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SEC Proposes Changes to Rule 144, Form 144, Form 4 and Form 5

​On December 22, 2020, the Securities and Exchange Commission (the “SEC") proposed and published for comment amendments to Rule 144, Form 144, Form 4, Form 5 and Rule 101 of Regulation S-T.  These amendments primarily seek to (a) mitigate the risk of unregistered distributions in connection with sales of market-adjustable securities under the current Rule 144 safe harbor by revising the holding period for such securities to begin upon the conversion or exchange of such securities, and (b) update and streamline Form 144 by mandating electronic filing and eliminating the Form 144 filing requirement with respect to non-reporting issuers.  Comments on the proposed rules will be due 60 days after publication of the proposal in the Federal Register and  may be submitted electronically using the SEC's internet comment form (http://www.sec.gov/rules/submitcomments.htm) or by mail to the following address: Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.  All submissions should refer to File Number S7-24-20.

Rule 144 – Holding Period for Certain Conversions and Exchanges

The proposed amendments to Rule 144(d)(3)(ii) would eliminate the ability to tack the holding period of securities acquired upon the conversion or exchange of certain market-adjustable securities (also referred to as floating rate convertibles or future-priced convertibles) issued by an unlisted issuer.  Rule 144 currently provides that the holding period for such securities can be tacked back to when the securities surrendered for conversion or exchange were acquired. If adopted, the holding period for affected securities would begin when the conversion or exchange of the market-adjustable security was complete.

The adopting release emphasizes that Rule 144 would remain unaffected for most convertible and variable-rate securities transactions.  The changes would only apply to if both:

  • if the issuer is an unlisted issuer (i.e., an issuer without a class of securities listed, or approved for listing, on a national exchange) at the time of the conversion or exchange; and
  • the securities surrendered are “market-adjustable securities", by which the Commission means securities that contain terms, such as conversion rate or price adjustments, that offset declines in market value of the underlying securities. 
Securities containing price protection (otherwise known as “ratchet") provisions would be “market-adjustable securities."  However, convertible or exchangeable securities containing standard anti-dilution provisions, including adjustment...
SEC Adopts New Rule Relating to Submissions through EDGAR and Electronic and Remote Online Notarization

​On December 11, 2020, the Securities and Exchange Commission (the “SEC") announced its adoption of a new rule under Regulation S-T in connection with its administration of the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR") to promote the reliability and integrity of EDGAR submissions, and also the adoption of revisions to Volumes I and II of the EDGAR Filer Manual and related rules under Regulation S-T, including provisions regarding electronic notarizations and remote online notarizations, which include electronic signatures.

Rule 15 under Regulation S-T

1.    The new Rule 15 under Regulation S-T allows the SEC to take the following actions to promote the reliability and integrity of submissions made through EDGAR:

2.    Sensitive Personally Identifiable Information: if the SEC determines that a submission contains personally identifiable information that if released may result in financial or personal harm to an individual:

  • redact such personally identifiable information from the submission;
  • prevent dissemination of the submission; and/or
  • remove the submission from the SEC's public website;

3.    Cybersecurity Threat: prevent any submission to EDGAR that poses a cybersecurity threat, including but not limited to, submissions containing any malware or virus;

4.    System or SEC Staff Errors: correct and/or prevent public dissemination of any submission to EDGAR, if the SEC determines that such submission:

  • has not been processed by EDGAR;
  • has been processed incorrectly by EDGAR; or
  • contains an error attributable to the SEC staff;

5.    Incorrect EDGAR Identifier: remove and/or prevent public dissemination of a submission, if the SEC determines that a submission is made under an incorrect EDGAR unique identifying number;

6.    Disputes Over Authority: prevent a filer's ability to make submissions, if the SEC determines that a dispute exists regarding the authority to make submissions on behalf of a filer, until the dispute is resolved;

7.    Misleading or M...

SEC (Finally) Adopts Resource Extraction Disclosure Rules (Again)

​On December 16, 2020, the Securities and Exchange Commission (the “SEC") adopted final rules (available here) requiring certain disclosure by public companies that engage in the commercial development of oil, natural gas or minerals. Under the final rules, domestic or foreign “resource extraction issuers" (the definition of which is discussed below) will have to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas or minerals that are made to a foreign government or the U.S. federal government.

What's the History Here?

The SEC's release sets forth the tortured, more-than-eight-year history of this rulemaking process (see previous Gibson Dunn posts regarding this topic in 2019, 2015, 2013 and 2010). The SEC adopted these rules by mandate pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act") after having earlier-adopted versions of the rules vacated in 2012 by the U.S. District Court for the District of Columbia (a ruling which the SEC declined to appeal) and disapproved in 2016 by Congress pursuant to its authority under the Congressional Review Act (the “CRA"). While Congress disapproved of the rules adopted in 2016, it did not repeal Section 1504 of the Dodd-Frank Act, so the SEC's rulemaking mandate remained in place. Revised rules cannot be substantially similar to the ones disapproved by Congress under the CRA. As such, the SEC proposed new rules in 2019 that differed from the 2016 rules (see this earlier blog post for a breakdown of the differences between the 2016 rules and the 2019 proposed rules). Today's newly adopted rules follow the proposed 2019 rules with a few minor differences (which are discussed in more detail below).

What Does This Entail?

The final rules implement Section 13(q) of the Securities Exchange Act of 1934, as amended, and will require disclosure of the following company-specific, project-level information in an amended version of Form SD (available on page 212 of the adopt...

Summary of Select Director Education Opportunities Available

​Gibson Dunn's summary of director education opportunities has been updated as of December 2020 and is available at the links below. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.

https://www.gibsondunn.com/wp-content/uploads/2018/11/Gibson-Dunn-Selected-Director-Education-Opportunities.pdf

Gibson-Dunn-Selected-Director-Education-Opportunities - December 2020.pdf

Thank you to associates Eileen Park and Benjamin Leffler for their assistance with this month's update.


Summary Chart and Comparative Blackline Reflecting Recent Amendments to MD&A Requirements Now Available

On November 19, 2020, the SEC announced that it had adopted amendments to Item 301 (“Selected Financial Data"), Item 302 (“Supplementary Financial Information") and Item 303 (“Management's Discussion and Analysis of Financial Condition and Results of Operations") of Regulation S-K.  This article provides (1) a high level summary of the amendments, effective dates and Commissioners' views, (2) a detailed description of the amendments in tabular format, and​ (3) a blackline comparison of the changes to Item 302(a) and Item 303 of Reg S-K.

These amendments are intended to improve disclosure by enhancing its readability, discouraging repetition and eliminating information that is not material and to “allow investors to view the registrant from management's perspective." According to Chairman Jay Clayton, the amendments apply “a principles-based, registrant-specific approach to disclosure," aimed at “giving investors greater insight into the information management uses to monitor and manage the business."

High Level Summary​


Summary of the Amendments

The key changes are:​

  • elimination of Item 301, Selected financial data.
     
  • revision of Item 302(a), Supplementary financial information, to replace the current requirement for quarterly tabular disclosure with a principles-based requirement for material retrospective changes.

  • revisions to the rules for disclosure of Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A"), in particular:
  • inclusion of new Item 303(a), Objective, to state the principal objectives of the company's MD&A.

  • revision of Item 303(a), Full fiscal years (amended as Item 303(b)), and Item 303(b), Interim periods (amended as Item 303(c)) to modernize, clarify and streamline the items;

  • replacement of Item 303(a)(4), Off-balance sheet arrangements, with an instruction to discuss such obligations in the broader context of the MD&A.

  • elimination of Item 303(a)(5), Tabular disclosure of contractual obligations.

  • revision of current Items 303(a)(1) and (2) (amended as Item 303(b)(1)), Liquidity and capital resources, to specifically require disclosure of material cash ...
SEC Updates Rules Relating to Electronic Submission of Documents

​On November 17, 2020, the Securities and Exchange Commission (the “SEC") announced that it had approved amendments to Regulation S-T and the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR") Filer Manual relating to the use of electronic signatures for SEC filings, including registration statements, reports on Forms 10-K, 10-Q and 8-K, and Section 16 reports. The new rules expressly provide for the use of e-signature methods (e.g., “DocuSign" and “AdobeSign") for these filings, subject to new authentication procedures summarized below.

In general, where a document submitted electronically to the SEC is required to be signed, the signature appearing in the filing must appear in the electronic filing in typed form, not a manual or graphic format. Signatures that are not required in a filing may appear as in manual or graphic form (e.g., the signature in a letter to shareholders included in a Proxy Statement).

Under Rule 302(b) of Regulation S-T, when a typed signature must be used, the signatory must sign either a signature page or another document that authenticates, acknowledges or otherwise adopts the signature appearing in the filing, which the filer must retain in its records to authenticate that the signer authorized his or her signature to be typed into the filed document. The amendments define this signed record as an “authentication document" and provide that it may be electronically signed, provided that certain conditions are met.

1.  New Electronic Signature Attestation Document for Signatories

New Rule 302(b)(2) of Regulation S-T provides that, before a signatory may electronically sign an authentication document, the signatory must manually sign another document (an “electronic signature attestation document") by which the signatory agrees that the use of the person's electronic signature constitutes the legal equivalent of his or her manual signature on authentication documents.

A form of electronic signature attestation document is attached to this posting and available 

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Desktop Calendar of SEC Deadlines for 2021 Now Available

​To assist companies in planning for their SEC reporting and capital markets transactions in 2021, we have prepared a desktop reference calendar that sets forth filing deadlines for core SEC reports. Our calendar also provides SEC staleness dates (i.e., the last date financial statements may be used in a prospectus or proxy statement without being updated).

You can download a PDF of the 2021 SEC Filing Deadlines calendar at the link below.

https://www.gibsondunn.com/wp-content/uploads/2020/11/SEC-Filing-Deadline-Calendar-2021.pdf

Gibson Dunn provides a range of capital markets resources, from a guidebook for companies considering their initial public offering to illustrative timelines for securities offerings to replays of the webcasts in our Raising Capital in the Current Environment series. For access to these resources and publications, please visit Gibson Dunn's Capital Markets Practice Center.

For more information and resources about current developments in securities regulation, corporate governance and executive compensation, please visit Gibson Dunn's Securities Regulation and Corporate Governance Practice Center.

And, of course, please subscribe to Gibson Dunn's Securities Regulation and Corporate Governance Monitor.  

Special appreciation for the contributions of Rob Kelley, associate in our New York office, to the 2021 calendar.

 


SEC Adopts Changes to the Exempt Offering Framework

​In an effort to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses, on November 2, 2020, the SEC announced that it had approved amendments to certain of its rules relating to exempt offerings. The amendments follow the SEC's June 2019 concept release and the SEC's March 2020 proposing release on the harmonization of offering exemptions and reflect the SEC's ongoing effort to harmonize, simplify and improve its offering framework. As discussed in our prior Monitor post (available here), the SEC has been working to untangle the current regulatory regime in order to ensure that capital-raising is rational, accessible and effective.

With minor exceptions, the final rules (available here) will be effective 60 days after publication in the Federal Register (i.e., likely February or March 2021).

​Summary:

The amendments alter the existing regulatory landscape in the following ways, among others:

  • establish a new framework for analyzing the integration of multiple offerings, and allow a registrant to avoid integration if it fits within one of five new safe harbors or, if the issuer can establish, based on the particular facts and circumstances of that offering, each offering either complies with the registration requirements of the Securities Act or is exempt from registration;
  • raise the maximum offering amount for offerings under Tier 2 of Regulation A, Regulation Crowdfunding and Rule 504 of Regulation D;
  • ease the restrictions on private offering communications rules; and
  • adjust investor eligibility requirements under Regulation Crowdfunding and Regulation A by:
  • permitting the use of certain special purpose vehicles that function as a conduit for investors to facilitate investing in Regulation Crowdfunding issuers; and
  • imposing restrictions on eligibility under Regulation A for issuers that are delinquent in their reporting obligations under the Securities Exchange Act of 1934.

Changes to Integration Framwork:

The change to the framework for integrating multiple offerings is likely to be the most significant change enacted by the amendments. The new framework simplifies the SEC's integration doctrin...

ISS Proposes and Opens Comment on Draft 2021 Voting Policy Updates

​​Last week, Institutional Shareholder Services (“ISS") proposed and published for comment voting policy changes for the 2021 proxy season.  These include three proposed updates that would apply to U.S. companies. 

The proposed U.S. policy changes are available here and are summarized below.  Comments on the proposals can be submitted by e-mail to policy@issgovernance.com until 5 p.m. ET on October 26, 2020.  ISS will take the comments into account as part of its policy review and expects to release final changes to its voting policies during the first half of November 2020.  It is important to note that ISS's final 2021 proxy voting policies may reflect additional changes, beyond those on which ISS is soliciting comment.  The final voting policies will apply to shareholder meetings held on or after February 1, 2021, except for policies subject to transition periods.

Comments submitted to ISS may be published on its website, unless requested otherwise.

Board Diversity

For companies in the S&P 1500 and Russell 3000 indices, ISS is proposing a change to its director elections policy to address boards “with no apparent racial and/or ethnic diversity."  Under the proposed policy, beginning in 2022, ISS would generally recommend “against" or “withhold" votes for the chair of the nominating/governance committee (or other directors, on a case-by-case basis) where a board “has no apparent racially or ethnically diverse members" and there are no “mitigating factors" disclosed.  Mitigating factors would include the presence of a diverse director on the board at the prior annual meeting and a firm commitment to appoint a least one diverse director. 

In 2021, ISS would highlight boards that lack racial and ethnic diversity (or disclosure on this topic) in its proxy voting analyses to help investors identify companies where it may be appropriate to engage about diversity.  ISS would not issue negative voting recommendations in 2021 based on a lack of diversity.  ISS has specifically requested feedback on whether the one-year transition period for this proposed policy is too short or too long. 

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Regulation S-K Amendments to Items 101, 103, and 105 to go Effective November 9, 2020


The amendments to Items 101, 103, and 105 of Regulation S-K that were adopted by the SEC on August 26, 2020 (discussed in our previous client alert, available here) were published in the Federal Register today, October 8, 2020.  As a result, the amendments will go into effect on Monday November 9, 2020 (the first business day following 30 days after publication in the Federal Register).  November 9 is also the last day for calendar companies that are large accelerated filers or accelerated filers to file the Q3 10-Q. 

Despite some arguments that S-K Item 105 does not apply to Part II, Item 1A of Form 10-Q, pending any interpretive guidance from the SEC staff, registrants filing a Form 10-Q on or after November 9, 2020 that voluntarily repeat all their risk factors in each Form 10-Q should consider complying with Item 105's new requirements for risk factors.  This means that risk factors should be grouped under relevant headings and any risk factor discussion exceeding 15 pages should include a “a series of concise, bulleted or numbered statements that is no more than two pages" summarizing the principal risk factors.  ​


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Current thoughts on development and trends in securities regulation, corporate governance and executive compensation published by Gibson Dunn.

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