Year in Review: 2019 Developments with the SEC’s Division of Corporation Finance

During 2019, the Division of Corporation Finance (the “Division” or the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) addressed a number of regulatory issues affecting public companies and participants in the capital markets. Below is a summary of the most significant SEC actions and Division guidance that are of interest to public companies and participants in the capital markets.

SEC Rulemaking – Adopted Rules

Test-the-Waters Communications

On September 25, 2019, the SEC adopted Rule 163B under the Securities Act of 1933 (the “Securities Act”) that permits issuers to engage in oral or written communications with certain potential investors, either prior to or following the filing of a registration statement, to determine whether such investors have an interest in a contemplated securities offering registered under the Securities Act.[1] New Rule 163B became effective on December 3, 2019.

Rule 163B creates a conditional exemption from the communication restrictions in Sections 5(c) and 5(b)(1) of the Securities Act.  Rule 163B allows any prospective issuer—and persons authorized to act on behalf of the issuer, including underwriters—to engage in test‑the‑waters communications prior to, or following, the filing of a registration statement. The communications must be limited to potential investors who are, or that the issuer or person authorized to act on its behalf reasonably believes are, “qualified institutional buyers” (as defined in Rule 144A under the Securities Act) or institutional “accredited investors” (as defined in Rule 501 under the Securities Act). The SEC declined to mandate any particular process to determine investor status.  Communications that comply with Rule 163B are not required to be filed with the SEC or include any specific legends.

The SEC also revised Rule 405 under the Securities Act to clarify that, consistent with existing practice with respect to emerging growth companies under Section 5(d) of the Securities Act, communications made pursuant to Rule 163B do not constitute “free writing prospectuses.” Test-the-waters communications will, however, be deemed “offers” subject to liability under Section 12 of the Securities Act, as well as the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Additionally, whether a test-the-waters communication constitutes a general solicitation that would disqualify the issuer from immediately completing a subsequent private offering will depend on the facts and circumstances of the communication.

FAST Act Modernization and Simplification of Regulation S-K

On March 20, 2019, the SEC adopted rule amendments to modernize and simplify certain disclosure requirements in Regulation S-K and related rules and forms.[2] The amendments were effective on May 2, 2019, with the following exceptions:

• the new rules providing for the filing of redacted material contracts without submitting a request for confidential treatment became effective on April 2, 2019; and
• the Inline XBRL requirements for cover pages will have a three-year phase-in period.

Under the three-year phase-in period, the Inline XBRL requirements are effective:

• for reports for fiscal periods ending on or after June 15, 2019, for large accelerated filers that report in U.S. GAAP;
• for reports for fiscal periods ending on or after June 15, 2020, for accelerated filers that report in U.S. GAAP; and
• for reports for fiscal periods ending on or after June 15, 2021, for all other filers.

The principal rule changes affect disclosures required in registration statements, prospectuses, and periodic and current reports.

Regulation S-K Item 102 – “Description of Property”

The SEC amended Item 102 of Regulation S-K, “Description of Property,” to clarify that disclosure is required only to the extent that physical properties are material to the issuer, and that the issuer’s property information may be disclosed on a collective basis. The disclosure requirement retains the specific instructions for property disclosures of issuers in the mining, real estate, and oil and gas industries.

Regulation S-K Item 303 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

The SEC revised Instruction 1 to Item 303(a) of Regulation S-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” to allow issuers to omit the discussion of the earliest of the three years in the MD&A, if such discussion was already included in any of the issuer’s prior filings on EDGAR that required Item 303 disclosure. When opting to exclude the third year, issuers must identify the location in such prior filing where the omitted discussion may be found. The amendments:

• do not affect smaller reporting companies or emerging growth companies, both of which already provide a discussion covering only two fiscal years, based on the financial statements that they are required to provide;
• revise Instruction 1 of Item 303 of Regulation S-K to eliminate the reference to presenting year-to-year comparisons to explain the financial information presented in the MD&A – issuers may use any presentation that, in the issuer’s judgment, enhances a reader’s understanding of the issuer’s financial condition, changes in financial condition, and results of operations; and
• delete the reference to five-year selected financial data in Instruction 1 to Item 303(a) of Regulation S-K.

The adopting release indicates that, because Item 303(a)(3)(ii) of Regulation S-K already requires disclosure of known trends and uncertainties, the SEC does not anticipate that the removal of this wording will impact the level of disclosure concerning trends, or otherwise reduce disclosure of material information. The SEC also adopted similar revisions to Item 5 of Form 20-F for foreign private issuers.

Form 10-K – Part III Information

Form 10-K permits issuers to incorporate the information required by Part III of Form 10‑K, including the disclosure regarding the identity and background information of an issuer’s directors, executive officers, and significant employees, by reference to their definitive proxy or information statement. Alternatively, Instruction 3 to Item 401(b) of Regulation S-K, “Directors, Executive Officers, Promoters and Control Persons,” permits issuers to disclose this information in Part I of Form 10-K. The amendments:

• revise Item 401 of Regulation S-K to confirm that any disclosure required by Item 401 of Regulation S-K does not need to be repeated in an issuer’s proxy statement if it is already included in the Form 10-K; and
• revise the required caption for the Item 401 disclosure if it is included in Part I of Form 10-K to read “Information about our Executive Officers.”

Disclosure Regarding Section 16 Reporting

Section 16(a) of the Securities Exchange Act of 1934 requires officers, directors, and specified types of security holders to report their beneficial ownership of an issuer’s equity securities by filing forms prescribed by the SEC. Pursuant to the SEC’s amendments:

• the requirement in Rule 16a-3(e) that such reporting persons provide Section 16 reports to the issuer was eliminated; rather, issuers may rely on EDGAR filings in determining whether the issuer’s reporting persons have been delinquent in filing reports required under Section 16(a), but issuers are not required to limit their inquiry to those filings;  

• Item 405 of Regulation S-K, “Compliance with Section 16(a) of the Exchange Act,” was also amended to change the disclosure heading required by Item 405(a)(1), from “Section 16(a) Beneficial Ownership Reporting Compliance” to the more specific “Delinquent Section 16(a) Reports,” and encourage issuers to exclude this heading from their disclosures when they have no Section 16(a) delinquencies to report; and

• the checkbox on the cover page of Form 10-K indicating that there is no disclosure of delinquent filers in Form 10-K and, to the best of the issuer’s knowledge, will not be included in a definitive proxy statement or information statement incorporated by reference was eliminated.

Regulation S-K Item 407 – “Corporate Governance”

The SEC amended Item 407(e)(5) of Regulation S-K, “Corporate Governance,” to explicitly exclude emerging growth companies from the requirement to provide a Compensation Committee Report, because EGCs are not required to provide a Compensation Discussion and Analysis in their disclosures. The SEC also amended Item 407(b)(3)(i)(B) of Regulation S-K, which requires an issuer’s audit committee to state in the proxy statement whether it has discussed with the independent auditor the matters required under applicable auditing standards, to now include a general reference to “the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the Commission,” rather than reference an outdated auditing standard.

Regulation S-K Item 501 – “Forepart of the Registration Statement and Outside Cover Page of the Prospectus”

The SEC amended the instruction to Item 501(b)(1) of Regulation S-K, “Forepart of the Registration Statement and Outside Cover Page of the Prospectus,” which requires disclosure of an issuer’s name on the cover page of the prospectus. The Instruction to that Item had specified that, if an issuer’s name is the same as that of a well-known issuer, or if the issuer’s name leads to a misleading inference about the issuer’s line of business, then the issuer must include information to eliminate any potential confusion or misleading inference and, in some circumstances, disclosure may not be sufficient, and the issuer may be required to change its name. The SEC deleted the portion of the Instruction to Item 501(b)(1) of Regulation S-K which indicated that disclosure may not be sufficient in certain circumstances and the issuer would need to change its name, recognizing that clarifying disclosure can typically address the potential confusion or misleading inference associated with an issuer’s name. 

Item 501(b)(3) of Regulation S-K requires that the front cover page of the prospectus include the price of the securities being offered, the underwriter’s discounts and commissions, and the net proceeds that the issuer and any selling security holders will receive, and dictates that the information be provided on an aggregate and per share basis. When it is not practicable to provide a price for the securities, Instruction 2 to Item 501(b)(3) has permitted issuers to explain on the cover page the method by which the price is to be determined. The SEC amended Instruction 2 to Item 501(b) of Regulation S-K to permit issuers to include a clear statement on the cover page that the offering price will be determined by a particular method or formula that is more fully explained elsewhere in the prospectus, along with a cross-reference (including the page number) to that more detailed explanation. 

Item 501(b)(4) of Regulation S-K requires an issuer to name any “national securities exchange” that lists the securities being offered, and to disclose the trading symbol for the securities. As amended, Item 501(b)(4) of Regulation S-K will require disclosure on the prospectus cover page of the principal United States market or markets for the securities being offered, in addition to the issuer’s symbols for the securities. In adopting this change, the SEC made clear that this disclosure was intended to include all markets, not only “national securities exchanges.” 

Item 501(b)(10) of Regulation S-K requires that an issuer using a preliminary prospectus before the effectiveness of a registration statement must include a “Subject to Completion” legend, which advises readers that the information will be amended or completed. The SEC amended Item 501(b)(10) of Regulation S-K so that issuers may exclude the portion of the legend which states that the prospectus is not an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted, when the legend is included in a preliminary prospectus for an offering that is not prohibited by state blue sky laws. The SEC also combined paragraphs (b)(10) and (b)(11) of Item 501 of Regulation S-K without substantive change to the requirement that the “Subject to Completion” legend also be included if an issuer relies on Rule 430A to omit pricing information and the prospectus is used after the effectiveness of the registration statement but before the public offering price is determined.

Regulation S-K Item 105 – “Prospectus Summary and Risk Factors”

The SEC relocated Item 503(c) of Regulation S-K, “Prospectus Summary and Risk Factors,” which requires disclosure of the most significant factors that make an offering speculative or risky, to new Item 105 of Regulation S-K. The SEC noted that this change was warranted because the risk factor disclosure covers a broad category of business information, and is not limited to offering-related disclosure. The SEC also eliminated the specific risk factor examples enumerated in the Item 503 of Regulation S-K, consistent with the SEC’s policy to discourage “boiler plate” risk factors and to better align with the principles-based objectives of the disclosure requirement.

Regulation S-K Item 508 – “Plan of Distribution”

Item 508 of Regulation S-K, “Plan of Distribution,” requires disclosure in the prospectus about the plan of distribution for the securities being offered and sold, including specific information about dealers who are participating in the offering as “sub-underwriters,” a term which is not defined in the Item. The SEC amended Securities Act Rule 405 (which defines “principal underwriter”) to also define a “sub-underwriter” as a dealer that is participating as an underwriter in an offering by committing to purchase securities from a principal underwriter for the securities but is not itself in privity of contract with the issuer of the securities.

Regulation S-K Item 512 – “Undertakings”

The SEC amended Item 512 of Regulation S-K, “Undertakings,” to eliminate undertakings that, in the SEC’s view, are duplicative of other rules or have become unnecessary due to developments since their adoption. The following undertakings were eliminated because they were no longer necessary:

• Item 512(c) – certain offerings of warrants and rights;
• Item 512(d) – offerings involving competitive bidding;
• Item 512(e) – when incorporating an annual report into a prospectus; and
• Item 512(f) – equity offerings by issuers not subject to the Exchange Act reporting requirements.

Regulation S-K Item 601 – “Exhibits”

The SEC adopted amendments that permit issuers to file redacted material contracts under Item 601(b)(10) of Regulation S-K, “Exhibits,” without applying to the SEC for confidential treatment of the redacted information, provided that the redacted information: (i) is not material; and (ii) would be competitively harmful if publicly disclosed. Issuers are required to identify where information has been omitted from a filed exhibit by:

• marking the exhibit index to indicate that portions of the exhibit or exhibits have been omitted;
• including a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both not material and would be competitively harmful if publicly disclosed; and
• indicating with brackets where the information has been omitted from the filed version of the exhibit.

The SEC also codified the Division’s practice of permitting the omission of personally identifiable information, such as social security numbers, bank account numbers, home addresses or telephone numbers; new paragraph (a)(6) of Item 601 of Regulation S-K permits the omission of such information without the submission of a confidential treatment request.

The SEC amended Item 601(b)(10) of Regulation S-K to require only “newly-reporting companies” to file material contracts that were entered into within two years of the registration statement or report.  This new limitation on the two-year look back test includes a definition of which issuers will be considered “newly-reporting registrants.”

The SEC added new paragraph (a)(5) to Item 601 of Regulation S-K, which provides that issuers will no longer be required to file attachments to material agreements, as long as the attachments do not contain material information and are not otherwise disclosed in the exhibit or disclosure. The issuer must provide with each exhibit a list briefly identifying the contents of any omitted schedules and attachments, unless that information is already included within the exhibit in a manner that conveys the subject matter of the omitted schedules and attachments. Issuers are also required to provide, on a supplemental basis, a copy of any omitted schedule or attachment to the Division upon request.

Item 202 of Regulation S-K, “Description of Registrant’s Securities,” requires an issuer to provide a brief description of its registered capital stock, debt securities, warrants, rights, American Depositary Receipts in the prospectus offering such securities, and other securities. Under amendments to Item 601 of Regulation S-K, issuers will now be required to provide the information required by Item 202(a)-(d) and (f) as an exhibit to their Form 10-K.  

The SEC adopted comparable amendments to Form 20-F.

Incorporation by Reference

The SEC consolidated the procedural requirements governing the incorporation of information by reference into Securities Act Regulation C and Exchange Act Regulation 12B. The SEC eliminated the Item 10(d) of Regulation S-K prohibition on incorporating documents by reference if such documents had been on file with the SEC for more than five years, subject to certain exceptions. An issuer will no longer be required to file as an exhibit any document or part thereof that is incorporated by reference in a filing, and instead the issuer will provide a hyperlink to the document that is incorporated by reference.  The SEC eliminated a requirement in Item 601(b)(13) that issuers file a Form 10-Q as an exhibit when it is specifically incorporated by reference into a prospectus.  

The amendments prohibit incorporating by reference, or cross-referencing to, information outside of the financial statements into the issuer’s financial statements, unless otherwise specifically permitted or required by the SEC’s rules or by U.S. GAAP or International Financial Reporting Standards as issued by the International Accounting Standards Board.

Exchange Act Report Cover Pages – Inline XBRL

The amendments include changes impacting the cover page disclosure of Forms 8-K, 10‑Q, 10-K, 20-F and 40-F.  Issuers will be required to tag specific cover page data using Inline XBRL, such as the form type, the issuer’s name, the type of filer and the issuer’s public float. The requirement to tag information on the cover page of Form 20-F or 40-F applies only when the form is being used as an annual report (rather than as a registration statement). Issuers will be required to file with each of the specified forms a “Cover Page Interactive Data File.” These requirements are subject to the 3-year phase-in schedule described above. Under the amendments, the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F and Form 40-F will require disclosure of the trading symbol for each class of registered securities. Further, the cover pages of Form 10-Q and Form 8-K will require disclosure of the title of each class of securities registered under the Exchange Act and each exchange on which the securities are listed. 

SEC Rulemaking – Proposed Rules

Definition of “Accredited Investor”

On December 18, 2019, the SEC proposed amendments to expand the definition of “accredited investor” in Rule 501(a) of Regulation D.[3] The proposed amendments would: (i) add new categories of individuals who may qualify as accredited investors based on their professional knowledge, experience or certifications; and (ii) expand the list of entities that may qualify as accredited investors by, among other things, allowing any entity that meets an investment test, rather than an asset test, to qualify. The SEC also proposed amendments to expand the definition of “qualified institutional buyer” in Securities Act Rule 144A.  The comment period for these proposals will end 60 days after the proposals are published in the Federal Register.

The proposed amendments to the accredited investor definition would:

• add a new category for individuals to qualify as accredited investors based on possession of certain professional certifications and designations or other credentials that demonstrate a background and understanding in the areas of securities and investing; these qualifications would be recognized by SEC order;
• add a new category for individuals that are “knowledgeable employees” of a private fund (a “knowledgeable employee” for this purpose would have the same definition as in Rule 3c-5(a)(4) of the Investment Company Act); this new category would qualify as accredited investors for investments in the fund;
• include the following entities as accredited investors:

-        investment advisers registered under Section 203 of the Investment Advisers Act and investment advisers registered under the state law;

- limited liability companies that satisfy the other requirements of the accredited investor definition; and

- rural business investment companies;

• include any entity, including Native American tribes, that was not formed for the specific purpose of acquiring the securities being offered but that owns “investments” in excess of $5 million;
• add a new category to the accredited investor definition for certain “family offices” with at least $5 million in assets under management and for its “family clients,” each as defined in the “family office rule” under the Investment Advisers Act;
• add the term “spousal equivalent” to the accredited investor definition for purposes of calculating net worth under Rule 501(a)(5) and joint income under Rule 501(a)(6); and
• provide further specificity with regard to evaluating equity ownership of entities.

To provide consistency between the “accredited investor” proposals and the definition of qualified institutional buyer under Rule 144A, the SEC proposed conforming changes to the QIB definition in Rule 144A. The SEC also proposed new paragraph (J) to Rule 144A(a)(1)(i) to permit certain institutional accredited investors to qualify as QIBs when they satisfy the Rule 144A(a)(1)(i) threshold of $100 million in owned and invested securities.

Re-Proposal of Resource Extraction Issuer Disclosure Rules

On December 18, 2019, the SEC proposed rules in its third attempt to implement the resource extraction issuer disclosure provisions in Section 1504 of the Dodd-Frank Act, which added Section 13(q) to the Exchange Act.[4] The proposed rules would require resource extraction issuers to disclose (in an annual report on Form SD) certain payments made to foreign governments or to the U.S. government for the commercial development of oil, natural gas, or minerals. The comment period for these proposals will end 60 days after the proposals are published in the Federal Register.

As proposed, issuers would be required to disclose payments relating to the commercial development of oil, natural gas, or minerals that are made to a foreign government or to the U.S. government, including those made by subsidiaries and other entities that the issuer controls. The proposed rules would apply to domestic and foreign private issuers that (i) engage in the commercial development of oil, natural gas, or minerals and (ii) are required to file annual reports on Forms 10-K, 20-F, or 40-F with the SEC. The following companies would be exempt from the disclosure requirements: (i) newly public companies until the fiscal year immediately following the year their registration statement became effective; (ii) emerging growth companies; and (iii) smaller reporting companies. The proposal provides transitional relief for newly acquired companies.

The proposed rules provide conditional exemptions from the disclosure requirements for situations in which a foreign law or a pre-existing contract prohibits disclosing the payment information if certain requirements are met.  Reliance on these exemptions would not require preapproval from the SEC.

The proposed rules define the “not de minimis” language in Exchange Act Section 13(q). As defined, disclosure would be required only if payments made to each foreign government in a host country or to the U.S. government equal or exceed $150,000, subject to a condition that payment disclosure for a project is required only if the total project payments equal or exceed $750,000. Qualifying “projects” would be determined based on three factors: (i) the type of resource being commercially developed; (ii) the method of extraction; and (iii) the jurisdiction where the development is taking place.  Resource extraction issuers would be permitted to aggregate by payment type any payments that are made at a level below the major subnational government level (e.g., a county, district, or municipality), and to disclose an aggregate amount without identifying the particular subnational government payee.

The proposed rules provide a framework for companies to apply for recognition by the SEC of an alternative reporting regime (such as the European Union or Canada) that satisfies the transparency objectives of the resource extraction disclosure requirement.  Subject to certain conditions, this framework would permit an issuer to submit an alternative report that was required by an approved foreign jurisdiction in lieu of a separate report that complies with the SEC’s disclosure requirements.

The resource extraction disclosures would be required to be filed on a Form SD and tagged using XBRL. The Form SD would be due by March 3, and would be deemed “furnished” rather than “filed” with the SEC for securities law liability purposes.

Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice and to Exchange Act Rule 14a-8

On November 5, 2019, the SEC proposed two sets of rule amendments relating to (i) the application of Exchange Act proxy solicitation rules apply to proxy advisory firms, and (ii) the eligibility and resubmission thresholds for shareholder proposals under Exchange Act Rule 14a‑8. The comment period for these proposals will end on February 3, 2020.

Proposed Rule Amendments Regarding Proxy Voting Advice

The SEC proposed amendments to Exchange Act Rules 14a-1(l), 14a-2(b), and 14a-9, which relate to proxy solicitations.[5]  The proposed rule amendments would address how these rules may apply with respect to the provision of proxy voting advice to shareholders by proxy advisory firms, such as Institutional Shareholder Services, Inc. and Glass Lewis.

In August 2019, the SEC published an interpretative release addressing proxy advisory firms.  In the interpretive release, the SEC stated that, under Exchange Act Rule 14a-1(l), proxy voting advice provided by proxy advisory firms generally constitutes a solicitation subject to the federal proxy rules. While such solicitations are exempt from filing requirements, they remain subject to Rule 14a-9, which prohibits any solicitation from containing any false or misleading statement. The SEC’s interpretive guidance described what a person or entity providing proxy voting advice should consider when determining the appropriate disclosure in compliance with Rule 14a-9.

The proposals would amend Exchange Act Rule 14a-1(l), which defines the terms “solicit” and “solicitation,” to specify the circumstances when a person or entity that furnishes proxy voting advice (which the SEC refers to as a “proxy voting advice business”) will be deemed to be engaged in a solicitation subject to the proxy rules. A proposed amendment to Rule 14a-1(2) would codify the SEC’s interpretive guidance that voting advice provided by a person, such as a broker-dealer or an investment adviser, in response to an unprompted request for such advice, would not constitute a “solicitation.”

Any person engaging in a proxy solicitation is generally subject to filing and information requirements, unless an exemption applies to the solicitation. Although certain types of solicitations are exempt from the filing and information requirements, Rule 14a-9 (the anti-fraud provision of the proxy rules) still applies to exempt solicitations. Proxy voting advice businesses typically rely on the following exemptions to provide proxy voting advice without complying with the filing and information requirements:

• Rule 14a-2(b)(1), which generally exempts solicitations by persons who do not seek the power to act as a proxy for shareholders and do not have a substantial interest in the subject matter of the communication beyond their interest as a shareholder; or
• Rule 14a-2(b)(3), which generally exempts proxy voting advice that is furnished by an advisor to any other person with whom the advisor has a business relationship.

The SEC proposed new paragraph (b)(9) to Rule 14a-2 to establish the conditions to the availability of the exemptions specified in paragraphs (b)(1) and (b)(3) for persons furnishing proxy voting advice that would constitute a solicitation under Rule 14a-1(l)(1)(iii)(A). The proposed rule would specify that the exemptions in Rule 14a-2(b)(1) and (b)(3) would be available to a proxy voting advice business only if all of the following conditions are satisfied:

• the proxy voting advice business includes in its proxy voting advice and in any electronic medium used to deliver the proxy voting advice prominent disclosure of:

- any material interests, direct or indirect, of the proxy voting advice business (or its affiliates) in the matter or parties concerning which it is providing the advice;

- any material transaction or relationship between the proxy voting advice business (or its affiliates) and the company, another soliciting person, shareholder proponent, or affiliates of any of the foregoing connected with the matter covered by the proxy voting advice;

- any other information regarding the interest, transaction, or relationship of the proxy voting advice business (or its affiliates) that is material to assessing the objectivity of the proxy voting advice in light of the circumstances of the particular interest, transaction, or relationship; and

- any policies and procedures used to identify, as well as the steps taken to address, any such material conflicts of interest arising from such interest, transaction, or relationship;

• the proxy voting advice business provides the company or any other person conducting a solicitation (other than a solicitation exempt under Rule 14a-2) covered by its proxy voting advice, prior to the distribution of that advice to its clients:

- a copy of such proxy voting advice that the proxy voting advice business intends to deliver to its clients for a review and feedback period of no less than five business days, if the company or other soliciting person has filed its definitive proxy statement at least 45 calendar days before the security holder meeting date or the date the votes, consents, or authorizations may be used to effect the proposed action;

- a copy of such proxy voting advice that the proxy voting advice business intends to deliver to its clients for a review and feedback period of no less than three business days, if the company or other soliciting person has filed its definitive proxy statement less than 45 calendar days, but at least 25 calendar days, before the security holder meeting date or the date the votes, consents, or authorizations may be used to effect the proposed action; and\

- no earlier than the expiration of the period described in the prior two bullet points, as applicable, and no later than two business days prior to delivery of the proxy voting advice to its clients, a final notice of voting advice which must include a copy of such proxy voting advice that the proxy voting advice business will deliver to its clients, including any revisions to such advice made by the proxy voting advice business after the review and feedback period provided pursuant to the prior two bullet points, as applicable; and

• if requested by the company or any other person conducting a solicitation (other than a solicitation exempt under Rule 14a-2) prior to expiration of the review period described above, the proxy voting advice business would be required to include in its proxy voting advice and in any electronic medium used to deliver the proxy voting advice an active hyperlink or any other analogous electronic medium that leads to the company’s or other soliciting person’s statement regarding the proxy voting advice.

A proxy voting advice business would be under no obligation to comply with conditions to provide the proxy voting advice for review and to provide a link to the company’s or other soliciting person’s views on the proxy voting advice if the company or other soliciting person has not filed its definitive proxy statement at least 25 calendar days before the security holder meeting date or the date the votes, consents, or authorizations may be used to effect the proposed action. Further, once the two business day period referenced above has expired, the proxy voting advice business would be under no further obligation to provide the company or any other soliciting person with additional opportunities to review its proxy voting advice with respect to the same meeting.

The SEC proposed to include a note indicating that a proxy voting advice business may require the company or other soliciting person to enter into an agreement to maintain the confidentiality of any materials it receives under the review regime and refrain from publicly commenting on those materials. The proxy voting advice business would not be required to comply with the review process described above if the company or other soliciting person does not enter into such a confidentiality agreement.

The proposed amendments would provide that an immaterial or unintentional failure to comply with the conditions of Rule 14a-2(b)(9) will not result in the loss of the exemptions in Rule 14a-2(b)(1) or 14a-2(b)(3), so long as: (i) the proxy voting advice business made a good faith and reasonable effort to comply; and (ii) to the extent that it is feasible to do so, the proxy voting advice business uses reasonable efforts to substantially comply with the condition as soon as practicable after it becomes aware of its noncompliance. Further, failure to comply with the conditions of Rule 14a-2(b)(9) would not create a new private right of action for companies against proxy voting advice businesses.

The proposed rule amendments would modify Rule 14a-9 to include examples of when the failure to disclose certain information in proxy voting advice could, depending upon the particular facts and circumstances, be considered misleading within the meaning of the rule. The examples include the proxy advisory firm’s methodology, sources of information, conflicts of interest, or use of standards that materially differ from any SEC standards or requirements.

Proposed Amendments to Exchange Act Rule 14a-8

The SEC proposed amendments to Exchange Act Rule 14a-8, which establishes the manner in which shareholders may submit a proposal for inclusion in a company’s proxy materials.[6] The proposals would revise the eligibility requirements in Rule 14a‑8(b), the one‑proposal limit in Rule 14a-8(c), and the resubmission thresholds in Rule 14a‑8(i)(12).

Rule 14a-8 requires companies that are subject to the federal proxy rules to include in their proxy materials shareholder proposals that satisfy the rule’s procedural and substantive requirements. One requirement—Rule 14a-8(b)—establishes, among other requirements, a share ownership threshold that a shareholder must satisfy to have its proposal considered for inclusion in a company’s proxy materials.

Rule 14a-8(i)(12) permits companies to exclude a shareholder proposal that “deals with substantially the same subject matter as another proposal or proposals that has or have been previously included in the company’s proxy materials within the preceding 5 calendar years” if the matter was voted on at least once in the last three years and did not receive a specified percentage of votes.

The proposed amendments to Rule 14a-8(b) would:

• update the current requirement that a proponent hold at least $2,000 or 1% of a company’s securities for at least one year to be eligible to submit a proposal by eliminating the 1% threshold and establishing the following alternative thresholds, any one of which a shareholder could satisfy to be eligible to submit a proposal:

- continuous ownership of at least $2,000 of the company’s securities for at least three years;

- continuous ownership of at least $15,000 of the company’s securities for at least two years; or

- continuous ownership of at least $25,000 of the company’s securities for at least one year;

• require that a proponent who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the proponent’s behalf and to provide a meaningful degree of assurance as to the proponent’s identity, role, and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
• require that each proponent state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, or more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as business days and specific times that the shareholder-proponent is available to discuss the proposal with the company.

The proposed amendments to Rule 14a-8(c) would:

• apply the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a proponent would not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting; and
• provide that a representative would not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.

The proposed amendments to Rule 14a-8(i)(12) would:

• modernize the current resubmission thresholds of 3%, 6%, and 10% for matters voted on once, twice, or three or more times in the last five years, respectively, with thresholds of 5%, 15%, and 25%, respectively; and
• add a new provision that would allow for exclusion of a proposal that has been previously voted on three or more times in the last five years, notwithstanding having received at least 25% of the votes cast on its most recent submission, if the proposal:

- received less than 50% of the votes cast; and

- experienced a decline in shareholder support of 10% or more compared to the immediately preceding vote.

Update of Statistical Disclosures for Bank and Savings and Loan Registrants

On September 17, 2019, the SEC proposed rules to update the statistical disclosures that bank and savings and loan registrants provide to investors and to eliminate disclosures that overlap with SEC rules, U.S. GAAP, or IFRS.[7] The proposed rules would replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure requirements in a new subpart of Regulation S-K. The proposed rules would apply to bank holding companies, banks, savings and loan holding companies, and savings and loan associations, and would require disclosure about the following:

• distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
• weighted average yield of investments in debt securities by maturity;
• maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
• an allocation of the allowance for credit losses and certain credit ratios; and
• information about bank deposits including amounts that are uninsured.

Business, Legal Proceeding and Risk Factor Disclosure Requirements

On August 8, 2019, the SEC proposed amendments to the description of business, legal proceedings, and risk factor disclosures that are required pursuant to Regulation S-K.[8]  The comment period for these proposals ended on October 22, 2019.

Regulation S-K Item 101 – Description of Business

The SEC proposed amendments to the description of the general development of the business required by Item 101 of Regulation S-K that “would provide more flexibility to tailor disclosures to the unique circumstances of each [issuer], which in turn could result in improved disclosures for investors.” The SEC proposed to require only material updates to this disclosure for filings other than initial registration statements.

Item 101(a) requires a description of the general development of the issuer’s business during the past five years, or such shorter period as the issuer may have engaged in business. The SEC proposed to revise Item 101(a) to eliminate the five-year disclosure timeframe and require issuers to focus on the information material to an understanding of the development of their business, without focusing on a specific timeframe. The SEC also proposed to revise Item 101(h) of Regulation S-K to eliminate the provision that currently requires smaller reporting companies to describe the development of their business during the last three years.

Disclosure regarding the general development of the business is currently required in registration statements and annual reports for all issuers. The SEC proposed to retain the requirement for initial registration statements under the Securities Act and the Exchange Act. In filings subsequent to an issuer’s initial registration statement, an issuer would be required to provide an update of this disclosure, focusing on material developments (if any) during the reporting period, including whether the issuer’s business strategy has changed. The SEC also proposed to require that an issuer incorporate by reference, and include an active hyperlink to, the most recently filed disclosure that, together with the update, would present a full discussion of the general development of its business.

The SEC proposed to amend Item 101(a)(1) to be more principles-based by providing a non-exclusive list of four types of information that an issuer may need to disclose, and by requiring disclosure of a topic only to the extent such information is material to an understanding of the general development of an issuer’s business. The matters proposed to be included in the non-exclusive list are:

• material bankruptcy, receivership, or any similar proceeding;
• the nature and effects of any material reclassification, merger, or consolidation of the issuer or any of its significant subsidiaries;
• the acquisition or disposition of a material amount of assets otherwise than in the ordinary course of business; and
• to the extent material to an understanding of an issuer’s business, transactions and events that affect or may affect the issuer’s operations, including material changes to an issuer’s previously disclosed business strategy.

Item 101(c) of Regulation S-K requires a narrative description of the business done and intended to be done by an issuer and its subsidiaries, focusing on the issuer’s dominant segment or each reportable segment about which financial information is presented in the financial statements. Item 101(c) include 12 specific items that may require disclosure. The SEC proposed to shift the requirements in Item 101(c) to an “updated and more principles-based disclosure framework” that encourages issuers to “exercise judgment in evaluating what disclosure to provide, which would result in disclosure more appropriately tailored to a [issuer]’s specific facts and circumstances.”

The SEC proposed to include in Item 101(c) a non-exclusive list of disclosure topics that would likely be material to many issuers. The SEC noted that these proposed topics would not be line-item requirements; however, to the extent that a topic is material to an understanding of an issuer’s business, disclosure would be required. The proposed amendments would retain the distinction between those disclosure topics for which segment disclosure should be the primary focus, and those disclosure topics for which the focus should be on the issuer’s business as a whole. The proposed amendments clarify that, for any listed topic, disclosure is required only to the extent that it is material to an understanding of the issuer’s business as a whole.

The proposed list of disclosure topics in Item 101(c) would retain information regarding revenue-generating activities, products, and/or services, and any dependence on key products, services, product families, or customers to the extent this information is material to an understanding of an issuer’s business. The list of disclosure topics would also retain information regarding development efforts for new or enhanced products, and trends in market demand and competition would generally be material to an investment decision.

The SEC proposed to modernize the disclosure with respect to raw materials and to refocus that disclosure on all resources material to an issuer’s business. To facilitate application of this standard, the SEC proposed including as examples of such resources: (i) raw materials; and (ii) patents, trademarks, licenses, franchises, and concessions held. The proposing release noted that the SEC chose not to expand the requirement to include copyrights and trade secrets.

The SEC proposed to retain renegotiation or termination of government contracts as an enumerated disclosure topic in Item 101(c), as well as the extent to which the business is or may be seasonal. The SEC also proposed including the material effects of compliance with material government regulations, not just environmental laws, as a listed disclosure topic in Item 101(c). The SEC expressed its expectation that this disclosure topic would focus on the material effects that compliance with material governmental regulations, both foreign and domestic, may have upon the capital expenditures, earnings, and competitive position of the issuer and its subsidiaries.

The SEC proposed to retain the requirement that an issuer disclose material estimated capital expenditures for environmental control facilities for the current fiscal year and any other subsequent period that the issuer deems material, while not proposing to require the disclosure of additional specific expenditures related to environmental compliance.

The SEC proposed to amend Item 101(c) to refocus requirements regarding human capital resources disclosures. The SEC proposed to replace the current requirement to disclose the number of employees with a requirement to provide information regarding the issuer’s “human capital resources,” including in such description any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the issuer’s business. The proposal would provide a non-exclusive list of examples of human capital measures and objectives that may be material, depending on the nature of the issuer’s business and workforce, including measures or objectives that address the attraction, development, and retention of personnel.

Regulation S-K Item 103 – Legal Proceedings

The SEC noted that while Item 103 of Regulation S-K and U.S. GAAP differ in certain respects with respect to disclosure of legal proceedings and contingences, these provisions also have overlapping disclosure requirements. In an effort to encourage issuers to avoid duplicative disclosure, the SEC proposed to revise Item 103 to expressly state that some or all of the required information may be provided by including hyperlinks or cross-references to legal proceeding disclosures located elsewhere in the document.

The SEC also proposed to amend Instruction 5.C. to Item 103, which specifically requires disclosure of any proceeding under environmental laws to which a governmental authority is a party unless the issuer reasonably believes it will not result in sanctions of $100,000 or more. The proposed amendment would increase the $100,000 threshold to $300,000.

Regulation S-K Item 105 – Risk Factors

Item 105 of Regulation S-K “requires disclosure of the most significant factors that make an investment in the [issuer] or offering speculative or risky and specifies that the discussion should be concise and organized logically.” The SEC proposed to amend Item 105 to address what the SEC considers to be the lengthy and generic nature of the risk factor disclosure presented by issuers.

The SEC proposed to require summary risk factor disclosure in the forepart of the prospectus or annual report when issuers provide risk disclosure that exceeds 15 pages.  The summary would consist of a series of short, concise, bulleted or numbered statements summarizing the principal factors that make an investment in the issuer or offering speculative or risky.  The SEC also proposed to update Item 105 to replace the requirement to discuss the “most significant” risks with a requirement to discuss “material” risks.

The SEC also proposed to require that issuers organize their risk factor disclosure under relevant headings. Further, if an issuer chooses to disclose a risk that could apply to other issuers or securities offerings, and the disclosure does not provide an explanation of why the identified risk is specifically relevant to an investor in its securities, an issuer would be required to disclose such risk factors at the end of the risk factor section, under the caption “General Risk Factors.”

Changes to the Accelerated Filer and Large Accelerated Filer Definitions

On May 9, 2019, the SEC proposed amendments to the Exchange Act definition of “accelerated filer” and “large accelerated filer.”[9] The comment period for these proposals ended July 29, 2019. 

The proposed amendments would:

• exclude from the accelerated and large accelerated filer definitions an issuer that (i) is eligible to be a smaller reporting company and (ii) had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available;
• increase the transition thresholds for accelerated and large accelerated filers becoming non-accelerated filers from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million; and
• add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.

In the proposing release, the SEC indicated that certain low-revenue issuers would not be required to obtain an auditor attestation of internal control over financial reporting; however, such issuers would continue to be required to establish and maintain internal control over financial reporting and assess the effectiveness of such controls.

On June 28, 2018, the SEC amended the definition of a “smaller reporting company” to expand the number of smaller reporting companies. Following these amendments, however, some issuers are now categorized as both smaller reporting companies and accelerated or large accelerated filers, with these issuers required to comply with the requirement to obtain an auditor attestation of their internal control over financial reporting.

Under the existing accelerated filer definition, an issuer must satisfy three conditions to be an accelerated filer:

• the issuer must have a public float of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter;
• the issuer must have been subject to the requirements of Exchange Act Section 13(a) or 15(d) for a period of at least twelve calendar months; and
• the issuer must have filed at least one annual report pursuant to Exchange Act Section 13(a) or 15(d).

Under the existing large accelerated filer definition, an issuer must meet the second and third conditions described above and have a public float of $700 million or more as of last business day of the issuer’s most recently completed second fiscal quarter.

The proposed amendments would add a new condition to the definitions of accelerated filer and large accelerated filer that would exclude from those definitions an issuer eligible to be a smaller reporting company under the revenue test in the smaller reporting company definition in Rule 12b-2. As a result, issuers that are eligible to be a smaller reporting company that have a public float between $75 million and $250 million would be accelerated filers if their annual revenues are $100 million or more, and thus they would remain subject to all of the requirements applicable to accelerated filers. Under the proposed amendments, a foreign private issuer that qualifies as a smaller reporting company under the revenue test of the smaller reporting company definition and is eligible to use the scaled disclosure requirements available to smaller reporting companies would qualify for the exclusion under the accelerated filer definition.

Under existing transition rules, an issuer that is an accelerated or a large accelerated filer will not become a non-accelerated or accelerated filer until its public float falls below a lower threshold than the public float threshold that was required to qualify an accelerated or large accelerated filer. This lower threshold for exiting accelerated filer and large accelerated filer status is intended to avoid situations in which an issuer would enter and exit accelerated and large accelerated filer status due to relatively small fluctuations in its public float.

The SEC proposed to amend the transition thresholds for issuers exiting accelerated filer and large accelerated filer status as follows:

• the public float transition threshold for accelerated and large accelerated filers to become a non-accelerated filer would increase from $50 million to $60 million;
• the large accelerated filer public float transition provision would increase from $500 million to $560 million; and
• the smaller reporting company revenue test would be added to the transition threshold for accelerated and large accelerated filers.

The SEC proposed to increase the public float transition thresholds so that the transition thresholds are 80% of the initial thresholds, which would be consistent with the percentage used in the transition thresholds for smaller reporting company eligibility.

Financial Statements of Acquired and Disposed Businesses

On May 3, 2019, the SEC proposed amendments to the financial disclosure requirements in Rules 3-05, 3-14, and Article 11 of Regulation S-X, as well as related rules and forms, for financial statements of businesses acquired or to be acquired and for business dispositions.[10] The comment period for these proposals ended on July 29, 2019.

The proposed changes are intended to: (i) improve the financial information about acquired and disposed businesses; (ii) facilitate more timely access to capital; and (iii) reduce the complexity and cost to prepare the disclosure. The proposed changes would:

• update the significance tests under these rules by revising the investment test and the income test, expanding the use of pro forma financial information in measuring significance, and conforming the significance threshold and tests for a disposed business;
• require the financial statements of the acquired business to cover up to the two most recent fiscal years rather than up to the three most recent fiscal years;
• permit disclosure of financial statements that omit certain expenses for certain acquisitions of a component of an entity;
• clarify when financial statements and pro forma financial information are required;
• permit the use in certain circumstances of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board;
• no longer require separate acquired business financial statements once the business has been included in the issuer’s post-acquisition financial statements for a complete fiscal year;
• align Rule 3-14 with Rule 3-05 where no unique industry considerations exist;
• clarify the application of Rule 3-14 regarding the determination of significance, the need for interim income statements, special provisions for blind pool offerings, and the scope of the rule’s requirements;
• amend the pro forma financial information requirements to improve the content and relevance of such information; more specifically, these improvements would include disclosure of “Transaction Accounting Adjustments,” reflecting the accounting for the transaction; and “Management’s Adjustments,” reflecting reasonably estimable synergies and transaction effects; and
• make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X.

SEC Rulemaking – Concept Releases and Interpretive Releases

SEC Interpretive Advice Regarding Proxy Advisory Firms

On August 21, 2019, the SEC provided guidance to assist investment advisers in fulfilling their proxy voting responsibilities.[11] The guidance discusses, among other matters, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use the services of a proxy advisory firm. The SEC also issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules and provided related guidance about the application of the proxy antifraud rule to proxy voting advice. In October 2019, ISS filed a lawsuit in federal court seeking declaratory and injunctive relief, alleging that the SEC’s August 2019 interpretive guidance is unlawful because it: (i) exceeds the SEC’s statutory authority under Exchange Act Section 14(a); (ii) constitutes a substantive rule that the SEC failed to promulgate pursuant to the notice-and-comment rulemaking procedures specified in the Administrative Procedures Act; and (iii) is arbitrary and capricious.

Rule 206(4)-6 under the Advisers Act requires an investment adviser who exercises voting authority with respect to client securities to adopt and implement written policies and procedures that are reasonably designed to ensure that the investment adviser votes proxies in the best interest of its clients. The SEC’s guidance clarifies how an investment adviser’s fiduciary duty and Rule 206(4)-6 under the Advisers Act relate to an adviser’s proxy voting on behalf of clients, particularly if the investment adviser retains a proxy advisory firm. The guidance discusses, among other things:

• how an investment adviser and its client, in establishing their relationship, may agree on the scope of the investment adviser’s authority and responsibilities to vote proxies on behalf of that client;
• what steps an investment adviser who has assumed voting authority on behalf of clients could take to demonstrate it is making voting determinations in a client’s best interest and in accordance with the investment adviser’s proxy voting policies and procedures;
• considerations that an investment adviser should take into account if it retains a proxy advisory firm to assist it in discharging its proxy voting duties;
• steps for an investment adviser to consider if it becomes aware of potential factual errors, potential incompleteness, or potential methodological weaknesses in the proxy advisory firm’s analysis that may materially affect one or more of the investment adviser’s voting determinations;
• how an investment adviser could evaluate the services of a proxy advisory firm that it retains, including evaluating any material changes in services or operations by the proxy advisory firm; and
• whether an investment adviser who has assumed voting authority on behalf of a client is required to exercise every opportunity to vote a proxy for that client.

Under Exchange Act Rule 14a-1(l), a solicitation includes, among other things, a “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy,” and includes communications by a person seeking to influence the voting of proxies by shareholders, regardless of whether the person itself is seeking authorization to act as a proxy. The SEC’s interpretation indicates that proxy voting advice provided by proxy advisory firms generally constitutes a solicitation subject to the federal proxy rules. The SEC’s interpretation does not affect the ability of proxy advisory firms to continue to rely on the exemptions from the federal proxy rules’ filing requirements found in Rule 14a-2(b), which, among other things, provide relief from the obligation to file a proxy statement, as long as the advisory firm complies with the exemption’s conditions. 

Solicitations that are exempt from the federal proxy rules’ filing requirements remain subject to Exchange Act Rule 14a-9, which prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact. The SEC’s guidance explains what a person providing proxy voting advice should consider when considering the information it may need to disclose in order to avoid a potential violation of Rule 14a-9 where the failure to disclose such information would render the advice materially false or misleading. 

Harmonization of Securities Offering Exemptions

On June 19, 2019, the SEC published a concept release seeking to solicit comment on several exemptions from registration under the Securities Act.[12] The SEC noted that over the years, and particularly since the JOBS Act, several exemptions from registration have been introduced, expanded, or otherwise revised, and, as a result, the overall framework for exempt offerings has changed significantly. The SEC believes that the capital markets would benefit from a comprehensive review of the design and scope of the SEC’s framework for offerings that are exempt from registration. The concept release seeks comment on possible ways to simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.

SEC and Staff Guidance

Division Guidance Regarding Intellectual Property and Technology Risks Associated with International Business Operations

On December 19, 2019, the Division issued CF Disclosure Guidance: Topic No. 8, Intellectual Property and Technology Risks Associated with International Business Operations, providing the Division’s views about disclosure obligations with respect to technology, data, and intellectual property risks that could arise when operations take place outside the United States.[13]

The Division’s guidance notes that, for those companies that conduct business operations outside the United States, risks can arise with regard to technology and intellectual property, particularly when operations take place in jurisdictions that do not provide protection that is comparable to the United States. In this regard, the Division observed that companies may be exposed to material risks of “theft of proprietary technology and other intellectual property, including technical data, business processes, data sets or other sensitive information.” The Division also stated that while there is no specific line-item requirement under the federal securities laws to disclose “information related to the compromise (or potential compromise) of technology, data or intellectual property,” the SEC’s disclosure requirements apply to a broad range of evolving business risks and disclosure about such matters may be necessary in risk factors, management’s discussion and analysis, the business description, legal proceedings, disclosure controls and procedures, and/or financial statements.

The Division noted that companies face the risk of theft of technology, data and intellectual property, which could occur through a direct intrusion by private parties or foreign actors (including those affiliated with or controlled by state actors). In addition, the Division provided a number of examples where an issuer may be required to “compromise protections or yield rights to technology, data or intellectual property in order to conduct business or access markets in a foreign jurisdiction, either through formal written agreements or due to legal or administrative requirements in the host nation.”

The Division encouraged companies “to assess the risks related to the potential theft or compromise of their technology, data or intellectual property in connection with their international operations, as well as how the realization of these risks may impact their business, including their financial condition and results of operations, and any effects on their reputation, stock price and long-term value.” The Division noted that when these risks are material to investment and voting decisions, the risks should be disclosed in a manner that allows investors to evaluate these risks “through the eyes of management.” The Division stated that disclosure about these risks should be specifically tailored to an issuer’s unique facts and circumstances, and that “hypothetical disclosure of potential risks is not sufficient to satisfy [an issuer’s] reporting obligations.” 

The Division suggested a list of questions that companies should consider when assessing and disclosing risks. Those questions related to:

• heightened risks to technology or intellectual property because the issuer maintains significant assets or earns a material amount of revenue abroad;
• operations in an industry or foreign jurisdiction that has caused, or may cause, the issuer to be particularly susceptible to the theft of technology or intellectual property or the forced transfer of technology; 
• products that have been, or may be, subject to counterfeit and sale, including through e‑commerce;
• transfers or licenses of technology or intellectual property to a foreign entity or government;
• storage of technology or intellectual property locally in a foreign jurisdiction;
• required use of equipment or services provided by a state actor;
• entrance into patents or technology license agreements with a foreign entity or government;
• requirements that foreign parties must be controlling shareholders, hold a majority of shares in a joint venture in which the issuer is involved, or involvement in a joint venture that is subject to foreign ownership restrictions or requirements;
• state actor or regulator access to issuer technology or intellectual property;
• requirements to yield rights to technology or intellectual property as a condition to conducting business in or accessing markets located in foreign jurisdictions;
• operations in foreign jurisdictions where the ability to enforce rights over intellectual property is limited as a statutory or practical matter;
• conducting business in a foreign jurisdiction or through a joint venture that may be subject to state secrecy or other laws;
• the ability to readily produce data or other information that is housed internationally in response to regulatory requirements or inquiries;
• conditions in foreign jurisdiction that may cause the issuer to relocate or consider relocating operations (including material cost related to such a relocation, such as costs to train new employees, establish new facilities and supply chains, and of any related effects on production, manufacture and/or export of products);
• controls and procedures to adequately protect technology and intellectual property from potential compromise or theft; and
• the level of risk oversight and management of the board of directors and executive officers with regard to the issuer’s data, technology, and intellectual property and how those assets may be impacted by operations in foreign jurisdictions.

Division Guidance Regarding Shareholder Proxy Proposals

On October 16, 2019, the Division published Staff Legal Bulletin (“SLB”) No. 14K regarding the operation of Exchange Act Rule 14a-8.[14] In SLB No. 14K, the Division addressed: (i) the analytical framework of Rule 14a-8(i)(7); (ii) the inclusion of a board’s analysis of a proposal’s significance in an issuer no-action request; (iii) the “micromanagement” analysis under Rule 14a-8(i)(7); and (iv) the manner in which a shareholder provides proof of security ownership to an issuer.

The Analytical Framework of the Rule 14a-8(i)(7) Exception

SLB No. 14K noted the SEC’s prior statements that the Rule 14a-8(i)(7) “ordinary business” exception is based on two “central considerations”—the proposal’s subject matter and the degree to which the proposal seeks to “micromanage” the issuer. As described in SLB No. 14K, there are two primary analyses regarding the consideration of the subject matter of a proposal under Rule 14a-8(i)(7):

• First, “proposals that raise matters that are ‘so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight’ relate to a company’s ‘ordinary’ business operations.”
• Second, “proposals relating to such matters but focusing on a significant policy issue are not excludable under the first consideration ‘because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.’” 

In applying these analyses, the Division is of the view that consideration of whether the significant policy exception applies “depends, in part, on the connection between the significant policy issue and the company’s business operations.”

“Significant Policy Issue” Analysis under the Rule 14a-8(i)(7) Exception

SLB No. 14K addressed the Division’s view regarding “the connection between the significant policy issue and the company’s business operations.” The Division expressed its view that the significance analysis should be “company-specific” and should not look to the “overall significance of the policy issue raised by the proposal.”  SLB No. 14K stated: “The staff takes a company-specific approach in evaluating significance, rather than recognizing particular issues or categories of issues as universally ‘significant.’ Accordingly, a policy issue that is significant to one company may not be significant to another.”

Based on this analysis, when a company applies Rule 14a-8(i)(7) to a proposal: 

• the company should consider whether the proposal deals with a matter relating to that company’s ordinary business operations or raises a policy issue that transcends that company’s ordinary business operations; and
• if a proposal raises a policy issue that appears to be significant, a company’s no-action request should focus on the significance of the issue to that company.

Inclusion of a Board Analysis of Significance in a No-Action Request

SLB No. 14K reiterated the Division’s views from SLB No. 14I (Nov. 1, 2017) and SLB No. 14J (Oct. 23, 2018) regarding the value of including in a company’s no-action request of “a well-developed discussion of the board’s analysis of whether the particular policy issue raised by the proposal is sufficiently significant in relation to the company.” The Division made the following statements regarding the increased usefulness of such a discussion in the most recent proxy season:

• “[I]n a number of instances, we were unable to agree with exclusion where a board analysis was not provided, which was especially likely where the significance of a particular issue to a particular company and its shareholders may depend on factors that are not self-evident.”
• “If a request where significance is at issue does not include a robust analysis substantiating the board’s determination that the policy issue raised by the proposal is not significant to the company, our analysis and ability to state a view regarding exclusion may be impacted.” 
• “While we do not necessarily expect the board, or a board committee, to prepare the significance analysis that is included in the company’s no-action request, we do believe it is important that the appropriate body with fiduciary duties to shareholders give due consideration as to whether the policy issue presented by a proposal is of significance to the company.”

With regard to this “significance analysis,” the Division expressed its view that the discussion may focus on any differences between the proposal’s specific request and the actions the company has already taken and an analysis of whether the specific manner in which the proposal addresses the issue presents a significant policy issue for the company. The Division referred to these differences as the “delta” and the related discussion as a “delta analysis.” SLB No. 14K indicated that such a “delta analysis” should:

• identify the differences between the actions that the company has already taken to address the issue and the proposal’s specific request;
• explain whether the difference between the company’s actions and the proposal’s request represents a significant policy issue to the company; and
• address whether the company’s prior actions diminished the significance of the policy issue to such an extent that the proposal does not present a policy issue that is significant to the company.

In this regard, the Division noted the importance of specificity in a “delta analysis,” stating: “[A] delta analysis is most helpful where it clearly identifies the differences between the manner in which the company has addressed an issue and the manner in which a proposal seeks to address the issue and explains in detail why those differences do not represent a significant policy issue to the company. By contrast, conclusory statements about the differences that fail to explain why the board believes that the issue is no longer significant are less helpful.”

The Division has indicated that the board’s significance analysis should address previous shareholder votes on the matter and the board’s views on the voting results  In this regard, SLB No. 14K indicates that “the board’s analysis may be more helpful if it includes, for example, a robust discussion that explains how the company’s subsequent actions, intervening events or other objective indicia of shareholder engagement on the issue bear on the significance of the underlying issue to the company.”

The “Micromanagement” Analysis under Rule 14a-8(i)(7)

As explained in SLB No. 14K, the “micromanagement” analysis under the Rule 14a‑8(i)(7) exception “rests on an evaluation of the manner in which a proposal seeks to address the subject matter raised, rather than the subject matter itself.” The Division stated its core analysis in this regard—the analysis looks to “whether the proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board.” The Division indicated in this regard that the micromanagement analysis “would be the same if the proposal were mandatory or precatory.” The Division also stated that “[w]hen analyzing a proposal to determine the underlying concern or central purpose of any proposal, we look not only to the resolved clause but to the proposal in its entirety.”

Proof of Shareholder Ownership

Rule 14a-8(b) provides that a proponent must prove eligibility to submit a proposal by offering proof that it “continuously held” the required amount of securities “for at least one year by the date” the proposal is submitted. The Division indicated in SLB No. 14K that, in the past proxy season, it observed some companies making arguments that applied an overly technical reading of proof of ownership letters. The issue in these situations should not be based on a formalistic reading of the proof of ownership; rather, the issue is whether the proponent “supplied documentary support sufficiently evidencing the requisite minimum ownership requirements for the one-year period, as required by Rule 14a-8(b).” The Division expects companies to take a “plain meaning approach to interpreting the text of the proof of ownership letter.” 

Division Procedures for Rule 14a-8 No-Action Requests

On September 6, 2019, the Division announced changes to its administration of Exchange Act Rule 14a-8.[15] The announcement noted that the Staff will “continue to actively monitor correspondence and provide informal guidance to companies and proponents as appropriate.” When a company seeks to exclude a proposal, the Staff will inform the proponent and the company of its position, which may be that the staff concurs, disagrees or declines to state a view, with respect to the company’s asserted basis for exclusion. Beginning in the 2019–2020 shareholder proposal season, however, the Staff may respond orally instead of in writing to no-action requests. The announcement stated that the Staff “intends to issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8.” The Division further noted that “[i]f the staff declines to state a view on any particular request, the interested parties should not interpret that position as indicating that the proposal must be included.” The Division indicated that, in such circumstances, while the Staff would not be taking a position on the merits of the arguments made, the company may still have a valid legal basis to exclude the proposal under Rule 14a-8, and the parties have an option to seek formal, binding adjudication on the merits of the issue in court.

Division Guidance Regarding Inline XBRL Requirements

On August 20, 2019, the Division published nine new Compliance and Disclosure Interpretations (“C&DIs”) regarding the use of Inline XBRL.[16]  These new C&DIs provide guidance regarding compliance with the SEC’s recently adopted Inline XBRL requirements, particularly with respect to the phase-in of the new requirements, the “tagging” of data on the cover page of a filing, the identification of Interactive Data Files in the exhibit index of a subject filing, and the application of the new requirements to situations not addressed directly in their adoption.

The Inline XBRL Requirements

Inline XBRL is a format that allows issuers making filings with the SEC to embed XBRL data directly into an HTML-based document. Under the Inline XBRL requirements adopted by the SEC in 2018, operating companies must use Inline XBRL for financial statement information, as well as certain information on the cover page of a filing. The SEC implemented a phased-in compliance schedule for the new Inline XBRL requirements, with early compliance permitted. Under this compliance schedule:

• large accelerated filers preparing their financial statements in accordance with U.S. GAAP must comply for fiscal periods ending June 15, 2019, or after;
• accelerated filers preparing their financial statements in accordance with U.S. GAAP must comply for fiscal periods ending June 15, 2020, or after; and
• all other filers must comply for fiscal periods ending June 15, 2021, or after.

The New C&DIs

The Division’s new C&DIs relating to the Inline XBRL requirements are found in the “Other Topics” section of the Division of Corporation Finance’s “Compliance and Disclosure Interpretations” web page under the topic “Interactive Data.” The new C&DIs address the following:

• Question 101.01 – how an issuer subject to the Inline XBRL requirements should identify the Interactive Data Files in the exhibit index of an applicable filing;
• Question 101.02 – an issuer that voluntarily submits Interactive Data Files in Inline XBRL format prior to its applicable phase-in date is not required to comply with the cover page data tagging requirements with those submissions;
• Question 101.03 – all Forms 8-K, regardless of whether they contain financial statements for which XBRL data is required, are subject to Inline XBRL requirements to tag information on the cover page;
• Question 101.04 – whether issuers filing an Item 9.01 Form 8-K are required to identify the Cover Page Interactive Data File as Exhibit 104 (specifically, if the only exhibit included in the exhibit index of a Form 8-K would be a Cover Page Interactive Data File as Exhibit 104, the Division would not object if an issuer does not add an exhibit index to the Form 8-K solely for the purpose of identifying the Cover Page Interactive Data File as an exhibit under Item 9.01 of Form 8-K);
• Question 101.05 – where an issuer’s name on the cover page of the applicable form differs from the issuer name in the issuer’s EDGAR file due to EDGAR naming conventions;
• Question 101.06 – an issuer electing to voluntarily submit Interactive Data Files in Inline XBRL format prior to its applicable compliance date may cease such voluntary submissions until the issuer’s compliance date;
• Question 101.07 – the Inline XBRL cover page tagging requirements for an issuer that files a Form 8-K earlier on the same day as it files its first Form 10-Q for a fiscal period ending on, or after, the issuer’s applicable compliance date (specifically, the Form 8-K would not be required to comply with Inline XBRL cover page tagging requirements);
• Question 101.08 – the applicable compliance date for foreign private issuers, which is based on the foreign private issuer’s filer status and basis of accounting; and
• Question 101.09 – the applicable compliance date for those filers using Form 20-F or Form 40-F (as these companies are not required to file quarterly reports, they are required to comply with Inline XBRL beginning with the first filing on a form for which Inline XBRL is required for a fiscal period ending on or after the issuer’s applicable compliance date).

Staff Statement on LIBOR Transition

On July 12, 2019, the Division issued a joint statement regarding LIBOR risks with the Division of Investment Management, the Division of Trading & Markets and the Office of the Chief Accountant to indicate that issuers should identify their exposure under contracts that extend past 2021 and consider whether future contracts should use an alternative rate.[17]  The Division indicated that, as issuers consider transition from LIBOR and address the risks presented, “it is important to keep investors informed about the progress toward risk identification and mitigation, and the anticipated impact on the issuer, if material.”  In this regard, the Staff provided following guidance:

• the evaluation and mitigation of risks related to the expected discontinuation of LIBOR may span several reporting periods, so issuers should consider disclosing the status of issuer efforts to date and the significant matters yet to be addressed;
• when an issuer has identified a material exposure to LIBOR but does not yet know or cannot yet reasonably estimate the expected impact, it should consider disclosing that fact; and
• disclosures that allow investors to see this issue through the eyes of management are likely to be the most useful for investors, including information used by management and the board in assessing and monitoring the LIBOR transition, including qualitative disclosures and, when material, quantitative disclosures, such as the notional value of contracts referencing LIBOR and extending past 2021.

The joint statement noted that the issuers most frequently providing LIBOR transition disclosure are in the real estate, banking, and insurance industries, and that larger issuers are more likely to include disclosure about the transition away from LIBOR.

Division Guidance Regarding Voluntary Early Compliance with the New Mining Property Disclosure Rules

On May 7, 2019, the Division of Corporation Finance published interpretive guidance regarding voluntary compliance with the SEC’s new mining property disclosure rules prior to completion of EDGAR reprogramming.[18] The SEC provided a two-year transition period to permit mining companies sufficient time to comply with the new mining property disclosure requirements. Pursuant to this transition period, a mining company is not required to comply with the new rules until its first fiscal year beginning on or after January 1, 2021. The SEC also indicated that a mining company could voluntarily comply with the new requirements before the required date, but only if the company complied with all of the new requirements. The Division provided the following guidance with regard to this voluntary, early compliance:

• while EDGAR reprogramming changes are being completed, a mining company may voluntarily comply with the new mining property disclosure rules if it complies with all of the new requirements and existing EDGAR requirements.
• if a mining company is required to file a technical report summary, the company “should file it as an additional exhibit under Item 601(b)(99) of Regulation S-K or Exhibit No. 15 of Form 20-F. Any maps, diagrams or other graphic material included in the technical report summary must meet EDGAR’s technical specification requirements.”
• mining companies that do not elect to comply early should continue looking to Guide 7.

Division Guidance Regarding Procedures for Confidential Treatment of Information in Exhibits

On April 1, 2019, the Division announced that it will review filings for compliance with the new rules regarding confidential treatment of information redacted from exhibits filed under paragraphs (b)(2) and (b)(10) of Item 601 of Regulation S-K.[19] These reviews will be conducted separately from regular filing reviews; the Division plans to separate its requests for supplemental information about the redacted exhibits and will request that issuers provide their responses to those requests separately from the regular filing review comment and response process.

The Division will initiate its review by sending a letter with a request that the issuer provide a paper copy of the unredacted exhibit, marked to highlight the redacted information.  

Once the Division reviews the unredacted materials, the Division may or may not ask for further substantiation. If the review of the unredacted exhibit does not lead to comments, the Division will send a letter indicating that the review is complete. If the review of the unredacted exhibit leads to questions about whether redacted information is material or whether there is a basis for the claim of competitive harm, the Division will provide the issuer with comments separate and apart from comments on any associated filing. When the Division’s comments are resolved, the Division will send the issuer a letter indicating that the review is complete. Consistent with past practice, the Division will ask issuers to resolve any questions relating to redacted exhibits in registration statements before submitting a request for acceleration of the effective date.

The Division intends to release the initial request for an unredacted exhibit and the closing letter publicly on the EDGAR system in connection with posting the other correspondence related to the filing review, if applicable. The Division will not make public the Division’s comments regarding redacted exhibits, as well as the responses from issuers. Issuers may request confidential treatment of supplemental materials while they are in the Division’s possession pursuant to Rule 83.  Upon completion of a compliance review, the Division will destroy or return all supplemental materials, as long as the issuer has complied with the procedures outlined in Rules 418 or Rule 12b-4.

The new rules have not changed an issuer’s ability to request confidential treatment pursuant to Rule 406 or Rule 24b-2, and the Division will continue to process new applications, as well as pending applications that are not withdrawn, following established procedures. If an issuer has received an order granting confidential treatment and that order is still in effect, the grant of confidential treatment continues until the date stated in the order, notwithstanding the adoption of the amendments to Item 601(b) of Regulation S-K. If an existing order granting confidential treatment is approaching its expiration date, then the issuer must submit an application prior to the order’s expiration. In an April 16, 2019 announcement, the Division announced a new streamlined approach for seeking an extension.[20] This streamlined approach, or the traditional application for extension of a confidential treatment order, must be used for seeking an extension, because an issuer is not permitted to refile the redacted exhibits under the recent amendments to paragraphs (b)(2) and (b)(10) to Item 601 of Regulation S-K.

On December 19, 2019, the Division published CF Disclosure Guidance: Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2.[21] This guidance addressed how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act. This guidance replaces and supersedes the guidance provided in Staff Legal Bulletins 1 and 1A. The guidance addresses the process for seeking confidential treatment of information pursuant to Securities Act Rule 406 and Exchange Act Rule 24b-2, which remain as an available alternative to companies that wish to protect confidential information using the traditional confidential treatment application process. This guidance also applies to filings, such as those required by Exchange Act Schedule 13D or those filings whose exhibit requirements are set out in Item 1016 of Regulation M-A, where confidential treatment applications are still the only available method to protect private information in filed exhibits. The guidance addresses:

• how to apply for confidential treatment;
• additional considerations, such as the materiality of the omitted information and excessive omissions;
• the Division’s review of applications for confidential treatment; and
• extensions of previously granted confidential treatment applications.

Division Guidance Regarding Director Diversity Disclosure

On February 6, 2019, the Division issued new Regulation S-K C&DIs that relate to director diversity disclosure.[22] These interpretations apply to both Item 401 of Regulation S-K and Item 407 of Regulation S-K and are found in Questions 116.11 and 133.13. The question in the interpretation asks what type of disclosure is required under Item 401 and Item 407 where directors or nominees have voluntarily provided “self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background,” and consented to disclosure of these diversity characteristics. Item 401(e) of Regulation S-K requires a company to “briefly discuss the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director for the registrant at the time that the disclosure is made, in light of the registrant’s business and structure.” Pursuant to the guidance, to the extent those self-identified diversity characteristics were considered by the board or nominating committee in assessing whether the person’s “experience, qualifications, attributes or skills” were appropriate for the board, the Division expects the discussion required by Item 401 to include, among other things, “identifying those characteristics and how they were considered.” The Division expects the description of diversity policies under Item 407 to “include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.”

Looking Forward

The Division will likely be focusing on a number of areas during 2020. The Division will continue to consider changes to disclosure requirements as part of its disclosure effectiveness initiative and as it considers changes in response to directives from the FAST Act. The Division continues to focus on “proxy plumbing” issues and may consider further changes to the proxy rules beyond those proposed in 2019. The Division also has other rulemaking directives to consider from the Dodd-Frank Act and continues to consider broader issues such as the appropriate frequency for periodic reporting.

[1] Release No. 33-10699, Solicitations of Interest Prior to a Registered Public Offering (Sep. 25, 2019), available at: https://www.sec.gov/rules/final/2019/33-10699.pdf.

[2] Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K (Mar. 20, 2019), available at: https://www.sec.gov/rules/final/2019/33-10618.pdf; see also Release No. 33-10618A, FAST Act Modernization and Simplification of Regulation S-K (Technical Correction) (Aug. 6, 2019), available at: https://www.sec.gov/rules/final/2019/33-10618a.pdf. 

[3] Release No. 33-10734, Amending the Accredited Investor Definition (Dec. 18, 2019), available at: https://www.sec.gov/rules/proposed/2019/33-10734.pdf.

[4] Release No. 33-87783, Disclosure of Payments by Resource Extraction Issuers (Dec. 18, 2019), available at: https://www.sec.gov/rules/proposed/2019/34-87783.pdf.

[5] Release No. 34-87457, Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice (Nov. 5, 2019), available at: https://www.sec.gov/rules/proposed/2019/34-87457.pdf.

[6] Release No. 34-87458, Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 (Nov. 5, 2019), available at: https://www.sec.gov/rules/proposed/2019/34-87458.pdf.

[7] Release No. 33-10688, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (Sep. 17, 2019), available at: https://www.sec.gov/rules/proposed/2019/33-10688.pdf.

[8] Release No. 33-10668, Modernization of Regulation S-K Items 101, 103, and 105 (Aug. 8, 2019), available at: https://www.sec.gov/rules/proposed/2019/33-10668.pdf.

[9] Release No. 34-85814, Amendments to the Accelerated Filer and Large Accelerated Filer Definitions (May 9, 2019), available at: https://www.sec.gov/rules/proposed/2019/34-85814.pdf.

[10] Release No. 33-10635, Amendments to Financial Disclosures about Acquired and Disposed Businesses (May 3, 2019), available at: https://www.sec.gov/rules/proposed/2019/33-10635.pdf.

[11] Release No. 34-86721, Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice (Aug. 21, 2019), available at: https://www.sec.gov/rules/interp/2019/34-86721.pdf.

[12] Release No. 33-10649, Concept Release on Harmonization of Securities Offering Exemptions (Jun. 19, 2019), available at: https://www.sec.gov/rules/concept/2019/33-10649.pdf.

[13] CF Disclosure Guidance: Topic No. 8, Intellectual Property and Technology Risks Associated with International Business Operations (Dec. 19, 2019), available at: https://www.sec.gov/corpfin/risks-technology-intellectual-property-international-business-operations.

[14] Staff Legal Bulletin No. 14K (CF), Shareholder Proposals (Oct. 16, 2019), available at: https://www.sec.gov/corpfin/staff-legal-bulletin-14k-shareholder-proposals.

[15] Announcement Regarding Rule 14a-8 No-Action Requests (Sep. 6, 2019), available at: https://www.sec.gov/corpfin/announcement/announcement-rule-14a-8-no-action-requests.

[16] Interactive Data Compliance and Disclosure Interpretations (updated Aug. 20, 2019), available at: https://www.sec.gov/corpfin/interactive-data-cdi.

[17] Staff Statement on LIBOR Transition (Jul. 12, 2019), available at: https://www.sec.gov/news/public-statement/libor-transition.

[18] Voluntary Compliance with the New Mining Property Disclosure Rules Prior to Completion of EDGAR Reprogramming (May 7, 2019), available at: https://www.sec.gov/corpfin/voluntary-compliance-mining-property-rules.

[19] New Rules and Procedures for Exhibits Containing Immaterial, Competitively Harmful Information (Apr. 1, 2019), available at: https://www.sec.gov/corpfin/announcement/new-rules-and-procedures-exhibits-containing-immaterial.

[20] New Streamlined Procedure for Confidential Treatment Extensions (Apr. 16, 2019), available at: https://www.sec.gov/corpfin/streamlined-procedure-confidential-treatment-extensions.

[21] CF Disclosure Guidance: Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2 (Dec. 19, 2019), available at: https://www.sec.gov/corpfin/streamlined-procedure-confidential-treatment-extensions.

[22] Regulation S-K Compliance and Disclosure Interpretations, Questions 116.11 and 133.13 (updated Feb. 6, 2019), available at: https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#133-13