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SEC proposed changes to Form 144 and other aspects of Rule 144

Posted by Howard Berkenblit on December 23, 2020 at 10:15 AM

The SEC has proposed amendments that would mandate electronic filing of Form 144 (currently it may be filed either by mail or electronically), eliminate the requirement to file a Form 144 with respect to sales of securities issued by companies that are not subject to reporting under the Securities Exchange Act of 1934, and amend the Form 144 filing deadline to coincide with the Form 4 filing deadline (currently it is required to be filed concurrently with placing a sell order). If adopted, the SEC would make an online fillable Form 144 available to simplify the process and streamline the filing of Forms 4 and 144 where the seller is required to file both forms.

The amendments would also amend Forms 4 and 5 to add an optional check box to indicate that a reported transaction was intended to satisfy Rule 10b5-1(c), which provides an affirmative defense for trading on the basis of material non-public information in insider trading cases (so-called “10b5-1 plans”).

The SEC also proposed an amendment to Rule 144 to revise the holding period determination for securities acquired upon the conversion or exchange of certain "market-adjustable securities." Currently, Rule 144 deems securities acquired solely in exchange for other securities of the same issuer to have been acquired at the same time as the securities surrendered for conversion or exchange. Under the amendments, the holding period for the underlying securities acquired upon conversion or exchange of "market-adjustable securities" would not begin until conversion or exchange, meaning that a purchaser would need to hold the underlying securities for the applicable Rule 144 holding period before reselling them under Rule 144. The proposed amendment is intended to reduce the risk of unregistered distributions in connection with sales of those securities.

The proposed amendment would not affect the use of Rule 144 for most convertible or variable-rate securities transactions. It would apply only to market-adjustable securities transactions in which:

  • The newly acquired securities were acquired from an issuer that, at the time of the conversion or exchange, does not have a class of securities listed, or approved for listing, on a national securities exchange registered pursuant to Section 6 of the Exchange Act; and
  • The convertible or exchangeable security contains terms, such as conversion rate or price adjustments, that offset, in whole or in part, declines in the market value of the underlying securities occurring prior to conversion or exchange, other than terms that adjust for stock splits, dividends, or other issuer-initiated changes in its capitalization.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

Topics: Form 144, Rule 144, Rule 10b5-1(c)

MD&A and Related Amendments

Posted by Howard Berkenblit on November 23, 2020 at 4:06 PM

The SEC has adopted amendments to Regulation S-K to revise the rules for MD&A and eliminate the requirement for selected financial data in SEC filings. According to the SEC, "The amendments are intended to enhance the focus of financial disclosures on material information for the benefit of investors, while simplifying compliance efforts for registrants."

The amendments will become effective 30 days after they are published in the Federal Register. However, companies are not required to comply with the amended rules until the first fiscal year ending on or after the date that is 210 days after publication in the Federal Register, which means for calendar year fiscal year end companies, these rules will not be mandatory for their 2020 annual reports on 10-K or 20-F. Companies 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 that initial compliance date. Although companies will not be required to apply the amended rules until their mandatory compliance date, they may comply with the final amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety.

The changes to Items 301, 302, and 303 of Regulation S-K:

  • Eliminate Item 301 (Selected Financial Data); and
  • Modernizing, simplifying and streamlining Item 302(a) (Supplementary Financial Information) and Item 303 (MD&A) to:
    • Revise Item 302(a) to replace the current requirement for quarterly tabular disclosure with a principles-based requirement for material retrospective changes;
    • Add a new Item 303(a), Objective, to state the principal objectives of MD&A;
    • Amend current Item 303(a)(1) and (2) (amended Item 303(b)(1)) to modernize, enhance and clarify disclosure requirements for liquidity and capital resources;
    • Amend current Item 303(a)(3) (amended Item 303(b)(2)) to clarify, modernize and streamline disclosure requirements for results of operations;
    • Add a new Item 303(b)(3), Critical accounting estimates, to clarify and codify Commission guidance on critical accounting estimates;
    • Replace current Item 303(a)(4), Off-balance sheet arrangements, with an instruction to discuss such obligations in the broader context of MD&A;
    • Eliminate current Item 303(a)(5), Tabular disclosure of contractual obligations, in light of the amended disclosure requirements for liquidity and capital resources and certain overlap with information required in the financial statements; and
    • Amend current Item 303(b), Interim periods (amended Item 303(c)) to modernize, clarify and streamline the item and allow for flexibility in the comparison of interim periods to help registrants provide a more tailored and meaningful analysis relevant to their business cycles.

In addition, the SEC adopted certain parallel amendments to the financial disclosure requirements applicable to foreign private issuers, including to Forms 20-F and 40-F, as well as other conforming amendments to the Commission's rules and forms, as appropriate.

Topics: Form 10-K, Securities and Exchange Commission, Regulation S-K

Are COVID Accommodations Perks for SEC Purposes?

Posted by Howard Berkenblit on September 24, 2020 at 9:10 AM

To the extent you are working on executive compensation disclosure in a proxy statement or registration statement, the SEC just released this interpretation related to benefits provided to executives during the pandemic:

219.05 In reporting compensation for periods affected by COVID-19, questions may arise whether benefits provided to executive officers because of the COVID-19 pandemic constitute perquisites or personal benefits for purposes of the disclosure required by Item 402(c)(2)(ix)(A) and determining which executive officers are “named executive officers” under Item 402(a)(3)(iii) and (iv). The two-step analysis articulated by the Commission in Release 33-8732A continues to apply when determining whether an item provided because of the COVID-19 pandemic constitutes a perquisite or personal benefit:

  • An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties.
  • Otherwise, an item that confers a direct or indirect benefit and that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, is a perquisite or personal benefit unless it is generally available on a non-discriminatory basis to all employees.

Whether an item is "integrally and directly related to the performance of the executive’s duties" depends on the particular facts. In some cases, an item considered a perquisite or personal benefit when provided in the past may not be considered as such when provided as a result of COVID-19. For example, enhanced technology needed to make the NEO’s home his or her primary workplace upon imposition of local stay-at-home orders would generally not be a perquisite or personal benefit because of the integral and direct relationship to the performance of the executive’s duties. On the other hand, items such as new health-related or personal transportation benefits provided to address new risks arising because of COVID-19, if they are not integrally and directly related to the performance of the executive’s duties, may be perquisites or personal benefits even if the company would not have provided the benefit but for the COVID-19 pandemic, unless they are generally available to all employees.

Topics: executive compensation, Securities and Exchange Commission

Amendments to Shareholder Proposal Rule 14a-8

Posted by Howard Berkenblit on September 23, 2020 at 2:24 PM

The SEC adopted amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders. The main changes were:

  • amend Rule 14a-8(b) by:
    • replacing the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:
      • $2,000 of the company’s securities for at least three years;
      • $15,000 of the company’s securities for at least two years; or
      • $25,000 of the company’s securities for at least one year.
    • prohibiting the aggregation of holdings for purposes of satisfying the amended ownership thresholds;
    • requiring that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the shareholder’s behalf and to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
    • requiring that each shareholder state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.
  • amend Rule 14a-8(c) by:
    • applying the one-proposal rule to "each person" rather than "each shareholder" who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting. Likewise, a representative will not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.
  • amend Rule 14a-8(i)(12) by:
    • revising the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings from 3%, 6% and 10% for matters previously voted on once, twice or three or more times in the last five years, respectively, with thresholds of 5%, 15% and 25%, respectively. For example, a proposal would need to achieve support by at least 5% of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15% and 25% support, respectively, in order to be eligible for resubmission in the following three years.

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

In his remarks, the SEC Chair noted that he believes that additional changes to the proxy process still need attention such as the rules around counting of votes and so-called proxy plumbing – stay tuned!

Topics: Securities and Exchange Commission, shareholder

SEC Registration Fee Set to Decrease 10/1

Posted by Howard Berkenblit on August 28, 2020 at 9:11 AM

Effective October 1st, the SEC registration fee will decrease to $109.10 per million dollars registered from the current rate of $129.80 per million dollars.

Topics: Registration Fees, Securities and Exchange Commission

SEC Proposes Increase for 13F Threshold

Posted by Howard Berkenblit on July 13, 2020 at 10:17 AM

The SEC has proposed to amend Form 13F to update the reporting threshold for institutional investment managers from $100 million to $3.5 billion. The threshold has not been adjusted in over 40 years. Section 13(f) of the Exchange Act requires an investment manager to file a report with the SEC if the manager exercises investment discretion with respect to accounts holding certain equity securities having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100 million. If the amendments are approved, that threshold would be raised substantially. The proposal would also require SEC review of the Form 13F reporting threshold every five years and would eliminate the ability of managers to omit certain small positions.

Topics: SEC Filings, Securities and Exchange Commission, Form 13F

More SEC Guidance on COVID-19 Disclosure

Posted by Howard Berkenblit on June 24, 2020 at 10:11 AM

The SEC staff has issued new guidance regarding companies’ disclosure considerations regarding operations, liquidity and capital resources in light of COVID-19. The guidance, which largely reiterates the same themes as the staff’s prior guidance, encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 “through the eyes of management” and to proactively revise and update disclosures as facts and circumstances change.

The new guidance focuses on three areas:

  1. Operations, liquidity and capital resources – this part of the guidance focuses on disclosures about the impact of adjustments being made by companies such as teleworking, supply chain and distribution adjustments, suspension of repurchase plans and dividends and changes in response to health and safety guidelines. In particular, the guidance contains a number of “considerations” in the form of questions for companies to consider addressing in their disclosures with respect to financing activities, short- and long-term liquidity risks and alternative funding sources.
  2. Government assistance – CARES Act – this part of the guidance focuses on disclosure considerations about the impact of government assistance to those companies receiving COVID-19-related loans, tax relief or other benefits, including the impact on related critical accounting estimates and assumptions.
  3. Ability to continue as a going concern – this part of the guidance focuses on whether the conditions and events surrounding COVID-19 raise substantial doubt about a company’s ability to meet its obligations.

Companies offering securities or preparing disclosure documents such as upcoming quarterly reports should carefully review and apply the new guidance (it’s quite short and clear!) (and of course continue to apply prior SEC guidance to updated changing circumstances).

Topics: disclosure requirements, SEC Filings, coronavirus, COVID-19

Nasdaq Provides Temporary Relief from Shareholder Approval Rules

Posted by Brandon Friedman on May 6, 2020 at 3:16 PM

By Brandon Friedman and Howard Berkenblit

The Nasdaq Stock Market is temporarily providing an exception from shareholder approval requirements for certain common stock issuances, permitting companies to raise capital quickly to continue running their businesses. The exception is effective immediately and valid for transactions entered into through June 30, 2020 (and completed within 30 days).

The exception applies to shareholder approvals for the issuance of common stock (or securities convertible or exercisable into common stock) in connection with an issuance of 20% or more of pre-transaction shares outstanding at a price less than the minimum price, as defined by Nasdaq rules.

However, reliance on the exception must be publicly announced and the exception is limited to situations where the need for the transaction is due to circumstances related to COVID-19. In addition, the exception only applies to circumstances where the delay in securing shareholder approval would have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan, result in workforce reductions, adversely impact the company’s ability to undertake new initiatives in response to COVID-19, or seriously jeopardize the financial viability of the business.

https://www.sec.gov/rules/sro/nasdaq/2020/34-88805.pdf

Topics: NASDAQ, shareholder, coronavirus, COVID-19

Nasdaq Provides COVID-19 Relief for Certain Listed Companies: Listing Bid Price and Market Value

Posted by Amiti Rothstein on April 20, 2020 at 11:41 AM

By Amiti Rothstein and Howard Berkenblit

Effective April 16, 2020, in response to the COVID-19 pandemic, and the resulting related market conditions, Nasdaq is providing temporary relief from the continued listing bid price (i.e., the minimum bid price of a company’s listed stock) and market value of publicly held shares (i.e., stockholders’ equity) listing requirements by tolling compliance through June 30, 2020 (the “Tolling Period”) (see http://img.n.nasdaq.com/Web/GIS/%7B1b62f703-d510-4903-aab1-fd7993d5b2de%7D_SR-NASDAQ-2020-021.pdf).

During the Tolling Period, although Nasdaq won’t be starting the timeline for meeting compliance standards in accordance with its listing rules, Nasdaq will continue to monitor the bid price and market value of publicly held shares requirements and companies would continue to be notified about new instances of noncompliance in accordance with the current rules. The temporary relief provided by the Tolling Period is applicable for any company not currently in compliance with the minimum bid price and/or market value of publicly held shares requirements and not solely for companies who have failed to meet these requirements after the declaration of COVID-19 being a pandemic.

Immediately after the Tolling Period, starting on July 1, 2020, companies will receive the balance of any pending compliance period or hearings panel exception to regain compliance with the applicable requirement. Nasdaq has stated that it will continue to monitor securities to determine if they regain compliance during the relief period.

Topics: NASDAQ, coronavirus, COVID-19

SEC COVID-19 Relief: Forms 144

Posted by Howard Berkenblit on April 13, 2020 at 12:26 PM

The SEC staff is providing temporary relief to those affected by COVID-19 regarding Forms 144 submitted for the period from and including April 10, 2020 to June 30, 2020. The Division of Corporation Finance staff will allow Forms 144 that would otherwise be filed in hard copy (or by EDGAR, which remains an alternative) to be submitted via email in lieu of mailing or delivering the paper form to the SEC if the filer or submitter attaches a complete Form 144 as a PDF attachment to an email sent to PaperForms144@SEC.gov. If the filer or submitter is unable to provide a manual signature on the Form 144 submitted by email, the relief allows the filer or submitter to provide a typed form of signature in lieu of the manual signature, as long as (1) he or she retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic submission and provides such document, as promptly as practicable, upon request by the SEC staff; (2) such document indicates the date and time when the signature was executed; and (3) the filer or submitter (with the exception of natural persons) establishes and maintains policies and procedures governing this process.

Topics: SEC Filings, coronavirus, COVID-19

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About the Blog


The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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