Advanced Topics: Public Company Reporting

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Advanced Topics: Public Company Reporting

SECURITIES LAW 2016 SERIESPremier date: May 20, 2016

Premier Date: MAY 20, 2016

ADVANCED TOPICS: PUBLIC COMPANY REPORTING

SECURITIES LAW 2016 SERIES

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 2

WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS


meet the facultyPANELISTS

MODERATOR Vanessa Schoenthaler,

Sugar Felsenthal Grais & Hammer LLP

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™

Craig S. Mordock Sheppard, Mullin, Richter & Hampton LLPAlissa Altongy Parisi

K&L Gates LLP

Julia Vax Arnold & Porter LLP

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Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

http://www.financialpoise.com/


about this webinarOnce public, a company is subject to a continuously evolving landscape of disclosure and reporting requirements. Recent disclosure developments have addressed everything from executive compensation to cybersecurity. In addition, the prevalence of social media has made it such that you must now consider not only the nuances of what to disclose but also how to deliver that disclosure. Is your company tweeting its earnings reports; are you using your corporate Facebook page to make Regulation FD disclosures?

In this webinar our expert panel will provide you with a high-level overview of key public company reporting and disclosure requirements, including the latest developments brought about by the Dodd-Frank Act, JOBS Act and, most recently, the FAST Act, as well as provide you with tangible examples and practical advice on how to comply with the ever-changing means of delivering that disclosure.

about this seriesThe federal securities laws, made up of a complex assortment of statutes, rules, regulations and judicial precedent, play a ubiquitous role throughout a company’s life-cycle, relevant from the first issuance of founder’s shares at organization, to the use of equity compensation to reward and incentivize directors, employees and consultants, to private offerings of equity and debt in corporate finance transactions, to initial public offerings, alternative public offerings, in mergers and acquisitions and beyond.Please join our panel of leading securities law experts as they discuss—in plain English accessible to the non-expert—both fundamentals of the federal securities laws and the latest developments in this ever-evolving area of law.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs. © 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 77

episodes in this series

Dates above are premier dates All webinars also available On Demand through West LegalEd Center and Vimeo


EPISODE #1 Securities Law: An Overview 3/11/16

EPISODE #2 Private Offering Exemptions and Private

Placements

4/15/16

EPISODE #3 Advanced Topics: Public Company

Reporting

5/20/16

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How Does and Issuer Become a Reporting Company

• An issuer becomes subject to reporting obligations under Section 13(a) or Section 15(d) the Securities Exchange Act of 1934 by having a class of securities registered under Section 12 or being subject to Section 15(d).

• This creates three general categories of reporting companies: • Securities Exchange Listing - Companies with securities listed on

a national securities exchange, such as the NYSE or NASDAQ (Section 12(b))• Company must register that class of securities under the

Exchange Act by filing application with exchange and a registration statement with SEC under Section 12(b)

• Applies to debt and equity registrations


How Does and Issuer Become a Reporting Company

• Size Thresholds - Companies that satisfy certain size thresholds (Section 12(g))• Total assets exceeding $10 million and:• For issuers that are not banks or bank holding

companies, there are 2,000 or more record holders of that class of equity securities or 500 persons who are not accredited investors; or

• For banks and bank holding companies, there are 2,000 or more record holders of that class of equity securities

• Applies to equity securities only


How Does and Issuer Become a Reporting Company• Such company must file a registration statement under

Section 12(g) of the Exchange Act within 120 days after the last day of its first fiscal year in which it exceeds the above thresholds

• Effective ’33 Act Registration Statement - Companies that have an effective ’33 Act registration statement for debt or equity securities, even if securities are not listed on an exchange (Section 15(d))• Section 15(d) companies are subject to current and periodic

reporting only (Forms 8-K, 10-Q and 10-K)• Do not have to comply with other Exchange Act obligations

(proxy and tender offer rules, Section 16 reporting and short-swing profit restrictions and Schedule 13 beneficial ownership reporting)


How Did the JOBS Act and the FAST Act Change the Threshold and On-Ramp for Becoming a Reporting Company

• Final Rules adopted May 3, 2016 - implementing JOBS Act and FAST Act changes.

• “Backdoor” public company thresholds before the JOBS Act: • $10 Million in assets and 500 shareholders of record

• “Backdoor” public company thresholds after the JOBS Act: • $10 Million in assets and 2,000 shareholders of record, including 500

“unaccredited” investors and excluding holders of compensatory equity awards, with de-registration threshold remaining at 300 holders; or

• For banks and bank holding companies, $10 Million in assets and 2,000 equityholders of record, with de-registration threshold at 1,200 holders

• FAST Act changed thresholds for savings and loan holding companies to match the above.


How Did the JOBS Act and the FAST Act Change the Threshold and On-Ramp for Becoming a Reporting Company

• Other main benefits created by the JOBS Act for IPO on-ramp:• New “Emerging Growth Company” – EGC – category• Confidential initial registration statement filing• Two, rather than three, years of audited financials• Scaled executive compensation disclosures• Opportunity for “testing the waters” before or after filing• Other benefits, opt-outs and alternative treatments


What are the Consequences of Becoming a Reporting Company?

• Public disclosure duties - periodic reports (10-K, 10-Q, 8-K)• Annual meeting process - proxy rules, stockholder

proposals• Insider trading regulation - Rule 10b-5, Section 16 reports

and short-swing• Investor communications - earnings releases, Regulation FD• SRO regulation - NYSE & Nasdaq listing standards• Williams Act - Schedule 13D/G, tender offer regulation• Other substantive regulations – Sarbanes-Oxley, Dodd

Frank, FCPA


What Are Some of the Required Reports?

• Form 10-K - Annual Report • Form 10-Q - Quarterly Report • Form 8-K - Current Report• Schedules 14A and 14C - Proxy and Information

Statements• Schedule 14-F - Information Statement for Change in

Majority of Directors • Schedules 13D and 13G - 5% Beneficial Ownership• Forms 3, 4 and 5 - Section 16 Insider Reporting• Schedule TO - Tender Offer Statements


What Are Risk Factors?• Disclosure of risks that may materially impact issuer - S-

K Item 503(c)• Litigation Reform Act – safe harbor for forward-looking

statements• “Bespeaks caution” doctrine• Presentation in periodic reports and offering documents• SEC guidance – plain English, specific to issuer/industry,

no mitigation• Trends – cybersecurity, climate change, financial crises,

regulatory reforms


What Kind of Executive Compensation Disclosure is Required and in Which Report?

• Part III of Form 10-K and Proxy Statement incorporation timing

• Who is covered: mainly, Named Executive Officers – based on total compensation (Summary Compensation Table)

• What is covered: salary, bonuses, certain benefits and perquisites, equity awards value and change of control or termination benefits - “all compensation must be disclosed”

• What does it look like: CD&I, tables, narrative descriptions• JOBS Act impact – scaled disclosure for EGCs, smaller

reporting companies


What Kind of Disclosure Changes Are on the Horizon?

• Dodd-Frank Act requires SEC to adopt rules addressing many executive compensation matters

• After considerable delay, SEC proposed several rules in 2015• Employee hedging - proposed February 2015• Pay vs. performance - proposed April 2015• Incentive compensation clawbacks - proposed July 2015

• Final CEO pay ratio rules adopted by the SEC on August 5, 2015

• SEC issued concept release addressing prospect of enhanced disclosures for audit committees on July 1, 2015


What Does the SEC’s Process for Reviewing and Commenting on Disclosure Entail?

• Regular review by SEC – some level of review every 3 years (SOX mandate)• SEC discretionary review triggers – new registrants, outliers, largest

companies• Full review vs. limited scope review• Public availability of SEC comments and issuer responses• Areas of focus – MD&A, exec comp, segment reporting, goodwill, risk

factors• Best practices:

• Coordination of players (management, board, auditors, counsel)• Careful analysis of comments and tailored response• Escalation process – use wisely and appropriately• Confidential treatment – Rule 83• Choose your battles wisely


What is a Current Report and When are they Filed?• General• Report intended to supplement recurring filing requirements

when material events occur that should be brought to prompt attention of investing public

• Timing• Company generally must file Form 8-K within four business days

after occurrence of reportable event• Form 8-K filed in accordance with SEC’s fair disclosure rules

(Regulation FD) must be filed in time frame specified under those rules

• Company may voluntarily file Form 8-K upon occurrence of any event deemed of importance to shareholders (no deadline)

• Don’t file late! Cannot use Registration Statement on Form S-3


What is a Current Report and When are they Filed?• Mandatory reportable items include:• Entry into/amendment/termination of material definitive

agreement not made in ordinary course of business• Bankruptcy events• Mine safety events• Results of operations and financial conditions • Creation of, or acceleration or increase in, material, direct

financial obligation or obligation under off-balance sheet arrangement

• Costs associated with exit plan activities• Material impairments to assets• Acquisition or disposal of assets not in ordinary course of

business


What is a Current Report and When are they Filed?• Mandatory reportable items include:• Change in control• Receipt of notice of delisting or failure to satisfy continued listing

rule or standard or transfer of listing from a exchange or inter-dealer quotation system

• Non-reliance on financial statements or related audit report• Changes in certifying accountant• Unregistered sales of equity securities aggregating at least 1% of

the outstanding class• Material modifications to the rights of security holders• Departure of directors or principal officers• Election of directors other than by shareholder vote


What is a Current Report and When are they Filed?• Mandatory reportable items include:• Appointment of principal officers• Certain amendments to charter or bylaws and changes in fiscal

year• Temporary suspensions of trading under employee benefit plans• Amendment or waiver of Code of Ethics• Change in shell company status• Certain shareholder director matters for companies with proxy

access procedures• Shareholder voting results • Certain disclosures related to asset-backed securities• Disclosures to satisfy Regulation FD


What is Regulation FD?• Prohibition on selective disclosure – fairness/parity of disclosure• No covered person may disclose material nonpublic information

without simultaneous public disclosure• Covered persons – executive officers, directors, IR personnel• Material nonpublic information – reasonable investor would

consider important• Earnings information, M&A activities, new products, business

developments• Intentional vs. inadvertent disclosures• Aggressive SEC enforcement history• Accepted methods of public dissemination


How Can Material Non-Public Information Be Disclosed?

• Traditional forms of disclosure: SEC filings, including under Items 8.01 or 7.01 of Form 8-K; press releases; pre-announced investor calls; other forms of broad dissemination

• Additional channel for disclosure: company website, subject to certain conditions pursuant to SEC guidance

• The latest channel for disclosure: social media, subject to certain conditions pursuant to SEC guidance: case in point - CEO of Netflix, Inc.

More About The Faculty: D

CRAIG S. [email protected]


Craig S. Mordock is a Partner at Sheppard Mullin, where he maintains a corporate and securities practice, with special emphasis on private and public securities offerings, corporate governance, and mergers and acquisitions. His corporate finance experience ranges from representing venture capitalists, institutional investors, and start-up companies in early-stage financings to representing issuers and investment banks in public offerings of equity and debt securities. He advises purchasers and sellers of companies in a variety of industries, including software, communications, semiconductors, life sciences, renewable energy, consumer products, and financial services.Craig has extensive experience representing public companies in connection with disclosure and compliance matters under federal securities laws and provides general corporate and business counseling to several privately held companies. He regularly counsels boards of directors and board committees in connection with their duties under state and federal law as well as their compliance with the rules of self-regulatory organizations such as the New York Stock Exchange and NASDAQ.Craig has been a speaker at numerous conferences on securities and corporate governance matters and has published articles on various topics in these areas. He is an active member of the business and legal community and has served on the board of directors of several local non-profit organizations.

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mailto:[email protected]


ALISSA ALTONGY [email protected]


Alissa Altongy Parisi is a partner in the firm’s Corporate/M&A practice group and resides in the Washington, DC office. Ms. Parisi advises clients on a full range of corporate, securities, governance and compliance matters. Ms. Parisi has significant experience in advising boards and executive management on complex business and operational matters, including in the areas of risk assessment, implementation of governance initiatives and alignment of corporate strategy to achieve corporate goals. She also acts as corporate counsel for companies, advising on a host of general corporate matters, including fiduciary duties, management transitions, relationships with shareholders and effective approaches to the changing regulatory environment.Ms. Parisi advises companies on compliance matters relating to the SEC, NYSE, Nasdaq, state regulators and other authorities. Her compliance experience includes preparing SEC reports, advising with respect to the timing and substance of disclosure of material events and counseling with respect to shareholder meetings.Ms. Parisi also represents publicly and privately held entities in merger and acquisition transactions. She has broad experience in representing clients in the structure, negotiation, diligence and documentation of transactions ranging from several million dollars to several billion dollars.

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JULIA [email protected]


Julia Vax, a Partner at Arnold & Porter LLP, in the Corporate and Securities practice, focuses her practice on business, corporate, and securities law. Her clients include emerging growth and public companies primarily in the life sciences and technology sectors. Ms. Vax has represented life sciences and technology companies at all stages of development, from entrepreneurs to publicly traded entities. She has advised clients in the biopharmaceutical, genomics, medical device, diagnostics, Internet and digital media, software, IP telephony, telecommunications and financial services sectors in all aspects of their corporate development and in connection with a broad range of financing and strategic transactions.Ms. Vax has extensive experience in IPOs, 144A debt transactions, shelf registrations, private placements, including PIPE transactions and venture capital financings, as well as in executive compensation, corporate governance and SEC reporting and compliance for public companies. She has been involved in numerous public and private financing transactions representing companies, investors, underwriters and placement agents.

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VANESSA J. [email protected]


Vanessa J. Schoenthaler is a partner in the New York office of Sugar Felsenthal Grais & Hammer. Her practice focuses on corporate and securities matters with an emphasis on private and public securities transactions, compliance and disclosure obligations and corporate governance matters. Vanessa counsels foreign and domestic issuers, intermediaries and investors with respect to securities and regulatory compliance, corporate governance, corporate financing transactions, complex business transactions and general day-to-day corporate matters. She also advises sponsors and private funds with regard to formation and operation, investment advisor registration, compliance and disclosure obligations and investment transactions.

Ms. Schoenthaler speaks on and regularly authors or contributes to a number of articles related to current securities law and regulatory matters.

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

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