Today, June 30, is the reference date for calendar year-end companies to calculate next year’s filer status, as well as the aggregate market value of equity held by non-affiliates (i.e., public float) for purposes of inclusion in the annual report on Form 10-K to be filed in early 2021. In preparing these calculations, it is important each year for counsel to apply the definitions of public float and the relevant filer statuses to ensure that upcoming filings are made timely.

For calculating 2021 filer status, however, several of the definitions have changed. Earlier this year, the SEC adopted amendments adding a revenue element to the definitions of accelerated filer and large accelerated filer to exclude low revenue filers. While relatively straightforward in theory, the tests have proven rather complicated in practice. To assist companies in applying the amendments, the SEC has produced a Small Entity Compliance Guide. Although helpful, even this guide may prove difficult at times to follow.

Since most companies will start analyzing these changes today, this blog post is intended as a practical reminder of and gap-filling guide to the relevant changes for public companies. Generally, the amended definitions now include a carve-out for smaller reporting companies (SRC) with annual revenues less than $100 million in most recent audited annual financial statements.


Continue Reading Happy Filer Status Day! Remember to Check the New SEC Definitions for Accelerated Filer and Large Accelerated Filer

On May 21, the SEC finalized amendments to its rules and forms revising the disclosure requirements for financial statements relating to acquisitions and dispositions of businesses, which were adopted in substantially the same form as proposed in May 2019. The amendments were effected “to enhance the quality of information that investors receive while eliminating unnecessary costs and burdens.”

The final amendments will, among other things, update the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X, Securities Act Rule 405, and Exchange Act Rule 12b-2 to update the investment and income significance tests in each rule, as summarized in the table below. (Since no substantive changes were made to the asset test, we have not included it in the table below.)


Continue Reading SEC Finalizes Amendments to Financial Disclosures Regarding Significant Acquisitions and Dispositions

As calendar-year public companies are beginning to prepare their Quarterly Report on Form 10-Q (Form 10-Q) for their first quarter, the novel coronavirus (COVID-19) pandemic and the related societal and economic impact continues to evolve. One important item that companies will need to consider as part of their Form 10-Q preparation is whether any new (or expanded) risk factors relating to COVID-19 should be included in their Form 10-Q.

Form 10-Q requires companies to disclose any material changes to the risk factors that were included in their Annual Report on Form 10-K (Form 10-K). Absent merger and acquisition activity or other material developments, it is not unusual for companies to determine no material changes have occurred since their Form 10-K was filed (and as a result no new risk factor disclosure is required).

However, given the significant impact of COVID-19 on businesses so far this year, we expect most companies will update their existing risk factor disclosure. Investors and other stakeholders are paying particular attention to COVID-19 disclosures, and the risks that COVID-19 poses to a company may not always be obvious to such stakeholders absent robust disclosure.


Continue Reading Reevaluating Risk Factors in Response to COVID-19

For public companies and for market participants generally, the impacts of the coronavirus (COVID-19) pandemic have been unpredictable, swift, and universal.  In a groundbreaking joint statement entitled “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19,” issued on April 8, Jay Clayton, the Chairman of the U.S. Securities and Exchange Commission (SEC), and William Hinman, Director of the SEC’s Division of Corporation Finance, tackled the question of how public companies should approve their disclosures in the coming weeks when they are issuing earnings releases and conducting analyst and investor calls.

In summary, Chair Clayton and Director Hinton request companies to provide as much information as is practicable regarding their current status and plans for addressing the effects of COVID-19.


Continue Reading SEC Chair Clayton and Corp Fin Director Hinman Issue a Joint Statement Requesting More Forward-Looking Disclosures on COVID-19 Impacts in Upcoming Earnings Calls

On March 23, the Division of Enforcement of the Securities and Exchange Commission (SEC) issued a Statement warning against insider trading during the ongoing COVID-19 pandemic.  In particular, the SEC cautioned that insiders are “regularly learning” new material non-public information (MNPI) that may “hold an even greater value than under normal circumstances.”  The SEC also noted that unique circumstances mean more people may have access to MNPI than may typically be the case.  This is particularly true for companies that delay earnings releases and SEC filings due to the pandemic.

Recognizing the heightened risk of illegal securities trading as a result of these and other factors, the SEC urged publicly traded companies to be mindful of their established controls and policies to protect against the improper dissemination and use of MNPI.

Proactive Steps for Public Companies

In light of the SEC’s Statement and the unique circumstances that companies are facing during the pandemic, publicly traded companies should take affirmative steps to mitigate insider trading risks.


Continue Reading Heightened Insider Trading Risk Due to COVID-19

Please join the Bass, Berry & Sims Corporate & Securities Practice Group for a series of complimentary webinars exploring various public company-related securities law issues. These programs are an extension of our Securities Law Exchange Blog and feature timely and practical guidance to SEC disclosure counsel on key topics of interest.

The COVID-19 global pandemic

The Securities Exchange Commission (SEC) recently issued interpretive guidance, effective February 25, 2020, regarding the disclosure of key performance indicators and metrics (KPIs) in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

While this guidance may not have been an area of significant focus for many companies in the recent periodic reporting cycle given that the effective date of this guidance was after the time that many calendar-year public companies filed their Annual Reports on Form 10-K, this guidance will need to be considered in connection with the preparation of upcoming Quarterly Reports on Form 10-Q.

Overview of the Staff’s Recent Guidance Regarding KPIs in MD&As

The MD&A is generally required to contain discussion of a company’s financial condition, changes in financial condition, and results of operations. Also, according to Item 303(a) of Regulation S-K, the MD&A is also required to contain discussion of information not specifically referenced in the item that the company believes is necessary to an understanding of its financial condition, changes in financial condition, and results of operations. Instruction 1 to Item 303(a) also provides that the MD&A should include a discussion and analysis of other statistical data that in the company’s judgment enhances a reader’s understanding of MD&A.


Continue Reading SEC Interpretive Guidance on Key Performance Indicators and Metrics in MD&A, and a Recent KPI Comment Letter

On March 2, the Securities Exchange Commission (SEC) adopted amendments that, among other things, significantly reduce the subsidiary guarantor financial statement requirements in periodic reports for companies that have registered debt that is guaranteed by subsidiaries. These changes are part of the SEC’s ongoing efforts to modernize and ease disclosure burdens for public companies.  The SEC hopes that these amendments will facilitate an increase in the number of registered (versus unregistered) debt offerings.

Although the amendments do not become effective until January 2021, in light of the relief offered, many companies are preparing to voluntarily comply with the amendments in advance of the effective date (which is expressly permitted by the SEC).

This alert briefly describes the changes to existing reporting requirements for subsidiary guarantors.  The SEC’s press release announcing the changes and full text of the final rule can be found here.


Continue Reading SEC Provides Welcome Relief from Reporting Requirements for Subsidiary Guarantors

The Staff of the various Securities Exchange Commission (SEC) divisions, including the Division of Corporation Finance, issued an announcement on March 24, 2020, which provides some flexibility to registrants seeking to satisfy the record retention requirement in Rule 302(b) of Regulation S-T that the registrant retain the manually signed documents.

Rule 302(b) of Regulation S-T requires that each signatory to documents electronically filed with the SEC “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 documents must be executed before or at the time the electronic filing is made.  Further, electronic filers must retain such documents for a period of five years and furnish copies to the SEC or its staff upon request.


Continue Reading SEC Staff Provides Relief to “Manual Signature” Retention Requirement in Light of COVID-19 Concerns

In a previous blog post, we discussed the availability of virtual shareholder meetings (i.e., “virtual-only” and “hybrid” meetings) as a potential alternative to the traditional in-person meeting during the 2020 proxy season in light of the emerging public health and safety crisis posed by the coronavirus pandemic (COVID-19). The Staff of the U.S. Securities and Exchange Commission’s Division of Corporation Finance and Division of Investment Management subsequently issued guidance for conducting virtual annual meetings under these unprecedented circumstances.

Post-Proxy Filing

The Staff confirmed that if a company has already mailed and filed its proxy materials, the company can notify shareholders of a change in the date, time or location of the annual meeting without amending its definitive proxy materials or mailing additional soliciting materials if the company issues a press release announcing the change, files the announcement as definitive additional soliciting material on EDGAR, and takes all reasonable steps necessary to inform other interested parties in the proxy solicitation process (e.g., any proxy service providers and applicable national securities exchanges) of the change. These actions should be taken promptly after the decision to hold a virtual meeting is made and, in any case, sufficiently in advance of the annual meeting. Therefore, companies that have already filed and mailed their definitive proxy materials would not need to mail additional soliciting materials (including new proxy cards) solely to switch to a “virtual” or “hybrid” meeting if they follow the steps described above for announcing a change in the meeting date, time, or location.


Continue Reading SEC Staff Provides Guidance for Conducting Virtual Meetings in Light of COVID-19 Pandemic