SEC Adopts Rule Permitting Use of Form 10-K Summary

On June 9, 2016, the SEC’s interim final rule adding new Item 16 to Part IV of Form 10-K, which is available here, took effect.¹ The rule expressly authorizes, but does not require, an issuer to include in its Form 10-K a summary of the information required by the form if each summary item is hyperlinked to the related, more detailed disclosure item elsewhere in the report. If the summary discusses information that is incorporated by reference into the Form 10-K from an exhibit that is filed with the form, the summary must include a hyperlink to the discussion in the accompanying exhibit.

Prior to the adoption of the rule, issuers were not prohibited from voluntarily providing a Form 10-K summary. Therefore, the rule will likely have little impact, except on those issuers who currently provide a Form 10-K summary that does not use hyperlinks for some or all of the disclosure topics included in the summary. If such issuers elect to continue to provide a Form 10-K summary, they must now ensure that the summary includes hyperlinks to each disclosure topic mentioned and comply with the other requirements of the rule.

The rule is principles-based and grants issuers choosing to provide a summary the flexibility to decide which Form 10-K items to summarize and how best to prepare the summary, as long as the summarized information is presented “fairly and accurately” and includes the required hyperlinks. Thus, the rule does not:

• specify the Form 10-K disclosure items that the summary should cover;
• prescribe a minimum or maximum summary length; or
• dictate where the summary must appear.

However, the summary can only refer to Form 10-K disclosure items included in the form at the time it is filed. Therefore, the summary cannot refer to information to be filed in subsequent SEC filings, such as Form 10-K amendments and proxy statements. Additionally, an issuer is not required to amend its Form 10-K to update the summary to reflect Part III information (including disclosures about executive officers, directors and executive compensation) that is incorporated by reference from a proxy or information statement filed after the Form 10-K. However, such an issuer must state in the summary that it does not include Part III information because that information will be incorporated by reference from a later filed proxy or information statement involving the election of directors. Moreover, if the proxy or information statement containing the Part III information includes a summary, that summary is not required to include hyperlinks.

The SEC is accepting comments until July 11, 2016 on all aspects of the interim final rule, including whether the summary should be mandatory rather than optional, whether the rule should impose a length limitation on the summary and whether the SEC should provide further guidance on preparing the summary. Given that Form 10-K summaries were permitted before adoption of the interim final rule, we do not believe the rule will significantly alter issuers’ Form 10-K presentations. While we believe the hyperlink requirements are reasonable, we do not believe the summaries should be mandatory or that a length limitation should be imposed.

1. The rule implements Section 72001 of the Fixing America's Surface Transportation Act (FAST Act). For more information on the FAST Act, please see our client alert dated December 15, 2015, FAST Act Amends JOBS Act and Creates New Private Resale Exemption.