On May 11, the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) released new Compliance and Disclosure Interpretations (“C&DIs”) regarding the proxy rules and Schedules 14A and 14C. These C&DIs replace the Staff’s previous interpretations published in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations (collectively, the “Telephone Interpretations”).
Securities Regulation
Strengthening U.S. Public Capital Markets – Recommendations from SIFMA Report
On April 27, 2018, the Securities Industry and Financial Markets Association (“SIFMA”), the leading industry group representing broker-dealers, banks and asset managers, along with other securities industry related groups, released a report called “Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public” (the “Report”). In response to the decline in the number of IPOs and the number of public companies generally in the United States over the last twenty years, the Report provides recommendations aimed at reducing perceived impediments to becoming and remaining a public company. As the Report notes, the United States is now home to only about half the number of public companies that existed 20 years ago. This decline is believed to have had adverse repercussions for the American economy generally, and the jobs market specifically. In addition, the growth of private capital markets at the expense of public capital markets has raised concerns that individual investors are being marginalized. More specifically, as many of the most innovative companies in the U.S. stay private longer and raise significant amounts of capital privately, the returns generated by such companies appear to accrue disproportionally to institutional, high net worth and other similar investors.
SEC Expands Prior Guidance on Non-GAAP Financial Forecasts in the M&A Context
As discussed in our October 17, 2017 post, the SEC’s Division of Corporation Finance (the “Staff”) addressed an open question as to whether the disclosure of forecasted financial measures used in connection with a business combination transaction is subject to Item 10(e) of Regulation S-K and Regulation G.
S&P 500 Pay Ratio Disclosures: Emerging Trends
As the 2018 proxy season is now gaining full speed, the first group of the required CEO-to-median employee pay ratio disclosures have made their eagerly-awaited debut. Gibson Dunn has been tracking all required pay ratio disclosures by S&P 500 and Fortune 100 companies and, while still early, there are a number of key observations and emerging trends from the filings to date.
Going Public Without an IPO: New NYSE Rules that Expand Options for Direct Listings Create Opportunity and Raise Questions
On February 2, 2018, the Securities and Exchange Commission approved a change to the New York Stock Exchange’s (Exchange) listing rules that permit companies to use “direct listings” to list their shares on the Exchange based on having a minimum independent valuation of $250 million and without having completed an underwritten initial public offering (IPO) or having their shares first traded on a private market. Direct listing will continue to be at the NYSE’s discretion and require that the company have an effective resale registration statement on file with the SEC for at least some amount of its outstanding shares. Direct listings provide an option by which private companies can accomplish three goals without requiring an IPO: (a) make their shares a more attractive currency for merger and acquisition activity, (b) provide greater liquidity for existing shareholders, and (c) increase the value of their shares and employee stock options. The SEC approval comes in the wake of recent commentary by SEC Chairman Jay Clayton that he believes more IPOs are needed, noting they are generally beneficial to the retail investor community to the extent they provide investors with more investment alternatives, more opportunities to invest, and greater liquidity.
Federal Court Rejects Section 16(b) “Short-Swing Profits” Claim Challenging Share Withholding To Satisfy Taxes
A federal court in Oklahoma today issued a precedent-setting decision in favor of Gibson Dunn client WPX Energy, Inc., in Olagues v. Muncrief, No. 17-cv-153 (N.D. Okla. Jan. 26, 2018), ECF No. 42. In the decision, the court held that pre-approved tax withholding dispositions made in connection with the vesting of equity grants are exempt from Section 16(b)’s prohibition on short-swing profits under Exchange Act Rule 16b-3(e)—even when an employee otherwise subject to the short-swing trading restrictions purchased the company’s shares during the six-month period preceding or following the tax withholding disposition. This is the first time that a federal court has substantively addressed these types of short-swing trading claims, which have been serially raised by a small group of investors—first in the form of litigation demands and then, absent a payout to the investors, in litigation—during the last sixteen months. A number of companies have refused the investors’ settlement demands, which has resulted in Section 16(b) cases against the companies’ executives in federal courts in California, Colorado, Delaware, Florida, Massachusetts, North Carolina, Ohio, Oklahoma, Tennessee, Texas, and Washington state.
Technical Points To Remember When Preparing Your Form 10-K
With all of the substantive issues impacting disclosures in companies’ upcoming annual reports, there are a few technical points reporting companies should bear in mind when preparing their annual report. Note that some of these issues are easy to miss given that they are not yet reflected in the official PDF of Form 10-K.
SEC Staff Provides Important Guidance for Disclosure and Accounting Implications of the Tax Cuts and Jobs Act- Practical Considerations for Reporting Companies
On December 22, 2017, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance (“Staff”) issued important guidance that provides significant relief and helpful answers on some of the accounting and disclosure issues raised by the comprehensive tax act, commonly called the Tax Cut and Jobs Act,[1] that was signed into law on that same date (the “Tax Act”). The Staff’s guidance is contained in two pronouncements: (1) Staff Accounting Bulletin No. 118 (“SAB 118”), which essentially allows companies to take a reasonable period of time to assess, measure and record the effects of the Tax Act, and (2) Compliance and Disclosure Interpretation 110.02 (“CDI 110.02”) under Exchange Act Form 8-K, which confirms that the accounting implications of the Tax Act will generally not trigger impairment reporting under Form 8-K.
Securities and Exchange Commission Releases Public Statement on Cybersecurity
On Wednesday, September 20, 2017, Chairman Jay Clayton of the U.S. Securities and Exchange Commission (the “Commission”) released a public statement addressing cybersecurity risks.
NYSE Delays Implementation of Rule Change on Dividend-Related Announcements
As a follow-up to our prior blog, the New York Stock Exchange (“NYSE”) is delaying implementation of its rule change on notifications to the NYSE about announcements outside of market hours related to dividends or stock distributions. Companies should continue to comply with the current rule (summarized here) and follow their existing practices until the implementation date for the new rule, which will likely be in February 2018. The NYSE plans to provide companies with updated information prior to the date when they will be required to begin complying. As a result of the rule change, companies will have to notify the NYSE at least ten minutes in advance of an announcement related to a dividend or stock distribution made at any time, including outside market hours. Although the rule change was approved by the Securities and Exchange Commission (“SEC”) on Monday, August 14 and took effect immediately, the NYSE staff has advised orally that it is delaying implementation of the rule change. The NYSE filed a proposal (available here) seeking SEC approval of the delay on August 22nd. According to the proposal, the NYSE plans to implement the rule change no later than February 1, 2018. The purpose of the delay is to allow listed companies time to change their internal procedures and to give the NYSE more time to put in place technology and processes to facilitate staff review of dividend notifications.