The Securities and Exchange Commission recently published guidance providing some useful clarifications related to the Commission’s recent changes to the definition of “smaller reporting company” (see our prior posts, here and here).  In the guidance, the Commission confirms that foreign issuers can qualify as SRCs; however, investment companies (including BDCs), ABS issuers and majority-owned subsidiaries of non-SRC parent companies cannot. The new definition of SRC becomes effective on September 10, 2018.

Assessing SRC Status.  A company assesses whether it qualifies as an SRC annually as of the last business day of its second fiscal quarter.  If it qualifies as an SRC on that date, it may elect to use the SRC scaled disclosure accommodations in its subsequent filings, beginning with its second quarter Form 10-Q.  A company must reflect its SRC status in its Form 10-Q for the first fiscal quarter of the next year.  Reporting companies calculate their public float annually as of the last business day of their second fiscal quarter. A reporting company that does not qualify under the “public float” test would determine whether it qualifies as an SRC based on its annual revenues in its most recent fiscal year completed before the last business day of the second fiscal quarter.

Assessing SRC Status in connection with Initial Registration Statement.  A company filing its initial registration statement for shares of common equity will make its initial SRC determination in connection with the filing of its registration statement.  Public float is measured as of a date within 30 days of the date of the filing of the registration statement and is computed by multiplying the aggregate worldwide number of shares of voting and non-voting common equity held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of shares of voting and non-voting common equity included in the registration statement by the estimated public offering price of the shares.  In the case of a determination based on an initial Securities Act registration statement, a company that determined it was not an SRC has the option to re-determine its status under the “public float” test at the conclusion of the offering covered by the registration statement based on the actual offering price and number of shares sold.  A company filing its initial registration statement for common equity that does not qualify under the “public float” test would determine whether it qualifies as an SRC based on its annual revenues in its most recent audited financial statements available on the initial public float calculation date.

Changes in Float/Revenue and Qualification as an SRC.  The Commission provides a chart showing how a company can transition and qualify as an SRC depending on changes in its float and/or revenues.

Transitioning to the Amended SRC Definition.  For purposes of the first determination of SRC status after September 10, 2018, a company will qualify as an SRC if it meets the initial qualification thresholds in the revised definition as of the date it is required to measure its public float and, if applicable, had annual revenues of less than $100 million in its most recently completed fiscal year, even if such company previously did not qualify as an SRC.  A company that completed its initial public offering since the end of its most recent second fiscal quarter may elect to determine whether it qualifies as an SRC based on its public float as of the date it estimated its public float prior to filing or as of the conclusion of the offering based on the actual offering price and number of shares sold.  A company newly qualifying as an SRC under the amended definition after September 10, 2018, regardless of whether it qualified under the previous definition, has the option to use the SRC scaled disclosure accommodations in its next periodic or current report due after September 10, 2018, or, for transactional filings without a due date, in filings or amended filings made on or after September 10, 2018.

See the full guidance, including the charts, here.

On July 24, 2018, the Securities and Exchange Commission (SEC) proposed amendments to the financial disclosure requirements in Rules 3-10 and 3-16 of Regulation S-X, in an effort to simplify and streamline disclosures by registrants in registered debt offerings with respect to guaranteed or collateralized debt securities. Rule 3-10 addresses the financial disclosure requirements for guarantors and issuers of guaranteed securities, while Rule 3-16 focuses on financial disclosure requirements for affiliates whose securities constitute a substantial portion of the collateral for securities offered. Both sets of disclosure requirements affect not only the issuer’s offering documents, but also its periodic filings. The SEC stated that the proposed amendments are “intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants.” The review of the requirements and proposed amendments to Rule 3-10 and 3-16 stem from the SEC’s Disclosure Effectiveness Initiative. The proposed rules follow the SEC’s 2015 request for comments on these requirements. This Legal Update summarizes the SEC’s proposed amendments.

At last week’s open meeting, the Securities and Exchange Commission originally had been scheduled to consider a proposed amendment to Regulation S-X Rules 3-10 and 3-16, as we had previously blogged.  The agenda for the open meeting was amended shortly prior to the meeting to remove consideration of the Regulation S-X rule changes that originally had been considered in 2015.

Yesterday, the Commission voted to propose amendments.  The amendments would affect disclosures relating to guarantors and affiliates the securities of which are pledged as collateral.

The link to the press release is here.

The link to the proposed rules is here.

A client alert is available here.

At this morning’s open meeting, the Securities and Exchange Commission adopted an amendment to Rule 701.  The Commission was mandated to adopt an amendment to Rule 701 by the Economic Growth, Regulatory Relief and Consumer Protection Act, often referred to as the Crapo Act.  The amendment increases the threshold that triggers an issuer’s requirement to provide certain disclosures to investors from $5 million to $10 million.  In addition, the Commission approved the release of a concept release soliciting comments regarding  Rule 701 and Form S-8 requirements.  The release solicits responses on more than 50 questions.  The Commission did not consider or take action on the changes to certain financial statement related requirements, which originally had been on the agenda for the meeting.

Below we provide links to the Commission’s fact sheet, the amendment and the concept release.  A client alert will follow in short order.

Fact sheet

Rule 701 amendment

Concept release