On November 2, the Securities and Exchange Commission (SEC) approved amendments, originally proposed in the SEC’s June 2019 concept release and March 2020 proposing release, to its “patchwork” exempt offering framework. The amendments represent important changes for private and public companies that rely on private offerings as part of their strategies to raise capital. Largely, these changes reflect the reality of current capital markets as the amount of capital raised in exempt offerings in the United States greatly exceeds the amount raised in registered offerings. In the March 2020 proposing release, the SEC noted that exempt offerings accounted for more than double the new capital raised by registered offerings in 2019, with exempt offerings accounting for $2.7 trillion compared to $1.2 trillion in registered offerings.

Emerging companies increasingly rely on exempt offerings as the most viable source of capital to fund growth in lieu of IPOs, and as a result exempt offerings have become an integral part of capital markets. The adopted amendments attempt to streamline and eliminate complexity within the exempt offering regulatory framework, which has been pieced together over years of tweaks through the adoption of various safeharbors.

Amendment Highlights

Highlights of the amendments include:

  • Establishing a new integration framework that provides a general principle that looks to the particular facts and circumstances of two or more offerings, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.
  • Increasing the offering limits for Regulation A (to $75 million), Regulation Crowdfunding (to $5 million), and Rule 504 offerings (to $10 million), and revise certain individual investment limits.
  • Relaxing pre-offering communications by permitting certain “test-the-waters” and “demo day” activities.

Additional analysis of these and other meaningful changes is outlined below.Continue Reading SEC Raises Threshold for Reg A+ Offerings to $75 Million; Improves “Patchwork” Exempt Offering Framework

Over the last few weeks, we have seen a flurry of activity concerning diversity in the boardroom. The Nasdaq Stock Market LLC (Nasdaq) proposed to the Securities and Exchange Commission (SEC) a new diversity rule and proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis each announced expanded diversity proxy voting guidelines. These developments continue a trend of increased investor focus on board diversity.

Nasdaq Proposes Diversity Requirement

Nasdaq filed a proposal this week that, if approved by the SEC (subject to certain exceptions), would ultimately require boards of Nasdaq-listed companies to have at least two diverse directors, consisting of at least one director whose self-identified gender is female and at least one director who self-identifies as either an underrepresented minority or LGBTQ+ (in each case as defined in the proposal).

If approved by the SEC, all Nasdaq-listed companies would be required to disclose certain statistical information regarding the diversity of their boards within one year of approval by the SEC (the Effective Date) and have at least one diverse director within two years of the Effective Date. Additionally, companies listed on the Nasdaq Global Select or Global Market tiers would be required to have at least two diverse directors within four years of the Effective Date and companies listed on the Nasdaq Capital Market would have to meet the same requirement within five years of the Effective Date. Companies failing to meet applicable requirements would have to provide to Nasdaq an explanation of their non-compliance. According to Nasdaq’s study, currently, more than 75% of its listed companies would not meet the requirements set forth under the proposed rule.Continue Reading Focus on Boardroom Diversity Intensifies

From a focus on climate change to a push for diverse corporate boards, ESG matters – those related to environmental, social and corporate governance – have become the focus of corporations and investors alike.  Regarding ESG-related disclosure standards in particular, investors and corporations are both anxious to adopt and challenged to choose a standard that is both comprehensive and relevant to the respective company or industry.

Though the CDP (formerly the Carbon Disclosure Project), Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) have gained a great amount of attention and influence in recent years, they often appear to be multiple attempts toward the shared goal of integrated and comprehensive sustainability reporting.  Investors and corporations alike have called for simplifying corporate reporting in this space.

In September 2020, all five of these framework and standard-setting institutions issued a joint statement reflecting a vision to develop a comprehensive global corporate reporting system for sustainability disclosure.  While that statement did not specify the precise form of such collaboration and did not include a specific timeframe, a recent announcement brought this vision one step closer to actualization.Continue Reading One Step Closer Toward Consolidating Corporate Sustainability Reporting Standards

On November 17, in response to a formal rulemaking petition that garnered support from nearly 100 public companies, the Securities and Exchange Commission (SEC) issued a final rule amending Regulation S-T and the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) Filer Manual to permit the use of electronic signatures when electronically filing documents with the SEC. The amendments will be effective upon publication in the Federal Register, though the SEC indicated in its November 20 Statement that it will not take enforcement action against issuers who elect to comply with the amendments before their effectiveness so long as signatories comply with the new requirements.

Amended Rule 302(b) and Other Amendments

Rule 302(b) of Regulation S-T, as amended, will permit a signatory to an electronic filing to electronically sign the document, provided that the signatory follows certain procedures and the electronic signature meets certain requirements specified in the EDGAR Filer Manual. Under those requirements, the electronic signing process must, at a minimum do the following:

  • Require the signatory to present a physical, logical, or digital credential that authenticates the signatory’s individual identity.
  • Reasonably provide for non-repudiation of the signature.
  • Provide that the signature be attached, affixed, or otherwise logically associated with the signature page or document being signed.
  • Include a timestamp to record the date and time of the signature.

Continue Reading SEC Adopts Rules Permitting Use of Electronic Signatures and Provides Further COVID-19 Relief

Register NowJoin our corporate and securities attorneys for our 2nd Annual Corporate & Securities Counsel Public Company Forum. This virtual program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panels will include speakers from AutoZone, BNY Mellon, Brown-Forman, Farmer Brothers…

Bass, Berry & Sims invites you to join us for our 2nd Annual Corporate & Securities Counsel Public Company Forum.

Although we are unable to meet in-person due to ongoing concerns resulting from the COVID-19 pandemic, we are excited to host this year’s forum virtually.

This complimentary program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panel and breakout discussion topics will include:

  • Financial reporting and disclosure considerations.
  • Insights from public company general counsel.
  • 2021 proxy season developments.
  • Restaurant & hospitality industry trends.
  • ESG considerations.

We are also pleased to welcome Myron T. Steele, former Chief Justice of the Delaware Supreme Court, as a featured speaker. Bass, Berry & Sims partner Leigh Walton will lead a fireside chat with former Chief Justice Steele about recent areas of focus for the Delaware judiciary, including COVID-19 related emergency orders, directors’ considerations for multiple stakeholder interests when discharging fiduciary duties, and corporate governance around ESG and diversity. Their discussion will also review the impact of federal elections on corporate law.

The program will take place on December 8, 2020, from 1:00-4:00PM CT and is intended for in-house counsel, public company finance and SEC reporting personnel, compliance officers, and other interested professionals.Continue Reading [REGISTER NOW] Corporate & Securities Counsel Public Company Forum | December 8, 2020

Over the past eight months of this pandemic, we have all seen the rise of e-commerce as a vital necessity for most companies.  For many companies, e-commerce has significantly outperformed their existing sales channels and consumers have now become acclimated to a seamless “omnichannel” shopping experience where they can purchase online and wait for delivery or pick-up curbside or in the store. A recent WSJ article proclaims that the embrace of digital commerce is here to stay even after the pandemic.

In light of the surge in e-commerce activity, it makes sense that many companies are separately calling out their e-commerce sales and growth performance in their quarterly earnings calls, SEC filings and investor presentations.

Disaggregated Revenue Disclosure Requirement

As companies continue to focus on their sales channel disclosures, one potential sleeper issue could be the new revenue recognition standard’s requirement on disclosure of disaggregated revenues.  Under ASC 606-10-50-5, a public company must “disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.”Continue Reading How a Surge in E-Commerce Sales Could Impact Financial Reporting; A Look at ASC 606 and Disaggregated Revenue

As we have previously discussed, on August 26, the Securities and Exchange Commission (SEC) voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor (Item 105) disclosures that registrants are required to make according to Regulation S-K. For a summary of the rules and practical takeaways, see our prior blog post here. The new rules will be effective on November 9, 2020. The amendments, particularly the revisions to Item 101 (description of business), reflect the SEC’s continued movement to a principles-based, registrant-specific approach to disclosure.

As stated in the SEC’s economic analysis in its adopting release, prescriptive requirements employ bright-line, quantitative or other thresholds to identify when disclosure is required or require registrants to disclose the same types of information. Principles-based requirements, on the other hand, provide registrants with the flexibility to determine (1) whether certain information is material, and (2) how to disclose such information.

As registrants transition to a more principles-based disclosure regime under new Item 101, it will be interesting to see how disclosures change, if at all. However, a recent SEC comment letter exchange may reveal one example of how companies that were previously required to include sensitive disclosures as a result of the prescriptive requirements (e.g., the names of material customers), might now be able to modify their disclosures in order to remove these sensitive areas, to the extent they deem such information immaterial to investors.Continue Reading Recent SEC Comment Letter Reveals the Difference Between Prescriptive-Based and Principles-Based Rules

On September 23, the Securities and Exchange Commission (SEC) approved amendments, originally proposed in November 2019 and discussed in a prior blog post, to Rule 14a-8, which governs the process for a shareholder to have its proposal included in a company’s proxy statement.

The amendments to Rule 14a-8 are intended to “modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders, including to help ensure that a shareholder-proponent has demonstrated a meaningful ‘economic stake or investment interest’ in a company before the shareholder may draw on company resources to require the inclusion of a proposal in the company’s proxy statement, and before the shareholder may use the company’s proxy statement to command the attention of the other shareholders to consider and vote on the proposal.”

Set forth below is a chart comparing the key amendments. Practical considerations regarding the amendments follow.Continue Reading SEC Adopts Amendments to Shareholder Proposal Requirements, Modestly Raising Thresholds

This is a continuation of our series addressing steps companies can take to protect themselves during government enforcement actions related to COVID-19. For more information, see our previous articles addressing corporate best practices and the health care industry.

COVID-19 has affected the financial conditions and operations of all public companies, most in a negative way but some in very positive ways. Regardless of the impact, all public companies must consider the anticipated scrutiny they will receive from the U.S. Securities and Exchange Commission (SEC) and the possible risk they face from SEC Enforcement if they do not proceed with caution. While the rules and landscape may continue to evolve, it seems apparent at this point that SEC scrutiny related to COVID-19 is most relevant in the following ways.

1. SEC Enforcement’s role in monitoring relief funding. In a prior article, we discussed steps health care companies can take to protect themselves against government investigations related to COVID-19. But all companies that received relief funding must be careful.Continue Reading How Public Companies Can Protect Against SEC Scrutiny Related to COVID-19

From the Bass, Berry & Sims Blog Network
From the Bass, Berry & Sims Blog Network

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