SEC Staff Issues New Staff Legal Bulletin No. 18 Relating to Use of Rule 12h-3

The SEC staff has issued new Staff Legal Bulletin No. 18, relating to the use of Rule 12h-3 under the Exchange Act to suspend reporting obligations under Section 15(d) of the Exchange Act. 

The bulletin provides that an issuer that wants to suspend its Exchange Act reporting obligations under Rule 12h-3 because it has either (1) been acquired by another entity or (2) abandoned its initial public offering (following effectiveness and withdrawal of the registration statement) does not need a no-action response from Corp Fin before filing a Form 15, notwithstanding the fact that a Securities Act registration statement relating to that class became effective or was required to be updated by Section 10(a)(3) during the time period specified in Rule 12h-3(c), provided that the issuer satisfies the conditions set forth in the SLB. Requests for no-action in these two circumstances have become routine (amounting to about 1/3 of 2009 no-action requests, outside of Rule 14a-8), and Corp Fin has repeatedly expressed the view in multiple no-action letters that continued Exchange Act reporting is no longer necessary because there are either no public shareholders or no longer any public shareholders of the class of securities for which there is a Section 15(d) reporting obligation.

As you may recall, the Section 15(d) reporting obligation is suspended (i) while a class of securities is registered under Section 12, of the Exchange Act, (ii) automatically (by statute) if, on the first day of any fiscal year other than the fiscal year in which a Securities Act registration statement became effective, there are fewer than 300 record holders of the class of securities offered under the registration statement or (iii) if the issuer complies with Rule 12h-3 at any time during the issuer's fiscal year if the issuer files a certification of termination on Form 15 and meets the conditions of the rule:

• Being current in Exchange Act reporting obligations;
• Having fewer than (i) 300 record holders of the class of securities offered under the Securities Act registration statement, or (ii) 500 record holders and assets not having exceeded $10 million on the last day of each of the issuer's three most recent fiscal years; and
• Not having had a Securities Act registration statement relating to that class of securities become effective in the fiscal year for which the issuer seeks to suspend reporting, and not having had a registration statement that was required to be updated by Section 10(a)(3) of the Securities Act during the fiscal year for which the issuer seeks to suspend reporting, and, if the issuer is relying on the fewer than 500 record holder and $10 million in assets threshold noted above, during the two preceding fiscal years.

Note that the 15(d) reporting obligation is merely suspended: if in the future, the issuer no longer satisfies the requirements under which it ceased reporting, the suspension is terminated and the reporting obligation resumes without any action by the issuer.) The last requirement, contained in Rule 12h-3(c), has typically caused the hiccup because issuers typically have filed or updated S-8s or S-3s.

To take advantage of the reporting suspension under either of the two circumstances described above, without filing to request no action by the staff, the issuer must satisfy the following additional conditions: 

• The issuer must not have a class of securities registered, or required to be registered, under Section 12 of the Exchange Act. Section 15(d) provides that the obligation to file reports under Section 15(d) is automatically suspended if and so long as any class of securities of an issuer is registered pursuant to Section 12. Accordingly, any Forms 25 and 15 to terminate Section 12 registration for any class of securities registered under Section 12 must be properly filed before suspension of a Section 15(d) reporting obligation may be effected pursuant to Rule 12h-3.
• The issuer must comply with the other requirements of Rule 12h-3 (below recordholder and asset thresholds, Form 15 filed and current in its Exchange Act reporting obligations as of the date of filing the Form 15).
• The issuer must deregister any unsold securities from Securities Act registration statements and withdraw any registration statements if there were no sales by filing post-effective amendments or application to withdraw the registration statement, as applicable. These post-effective amendments or applications to withdraw must be effective or consented to before filing the Form 15. Also, the issuer may not have any pre-effective Securities Act registration statements on file with the SEC that have not been withdrawn. (Note that post-effective amendments to Forms S-8 to remove unsold securities are effective upon filing, while post-effective amendments to most other registration statements for the same purpose must be declared effective. In addition, the requirement to file a post-effective amendment to deregister unsold securities does not apply to registration statements that have expired under Securities Act Rule 415(a)(5).)
• The issuer must not otherwise file Exchange Act reports during the time period in which it seeks to avail itself of the suspension provided by Rule 12h-3. If the issuer will have any outstanding debt, neither the indenture nor any related documents may require the issuer to submit, provide, furnish or file reports under the Exchange Act with the SEC or the indenture trustee during the time period in which the issuer seeks to avail itself of the suspension provided by Rule 12h-3. Otherwise, suspending the issuer's obligation to file reports under Section 15(d) would have no practical effect on the issuer's preparation of Exchange Act reports.

To cease reporting, an issuer must file a Form 15 for each class of securities for which there is a Section 15(d) reporting obligation. If the issuer does not satisfy these conditions or its situation is outside of these two circumstances (e.g., a going-dark situation), the issuer will continue to need to seek confirmation from the Corp fin staff regarding the availability of Rule 12h-3.

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