The SEC has approved a NYSE rule that will prohibit listed companies from issuing material news after the official closing time of trading until at least 5 minutes after closing (unless the company’s official closing price is published sooner).
The SEC has proposed a series of amendments to modernize and simplify disclosure requirements for public companies, investment advisers and investment companies, particularly those disclosure requirements under Regulation S-K. Such amendments include proposed changes to, among others, Item 102 (Description of Property), Item 303 (Management’s Discussion and Analysis), Item 401 (Directors, Executive Officers, Promoters, and Control Persons), Item 405 (Compliance with Section 16(a) of the Exchange Act), Item 501(b) (Outside Front Cover Page of the Prospectus), Item 503(c) (Risk Factors), Item 508 (Plan of Distribution), Item 601(b)(10) (Material Contracts) and various rules related to incorporation by reference.
Among the most impactful proposed changes are:
- Limiting the period-to-period comparison required by Item 303 (Management’s Discussion and Analysis) to only the two most recent fiscal years rather than the currently required three most recent fiscal years. The comparison to the third fiscal year would still be required if material to the understanding of the company’s financial statements and if not included in the company’s Form 10-K for the previous year.
- Limiting the disclosure required by Item 102 (Description of Property) to only those properties that are material.
- With respect to exhibits to SEC filings (Item 601):
- Allowing companies to omit schedules that don't contain material information from all
exhibits, rather than only from acquisition agreements.
- Eliminating the requirement (other than for newly reporting companies) under Item
601(b)(10) to file as exhibits material contracts that were entered into less than two
years before that filing but that have been fully performed at the time of the filing.
- Permitting companies to omit or redact from material agreements filed as exhibits to
SEC filings confidential information that is not material and would cause competitive
harm if made public, without requiring companies to first file a confidential treatment
request. Companies would be required to mark their filings to indicate omitted items.
- Permitting companies to omit disclosure about Section 16 reports if all reports have been timely filed (and eliminating the box on the cover of Form 10-Ks regarding Section 16 disclosure).
In contrast, the proposals would add a few requirements regarding descriptions of securities and XBRL tagging of cover pages, among others.
In addition, the proposals would eliminate certain other outdated disclosure requirements and make various conforming updates to forms and rules with outdated references.
The proposals, which can be found here, are subject to a public comment period, following which time, the SEC will further consider whether or not to approve them as final rules.
We regularly have conversations with our clients about whether particular non-public information is "material," who at the company knows about such information and whether certain individuals should be allowed to engage in securities transactions while such information remains non-public. Very often these conversations revolve around who knows what and when, how developed the facts are, etc. As a rule of thumb we advise clients to think about how things would look in hindsight if they came to light in a front page story on the cover of the Wall Street Journal.
Well, the General Counsel of Equifax is dealing with exactly that situation (see article from today's cover of The Wall Street Journal). As outsiders, we don’t know what exactly the general counsel (or outside counsel if they were involved) said to the insiders whose trades are being investigated, what the insiders knew or for that matter what the GC knew. We don’t know how Equifax’s insider trading policy operated in practice. All we currently know is that trades were made after the cyber-breach was known to at least some individuals – and that doesn’t look so good on the cover of the Wall Street Journal. Whether and how this will make our advice and our clients’ actions regarding allowing trades, time will tell, but it’s a good reminder that the conversations around these topics are not just theoretical.
Yesterday, the SEC announced that in fiscal year 2018 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $124.50 per million dollars. This is an increase from the current rate of $115.90/million. The new higher rate goes into effect on October 1, 2017.
As of July 10th, the SEC’s Division of Corporation Finance will permit all companies to submit draft registration statements relating to initial public offerings for review on a non-public basis. Previously, this process was only available for “emerging growth companies” under the JOBS Act, although that covered a substantial majority of IPO candidates.
More notably, this process will now be available for most offerings made in the first year after a company has entered the public reporting system.
More information can be found at: https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded
The Public Company Accounting Oversight Board has approved a new standard (though still subject to SEC approval) designed to enhance the relevance and usefulness of the Auditor's Report with additional information for investors.
The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs), which are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment. Under the new standard, the auditor's report will disclose, among other things, the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor. It also will include the phrase, "whether due to error or fraud," in describing the auditor's responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
If approved by the SEC, the new auditor's report format, tenure, and other information would be effective for audits for fiscal years ending on or after December 15, 2017. The communication of CAMs for audits of large accelerated filers would be effective for audits for fiscal years ending on or after June 30, 2019 and the communication of CAMs for audits of all other companies would be effective for audits for fiscal years ending on or after December 15, 2020.
Communication of CAMs is not required for audits of emerging growth companies, brokers and dealers, investment companies other than business development companies, and employee stock purchase, savings and similar plans.
A fact sheet on the new rules also is available: https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx
An S&W team represented Select Income REIT (Nasdaq: SIR) in its underwritten public offering of $350 million of 4.25% senior unsecured notes due May 15, 2024. SIR expects to use the net proceeds from this offering to repay amounts outstanding under its revolving credit facility and for general business purposes.
The offering press release can be viewed here.
Sullivan & Worcester 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.sandw.com
The SEC adopted technical rule and form amendments (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.
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|||
|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.
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.
Culminating a process that began last July, ZAG-S&W advised Therapix Biosciences Ltd. (NASDAQ: TRPX, TASE: THXBY) on its initial public offering of American Depositary Shares in the United States, which debuted on Nasdaq last week (and is still trading well above its initial price).
Therapix is a specialty clinical-stage pharmaceutical company focused on creating and enhancing a portfolio of technologies and assets based on cannabinoid pharmaceuticals. The company has initiated two internal drug development programs based on repurposing an FDA-approved synthetic cannabinoid (dronabinol): Joint Pharma developing THX-TS01 targeted to the treatment of Tourette Syndrome, and BrainBright Pharma developing THX-ULD01 targeted to the treatment of mild cognitive impairments.
Therapix raised a total of $13.8 million (including full exercise of the underwriters’ overallotment option), which it plans to use to advance the formulation and clinical development efforts for its two lead product candidates, including Phase II clinical trials, and for working capital and other general corporate purposes. Laidlaw & Company (UK) Ltd. acted as sole book running manager for the offering.
The ZAG-S&W team consisted of attorneys from Boston, New York and Tel Aviv, including Howard Berkenblit, Oded Har-Even and David Huberman, as well as Shy Baranov, Rob Condon, Ron Ben-Bassat, Boaz Shiffman and Hila Nahum.
The SEC today adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. Currently, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2. Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017. For more information, view the SEC's press release.