SEC posts new interps re the Securities Act // Cooley // Global Law Firm

By Cydney Posner

Last week, the SEC posted revised interps regarding the Securities Act. You may want to pay particular attention to the interps under Sections 3(a)(9), 4(2) and 5.

Securities Act Section 2(a)(1)

A sale and leaseback arrangement may constitute an investment contract, depending on the terms of the transaction and the extent to which there are related arrangements (such as arrangements regarding financial or management services).

Securities Act Section 2(a)(3)

Declaration of a dividend that is payable in either cash or securities at the election of the recipients does not involve a sale of the dividend shares under the Securities Act and does need to be registered.
A transfer of restricted securities from a person’s employee benefit plan account to the person’s IRA does not involve a sale and does not need to be registered because there is no change in the beneficial ownership.
A shelf registration statement that contemplates the future sale of immediately convertible preferred stock does not need to also register the common stock at the time of effectiveness. The common would, however, need to be registered on a separate registration statement when the preferred is to be offered under the shelf at a later date, unless the conversion is exempt (e.g., under Section 3(a)(9)). Alternatively, the shelf could, at the outset, include an amount of common sufficient for the conversion. A separate registration statement would not be necessary if the issuer was eligible to file, and did file, an automatic shelf registration statement at the outset and the common stock was subsequently included on the automatic shelf registration statement.
Where the offer and sale of convertible securities or warrants are being registered under the Securities Act and the securities are convertible or exercisable within one year, the underlying securities must be registered at that time if there is no available exemption from registration for the conversion (such as Section 3(a)(9)) or exercise. If the securities are not convertible or exercisable within one year, the issuer may choose not to register the underlying securities at the time of registering the convertible securities or warrants. However, the underlying securities must be registered no later than the date the securities become convertible or exercisable by their terms, if no exemption for the conversion or exercise is available. Where securities are convertible only at the option of the issuer, the underlying securities must be registered at the time the offer and sale of the convertible securities are registered since the entire investment decision is made at the time of purchasing the convertible securities. The security holder, by purchasing a convertible security that is convertible only at the option of the issuer, is, in effect, also deciding to accept the underlying security.
An issuer may extend the exercise period for warrants and/or reduce the warrant exercise price through the filing and issuance of an appropriate Rule 424(b) prospectus supplement prior to the initial expiration date of the warrants. The issuer may not permit the exercise of the modified warrants, however, unless a current prospectus under Section 10(a)(3) with respect to the shares underlying the warrants is delivered.
A holding company reorganization is to be carried out pursuant to Section 251(g) of the DGCL and would not trigger a shareholder vote or appraisal rights. The purpose of the reorganization is to obtain more favorable tax treatment for an acquisition transaction with a third party, and its consummation is a condition to closing the acquisition. When the reorganization is viewed together with the acquisition, the overall transaction changes the nature of the shareholders’ investment. Thus, the reorganization may involve a "sale" or "offer to sell" for the purposes of Section 2(a)(3) and Rule 145.
An issuer eligible to use Form S-3 proposes to sell debt securities convertible into the common stock of an unaffiliated reporting company. The shares of common stock are restricted securities but may be resold freely in the public market under Rule 144. The registration statement for the offering need only cover the debt securities if the exemption provided by Section 4(1) is available for the sale of the common stock of the unaffiliated reporting company upon conversion of the debt securities. With respect to the information to be provided regarding the issuer of the underlying common stock, see the Morgan Stanley & Co., Incorporated no-action letter (June 24, 1996).
Company A purchased approximately 52% of the outstanding common stock of Company B in a tender offer. Company A proposes to complete the acquisition by means of a reverse statutory merger whereby Company B will become an indirect wholly-owned subsidiary of Company A. The plan of merger provides that each remaining share of Company B common stock will be exchanged for cash and a note to be issued by Company B. As soon as possible after the merger, a reorganization will be effected in which Company B will be liquidated, its assets distributed to approximately 50 indirect wholly-owned subsidiaries of Company A, and its liabilities (including the notes issued in connection with the merger) assumed by another wholly owned subsidiary of Company A, New Company B, the assets of which will consist of stock of the 50 operating subsidiaries. Because Company A already owns the requisite number of shares of Company B common stock to approve the merger, Company B will not solicit proxies in connection with the merger and, therefore, no commission or remuneration will be paid in connection with a solicitation. Shareholders will receive an information statement containing the information required to be provided by Regulation 14C and Rule 13e-3. Counsel took positions that the exchange was exempt under 3(a)((9), that the assumption of the notes did not require registration under the "no sale" theory and that Rule 145 was inapplicable since the noteholders will not vote or consent. Counsel’s position was premised on treating the merger and reorganization as discrete, independent transactions or, alternatively, as one transaction in which New Company B would be substantially similar to Company B and thereby be a successor issuer. The staff viewed the merger and reorganization as one transaction in which New Company B’s corporate structure, operations and financial condition might differ materially from that of Company. Because the merger and reorganization may result in a substantial change, Company B and New Company B were viewed as different issuers for purposes of Section 3(a)(9). Furthermore, given the time proximity between the merger and reorganization, New Company B could be viewed as the issuer of the notes. Therefore, the notes were required to be registered prior to presenting the proposal at the special shareholders' meeting.
A letter to be sent to holders of limited partnership units in various oil and gas programs, for the purpose of determining their interest in converting the smaller programs into one new large program, may involve the offer of a security of the new program within the meaning of Sections 2(a)(3) and 5. Any such communication, if it is an offer, would have to be either registered under the Securities Act or exempt. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of the offering, but would not allow the solicitation of indications of interest.
Statutory mergers by means of security holders’ vote are defined by Rule 145(a)(2), for purposes of Section 2(a)(3), as events of sale. The rule excludes from this definition mergers for the sole purpose of changing the issuer's state of incorporation. The exclusion itself is limited to migratory transactions occurring exclusively within the U.S., from one state to another. Despite the rule’s express domestic limitation, Corp Fin believes that similar transactions changing a foreign issuer’s domicile from one political subdivision of a country to another (such as reincorporation from one Canadian province to another) likewise should not be treated as a sale. However, if a non-U.S. corporation undertakes a merger to reincorporate within the U.S., the migratory transaction is an event of sale that must be registered or exempt.

Securities Act Section 2(a)(10)

Section 2(a)(10) sets forth the definition of "prospectus." Clause (a) of Section 2(a)(10) provides an exception from the definition of "prospectus" for a communication that is sent or given after the effective date of the registration statement if it is accompanied or preceded by a 10(a) written prospectus. Rule 172 is not available to satisfy the condition to the exception regarding delivery of the Section 10(a) prospectus. Rule 172 provides that a final 10(a) prospectus will be deemed to precede or accompany the carrying or delivery of a security for sale for purposes of Section 5(b)(2) and provides a conditional exemption from Section 5(b)(1) for written confirmations and notices of allocations. Rule 172 will not be considered to be "sent or given" prior to or with a written offer within the meaning of clause (a) of Section 2(a)(10). (See fn 561 to Securities Act Release No. 8591 (Jul. 19, 2005).)

Securities Act Section 2(a)(11)

An issuer eligible to use Form S-3 proposes to sell debt securities convertible into the common stock of an unaffiliated reporting company. The shares of common stock are restricted securities but may be resold freely in the public market under Rule 144. The registration statement for the offering need only cover the debt securities if the exemption provided by Section 4(1) is available for the sale of the common stock of the unaffiliated reporting company upon conversion of the debt securities. With respect to the information to be provided regarding the issuer of the underlying common stock, see the Morgan Stanley & Co., Incorporated no-action letter (June 24, 1996).

Securities Act Section 3(a)(2)

Securities of an investment company formed to invest only in bank stock would not be exempt securities under Section 3(a)(2) because the investment company is not a bank.
Section 3(a)(2) provides an exemption for securities issued by states and political subdivisions or public instrumentalities thereof and a specific exemption for certain tax-exempt industrial development bonds. Although not covered by the specific exemption, taxable industrial development bonds can qualify for the broader exemption as securities issued by states or public instrumentalities thereof. However, these taxable bond issues must also be examined to determine whether they give rise to separate securities of other persons within the meaning of Rule 131. Absent another exemption, registration of any separate Rule 131 securities would be required.
A bank guarantee of an industrial development bond is exempt under Section 3(a)(2) as a security issued by a bank. The underlying industrial development bond, if tax-exempt, likewise would be exempt under Section 3(a)(2), either because it satisfies the specific requirements applicable to tax-exempt industrial development bonds or because it is a security guaranteed by a bank.
Participations in a banker’s acceptance, offered and sold by a broker who holds the banker’s acceptance, are separate securities that are not exempt as securities issued by a bank within the meaning of Section 3(a)(2).
The reference in Section 3(a)(2) to Section 103(c) of the Internal Revenue Code is out of date and should read Section 103(b). This reference is important in determining which kinds of tax-exempt industrial revenue bonds are exempted from Securities Act registration by Section 3(a)(2).

Securities Act Section 3(a)(3)

Commercial paper payable on demand, but in any event no later than nine months from issuance, satisfies the maturity requirement of the exemption.
Tracing of commercial paper proceeds to actual "current transactions" is not necessary under Section 3(a)(3) where the proceeds will be commingled with the issuer’s general funds and those funds will be applied in part to current transactions equal in amount to the commercial paper proceeds.

Securities Act Section 3(a)(6)

A company issued securities under Section 3(a)(6) but then lost its eligibility to use that exemption in the future. As a result, shares held by affiliates of the company must be resold pursuant to Rule 144, except for the holding period provisions, absent registration or the availability of another exemption.

Securities Act Section 3(a)(9)

Where preferred stock will be issued in a 3(a)(9) exchange and dividends on the preferred will be paid, at the company’s option, in either additional stock or cash, the issuance of any additional stock paid as dividends will also be exempt.
Section 3(a)(9) is available to exempt the issuance of securities of one issuer to the holders of debt securities of another issuer if the obligation on the debt securities of the other issuer has been fully and unconditionally assumed by the issuer of the new securities.. Once the issuer has fully and unconditionally assumed the obligations on the debt securities of the other issuer, the transaction becomes the exchange of that obligation for the new security of the issuer with its existing security holders.
Section 3(a)(9), which is not available if any commission or other remuneration is paid for soliciting the exchange, would still be available if a proxy solicitor is used in connection with an exchange transaction, so long as the services of the solicitor are ministerial and involve no recommendation with respect to the proposed exchange or encouragement to vote in a particular manner.
Section 3(a)(9) would be available for the conversion of preferred stock into common stock even if a condition of the conversion is the waiver of accrued but unpaid dividends on the preferred stock.
Where a subsidiary has outstanding a class of debentures guaranteed by its parent and proposes to offer, in exchange for the guaranteed debenture, a new debenture that will not be guaranteed by its parent, 3(a)(9) will not be available for the exchange because the proposed exchange of the parent guarantee for the subsidiary’s debt involves two different issuers.
Retention and payment by the issuer of a third party for the purpose of consulting with institutional investors regarding acceptable terms for an exchange offer would violate the condition of 3(a)(9) that "no commission or other remuneration be paid or given directly or indirectly for soliciting such exchange."
In a going-private issuer exchange offer (debt for stock), payment by the issuer for an investment banker’s fee for a fairness opinion will not preclude reliance on 3(a)(9) because the fee is not considered a fee paid for soliciting the exchange of securities. If, however, the investment banker were also engaged in soliciting activities, the 3(a)(9) exemption would not be available.
Securities exchanged for other securities of the issuer under 3(a)(9) assume the character of the exchanged securities. For example, if restricted securities are exchanged, the new securities are deemed to be restricted securities, and tacking of the holding period of the former securities is permitted.
Typically, Rule 415 is not applicable to the continuous offering of the common stock underlying convertible debentures because that offering is exempt under 3(a)(9). Section 3(a)(9) is unavailable where securities are convertible into securities of another issuer, where conversion terms require that the shareholder pay consideration at the time of conversion or where conversion arrangements involve the payment of compensation for soliciting the conversion. In that event, Rule 415(a)(1)(iv) may be applicable.
Equipment trust notes are convertible into common stock of the user of the equipment deposited in an equipment trust. The term "issuer" with respect to equipment trust certificates is defined in Section 2(a)(4) to mean the person by whom the equipment is used. Accordingly, Section 3(a)(9) would be available for the conversion of the notes into common stock of the user, even though the notes would appear technically to be securities issued by the equipment trust.
The solicitation of holders of outstanding debt securities to approve changes in certain indenture covenants, together with an increase by the issuer in the interest rate, may be deemed to involve the issuance of a new security if the changes represent a fundamental change in the nature of the investment. However, the issuance of the new security would be exempt under Section 3(a)(9) if all of the conditions of that provision were met. Since all of the outstanding debt securities were issued in registered public offerings, the new debt securities issued in exchange would not be "restricted" under Rule 144(a)(3). A new indenture would have to be qualified under the Trust Indenture Act of 1939 for the new debt securities.
Company A proposes to issue convertible preferred stock in exchange for its outstanding common stock. Two years after issuance, holders of Company A’s convertible preferred stock will have the option of exchanging those shares for Company B’s common stock. Section 3(a)(9) would be available for Company A’s first exchange offer, assuming compliance with all the conditions of that exemption. Registration of the offer and sale of Company B’s common stock would be required prior to the time at which the exchangeable preferred stock becomes exchangeable, absent an exemption from registration.
Company A agreed to buy 80% of Company B’s common stock conditioned on the success of Company A’s tender offer for Company B’s outstanding convertible debentures. Company A hired investment bankers to solicit in connection with the tender offer, which failed. Company A then prepared to buy 85% of Company B’s common stock, conditioned on the success of an exchange offer by Company B of cash and common stock for Company B’s outstanding convertible debentures. No investment banker would be used to solicit the exchange. Under these facts and circumstances:
- the earlier solicitation in connection with the tender offer would not taint the subsequent exchange; and
- since Company B would not be merged into Company A, the "same issuer" requirement of Section 3(a)(9) would be met.
An issuer proposed that each share of its outstanding preferred stock would be exchanged for a new class of preferred stock; however, if a majority of holders voted in favor of the exchange, each share of outstanding preferred stock would be converted into the right to receive cash. The issuer instructed a broker-dealer to solicit security holders for acceptance of the cash-only proposal with a commission payable upon majority approval of that proposal. Section 3(a)(9) would not be available for the exchange offer since the solicitation for acceptances of the cash offer was deemed to constitute an indirect solicitation for the rejection of the exchange offer.

Securities Act Section 3(a)(10)

See the interps in SLB 3A.
Section 3(a)(10) does not exempt the issuance of shares in settlement of a suit by a creditor unless all of the requirements of 3(a)(10) are satisfied, including, among other things, the court's holding a hearing as to the fairness of the issuance and expressly finding that it is fair.

Securities Act Section 3(a)(11)

Section 3(a)(11) offerings are generally public in nature, and securities acquired in these offerings are not "restricted securities" under Rule 144(a)(3).
For an intrastate offering pursuant to the Section 3(a)(11) exemption and Rule 147, there is no prohibition regarding general advertising or general solicitation. Any general advertising or solicitation, however, must be conducted in a manner consistent with the requirement that offers made in reliance on 3(a)(11) and Rule 147 be made only to persons resident within the state or territory of which the issuer is a resident.
The intrastate offering exemption is not rendered unavailable solely because the proceeds of the offering will be temporarily invested in out-of-state CDs.
An issuer makes an offering of securities in reliance upon the 3(a)(11) exemption and permits purchasers to pay for their securities in installments. If an installment payment represents a separate investment decision, the purchaser must be a resident at the time of that payment, but if a purchaser was unconditionally committed to make the installment payment by the initial decision to invest, the purchaser need not remain a resident during the installment period.
An exchange offer would not be exempt under 3(a)(11) where it is necessary to make the offer to some joint holders of stock of the subject company who are non-residents of the state where the issuer is resident.
A new corporation would not be precluded from relying on 3(a)(11) for an offering simply because a significant part of its business would be interstate mail order.
A purchaser in an offering exempt from registration under 3(a)(11) intends to transfer the securities to the purchaser’s IRA less than nine months after the offering. The IRA is administered by an out-of-state trustee. The residence of the trustee would not affect the availability of the intrastate exemption for the offering.
Sales of stock to promoters pursuant to 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to 3(a)(11).

Securities Act Section 3(a)(12)

Section 3(a)(12) provides an exemption from registration for securities issued in connection with the formation of a bank or savings association holding company where shareholders maintain the same proportional interest in the holding company as they had in the bank or savings association; the rights and interests of the shareholders are substantially the same after the transaction as before; and the holding company has substantially the same assets and liabilities, on a consolidated basis, as the bank or savings association had before the transaction. The exemption would not be available if the new holding company’s corporate charter contained anti-takeover provisions that were not in the governing documents of the predecessor bank or thrift.

Securities Act Section 4(2)

A registration statement for a secondary offering cannot be filed if the securities to be offered pursuant to the registration statement have not yet been sold to the selling security holders. When the primary sale will be made in reliance upon the Section 4(2) exemption, having a registration statement for resale on file before the private offering takes place would cast doubt upon the validity of the exemption because distribution is clearly contemplated. Also, the registration of a secondary offering under those circumstances may call into question whether the offering is a genuine secondary. The resale registration statement may be filed if securities are privately placed, with the closing of the private placement contingent on filing or effectiveness of a resale registration statement. At the time of filing the registration statement, the purchasers in the private placement must be irrevocably bound to purchase the securities subject only to the filing or effectiveness of the registration statement or other conditions outside their control, and the purchase price must be established at the time of the private placement. The purchase price cannot be contingent on the market price at the time of effectiveness of the registration statement.
A company with a pending registration statement may not, consistent with Section 5, withdraw the registration statement and then immediately complete the same offering without registration in reliance upon the 4(2) private offering exemption. The filing of a registration statement for a specific securities offering (as contrasted with a generic shelf registration) constitutes a general solicitation for that securities offering, thus rendering 4(2) unavailable for the same offering. See fn. 122 of Securities Act Release No. 8828 (Aug. 3, 2007): "the Commission or a court could find a violation of Section 5 where a company begins an offering as a private placement and seeks to complete that offering pursuant to a registration statement, or where a company commences a registered offering and seeks to complete that offering through a private placement, except in those circumstances specified in Securities Act Rule 155."
Where purchasers committed to purchase securities before the filing of the registration statement on the condition that the securities be registered before issuance, the company cannot register the issuances as a primary offering. The procedure would appear to be designed to provide the purchasers with registered (rather than restricted) securities and would not be consistent with the registration provisions of the Securities Act, which cover offers and sales of securities, not issuances. In this situation, it appears that the offers were made and the commitments obtained before filing in reliance upon 4(2). In that event, the registration statement should cover resales by, not issuances to, the purchasers, provided that the purchasers became irrevocably bound to acquire the securities prior to the filing of the registration statement, subject only to conditions outside their control, and the purchase price was established at the time of the private placement and was not contingent on the market price at the time of effectiveness of the registration statement.
Where a limited partnership that owns a building will advertise for leases through newspaper advertisements and it is anticipated that some lessees may negotiate for an interest in the limited partnership as a condition of leasing space in the building, the private offering exemption for the sale of the limited partnership interests is not lost because of the general advertisements relating only to the availability of space.
Rule 506 sanctions the use of a representative who advises unsophisticated participants in the offering and thus furnishes the business sophistication required by 4(2) that the participants lack personally. Because of the safe-harbor character of the rules and because no-action positions generally are unavailable under 4(2), Corp Fin will not express a view as to whether the use of a purchaser or offeree representative outside Rule 506 is an acceptable method to provide the sophistication requirement of Section 4(2) as construed by the courts and the SEC.
Sales of stock to promoters under 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to 3(a)(11).

Securities Act Section 4(3)

Securities issued by an affiliated issuer are not "securities issued by another person" within the meaning of "dealer" in Section 2(a)(12) of the Securities Act. See the Merrill Lynch & Co., Inc. no-action letter (Mar. 26, 1976). Accordingly, the 4(3) exemption is not available to dealers for the offer and sale of securities of an affiliated issuer of the dealer.
The 4(3) exemption is not available to broker-dealers when engaged in market-making activities with respect to the securities of affiliated issuers. When a broker-dealer makes a market in the securities of an affiliate, the broker-dealer must comply with the Securities Act’s registration and prospectus delivery requirements. Affiliated broker-dealers may rely on Rule 172 to satisfy their obligation to deliver a "market-making" prospectus.

Securities Act Section 4(4)

A company planning to conduct an IPO proposes to include in its prospectus a representation that its captive broker-dealer would maintain a list of persons who wished to buy or sell the company’s securities. Although Section 4(4) would exempt the execution of those orders, the solicitation of customer orders is specifically excepted from Section 4(4). Since maintaining such a list would be a form of solicitation, registration would be required to prevent offers from violating Section 5.

Securities Act Section 5

Where the offer and sale of convertible securities or warrants are being registered under the Securities Act and the securities are convertible or exercisable within one year, the underlying securities must be registered at that time if there is no available exemption from registration for the conversion (such as Section 3(a)(9)) or exercise. If the securities are not convertible or exercisable within one year, the issuer may choose not to register the underlying securities at the time of registering the convertible securities or warrants. However, the underlying securities must be registered no later than the date the securities become convertible or exercisable by their terms, if no exemption for the conversion or exercise is available. Where securities are convertible only at the option of the issuer, the underlying securities must be registered at the time the offer and sale of the convertible securities are registered since the entire investment decision that investors will be making is at the time of purchasing the convertible securities. The security holder, by purchasing a convertible security that is convertible only at the option of the issuer, is in effect also deciding to accept the underlying security.
An issuer is required to file new powers of attorney with respect to the signatures in a new registration statement.
While the issuance of small numbers of shares as prizes or awards to employees may be made without Securities Act registration, if the awards are tied to the achievement of specific goals (e.g., sales goals) by individual employees, an offer or sale requiring registration may be involved. When tied to the achievement of specific goals, the share awards may, in fact, constitute compensation for services performed or to be performed by the employees that would amount to a disposition of the shares for value and a "sale" of the shares to the employees.
An issuer that has closed a registered blind pool/blank check offering should, under Rule 419(d), file a post-effective amendment to its registration statement as soon as it becomes reasonably probable that the operating business will be acquired. The issuer should not wait until the acquisition has been consummated. The obligation to file a post-effective amendment is in addition to the obligation to file Forms 8-K to report both the entry into a material non-ordinary course agreement and the completion of the transaction. See Securities Act Release No. 8587 (Jul. 15, 2005). (Note: This interpretation does not apply to real estate offerings subject to Industry Guide 5, which has separate provisions regarding the acquisition of property.)
Securities underlying underwriters’ warrants that constitute underwriters’ compensation in connection with a registered public offering must be registered if the warrants are exercisable within one year. If the warrants are not exercisable for more than one year, there is not deemed to be a concurrent offering of the underlying securities, and the offer and sale of those securities need not be registered along with the underwriters’ warrants. If the offer and sale of the underlying securities were registered initially, then, because of the unique nature of underwriters’ warrants, the issuer should file a post-effective amendment to the original registration statement for the resales of the securities using any form for which the registrant then qualifies. If the underlying securities were not registered initially, a new registration statement must be filed for the resales of the underlying securities.
A registration statement for a secondary offering cannot be filed if the securities to be offered pursuant to the registration statement have not yet been sold to the selling security holders. When the primary sale will be made in reliance upon the Section 4(2) exemption, having a registration statement for resale on file before the private offering takes place would cast doubt upon the validity of the exemption because distribution is clearly contemplated. Also, the registration of a secondary offering under such circumstances may call into question whether the offering is a genuine secondary. The resale registration statement may be filed if securities are privately placed, with the closing of the private placement contingent on filing or effectiveness of a resale registration statement. At the time of filing the registration statement, the purchasers in the private placement must be irrevocably bound to purchase the securities subject only to the filing or effectiveness of the registration statement or other conditions outside their control, and the purchase price must be established at the time of the private placement. The purchase price cannot be contingent on the market price at the time of effectiveness of the registration statement.
Under Rule 153, brokers or dealers effecting transactions on a national securities exchange, through a trading facility of a national securities association or through a registered alternative trading system are deemed to satisfy their prospectus delivery obligations to each other (but not to purchasers other than brokers or dealers) under Securities Act Section 5(b)(2) if they meet the conditions of the rule. A broker or dealer may also rely on Rule 153 for transactions effected in a security admitted with unlisted trading privileges on or through an exchange (or facility thereof), a trading facility of a national securities association, or an alternative trading system.
A company with a pending registration statement may not, consistent with Section 5, withdraw the registration statement and then immediately complete the same offering without registration in reliance upon the 4(2) private offering exemption. The filing of a registration statement for a specific securities offering (as contrasted with a generic shelf registration) constitutes a general solicitation for that securities offering, thus rendering 4(2) unavailable for the same offering. See fn. 122 of Securities Act Release No. 8828 (Aug. 3, 2007): "the Commission or a court could find a violation of Section 5 where a company begins an offering as a private placement and seeks to complete that offering pursuant to a registration statement, or where a company commences a registered offering and seeks to complete that offering through a private placement, except in those circumstances specified in Securities Act Rule 155."
Where purchasers committed to purchase securities before the filing of the registration statement on the condition that the securities be registered before issuance, the company cannot register the issuances as a primary offering The procedure would appear to be designed to provide the purchasers with registered (rather than restricted) securities and would not be consistent with the registration provisions of the Securities Act, which cover offers and sales of securities, not issuances. In this situation, it appears that the offers were made and the commitments obtained before filing in reliance upon 4(2). In that event, the registration statement should cover resales by, not issuances to, the purchasers, provided that the purchasers became irrevocably bound to acquire the securities prior to the filing of the registration statement subject only to conditions outside their control and the purchase price was established at the time of the private placement and was not contingent on the market price at the time of effectiveness of the registration statement.
A company completed a private placement of convertible securities under 4(2) and agreed to file a registration statement within two months after the closing to register the resale of the common stock issuable upon conversion of the convertible securities. The securities were convertible into common stock using a conversion ratio based upon the company’s common stock trading price at the time of conversion. If the company satisfies the Form S-3 registrant eligibility requirements and the offering satisfies the Form’s secondary offering requirements, the company may use Form S-3 to register, prior to the conversion, the resale of the common stock issuable upon conversion of the outstanding convertible securities. The company may not use Rule 416 to register for resale an indeterminate number of shares resulting from operation of the conversion formula because the floating conversion rate is not "similar" to an anti-dilution provision as required by Rule 416. Instead, the company must make a good-faith estimate of the maximum number of shares that it may issue upon conversion to determine the number of shares to register for resale. If the number of registered shares is less than the actual number issued, the company must file a new registration statement to register the additional shares, assuming the selling securityholder desires to sell those additional shares. It may use Rule 462(b), if available, for this purpose.
The selling securityholder information in the registration statement, at the time of effectiveness, must include the total number of shares of common stock that each selling securityholder intends to sell (based on current market price if there is a floating conversion rate tied to market price), regardless of any contractual or other restriction on the number of securities a particular selling securityholder may own at any point in time. As the selling securityholders resell shares of common stock following conversion, the company must file prospectus supplements, as necessary, to update the disclosure of the number of shares that each selling securityholder intends to sell, reflecting prior resales. The plan of distribution in the prospectus filed as part of the registration statement must specify, in compliance with Item 508 of Reg S-K, how each selling securityholder intends to dispose of the securities it receives upon conversion.
Under the same facts as above, except that the company had not yet issued some or all of the convertible securities, the registration for resale of the common stock underlying the unissued convertible security would not be viewed as a valid secondary offering (unless, as discussed below, the transaction were a valid "PIPE"). Instead, the transaction would be treated as an indirect offering by the issuer, and thus a primary offering, with the investor being identified in the registration statement as an "underwriter." In those circumstances, the registration statement may not use the phrase "may be an underwriter." Instead, the disclosure in the registration statement must state that the investor "is an underwriter." As a result, the company may register on Form S-3 the resale of the underlying common stock, or the convertible security itself, only if the company is eligible to use that Form for a primary offering. In addition, if the company continues to sell privately additional convertible securities after it has filed the registration statement for the securities underlying the previously sold convertible securities, the continuation of the same offering may call into question the validity of the 4(2) exemption for the entire convertible securities offering.
In contrast, in a private-investment, public-equity, or PIPE, transaction, a company will be permitted to register the resale of securities prior to their issuance if the securities or convertible securities were sold under 4(2) and the investor is at market risk at the time of filing of the resale registration statement. The investor must be irrevocably bound to purchase a set number of securities for a set purchase price that is not based on market price or a fluctuating ratio, either at the time of effectiveness of the resale registration statement or at any subsequent date. (When a company attempts to register for resale shares of common stock underlying unissued, convertible securities, the PIPE analysis applies to the convertible security, not to the underlying common stock.) There can be no conditions to closing that are within an investor’s control or that an investor can cause not to be satisfied. For example, closing conditions in capital formation transactions relating to the market price of the company’s securities or the investor’s satisfactory completion of its due diligence on the company are unacceptable conditions. The closing of the private placement of the unissued securities must occur within a short time after the effectiveness of the resale registration statement.
In a typical "equity line" financing arrangement, an investor and the company enter into a written agreement under which the company has the right to put its securities to the investor at any time within a set period of time, and the investor has no right to decline to purchase the securities. The dollar value of the equity line is set in the written arrangement, but the number of shares that the company will actually issue is determined by a formula tied to the market price of the securities at the time the company exercises its put. In many equity line financings, the company will rely upon the private placement exemption from registration to sell the securities under the equity line and then register the "resale" of the securities sold. In these types of equity line financings, because of the delayed nature of the puts and the lack of market risk resulting from the formula price (as compared with PIPEs), equity lines are analyzed as indirect primary offerings, with the "resale" of the securities permitted to be registered prior to exercise of the put if the transactions meet the following conditions:
- the company must have "completed" the private transaction of all of the securities it is registering for "resale" prior to the filing of the registration statement;
- the "resale" registration statement must be on the form that the company is eligible to use for a primary offering; and
- in the prospectus, the investors must be identified as underwriters, as well as selling shareholders.
If these conditions are not met, the company cannot, as a general matter, register the "resale" of the securities. However, if the following conditions are met, the company may register the "resale" transaction (because these conditions address the staff's concerns regarding inappropriate use of shelf registration and liability for potential violations of Securities Act Section 5).
- The company is eligible to use Form S-3 or Form F-3 for a primary offering of securities.
- The company complies with Rule 415(a)(4) (relating to at-the-market offerings).
- The company addresses, in the prospectus, issues relating to the potential violation of Section 5 in connection with the private transaction.
If the preceding three conditions are not met, the company must withdraw the registration statement and complete the private transaction.
For the private transaction to be "complete" in a private equity line financing, the investor must be irrevocably bound to purchase all the securities. Only the company can have the right to exercise the put and, except for conditions outside the investor’s control, the investor must be irrevocably bound to purchase the securities once the company exercises the put. If the investor is permitted to transfer its obligations under the equity line, the transaction will not be "completed" because the investor is not irrevocably bound. If the investor has the ability to make investment decisions under the equity line agreement after the filing of the "resale" registration statement, the investor will not be considered irrevocably bound. The following are among the elements or conditions that are viewed as continuing to provide the investor with an investment decision:
- agreements that give investors the right to acquire additional securities (including the right to acquire additional securities through the exercise of warrants) at the same time or after the issuer exercises its put;
- agreements that permit the investor to decide when or at what price to purchase the securities underlying the put; and
- agreements with termination provisions that have the effect of causing the investor to no longer be irrevocably bound to purchase the securities underlying the put.
A "due diligence out" is also a condition to closing within the investor’s control that would prevent the private transaction from being "completed" in a private equity line financing. However, "bring downs" of customary representations or warranties and customary clauses regarding no material adverse changes affecting the company are not considered to be within the investor’s control and thus would not prevent the private transaction from being "completed." If the company may put securities, other than the shares of common stock being registered for "resale," such as a derivative security convertible into common stock (e.g., a convertible note or a convertible preferred security), the private transaction not be considered "completed" because the investor may have further investment decisions to make regarding the purchase of securities underlying the derivative security and will, therefore, not be irrevocably bound to purchase the securities that are being registered for "resale."
If, instead of registering the put securities in a private equity line financing under a "resale" registration, the company chooses to register them as a primary offering with the put price based upon, or at a discount to, the underlying stock’s market price at the time of the put exercise, the offering would be an "at the market" offering under Rule 415(a)(4) and would need to comply with the requirements of that rule. Further, to register the primary offering, the company must be eligible to register primary offerings on Form S-3 in reliance on General Instruction I.B.1 (primary offerings) or General Instruction I.B.6 (limited primary offerings) or on Form F-3 in reliance on General Instruction I.B.1 or General Instruction I.B.5. In addition, if a company is relying on General Instruction I.B.6 of Form S-3 or on General Instruction I.B.5 of Form F-3, the total amount of securities issuable under the equity line agreement may represent no more than one-third of the company’s public float at the time of execution of the equity line agreement.
In a resale registration statement for equity line financings, the investor and the registered broker-dealer must be identified as an underwriter in the base prospectus, a post-effective amendment or a prospectus supplement.
A company may rely on General Instruction I.B.6. (limited primary offerings) to register on Form S-3 the indirect primary/resale offering of common stock issuable under a privately placed equity line financing only if the company is otherwise eligible to use General Instruction I.B.6 and the total amount of securities issuable under the privately placed equity line agreement represents no more than one-third of the company’s public float at the time of execution of the equity line agreement. Because the sale of all the securities to the investor occurs when the company and the investor enter into the private equity line agreement, the company and the investor need to determine, at that time, whether the maximum number of securities issuable under the equity line would exceed the one-third cap under General Instruction I.B.6. In making that determination, the company would determine its public float as of a date within 60 days prior to entering into the equity line agreement.
While the date of entry into the equity line agreement determines the ability of the company to rely on General Instruction I.B.6 to register the indirect primary/resale offering of all the securities issuable under the equity line agreement on Form S-3, the actual distribution of these securities to the public does not commence until the effectiveness of the resale registration statement. Thus, for purposes of calculating the 12-calendar month period under General Instruction I.B.6, the period commences from the date of effectiveness of the resale registration statement. A company would not be able to register or offer additional securities on Form S-3 in reliance on General Instruction I.B.6 for that 12-calendar month period unless the company’s public float has increased since the effectiveness of the registration statement on Form S-3. Of course, a company would not be precluded from entering into additional agreements and registering resales or registering primary offerings on Form S-1.
The five-factor integration analysis in Securities Act Rule 502(a) does not apply to the situation in which an issuer is conducting concurrent private and public offerings. The SEC’s integration guidance in Securities Act Release No. 8828 (Aug. 3, 2007) sets forth a framework for analyzing potential integration issues in the specific situation of concurrent private and public offerings. The guidance clarifies that, under appropriate circumstances, there can be a side-by-side private offering under Section 4(2) or the Rule 506 safe harbor with a registered public offering without having to limit the private offering to qualified institutional buyers and two or three additional large institutional accredited investors, as under the Black Box (June 26, 1990) and Squadron, Ellenoff (Feb. 28, 1992) no-action letters, or to a company’s key officers and directors, as under the staff's "Macy’s" position. The filing of the registration statement does not eliminate the company’s ability to conduct a concurrent private offering, whether it is commenced before or after the filing of the registration statement. This guidance does not negate the five-factor integration analysis outlined in Securities Act Release No. 4552 (Nov. 6, 1962) and in Rule 502(a), which should be used to test whether two or more otherwise exempt offerings should be treated as a single offering to determine whether an exemption is available.
Specifically, the staff's guidance focuses on how the investors in the private offering are solicited – whether by the registration statement or through some other means that would not otherwise foreclose the availability of the 4(2) exemption. If the investors in the private offering become interested in the private offering by means of the registration statement, then the registration statement will have served as a general solicitation for the securities being offered privately and 4(2) would not be available. On the other hand, if the investors in the private offering become interested in the private offering through some means other than the registration statement – for example, there is a substantive, pre-existing relationship between the investors and the company –then the registration statement would not have served as a general solicitation for the private offering and 4(2) would be available, assuming the offering is otherwise consistent with the exemption. In that case, there would be no integration of the private offering with the public offering. In short, in the specific situation of concurrent public and private offerings, only the guidance set forth in the Securities Act Release No. 8828 applies.
A corporation may register shares for issuance pursuant to an employee plan (along with other securities to be offered by the issuer) even though the plan has not yet been approved by shareholders and will not become operative unless it is approved, provided that the prospectus makes the situation clear. A prospectus supplement should be filed when the shareholder approval is obtained.
A letter to be sent to holders of limited partnership units in various oil and gas programs, for the purpose of determining their interest in converting the smaller programs into one new large program, may involve the offer of a security of the new program within the meaning of Sections 2(a)(3) and 5. Any such communication, if it is an offer, would have to be either registered under the Securities Act or exempt. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of the offering, but would not allow the solicitation of indications of interest.
A typical non-qualified deferred compensation plan permits an employee to defer compensation over a set dollar amount. The employee will then either receive a fixed rate of return on the deferred monies or the employer may permit the employee to index the return on those monies off of a number of investment return alternatives. The debt owing to plan participants is analogous to investment notes, which typically are viewed as debt securities. Corp Fin has not stated affirmatively, however, that all interest-only deferred compensation plans involve securities and instead views the question as one for counsel’s analysis of the facts and circumstances. To the extent that interests in a non-qualified deferred compensation plan are securities, registration would be required unless the offerings under the plan would qualify for an exemption, e.g., 4(2). Form S-8 would be available when an employer registers the offer and sale of interests in the deferred compensation plan under the Securities Act. The filing fee should be based on the amount of compensation being deferred, not on the ultimate investment return. As the "deferred compensation obligations" to be registered are obligations of the issuer/employer, not interests in the plan, the registration of the "deferred compensation obligations" would not result in a requirement that a deferred compensation plan file a Form 11-K with respect to those securities. Further, based on the unique terms of the "deferred compensation obligations" (both with respect to interest and maturity), compliance with the Trust Indenture Act of 1939 has not been required.
Statutory mergers by means of security holders’ votes are defined by Rule 145(a)(2), for purposes of Section 2(a)(3), as events of sale. The rule excludes from this definition mergers for the sole purpose of changing the issuer's state of incorporation. The exclusion itself is limited to migratory transactions occurring exclusively within the U.S., from one state to another. Despite the rule’s express domestic limitation, Corp Fin believes that similar transactions changing a foreign issuer’s domicile from one political subdivision of a country to another (such as reincorporation from one Canadian province to another) likewise should not be treated as a sale. However, if a non-U.S. corporation undertakes a merger to reincorporate within the U.S., the migratory transaction is an event of sale that must be registered or exempt from registration.
If its warrants are out of the money, an issuer does not have to keep the prospectus for the exercise of those warrants current. Of course, the prospectus must be amended at such time as the warrants become in the money. No warrants may be exercised until the registrant has brought its prospectus covering the warrant exercise current.
A registrant inquired whether an offering of shares under a stock purchase plan could be made by switching back and forth between: (1) shares acquired from the issuer registered under the Securities Act; and (2) shares acquired on the open market not registered under the Securities Act in reliance on the limited issuer involvement/no registration positions in Securities Act Release No. 4790 (Jul. 13, 1965) and Securities Act Release No. 5515 (Jul. 22, 1974). Because switching back and forth indicated too much issuer involvement to qualify for the limited issuer involvement exemption from registration, registration of all shares offered under the plan was required.
Warrants, and the shares issuable upon their exercise, were registered. Now the warrants are being exchanged for warrants with a new expiration date and exercise price in reliance upon 3(a)(9). The original registration statement (updated to reflect the new terms through a post-effective amendment) may be used in connection with the exercise of the new warrants.
An issuer may extend the exercise period for warrants and/or reduce the warrant exercise price through the filing and issuance of an appropriate Rule 424(b) prospectus supplement prior to the initial expiration date of the warrants. The issuer may not permit the exercise of the modified warrants, however, unless a current prospectus under Section 10(a)(3) with respect to the shares underlying the warrants is delivered.
A parent and its majority-owned subsidiary both have classes of securities registered under Section 12 of the Exchange Act. The parent wishes to make a public offering of convertible, exchangeable debentures, which are immediately convertible into common stock of the parent and exchangeable, at the option of the parent, into common stock of the subsidiary. The offer and sale of all three securities must be registered.
Where a Form S-3 registration statement for a secondary offering of common stock was not yet effective and one of the selling shareholders wanted to do a short sale of common stock "against the box" and cover the short sale with registered shares after the effective date, the issuer was advised that the short sale could not be made before the registration statement becomes effective, because the shares underlying the short sale were deemed to be sold at the time such sale is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold prior to the effective date.
The Liability Risk Retention Act of 1986 contains exemptions from the registration provisions of Section 5 of the Securities Act and Section 12 of the Exchange Act for interests in a "risk retention group." A risk retention group is a corporation the primary activity of which is to assume and spread all or a portion of the liability exposure of its members, if certain conditions are met. In the absence of a formal no-action request, the staff declined to express any view as to whether the exemptions for interests in a risk retention group would extend to interests in a holding company for such group. The question has arisen because the exemption written into the statute is silent on that point. Ownership interests in a "risk retention group" are considered to be "securities" for purposes of Section 17 of the Securities Act and Section 10 of the Exchange Act, under the terms of The Liability Risk Retention Act of 1986.
In the King & Spalding no-action letter (Nov. 17, 1992), Corp Fin identified the conditions under which Securities Act registration would not be required for an issuer and/or its affiliates to operate a matching service to facilitate secondary resales of limited partnership interests of the issuer, including conditions relating to the Exchange Act reporting status of the issuer and the ways in which the matching service would operate. Other finite-life entities whose securities do not have an organized secondary market, such as certain REITs or other entities that fall within the definition of partnership in Item 901(b) of Reg S-K, similarly may operate a matching service if the conditions in the King & Spalding letter are met.
An acquiring company may seek "lock-ups" from management and principal security holders of a target company to vote in favor of a business combination transaction. The execution of a lock-up agreement may constitute an investment decision under the Securities Act. If so, the offer and sale of the acquiror’s securities would be made to persons who entered into those agreements before the business combination is presented to non-affiliated security holders for their vote. Recognizing the legitimate business reasons for seeking lock-up agreements in the course of business combination transactions, the staff has not objected to the registration of offers and sales where lock-up agreements have been signed in the following circumstances:
- the lock-up agreements involve only executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the company being acquired;
- the persons signing the lock-up agreements collectively own less than 100% of the voting equity of the target; and
- votes will be solicited from shareholders of the company being acquired who have not signed the agreements and would be ineligible to purchase in a private offering.
Where, however, the persons entering into the lock-up agreements also deliver written consents approving the business combination transaction, the staff has objected to the subsequent registration of the exchange on Form S-4 for any of the shareholders because offers and sales have already been made and completed privately, and once begun privately, the transaction must end privately.
Plans of financing can involve periodic adjustments of interest or dividend rates, rollovers of securities and plans to buy back and re-market securities, sometimes coupled with "puts" or guarantees (which themselves are securities). Filings involving these plans require an analysis of Section 5 and Rule 415 issues with respect to all securities involved in the offerings. Even after the original offering of the securities has terminated, the registrant may still be engaged in a continuous or delayed offering with respect to the future periodic issuance or modification of securities. These subsequent transactions may involve primary offerings of the issuer’s securities to the extent the issuer pays a remarketing or auction agent or otherwise is involved in subsequent sales such as in the remarketings or auctions.
As a general matter, once an option becomes exercisable, an offer is made pursuant to Section 5. Further, if an option becomes exercisable within one year, it is deemed to be immediately exercisable. Therefore, a registration statement must be on file before the option is exercisable for the entire transaction to be a public offering. A later filing of the registration statement would convert a private offering into a public offering, which is inconsistent with Section 5. The only exception to this position is with respect to Form S-8, where shares underlying the options are permitted to be registered at any time before the option is exercised, without regard to when the option became exercisable. This departure from the analysis set forth above is based solely on a policy determination to treat Form S-8 issuances more liberally, based on the employer/employee relationship.
In the context of a 401(k) plan, employee payroll deductions could be used to buy company stock. As a result, the plan could not rely on the 3(a)(2) exemption because the exemption is not available if an amount in excess of the employer’s contribution is allocated to the purchase of securities by the employer or an affiliated company. Counsel inquired whether the company instead could rely on Release 33-4790 (Jul. 13, 1965) to offer its employees company securities pursuant to the 401(k) plan if all the company’s securities purchases would be made in open market transactions with brokers. Release 33-4790 specifies limited ministerial activities that a company can perform regarding an open market employee stock purchase plan without the company or its affiliates being deemed to have solicited an offer to buy company stock. These activities do not, however, include offering company stock through a company-sponsored 401(k) retirement savings plan. Because company sponsorship of a 401(k) retirement savings plan is sufficient issuer participation to constitute a solicitation of an offer to buy company stock, registration under the Securities Act of the company stock and plan interests is required, absent another valid exemption.

Securities Act Section 6

The fees for registration of securities under Section 6(b) are published from time to time in orders and related press releases, which are posted on the SEC's website at www.sec.gov. Each of these press releases is generally identified as a "Fee Rate Advisory."
After filing a Form S-3ASR (a WKSI shelf) that relied on the pay-as-you-go provisions in Securities Act Rule 456(b), an issuer filed a Securities Act Rule 424 prospectus supplement to reflect a completed takedown. The fee table included in the prospectus supplement failed to include a number of shares (or aggregate offering amount) that were later sold pursuant to the underwriters’ overallotment option and the issuer did not pay a fee for those shares in the fee table within the cure period permitted by Rule 456(b)(1)(i). Although failing to identify the overallotment shares in the fee table and pay the fee constitutes a Section 6 violation, Rule 456(b)(2) provides that these failures do not cause the registrant to violate Section 5 because the registrant relied on the pay-as-you-go provisions and the class of securities sold pursuant to the overallotment option was identified in the Form S-3ASR at the time it was filed. The issuer should address its Section 6 violation by filing an additional prospectus supplement under either Rule 424(b)(2) or (b)(5) and under Rule 424(b)(8) with a fee table reflecting the overallotment shares and paying the associated filing fee at that time.
The public offering price for a security is always the basis for calculating the filing fee under Section 6(b). As a result, the principal amount for debt securities sold with original issue discount will not be the amount on which the fee is calculated. Instead, the substantially smaller amount to be paid by purchasers in the public offering will determine the fee.
A company filed a registration statement covering $12.5 million principal amount of debentures, 12,500 warrants to purchase common stock and the common stock underlying those warrants. The registrant paid a filing fee of $8,620, $4,310 of which was attributable to the debentures (fee was then at 1/29th of 1% of the aggregate). Prior to the effective date, the registrant decided to change the offering and filed an amendment withdrawing all the original securities and substituting $17.5 million principal amount of convertible debentures with a delayed conversion feature. The filing fee for the new offering would amount to $6,034. Since the registrant had paid only $4,310 with respect to the debt portion of the initial offering, it was concerned that it might owe an additional fee of $1,724 attributable to the increased debt offering. The registrant was informed that no additional fee was required, and that the fee table should indicate by footnote that a $8,620 fee had already been paid.
A Delaware limited partnership, with a foreign general partner, must provide the signature of an authorized U.S. representative of the general partner to satisfy the signature requirements for a Securities Act registration statement.

Securities Act Section 7

Where registration statements covering securities offered and sold in business combinations and reorganizations describe or include opinions from investment bankers on the financial fairness of the transaction to prospective purchasers in the transaction, Section 7 and Rule 436 require that the banker’s consent to being named in the registration statement be filed as an exhibit to that registration statement.
A registrant has no requirement to make reference to a third-party expert simply because the registrant used or relied on the third-party expert’s report or valuation or opinion in connection with the preparation of a Securities Act registration statement. The consent requirement in Section 7(a) applies only when a report, valuation or opinion of an expert is included or summarized in the registration statement and attributed to the third party and thus becomes "expertised" disclosure for purposes of Section 11(a), with resultant Section 11 liability for the expert and a reduction in the due diligence defense burden of proof for other Section 11 defendants with respect to such disclosure, as provided in Section 11(b).
If the registrant determines to make reference to a third-party expert, the disclosure should make clear whether any related statement included or incorporated in a registration statement is a statement of the third-party expert or a statement of the registrant. If the disclosure attributes a statement to a third-party expert, the registrant must comply with the requirements of Securities Act Rule 436 with respect to that statement. For example, if a registrant discloses purchase price allocation figures in the notes to its financial statements and discloses that these figures were taken from or prepared based on the report of a third-party expert, or provides similar disclosure that attributes the purchase price allocation figures to the third-party expert and not the registrant, then the registrant should comply with Rule 436 with respect to the purchase price allocation figures. On the other hand, if the disclosure states that management or the board prepared the purchase price allocations and, in doing so, considered or relied in part upon a report of a third-party expert, or provides similar disclosure that attributes the purchase price allocation figures to the registrant and not the third-party expert, then there would be no requirement to comply with Rule 436 with respect to the purchase price allocation figures as the purchase price allocation figures are attributed to the registrant. Independent of Section 7(a) considerations, a registrant that uses or relies on a third-party expert report, valuation or opinion should consider whether the inclusion or summary of that report, valuation or opinion is required in the registration statement to comply with specific disclosure requirements, such as Item 1015 of Reg M-A, Item 601(b) of Reg S-K or the general disclosure requirement of Rule 408.

Securities Act Section 10

Where a registrant has an effective Form S-3 registration statement, the filing of a Form 10-K containing the registrant’s audited financial statements for its most recently completed fiscal year by the due date of the annual report operates, for purposes of Rule 401(b), as a 10(a)(3) update to the Form S-3. Therefore, if the registrant were not eligible to use Form S-3 at the time of the updating through the filing of the Form 10-K, it would be required to file a post-effective amendment on whatever other Form would be available to the registrant at the time.

Securities Act Section 17

The Liability Risk Retention Act of 1986 contains exemptions from the registration provisions of Section 5 of the Securities Act and Section 12 of the Exchange Act for interests in a "risk retention group." A risk retention group is a corporation the primary activity of which is to assume and spread all or a portion of the liability exposure of its members, if certain conditions are met. In the absence of a formal no-action request, the staff declined to express any view as to whether the exemptions for interests in a risk retention group would extend to interests in a holding company for that group. The question has arisen because the exemption written into the statute is silent on that point. Ownership interests in a "risk retention group" are considered to be "securities" for purposes of Section 17 of the Securities Act and Section 10 of the Exchange Act, under the terms of The Liability Risk Retention Act of 1986.

SEC posts new interps re the Securities Act

Related articles

Related services