Yesterday, Corp Fin posted a few new FAQs regarding the transition to the new amendments to Reg S-K Items 101, 103 and 105, which are designed to modernize the disclosure requirements related to the descriptions of business, legal proceedings and risk factors (see this PubCo post).  Those new rule amendments will become effective November 9. 

• Form S-3 prospectus supplement. If a company’s Form S-3 became effective before November 9, 2020, but the company plans to file a prospectus supplement on or after November 9, the prospectus supplement does not need to comply with new amended Items 101 (business description) and 103 (legal proceedings) “because Form S-3 does not expressly require Item 101 or Item 103 disclosure but rather requires the incorporation by reference from Exchange Act reports containing that information.”  In addition, the FAQ advises, the company does not need to amend its Form 10-K that is incorporated by reference into the Form S-3 to comply with new Items 101 and 103. By contrast, Item 3 of Form S-3 does expressly require Item 105 (risk factors) disclosure and, under Rule 401(a) the form and contents of a prospectus supplement are required to conform to rules in effect on the initial filing date of the supplement. Nevertheless, the FAQ confirms that “the staff will not object if the prospectus supplement complies with old Item 105 until the next update to the Registration Statement on Form S-3 for Section 10(a)(3) purposes.”
• Development of business—10-K. You may recall that, under the current rules, companies are required to provide a description of the general development of the business during the past five years, or any shorter period the company may have been in business. Under the new amendments, instead of the five-year timeframe, companies are instructed to focus on the period over which information would be material. However, Item 1 of Form 10-K provides that the discussion of the development of the company’s business need only include developments since the beginning of the fiscal year, which seems inconsistent with the new requirement.  In the FAQs, the staff advises that new amended Item 101 did not change Item 1 of Form 10-K, so that companies would be required to disclose information in their Forms 10-K only for the period since the beginning of the fiscal year covered by the 10-K.
• Development of business—full discussion. A company need not always provide a full discussion of the general development of its business under new Item 101(a) (or new Item 101(h) for a smaller reporting company) in an annual report or registration statement that requires Item 101 disclosure.  Except for an initial registration statement, subject to Rule 411(e) and Rule 12b-23(e)—both related to incorporation by reference—the new amendments allow a company to omit the full discussion of the general development of its business if the company: “(1) provides an update to the general development of its business, disclosing all material developments that have occurred since the most recent registration statement or report that includes the full discussion; (2) includes one active hyperlink to the registration statement or report that includes the full discussion; and (3) incorporates the full discussion by reference to the registration statement or report.”  However, there is no requirement to use this “update-only” method. In fact, the FAQ indicates that the staff expects this updating method will be used mainly for registration statements.

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