(Updated)

On November 21, 2023, the staff (“Staff”) of the U.S. Securities and Exchange Commission’s Division of Corporation Finance released eight new Compliance and Disclosure Interpretations (“C&DIs”) and revised two C&DIs to clarify the pay versus performance (“PVP”) disclosure requirements in Item 402(v) of Regulation S-K.  The new C&DIs include clarifications on the reporting of a peer group under Regulation S-K Item 402(v)(2)(iv) and the requirements applicable to smaller reporting companies and emerging growth companies.  The key takeaways are summarized below.  Companies should read the full text of the C&DIs before preparing their PVP disclosures. A link to the full text of each C&DI is provided in the header of each summary.

Summary of New C&DIs

C&DI #128D.23

Some stock awards entitle the holder to receive dividends or dividend equivalents paid on the underlying shares prior to the vesting date.  These awards should be included in the calculation of executive compensation actually paid if the dollar value of dividends or dividend equivalents paid are not reflected in the fair value of such awards.  Item 402(v)(2)(iii)(C)(1)(vi) of Regulation S-K requires the calculation of executive compensation actually paid to include dividends or dividend equivalents paid that are not already reflected in the fair value of stock awards or included in another component of total compensation.

C&DI #128D.24

When identifying a total shareholder return peer group under Regulation S-K Item 402(v)(2)(iv), the registrant must use either the same index or issuers used by it to comply with Item 201(e)(1)(ii) or the companies it uses as a peer group under Regulation S-K Item 402(b).  If a registrant uses more than one “published industry or line-of-business” index for Item 201(e)(1)(ii) purposes, the registrant may choose which index it uses for pay versus performance disclosure purposes.  To provide clarity to investors, the registrant should include a footnote disclosing the index chosen.  If the registrant chooses to use a different published industry or line-of-business index from that used by it for the immediately preceding fiscal year, it is required under Item 402(v)(2)(iv) to explain in a footnote the reason(s) for this change and compare the registrant’s cumulative total return with that of both the newly selected peer group and the peer group used in the immediately preceding fiscal year.

C&DI #128D.25

Item 402(v)(2)(iv) does not contemplate the use of a broad-based equity index as a peer group for purposes of the pay versus performance disclosure.  If the registrant discloses in its Compensation Discussion & Analysis (“CD&A”) that it determines the vesting of performance-based equity awards based on relative TSR compared to a broad-based equity index, the registrant cannot use that broad-based index as its peer group for purposes of Item 402(v)(2)(iv).

C&DI #128D.26

Pursuant to Regulation S-K Item 402(v)(2)(iv), if the registrant’s peer group is not a published industry or line-of-business index, the identity of the issuers comprising the group must be disclosed in a footnote.  The returns of each component issuer must be weighted according to the respective issuers’ stock market capitalization at the beginning of each period for which a return is indicated.  For purposes of Item 402(v)(2)(iv), the weighting requirement is applicable only if the registrant is not using a published industry or line-of-business index pursuant to Item 201(e)(1)(ii).

C&DI #128D.27

If a registrant that uses a peer group other than a published industry or line-of-business index as its peer group under Regulation S-K Item 402(v)(2)(iv) adds or removes any of the companies in the peer group, the registrant is required to footnote the change(s) and compare its cumulative total shareholder return with that of both the updated peer group and the peer group used in the immediately preceding fiscal year.  However, consistent with Regulation S-K C&DI Question 206.05, comparison of the registrant’s cumulative total return with that of both the newly selected peer group and the peer group used in the immediately preceding fiscal year is not required if (1) an entity is omitted solely because it is no longer in the line of business or industry, or (2) the changes in the composition of the index/peer group are the result of the application of pre-established objective criteria.  In these two cases, a specific description of, and the bases for, the change must be disclosed, including the names of the companies deleted from the new index/peer group.

C&DI #128D.28

A smaller reporting company (“SRC”) with a December 31 fiscal year end provided scaled pay versus performance disclosure covering fiscal years 2021 and 2022 in its proxy statement filed in April 2023.  It subsequently loses its SRC status based on its public float as of June 30, 2023.  The registrant proposes to rely on General Instruction G(3) of Form 10-K to incorporate by reference executive compensation and other disclosure required by Part III of Form 10-K into its 2023 Form 10-K from its definitive proxy or information statement to be filed not later than 120 days after its 2023 fiscal year end.  The Staff will not object if a registrant that loses SRC status as of January 1, 2024, continues to include scaled disclosure under Regulation S-K Item 402(v)(8) in its definitive proxy or information statement filed not later than 120 days after its 2023 fiscal year end from which the registrant’s Form 10-K will forward incorporate the disclosure required by Part III of Form 10-K. The pay versus performance disclosure in such filing must cover fiscal years 2021, 2022, and 2023.

Unless the registrant regains SRC status in subsequent years, any other proxy or information statement in which Item 402(v) disclosure is required and that is filed after January 1, 2024, must include non-scaled pay versus performance disclosure.  For example, in the registrant’s annual meeting proxy statement filed in 2025, it must include non-scaled pay versus performance disclosure for fiscal year 2024.  A non-SRC is required to provide Item 402(v) disclosure covering five years; however, the Staff stated that it will not object if the registrant does not add disclosure for a year prior to the years included in the first filing in which it provided Item 402(v) disclosure.  The registrant generally is not required to revise the disclosure for prior years (in this example, 2021, 2022, and 2023) to conform to non-SRC status in such filings.  However, because peer group TSR is calculated on a cumulative basis, the registrant should include peer group TSR for each year included in the pay versus performance table, measured from the market close on the last trading day before the registrant’s earliest fiscal year in the table. In addition, the registrant should include its numerically quantifiable performance under the Company-Selected Measure for each fiscal year in the table. The entirety of the Item 402(v) disclosure provided for all fiscal years must be XBRL tagged in accordance with Item 402(v)(7).

C&DI #128D.29

A registrant that previously qualified as an emerging growth company (“EGC”) loses that status as of December 31, 2024. Such registrant is required to provide pay versus performance disclosure in any proxy or information statement filed after it loses its EGC status and may apply the transitional relief in Instruction 1 to Item 402(v).

C&DI #128D.30

Two (or more) individuals served as a registrant’s principal financial officer (“PFO”) during a single covered fiscal year included in the pay versus performance table and related disclosure under Regulation S-K Item 402(v).  Each such individual is included in the Summary Compensation table as a named executive officer (“NEO”) pursuant to Item 402(a)(3)(ii).  For purposes of the calculation of average compensation amounts for the NEOs other than the principal executive officer reported pursuant to Items 402(v)(2)(ii) and (iii), the registrant may not treat the PFOs as the equivalent of one NEO.  Each NEO must be included individually in the calculation of average compensation amounts.  In such cases, the registrant should consider including additional disclosure on the impact of the inclusion of such individuals on the calculation in order to provide clarity to investors.

Summary of Revised C&DIs

C&DI #128D.07

The Staff revised this C&DI to clarify how a registrant should present changes in its peer group across reporting years.  A registrant provided the same list of companies as a peer group in its CD&A in each of 2020 and 2021, but provided a different list of companies in its CD&A for 2022. The original C&DI explained that such registrant providing initial PVP disclosure in its 2023 proxy statement for three years (as permitted by Instruction 1 to Item 402(v) of Regulation S-K) should present the peer group total shareholder return for each year in the table using the peer group disclosed in its CD&A for such year.   

The Staff added the following two clarifications to this C&DI: (i) in the 2024 proxy statement, if such registrant uses the same peer group for 2023 as it used for 2022, the registrant should present its peer group total shareholder return for each of the years in the table using the 2023 peer group; and (ii) if such registrant changes the peer group in subsequent years, it must provide disclosure of the change in accordance with Regulation S-K Item 402(v)(2)(iv).

C&DI #128D.18

This C&DI originally stated that if retirement eligibility is the only vesting condition for accelerated vesting under a stock or option award, this condition would be considered satisfied for purposes of PVP disclosures and calculation of executive compensation actually paid in the year that the holder becomes retirement eligible, although  any additional substantive conditions would also have to be considered in determining when an award has vested.

The Staff revised this C&DI by adding a sentence to clarify that other substantive conditions would include, but not be limited to, a market condition as described in C&DI #128D.16 or a condition that results in vesting upon the earlier of the holder’s actual retirement or the satisfaction of the requisite service period.

On 28 November 2023, the UK’s Financial Conduct Authority published its “Sustainability Disclosure Requirements (“SDR“) and investment labels” policy statement (PS23/16) (the “Policy Statement”). The Policy Statement introduces a set of new rules aimed at tackling greenwashing, including investment product sustainability labels and restrictions on how terms like “ESG”, “green” and “sustainable” can be used.

Read our Legal Update.

This practice note examines some of the common issues and comments that the U.S. Securities and Exchange Commission (SEC) staff may raise in its review of registration statements filed for initial public offerings (IPOs). The note provides guidance on how to prepare the prospectus and respond to SEC staff comments, with a focus on topics such as the SEC review process, plain English principles, experts’ consents, non-GAAP financial measures, emerging growth companies, and risk factors. The note also discusses comments that apply to specific sections of the prospectus, such as the summary, management’s discussion and analysis of financial condition and results of operations, use of proceeds, and industry and market data. The note is intended to help counsel to an IPO company navigate the SEC staff review process and resolve the comments efficiently and effectively. The note does not cover comments on executive compensation disclosure, financial statement and accounting issues, or liability under the federals securities law.

See a preview of the piece here and the complete piece here.

On November 22, 2023, the Securities and Exchange Commission announced that it has issued an order to postpone the effective date of its final share repurchase disclosure rule (the “Share Repurchase Final Rule”).  The Share Repurchase Final Rule, which we previously discussed on this blog, requires quantitative and qualitative disclosure of share repurchases on a quarterly or semi-annual basis, depending on the type of issuer.  The Share Repurchase Final Rule also revised and expanded the existing periodic disclosure requirements for share repurchases.

The Commission’s actions are in response to the U.S. Court of Appeals for the Fifth Circuit’s opinion in Chamber of Com. of the USA v. SEC, in which the petitioners challenged the Share Repurchase Final Rule.  The Fifth Circuit granted the petition for review, calling the adoption of the Share Repurchase Final Rule “arbitrary and capricious” and compelled the Commission to correct the defects the court identified in the rule by November 30, 2023.  We will provide updates on the Share Repurchase Final Rule as they become available. 

See the Fifth Circuit’s opinion, and the Commission’s announcement and order.

This practice note discusses drafting considerations for an indenture governing debt securities issued in a Rule 144A/Regulation S transaction, with a focus on covenants and transfer restrictions. An indenture is a contract between an issuer of securities and a trustee that defines the terms of the debt securities and the duties of each party. The indenture should be reviewed for compliance with the Trust Indenture Act of 1939 (TIA), which governs indentures, and the offering memorandum, which describes the securities. The covenants are intended to protect the interests of debtholders by limiting the activities of the issuer that may affect its ability to repay the debt. The covenants vary depending on the credit rating of the issuer and the debt and are typically more restrictive for high yield debt than for investment grade debt. The transfer restrictions are imposed by the federal securities laws and limit the resale of the securities to certain types of investors and under certain conditions. The indenture may also provide for an exchange offer, where the issuer replaces the restricted securities with freely-transferable securities.

See a preview of the piece here and the complete piece here.

On November 20, 2023, the staff of the U.S. Securities and Exchange Commission (“SEC”) issued two new compliance and disclosure interpretations (“C&DIs”) on filing fees and XBRL exhibits. These C&DI’s are summarized below, with links to the full text provided.

Filing Fees

New Question 239.02 explains that, when a well-known season issuer that has registered securities on an automatic shelf registration statement and deferred payment of filing fees pursuant to Rule 456(b), subsequently files, in a shelf takedown, a prospectus supplement along with the required filing fee exhibit, then that Table 1 filing fee exhibit must include securities for which a deferred fee is being paid in Table 1’s “Fees to Be Paid” lines.  However, the issuer does not need to repeat in Table 1 previously included rows reflecting the registration of securities that were already paid or will be paid in an indeterminate amount in reliance on Rule 457(r).  In addition, the issuer does not need to include in the “fees previously paid” line of the filing fee exhibit, previously paid fees for securities that are part of (i) the same offering or (ii) any prior offering.

XBRL Exhibits

Item 601(a)(2) of Regulation S-K provides that an exhibit index does not need to include a hyperlink to an exhibit that is filed in XBRL.  New Question 146.18 clarifies that this exception does not apply to exhibits that are filed in Inline XBRL.  Item 601(a)(2) references exhibits filed in XBRL that are also filed in unconverted code, which is only machine-readable. In contrast, exhibits tagged in Inline XBRL are not filed in unconverted code and, therefore, cannot rely on the exception provided in Item 601(a)(2).

On November 17, 2023, the staff of the U.S. Securities and Exchange Commission (“SEC”) issued  one revised and five new proxy-related compliance and disclosure interpretations (“C&DIs”). These C&DI’s are summarized below, with links to the full text provided.

10 Calendar Days

Revised Question 126.03 clarifies the “10 calendar day” period in Rule 14a-6 between filing a preliminary proxy statement and the definitive proxy statement.  As an example, this C&DI specifies that if a preliminary proxy statement is filed on or before 5:30 p.m. Eastern Time on Friday, October 20, 2023, then Sunday, October 29, 2023, would be day ten, allowing the company to send its definitive proxy statement to security holders starting at 12:01 a.m. on October 30, 2023. However, if the company files its preliminary proxy statement after 5:30 p.m. on Friday, October 20, 2023, the 10-day period does not start until the next business day, which would be Monday, October 23, 2023. 

Rule 14a-12

New Question 132.03 addresses Rule 14a-12, which permits solicitations before the furnishing of a proxy statement, provided that, among other things, written soliciting material includes the required participant information or a prominent legend advising shareholders where they can find that information. This C&DI specifies that general references in a legend to filings made or to be made by the soliciting party or participants do not sufficiently advise shareholders where they can obtain the required participant information. According to this C&DI, the legend should:

  • clearly identify the specific filing(s) where participant information appears (including by filing date);
  • clearly describe the specific locations of the participant information in such filings, whether by reference to the relevant section headings, captions or otherwise; and
  • include active hyperlinks to the referenced filings, when possible.

Universal Proxy

New Question 139.07 notes that Rule 14a-19(e)(7) requires a universal proxy card to prominently disclose the treatment and effect of a proxy executed in a manner that grants authority to vote “for” the election of more nominees than the number of director seats up for election (an “overvoted proxy card”) or fewer nominees than the number of director seats up for election (an “undervoted proxy card”). This C&DI specifies that a soliciting party may not use discretionary authority to vote the shares represented by overvoted proxy cards in accordance with that party’s voting recommendation for the director. However, the shares represented by an overvoted proxy card can be voted on other matters included on the proxy card for which there is no overvote and can be counted for purposes of determining a quorum. The treatment and effect of the corresponding voting instruction form (“VIF”) should be the same as that disclosed on a universal proxy card. The staff indicated that this interpretive position does not prohibit  intermediaries from contacting  shareholders or beneficial owners to seek a correction of an overvoted proxy card or VIF before the meeting date.

New Question 139.08 explains that the shares represented by an undervoted proxy card can be voted in accordance with the shareholder’s specifications and therefore that a soliciting party may not use discretionary authority to vote the shares represented by undervoted proxy cards for the remaining director seats up for election in accordance with that party’s voting recommendation.  The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card.

New Question 139.09 provides that a soliciting party may use discretionary authority to vote the shares represented by a signed but unmarked proxy card in accordance with that party’s voting recommendations because the shareholder has not specified any choices. This C&DI notes that Rule 14a-19(e)(7) requires that a universal proxy card prominently disclose the treatment and effect of a proxy executed in a manner that does not grant authority to vote with respect to any nominees. The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card.

Note A of Schedule 14A

New Question 151.02 addresses, for the purposes of Note A of Schedule 14A, the solicitation of security holder approval for the authorization of additional shares of common stock following an acquisition of another company in a transaction not requiring security holder approval where a portion of the consideration consists of securities convertible into shares of the company’s common stock or, at the company’s option, cash. This C&DI explains that a proposal “involves” another matter within the meaning of Note A when information about the other matter that is called for by Schedule 14A is material to a security holder’s voting decision on the proposal presented, which depends on all the relevant facts and circumstances.  According to this C&DI, the authorization of additional shares of common stock is an integral part of the acquisition because it is necessary for the company to meet its obligation under the convertible securities issued as consideration for the acquisition.  Therefore, the proposal to authorize additional shares of common stock “involves” the acquisition. In such circumstances, the company would have to include in the proxy statement information about the acquisition called for by Schedule 14A, unless such information has already been disclosed or sufficient time has passed so that the registrant’s historical filings fully reflect the acquisition.

Webinar December 7, 2023
1:00 – 2:00 p.m. ET
Register here.

It’s time to start preparing for the 2024 proxy and annual report season. Additional time may be required this year because of the substantial scope and pace of relevant changes in law and practice.

During this session, join Mayer Brown partner Jennifer Carlson, counsel Laura Richman, as well as Amanda Buthe, Director, ESG Advisory at Georgeson, as they discuss key issues companies should consider while preparing for the upcoming 2024 proxy and annual report season. Themes to be discussed include, among others:

  • Recent Proxy and Annual Report Developments
  • Proxy Voting Matters
  • Governance Matters
  • Environmental and Social Matters
  • Additional Annual Report and Proxy Statement Matters

This practice note discusses conducting due diligence interviews for a securities offering, which are meetings or calls among the underwriters, their counsel, the issuer, and other parties to discuss the issuer’s business, operations, and financial results. The purpose of these interviews is to help the underwriters perform a reasonable investigation, ensure the accuracy and completeness of the disclosure documents, confirm the valuation of the issuer’s securities, and support the legal opinions and negative assurance letters. The practice note provides an overview of the typical due diligence interviews conducted in connection with different types of securities offerings, such as initial public offerings, follow-on offerings, Rule 144A/Regulation S offerings, and private offerings. The practice note also covers questions usually asked during the interviews, the timing and format of the interviews, and the potential challenges and issues that may arise.


See a preview of the piece here and the complete piece here.

This practice note explains the due diligence process for an unregistered offering of debt securities that relies on Rule 144A and/or Regulation S under the Securities Act of 1933. Due diligence is a critical component of the offering, as it helps the initial purchasers and the issuer to assess the legal, business, and reputational risks, ensure accurate disclosure, and minimize the liability for material misstatements or omissions. The practice note discusses the factors that affect the extent of due diligence required, such as the nature of the issuer, the type of securities, and the ratings of the securities. The practice note also provides guidance on how to organize and conduct the due diligence review, including the roles and responsibilities of the parties involved, the use of data rooms, the preparation and response to the due diligence request list, the review of the documents and information provided by the issuer, the due diligence calls and bring-down calls, and the delivery of comfort letters, legal opinions, and officer certificates. The practice note emphasizes the need to customize the due diligence process to the specific situation of the issuer, the offering, and the relevant risk factors.

See a preview of the piece here and the complete piece here.