The SEC will hold an Open Meeting this Wednesday1 to consider whether to propose amendments based on the recommendations contained in the staff’s Report on Modernization and Simplification of Regulation S-K2 that will hopefully simplify and streamline the disclosure requirements for SEC registrants.
Though some suggestions have already been implemented – e.g., the requirement to include hyperlinks to exhibits – the Report, like Regulation S-K itself, covers a lot of territory, from MD&A to disclosures concerning management and certain security holders, corporate governance to exhibit filing requirements. A summary of certain of the staff’s recommendations is included below:
General – Item 10(d):
- Permit the incorporation by reference of documents that have been on file with the Commission for more than five years, but require specific descriptions of the locations of such documents and a hyperlink to the incorporated document on EDGAR.
- Allow registrants to satisfy Regulation S-K’s disclosure requirements in prospectuses by incorporating information by reference to the financial statements.
Business – Item 102:
- Clarify that a description of property is required only to the extent that physical properties are material to the registrant’s business.
MD&A – Item 303:
- Clarify that a registrant need only provide a period-to-period comparison for the two most recent fiscal years presented in the financial statements and may hyperlink to the prior year’s annual report for the additional period-to-period comparison.
- Eliminate the requirement to disclose a table of contractual obligations and instead require registrants to include a hyperlink to the relevant financial statement notes, while requiring additional narrative discussion of liquidity that describes material changes to contractual obligations and the ability to pay such obligations over time.
Directors and Executive Officers – Item 401:
- Codify a staff position that disclosure of the business experience of directors, executive officers, and nominees for such positions does not need to be included in proxy statements for executive officers if it is presented in the 10-K.
Compliance with Section 16(a) of the Exchange Act – Item 405:
- Allow registrants to rely solely on a review of Section 16 reports submitted on EDGAR, instead of those furnished to the registrant under Rule 16a-3(e), when determining whether there are any Section 16 delinquencies that must be disclosed pursuant to Item 405.
- Eliminate the requirement in Rule 16a-3(e) that Section 16 reporting persons furnish Section 16 reports to the registrant, as such reports must be filed electronically on EDGAR.
- Require registrants to include the Section 16(a) Beneficial Ownership Reporting Compliance section in their filings only if they have Section 16(a) delinquencies to report.
Corporate Governance – Item 407:
- Revise Item 407(e)(5) to clarify that Emerging Growth Companies are not required to provide a compensation committee report.
Risk Factors – Item 503:
- Relocate “Risk Factors” from Item 503(c) to a new, separate item (Item 105) in Subpart 100 of Regulation S-K.
Undertakings – Item 512:
- Eliminate the Item 512(c) undertaking because it is duplicative and unnecessary, and the Item 512(d), (e), and (f) undertakings because they are obsolete.
Exhibits – Item 601:
- Allow companies to omit attachments and schedules to filed exhibits, unless the attachments/ schedules contain information that has not been otherwise disclosed and is material to an investment decision.
- Currently, Item 601(b)(2) expressly states that attachments to plans of acquisition, reorganization, arrangement, liquidation, or succession exhibits need not be filed unless they contain information which is material to an investment decision and has not been disclosed otherwise; there is no similar provision permitting registrants to omit schedules or similar attachments to other exhibits (e.g., Exhibit 10 – Material Contracts).
The report contains a number of other recommendations covering the forepart of registration statements, prospectus cover pages, plan of distribution definitions and exhibit filing requirements not covered above.
- The Open Meeting will be held this Wednesday, October 11, 2017 at 10:00 a.m. ET. A webcast of the meeting will be available here.≈
- This Report was required by Section 72003 of the Fixing America’s Surface Transportation (“FAST”) Act, which directs the Commission to: carry out a study of Regulation S-K’s requirements; issue a report to Congress within 360 days of the enactment of the FAST Act; and within 360 days of the report, propose rules to implement the recommendations contained therein.≈