Yesterday’s blog on this topic resulted in a flood of emails – so here is another attempt to make sense of it all. If you look at Telephone Interp A.78, it states: “For purposes of Rule 401(b), the updating of a Form S-3 registration statement through the incorporation of a Form 10-K is the equivalent of filing a post-effective amendment pursuant to Section 10(a)(3). This means that if the registrant were not eligible to use Form S-3 at the time of such updating, it would be required to file a post-effective amendment on whatever other Form would be available at the time.”
As I understand it, since accelerated filers that rely on the SEC’s exemptive order will not be S-3 eligible until they file their 10-K amendment (per the terms of the SEC’s order), they are not able to draw down off a shelf under this Telephone Interp. This is because companies would remeasure their eligibility to use their shelf at the time of their 10(a)(3) update – which is the date of filing the 10-K – and the SEC’s order operates to render the company S-3 ineligible until the date of filing the 10-K amendment, at which time the order operates to restore the company’s S-3 eligibility.
As a practical matter, information regarding management’s assessment of the company’s internal controls and the auditor’s ability to give a “clean” attestation might be material anyways – effectively precluding a takedown since this information would be non-public until the 10-K amendment is filed. Similarly, a company’s auditor isn’t likely to allow incorporation of its opinion into a takedown until a 10-K amendment is filed that includes the management report and attestation. Thanks to Mark McElreath of Alston & Bird for these two nuggets!
Also note that the use of Rule 144 and Form S-8 are fine before the 10-K amendment is filed by an accelerated filer that relies on the SEC’s order – their use is not impacted like S-3/S-2 eligibility by the SEC’s order.
Here are some open issues identified in a Weil Gotshal memo that came out last night:
· Under what circumstances may an auditor provide an unqualified audit report on a company’s financial statements if it has concluded that the company’s internal control over financial reporting is ineffective as of the 10-K filing date?
· What are the consequences to a company relying on the Order if its auditor determines that it is unable to provide an audit report on the financial statements until it concludes the internal control audit, despite the latitude afforded by the SEC and PCAOB?
· What should management do about the SOXA Section 906 certifications under the bifurcated filing procedure contemplated by the Order? Can appropriate qualifying language be added to the body of the 10-K (e.g., in the Item 9A disclosure)?
8-K Trends: Part II
I have seen a lot of 1.01 and 2.03 8-K filings accompanied by exhibit filings – including material definitive agreements, even though this is not required by the items. In some cases, I hear that companies have filed the exhibits to get them out of the way (and not worry about forgetting to file them in the next Q or K) – but in other cases, I hear that companies have filed them because they were concerned about whether the summary description (particularly in the 2.03 context) was sufficient, so they wanted to file it and incorporate them by reference.
SOX Upheld in Court
On Monday, former HealthSouth CEO Richard Scrushy’s claims that Sarbanes-Oxley is unconstitutionally vague were rejected by a federal judge in Birmingham, Ala. In the first court test of the Sarbanes-Oxley’s constitutionality, U.S. District Judge Karon Bowdre said jurors, not a judge, should decide key questions raised in Scrushy’s fraud case. No big surprise here…