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SEC Announces New Changes to Covers of Periodic Reports and Registration Statements

Posted by Howard Berkenblit on April 4, 2017 at 12:54 PM

The SEC adopted technical rule and form SEC graphic.jpgamendments (https://www.sec.gov/rules/final/2017/33-10332.pdf) under the JOBS Act that impact almost every periodic report and registration statement by adding an additional “check the box” item on the covers (as well as the introductory language prior to such item.

Specifically, in the section where companies check off what type of issuer they are, there is now a new box for emerging growth company (“EGCs” - they will also still check the other relevant box for accelerated filer, smaller reporting company, etc.). In addition, to provide a uniform way to identify if EGCs have elected to take advantage of JOBS Act rules permitting them to defer adoption of accounting standards, the covers will also include an additional check the box item regarding such election. An example is below.

These rules go into effect as soon as they are published in the Federal Register, which should be in the next few days – in other words, for upcoming 10-Qs for the quarter ended March 31, 2017, companies will need to reflect this change (if not sooner for other reports). The forms impacted include, among others:  S-1, F-1, S-3, F-3, S-4, S-8, S-11, 20-F, 8-K (note this was not previously on the 8-K cover at all), 10-K, 10-Q – see the end of the rule release linked above for the forms and formats.

Example:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 􀀀
Accelerated filer 􀀀
Non-accelerated filer 􀀀 (Do not check if a smaller reporting company)
Smaller reporting company 􀀀
Emerging growth company 􀀀

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Inflation Changes for EGCS and Crowdfunding Amounts:

The JOBS Act requires the SEC to revisit certain definitions that contain dollar amounts to index them for inflation every 5 years. These include the $1 billion revenue threshold in the EGC definition, as well as certain limits in Regulation Crowdfunding on the dollar amount raised and invested. As a result the technical rule amendments have now raised each of these amounts slightly. For example, to qualify as an EGC, an issuer’s revenues must now be less than $1,070,000,000 and the maximum amount of crowdfunding in any 12 month period cannot now exceed $1,070,000 (increased from $1 million). With respect to the EGC definition, many issuers describe this definition in their registration statements or periodic reports and should be mindful to make the updates to such description.

Other Changes:

The technical amendments also update various rules in Regulation S-K and S-X (in areas such as required financial statements, MD&A, executive compensation and others) to include references to various JOBS Act provisions that benefit EGCs. These are not new rules, but make it more convenient when checking the rules for particular filings to see what applies (or more likely does not apply) to EGCs by directly including instructions within the applicable rule provisions.

Topics: SEC, reporting requirements, Compliance Rules, Filing Rules

SEC Approves Rules to Require Hyperlinks in Exhibit Lists

Posted by Howard Berkenblit on March 2, 2017 at 11:37 AM

As anyone who has ever tried to find an exhibit to an SEC filing that is incorporated by reference knows, it is not always easy or quick! 

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Help is on the way - yesterday, the SEC approved
rule changes that will require companies to include a hyperlink to each exhibit (other than XBRL exhibits and certain other limited exemptions) in their filings' exhibit indexes. The rules will also require all filings to be in HTML format since ASCII format cannot support functional hyperlinks.

The final rules will take effect on September 1, 2017 (September 1, 2018 for smaller reporting companies and non-accelerated filers).

 

Topics: SEC, Filings, Filing Rules

Sullivan Advises Hospitality Properties Trust in Offering of $600 Million of Unsecured Notes

Posted by Administrator on January 26, 2017 at 11:10 AM

An Sullivan team represented Hospitality Properties Trust (Nasdaq: HPT) in its underwritten public offerings of $400 million of 4.95% unsecured senior notes due February 15, 2027 and $200 million of 4.50% unsecured senior notes due June 15, 2023, the latter of which consisted of a re-opening of an outstanding series of HPT’s notes. HPT expects to use the net proceeds from these offerings to repay amounts outstanding under its unsecured revolving credit facility, for general business purposes and possibly to redeem some or all of its outstanding 7.125% series D cumulative redeemable preferred shares of beneficial interest.

The offering press release can be viewed here and the prospectus related to the offerings can be found here.

The S&W team included Howard Berkenblit, Bill Curry, and Jeff Morlend,  as well as Ameek Ponda and Brian Hammell on tax matters.


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Sullivan is a leading corporate law firm advising clients ranging from Fortune 500 companies to emerging businesses. With more than 175 lawyers in Boston, London, New York and Washington, D.C., the firm offers services in a wide range of areas, including corporate finance, banking, trade finance, securities and mutual funds, litigation, mergers and acquisitions, intellectual property, tax, real estate and REITs, private equity and venture capital, bankruptcy, environment and natural resources, climate change, renewable energy and water resources, regulatory law, and employment and benefits. For more information please visit www.sullivanlaw.com.  

 

Topics: SEC, NASDAQ, offering

Change Regarding Mailing of Annual Reports to Stockholders

Posted by Howard Berkenblit on November 3, 2016 at 3:19 PM

The SEC Division of Corporation Finance issued a new interpretation yesterday that allows a company to post its annual report to shareholders to its website (and keep it posted for at least one year) rather than mail the SEC seven hard copies. Rule 14a-3 under the Exchange Act requires the mailing solely for the SEC’s information, one of the few paper filings still around in the age of EDGAR. Under its current practice, when the SEC receives the hard copies it posts on a company’s EDGAR list that it has been submitted but does not include the actual document if not submitted electronically. The annual report to shareholders substantially overlaps the annual report on Form 10-K in any case. Since most companies already post their annual reports for at least a year, the new interpretation effectively means one less mailing to worry about, though companies must still mail the annual report with the proxy statement when sending out annual meeting materials to shareholders.

Topics: SEC, EDGAR, Form 10-K, Annual Reporting

SEC Proposes "Universal" Proxy Card for Contested Elections

Posted by Howard Berkenblit on October 27, 2016 at 8:13 AM

The SEC today proposed amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all director nominees. The proposal gives shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person. The proposed rules would require proxy contestants to provide shareholders with a proxy card that includes the names of both management and dissident director nominees. In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.

The SEC also proposed amendments to the proxy rules to ensure that proxy cards specify the applicable shareholder voting options in all director elections and require that proxy statements disclose the effect of a shareholder’s election to withhold its vote. Under the proposed amendments, proxy cards would be required to include an “against” voting option for the election of directors when there is a legal effect to a vote against a nominee and to provide shareholders the ability to “abstain” in a director election governed by a majority voting standard. The proposed change would eliminate the current ability to provide a “withhold” voting option when it has the legal effect of an “against” vote. 

The full text of the proposals, which are subject to a 60 day public comment period, can be found here.

Topics: SEC, proxy rules, universal proxy cards

SEC Proposes T+2 for Settling Securities Transactions

Posted by Howard Berkenblit on September 30, 2016 at 9:30 AM

The SEC has proposed a rule amendment to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2). The proposed amendment is designed to reduce the risks that arise from the value and number of unsettled securities transactions prior to the completion of settlement, including credit, market, and liquidity risk directly faced by U.S. market participants. 

For more information about the proposal see:  https://www.sec.gov/news/pressrelease/2016-200.html

Topics: SEC, securities, broker-dealer transactions

SEC proposes hyperlinks for filing exhibits

Posted by Howard Berkenblit on September 8, 2016 at 7:04 AM

The SEC has proposed rule amendments that would require companies that file registration statements and periodic and current reports to include hyperlinks to each exhibit listed in the exhibit index of their filings (in a more subtle change, the index would be required to appear before the signatures rather than simply appearing before the exhibits as is current required). All filings will need to be submitted in HTML format.  

The practical impact of these amendments, if approved, would be to make it much more efficient to locate exhibits, particularly those incorporated by reference. For example, under current rules if an investor wants to find a company's bylaws on EDGAR he or she must locate the bylaws on the exhibit list (such as in the most recent 10-K or 20-F) which will list the filing with which the bylaws were most recently filed. He or she must then separately locate that filing. Hyperlinking would effectively eliminate the second step, saving time.

Topics: SEC, registration statements, EDGAR, Filings

SEC Raises Fees for Issuers

Posted by Howard Berkenblit on September 1, 2016 at 1:31 PM

The SEC has announced that in fiscal year 2017 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $115.90 per million dollars.  This change, which will begin on October 1, 2016, is an increase from the current rate of $100.70 per million dollars.

Click below for more SEC filing requirements and obligations of directors, officers and principal stockholders of a publicy held companies.

View our Public Company Compliance Manual

Topics: SEC, Registration Fees, Issuers

Chipping away at disclosure overload

Posted by Howard Berkenblit on July 14, 2016 at 5:15 PM

SEC disclosure

Yesterday, the SEC proposed amendments to eliminate redundant, overlapping, outdated, or superseded provisions, in light of subsequent changes to SEC disclosure requirements, U.S. GAAP, IFRS and technology. The SEC also solicited comment on certain disclosure requirements that overlap with U.S. GAAP to determine whether to retain, modify, eliminate or refer them to the FASB for potential incorporation into U.S. GAAP. The proposing release is part of the SEC’s disclosure effectiveness review (criticized of late by Senator Warren), which is a broad-based staff review of the requirements, and the presentation and delivery of disclosures that companies make to investors. The proposals are also part the implementation of the Fixing America’s Surface Transportation (FAST) Act, which, among other things, requires the SEC to eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated, or unnecessary. The proposals are subject to public comment and may or may not be enacted in the near-term, but many of them appear to be “low hanging fruit” that are common-sense, non-controversial changes that would help public companies to at least start to chip away at their bulging disclosure documents. While not radical changes, it’s a step in the right direction to see some of the simplification concepts the SEC has discussed for months start to move to the proposal stage.

Find more SEC resources on our Capital Markets page.

Topics: SEC, disclosure requirements, FAST Act, GAAP

SEC Guidance on Reg G: Q&A with Howard Berkenblit

Posted by Howard Berkenblit on June 6, 2016 at 2:54 PM

This interview was originally published on Sharon Merrill's blog, The Podium. It is republished here with permission.

On May 17, 2016, the SEC issued new Compliance & Disclosure Interpretations related to Regulation G.  The Podium discussed the new guidance on the reporting of non-GAAP financial measures with Sullivan Partner Howard Berkenblit

The Podium: What do you see as the most significant changes that came out of the new SEC guidance on Reg G?

HB: There are two main themes to the changes.  First there are some additional interpretations regarding what can and can’t be presented – these have the practical effect of creating new rules without technically changing the rules.  For example, one of the changes makes explicit that EBITDA “must not be presented on a per share basis,” while others give new examples of adjustments that may not be made to non-GAAP measures. While some of these were implicit from the rules or prior SEC Staff speeches and comments, having them in Compliance and Disclosure Interpretations, even if theoretically not binding, gives them greater weight.

The second theme revolves around changes to presentation.  These interpretations don’t directly prohibit a measure or adjustment, but do dictate the way the information appears. For example, while many companies’ quarterly earnings releases lead with a non-GAAP measure and only describe the comparable GAAP measure later in the release, that will no longer be acceptable under the new interpretations, which put tighter parameters around the presentation. 

The Podium: Can you give examples of the most common mistakes companies make in presenting non-GAAP financial measures?

HB: While the concept of giving equal or greater prominence to GAAP measures over non-GAAP measures is not new, the interpretations now give several specific examples of ways in which the presentation of non-GAAP measures have been presented more prominently than the GAAP measures in violation of Reg G. These include (1) a non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption); (2) omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures, and (3) describing a non-GAAP measure as, for example, "record performance" or "exceptional" without at least an equally prominent descriptive characterization of the comparable GAAP measure. Many companies will need to modify the way they draft their disclosures.

The Podium:  How are you advising clients on developing headlines in earnings releases as it pertains to Reg G?

HB: While non-GAAP measures can still appear in headlines, companies can no longer present them alone or before GAAP measures.  As a result of the interpretations, it’s clear now that the SEC expects any headline that contains a non-GAAP measure to only have that measure appear if the most directly comparable GAAP measure also appears and precedes it.   So essentially clients must lead with the GAAP measure.  For example, a headline that used to say “EBITDA increases 20% For Quarter” will now need to read along the lines of “Net Income increases 10% for Quarter; EBITDA increases 20%”.

The Podium: Were there areas that the SEC advised that they will be watching more closely as it relates to Reg G?  Where have companies been skirting the Regulation to date?

HB: The SEC seems to be most bothered by adjustments to non-GAAP measures that could appear to be misleading. The examples most often given in speeches and the press seem to be more clear cut abuses – for example, backing out certain cash items from a cash-based performance measure, accelerating revenue or presenting only the “good stuff’ while leaving out conspicuous negative adjustments. In my experience most companies present non-GAAP adjustments that are appropriate and because they show how management views the measure and give investors and analysts valuable additional information. But because of the abuses, the SEC felt the need to clamp down a bit not just on the more extreme examples, but in some cases more common practices as well.

The Podium: Do you expect the SEC to become more strict with enforcement of Reg G?  Should we expect to see issuers receive an increase in comment letters on filings related to Reg G?

HB: The SEC Staff has already begun to increase its comments on filings and I expect that will continue in the near future, now more directly pointing to the new interpretations as the basis for the comments. Companies are clearly expected to familiarize themselves with the interpretations and apply them and change any existing practices that don’t comply.  In terms of more severe consequences, I am hopeful that the SEC enforcement staff will only get involved in cases where companies take deliberate actions to mislead or defraud.  

The Podium:  Do you expect the SEC to get more strict with Reg G in communications other than filings, such as conference calls and presentations?

HB: For a while now, as part of its regular reviews, the SEC has been looking outside the four corners of the registration statement or periodic filing to earnings releases, websites, presentations, etc.  I expect this will continue – the SEC Staff in particular looks for inconsistencies in disclosures and non-GAAP measures play directly into this. For example, if a quarterly report on Form 10-Q presents financial information that indicates a mediocre quarter, but the parallel earnings release includes non-GAAP measures that appear to give a much rosier picture, companies should not be surprised to get questions from the Staff about the different trends.

The Podium: What are the key take-aways for issuers on the new guidance?

HB: The key is that anyone involved in preparing earnings releases, presentations or SEC filings that contain non-GAAP financial measures should read the guidance and make sure they understand it before the next disclosure event. Beyond that, any time a company is considering changes to how it calculates or presents non-GAAP financial measures, the measures and presentation should be analyzed against these interpretations, as well as recent SEC comments on other similarly situated companies and more generally in public appearances. Consistency is also very important – in the interpretations, the SEC Staff has made clear that it expects period-to-period comparisons to present the same types of information – the same adjustments, fairly presenting the negative with the positive, and not excluding recurring items.

Howard E. Berkenblit is a partner and leader of Sullivan’s Capital Markets Group. He specializes in counseling both public and private companies involved in equity and debt financings and ongoing corporate governance and disclosure matters, stock exchange listing standards and Sarbanes-Oxley Act and Dodd-Frank Act compliance. He also advises Israeli and other international companies that seek to have their securities traded in the United States, as well as real estate investment trusts that engage in securities offerings and governance initiatives. In addition, Howard works with clients on mergers and acquisitions, capital raising and general corporate matters. He has written articles and spoken on many topics including Sarbanes-Oxley, Dodd-Frank and a range of securities law issues impacting U.S. and foreign companies. He is also the editor of The SEC Pulse, a blog that provides updates and commentary from Sullivan’s Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies that trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters. 

Topics: SEC, Non-GAAP, GAAP, investor relations, Reg G

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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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