Nasdaq recently published Issuer Alert 2025-01, which is focused on Rule 5250(e)(7) notification requirements for reverse stock splits that changed as of January 30th. Here’s more detail:
On January 30, 2025, the deadline for a listed company to notify Nasdaq about a reverse stock split will change from five (5) business days to ten (10) calendar days in order to conform to the requirements of SEC Rule 10b-17 of the Securities Exchange Act of 1934. Nasdaq is not amending the existing requirement to provide public disclosure of the reverse stock split at least two (2) business days (no later than 12 p.m. ET) prior to the anticipated market effective date.
Under the amended rules, a listed company conducting a reverse stock split must:
• Notify Nasdaq of certain details of the reverse stock split no later than 12 p.m. ET at least ten (10) calendar days prior to the anticipated market effective date (rather than our current rule requiring five (5) business days notice); and
• Publicly disclose the reverse stock split by 12 p.m. ET at least two (2) business days prior to the anticipated market effective date (unchanged from current requirement).
Nasdaq notes that it won’t process a reverse stock split unless the above requirements have been satisfied, and it will halt trading in the security of any issuer that effects a reverse stock split without meeting these requirements. The notification form requires the company to include the new CUSIP number, the date that board and shareholder approval was obtained (if required), and the date that DTC made the new CUSIP eligible. The submission must also include a copy of the company’s draft public disclosure.
Nasdaq’s “disclose or comply” board diversity rule is officially gone. Nasdaq filed the proposed technical amendments with the SEC last month to delete Rule 5605(f), requesting effectiveness as of February 4th – which was the effective date of the federal court’s decision that struck down the rule. The SEC notice declared the rule change operative upon filing.
Some companies continued to request board demographic info in their D&O questionnaires this season – in large part because the court decision came too late to make a change and it wasn’t certain whether Nasdaq would appeal, and also because it was unclear at the time the questionnaires went out whether investors would still want to see the info. We’ve now seen we’ve seen BlackRock and Vanguard shift their voting policy language on board diversity.
Remember too, as Meredith blogged in December, the decision to vacate Nasdaq’s rules could have broader implications going forward, even when it comes to “traditional” disclosure rules. Stay tuned.
One of the challenges that public companies with a December 31 year end are facing right now is whether and how to incorporate disclosure about the impacts from the avalanche of Trump Administration Executive Orders into their imminent Form 10-K filings. As we saw with the tariff developments that I blogged about earlier this week, companies can experience some whiplash trying to address these issues in real time, because policy positions are changing so rapidly.
I think it is important to keep in mind in this situation that public companies are not necessarily obligated to report external developments in their SEC filings, but it is important to evaluate how such external developments could materially impact the company’s business, reputation, financial condition or results of operations. Further, when disclosing any potential risks in the risk factors section of the Form 10-K, the relevant risk factor disclosure should not cast the particular risk as a hypothetical possibility, when in fact the company has actually experienced an event that is relevant to that risk. Given the wide-ranging potential impacts from the Trump Administration’s Executive Orders to date, it is important to evaluate how the late breaking developments could impact matters that are already the subject of disclosure in a company’s SEC filings.
Which brings us to the Trump Administration’s recent actions on DEI matters. On January 20, 2025, President Trump signed an Executive Order titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” which, in part, directs federal agencies to terminate federal contracts and grants related to DEI, as well as environmental justice related contracts and grants within 60 days. On January 21, 2025, President Trump signed an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which directs the U.S. Attorney General, in consultation with the relevant agencies, to submit a report by May 21, 2025 with recommendations for taking appropriate measures “to encourage the private sector to end illegal discrimination and preferences, including DEI.” As part of the plan, the agencies must identify up to nine potential civil compliance investigations of different kinds of organizations, including public companies.
While some specific disclosure items potentially relate to diversity matters (such as the human capital disclosure requirement and the board diversity disclosure requirements), much of the disclosure that companies presently include in their Form 10-Ks and proxy statements is what we often call “voluntary” disclosure. It is important for companies getting ready to file their upcoming Form 10-K to take a step back and evaluate existing risk factor and other disclosures to determine if any changes need to be made to reflect changes in the company’s DEI practices that may result from these Executive Orders or other material implications, recognizing that it may be too early to evaluate the potential impacts arising from these Executive Orders. Companies with federal government contracts may also want to evaluate their disclosure in the business and risk factors sections addressing the ability of the federal government to terminate contracts to determine whether it is appropriate to note this new initiative in that context.
The lawsuit filed by the U.S. Chamber of Commerce challenging California’s two climate disclosure laws was significantly narrowed this week when the court rejected arguments that California’s disclosure regime violated the supremacy clause and improperly applied extraterritorially. The Mintz Insights blog notes:
Judge Wright (C.D. Cal.) has significantly narrowed the Chamber of Commerce’s lawsuit challenging California’s climate disclosure laws. (These disclosure laws mandate disclosure of Scope 1, Scope 2, and Scope 3 greenhouse gas emissions for companies with over $1 billion in revenue, and the disclosure of climate-related financial risks for companies with over $500 million in revenue.) The Chamber of Commerce had filed a lawsuit challenging these laws on a number of grounds, including that California’s disclosure regime violated the supremacy clause and improperly applied extraterritorially–i.e., outside California. Both of these arguments were rejected by the federal district court.
Significantly, the Court rejected the Chamber of Commerce’s argument that a “law [] ‘aimed at stigmatizing’ and ‘shaming’ companies to ‘pressure[] them to lower their emissions’”–in other words, “a disclosure regime intended to regulate emissions through third-party actions”–constituted a “de facto regulatory scheme subject to preemption.” Further, the Court also held that the law survived a challenge that it improperly burdened interstate commerce by regulating extraterritorial conduct by holding that the Chamber of Commerce “fail[ed] to plausibly allege a significant burden on interstate commerce.” In other words, even though this decision was limited in scope–for example, certain claims could be re-filed as they were dismissed without prejudice–the Court nonetheless rejected the legal theories underpinning common challenges to state-level climate disclosure laws. (Also, certain claims were dismissed due to technical legal issues–e.g., the challenge to the mandatory disclosure of greenhouse gas emissions was dismissed as not yet being ripe for adjudication.) This decision may encourage other states to implement mandatory climate disclosure regimes similar to that enacted by California.
However, the challenge to California’s climate disclosure laws by the Chamber of Commerce remains unresolved. The State of California had not moved to dismiss the First Amendment challenge brought by the Chamber of Commerce–the court had previously rejected the Chamber of Commerce’s facial challenge to the law’s validity under the First Amendment–and so the Chamber of Commerce’s lawsuit can continue as it endeavors to construct a record to sustain its challenge based upon its argument that the First Amendment bars the climate disclosure laws as a form of compelled speech.
Stay tuned – this litigation seems to have a long way to go! For more in-depth ESG content, be sure to sign up to access all of the great resources on PracticalESG.com.
At this time of year, I often get the question “what do I need to do when I move my annual meeting date by more than 30 days from the date of the previous year’s annual meeting?” I am sure that you do too. Liz recently noted on the Proxy Season Blog that the SEC’s recent clean-up amendments brought some clarity to at least one of the somewhat confusing rules governing this situation:
This time around, among other things, the SEC has cleaned up an inoperative sentence in Form 8-K that referred to (now vacated) Rule 14a-11. It is now even more clear that Item 5.08(a) applies only to companies that have a proxy access bylaw – or are subject to a state or foreign law that requires inclusion of shareholder director nominees in the company’s proxy materials. Item 5.08, when applicable, requires a company to announce, within four business days of determination, changes of more than 30 days to their prior-year annual meeting date.
The 8-K requirement doesn’t apply to companies that do not have an obligation under state or foreign law or under their governing documents to include director nominees in their proxy materials. Remember, though, companies that do not have a proxy access bylaw (or state/foreign requirement) are not entirely off the hook when they change the date of their meeting in comparison to the prior year, because Rule 14a-5(f) states:
“If the date of the next annual meeting is subsequently advanced or delayed by more than 30 calendar days from the date of the annual meeting to which the proxy statement relates, the registrant shall, in a timely manner, inform shareholders of such change, and the new dates referred to in paragraphs (e)(1) and (e)(2) of this section, by including a notice, under Item 5, in its earliest possible quarterly report on Form 10-Q (§ 249.308a of this chapter), or, in the case of investment companies, in a shareholder report under § 270.30d-1 of this chapter under the Investment Company Act of 1940, or, if impracticable, any means reasonably calculated to inform shareholders.”
Paragraph (e)(1) is the subsection relating to deadlines for submitting Rule 14a-8 shareholder proposals for inclusion in the proxy statement, and (e)(2) relates to the deadline for proposals under Rule 14a-4 or an advance notice bylaw. As Meredith noted, this can be a trap for the unwary! Many companies voluntarily issue a press release to inform shareholders of a change to the expected meeting date, but if the 10-Q obligation applies, they would still need to also include the disclosure there. Also remember that there can be listing standards tied to your annual meeting – for example, Section 302.00 of the NYSE Listed Company Manual requires listed companies to hold an annual meeting at least once per fiscal year, and other sections require notice of the record date, annual affirmations, etc.
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Last Friday, the Trump Administration issued yet another Executive Order, this time requiring that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed. The Executive Order also requires that, for fiscal year 2025, the total incremental cost of all new regulations (including repealed regulations) must be significantly less than zero. If this sounds familiar, recall that at the beginning of the first Trump Administration, the White House issued an Executive Order indicating that federal agencies would need to eliminate two regulations for every new one created, and cut at least 75% of all federal regulations.
As with the 2017 Executive Order, this new action is likely to prompt litigation challenging the directive. Further, as with the 2017 Executive Order, these types of directives typically do not apply to the independent federal agencies such as the SEC, however it is likely that the SEC would consider the objectives of an Executive Order like this when formulating its rulemaking agenda.
If present day me were to travel back in time twenty years to tell thirty-seven-year-old me about a future where U.S. foreign policy was marked by threats to annex Canada, Greenland, the Panama Canal and Gaza and people were talking about Delaware potentially losing its dominance as the preferred jurisdiction of incorporation, I would have probably dismissed such warnings as some sort of strange science fiction — but here we are!
As John noted just last week, the prospect of “DExit” remains very much on the table, despite lingering concerns about the suitability of potential alternative jurisdictions when it comes to complex business disputes.
“It’s really important we get it right for Elon Musk or whoever the litigants are in Delaware courts,” he said. “We’re cognizant that there may be some things that need to change. We’re going to work on them.”
Though he’s been in office for less than two weeks, Meyer said he’d already met with “leading corporate legal brass” and state government leaders to chart a path forward.
“I think within the coming weeks, you’re going to see some things rolled out that will help move our state forward and bring us into 2025 and beyond to make sure we’re protecting and growing the corporate franchise,” he said.
Professor Bainbridge also notes recent statements from Delaware legislative leaders, who wrote in an op-ed:
While Delaware’s Court of Chancery has remained widely respected for its expertise and fairness, we acknowledge that it’s important to address its lack of diversity and ensure the judiciary reflects the broader perspectives of the communities it serves, thereby enhancing its credibility and fairness, and Delaware’s leadership in corporate governance and justice.
Professor Bainbridge remains unconvinced DExit will ultimately result in a mass exodus of corporations from the First State, stating:
I remain unpersuaded that DExit poses a serious threat to Delaware’s dominance of the market for corporate charters. The recent high profile departures, however, appear to have freaked out the political class in Delaware. This is not surprising, of course. The annual franchise taxes companies pay Delaware for the privilege of being incorporated there make up as much as 20% of the state’s total tax revenue. If that income stream went away because companies incorporated outside Delaware, the state government would either have to make massive budget cuts or raise other taxes dramatically.
From my much less erudite perspective, I believe that whenever something gets a funny Brexit-like name it is never a good thing – it is kind of like every scandal becoming a “gate” because of Watergate. The current phenomenon in Delaware has many complicated moving parts, but as with pretty much everything else of substance that we grapple with today, meme-ification creates a viral panic and corporate leaders begin looking for the exit because they do not want to be the last one off the sinking ship. Such situations tend to favor decisive action on a compressed timetable, so hopefully the powers-that-be in Delaware are paying close attention to the situation.
As I noted last month, capital formation is likely to be on the agenda of the SEC and Congress over the course of the next few years. Last week, the SEC announced that the Small Business Capital Formation Advisory Committee released its agenda for a meeting scheduled for February 25, 2025. The meeting will be open to the public via webcast on www.sec.gov. The Mayer Brown Free Writings + Perspectives blog notes:
The Securities and Exchange Commission’s (SEC) Small Business Capital Formation Advisory Committee will meet on February 25, 2025 to discuss capital-raising challenges for emerging fund managers and smaller public companies the securities of which are not listed on a national securities exchange. The meeting, available via webcast on SEC.gov, will begin with an overview of the SEC Office of the Advocate for Small Business Capital Formation’s 2024 Annual Report, which provides data on capital formation trends and includes policy recommendations. See our two blog posts relating to the 2024 Annual Report summarizing Crowdfunding, Reg A & Private Companies trends and Exempt Offerings & Smaller Public Companies trends.
The morning session will focus on supporting emerging fund managers, with insights from industry participants. In the afternoon, the committee will discuss challenges faced by smaller public companies the securities of which are not listed on a national securities exchange. The meeting notice indicates that small public companies, which for these purposes are considered to be those companies with a market capitalization of $250 million or less, represent almost half of all public companies. However, many small public companies do not have a class of equity securities listed on a national securities exchange. As a result, these companies face particular challenges in raising capital. The group will hear from the OTC Markets Group. The committee will explore ways to address some of the challenges facing smaller public companies.
We will all certainly be watching to see how the SEC’s new Chairman (when confirmed) will utilize the recommendations of the various advisory committees when formulating policy actions.
Yesterday, the SEC announced the executive staff that will be working for Acting Chairman Mark Uyeda. As noted in the announcement, the sixteen individuals named in the press release advise the Acting Chairman on matters before the Commission and work closely with SEC staff.
The announcement also indicates that Sebastian Gomez Abero has been appointed as Acting Deputy Director (Legal and Regulatory Policy) for the Division of Corporation Finance, and Antonia Apps has been appointed as Acting Deputy Director for the Division of Enforcement.
While on the topic of staffing at the SEC, the clock is ticking on the Administration’s efforts to de-staff the SEC and other federal agencies pursuant to the now-infamous “Fork in the Road” email that approximately two million federal employees received last week from the Office of Personnel Management (OPM). The email offered federal workers the ability to undertake a “deferred resignation” if they resigned by tomorrow. As this ABC News article notes, federal employees received a second email yesterday titled “Fork in the Road: Today’s FAQs,” which attempted to answer certain questions about the deferred resignation program. Having navigated the complex waters of the hiring (and firing) process in the federal government for a over a decade, all I can say is that these emails are about the most “un-OPM” things I have ever seen! I can only imagine that these communication have caused a great deal of confusion and hand-wringing for the SEC Staff and other federal employees.
As I noted last month, the SEC’s creeping Inline XBRL requirements present a trap for the unwary, because failing to tag disclosure using Inline XBRL has the draconian penalty of rendering a company not “current” for form eligibility and Rule 144 purposes. As we now enter the heart of the annual reporting season, companies should double down on their efforts to check the Inline XBRL tagging of their reports prior to filing them on EDGAR.
Bob Dow of Maynard Nexsen has observed that some filers this season have failed to tag their new insider trading policy disclosure required by Item 408(b) of Regulation S-K and their cybersecurity disclosures required Item 106 of Regulation S-K (which just became subject to Inline XBRL tagging requirements after a one-year phase in). This harkens back to the situation that we observed when the quarterly disclosure of the adoption or termination of Rule 10b5-1 plans went into effect, as some companies began making filings after the effective date that failed to include the required Inline XBRL tagging.
As I noted last month, if a company does not file interactive data exhibits on a timely basis, the company will be deemed to not be current with its Exchange Act reports for purposes of eligibility for Form S-3, Form S-8 and other forms, and will be deemed not to have available current public information for purposes of Rule 144. A filing delinquency can be remedied by filing an amendment that includes the required interactive data files, at which time the company will be deemed to be current again.
For those companies that use an external filing service or that utilize internal filing software that has an XBRL tagging service attached to it, the problem can often be avoided because those services have systems in place to check on whether the required Inline XBRL tagging has been completed prior to filing. Those companies that are in “DIY” mode when it comes to their EDGAR filing need to put controls in place to double-check Inline XBRL compliance prior to making any periodic or current report filing.