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| Reminder For Resource Extraction Issuers: Form SD Due September 2024 | | As previously reported on our Securities Regulation and Corporate Governance Monitor on December 16, 2020 (available here), the Securities and Exchange Commission (the “SEC") adopted the final rule (available here) requiring additional disclosures by public companies that engage in the commercial development of oil, natural gas or minerals. Under the final rule, domestic or foreign “resource extraction issuers" are required to annually disclose information about certain payments made to foreign governments or the U.S. federal government on Form SD. The final rule became effective on March 16, 2021 allowing for a two-year transition period after the effective date, with initial Form SD filings due no later than 270 calendar days after the end of an issuer's next completed fiscal year (e.g., September 26, 2024 for issuers with a December 31, 2023 fiscal year end). While the adopting release specifically referred to September 30, 2024 as the due date for a company with a fiscal year end of December 31, 2023 (274 days after year end), we recommend filing the Form SD by September 26, 2024 to ensure timely compliance with the rule's deadline. We note that for 2025, 2026 and 2027, the form will be due by September 27 for companies with a December 31 fiscal year end (270 days after the fiscal year end in non-leap years), unless September 27 is a Saturday, Sunday or holiday, in which case the deadline is the next business day. What kind of information is required to be disclosed? The final rule implements Section 13(q) of the Securities Exchange Act of 1934, as amended, which requires disclosure of company-specific, project-level information on Form SD (available here and on page 212 of the adopting release), including the: - type and total amount of payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas or minerals;
- type and total amount of such payments for all projects made to a government, as well as the country in which each such government is located;
- currency used and the fiscal year in which the payments were made;
- fiscal year in which the payments were made;
- business segment of the issuer that made the payments;
- specific projects to which such payments relate and the resources that are being developed;
- method of extraction used in the project and the major subnational political jurisdiction of each project; and
- payments made...
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| | Updated Summary of Director Education Opportunities Available | | Gibson Dunn's summary of director education opportunities has been updated as of April 2024. A copy is available at this link. Boards of Directors of public and pre-IPO companies find this a useful resource as they look for high quality education opportunities. This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Thank you to associates Ben Blefeld, Caroline Bakewell and Mariana Lozano from our Houston office for their assistance with this quarter's update. | |
| | SEC Stays Climate Disclosure Rule Following Consolidation of Litigation in the Eighth Circuit | | On March 21, 2024, the Judicial Panel on Multidistrict Litigation randomly selected the U.S. Court of Appeals for the Eighth Circuit to hear all cases challenging the Securities and Exchange Commission's final climate disclosure rule. Within the first ten days after the rule's issuance, nine petitions were filed, in six different circuits, challenging the rule. The Second, Fifth, Sixth, Eighth, Eleventh, and D.C. Circuits received at least one petition each. Pursuant to 28 U.S.C. § 2112, the Judicial Panel on Multidistrict Litigation randomly selected the one circuit in which all cases will be consolidated.
On March 22, 2024, the courts of appeals began to transfer the challenges to the Eighth Circuit. In its transfer order, the Fifth Circuit dissolved the administrative stay it had previously issued. All future proceedings, including any litigation regarding a stay, will occur in the Eighth Circuit.
Subsequently, on April 4, 2024, the SEC issued an Order pausing the implementation of its rules available here. The Order notes the stay is limited to the final rules challenged in the litigation consolidated in the Eighth Circuit and does not stay any other Commission rules or guidance. Our March 8 client alert on the new rule is available here.
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| | Recent SEC Enforcement Action Underscores Importance of Timely Filing of 13D/G Beneficial Ownership Reports | | On March 1, 2024, the SEC announced an enforcement action against an investment advisory firm (“Investor"), stemming from its failure to promptly convert from a Schedule 13G to 13D after forming a “control" purpose within the meaning of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.[1] Investor initially reported its holdings on Schedule 13G on February 14, 2022, disclosing beneficial ownership of 5.6% of the outstanding common stock of a logistics company (the “Company"). Between January 1 and April 18, 2022, Investor purchased an additional 2 million shares, increasing its position to 9.9% of the Company's outstanding common stock. Investor also entered into cash-settled swaps with financial counterparties between April 27 and May 12, 2022, providing economic exposure to another 1% of the Company's shares. According to the SEC's Cease-and-Desist Order, between February and April 2022 Investor engaged in discussions with a large private equity firm regarding its investment in the Company centered around obtaining financing for a potential go-private transaction. During this time Investor also shared its proprietary valuation models and analyses with the firm. On April 26, 2022, Investor prepared a draft offer letter specifying $85 per share as a placeholder price and noting that financing would come from a private equity firm. Investor contacted legal counsel the next day to advise on its Schedule 13D filing obligations and was provided a copy of the draft offer letter. On May 12, 2022, Investor first met with Company management to discuss whether the Company might be receptive to an acquisition bid. The next day Investor sent a letter to the Company proposing to acquire all outstanding shares at a price of $86 per share. The SEC notes in its Order that as of April 26, 2022—the date of the draft offer letter—Investor had formed a “control" purpose, and thus could no longer satisfy the “passive investment" certification required by Schedule 13G. As such, Investor was requi... | |
| | Summary of Director Education Opportunities - Updated | | Gibson Dunn's summary of director education opportunities has been updated as of January 2024. A copy is available at this link - https://www.gibsondunn.com/wp-content/uploads/2024/01/Board-Education-Opportunities-January-2024.pdf
Boards of Directors of public and pre-IPO companies find this a useful resource as they look for high quality education opportunities. This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities include unique events for members of private boards. Thank you to associates Ben Blefeld, Caroline Bakewell and Mariana Lozano from our Houston office for their assistance with this quarter's update.
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| | Fifth Circut Strikes Down SEC's New Buyback Disclosure Rule | | On December 19, 2023, the Fifth Circuit vacated the SEC's Share Repurchase Disclosure Modernization rule (the “Repurchase Rule") in its entirety. The Repurchase Rule, discussed further in our Client Alert, would have required companies to disclose objectives or rationales and certain additional information for all share repurchases conducted during the quarter on Form 10-Q and Form 10-K and required quarterly disclosure regarding a company's adoption or termination of any Rule 10b5-1 trading plans. The Repurchase Rule was scheduled to go into effect beginning with the Form 10-K or Form 10-Q filed for the first full fiscal quarter beginning on or after October 1, 2023, meaning that for calendar year-end companies, these disclosure requirements would have applied to the 2023 Form 10-K. In vacating the Repurchase Rule, the court stated “[t]he rule remains no less flawed – and no less unlawful – than it was on October 31, 2023" and that “[t]he SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to petitioners' comments and failed to conduct a proper cost-benefit analysis." As a result, if the SEC determines to pursue rulemaking to require additional disclosures around share repurchases, it will need to begin a new rulemaking process and issue a proposed rule for notice and comment. Now that the Fifth Circuit has vacated the Repurchase Rule, the pre-existing share repurchase disclosure rules (found in Regulation S-K Item 703, available at https://www.ecfr.gov/on/2023-06-01/title-17/chapter-II/part-229#229.703), which require information on share repurchase programs and quarterly repurchase disclosures presented on an aggregate, monthly basis, will remain in effect. Companies will not be required to provide quarterly disclosure regarding the adoption or termination of any Rule 10b5-1 trading plans by the companies themselves, but must continue to provide disclosure of any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements (as defined in Regulation S-K Item 408(c)) for Section 16 officers and directors. The Fifth Circuit's decision to vacate the Repurchase Rule marks the culmination of the lawsuit brought by the U.S. Chamber of Commerce and several other business groups (“Petitioners") challenging the Repurchase Rule. The lawsuit, filed in May 2023, alleged that: - the requirement for companies to disclose the rationale behind their repurchases violates the First Amendment by impermissibly compelling companies' speech;
- the SEC acted arbitrarily and capriciously in adopting the Repurchase Rule by not considering the P...
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| | SEC Stays Effectiveness of New Buyback Disclosure Rule; Fifth Circuit Denies SEC's Request for Additional Time to Correct Rules | | On November 22, 2023, the SEC announced that it had issued an order indefinitely postponing the effectiveness of the Share Repurchase Disclosure Modernization rule (the “Repurchase Rule"), pending further SEC action. At the same time, the SEC asked the Fifth Circuit for additional time to respond to the court's order that the SEC correct deficiencies in the Repurchase Rule by November 30. The court denied that motion on November 26. As a result, the SEC has until November 30 to correct the deficiencies the court had found with the SEC's rulemaking, after which we expect the court will consider a renewed motion from the petitioners to vacate the Repurchase Rule.
The Repurchase Rule, discussed in our Client Alert, requires companies to: (i) disclose daily company share repurchase data in a new table filed as an exhibit to reports on Form 10-Q and Form 10-K, (ii) provide narrative disclosure in those filings about the company's share repurchase program, including its objectives and rationale, and referencing the particular repurchases that correspond to that narrative, (iii) indicate by a check box whether any executives or directors traded in the company's equity securities within four business days before or after the public announcement of the repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program, and (iv) provide quarterly disclosure regarding the company's adoption or termination of any Rule 10b5-1 trading arrangements. The Repurchase Rule was scheduled to go into effect beginning with the Form 10-K or Form 10-Q filed for the first full fiscal quarter beginning on or after October 1, 2023, meaning that for calendar year-end companies, these disclosure requirements would have applied to the 2023 Form 10-K. While the Repurchase Rule is stayed, the pre-existing share repurchase disclosure rules, requiring information on share repurchase programs and quarterly repurchase disclosures presented on an aggregated, monthly basis, remain in effect. As noted above, the SEC's action staying effectiveness of the Repurchase Rule occurred in connection with a motion filed by the SEC in the lawsuit brought by the U.S. Chamber of Commerce and several other business groups in the Fifth Circuit challenging the Re... | |
| | Division of Corporation Finance Offers New Guidance on Application of the SEC’s Universal Proxy Rules Ahead of the 2024 Proxy Season | | As discussed in our previous client alert, the universal proxy rules that went effective on August 31, 2022 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's and the dissident's slate of director nominees. On August 25, 2022, the staff (the “Staff") of the Division of Corporation Finance of the Securities and Exchange Commission issued three Compliance and Disclosure Interpretations (“C&DIs") focused on the mechanics associated with practical implementation of these new rules. More details on those three C&DIs can be found in our previous blog post. On November 17, 2023, the Staff provided new guidance on the treatment of over-voted, under-voted and unmarked universal proxy cards in director election contests (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.07, Question 139.08 and Question 139.10). Specifically, these new C&DIs address the following issues: 1. Votes on an over-voted proxy card will not count for any seats in an election contest. Rule 14a-19(e) requires that each soliciting party in a non-exempt director election contest include all director nominees of all soliciting parties on each universal proxy card. As a result, in a contested election, each soliciting party's universal proxy card will include more nominees than director seats up for election. An “over-voted proxy card" occurs when a shareholder returns a proxy card in a director election contest but exercises a vote “for" the election of more nominees than the number of director seats up for election. For example, voting for 10 nominees when there are only 9 seats up for election is an “over-vote." Under Question 139.07, the Staff clarifies that (i) any votes on an over-voted proxy card will not count for any seats in a director election and (ii) a soliciting party cannot rely on discretionary authority pursuant to Rule 14a-4(b)(1) to v... | |
| | SEC Launches New Online Portal For Shareholder Proposal No-Action Requests | | On November 6, 2023, the Securities and Exchange Commission's Division of Corporation Finance launched a new online portal through which companies must submit all future Rule 14a-8 shareholder proposal no-action requests (“NARs"). The portal must also be used by shareholder proponents or their representatives and by companies to submit any responsive or supplemental correspondence relating to a Rule 14a-8 NAR. The new portal replaces the prior process, which the Division initiated in 2008, of submitting NARs and supplemental correspondence by email to [email protected]. We understand that the email address will continue to be monitored, but should not be used for any correspondence that is intended to be considered in connection with a Rule 14a-8 NAR. The portal is accessible at https://www.sec.gov/forms/shareholder-proposal. The portal includes a web form that requires a submitting party to provide the following information: (i) whether the request is an initial request or supplemental correspondence; (ii) the identity of the submitting party (i.e. “company" or “proponent"); (iii) the submitting party's contact information, and if submitted by a company, the option to provide the proponent's contact information; (iv) the company's anticipated proxy print date; (v) the text of the proposal's “resolved clause"; and (vi) the Rule 14a‑8 bases for exclusion asserted, using a checkbox interface. The portal then allows a submitting party to upload relevant documents, such as a traditional NAR letter, in PDF, DOC, or DOCX format. The portal calls for different information when supplemental information is being submitted.
Importantly, the portal does not transmit the submitted documents to any counterparty. Instead, the submitting party must check a box to attest that it has sent the correspondence to any relevant counterparties by email and/or mail. Going forward, any company wishing to submit either an NAR or provide supplemental correspondence should ensure that the submission is made via the online portal in order to be considered properly submitted. __________________________________________________________________________________ Thank you to Spencer Bankhead (bar admission pending) in our Orange County office for his help on this update.
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| | SEC Exempts Rule 144A Debt Issuances From Rule 15c2-11 Information Requirements | |
On October 30, 2023, the Securities and Exchange Commission (the “Commission") issued an Order exempting brokers and dealers from the requirements of Rule 15c2-11(g) (the “Rule") under the Securities Exchange Act of 1934, as amended, with respect to fixed-income securities that are sold in compliance with the safe harbor in Rule 144A (the “Rule 144A") under the Securities Act of 1933, as amended, for resales to Qualified Institutional Buyers (“QIBs"). As a result, issuers of Rule 144A fixed-income securities will not have to publish public information in order for brokers to quote their securities and facilitate trading. Background As discussed in more detail in our prior Client Alert from November 21, 2022, the Rule, first adopted in 1971, while not directly applicable to issuers, requires US broker-dealers to collect and review certain issuer information before publishing quotes on the issuer's securities in the Over the Counter market. The Rule was never applied to fixed-income securities, and industry practice was to comply with the Rule only with respect to equity securities. In September 2020, the Commission announced the adoption of amendments to the Rule, requiring that specified issuer information be current and publicly available in order for US broker-dealers to publish quotes on that issuer's securities. In September 2021, the Division of Trading and Markets surprised all Rule 144A market participants when it issued a no-action letter stating that the amended Rule applies to all securities, including fixed income securities, but providing additional time to comply to allow for an orderly and good faith transition. The Division subsequently issued two additional no-action letters to ultimately delay the effect of the amended Rule until January 4, 2025, as discussed in further detail in our prior Client Alert from December 1, 2022. Under the interpretation underlying those no-action letters, issuers of fixed-income securities would be required to publicly disclose specified current financial and other information in order to allow U.S. broker-dealers to publish quotations on... | |
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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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