February 17, 2006

Nasdaq’s Upcoming Exchange Status: What It Means for 10-Ks

As noted in this press release, Nasdaq’s application to become a national securities exchange has been approved by the SEC. For those of you listed on Nasdaq, you might wonder if you need to check the “12(b)” box for this year’s 10-K.

As you might recall, companies listed on a national securities exchange must register their securities under Section 12(b) of the ’34 Act – all others register under Section 12(g). So Nasdaq companies historically have been required to register under Section 12(g) because Nasdaq was not an exchange – and these companies received a ’34 Act filing number that begins with a “0-.” In comparison, companies filing under Section 12(b) get a ’34 Act filing number that begins with a “1-.”

The answer depends on when you file and when the Nasdaq’s transition to a national securities exchange becomes final. As noted in the SEC’s approval order, this transition is expected to occur in April – meaning that any companies filing 10-Ks before then don’t have to worry about checking the 12(b) box.

Your next question might be: Do I have to file a Form 8-A to get my new ’34 Act filing number when Nasdaq officially becomes an exchange? This query is addressed in footnote 207 of the SEC’s approval order, which intimates that the Nasdaq is working with the SEC so that when that magical day happens in April, the thousands of Nasdaq companies out there won’t all have to file an 8-A (as an exemptive relief request from Nasdaq to the SEC is expected to do the trick for them). Then, I believe Nasdaq intends to send a new 1934 Act # – as assigned by the SEC – to each of its listed companies.

This topic – and other ones related to the Nasdaq’s transition to an exchange – will be addressed in either the upcoming issue of The Corporate Counsel (expected to be mailed in about 10 days) or the subsequent issue (which is expected to be mailed near the end of March).

Beware: 10-K Trap for the Unwary

I continue to hear from members troubled by the new requirement imposed by the JOBS Act – now embedded in the Internal Revenue Code (and in Revenue Procedure 2005-51) – that requires companies to disclose certain tax penalties in Item 3 (Legal Proceedings) of Form 10-K, regardless of materiality.

The concern comes from the process typically used to prepare a 10-K: to determine whether there have been any regulatory changes since the prior year, one conducts a “form check” on the 10-K by referring to the form itself and Reg S-K and Reg S-X. This new disclosure requirement is nowhere to be found in the form or the SEC’s rules and regulations.

The heightened risk in this area is that companies that forget to add this new required disclosure can be hit with additional penalties! This new requirement is fleshed out in our “Proxy Season Resource Center,” including the numerous checklists from law firms.

New PCAOB/SEC Internal Controls Roundtable

The SEC and PCAOB have announced that they will hold another joint roundtable on internal controls issues on May 10th at the SEC’s HQ in Washington DC. They hope to receive feedback to be addressed during the roundtable – they are seeking written comments on 404 issues by May 1st. They hosted a similar roundtable last spring.