It’s been a busy late summer and early fall for the Staff of the Division of Corporation Finance (the Staff) as it relates to shareholder proposals and the Staff’s historical involvement in the no-action process related to those proposals.

On September 6, 2019, the Staff, focusing on how it could most efficiently and effectively provide guidance where appropriate regarding shareholder proposals, announced that it was changing its practices in this important area.  Historically, issuers that were seeking to exclude a shareholder proposal from their proxy statement on the grounds that the SEC’s proxy rules permitted such exclusions sought formal, written no-action relief from the Staff of the Division of Corporation Finance.

These no-action letters issued by the Staff would inform the issuer whether or not the Staff would recommend that the SEC’s Enforcement Division take action against the issuer for excluding a particular shareholder proposal.

Continue Reading SEC Staff Policy Change on 14a-8 Process; May Choose to Respond Orally Rather than in Writing

We recently wrote a three-part article series for Corporate Counsel highlighting recent trends warranting review by public companies and consideration as to whether to update their insider trading policies and training.

  • Part One offered practical guidance on mitigating risks associated with employees who may inadvertently share confidential information with others. As the benefits of remote work options increasingly pull the workforce out of the office, companies face risks from employees removing sensitive company documents from the secure confines of their offices and company databases. Because information removed from the safety of a corporate office or database is susceptible in many ways to being taken and misused by bad actors, it is important for in-house counsel to take steps to ensure their insider trading policies and training cover this area.

Continue Reading Insider Trading Policies and Training: Time for a Refresher?

On September 26, 2019, the SEC voted to adopt a new rule that extends a “test-the-waters” accommodation—currently a tool available only to emerging growth companies (EGCs)—to all issuers.  The rule will become effective 60 days after publication in the Federal Register.

The new rule and related amendments under the Securities Act of 1933 would enable all issuers (and its authorized representatives, including underwriters) to engage in test-the-waters communications with certain institutional investors regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering. These communications would be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement and would be limited to qualified institutional buyers (QIBs) and institutional accredited investors (IAIs).

New Rule 163B

New Securities Act Rule 163B will permit any issuer, or any person authorized to act on its behalf, to engage in oral or written communications with potential investors that are, or are reasonably believed to be, QIBs or IAIs, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering.  The rule is non-exclusive and an issuer may rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate about a contemplated securities offering.

Continue Reading SEC Adopts New Rule to Allow All Issuers to “Test-the-Waters”

At the end of last year, in an enforcement action brought by the Division of Enforcement of the Securities and Exchange Commission (SEC) against ADT Inc. (ADT), reporting companies were reminded that the SEC continues to focus on noncompliant use of non-GAAP financial measures.

The SEC found that ADT disclosed non-GAAP financial measures in two earnings releases without presenting the most directly comparable GAAP figure with “equal or greater prominence,” as required by Item 10(e) of Regulation S-K.

Continue Reading SEC Enforcement Activity – A Reminder Regarding the “Equal or Greater Prominence” Presentation Requirement of Item 10(e)

It’s not too often we see Dick Clark and Ryan Seacrest mentioned in SEC comments, so this recent SEC comment letter issued to Planet Fitness caught our attention.  The Staff’s letter to Planet Fitness indicates that it performed a full review on the company’s Annual Report on Form 10-K, which included its definitive proxy statement incorporated by reference.

(You can tell it was a full review (legal and accounting) because the first sentence of the letter says, “We have reviewed your filing and have the following comments.”  In contrast, a limited review (or monitor) would have said something like “We have limited our review of your filing to the financial statements and related disclosures and have the following comments.”)

Continue Reading “Dick Clark’s Rockin’ Eve with Ryan Seacrest” Gets a Billion TV Viewers? SEC Staff Says Prove It

Yesterday, the SEC charged TherapeuticsMD Inc., a pharmaceutical company headquartered in Boca Raton, Florida, with violations of Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts without also disclosing the same information to the public.  The SEC’s order finds that on two separate occasions in 2017, TherapeuticsMD selectively shared material information with analysts about the company’s interactions with the U.S. Food and Drug Administration (FDA).

As detailed in the SEC’s order, on June 15, 2017, one day after a publicly-announced meeting with the FDA about a new drug approval, TherapeuticsMD sent private messages to sell-side analysts describing the meeting as “very positive and productive.”  TherapeuticsMD’s stock price closed up 19.4% on heavy trading volume the next day.  At that time, the company had not issued a press release or made any other market-wide disclosure about the meeting.

Continue Reading Recent SEC Enforcement Action Drives Home the Importance of Regulation FD Policies and Training

On August 20, 2019, the SEC staff published new interpretations in the form of Compliance and Disclosure Interpretations regarding Inline XBRL, which affirmed the guidance we previously posted about the new exhibit 104 cover page tagging requirements.

The new interpretations are numbered as Questions 101.01 through 101.09 at this link.

Continue Reading SEC Publishes Interpretations about Inline XBRL and Exhibit 104 (Cover Page Interactive Data File)

Don't miss Jay Knight discussing the new SEC FAST Act requirements for cover page tagging in an upcoming webinar. Large Accelerated Filers are now beginning to comply with the SEC’s new FAST Act requirements for cover page tagging using Inline XBRL. During the implementation process, questions have arisen regarding exhibits, and other aspects of technical and rule compliance.

I am excited to be co-presenting in an upcoming free webinar on this topic titled, “SEC Fast Act Cover Page Tagging Update,” which is being sponsored by XBRL US, a leading non-profit organization supporting the implementation of digital business reporting standards. Bryan Castrantas, Senior Manager, Richey May & Co. LLP is co-presenting with me, and he will provide a technical review of the XBRL requirements and lessons learned from submissions to date.  Attend this session to get further clarification on the rule requirements for issuers, plus a technical review of the preparation and submission process for cover page tagging.

The webinar will be held on Thursday, August 29, 2019, from 3:00 – 4:00 p.m. EST. For more information and registration, please go to XBRL.US.

Advance Notice Bylaw Provisions

A recent Delaware case, Saba Capital Master Fund, Ltd. v. Blackrock Credit Allocation Income Trust, highlights the importance of advance notice bylaws and the careful application of the terms of such bylaws by public companies who may be subject to activist campaigns.

As backdrop, following Delaware cases in 2008 (Jana Master Fund Ltd. vs. CNET Networks, Inc. and Levitt Corp. vs. Office Depot, Inc.) which interpreted ambiguous advance notice bylaw provisions in favor of insurgent shareholders attempting to nominate their own slate of director nominees, a large number of public companies (particularly large-cap companies and public companies incorporated in Delaware) amended their advance notice bylaw provisions to eliminate perceived vulnerabilities in their advance notice bylaws and expand the information required to be provided by shareholder proponents (known as second generation advance notice bylaw provisions).

While the focus on advance notice bylaw provisions (including the law firm commentary on this subject) has waned over the last decade, advance notice bylaws remain an important aspect of a public company’s preparedness for shareholder activism.

Continue Reading Revisiting Advance Notice Bylaw Provisions and Proxy Access

Note: We updated this post (originally posted last week) to add new frequently asked questions about when to reference Exhibit 104 in Form 8-Ks and about the phase-in schedule for all companies. 

Question:  In a Form 8-K, are you required to explicitly reference Exhibit 104 in the Exhibit Index?

Answer: In discussions with SEC Staff within the SEC’s Division of Corporation Finance, we received the following guidance related to a registrant’s Exhibit 104 reference obligation in 8-Ks: