Corp Fin Updates Its Compliance and Disclosure Interpretations; Issues a Statement on WKSI Waivers

The Division of Corporation Finance added eight new Compliance and Disclosure Interpretations (C&DIs) to the Commission’s website yesterday, addressing four main areas of disclosure:

Notification of Late Filings (Question 107.02)

The first notes that if a company is filing a Notification of Late Filing on Form 12b-25, but doesn’t believe that it will be able to file the required report by the extended deadline, then it shouldn’t check the box in Part II of Form 12b-25 indicating that it will.

This seems obvious enough, but what happens if a company doesn’t check the box and somehow manages to file the required report by the extended deadline? Not to worry, if the deadline is met then the Commission will consider the report to have been timely filed, regardless of the checking of the box.

Notification of Late Filing

Compensation Related Disclosures (Questions 108.01, 117.07, 118.08 and 119.28)

The next three C&DIs address compensation related disclosures:

The first reiterates that Regulation G and Item 10(e) of Regulation S-K apply to any non-GAAP financial disclosures, other than target level disclosures, that are included in a company’s proxy statement. With regard to pay-related non-GAAP disclosures, the Commission notes that it will not object if a company includes the requisite GAAP reconciliations in a prominently cross-referenced annex or by incorporation by reference to the relevant pages of the company’s annual report containing the requisite GAAP reconciliations.

The second specifies that a company may omit disclosure regarding disability plans (as with group life, health, hospitalization, or medical reimbursement plans) that do not discriminate in scope, terms or operation, in favor of its executive officers or directors, and that are available generally to all of its salaried employees.

The third is a little counterintuitive (at least it was at first for me). It notes that the grant date fair value for stock and option awards that are subject to performance conditions must be reported based on the probable outcome of the performance conditions as of the grant date, even if the actual outcome is known as of the disclosure date. (For clarity’s sake you may want to take a look the fact pattern posed by question 119.28)

Disclosure Regarding Departing Directors (Question 116.10)

The next CD&I represents a change in position from question 116.08, which was withdrawn as of yesterday.

Basically it states that if a company incorporates by reference into its annual report disclosure from its proxy statement regarding the identification and business experience of its directors, and the definitive proxy statement is filed within 120 days of the company’s fiscal year-end, then the company may omit from both the proxy statement and annual report disclosure regarding any director whose term will not continue after its annual shareholder meeting.

If, however, a company directly discloses information regarding the identification and business experience of its directors in its annual report (rather than incorporating by reference), it cannot omit disclosure regarding any director whose term will not continue after the company’s annual shareholder meeting.

Disclosures Related to Say on Frequency (Questions 121A.03 and 121A.04)

The final two CD&Is address disclosures related to shareholder advisory votes on the frequency of advisory votes on executive compensation (say on frequency votes):

The first notes that, with respect to the say on frequency vote, a company is not required to disclose the number of broker non-votes; only the number of votes cast for each of the one, two and three-year frequency options and the number of abstentions.

The second notes that a company may disclose the initial voting results from its shareholder meeting in an annual or quarterly report, rather than in a Form 8-K, provided the report is filed within the requisite disclosure period. Thereafter, a company may choose to disclose its board’s decision as to how frequently it will hold the shareholder advisory vote on executive compensation in a new Form 8-K, rather than by amending the annual or quarterly report in which the initial voting results were disclosed. If, however, the initial voting results are disclosed in a Form 8-K the board’s subsequent decision as to how frequently the shareholder advisory vote on executive compensation will be held must be disclosed in an amendment to the original Form 8-K, as opposed to a new Form 8-K.

Statement on Well-Known Seasoned Issuer (WKSI) Waivers

In addition to the new C&DIs, the Division of Corporation Finance also released a statement outlining the framework that it will use when determining whether to grant an “ineligible issuer” waiver to a company that has lost its status as well-known seasoned issuer for having violated the anti-fraud provisions of the federal securities laws. The statement is very brief and if you’re a WKSI worth the quick read.

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