|SEC Raises Annual Gross Revenue Amount in the Definition of Emerging Growth Company|
On September 9, 2022, the Securities and Exchange Commission (the “SEC”) amended its rules to
implement inflation-adjusted amendments to Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 12b-2 of the Securities Exchange Act of 1932, as amended (the “Exchange Act”), and raised the annual gross revenue amount in the definition of “emerging growth company” (“EGC”) from $1,070,000,000 to $1,235,000,000. The final rule (available
here) is effective as of September 20, 2022.
Title I of the Jumpstart Our Business Startups (“JOBS”) Act added Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80) to define the term “emerging growth company.” A qualified EGC may take advantage of certain exemptions from various compliance and reporting requirements that apply to other public companies that are not EGCs. Previously, an EGC was defined as an issuer with total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year. Effective as of September 20, 2022, this amount is raised to $1,235,000,000.
Under the JOBS Act, the SEC is required, every five years, to index to inflation the annual gross revenue amount used to determine EGC status to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics (as set forth in more detail in the
final rule). The Commission last adopted inflation adjustments in 2017, previously raising the threshold amount from 1,000,000,000 to $1,070,000,000 (previous changes to the EGC definition were discussed
Additionally, the SEC’s inflation adjustments also affect certain crowdfunding transactions under Section 4(a)(6) and Section 4A of the Securities Act.
We would like to thank Rodrigo Surcan in our New York office and To Nhu Huynh in our Houston office for their work on this post.
|Division of Corporation Finance Issues Interpretive Guidance on the SEC’s Universal Proxy Rules|
On August 31, 2022, the universal proxy rules adopted late last year by the Securities and Exchange Commission (the “SEC") will become effective. As discussed in our previous client alert, the rules require proxy cards distributed by both public companies and nominating shareholders in contested director elections to include both sides' director nominees, such that shareholders casting their vote can “mix-and-match" nominees from each of the company and the dissident's slate of director nominees.
In connection with the upcoming effectiveness of the rules, on August 25, 2022, the staff of the Division of Corporation Finance of the SEC (the “Staff") issued three new Compliance and Disclosure Interpretations (“C&DIs") focused on the mechanics associated with implementing these rules in practice.
The new C&DIs address the following issues related to the universal proxy rules:
1. When a dissident shareholder provides the company with notice of the names of its director nominees (as required by Rule 14a-19(b)), the notice can only include the names of nominees the dissident actually intends to nominate (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.01);
2. In a contested director election where there is more than one dissident slate, the company is obligated to inform each of the dissident shareholders the names of both its own and the other dissident shareholder's director nominees (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.02); and
3. If a company's advance notice bylaw provision imposes an earlier deadline than the 60-day deadline in Rule 14a-19(b)(1) and requires all of the information required under Rule 14a-19, the company's proxy statement only needs to disclose such earlier deadline; however, if Rule 14a-19(b) requires information that is not required by the advance notice bylaw, then the company's proxy statement must clearly inform potential dissidents that they must also comply with the additional requirements of Rule 14a-19(b) (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.03).
1. Dissident can only include Names of Director Nominees for whom it Intends to Solicit Proxies.
Under Question 139.01, the Staff confirms that a dissident shareholder can only include in the Rule 14a...
|Update on Changes in SEC Commissioners|
On July 18, 2022, the Securities and Exchange Commission (“SEC”) announced that Jaime Lizárraga was sworn in as the SEC’s newest Commissioner following the departure of Allison Herren Lee on July 15. The current SEC Commissioners are as follows, in order of reverse seniority:
Commissioner Jaime Lizárraga is returning to the SEC after a lengthy career in public service, serving in roles as Senior Professional Staff Member/Director of Legislative Affairs for the Democratic staff of the House Financial Services Committee, Deputy to the Assistant Secretary of Legislative Affairs at the U.S. Department of the Treasury, and Deputy Director of the SEC’s Office of Legislative and Intergovernmental Affairs. More recently, he served as Senior Advisor to Speaker of the House Nancy Pelosi.
Commissioner Lizárraga’s term expires on June 5, 2027.
Commissioner Mark Uyeda was sworn in as a Commissioner in June 2022 continuing his long career at the SEC. He has served on the staff of the SEC since 2006, including as Senior Advisor to Chairman Jay Clayton, Senior Advisor to Acting Chairman Michael S. Piwowar, Counsel to Commissioner Paul S. Atkins, and various staff positions in the Division of Investment Management. At the time of his appointment, he was serving as securities counsel to the Senate Banking Committee’s minority staff. Prior to joining the SEC, he served as Chief Advisor to the California Corporations Commissioner and was an attorney at K&L Gates and O’Melveny & Myers LLP.
Commissioner Uyeda’s term expires on June 5, 2023.
Chair Gary Gensler was sworn in as Chair of the SEC in April 2021. Before joining the SEC, Chair Gensler was most recently Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management, Co-Director of MIT’s Fintech@CSAIL, and Senior Advisor to the MIT Media Lab Digital Currency Initiative. From 2017-2019, he served as chair of the Maryland Financial Consumer Protection Commission. Chair Gensler also served as chair of the U.S. Commodity Futures Trading Commission, leading the Obama Administration’s reform of the $400 trillion swaps market, Senior Advisor to U.S. Senator Paul Sarbanes in writing the Sarbanes-Oxley Act (2002), and was Under Secretary of the Treasury for Domestic Finance and Assistant Secretary of the Treasury from 1997-2001. Prior to his public service, Gensl...
|Now Available: SEC Desktop Calendar for 2023|
To continue assisting US companies with planning for SEC reporting and capital markets transactions into 2023, we offer our annual SEC Desktop Calendar. This calendar provides both the filing deadlines for key SEC reports and the dates on which financial statements in prospectuses and proxy statements must be updated before use (a/k/a financial staleness deadlines).
Please note the SEC has proposed new rules on share repurchases and beneficial ownership reporting deadlines that have yet to be finalized. The final rules, if adopted, may affect certain future filing deadlines, and we will provide an updated calendar accordingly.
You can download a PDF of Gibson Dunn's SEC Desktop Calendar for 2023 at the link below.
Gibson Dunn has a preeminent capital markets practice. Our capital markets group is consistently ranked among the top firms for complexity and value of the capital markets matters in which we are involved, both domestically and internationally. Through our regular participation in a variety of IPOs and other offerings, Gibson Dunn has access to a wealth of transaction data, market intelligence and practical, actionable experience. We offer clear advice on risks and opportunities. For access to resources, publications and replays of webcasts, please visit Gibson Dunn's Capital Markets Practice Center.
Gibson Dunn is consistently recognized as having one of the leading Securities Regulation and Corporate Governance practices in the United States. We regularly represent public and private companies of all sizes on a variety of disclosure, accounting and securities regulation issues, as well as on shareholder activism. We also advise senior management, boards of directors and their audit, compensation, governance and special committees on a wide range of issues relating to board and committee operation, fiduciary duties, conflicts of interest and relationships with shareholders. This group includes a deep bench of lawyers who are dedicated to specific areas of securities regulation, governance and disclosure practices. Our SRCG-dedicated lawyers work seamlessly with our Capital Markets lawyers to deliver the highest quality service and forward-thinking advice on the latest developments. For more information and resources about current developments in securities regulation, corporate governance and executive compensation, please visit Gibson Dunn's
|Updated Summary of Select Director Education Opportunities Available|
Gibson Dunn's summary of director education opportunities has been updated as of July 2022 and is available at the link below. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.
This update includes a number of additional opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.
Thank you to summer associate Ruoqi Wei for her assistance with this quarter's update.
|SEC Division of Corporation Finance Issues Interpretations Addressed to SPACs’ Business Combinations|
On March 22, 2022, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (the “Commission") issued new Compliance and Disclosure Interpretations (“C&DIs") that primarily focus on filing and disclosure issues that arise in the context of merger transactions by special purpose acquisition companies (“SPACs"). The Staff has previously addressed concerns with respect to SPACs, as discussed in our previous article, including statements addressing certain accounting, financial reporting and governance issues related to SPACs and the post-business combination public company.
The new C&DIs address the following issues related to the business combination process:
- public communication by private target company constitutes a “solicitation" of the acquirer's shareholders subject to the proxy rules
(see C&DI Proxy Rules and Schedules 14A/14C, Question 101.02); and
- public communications by a private target that is not filing a proxy solicitation in connection with a proposed business combination are allowed prior to the proxy solicitation by the acquiror, under certain circumstances
(see C&DI Proxy Rules and Schedules 14A/14C, Question 132.01);
- public communications by an acquirer that is not filing a proxy solicitation in connection with a proposed business combination are allowed prior to the proxy solicitation by the target company, under certain circumstances
(see C&DI Proxy Rules and Schedules 14A/14C, Send comment to Editor
|Long-Awaited SEC Rule Proposal on Climate Change Disclosure|
On March 21, 2022, the Securities and Exchange Commission approved a rule proposal for new climate change disclosure requirements for both U.S. public companies and foreign private issuers. The SEC has posted the 500+ page Proposing Release and issued a Press Release and a Fact Sheet summarizing notable provisions. Not surprisingly, the rule proposal was approved along party lines.
These disclosure requirements, which are largely aligned with the Taskforce on Climate-related Financial Disclosures reporting framework and the Greenhouse Gas Protocol, would phase in over time based on a company's filer status and would apply to annual reports on Forms 10-K and 20-F, with material changes to be reported quarterly on Form 10-Q, and would even apply to IPO and merger registration statements.
A brief summary of the proposal appears below, and we anticipate issuing a more detailed analysis of the rule proposal in the near future.
Reg S-K Amendments
The proposed climate change disclosure requirements would amend Regulation S-K to require a new, separately captioned “Climate-Related Disclosure" section in those SEC filings listed above that would cover a range of climate-related information, including:
· How any climate-related risks have had or are reasonably likely to have material impacts on a company's business or consolidated financial statements;
· How any climate-related risks have affected or are reasonably likely to affect a company's strategy, business model and outlook;
· Processes for identifying, assessing and managing climate-related risks, as well as board governance of climate-related risks and relevant risk management processes;
· Scope 1 and Scope 2 greenhouse gas (GHG) emissions metrics, which, for accelerated and large accelerated filers only, will be subject to assurance by an independent GHG emissions attestation provider;
· Scope 3 GHG emissions, but only if material or if the company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions; and
· Information regarding climate-related targets, goals, and transition plans, if any.
Reg S-X Amendments
In addition, the rule proposal would amend Regulation S-X to require certain climate-related financial statement metrics and related disclosures in a separately identified note to companies' audited financial statements, as well as dis...
|SEC Proposes Rules on Cybersecurity Disclosure|
SEC Proposes Rules on Cybersecurity Disclosure
3/11/2022 | Posted by Lori Zyskowski; Thomas Kim; Julia Lapitskaya
Topic: Corporate Governance ; Disclosure ; Securities Regulation
On March 9, 2022, the Securities and Exchange Commission (“SEC" or “Commission") held a virtual open meeting where it considered a rule proposal for new cybersecurity disclosure requirements for public companies, primarily consisting of: (i) current reporting of material cybersecurity incidents and (ii) periodic reporting of material updates to cybersecurity incidents, the company's cybersecurity risk management, strategy, and governance practices, and the board of directors' cybersecurity expertise, if any.
The proposal passed on party lines and the comment period ends on the later of 30 days after publication in the Federal Register or May 9, 2022 (which is 60 days from the date that the rules were proposed). Below please find a summary description of the rule proposal, as well as certain Commissioner's concerns related to the proposal.
Summary of Proposed Amendments
New Current Reporting Requirements
The proposed amendments would require current reporting of material cybersecurity incidents by adding new Item 1.05 to Form 8-K. As is the case with almost all other Form 8-K items, Item 1.05 would require companies to disclose material cybersecurity incidents within four business days. The trigger date for the disclosure is the date of the materiality determination, rather than the date of discovery of the incident, although companies are required to make a materiality determination ...
|SEC Proposes Rule to Amend Beneficial Ownership Reporting|
On February 10, 2022, the Securities and Exchange Commission (the “Commission") announced a proposed rule to modernize the rules governing beneficial ownership reporting, by:
- accelerating the filing deadlines under Schedules 13D and 13G;
- expanding the application of Regulation 13D-G to certain derivative securities;
- clarifying when two or more persons have formed a “group" subject to beneficial ownership reporting obligations; and
- requiring a structure, machine-readable data language for filing Schedules 13D and 13G.
Please see below for more details on the proposed amendments.
Shorter Filing Deadlines
|Current Deadline||Proposed Deadline|
|Initial filing for acquisitions of more than 5% interest|
(under Rule 13d-1(a))
|10 calendar days after the date of the acquisition of more than 5% of a covered class of equity securities||5 calendar days after the date of the acquisition of more than 5% of a covered class of equity securities|
|Initial filing for those who forfeit eligibility to report on Schedule 13G|
(under Rules 13d-1(e), (f) and (g))
|10 calendar days after the event that causes the ineligibility||5 calendar days after the event that causes the ineligibility|
|Amendments to Schedule 13D|
(under Rule 13d-2(a))
|“Promptly" after the date on which a material change occurs||1 business day after the date on which a material change occurs|
|Qualified Institutional Investors|
(under Rule 13d-1(b))
|45 calendar days after the last day of the calendar year in which beneficial ownership exceeds 5% of a covered class of equity securities, or 10 calendar days after the last day of the month in which beneficial ownership exceeds 10% of a covered class of equity securities||5 business days after the last day of the month in which beneficial ownership first exceeds 5% of a covered class of equity securities|
|Annual Amendments to Schedule 13G (under Rule 13d-2(b))||45 calendar days after the the end of each calendar year in which a reportable change occurs||None|
|Monthly Amendments to Schedule 13G (under Rule 13d-2(b))|
|Updated Summary of Select Director Education Opportunities Available|
Gibson Dunn's summary of director education opportunities has been updated as of February 2022 and is available at the link below. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.
This update includes a number of opportunities from additional organizations as well as updates to the programs offered by organizations that have been included in our prior summaries.
Thank you to associates David Korvin and Meghan Roll for their assistance with this month's update.
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