compared with a statement that they are "suspending" guidance? Is it proper to use "withdrew" when talking about existing guidance and "suspend" when talking about stopping the practice of providing earnings guidance? "Suspend" may have a more temporary connotation than "withdraw." However, it is unclear whether companies are using these two terms interchangeably.

RE: I think the term "withdraw" implies that you're pulling guidance that's previously been issued, while "suspend" seems more appropriate when a company is telling the market that it's discontinuing its practice of issuing guidance for some period going forward. Of course, many companies may be doing both in the current environment. In the end, I think that regardless of what terminology is used, the message is likely to be clear to investors and analysts — "you're on your own."
-John Jenkins, Editor, TheCorporateCounsel.net 4/23/2020

RE: Thank you!
-4/23/2020

Q: Issuer would like to offer securities under Reg A+, Tier 2. The securities would be offered (and the investment decision made) in year one, but the issuance of such securities would not occur until year two based upon certain factual circumstances. For purposes of Reg A's $50 million annual limit, would the measuring year be year one (year investment decision was made) or year two (year securities actually issued)?

RE: I haven't seen anything addressing that, but given how the Staff has interpreted the date of sale concept in other contexts, I think that the date when the investment decision is made would be the better approach. The Tier 2 exemption is based on Section 3(b)(2) of the Securities Act, which limits the amount that may be "offered and sold" under the exemption to $50 million. Since Section 2(a)(3) of the statute defines the term "sale" to include "every contract of sale," I think that looking to the date of the investor's investment decision rather than the date of issuance is the better approach.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

Q: In surveying several large companies' 10-K exhibits, I noticed that almost none of them include a specimen stock certificate as an exhibit. Does anyone have insight as to why this is? Is it because companies no longer have stock certificates (I know certificates are not as common as they used to be, but I didn't know they had become almost extinct)? Or, are companies somehow taking the position that certificates don't truly define any rights of security holders and therefore don't need to be filed as exhibits?

RE: It's probably a mix of both. I haven't seen any kind of survey data, but I do think that paper certificates are going the way of the Dodo. For example, Apple, Facebook and Microsoft don't issue paper certificates, and neither do old line companies like GM. Heck, even Disney got rid of their certificates with Mickey and Minnie on them. Companies like IBM and Ford still issue them, and I think there are some quirks in California and Arizona law that likely mean that companies incorporated there will keep paper certificates, but I don't think many big companies still do.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

Q: We plan on filing a short-form CTR extension and reducing the redactions in the agreement, which means we will need to file the revised redacted version. Can you provide more detail on the process (exact timing, form) for filing the agreement?

RE: For details on the short-form CTR extension process, see the discussion beginning on page 52 of our “Confidential Treatment Requests Handbook.”
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

RE: Has the Staff provided any guidance on using the short-form CTR extension for an extension of shorter than three years? I did not see anything in the handbook or SEC releases.
-4/22/2020

RE: Hi. Yes, I did. I am wondering if I need an 8-K on sending the email to the SEC, or if I have other options.
-4/22/2020

RE: Not that I'm aware of.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

RE: I suppose that you could file the new redacted version of the exhibit on a 10-Q or 10-K and time your request to coincide with that filing, but otherwise I'm not aware of an alternative to satisfy the requirement to get the document filed on EDGAR.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

Q: With respect to an indenture to be qualified under the Trust Indenture Act, S-K 601(b)(4)(iv) requires that such indenture include a cross-reference sheet showing the location in the indenture of the provisions inserted pursuant to sections 310 through 318(a) inclusive of the Trust Indenture Act of 1939. I note that the cross-reference sheets in many filed indentures include references to items that don't exist in the TIA (such as 310(c)), then list the reference as inapplicable or N/A. What's the reason behind this? Is it a historical quirk (i.e., TIA used to contain such provisions)? Thanks.

RE: There was a section 310(c), but it was repealed as part of Dodd Frank. However, Section 310(c) appears in the table of contents included as Section 301 of the Act (see the link below). That leads me to two possible explanations. The first one is that some extremely fastidious lawyers may be simply referencing Section 310(c) as "NA" instead of excluding it altogether because it continues to be referenced in Section 301. The second explanation is that people frequently just markup the last cross reference sheet they filed without giving it a whole lot of thought. As I recall, it took about 20 years for the cross-reference sheet to catch up to the changes made in the Trust Indenture Reform Act of 1990, so the changes made by Dodd-Frank are still breaking news to the trust indenture community.
-John Jenkins, Editor, TheCorporateCounsel.net 4/22/2020

RE: Happy to know the history. Thanks!
-4/22/2020

Q: An issuer has a qualified Regulation A offering statement and has been selling securities under that offering statement through placement agent No. 1. The issuer would like to terminate placement agent No. 1 and engage placement agent No. 2. placement agent No. 2 will charge a slightly higher commission. I have seen at least two examples on EDGAR where issuer's counsel takes the position that a change of placement agent is not a fundamental change and, therefore, may be done through offering circular supplement instead of a post qualification amendment. However, in my case there is both a change of placement agent and an increase in placement agent compensation. Do you think we can disclose the change of placement agent and increase in compensation through an offering circular supplement, or do you think a post qualification amendment is required? Thanks in advance for your assistance with this issue!

RE: Unfortunately, that's the Securities Act's ultimate judgment call, and I'm simply not in a position to make it without all the facts and circumstances surrounding the offering, not just basic information about the nature of the change itself. Here's what I can say — there's no definition of the term "fundamental change," but it is clearly something that's more than simply material. As to whether a change in your placement agent and fees qualify, I guess I can see an argument that this type of modification to the terms of the offering would not necessarily be regarded as a "fundamental change." There are a few things I would point to that might help you support an argument like that:

1. In the context of registered offerings outside of Reg A, the undertaking in Item 512 requires a post-effective amendment in the event of a "fundamental change" to the information contained in the prospectus, but calls separately for a post-effective amendment in the event of material changes in the plan of distribution. The fact that there are two separate triggers suggests that in drawing the rules on the events that would trigger a post-effective amendment, the SEC implicitly acknowledged that not every material change in the plan of distribution would be a fundamental change. In contrast to Item 512, Rule 252 doesn't address material changes in the plan of distribution, it just says you need to file a post-qualification amendment in the event of a fundamental change.

2. Form 1-U includes a requirement to disclose the entry into or termination of any agreement that would result in a fundamental change in an issuer's business. It actually discusses the kind of situations that, in that context at least, would result in a fundamental change. It's not apples to apples, but the discussion there may be helpful to your analysis. The May 2018 issue of The Corporate Counsel also has an in-depth article addressing the fundamental change issue.

When you assess the fundamental change issue, I think it's very important not to focus narrowly on the wording changes themselves, but on the facts and circumstances surrounding the decision to change the placement agent and the implications of the increased fees and how they may flow through to disclosures in other areas of the document.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2020

Q: When calculating the number of "all directors and executive officers as a group", do you include NEOs who are no longer currently with the company as of the calculation date? For example, in the CD&A we list as an NEO a former CFO who served part of 2019. Would he be included in the calculation of the "group" as he's currently not an executive officer?

RE: You have to disclose the beneficial ownership information for all NEOs in the table, even those who have departed. Since that's the case, I think they should be included in the "all directors and executive officers as a group" disclosure as well. I also think doing both of those things makes no sense, but I believe that's what is required (unless the person died, in which case there's a C&DI that says you can exclude them). I would appropriately footnote the disclosure to indicate the number of shares held by the former NEO and included in the calculation.

See the discussion on page 9 of the “Beneficial Ownership Table Handbook.”
-John Jenkins, Editor, TheCorporateCounsel.net 4/17/2020

RE: I bet practice differs here. The definition of NEO looks back to "during the last completed fiscal year" and "at the end of the last fiscal year," so you can have someone who is an NEO that has left but satisfies the definition. The definition of executive officer under 3b-7 does not look back, so it seems to me to be more "current" and someone who has left the company does not literally fit into the definition (as they have no position). I always specify the information as of a specific date, and label the group as "Directors, nominees and 'current' executive officers" and only include executive officers that were serving as of that date.
-4/20/2020

Q: In the SEC's Release, No. 33-8238 - Final Rule, "Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports," it stated: We are modifying that interim guidance, however, to more closely parallel the provisions of Section 302 of Regulation S-T that require retention of manual signatures for electronically filed signed statements. Issuers furnishing Section 906 certifications to the Commission as an exhibit to the periodic reports to which they relate during the period covered by the interim guidance should insert the following legend after the text of each certification: "A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to [name of issuer] and will be retained by [name of issuer] and furnished to the Securities and Exchange Commission or its staff upon request." Some companies include that legend and some do not. The release talks about "during the period covered by the interim guidance," so perhaps the guidance to include the legend is no longer in effect. This question of whether to include the legend in an upcoming Form 10-Q (modified) came up when looking at the Staff Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns. Would be interested in your thoughts on the subject.

RE: As I read the relevant releases, this legend isn't necessary. The guidance was provided at a time before the SEC formalized rules requiring the SOX 906 certification to be filed as Exhibit 32. I think the intent of the language was to ensure retention of the documents as contemplated by Rule 302(b) of S-T at a time when that rule didn't expressly cover the Section 906 certifications, which I think is pretty clear if you look at footnote 157 to the adopting release.

The rule changes adopted in Release 33-8238 did ensure those files were subject to S-T. Here's an excerpt:

"We are amending Exchange Act Rules 13a-14 and 15d-14 and Investment Company Act Rule 30a-2 to require the Section 906 certifications to accompany periodic reports containing financial statements as exhibits. We also are amending the exhibit requirements in Forms 20-F, 40-F and Item 601 of Regulations S-B and S-K to add the Section 906 certifications to the list of required exhibits to be included in reports filed with the Commission. . . A failure to furnish the Section 906 certifications would cause the periodic report to which they relate to be incomplete, thereby violating Section 13(a) of the Exchange Act.148 In addition, referencing the Section 906 certifications in Exchange Act Rules 13a-14 and 15d-14 and Investment Company Act Rule 30a-2 subjects these certifications to the signature requirements of Rule 302 of Regulation S-T." Consistent with this understanding of the rule, the adopting release expressly provides that "for issuers that are not investment companies, that interim voluntary guidance shall remain in effect until the rules become effective."
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2020

Q: Item 601(b)(4)(ii) seems to imply that the exceptions found in (b)(4)(iii) only apply to the forms specifically listed in (ii), i.e., Forms S-1, S-4, S-11, N-14, F-4, 10 and 10-K. The last sentence of 601(b)(4)(v) does clarify that at least the exception found in (b)(4)(iii)(A) (i.e., debt instruments representing less than 10% of total assets) “does” apply to 10-Qs. Is there any guidance to the effect that the other two exceptions found in (b)(4)(iii), i.e., (B) and (C), do not apply to 10-Qs? Nothing in the lead-in to (b)(4)(iii) seems to limit the exceptions to any particular form.

RE: I'm not aware of any guidance that does that, but I do think that, as you suggest, Item 601(b)(4)(iii) can be read as a standalone provision, notwithstanding the references to it in (b)(4)(ii) and (b)(4)(v) in the context of the requirements of specific forms.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2020

Q: After preparing an annual proxy statement for a smaller reporting company ("SRC"), I noted that Item SK Item 403 states that the ownership table needs to include each of the named executive officers ("NEOs") as defined in Item 402(a)(3). However, SRCs can use SK Item 402(m)(2) instead of Item 402(a)(3) regarding NEOs. In the past, I have only specified NEOs pursuant to Item 402(m)(2) regarding the beneficial ownership table required by Item 403; however, I don't see any language in Item 403 to allow for the usage of 402(m)(2) for SRCs instead of 402(a)(3). Please let me know if SRCs can use the SRC specific NEO definition for Item 403. Thanks.

RE: The Staff hasn't spoken directly to this issue, but my own view is that a company that's entitled to provide information under Item 402(m) for the comp table can use that information for the beneficial ownership table required under Item 403 as well. Like I said, the Staff hasn't addressed that issue, but it did address another area under S-K where the rule didn't address SRCs that determined their NEOs under Item 402(m), and it cut those companies some slack. Here's Reg S-K CDI 146.09.

Question: How should a smaller reporting company that relies on Item 402(m)(2) of Regulation S-K rather than Item 402(a)(3) to determine its "named executive officers" comply with Item 601(b)(10)(iii)(A) of Regulation S-K, which describes management contracts and compensatory plans, contracts and arrangements in which named executive officers participate that must be filed as exhibits to registration statements and reports?

Answer: Although Item 601(b)(10)(iii)(A) refers only to the Item 402(a)(2) definition of "named executive officer," if a smaller reporting company applied Item 402(m)(2) to determine the named executive officers in its registration statement or report and provides the disclosure permitted under Items 402(m) through 402(r) instead of the disclosure required under Items 402(a) through 402(k), the smaller reporting company need only file as exhibits those plans, contracts and arrangements in which named executive officers as determined under Item 402(m)(2) participate. [July 3, 2008]

I can't see any reason why this same approach shouldn't apply to your situation.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2020

Q: If you have a security that's outstanding at the time of an IPO (e.g., a preferred security that was issued pre-IPO) that provides for an anti-dilution adjustment with respect to the IPO such that if the company doesn't hit a certain price in the IPO, the preferred investor will be entitled to additional shares upon closing of the IPO when the preferred converts to common, could you trip up the NYSE/Nasdaq shareholder approvals rules if the anti-dilution adjustment results in an issuance of more than 20 percent of the outstanding, or is it not an issue because the preferred security was outstanding pre-IPO? The mechanism for the adjustment would be fully disclosed in the IPO prospectus. Would the answer to the above change if the formula for the anti-dilution adjustment is not based on the IPO price but rather the the trading price a specified period of time post-IPO (like 5-10 days) and the company agrees to issue additional common shares to the former preferred investor?

RE: I've never dealt with this, but my guess is that if the security was authorized, issued and outstanding pre-listing, the NYSE would not require compliance with the shareholder approval rules for the conversion. That's only a guess, and with the NYSE, I've always found that it is best to raise these issues directly with them in the listing process. They don't have a lot of published guidance and precedent is difficult to find and interpret.
-John Jenkins, Editor, TheCorporateCounsel.net 4/20/2020

Q: I understand that for an S-8 covering an incentive plan, a copy of the plan should be filed as an Exhibit to the Form S-8; however, do the form of award agreements under the incentive plan need to be filed as exhibits to the Form S-8 as well? I am not seeing many issuers do so. Thanks.

RE: I think a lot of issuers don't because the exhibit table in Item 601(a) doesn't call for material agreements to be filed with an S-8. Frankly, it's by no means clear that the plan is required to be filed under Item 601 either, but in Reg S-K CDI 146.10 the Staff said the plan should be filed. See the discussion on page 65 of the Form S-8 Handbook.
-John Jenkins, Editor, TheCorporateCounsel.net 4/17/2020

Q: Companies like Sonoco have taken a novel approach to their upcoming annual meeting by allowing shareholders access to the meeting via the live telecast/webcast and view slides rather than attend their meeting in person. Berkshire Hathaway announced a similar but different approach. I see these types of creative ideas that are not a true virtual/hybrid meeting to increase in number. Is anyone aware of any other companies taking similar approaches?

RE: In their proxy statement (filed 3/20/20), PepsiCo says they are not permitted to hold a virtual-only meeting, but they are webcasting the meeting and encouraging shareholders to participate via the webcast.
-3/22/2020

RE: Following up on this, I'm wondering how Berkshire Hathaway is complying with Delaware law. They announced an in-person meeting, then changed to telecast/webcast only, without going to a true hybrid/virtual model. If shareholders aren't permitted to physically attend the meeting, and there is no mechanism to satisfy DE's requirements for a virtual meeting (verifying shareholders, providing an opportunity to participate in the meeting and to vote), then how can this be considered a proper meeting? Isn't there risk when not doing a true hybrid/virtual if shareholders aren't allowed to attend in person?
-4/17/2020

RE: I have wondered about the same thing. I'm sure they've analyzed the issue, but it seems to me that Berkshire's plan to ban shareholders from attending and directing them to a passive Yahoo stream of the event and encouraging them to submit questions to the press who may be present isn't what Delaware law contemplates.
-John Jenkins, Editor, TheCorporateCounsel.net 4/17/2020

Q: In addressing the signature requirements for filings with the SEC, '34 Act Rule 12b-11(d), Reg. S-K, 601(b)(24) (re: powers of attorney) and Reg. S-T, 302(b) speak of signature pages, powers of attorney (in the case of Reg. S-K, Item 601(b)(24)) or other documents being MANUALLY signed. Can a power of attorney relating to the signing of an SEC filing be executed with an electronic signature only? (For example, many electronic board portal products allow directors to sign documents, e.g, consents, powers of attorney, etc. via electronic signature.)

RE: There’s a 2001 SEC release with the last guidance from the SEC on the use of electronic signatures.
-Broc Romanek, Editor, TheCorporateCounsel.net 1/13/2012

RE: I recently had discussions with the SEC Staff on this point. Their view is that "manually signed" means paper.
-8/21/2013

RE: I note a similar Q&A in TheCorporateCounsel's handbook relating to exhibits.:

Powers of Attorneys & Signatures

Question: Can a power of attorney relating to the signing of an SEC filing be executed with an electronic signature only? (For example, many electronic board portal products allow directors to sign documents, e.g., consents, powers of attorney, etc. via electronic signature.)

Answer: The requirements for signatures on powers of attorney (i.e., Item 601(b)(24)) calls for manual signatures. The SEC Staff’s view is that “manually signed” means paper.

However, this Q&A talks about the execution of the power of attorney. If the power of attorney is manually signed by the officers and directors, does a PDF of the manually signed copy need to be filed as Exhibit 24, or can an EDGAR version with conformed signatures be filed? I note that Item 601(b)(24) seems to require that a manually signed copy be filed; however, I have many examples of Exhibit 24s that are EDGAR versions with conformed signatures.

Would greatly appreciate your thoughts.
-2/16/2015

RE: On a related note, do powers of attorney executed for Exchange Act periodic reports (e.g., directors signing a power of attorney granting power to execute the Form 10-K and amendments there) need to meet state law requirements for powers of attorney? Practices in this area seem to differ (I saw some Exhibit 24s with notaries, some with witnesses, and some with neither), but state law requirements vary from jurisdiction to jurisdiction, so without doing too much research, it's hard to tell which registrants are complying with state law requirements. On a related note, Romeo & Dye's Treatise points to instructions on the Forms 3, 4 and 5 relating to requirements for powers of attorney for executing those forms, and takes the position that state law requirements need not be met. I do not see a similar instruction on Form 10-K, however.

Your thoughts would be appreciated!!
-2/16/2015

RE: For your first query, see Item 302(b) of Regulation S-T, reproduced below:

§232.302 Signatures.

(a) Required signatures to, or within, any electronic submission (including, without limitation, signatories within the certifications required by §§240.13a-14, 240.15d-14 and 270.30a-2 of this chapter) must be in typed form rather than manual format. Signatures in an HTML document that are not required may, but are not required to, be presented in an HTML graphic or image file within the electronic filing, in compliance with the formatting requirements of the EDGAR Filer Manual. When used in connection with an electronic filing, the term “signature” means an electronic entry in the form of a magnetic impulse or other form of computer data compilation of any letters or series of letters or characters comprising a name, executed, adopted or authorized as a signature. Signatures are not required in unofficial PDF copies submitted in accordance with §232.104.

(b) Each signatory to an electronic filing (including, without limitation, each signatory to the certifications required by §§240.13a-14, 240.15d-14 and 270.30a-2 of this chapter) shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years. Upon request, an electronic filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.

(c) Where the Commission's rules require a registrant to furnish to a national securities exchange or national securities association paper copies of a document filed with the Commission in electronic format, signatures to such paper copies may be in typed form.
-Broc Romanek, Editor, TheCorporateCounsel.net 2/17/2015 RE: Thanks! Any thoughts on complying with the state law requirements for powers of attorney?
-2/17/2015

RE: It's a challenging issue. There is this paragraph from the SEC's 2001 interpretive release related to e-sign that supports the position that state law isn't implicated:

"We believe that these requirements to retain authentication documents are not subject to E-SIGN because authentication documents are records generated principally for governmental purposes rather than in connection with a business, consumer or commercial transaction. Moreover, these authentication documents arise in the context of a governmental filing. Governmental filings are expressly excluded from E-SIGN. Accordingly, issuers subject to these retention requirements should continue to retain the paper original of all authentication documents."

You may remember the flap a few years ago when New York adopted a broad power of attorney statute that said it applied to "any" POA executed in NY, and NY lawyers went crazy saying SEC filings would now be invalid because they were signed pursuant to the standard SEC power language included on the page of the filing that appoints some officer to file subsequent amendments (or Forms 4).

I believe that the SEC decides what constitutes adequate authority to sign SEC reports, not the 50 states. However, the language might not be as clear in some of the SEC's rules as compared to what Alan Dye thinks is in the Section 16 rules. Alan says in his Section 16 Treatise that state law requirements for powers of attorney don't govern Section 16 signature requirements.
-Broc Romanek, Editor, TheCorporateCounsel.net 2/17/2015

RE: Has anyone had any recent experience, discussions with the SEC staff, that they are more amenable to directors in their usual board portal procedure that provides for authorization of their electronic signatures to be used for execution of the signature page of a Registration Statement or power of attorney relating thereto? Please advise. It seems nonsensical with EDGAR and e-sign and what they are allowing in the B/D-client context to require a wet manual signature in the Registration Statement context. Thanks.
-3/10/2020

RE: I'm very interested in this question of using a board portal — which stores a manual, if not "wet," signature — for SEC filings, particularly given the SEC's late-March guidance relaxing signature requirements in light of COVID-19. Appreciate any thoughts.
-4/17/2020

RE: I have heard anecdotally that the Staff has informally advised some registrants that Rule 302(b) of S-T's requirements may be satisfied through the use of board portal procedures. Here's an excerpt from this recent Bass Berry blog on the Staff's new guidance:

"While this record retention relief is welcomed by registrants and practitioners, it stops short of offering maximum flexibility to registrants by saying that a “manual signature” can be satisfied through the usual board portal procedure that provides for authorization of a director’s electronic signature on the signature page of an Exchange Act report or Securities Act registration statement. We understand practice is mixed in this regard, with some practitioners relying on past verbal comfort from the Staff that using board software packages to execute SEC filings satisfied the “manual signature” requirement."
-John Jenkins, Editor, TheCorporateCounsel.net 4/17/2020

Q: I'm assuming that a company that will now qualify as a non-accelerated filer as opposed to an accelerated filer can take advantage immediately after the April 27, 2020 effective date of the extended Form 10-K and Form 10-Q filing deadlines, but please confirm. I'm also assuming this company now has until its first Form 10-Q ending on or after June 15, 2021 (as opposed to June 15, 2020) to comply with iXBRL?

RE: No, I don't think an accelerated filer can transition before it files its first annual report following the effective date. Here's what the adopting release says:

"The final amendments will apply to an annual report filing due on or after the effective date. Even if that annual report is for a fiscal year ending before the effective date, the issuer may apply the final amendments to determine its status as a non-accelerated, accelerated, or large accelerated filer. For example, an issuer that has a March 31, 2020 fiscal year end and that is due to file its annual report after the effective date of the amendments may apply the final amendments to determine its filing status even though its fiscal year end date precedes the effective date. An issuer that determines it is eligible to be a non-accelerated filer under the final amendments will not be subject to the ICFR auditor attestation requirement for its annual report due and submitted after the effective date of the amendments and may comply with the filing deadlines that apply, and other accommodations available, to non-accelerated filers."

When it comes to iXBRL phase-in, I haven't seen anything from the Staff, but based on the language of the adopting release, I think that if your annual report isn't due on or before the June 15, 2020 transition date for accelerated filers, you'll still be an accelerated filer and will have to comply with it in your first 10-Q filing following that date.
-John Jenkins, Editor, TheCorporateCounsel.net 4/1/2020

RE: Corp Fin staff have confirmed by telephone that a 12/31 issuer that was an accelerated filer at 12/31 under the then-effective definition but would have been a non-accelerated filer under the amended definition (effective date April 17, 2020) must file its Form 10-Q reports during 2020 no later than the *accelerated filer* filing deadlines. These issuers cannot take advantage of the non-accelerated filer filing dates until the Form 10-K report for the year ended 12/31/20 (assuming that these issuers satisfy the requirements for non-accelerated filer status at 12/31/20).
-4/16/2020

RE: Thanks for letting us know. Much appreciated!
-John Jenkins, Editor, TheCorporateCounsel.net 4/16/2020

Q: NYSE filed a proposed rule suspending the $1.00 minimum at the same time it submitted a proposal to relax stockholder approval of certain related party transactions. I have seen the latter approved by the SEC but have seen no action on the former. Is anyone aware of the status of that proposal?

RE: I think it was initially rejected. The last that I've seen on it is this Reuters article from April 6 that says the NYSE is "in talks" with the SEC.
-John Jenkins, Editor, TheCorporateCounsel.net 4/16/2020

Q: If a company desires to release preliminary Q1 production, CAPEX & EBITDAX, etc. prior to releasing its full Q1 earnings release Form 8-K. Will doing so trigger the filing of a Form 8-K for the preliminary release?

RE: Yup, if the quarter has been completed. The 8-K is triggered by any announcement disclosing material nonpublic information regarding the registrant’s results of operations or financial condition for a completed quarterly or annual fiscal period. See Form 8-K C&DI 106.07

Question: A registrant reports "preliminary" earnings and results of operations for a completed quarterly period, and some of these amounts may even be estimates. In issuing this preliminary earnings release, must the registrant comply with all of the requirements of, and instructions to, Item 2.02 of Form 8-K?

Answer: Yes. [April 24, 2009]
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2020

Q: If there is 20-30% remaining from a stock repurchase authorization, is it more customary to terminate that authorization and get a new authorization in place, or terminate that authorization and carry over that 20% remaining balance as part of a new authorization? Just trying to figure out if there is a reason to take one approach over the other. It seems that in the current environment that type of remaining balance can be terminated even though the company is in a regular quarterly blackout, but let me know if you have different thoughts. I know S-K 703 requires the disclosure of any early-terminated plans, but is there any real negative consequence of such disclosure? Thanks as always for the great thoughts here.

RE: Since the shares are fungible, I don't know that one alternative is preferable to the other or that there are any "best practices" with regard to handling unpurchased shares. I think the two most important factors in the current environment are that the board makes a fully informed decision about whether to continue the program, and that if a new program is to be authorized, that the company disclose that information promptly before it makes further purchases under the existing program. See the discussion on page 75 of our Stock Buybacks Handbook.

If your plan is a 10b5-1 plan, terminating it can create some issues, but I would refer you to Brink Dickerson's comments about 10b5-1 plan terminations in the COVID-19 environment that I blogged about last week.
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2020

Q: In light of the COVID-19 outbreak and relevant SEC relief regarding annual meeting changes, does anyone have thoughts on the need to give new notice under BCL 605 if a New York corporation changes its annual meeting to a hybrid or virtual-only annual meeting after having given notice? 1) Under normal circumstances, we assume that changes in time, date and place of the meeting would require new notice to be given, although the BCL is not explicit on that point. Further, New York Executive Order 202.08, as amended, suspends “subsection (a) of Section 602 and subsections (a) and (b) of Section 605 of the Business Corporation Law, to the extent they require meetings of shareholders to be noticed and held at a physical location”. 2) We assume this relief is merely intended to provide from relief from the technical need to reference a physical location in the notice or to hold an annual meeting at a physical location in order to adjourn, but is there any argument that it is intended to go further to waive any requirement to notice an annual meeting change from a physical location to a hybrid or virtual-only format?

RE: I haven't seen it interpreted to waive a requirement to provide notice of the change. Here's an excerpt from Sullivan & Cromwell's memo on Gov. Cuomo's order:

"Although the executive order suspends certain aspects of the meeting notice requirements under Section 605(a) of the NYBCL relating to a physical meeting location, companies incorporated in New York remain subject to all applicable shareholder notification and disclosure requirements under their governance documents, federal securities laws and stock exchange listing rules."
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2020

Q: A company currently does not use original issue or treasury shares for the company common stock fund in its 401(k) Plan, nor does it make matching contributions in the company stock fund. The company originally registered the shares that may be purchased by the 401(k) Plan in the open market on behalf of Plan participants on a Form S-8. If the company decides that it would like to make matching contributions in the company stock fund and would like to have the ability to use original issue/treasury shares for the stock fund, I assume the company would file a post-effective amendment (assuming that the company is not increasing the number of shares that can be issued for the plan), but I would appreciate any thoughts. Thanks in advance.

RE: I think that this kind of modification would likely be viewed as a material change in the plan of distribution and that a post-effective amendment would be required pursuant to the undertaking in Item 512(a)(1)(iii).
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2020

Q: I have seen these filed (usually referencing an attached press release) under Item 7.01 of Form 8-K and Item 8.01 of Form 8-K. Is there a good reason to file under one as opposed to the other? I’m trying to figure out which one is right/preferable. Certainly understand 7.01 for FD purposes, but is there a reason to have "filed" status for this kind of disclosure under 8.01? Thanks!

RE: I think the most common reason that companies file an Item 8.01 8-K instead of furnishing an Item 7.01 8-K is that they have registration statements on file and believe the information should be incorporated by reference into their 33 Act filings. A decision to suspend a dividend strikes me as information that a company might well conclude is material and should be incorporated into its registration statements.
-John Jenkins, Editor, TheCorporateCounsel.net 4/14/2020

Q: I typically think of Item 2.05 as relating to costs associated with write downs and restructurings (e.g., costs relating to employee terminations, contract terminations, etc.), but would Item 2.05 also be potentially triggered if a company has signed an agreement to sell a subsidiary and expects to incur a loss on the sale?

RE: I'd check with your accountants (because I'm definitely not one), but I believe that the costs associated with the sale of a subsidiary would usually be governed by ASC 360 (SFAS 144), and not ASC 420 (SFAS 146) or the other accounting standards referenced in Item 2.05. However, I've also seen references to the fact that one-time employee termination benefits aren't regarded as selling costs, so it seems to me that it's possible that an Item 2.05 filing might be triggered in some instances by a divestiture. See this excerpt from a Deloitte publication on ASC 360:

"ASC 360-10-35-38 states that “costs to sell are the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made.” Examples of costs to sell include legal and other professional fees, broker fees, and title transfer fees. Costs to sell do not include costs that would have been incurred if the assets were not sold, such as rent, insurance, utilities, or security services. Costs to sell also do not include costs that are within the scope of ASC 420-10, such as one-time termination benefits, lease termination costs, facility closing costs, and employee relocation costs."
-John Jenkins, Editor, TheCorporateCounsel.net 4/13/2020

Q: The deregistration checklist (under the Deregistration and Modified Reporting Topic) says the following with respect to Form S-3s and Form S-8s that are considered to have been updated during the year via Form 10-K and Section 10(a)(3): "i. A company with fewer than 300 record holders on a date subsequent to the end of the fiscal year, but before the Form 10-K is due, and which meets the other requirements of Rule 12h-3, can suspend its Section 15(d) obligations going forward by filing post-effective amendments to deregister any unsold shares on any outstanding Form S-3s and Form S-8s, and having the post-effective amendments declared effective before their Form 10-K is due for the prior fiscal year. The company must still file a Form 10-K for the prior fiscal year because the Form S-3 and Form S-8 were updated for that year." What is the source for this statement? Is no-action relief the only way to avoid having to file a Form 10-K for the prior fiscal year where an S-3 or S-8 was automatically updated? Thanks.

RE: Exchange Act Rules C&DI 153.03:

Question: Can a company suspend its reporting obligations under Section 15(d) with respect to “the fiscal year within which such registration statement became effective”?

Answer: No. A company must always file the Form 10-K for the fiscal year in which the registration statement is declared effective. The Form 10- K is required regardless of whether the company suspends its reporting obligation under Section 15(d) or Rule 12h-3. [September 30, 2008].

I think the answer to your second question is yes, unless you fit within the exceptions laid out in SLB 18. See footnote 13 to SLB 18.
-John Jenkins, Editor, TheCorporateCounsel.net 4/13/2020

RE: Thank you. What about the first sentence of (i) above — is that inferred from SLB 18? If not, where does that come from? If that procedure is followed, no no-action letter is needed to suspend going forward, correct?
-4/13/2020

RE: I think that's just mechanically what you'd need to do in order to avoid getting caught by Rule 12h-3(c). If you don't file post-effective amendments terminating the registration statements before you file the 10-K, then that would serve as their Section 10(a)(3) update, which would make you'll be ineligible to rely on 12h-3 and stuck in the reporting cycle for another year absent no action relief.

SLB 18 addresses those companies that are unable to rely on 12h-3 because of 12h-3(c). I don't believe you'd need no-action relief if you complied with Rule 12h-3 to the letter, which I think is what the approach outlined in the checklist does.
-John Jenkins, Editor, TheCorporateCounsel.net 4/13/2020

Q: Does the exception within Rule 13e-4 for “Any tender offer which is subject to Section 14(d) of the Act” basically swallow the issue that an affiliate offer is an “issuer tender offer?”

RE: I think that's the case for tender offers subject to 14D, which includes only those involving securities registered under Section 12 of the Exchange Act. But Rule 13e-4 also applies to tender offers involving 15(d) reporting companies, so the affiliate would be subject to its provisions under those circumstances. There aren't any tender offer C&DIs on this topic, but here's a Staff telephone interp:

"A tender offer by an issuer's ESOP, for equity securities of the issuer, is treated the same as a tender offer by any other affiliate of the issuer. If the securities are registered pursuant to Section 12 of the Exchange Act, and after the tender offer the ESOP will hold more than 5% of the outstanding shares of the class, then the ESOP must comply with Regulation 14D. Schedule 13E4 would not be required, inasmuch as Rule 13e-4(g)(4) exempts tender offers governed by Section 14(d) from Rule 13e-4. If, however, the tender offer is not within the scope of Section 14(d), then Rule 13e-4 should be examined to determine whether the offer must be made in compliance with that rule. In all events, a tender offer by an ESOP will be subject to Section 14(e) of the Exchange Act and Regulation 14E."
-John Jenkins, Editor, TheCorporateCounsel.net 4/13/2020

Q: Management is putting together its quarterly investor presentation. A proposed slide includes certain measures presented on a per share basis for the convenience of investors. For example, "investment in a new line of business amounted to $X per share during the prior period." Note that investment in the new line of business is not itself a GAAP line item, but is obviously a component of total expenses. As another example, "income from [a particular source] amounted to $X per share during the prior period." Again, income from this source is included in total revenues, but is not its own GAAP line item. Are these discrete items considered non-GAAP financial measures, or is there enough room to argue that these are either "operating and statistical measures" or a ratio calculated using solely GAAP measures — in this case, a component of a GAAP line item and total diluted shares outstanding? Thanks for your consideration.

RE: I think those are likely to be regarded as non-GAAP measures, unless the line of business is itself a reportable segment and the information is reported in accordance with ASC 280 (although I'd suggest getting an accountant's view on that). I'm also concerned that the information about the investment in the new line of business could be viewed as a liquidity measure, even if that's not how the company uses it. If that's the case, a per share presentation would be prohibited.
-John Jenkins, Editor, TheCorporateCounsel.net 4/10/2020

Q: A reporting company is taken private but will not cease to exist. The target/former reporting company plans to file a Form 25 on the closing date and a Form 15 10 days thereafter. On the day of closing, after the Form 25 is filed, there will be a post-closing reorganization and other director/officer changes. Obviously all parties would avoid disclosing such events. It seems that the rules technically would require such events to be disclosed on Form 8-K as the reporting obligations have not fallen away yet, however practically, it makes little sense to do so. Is there any guidance on whether such events would need to be disclosed? I assume the risk on not disclosing even if required is minimal.

RE: Yes, they would need to be disclosed on an 8-K, unless you've suspended your reporting obligation before they are due. Depending on where you are in your process, that may be possible by using an issuer-initiated delisting process. Here's an excerpt from this article by Andrew Jack & Keir Gumbs:

"Due to these timing considerations, an issuer may wish to consider relying on the issuer-initiated delisting process, discussed above, that is permitted by Rule 12d2-2(c) under the Exchange Act. If an issuer takes this approach, it can ensure that its shares are delisted on the same date that the merger closes by filing the Form 25 10 days in advance of the merger closing. The flexibility afforded by Rule 12d2-2(c) may be of particular utility in situations where an issuer needs to be able to suspend its reporting obligations immediately on closing the merger. This would be the case, for example, if a periodic report would be due during the 10-day period between the exchange’s filing of the Form 25 and the effective date of the Form 25."
-John Jenkins, Editor, TheCorporateCounsel.net 4/10/2020

RE: Thank you. Are you aware of any SEC enforcement against companies for failing to disclose something in this limbo period? I would imagine it is very rarely, if ever, enforced. Is that your understanding?
-4/10/2020

RE: I haven't researched the issue, but I'm not aware of any enforcement actions. I doubt this is an enforcement priority, because I think many people simply overlook it. My guess is that Enforcement would pay attention if they believed a company made a conscious decision not to comply.
-John Jenkins, Editor, TheCorporateCounsel.net 4/10/2020

Q: What is the risk of such plan suspensions/terminations in the current COVID environment? Is there less risk/are plan terminations/suspensions happening more frequently given that the circumstances are exigent in a volatile market, or is there more risk and are plan terminations/suspensions happening less frequently because the optics of all of these will be really negative when viewed in 20/20 hindsight (and potentially compromising the safe harbor for all plan transactions)? And, are these risks more from the plaintiffs' bar or from a potential SEC enforcement perspective? Thanks for any thoughts.

RE: I posted something from Brink Dickerson on that topic over on The Mentor Blog earlier this week.
-John Jenkins, Editor, TheCorporateCounsel.net 4/10/2020

Q: Is it legally required to post the link of the virtual site for the annual shareholder's meeting on the company's website?

RE: Not specifically, but Corp Fin's guidance makes it clear that it expects companies to notify "shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of the “virtual” or “hybrid” meeting, including how shareholders can remotely access, participate in, and vote at such meeting."

It seems to me that including a link to the virtual site on the website investors typically go to in order to access information about the company would facilitate accomplishment of that objective. I think you've essentially got to ask yourself whether someone viewing your overall approach objectively would conclude that you took appropriate action to get the word