Consolidated Compliance and Disclosure Interpretations

July 1, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise certain of the Division’s staff interpretations. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision. Not all Division guidance is included on this page.

Securities Act Sections Compliance and Disclosure Interpretations (UPDATED 03/12/25)

Securities Act Rules Compliance and Disclosure Interpretations (UPDATED 03/12/25)

Regulation Crowdfunding Compliance and Disclosure Interpretations (UPDATED 03/12/25)

Securities Act Forms Compliance and Disclosure Interpretations (UPDATED 03/12/25)

Exchange Act Sections Compliance and Disclosure Interpretations (UPDATED 06/09/22)

Exchange Act Rules Compliance and Disclosure Interpretations (UPDATED 8/27/25)

Exchange Act Forms Compliance and Disclosure Interpretations (UPDATED 4/11/25)

Exchange Act Form 8-K Compliance and Disclosure Interpretations (UPDATED 06/24/24)

Ownership Reporting and Related Rules Compliance and Disclosure Interpretations (UPDATED 07/11/25)

Exchange Act Section 16 and Related Rules Compliance and Disclosure Interpretations (UPDATED 08/25/23)

Going Private Transactions, Exchange Act Rule 13e-3 and Schedule 13E-3 Compliance and Disclosure Interpretations

Proxy Rules and Schedules 14A/14C Compliance and Disclosure Interpretations (UPDATED 01/27/25)

Compliance and Disclosure Interpretations (Regarding Submission of Annual Reports to SEC) (UPDATED 01/11/23)

Compliance and Disclosure Interpretations (Regarding Description under Rule 14a-4(a)(3) of Rule 14a-8 Shareholder Proposals) (UPDATED 03/22/16)

Compliance and Disclosure Interpretations (Regarding Unbundling under Rule 14a-4(a)(3) in the M&A Context) (UPDATED 10/27/15)

Compliance and Disclosure Interpretations (Regarding Unbundling under Rule 14a-4(a)(3) Generally) (UPDATED 01/24/14)

Compliance and Disclosure Interpretations (Tender Offer Rules and Schedules) (UPDATED 03/06/25)

Regulation FD Compliance and Disclosure Interpretations (UPDATED 06/04/10)

Regulation S-K Compliance and Disclosure Interpretations (UPDATED 6/20/25)

Regulation S-T Compliance and Disclosure Interpretations (UPDATED 01/23/15)

Trust Indenture Act of 1939 Compliance and Disclosure Interpretations (UPDATED 04/24/15)

Oil and Gas Rules Compliance and Disclosure Interpretations (UPDATED 05/16/13)

Asset-Backed Securities Compliance and Disclosure Interpretations (UPDATED 05/16/25)

Cross-Border Exemptions Compliance and Disclosure Interpretations (UPDATED 10/17/18)

Interactive Data Compliance and Disclosure Interpretations (UPDATED 11/20/23)

Non-GAAP Financial Measures Compliance and Disclosure Interpretations (UPDATED 12/13/22)

Fixing America’s Surface Transportation Act Compliance and Disclosure Interpretations (UPDATED 08/17/17)

Securities Act Sections

Last Update: March 12, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of the Securities Act Sections. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Securities Act Section 2(a)(1)

None

Section 102. Securities Act Section 2(a)(2) [Reserved]

Section 103. Securities Act Section 2(a)(3)

Question 103.01

Question: If a company declares a dividend that is payable in either cash or securities at the election of the recipients, does the declaration of the dividend need to be registered under the Securities Act?

Answer: No, as there is no sale of the dividend shares under the Securities Act. [Nov. 26, 2008]

Question 103.02

Question: Does a transfer of restricted securities from a person’s employee benefit plan account to the person’s IRA need to be registered?

Answer: No, because there is no sale. The transfer does not effect a change in the beneficial ownership of the securities. [Nov. 26, 2008]

Question 103.03

Question: A shelf registration statement is filed for the sale of preferred stock. The issuer contemplates that some of the preferred stock may be issued at a later date in a series that permits immediate conversion of the preferred into common stock. Must the issuer register the common stock on the shelf registration statement at the time of effectiveness?

Answer: No. When this series of convertible preferred stock is to be offered at a later date, however, the common stock underlying it would have to be registered in a separate registration statement (unless the conversion is exempt, e.g., under Securities Act Section 3(a)(9)). An alternative would be for the shelf registration statement at the outset to include a sufficient amount of common stock to cover the issuance pursuant to the convertible series. (N.B.: 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.) [Nov. 26, 2008]

Question 103.04

Question: Where the offer and sale of convertible securities or warrants are being registered under the Securities Act, and such securities are convertible or exercisable within one year, must the underlying securities be registered at that time?

Answer: Yes. Because the securities are convertible or exercisable within one year, an offering of both the overlying security and underlying security is deemed to be taking place. If such 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 such securities become convertible or exercisable by their terms, if no exemption for such 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. [Aug. 14, 2009]

Sections 105 to 109. Securities Act Sections 2(a)(5) to 2(a)(9) [Reserved]

Section 104. Securities Act Section 2(a)(4)

Question 104.01

Question: When a statutory trust registers the offer and sale of beneficial units in multiple series, or a limited partnership registers the offer and sale of limited partnership interests in multiple series, on a single registration statement, should each series be treated as a separate registrant?

Answer: No. Even though a series of beneficial units or limited partnership interests may represent interests in a separate or discrete set of assets – and not in the statutory trust or limited partnership as a whole – unless the series is a separate legal entity, it cannot be a co-registrant for Securities Act or Exchange Act purposes. For these types of offerings, the disclosure in the Securities Act registration statement or Exchange Act report should be presented on a series basis, including series-level (1) financial statements and audit opinions, (2) business and property descriptions, (3) risk factor disclosure, and (4) evaluations and disclosure about the effectiveness of disclosure controls and procedures and internal controls and procedures. In addition, materiality determinations generally should be made at the series level. While the “Controls and Procedures” section of the periodic report (Item 9A in the 10-K and Item 4 in the 10-Q) should clarify that the scope of the evaluation and disclosure covers each series individually, as well as the registrant as a whole, the certifications required by Exchange Act Rule 13a-14(a) or 15d-14(a) may not be modified and must be made in the form required. [Apr. 24, 2009]

Section 110. Securities Act Section 2(a)(10)

Question 110.01

Question: Section 2(a)(10) of the Securities Act 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 proved that prior to or at the same time with such communication a written prospectus meeting the requirements of subsection (a) of Section 10 at the time of such communication was sent or given to the person to whom the communication was made.” Is Rule 172 available to satisfy the condition to the exception in clause (a) of Section 2(a)(10) that the Section 10(a) prospectus be “sent or given to the person to whom the communication was made”?

Answer: No. Rule 172 provides that a final Section 10(a) prospectus will be deemed to precede or accompany the carrying or delivery of a security for sale for purposes of Securities Act Section 5(b)(2) and provides a conditional exemption from Securities Act Section 5(b)(1) for written confirmations and notices of allocations. Rule 172 does not provide a means to satisfy the “sent or given” language in clause (a) of Section 2(a)(10). As the Commission stated in Securities Act Release No. 8591 (Jul. 19, 2005), in footnote 561, “a final prospectus only filed as provided in 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 Securities Act Section 2(a)(10).” [Nov. 26, 2008]

Section 111. Securities Act Section 2(a)(11)

Question 111.01

Question: Securities Act Rule 415(a)(4) was amended in 2005 to permit an issuer to register an at-the-market offering of equity securities without identifying an underwriter in its registration statement and without a limitation on the amount of the offering. Did this amendment also change the Commission's interpretation, as set forth in Securities Act Release No. 6334 (Aug. 6, 1981), that "any market professional — a market maker, specialist, or ordinary broker-dealer — who purchases a registered security as principal from the registrant or who sells that security for the registrant as agent ordinarily would be deemed a statutory underwriter under Section 2[(a)](11) of the Securities Act even in the absence of a specific written agreement between the issuer and that market professional"?

Answer: No. [June 4, 2010]

Question 111.02

Question: As a condition to not objecting to a registration statement for a so-called “Exxon Capital” exchange offer, the staff will ask the issuer to make representations about the absence of a distribution of the securities received in the exchange. Is there a particular form that these representations must take?

Answer: In a series of letters beginning with Exxon Capital Holdings Corporation (April 13, 1988), the staff expressed its view that when an issuer that has privately sold non-convertible debt or certain other securities to large, sophisticated investors, the issuer may subsequently register the exchange of those securities for substantially similar securities (an “Exchange Offer”), and the new securities (the “Exchange Securities”) may then be resold by most holders without further registration and without the delivery of a prospectus. A premise upon which this so-called “Exxon Capital” or “A/B” exchange is based is that the participants will not be engaged in a distribution of the registered securities, lest they be underwriters. As a condition to it not objecting to the registration of these offerings, the staff has requested that issuers make certain representations. See Morgan Stanley & Co., Inc. (June 5, 1991) and Shearman & Sterling (July 2, 1993). Over time, the staff has observed some variation in representations that are being provided. These representations need not follow any particular form so long as they address the following essential matters:

The issuer has not entered into any arrangement or understanding with any person who will receive Exchange Securities in the Exchange Offer to distribute those securities following completion of the Offer. The issuer is not aware of any person that will participate in the Exchange Offer with a view to distribute the Exchange Securities.
The issuer will disclose to each person participating in the Exchange Offer that if such participant acquires the Exchange Securities for the purpose of distributing them, such person:
- Cannot rely on the staff’s interpretive position expressed in the Exxon Capital line of no-action letters, and
- Must comply with the registration and prospectus delivery requirements of the Securities Act in order to resell Exchange Securities, and be identified as an underwriter in the prospectus.
The issuer will include in the transmittal letter an acknowledgement to be executed by each person participating in the Exchange Offer that such participant does not intend to engage in a distribution of the Exchange Securities. In addition, the issuer will include in the transmittal letter an acknowledgement for each person that is a broker-dealer exchanging securities it acquired for its own account as a result of market-making activities or other trading activities that such broker-dealer will satisfy any prospectus delivery requirements in connection with any resale of Exchange Securities received pursuant to the Exchange Offer. The transmittal letter may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

In the Shearman & Sterling letter, the staff’s views were conditioned on the issuer making each person participating in the Exchange Offer aware that any broker-dealer acquiring Exchange Securities in exchange for securities it acquired for its own account as a result of market-making activities or other trading activities may be a statutory underwriter. If the representations clearly state the essential matters outlined above, the staff does not believe that this additional disclosure is necessary. Any person acquiring Exchange Securities with a view to distributing them must be identified as an underwriter in the prospectus and must comply with all applicable requirements. In addition, a broker-dealer acquiring Exchange Securities may be required to deliver a prospectus in connection with resales if it is relying on the exemption in Section 4(a)(3) of the Securities Act.

The staff believes that the representations may be provided either in the prospectus or in correspondence submitted in connection with the filing. [July 11, 2016]

Sections 112 to 117. Securities Act Sections 2(a)(12) to Section 2A [Reserved]

Section 118. Securities Act Section 3(a)(2)

None

Section 119. Securities Act Section 3(a)(3)

None

Sections 120 to 121. Securities Act Sections 3(a)(4) to 3(a)(5) [Reserved]

Section 122. Securities Act Section 3(a)(6)

None

Sections 123 and 124. Securities Act Sections 3(a)(7) and 3(a)(8) [Reserved]

Section 125. Securities Act Section 3(a)(9)

Question 125.01

Question: Preferred stock will be issued in a Section 3(a)(9) exchange, and dividends on the preferred will be paid in either additional stock or cash, at the company’s option. Will the issuance of any additional stock paid as dividends also be exempt?

Answer: Yes. [Nov. 26, 2008]

Question 125.02

Question: Is the Section 3(a)(9) exemption available for the issuance of securities of one issuer to the holders of debt securities of another issuer if the obligation on such debt securities of the other issuer has been fully and unconditionally assumed by the issuer of the new securities?

Answer: Yes. 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. [Nov. 26, 2008]

Question 125.03

Question: Section 3(a)(9) is not available if any commission or other remuneration is paid for soliciting the exchange. An issuer proposes to use the services of a proxy solicitor in connection with an exchange transaction. Would Section 3(a)(9) be available for the transaction?

Answer: Yes, but only if 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. [Nov. 26, 2008]

Question 125.04

Question: Would Section 3(a)(9) be available for the conversion of preferred stock into common stock if a condition of the conversion is the waiver of accrued but unpaid dividends on the preferred stock?

Answer: Yes. The waiver of accrued but unpaid dividends would not make the exemption unavailable. [Nov. 26, 2008]

Question 125.05

Question: A subsidiary has outstanding a class of debentures guaranteed by its parent. The subsidiary proposes to offer a new debenture in exchange for the guaranteed debenture. The new debenture will not be guaranteed by its parent. Will the Section 3(a)(9) exemption be available for the exchange?

Answer: No, because the proposed exchange of the parent guarantee for the subsidiary’s debt involves two different issuers. [Nov. 26, 2008]

Question 125.06

Question: An issuer proposes to retain a third party for the purpose of consulting with institutional investors as to what they would consider to be an acceptable exchange offer. Would the issuer satisfy the condition of Section 3(a)(9) that “no commission or other remuneration be paid or given directly or indirectly for soliciting such exchange” if it paid such third party?

Answer: No. Accordingly, Section 3(a)(9) would not be available. For examples of the types of activities of a third party, such as a financial advisor, that are consistent with the Section 3(a)(9) exemption, see the Seaman Furniture Co., Inc. no-action letter (Oct. 10, 1989) issued by the Division. [Apr. 24, 2009]

Question 125.07

Question: An issuer proposes to conduct a going private issuer tender offer in which it will offer debt securities for its outstanding common stock. Would the issuer be precluded from relying on the exemption from registration provided by Section 3(a)(9) for the issuance of the debt securities simply because it pays an investment banker’s fee for a fairness opinion on the terms of the transaction?

Answer: No. In order to constitute the disqualifying type of remuneration or commission specified in Section 3(a)(9), the remuneration must be paid or given for soliciting the exchange of securities. Payment of a fee for an investment banker’s opinion as to the fairness of the transaction is not considered to be a fee paid for soliciting the exchange of securities. It should be noted, however, that if the investment banker is also conducting soliciting activities, the Section 3(a)(9) exemption would not be available. [Nov. 26, 2008]

Question 125.08

Question: When securities are exchanged for other securities of the issuer under Section 3(a)(9), do the securities received assume the character of the exchanged securities?

Answer: Yes. 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. [Nov. 26, 2008]

Question 125.09

Question: Rule 415 applies to registered offerings made on an immediate, delayed or continuous basis. In the case of a registration statement pertaining to an offering of convertible debentures and the common stock underlying the debentures, Rule 415 typically is not applicable to the continuous offering of the underlying common stock because that offering is exempt from registration pursuant to Section 3(a)(9). In cases where the Section 3(a)(9) exemption is unavailable (for example, 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) and absent another exemption, which part of Rule 415 is applicable?

Answer: Rule 415(a)(1)(iv). [Nov. 26, 2008]

Question 125.10

Question: U.S. issuers acquiring Canadian companies often use an offering structure designed to allow Canadian security holders of the acquired business to defer a tax event in the sale of those securities. Canadian law will currently tax the disposition of shares in a Canadian enterprise through a business combination, but provides an exemption where the consideration is paid in securities of another Canadian issuer. To allow Canadian shareholders to qualify for this tax deferral, U.S. issuers have effected acquisitions with the shares of a Canadian subsidiary whereby holders of common shares in the Canadian subsidiary indirectly share the same dividend, liquidation, and voting rights as held by common stockholders of the U.S. parent. The Canadian subsidiary's shares also carry the right to convert into shares of the U.S. parent. May the U.S. parent rely on Securities Act Section 3(a)(9) to exempt the conversion of subsidiary shares into parent shares?

Answer: No. Section 3(a)(9) exempts from registration exchanges of securities by the issuer exclusively with its own security holders. By its terms, the exemption is not available for issuer exchanges of its securities with the security holders of another person, even including security holders of a subsidiary. Notwithstanding other similarities between the parent and subsidiary shares, ownership of a subsidiary's securities in this fact pattern intrinsically represents an ownership interest in the subsidiary that is not directly shared by security holders of the parent. As a result, conversion to the parent's securities cannot satisfy the "same-issuer" requirement of Section 3(a)(9). [Aug. 14, 2009]

Question 125.11

Question: A company is structuring a pre-packaged bankruptcy. Prior to the bankruptcy filing, may the company rely on Section 3(a)(9) for a solicitation of security holders, and then, following the bankruptcy filing, complete the exchange pursuant to the registration exemption in Section 1145 of the Bankruptcy Code?

Answer: Yes. In this instance, the company would need to file a Form T-3 before commencing the pre-bankruptcy filing solicitation. [June 4, 2010]

Section 126. Securities Act Section 3(a)(10)

See Staff Legal Bulletin No. 3A.

Section 127. Securities Act Section 3(a)(11)

Question 127.01

Question: A Section 3(a)(11) offering generally is public in nature. Are securities acquired in such an offering “restricted securities” under Rule 144(a)(3)?

Answer: No. [Nov. 26, 2008]

Question 127.02

Question: If an issuer plans to conduct an intrastate offering pursuant to the Section 3(a)(11) exemption, may the issuer engage in general advertising or a general solicitation?

Answer: There is no prohibition in Securities Act Rule 147 regarding general advertising or general solicitation. Any such general advertising or solicitation, however, must be conducted in a manner consistent with the requirement that offers made in reliance on Section 3(a)(11) and Rule 147 be made only to persons resident within the state or territory of which the issuer is a resident. [Nov. 26, 2008]

Section 128. Securities Act Section 3(a)(12)

None

Sections 129 to 133. Securities Act Sections 3(a)(13) to Section 4(1) [Reserved]

Section 134. Securities Act Section 4(2)

Question 134.01

Question: Can a registration statement for a secondary offering be filed if the securities to be offered pursuant to the registration statement have not yet been sold to the selling security holders?

Answer: No. 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. [Nov. 26, 2008]

Question 134.02

Question: A company with a pending registration statement intends to withdraw the registration statement and immediately thereafter complete the same offering without registration in reliance upon the Section 4(2) private offering exemption. Is this consistent with Section 5 of the Securities Act?

Answer: No. 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 Section 4(2) unavailable for the same offering. As the Commission noted in Securities Act Release No. 8828 (Aug. 3, 2007), in footnote 122, “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.” [Nov. 26, 2008]

Question 134.03

Question: A company proposes to file a registration statement to register issuances of securities to purchasers who committed to purchase securities from the issuer before the filing of the registration statement on the condition that the securities be registered before issuance. Can the company register the issuance of securities to purchasers as a primary offering?

Answer: No. It appears that the purpose of this procedure is to provide the purchasers with registered (rather than restricted) securities. This procedure is not 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 the Section 4(2) private placement exemption. If so, the registration statement should cover resales by the purchasers, not issuances to the purchasers, provided that the purchasers have become 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 is established at the time of the private placement and is not contingent on the market price at the time of effectiveness of the registration statement. [Nov. 26, 2008]

Section 135. Securities Act Section 4(3)

None

Section 136. Securities Act Sections 4(4)

None

Sections 137 to 138. Securities Act Sections 4(5) to 4(6) [Reserved]

Section 139. Securities Act Section 5

Question 139.01

Question 139.02

Question: Is an issuer required to file new powers of attorney with respect to the signatures in a new registration statement?

Answer: Yes. [Nov. 26, 2008]

Question 139.03

Question: Can an issuer issue shares as a prize or award to employees without registration under the Securities Act?

Answer: While the issuance of small numbers of shares as prizes or awards to employees may be made without Securities Act registration, if such 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. [Nov. 26, 2008]

Question 139.04

Question: An issuer has closed a blind pool/blank check offering. When must the issuer file a post-effective amendment to its registration statement pursuant to Securities Act Rule 419(d) to describe an operating business that will be acquired?

Answer: The issuer should file a post-effective amendment 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.) [Nov. 26, 2008]

Question 139.05

Question: The offer and sale of underwriters’ warrants often are registered along with the public offering for which the warrants constitute underwriters’ compensation. When the underwriters’ warrants are registered, must the securities underlying those warrants also be registered?

Answer: If the warrants are exercisable within one year, the securities underlying those warrants must be registered. 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 due to 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. [Nov. 26, 2008]

Question 139.06

Question 139.07

Question: Under Securities Act 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. May a broker or dealer 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?

Answer: Yes. [Nov. 26, 2008]

Question 139.08

Question 139.09

Question 139.10

Question: A company privately placed convertible securities in reliance on the exemption provided by Section 4(2). The company agreed to file a registration statement within two months after the private placement closing to register the resale of the common stock issuable on conversion of the convertible securities. The securities were convertible into common stock using a conversion ratio based on the company’s common stock trading price at the time of conversion. Can the company use Form S-3 to register the resale of the common stock prior to conversion? Can the company use Rule 416 to register for resale an indeterminate number of shares that it may issue due to the operation of the conversion formula?

Answer: 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. Rule 416 does not apply by its terms in these circumstances, because the floating conversion rate is not “similar” to an anti-dilution provision. Instead, the company must make a good-faith estimate of the maximum number of shares that it may issue on 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 Regulation S-K, how each selling securityholder intends to dispose of the securities it receives on conversion. [Nov. 26, 2008]

Question 139.11

Question: A company privately placed convertible securities in reliance on the exemption provided by Section 4(2), but has not yet issued some or all of the convertible securities. The company agreed to file a registration statement within two months after the private placement closing to register the resale of the common stock issuable on conversion of the convertible securities. The securities were convertible into common stock using a conversion ratio based on the company’s common stock trading price at the time of conversion. Can the company use Form S-3 to register the resale of the common stock prior to conversion?

Answer: Unless the transaction involving the issuance of the convertible security meets the conditions under which a company may file a registration statement for resale of privately placed securities before their actual issuance (commonly known as a “PIPE,” or private-investment, public-equity transaction, as discussed below), the registration for resale of the common stock underlying the unissued convertible security would not be viewed as a valid secondary offering. 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 such 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 Section 4(2) exemption generally claimed for the entire convertible securities offering.

In a PIPE transaction, a company will be permitted to register the resale of securities prior to their issuance if the company has completed a Section 4(2)-exempt sale of the securities (or in the case of convertible securities, of the convertible security itself) to the investor, 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. [Nov. 26, 2008]

Question 139.12

Question: What is an equity line financing?

Answer: 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. Under this put, the company has the right to tell the investor when to buy securities from the company over 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. [Nov. 26, 2008]

Question 139.13

Question: In many equity line financings, the company will rely on the private placement exemption from registration to sell the securities under the equity line and will then seek to register the “resale” of the securities sold in the equity line financing. When may a company file a registration statement for the resale by the investors of securities sold in a private equity line financing?

Answer: In these types of equity line financings, the company’s right to put shares to the investor in the future and the lack of market risk resulting from the formula price differentiate private equity line financings from financing PIPEs (private investment, public equity). We, therefore, analyze private equity line financings as indirect primary offerings, even though the “resale” form of registration is sought in these financings.

The at-the-market limitations contained in Rule 415(a)(4) would otherwise prohibit market-based formula pricing for issuers that are not eligible to conduct primary offerings on Form S-3 or Form F-3. Nevertheless, we will not object to such companies registering the “resale” of the securities prior to the exercise of the equity line put if the transactions meet the following conditions:

the company and the investor have entered into a binding agreement with respect to the private equity line financing at the time the registration statement is filed;
the “resale” registration statement is on a form that the company is eligible to use for a primary offering;
there is an existing market for the securities, as evidenced by trading on a national securities exchange or alternative trading system, which is a registered broker-dealer and has an active Form ATS on file with the Commission; and
the equity line investor is identified in the prospectus as an underwriter, as well as a selling shareholder.

We will not object to the filing of a registration statement for a private equity line financing prior to the issuance of securities by the company under the equity line even when there are contingencies attached to the investor’s obligation to accept a put of shares from the company, as long as the above conditions are satisfied and the following terms of the investment have been agreed upon by both parties and disclosed by the company at the time that the resale registration statement is filed:

the number of shares registered for resale;
the maximum principal amount available under the equity line agreement;
the term of the agreement; and
the full discounted price (or formula for determining it) at which the investor will receive the shares.

[November 13, 2020]

Question 139.14

Question: If the conditions in the answer to Securities Act Sections Question 139.13 are not met, can the company register the “resale” of the securities in a private equity line financing?

Answer: As a general matter, no. However, if the following conditions are met, the company may register the “resale” transaction, as these conditions address our 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).
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. [Nov. 26, 2008]

Question 139.15

[Withdrawn, November 13, 2020]

Question 139.16

[Withdrawn, November 13, 2020]

Question 139.17

[Withdrawn, November 13, 2020]

Question 139.18

[Withdrawn, November 13, 2020]

Question 139.19

[Withdrawn, November 13, 2020]

Question 139.20

[Withdrawn, November 13, 2020]

Question 139.21

Question: How does a company register, as a primary offering (rather than as a “resale” registration in a private equity line financing), the issuance of the put securities under an equity line?

Answer: An equity line financing done as a primary offering in which the put price is based on or at a discount to the underlying stock’s market price at the time of the put exercise is an “at the market” offering under Rule 415(a)(4) and must 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 or General Instruction I.B.6 of such form or on Form F-3 in reliance on General Instruction I.B.1 or General Instruction I.B.5 of such form. 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. [Nov. 26, 2008]

Question 139.22

Question: In a resale registration statement for equity line financings, must the investor be identified as an underwriter? Is it appropriate to name the underwriter or underwriters in a prospectus supplement?

Answer: Yes to both questions. The registration statement must identify the investor, in addition to the registered broker-dealer, as an underwriter in the base prospectus, a post-effective amendment or a prospectus supplement. [Nov. 26, 2008]

Question 139.23

Question: When may a company that has entered into a privately placed equity line rely on General Instruction I.B.6 of Form S-3 to register securities issuable under the equity line agreement?

Answer: A company may rely on General Instruction I.B.6. 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 are no more than the one-third cap under General Instruction I.B.6. In making such a determination, the company would determine its public float as of a date within 60 days prior to entering into the equity line agreement. [Nov. 26, 2008]

Question 139.24

Question: For purposes of reliance on General Instruction I.B.6 for a privately placed equity line financing, how does the company calculate the 12 calendar month period?

Answer: While the date of entry into the equity line agreement determines the ability of the company 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 such 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 limited from entering into additional agreements and registering resales or registering primary offerings on Form S-1. [Nov. 26, 2008]

Question 139.25

Question: Does the five-factor integration analysis in Securities Act Rule 502(a) apply to the situation in which an issuer is conducting concurrent private and public offerings?

Answer: No. The Commission’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 Securities Act Section 4(2) or the Securities Act 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 issued by the Division, or to a company’s key officers and directors, as under our so-called “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 Commission’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 Section 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 Section 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 Section 4(2) would be available, assuming the offering is otherwise consistent with the exemption. Hence, 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. [Nov. 26, 2008]

Question 139.26

Question: An issuer and underwriter contemplate conducting an electronic offering by soliciting conditional offers, such as through a modified Dutch auction, prior to effectiveness of the registration statement. What safeguards should the issuer and underwriter implement to comply with Section 5 of the Securities Act?

Answer: While a pre-effective conditional offer is not prohibited by Section 5, a pre-effective sale is prohibited by Section 5(a). An offering involving conditional offers must be structured such that a conditional offer is not in substance a sale. A conditional offer will generally not be deemed a sale if the offeree has not paid any consideration for the securities and has a meaningful opportunity to withdraw the offer after effectiveness of the registration statement. Consideration will not be deemed to have been paid if an underwriter in the offering requires new customers that will submit conditional offers in the offering to comply with the underwriter’s standard minimum account funding requirements that are not based on the specific offering.

A meaningful opportunity to withdraw would include the communication of a reasonable notice of important offering milestones, such as the filing of a request for effectiveness and the granting of effectiveness, a reasonable notice of material changes to the offering disclosure, and a final notice of the opportunity to withdraw at least one hour prior to acceptance of conditional offers. This final notice may be communicated prior to pricing, but pricing must occur prior to acceptance of any conditional offers. In addition, an offeree generally should be required to affirmatively reconfirm a conditional offer if there is a material change to the Section 10 prospectus available at the time of the original conditional offer, the offering prices below or more than 20% above the price range in the prospectus, or more than 15 days elapse between the submission of the conditional offer and acceptance.

The issuer and underwriter should also make sure that pre-acceptance communications do not violate Section 5(b)(1). Assuming the Section 10 compliant preliminary prospectus is available prior to the time conditional offers are solicited, a description of the offering procedures, offering milestones and account opening instructions, such as on a website, will generally not be “offers” for purposes of Section 5(b)(1), to the extent permitted by Rule 134. [Apr. 24, 2009]

Question 139.27

Question: A company completes a private placement of securities in reliance on the Section 4(2) exemption and then files a registration statement for the resale of the privately-placed securities. After the filing of the registration statement but prior to its effectiveness, the company commences and completes a second private placement that is consistent with the interpretive guidance on general solicitation provided in Securities Act Release No. 8828 (Aug. 10, 2007). Can the company include the securities from the second private placement in the pending resale registration statement prior to effectiveness?

Answer: Yes. The second private placement must be consistent with the interpretive guidance in the release and it must be completed before the company can file a pre-effective amendment to include the securities from the second private placement in the resale registration statement. [Aug. 14, 2009]

Question 139.28

Question: Must offers and sales be suspended during the waiting period of a post-effective amendment to an effective registration statement?

Answer: Offers and sales must be suspended if the post-effective amendment is filed for the purpose of a Section 10(a)(3) amendment and the prospectus is already stale for Section 10(a)(3) purposes. In addition, sales, but not offers, must be suspended during the pendency of a post-effective amendment filed for the purpose of complying with the Regulation S-K Item 512(a)(1) undertakings, such as a fundamental change or a material change to the plan of distribution. Offers may continue during this time; however, if the prospectus is used to make offers, it should not be materially deficient. A post-effective amendment filed to add selling stockholders does not require a suspension of offers and sales by selling stockholders already named in the registration statement. [Aug. 14, 2009]

Question 139.29

Question: May an issuer contemplating a registered debt exchange offer execute a lock-up agreement (or agreement to tender) with a note holder before the filing of the registration statement?

Answer: The execution of a lock-up agreement (or agreement to tender) may constitute a contract of sale under the Securities Act. If so, the offer and sale of the issuer's securities would be made to note holders who entered into such an agreement before the exchange offer is made to other note holders.

Recognizing the legitimate business reasons for seeking lock-up agreements in this type of transaction, the staff will not object to the registration of offers and sales when lock-up agreements have been signed in the following circumstances:

the lock-up agreements are signed only by accredited investors;
the persons signing the lock-up agreements collectively own less than 100% of the outstanding principal amount of the particular series of notes;
a tender offer will be made to all holders of the particular series of notes; and
all note holders eligible to participate in the exchange offer are offered the same amount and form of consideration.

When lock-up agreements are executed before the filing of a registration statement and the circumstances noted above are not satisfied, the subsequent registration of the exchange offer on Form S-4 may be inappropriate. An exchange offer is a single transaction, and a transaction that has commenced privately must be completed privately. Similarly, if a note holder actually tenders its notes - for example, by signing a transmittal form - before the filing of the Form S-4, the staff has objected to the subsequent registration of the exchange offer on Form S-4 for any of the note holders because offers and sales have already been made and completed privately. An issuer seeking to lock up note holders must also consider whether such efforts represent the commencement of a tender offer. [Aug. 11, 2010]

Question 139.30

Question: In a negotiated third-party exchange offer, may an acquiring company execute a lock-up agreement (or agreement to tender) before the filing of the registration statement to obtain a commitment from management and principal security holders of a target company to tender their shares in the exchange offer?

Answer: The execution of a lock-up agreement (or agreement to tender) may constitute a contract of sale under the Securities Act. If so, the offer and sale of the acquiror's securities would be made to persons who entered into such an agreement before the exchange offer is made to other target security holders.

Recognizing the legitimate business reasons for seeking lock-up agreements in the course of negotiated third-party exchange offers, the staff will not object 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 subject securities of the target company;
the persons signing the lock-up agreements collectively own less than 100% of the subject securities of the target;
a tender offer will be made to all holders of the subject securities of the target; and
all holders of the subject securities of the target eligible to participate in the exchange offer are offered the same amount and form of consideration.

When lock-up agreements are executed before the filing of a registration statement and such agreements exceed the circumstances noted above, the subsequent registration of the exchange offer on Form S-4 may be inappropriate. An exchange offer is a single transaction, and a transaction that has commenced privately must be completed privately. Similarly, if a holder actually tenders its subject securities — for example, by signing a transmittal form — before the filing of the Form S-4, the staff has objected to the subsequent registration of the exchange offer on Form S-4 for any of the holders of the subject securities because offers and sales have already been made and completed privately. An acquiring company seeking to lock up holders of the subject securities must also consider whether such efforts represent the commencement of a tender offer. [Aug. 11, 2010]

Question 139.31

Question: May an issuer registering for resale shares underlying convertible debt or convertible preferred shares include in the registration statement additional shares that may be issued pursuant to the terms of the debt or the preferred shares as payment-in-kind interest or dividends?

Answer: Yes. [June 4, 2010]

Question 139.32

Question: An Exchange Act reporting company is conducting an exempt offering pursuant to Regulation S and Rule 144A and intends to include material non-public information in the offering memorandum to be distributed to investors in the exempt offering. In order to satisfy its obligations under Regulation FD, may the company file the complete offering memorandum as an exhibit to an Item 7.01 Form 8-K during the time the offering memorandum is distributed to potential investors in the exempt offering?

Answer: No. The filing of the complete offering memorandum on Form 8-K during the exempt offering period likely would be inconsistent with the exemptions. To avoid this concern while still complying with Regulation FD, the company could file a Form 8-K that sets forth the material non-public information that is included in the offering memorandum, including information about the offering of the type permitted to be disclosed pursuant to Securities Act Rule 135c. [Mar. 4, 2011]

Question 139.33

Q: A company sponsors a 401(k) plan that does not offer an employer securities fund in which employee contributions may be invested. The 401(k) plan permits both employer and employee contributions to be invested through a self-directed “brokerage window.” If the 401(k) plan does not prohibit employee contributions to be invested in employer securities through the “brokerage window,” would this involve an offer of employer securities requiring Securities Act registration?

A: It depends on the extent of the employer company’s involvement. In Release 33-4790, the Commission discussed whether registration is required for employer securities offered to employees through a stock purchase plan. That release framed the question as whether there is an “attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value” within the meaning of Securities Act Section 2(a)(3). The Commission said that a determination of whether registration is required turns on the degree and type of participation by issuers or their affiliates in the particular program. In the context of an open market stock purchase plan, the Commission said that registration would not be required if all communications of a soliciting character are furnished by or in the name of a broker, and the issuer or affiliate does no more than: 1) announces the existence of the plan; 2) makes payroll deductions; 3) makes names of employees available to the broker; and 4) pays no more than its expense of payroll deductions and reasonable fees and expenses for commissions, bookkeeping and custodial services.

In the context of providing a self-directed “brokerage window” in which plan participants could trade in employer securities with employee contributions, where the employer company and the 401(k) plan do no more than describe the self-directed “brokerage window” as part of the investment alternatives under the 401(k) plan, make payroll deductions, and pay administrative expenses not in any way tied to particular investments selected by employees and take no action to draw employees’ attention to the possibility of investing in employer securities through the “brokerage window,” the staff would not consider the employer company to be offering its securities to its employees for purposes of Securities Act registration. [September 22, 2016]

Section 140. Securities Act Section 6

Question 140.01

Question: What is the current fee for the registration of securities under Section 6(b)?

Answer: From time to time, the Commission publishes orders and related press releases concerning current fee rates, which are posted on the Commission’s website at www.sec.gov. These press releases are generally identified as a “Fee Rate Advisory.” [Nov. 26, 2008]

Question 140.02

Question: After filing a Form S-3ASR 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). How can the issuer resolve this problem?

Answer: 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 such 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. [Nov. 26, 2008]

Question 140.03

Question: How does one calculate the filing fee under Section 6(b) for debt securities sold with original issue discount?

Answer: The public offering price for a security always is 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. [Nov. 26, 2008]

Section 141. Securities Act Section 7

Question 141.01

Question: Registration statements covering securities offered and sold in business combinations and reorganizations often describe or include opinions from investment bankers on the financial fairness of the transaction to prospective purchasers in the transaction. Must a consent be filed under Section 7 in regard to such opinions?

Answer: Yes. Section 7 and Securities Act Rule 436 require that the banker’s consent to being named in the registration statement be filed as an exhibit to that registration statement in these circumstances. [Nov. 26, 2008]

Question 141.02

Question: A registrant has engaged a third party expert to assist in determining the fair values of certain assets or liabilities disclosed in the registrant’s Securities Act registration statement. Must the registrant disclose in the registration statement that it used a third party expert for this purpose? In what circumstances must the registrant disclose the name of the third party expert in its registration statement and obtain the third party’s consent to be named?

Answer: The 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 Securities Act 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 Securities Act 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 Securities Act 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 such 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 Regulation M-A, Item 601(b) of Regulation S-K or the general disclosure requirement of Securities Act Rule 408. [Nov. 26, 2008]

Sections 142 to 143. Securities Act Sections 8 to 9 [Reserved]

Section 144. Securities Act Section 10

Question 144.01

Question: A registrant has an effective registration statement on Form S-3, but at the time of filing its Form 10-K, it no longer satisfies the eligibility requirements of Form S-3. Does the filing of the registrant’s Form 10-K affect the ability of the registrant to continue using its Form S-3?

Answer: Yes. For purposes of Securities Act Rule 401(b), 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 such annual report operates as a Section 10(a)(3) update to a Form S-3 registration statement Therefore, if a registrant were not eligible to use Form S-3 at the time of such 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. [Nov. 26, 2008]

Sections 145 to 150. Securities Act Sections 11 to 16 [Reserved]

Section 151. Securities Act Section 17

None

Sections 152 to 163. Securities Act Sections 18 to 28 [Reserved]

Section 164. Schedules A and B [Reserved]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Securities Act Section 2(a)(1)

201.01 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 relating to financial or management services). [Nov. 26, 2008]

Section 202. Securities Act Section 2(a)(2) [Reserved]

Section 203. Securities Act Section 2(a)(3)

203.01 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 such modified warrants, however, unless a current prospectus under Section 10(a)(3) with respect to the shares underlying the warrants is delivered. [Nov. 26, 2008]

203.02 A holding company reorganization is to be carried out pursuant to Section 251(g) of the Delaware General Corporation Law 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, such reorganization may involve a “sale” or “offer to sell” for the purposes of Section 2(a)(3) and Rule 145. [Nov. 26, 2008]

203.03 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) issued by the Division. [Nov. 26, 2008]

203.04 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’s 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, whose assets 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.

Since Company B will exist before and after the merger and will exchange notes with its own security holders, counsel took the position that Section 3(a)(9) would exempt the exchange from registration. Counsel also took the view that the assumption of the notes by New Company B in connection with the reorganization would not require registration under the Securities Act since such assumption did not constitute a “sale” or “offer to sell” as defined in Section 2(a)(3). Counsel’s no-sale theory was based on the fact that the noteholders would neither exchange the notes for new notes nor give up any value, since they would not have relinquished any rights attached to the notes. Further, the terms of the notes permit substitution of a successor obligor. Finally, counsel argued that Rule 145 would be inapplicable to the reorganization, since noteholders will not vote on or consent to the reorganization or assumption of the notes by New Company B.

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 Company B’s. 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 shareholder’s meeting. [Nov. 26, 2008]

203.05 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 either have to be registered under the Securities Act or exempt from Securities Act registration. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of such an offering, but would not allow the solicitation of indications of interest. [Nov. 26, 2008]

203.06 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 United States, from one state to another. Despite the rule’s express domestic limitation, 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 incorporate within the United States, the migratory transaction is an event of sale that must be registered with the Commission or exempt from registration. [Nov. 26, 2008]

Sections 204 to 209. Securities Act Sections 2(a)(4) to 2(a)(9) [Reserved]

Section 210. Securities Act Section 2(a)(10)

None

Section 211. Securities Act Section 2(a)(11)

211.01 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) issued by the Division. [Nov. 26, 2008]

Sections 212 to 217. Sections 2(a)(12) to Section 2A [Reserved]

Section 218. Securities Act Section 3(a)(2)

218.01 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. [Nov. 26, 2008]

218.02 Section 3(a)(2) provides an exemption for securities issued by states and political subdivisions or public instrumentalities thereof. The section also provides 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, such 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 such separate Rule 131 securities would be required. [Nov. 26, 2008]

218.03 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. [Nov. 26, 2008]

218.04 Participations in a banker’s acceptance, offered and sold by a broker who holds the banker’s acceptance, are separate securities which are not exempt as securities issued by a bank within the meaning of Section 3(a)(2). [Nov. 26, 2008]

218.05 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). [Nov. 26, 2008]

Section 219. Securities Act Section 3(a)(3)

219.01 Commercial paper payable on demand but in any event no later than 9 months from issuance, satisfies the maturity requirement of the exemption. [Nov. 26, 2008]

219.02 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 such funds will be applied in part to current transactions equal in amount to the commercial paper proceeds. [Nov. 26, 2008]

Sections 220 to 221. Securities Act Sections 3(a)(4) to 3(a)(5) [Reserved]

Section 222. Securities Act Section 3(a)(6)

222.01 A company issued securities under Section 3(a)(6) but has 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 the provisions of Rule 144, except for the holding period provisions, absent registration or the availability of another exemption. [Nov. 26, 2008]

Sections 223 to 224. Securities Act Sections 3(a)(7) to 3(a)(8) [Reserved]

Section 225. Securities Act Section 3(a)(9)

225.01 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. [Nov. 26, 2008]

225.02 An issuer wishes to solicit holders of outstanding debt securities to approve changes in certain indenture covenants. At the same time, the issuer will increase the interest rate. While this transaction may be deemed to involve the issuance of a new security if it represents a fundamental change in the nature of the investment, 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. [Nov. 26, 2008]

225.03 Company A proposes to issue convertible preferred stock in exchange for its outstanding common stock. Holders of Company A’s new convertible preferred stock will have the option two years after issuance of exchanging such shares into Company B’s common stock. Section 3(a)(9) would be available for Company A’s first exchange offer, assuming all the conditions of that exemption are complied with. 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. [Nov. 26, 2008]

225.04 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. [Nov. 26, 2008]

225.05 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. [Nov. 26, 2008]

Section 226. Securities Act Section 3(a)(10)

226.01 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 Section 3(a)(10) are satisfied, including, among other things, the court holding a hearing as to the fairness of the issuance and expressly finding that it is fair. [Nov. 26, 2008]

Section 227. Securities Act Section 3(a)(11)

227.01 The intrastate offering exemption is not rendered unavailable solely because the proceeds of the offering will be temporarily invested in out-of-state CDs. [Nov. 26, 2008]

227.02 An issuer makes an offering of securities in reliance upon the Section 3(a)(11) exemption and permits purchasers to pay for their securities in installments. The question was raised whether such purchasers must satisfy the residency requirement of Section 3(a)(11) until the completion of their installment payments. If an installment payment represented a separate investment decision, the purchaser must be a resident at the time of that payment. On the other hand, 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. [Nov. 26, 2008]

227.03 An exchange offer would not be exempt under Section 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. [Nov. 26, 2008]

227.04 A new corporation would not be precluded from relying on Section 3(a)(11) for an offering simply because a significant part of its business would be interstate mail order. [Nov. 26, 2008]

227.05 A purchaser in an offering exempt from registration under Section 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. [Nov. 26, 2008]

227.06 Sales of stock to promoters pursuant to Section 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to Section 3(a)(11). [Nov. 26, 2008]

Section 228. Securities Act Section 3(a)(12)

228.01 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 it; 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. [Nov. 26, 2008]

Sections 229 to 233. Securities Act Sections 3(a)(13) to 4(1) [Reserved]

Section 234. Securities Act Section 4(2)

234.01 A limited partnership that owns a building will advertise for leases through newspaper advertisements. 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 such limited partnership interests is not lost because of the general advertisements relating only to the availability of space. [Nov. 26, 2008]

234.02 Rule 506(b) sanctions the use of a representative who advises unsophisticated participants in the offering and thus furnishes the business sophistication required by Section 4(a)(2) that the participants lack personally. Because of the safe-harbor character of the rules and because no-action positions generally are unavailable under Section 4(a)(2), the Division will not express a view whether the use of a purchaser or offeree representative outside Rule 506(b) is an acceptable method to provide the sophistication requirement of Section 4(a)(2) as construed by the courts and the Commission. [March 12, 2025] [Comparison to prior version]

234.03 Sales of stock to promoters pursuant to Section 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to Section 3(a)(11). [Nov. 26, 2008]

Section 235. Securities Act Section 4(3)

235.01 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 of 1933. See the Merrill Lynch & Co., Inc. no-action letter (Mar. 26, 1976) issued by the Division. Accordingly, the Section 4(3) exemption is not available to dealers for the offer and sale of securities of an affiliated issuer of the dealer. [Nov. 26, 2008]

235.02 The Section 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 Securities Act Rule 172 to satisfy their obligation to deliver a “market-making” prospectus. [Nov. 26, 2008]

Section 236. Securities Act Section 4(4)

236.01 A company planning to conduct an initial public offering 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 such 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. [Nov. 26, 2008]

Sections 237 to 238. Securities Act Sections 4(5) to 4(6) [Reserved]

Section 239. Securities Act Section 5

239.01 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. [Nov. 26, 2008]

239.02 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 either have to be registered under the Securities Act or exempt from Securities Act registration. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of such an offering, but would not allow the solicitation of indications of interest. [Nov. 26, 2008]

239.03 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. The Division has not stated affirmatively, however, that all interest-only deferred compensation plans involve securities. Instead, the Division leaves that question 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., Section 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. [Nov. 26, 2008]

239.04 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 United States, from one state to another. Despite the rule’s express domestic limitation, the Division 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 incorporate within the United States, the migratory transaction is an event of sale that must be registered with the Commission or exempt from registration. [Nov. 26, 2008]

239.05 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 exercise of the warrants becomes in the money. No warrants may be exercised until the registrant has brought its prospectus covering such exercise current. [Nov. 26, 2008]

239.06 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. [Nov. 26, 2008]

239.07 Warrants, and the shares issuable on their exercise, were registered. Now the warrants are being exchanged for warrants with a new expiration date and exercise price in reliance on Section 3(a)(9). The Division will not object if the original registration statement (updated to reflect the new terms through a post-effective amendment) is used in connection with the exercise of the new warrants. [Nov. 26, 2008]

239.08 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 such modified warrants, however, unless a current prospectus under Section 10(a)(3) with respect to the shares underlying the warrants is delivered. [Nov. 26, 2008]

239.09 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. The debentures 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. [Nov. 26, 2008]

239.10 An issuer filed a Form S-3 registration statement for a secondary offering of common stock which is not yet effective. 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 are 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. [Nov. 26, 2008]

239.11 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 Division 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. [Nov. 26, 2008]

239.12 In the King & Spalding no-action letter (Nov. 17, 1992) issued by the Division, the Division 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 such 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 real estate investment trusts or other entities that fall within the definition of partnership in Item 901(b) of Regulation S-K, similarly may operate a matching service if the conditions in the King & Spalding letter are met. [Nov. 26, 2008]

239.13 An acquiring company may seek a commitment from management and principal security holders of a target company to vote in favor of a Rule 145(a) transaction, frequently referred to as a “lock-up agreement.” The execution of a lock-up agreement may constitute an investment decision under the Securities Act. If so, the offer and sale of the acquiring company's securities would be made to persons who entered into those agreements before the Rule 145(a) transaction is presented to non-affiliated security holders for their vote.

Recognizing the legitimate business reasons for seeking lock-up agreements in the course of a Rule 145(a) transaction, 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 target company (“target company insiders”);
the persons signing the lock-up agreements collectively own less than 100% of the voting equity securities of the target company;
votes will be solicited from security holders of the target company who have not signed the agreements if such votes are needed to approve the Rule 145(a) transaction under state or foreign law; and
the acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.

Where the target company insiders in the above circumstances deliver written consents approving the Rule 145(a) transaction before the Form S-4 (or Form F-4) is filed, the staff will not object to the subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) as long as:

target company insiders who delivered the written consents will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
the securities registered on the Form S-4 (or Form F-4) will be offered and sold only to those security holders of the target company who did not deliver written consents approving the Rule 145(a) transaction. [March 6, 2025] [Comparison to prior version]

239.14 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 such 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. [Nov. 26, 2008]

239.15 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. [Nov. 26, 2008]

239.16

[withdrawn, September 22, 2016; see 139.33]

Section 240. Securities Act Section 6

240.01 A company filed a registration statement covering $12,500,000 of debentures, 12,500 warrants to purchase common stock and the common stock underlying such 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 $17,500,000 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. [Nov. 26, 2008]

240.02 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. [Nov. 26, 2008]

Section 241. Securities Act Section 7

None

Sections 242 to 243. Securities Act Sections 8 to 9 [Reserved]

Section 244. Securities Act Section 10

None

Sections 245 to 250. Securities Act Sections 11 to 16 [Reserved]

Section 251. Securities Act Section 17

251.01 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 Division 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. [Nov. 26, 2008]

Sections 252 to 263. Securities Act Sections 18 to 28 [Reserved]

Section 264. Schedules A and B [Reserved]

Securities Act Rules

Last Update: March 20, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of the rules adopted under the Securities Act. Some of these C&DIs were first published in prior Division publications and have been revised in some cases.

The bracketed date following each C&DI is the latest date of publication or revision. We have not changed the date of the C&DIs that reflect only non-substantive changes; however, we have marked those C&DIs with an asterisk.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Sections 101 to 109. Rules 100 to 133 [Reserved]

Section 110. Rule 134 — Communications Not Deemed a Prospectus

Question 110.01

Question: A communication made in reliance on Rule 134 must contain the statement required by Rule 134(b)(1) and information required by Rule 134(b)(2), unless the conditions of Rule 134(c) are met. In addition, if the communication solicits from the recipient an offer to buy the security or requests the recipient to indicate whether he or she might be interested in the security, it must include the statement required by Rule 134(d).

Some electronic communication platforms, such as those made available through certain social media websites, limit the number of characters or amount of text that can be included in the communication, effectively precluding display of the required statements together with the other information. Under what circumstances would the use of a hyperlink to the required statements satisfy the Rule 134(b) or Rule 134(d) requirements?

Answer: Recognizing the growing interest in using technologies such as social media to communicate with security holders and potential investors, the staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 134(b) or Rule 134(d) in the following limited circumstances:

The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
The communication contains an active hyperlink to the required statements and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate. [April 21, 2014]

Question 110.02

Question: Some electronic communication platforms, such as those made available through certain social media websites, permit users to re-transmit a posting or message they receive from another party. When an issuer distributes an electronic communication in compliance with Rule 134 or Rule 433, must the issuer ensure compliance with Rule 134 or Rule 433 of a re-transmission of that communication by a third party that is not an offering participant?

Answer: If the third party is neither an offering participant nor acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party’s re-transmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer. As explained in Securities Act Release No. 33-8591 (July 19, 2005), “[W]hether information prepared and distributed by third parties that are not offering participants is attributable to an issuer or other offering participant depends upon whether the issuer or other offering participant has involved itself in the preparation of the information or explicitly or implicitly endorsed or approved the information.” [April 21, 2014]

Sections 111 to 127. Rules 135 to 143 [Reserved]

Section 128. Rule 144 — Persons Deemed Not to be Engaged in a Distribution and Therefore Not Underwriters — General Guidance

Question 128.01

Question: Is Rule 144 available to the issuer of the securities?

Answer: No. Rule 144 is not available to the issuer of the securities. See Securities Act Release No. 5306 (Sept. 26, 1972). [Jan. 26, 2009]

Question 128.02

Question: How long must an underwriter wait before it resells the unsold portion of a “sticky” public offering as if it were compensation?

Answer: An underwriter may resell the unsold portion of a sticky public offering as if it were compensation — wait six months from the last sale under the registration statement and follow Rule 144 except for filing the form. [Jan. 26, 2009]

Question 128.03

Question: Are securities that are received pursuant to Section 1145(a) of the Bankruptcy Code deemed restricted securities?

Answer: No. Securities received pursuant to a Bankruptcy Code proceeding under the circumstances described in Section 1145(a) of the Bankruptcy Code would not be deemed restricted securities because they would have been received in a “public offering” under Section 1145(c) of the Code. [Jan. 26, 2009]

Question 128.04

Question: If an institutional purchaser buys a block of shelf-registered securities directly from the issuer, will the securities be deemed restricted securities?

Answer: When there is a sale of a block of shelf-registered securities directly by the issuer to an institutional purchaser, the securities will not be deemed to be restricted securities that are “acquired directly or indirectly from the issuer ... in a transaction ... not involving any public offering.” However, the purchaser of the securities will still have to determine whether it may be deemed an underwriter in connection with resales of such securities; such a determination will depend upon the facts and circumstances of the particular case. [Jan. 26, 2009]

Question 128.05

Question: May restricted securities be tendered in connection with a tender offer without compliance with Rule 144?

Answer: Yes. Restricted securities may be tendered in connection with a tender offer without compliance with Rule 144. The rule is not the exclusive means for reselling restricted securities. [Jan. 26, 2009]

Section 129. Rule 144(a) — Definitions

Question 129.01

Question: What is a circumstance under which securities issued under stock option plans and excess compensation plans for directors will constitute restricted securities?

Answer: Securities often are issued under employee benefit plans where the basis for non-registration of the distribution is other than a “no-sale” theory under Securities Act Section 2(a)(3). Such plans include stock option plans and excess compensation plans for directors where the securities are issued pursuant to the Securities Act Section 4(2) private offering exemption or Regulation D. [Jan. 26, 2009]

Question 129.02

Question: Are shares acquired in a private transaction from the spouse of an affiliate deemed restricted securities?

Answer: Yes, if the spouse has the same home as the affiliate, as they would then be regarded as the same person under Rule 144(a)(2)(i). [Jan. 26, 2009]

Question 129.03

Question: An affiliate donor transfers, by bona fide gift, company stock acquired in the open market (i.e., the securities are not “restricted securities” in the affiliate’s hands) to a donee in a non-public transaction. What is the status of these securities in the donee’s hands, and what requirements in Rule 144 are applicable to a donee who is a non-affiliate when he or she resells these securities?

Answer: In the donee’s hands, these securities are “restricted securities” because they have been “acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering.” As these securities were not subject to any holding period requirement in the affiliate donor’s hands, however, the donee need not comply with the holding period requirement in Rule 144(d) for subsequent sales. If the donee is a non-affiliate and has not been an affiliate during the preceding three months, then the donee may resell the securities pursuant to Rule 144(b)(1) subject only to the current public information requirement in Rule 144(c)(1), as applicable. [May 16, 2013]

Section 130. Rule 144(b) — Conditions To Be Met

Question 130.01

Question: May the tacking provisions in Rule 144(d)(3) be applied in determining whether, under Rule 144(b)(1)(i), the Rule 144(c)(1) condition has been met for the one-year period?

Answer: Yes. [Jan. 26, 2009]

Section 131. Rule 144(c) — Current Public Information

Question 131.01

Question: If securities are sold pursuant to Rule 144 at various times over a three-month period, at which time(s) must the issuer satisfy the “current public information” requirement?

Answer: When the “current public information” requirement must be met in order for the security holder to sell securities under the Rule 144 safe harbor, the issuer must continue to satisfy this requirement at the time each sale is made. [Jan. 26, 2009]

Question 131.02

Question: When the conditions of Rule 144(c)(1) must be satisfied in selling securities under the Rule 144 safe harbor, may sales continue during the Rule 12b-25 extension period?

Answer: There is a risk in selling under Rule 144 during the 5-day or 15-day period following the filing of the Form 12b-25 because, if the missing report or portion thereof is not filed during that period, the issuer may be deemed not current until it is filed. [Sept. 30, 2008]

Question 131.03

Question: When you have an effective Form S-1 registration statement followed by a registration statement pursuant to Exchange Act Section 12(g), when does the 90-day reporting period required by Rule 144(c)(1) begin?

Answer: The 90-day reporting period commences with the effective date of the Form S-1. [Jan. 26, 2009]

Question 131.04

Question: Do reports filed under Section 30(a) of the Investment Company Act satisfy the current public information requirement of Rule 144(c)(1)?

Answer: Yes. [Jan. 26, 2009]

Question 131.05

Question: Does the information standard of Exchange Act Rule 15c2-11 require that the information be current?

Answer: Yes. The public information standard of Rule 15c2-11 relating to issuers not subject to Section 13(a) or 15(d) is met only if the Rule 15c2-11 information is current. It is irrelevant that broker-dealers may publish quotes on the issuer’s securities “piggy-backing” from their prior quotes based on Rule 15c2-11 information which was current at the time such quotations were initiated. [Jan. 26, 2009]

Question 131.06

Question: Do the financial statements of non-reporting issuers need to be audited or prepared in compliance with Regulation S-X in order to satisfy the “current public information” requirement of Rule 144(c)(2)?

Answer: No. The “current public information” requirement of Rule 144(c)(2) does not require the financial statements of non-reporting issuers to be either audited or prepared in compliance with Regulation S-X, as that is not required by clauses (xii) and (xiii) of Exchange Act Rule 15c2-11(a)(5), to which Rule 144(c)(2) refers. [Jan. 26, 2009]

Question 131.07

Question: Is the current public information requirement in Rule 144(c)(1) applicable to an issuer that submits Exchange Act reports on a voluntary basis?

Answer: No. Rule 144(c)(1) applies only to issuers that are, and have been for at least 90 days immediately before the sale, subject to the reporting requirements of Exchange Act Section 13 or 15(d). A voluntary filer is not “subject to” Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. Accordingly, the current public information requirement in Rule 144(c)(2) is applicable to voluntary filers. [Jan. 26, 2009]

Section 132. Rule 144(d) — Holding Period for Restricted Securities

Question 132.01

Question: To whom does the phrase "without recourse" in Rule 144(d)(3)(iv) refer?

Answer: The phrase "without recourse" appearing in Rule 144(d)(3)(iv) refers to recourse against the pledgor personally in the usual situation in which the pledgor and borrower are the same person. This interpretation would not apply, however, if the pledgor and borrower were different persons, because Rule 144(d)(3)(iv) requires recourse only against the borrower under the note. [Jan. 26, 2009]

Question 132.02

Question: May closely-held entities make in-kind distributions of restricted securities of an affiliated issuer without disturbing the holding period of the restricted securities?

Answer: The transfer of the restricted securities from the portfolio of the closely-held entity to its equity holders will not disturb the holding period if the distribution is made ratably and without the payment of consideration for the transfer. See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 34, and the Hale and Dorr interpretive letter (June 12, 1991) issued by the Division. [Jan. 26, 2009]

Question 132.03

Question: After the Supreme Court’s decision in Rubin v. United States, 449 U.S. 424 (1981), do the provisions of Rule 144(d) still permit the tacking of holding periods of a pledgor and pledgee?

Answer: Yes. Notwithstanding the Supreme Court’s decision in Rubin that a pledge may be a sale for determining application of the anti-fraud provisions of the federal securities laws, it is the Division’s view that the provisions of Rule 144(d) expressly permitting the tacking of holding periods of a pledgor and pledgee continue to apply. [Jan. 26, 2009]

Question 132.04

Question: Does Rule 144(d)(3)(vii) apply only to securities owned by the decedent?

Answer: Yes. Paragraph (d)(3)(vii) of Rule 144, which provides an exemption from the Rule 144(d) holding period requirement for sales of restricted securities by a non-affiliate estate, applies only to securities owned by the decedent. It does not exempt a non-affiliate estate from the holding period requirement in the case of securities acquired by the estate upon the exercise of stock options held by the decedent. [Jan. 26, 2009]

Question 132.05

Question: May a person transfer restricted securities into his or her individual retirement account without interrupting the Rule 144(d) holding period for the securities?

Answer: Yes. [Jan. 26, 2009]

Question 132.06

Question: An individual acquires shares pursuant to anti-dilution rights attaching to restricted securities. Are these newly acquired shares restricted securities?

Answer: For purposes of Rule 144, shares acquired pursuant to anti-dilution rights attaching to restricted securities are restricted securities themselves but their holding period dates back to the original placement of shares, not the exercise of the anti-dilution provisions. [Jan. 26, 2009]

Question 132.07

Question: When does the holding period begin for restricted securities acquired pursuant to a subscription agreement?

Answer: The holding period for restricted securities acquired pursuant to a subscription agreement begins at the time the agreement is accepted by the issuer, rather than the date it is signed by the purchaser or the date the shares are issued, assuming that the full purchase price has been paid. [Jan. 26, 2009]

Question 132.08

Question: What is the restricted security and holding period status of securities exchanged for other securities of the issuer under Securities Act Section 3(a)(9)?

Answer: When securities are exchanged for other securities of the issuer under Section 3(a)(9), the securities received assume the character of the exchanged securities. Thus, for example, if restricted securities are exchanged, the new securities are deemed restricted and tacking of the holding period of the former securities is permitted. [Jan. 26, 2009]

Question 132.09

Question: Does the one-year holding period requirement in Rule 144(d)(1)(ii) apply to the restricted securities of an issuer that submits Exchange Act reports on a voluntary basis?

Answer: Yes. The six-month holding period requirement in Rule 144(d)(1)(i) is applicable only to the restricted securities of an issuer that is, and has been for at least 90 days immediately before the sale, “subject to” the reporting requirements of Exchange Act Section 13 or 15(d). A voluntary filer is not “subject to” Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. Consequently, the one-year holding period requirement in Rule 144(d)(1)(ii) applies to the restricted securities of a voluntary filer. [Jan. 26, 2009]

Question 132.10

Question: How is the six-month holding period computed under Rule 144(d)(1)(i)?

Answer: Under Rule 144(d)(1)(i), a minimum of six months must elapse between the date of acquisition of the restricted securities from an issuer or from an affiliate of the issuer, whichever is later, and any resale of such securities under Rule 144. This period covers the six months immediately preceding the date of sale under the rule. For example, on May 15, X acquires restricted securities in a transaction not involving any public offering from an issuer. Assuming that the six-month holding period did not restart at any point since May 15 and that the other applicable conditions of Rule 144 would be met at the time of sale, X may sell the securities under Rule 144 on November 15, provided that the issuer is, and has been for at least the immediately preceding 90 days, subject to the reporting requirements of Exchange Act Section 13 or 15(d) at such time. [Jan. 26, 2009]

Question 132.11

Question: On what date does the holding period begin for restricted securities acquired under an employee stock option?

Answer: The holding period for restricted securities acquired under an employee stock option always begins on the exercise of the option and full payment to the issuer of the exercise price. The date of the option’s grant may never be used for this purpose, even if the exercise involves no payment of cash or other consideration to the issuer. Because the option is issued to the employee without any payment for the grant, the optionee holds no investment risk in the issuer before the exercise. [Jan. 26, 2009]

Question 132.12

Question: Does a change in the legal form of enterprise restart the holding period for restricted securities of the issuer?

Answer: A change in the legal form of an enterprise from a partnership or a limited liability company to a corporation normally will restart the holding period for restricted securities of the issuer. However, a holder may tack holding periods in this context if the following conditions are satisfied:

(1) the controlling agreement entered into at the time of the partnership or limited liability company’s formation specifically contemplated the change of form;

(2) the partners or members seeking to tack had no veto or voting rights over the reorganization;

(3) the reorganization does not result in a change in the business or operations of the surviving entity;

(4) the proportionate equity interests in the successor are the same as the interests in the predecessor entity; and

(5) the equity holders provide no additional consideration for the securities they receive in exchange for their equity interests in the predecessor entity. [Jan. 26, 2009]

Question 132.13

Question: Does the payment of even a de minimis amount of cash upon a warrant exercise preclude the holder from tacking the holding period of the warrant to that of the common stock under Rule 144(d)(3)(x)?

Answer: Yes. The payment of even a de minimis amount of cash upon a warrant exercise would preclude the holder from tacking the holding period of the common stock to the warrant under Rule 144(d)(3)(x). The warrant exercise must be “cashless” (similar to the analysis under Section 3(a)(9)) in order to tack the holding period of the common stock to the warrant. [Jan. 26, 2009]

Question 132.14

Question: Is the applicable length of the Rule 144(d) holding period requirement for restricted securities (i.e., whether it is six months under Rule 144(d)(1)(i) or one year under Rule 144(d)(1)(ii)) determined as of (1) the date of the acquisition of the securities from the issuer or an affiliate of the issuer, or (2) the time of the proposed sale under Rule 144?

Answer: The applicable length of the Rule 144(d) holding period requirement is determined as of the time of the proposed Rule 144 sale.

For example, on March 5, 2008, a non-reporting issuer sold shares of its common stock to an investor pursuant to a private placement. Three weeks later, the issuer filed a registration statement on Form 10 to register its common stock under Exchange Act Section 12(g). On October 1, 2008, the investor wished to resell the shares he had acquired on March 5 from the issuer. The applicable holding period requirement for such shares as of October 1 would be the six-month holding period under Rule 144(d)(1)(i), since the issuer was, and had been for at least the immediately preceding 90 days, subject to the reporting requirements of Exchange Act Section 13 or 15(d) on such date.

Conversely, if the issuer had been an Exchange Act reporting issuer on March 5, 2008, but was not subject to the reporting requirements of Exchange Act Section 13 or 15(d) (or had not been for at least the immediately preceding 90 days) as of October 1, 2008, the one-year holding period under Rule 144(d)(1)(ii) would be applicable to such securities as of October 1. Hence, the investor would not have satisfied the Rule 144(d) holding period requirement as of that date. [Jan. 26, 2009]

Question 132.15

Question: A pledgor who is an affiliate defaults on a loan that had been secured, in a bona fide pledge situation, by restricted securities. What conditions of Rule 144 apply to a non-affiliate pledgee who is selling such restricted securities under Rule 144?

Answer: A non-affiliate pledgee (who has not been an affiliate during the preceding three months) may resell the restricted securities pursuant to the Rule 144 safe harbor by complying with the applicable conditions in Rule 144(b)(1). Depending on the circumstances, tacking pursuant to Rule 144(d)(3)(iv) may be permitted in determining whether the holding period requirement in Rule 144(d) has been satisfied. [Jan. 26, 2009]

Question 132.16

Question: After receiving a gift of restricted securities from an affiliate donor, what conditions of Rule 144 apply to a non-affiliate donee who is selling such restricted securities under Rule 144?

Answer: A non-affiliate donee (who has not been an affiliate during the preceding three months) may resell the restricted securities pursuant to the Rule 144 safe harbor by complying with the applicable conditions in Rule 144(b)(1). Tacking pursuant to Rule 144(d)(3)(v) may be permitted in determining whether the holding period requirement in Rule 144(d) has been satisfied. [Jan. 26, 2009]

Question 132.17

Question: Is tacking under Rule 144(d)(3)(ii) available when the securities to be sold were acquired in an exchange transaction that was exempt under Securities Act Section 4(2) instead of Section 3(a)(9)?

Answer: Yes, provided that the conditions in Rule 144(d)(3)(ii) are satisfied. [June 4, 2010]

Question 132.18

Question: Company A sells mandatorily exchangeable Notes to an investor in a private placement transaction. Under the terms of the Notes, the Notes can be exchanged for a fixed number of shares of Company B, an affiliate of Company A, either at Company A's option or upon the occurrence of certain events outside the investor's control. If such an exchange takes place, when does the holding period for the Company B Shares begin to run for purposes of Rule 144(d)(1)?

Answer: When Company A sells the Notes, there is deemed to be a concurrent private offering of the underlying Company B Shares, and the investor has no subsequent investment decision to make because the exchange is either at Company A's option or occurs automatically upon the occurrence of certain events outside the investor's control. Accordingly, the investor's Rule 144(d) holding period for the Company B Shares would begin at the time the investor originally acquired the Notes from Company A, and not when the investor later receives the Company B Shares in exchange for the Notes.

If the Notes also include a provision allowing the exchange to occur at the investor's option and the investor decides to exchange the Notes for Company B Shares, then the holding period for the Company B Shares would begin on the date of the exchange. If the Notes also include this provision but the exchange occurs not because of the investor's decision but because of either Company A's decision or the occurrence of certain events outside the investor's control, then the holding period for the Company B Shares would begin at the time the investor originally acquired the Notes from Company A. [Mar. 4, 2011]

Section 133. Rule 144(e) — Limitation on Amount of Securities Sold

Question 133.01

Question: What exchanges are encompassed by the term “national securities exchanges” in Rule 144(e)?

Answer: The term “national securities exchanges,” as used in Rule 144(e), encompasses only exchanges that are registered with the Commission pursuant to Section 6(a) of the Exchange Act. Because Canadian exchanges are not so registered, the volume of securities traded on such an exchange may not be taken into account when computing the volume limitation under Rule 144. [Jan. 26, 2009]

Question 133.02

Question: Is the OTC Bulletin Board an “automated quotation system” for purposes of Rule 144(e)?

Answer: No. Consequently, the market-based volume limitation that the rule allows for is unavailable for securities quoted only over the OTC Bulletin Board. [Jan. 26, 2009]

Question 133.03

Question: What effect(s) do stock splits and reverse stock splits have on available volume under Rule 144(e)?

Answer: Stock splits and reverse stock splits, which are not events of sale under the Securities Act, have no real effect on available volume under Rule 144(e) because the split or reverse split should not change the proportion of the issuer’s securities that an affiliate is permitted to sell during the rule’s three-month measuring period. To calculate available volume after a split or reverse split, an affiliate should give effect to the split or reverse split throughout the whole three-month period, as though it had occurred on the first day of the period, even though the record and effective dates were later. This method may be used for the rule’s one-percent measurement or the market-based alternative for securities listed on an exchange. [Jan. 26, 2009]

Question 133.04

Question: In determining the amount of securities that an individual may sell pursuant to General Instruction C.2(b) of Form S-8, does the individual need to aggregate the amount of securities that the individual has sold pursuant to Rule 144?

Answer: No. General Instruction C.2(b) to Form S-8 provides that if the registrant, at the time of filing, does not satisfy the registrant requirements for use of Form S-3 or Form F-3, the amount of both control and restricted securities to be reoffered by means of the reoffer prospectus by each person, and any other person with whom such person is acting in concert for the purpose of selling securities of the registrant, shall be limited during any three-month period to the amount specified in Rule 144(e). This limitation is strictly a limitation on the number of securities to be resold pursuant to the registration statement, and does not require aggregation of such securities with securities to be sold by the same person pursuant to Rule 144. The application of this instruction is reassessed each time the Form S-8 is updated pursuant to Securities Act Section 10(a)(3). [Jan. 26, 2009]

Question 133.05

Question: Is a public offering included in the volume computation when computing the average weekly trading volume of the issuer during the four-week period?

Answer: In computing average weekly trading volume where there is a public offering of shares by the issuer during the four-week period, the public offering is not included in the volume computation; however, increased volume in the aftermarket as a result of the offering can be included for purposes of the rule. [Jan. 26, 2009]

Question 133.06

Question: How is the four-week period for computing the average weekly trading volume computed?

Answer: For purposes of computing volume limitations under Rule 144(e)(l)(ii) and (iii), the “four calendar weeks preceding the filing of notice” on Form 144 are the four weeks preceding the week in which the form is transmitted for filing in accordance with Rule 144(h). See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 38. [Jan. 26, 2009]

Question 133.07

Question: Are an affiliate’s sales of securities back to the issuer in a non-public transaction excludable when calculating the amount of securities that may be sold by the affiliate under Rule 144?

Answer: Yes. Under Rule 144(e)(3)(vii)(C), securities sold in a transaction that is exempt pursuant to Securities Act Section 4 and does not involve any public offering need not be included in determining the amount of securities that may be sold under Rule 144. This would include an affiliate’s non-public sales of securities back to the issuer. [May 16, 2013]

Section 134. Rule 144(f) — Manner of Sale

Question 134.01

Question: Can a principal of a brokerage firm use that firm to effect ordinary “brokers’ transactions” for the principal’s personal account under Rule 144(f)?

Answer: Yes. A principal of a brokerage firm may use that firm to effect ordinary “brokers’ transactions” for the principal’s personal account under Rule 144(f). [Jan. 26, 2009]

Question 134.02

Question: Does the publication of a customer limit order in accordance with Exchange Act Rule 11Ac1-4 constitute the solicitation or arrangement for the solicitation of orders to buy securities within the meaning of Rule 144(f)(2)?

Answer: No. The publication of a customer limit order in accordance with Exchange Act Rule 11Ac1-4 would not constitute the solicitation or arrangement for the solicitation of orders to buy securities within the meaning of Rule 144(f)(2). See the Goldman, Sachs & Co. no-action letter (Dec. 6, 1996) issued by the Division. [Jan. 26, 2009]

Section 135. Rule 144(g) [Reserved]

Section 136. Rule 144(h) — Notice of Proposed Sale

Question 136.01

Question: Does an amendment to Form 144 need to be filed in the event that a person does not sell the securities referred to in the Form?

Answer: No. If a person who has filed a Form 144 does not sell the securities referred to therein, no amendment reflecting this fact need be filed. [Jan. 26, 2009]

Question 136.02

Question: Does an amended Form 144 need to be filed to reflect a company’s listing on a national securities exchange or a stock split?

Answer: No. A Form 144 need not be amended to reflect: (1) a company’s listing on a national securities exchange; or (2) a stock split. [Jan. 26, 2009]

Question 136.03

Question: If a person intends to use two brokers, must the person allocate a specific number of shares to each broker on the Form 144?

Answer: A person who files a Form 144 indicating that it may sell shares through either of two brokers need not allocate a specific number of shares to each broker on the form. [Jan. 26, 2009]

Question 136.04

Question: Does the de minimis exemption of Rule 144(h) apply to each individual seller who is required to file a Form 144 when sales are required to be aggregated under Rule 144(e)?

Answer: Yes. In a situation in which sales under Rule 144 are required to be aggregated for purposes of Rule 144(e), the de minimis exemption of Rule 144(h) (for filing Form 144), nonetheless, applies to each individual seller who is required to file a Form 144. [Jan. 26, 2009]

Question 136.05

Question: When a Form 144 is required to be filed, is a waiting period required between the time the person places an order with a broker and the time the broker executes the order?

Answer: When a person is required to file a Form 144, no waiting period is required between the time the person places an order with a broker and the time the broker executes the order so long as the person concurrently, with giving the order, transmits the form to the Commission and the principal exchange on which the securities are listed. [Jan. 26, 2009]

Question 136.06

Question: Should a Form 144 be amended to reflect a change in broker?

Answer: Yes. A Form 144 should be amended to reflect a change in broker. However, amending Form 144 to reflect a change in the broker does not permit the calculation of a new volume limitation based on trading. [Jan. 26, 2009]

Question 136.07

Question: What is the effect of an amended Form 144 that is filed to correct inaccuracies?

Answer: An amended Form 144 may be filed to correct inaccuracies in the original Form 144 at the time of, or subsequent to, its filing. However, the filing of an amended Form 144 does not cure any deficiencies with regard to sales made after filing the initial Form 144 and prior to the filing of the amended Form 144. [Jan. 26, 2009]

Question 136.08

Question: Under what circumstances does a sell order that is placed with a broker at above the current market price contravene the requirement in Rule 144(h) that the person filing a Form 144 have a bona fide intention to sell the securities referred to in the Form 144 within a reasonable time?

Answer: The fact that a sell order is placed with a broker at a price above the current market price does not contravene this requirement in Rule 144(h), unless the price reflected in the sell order was not consistent with a bona fide intention to sell within a reasonable time. [Jan. 26, 2009]

Question 136.09

Question: Rule 144(h) provides that the Form 144 shall be transmitted for filing "concurrently" with either the placing of a sale order with a broker or the execution of the sale directly with a market maker. Does "concurrently" mean that the Form 144 should be transmitted for filing on the same day as the placing of a sale order or the execution of the sale?

Answer: Yes. For example, if a person is filing a Form 144 by mail, he or she meets the requirements of Rule 144(h) if the Form is mailed on the same day as the placing of a sale order or the execution of the sale. The envelope should be addressed to the Commission's Mailroom. [Mar. 4, 2011]

Section 137. Rule 144(i) — Unavailability to Securities of Issuers with No or Nominal Operations and No or Nominal Non-Cash Assets

Question 137.01

Question: If an issuer had previously been a shell company but is an operating company at the time that it issues securities, is the Rule 144 safe harbor available for the resale of such securities if all of the conditions in Rule 144(i)(2) are not satisfied at the time of the proposed sale?

Answer: No. Rule 144(i)(1) states that the Rule 144 safe harbor is not available for the resale of securities “initially issued” by a shell company (other than a business combination related shell company) or an issuer that has “at any time previously” been a shell company (other than a business combination related shell company). Consequently, the Rule 144 safe harbor is not available for the resale of such securities unless and until all of the conditions in Rule 144(i)(2) are satisfied at the time of the proposed sale. [Jan. 26, 2009]

Question 137.02

Question: Does Rule 144(i) apply to securities issued before February 15, 2008, which was the effective date of the amendments to Rule 144 in which the Commission adopted Rule 144(i)?

Answer: Yes. [Jan. 26, 2009]

Section 138. Rule 144A — Private Resales of Securities to Institutions

Question 138.01

Question: May affiliates of an issuer make resales of the issuer’s eligible securities under Rule 144A?

Answer: Yes. Affiliates of the issuer may make resales of eligible securities under Rule 144A. The rule is available to any person other than the issuer. “Issuer,” as used in Rule 144A(b), has only the meaning given by Securities Act Section 2(a)(4). (The “control” clause of Securities Act Section 2(a)(11) equates the issuer and its affiliates solely for the purpose of identifying intermediaries to the public market who are underwriters within the statute’s meaning. By definition, sales effected under Rule 144A are not made to the public market.) [Jan. 26, 2009]

Question 138.02

Question: When determining its status as a qualified institutional buyer eligible to participate in an offering eligible for resale under Rule 144A, may a buyer include the amount of securities expected to be purchased in such offering?

Answer: No. A buyer may not include the amount of securities expected to be purchased in the offering when calculating the amount of securities it owns or invests on a discretionary basis for the purpose of determining its status as a qualified institutional buyer eligible to participate in the offering. [Jan. 26, 2009]

Question 138.03

Question: Under Rule 144A, securities may be offered to persons other than qualified institutional buyers by means of general solicitation. Does the rule require that the general solicitation be conducted by only the issuer?

Answer: No. In Rule 144A offerings in which the securities were initially sold to financial intermediaries in transactions exempt under Securities Act Section 4(a)(2) or Regulation S, the general solicitation may be conducted by the issuer as well as initial purchasers involved in the Section 4(a)(2) or Regulation S transaction and other distribution participants. [Nov. 13, 2013]

Question 138.04

Question: Did the amendments to Rule 144A permitting the use of general solicitation change how directed selling efforts under Regulation S are analyzed in concurrent Rule 144A and Regulation S offerings?

Answer: No. [Nov. 13, 2013]

Question 138.05

Question: When determining its status as a qualified institutional buyer under Rule 144A, may an entity include securities that it purchased and continued to hold on margin in calculating whether it meets the $100 million threshold under Rule 144A(a)(1)(i)?

Answer: Yes. The fact that securities were purchased or are held on margin does not mean they are not owned by the entity. Therefore, the securities may be included in calculating whether the entity meets the threshold, so long as they are not subject to a repurchase agreement. See Rule 144A(a)(2). [December 8, 2016]

Question 138.06

Question: When determining its status as a qualified institutional buyer under Rule 144A, may an entity include securities that it owns but has loaned out to borrowers of securities in calculating whether it meets the $100 million threshold under Rule 144A(a)(1)(i)?

Answer: Yes. The fact that the entity may lend out securities does not mean they are not owned by the entity and thus may be included in calculating whether it meets the threshold. [December 8, 2016]

Question 138.07

Question: When determining its status as a qualified institutional buyer under Rule 144A, may an entity include securities that it has borrowed in calculating whether it meets the $100 million threshold under Rule 144A(a)(1)(i)?

Answer: No. Borrowed securities are not owned by the entity and thus may not be included in calculating whether it meets the threshold. [December 8, 2016]

Question 138.08

Question: When determining its status as a qualified institutional buyer under Rule 144A, may an entity include short positions in securities that it has established in calculating whether it meets the $100 million threshold under Rule 144A(a)(1)(i)?

Answer: No. Short positions do not represent ownership of securities but rather sales of securities and thus may not be included in calculating whether the entity meets the threshold. [December 8, 2016]

Question 138.09

Question: An investment company that is not registered under the Investment Company Act of 1940 is part of a family of funds, some of which may or may not be registered investment companies. When determining its status as a qualified institutional buyer under Rule 144A, may the non-registered investment company aggregate investments by the other funds that are part of the family in the manner described under Rule 144A(a)(1)(iv)?

Answer: No, only registered investment companies may use the aggregation method permitted under Rule 144A(a)(1)(iv). [December 8, 2016]

Question 138.10

Question: When determining its status as a qualified institutional buyer under Rule 144A, Rule 144A(a)(1)(v) provides that an entity will be deemed a qualified institutional buyer if all of its equity owners are qualified institutional buyers. Who are the equity owners of a limited partnership for purposes of Rule 144(a)(1)(v)?

Answer: The limited partners are the equity owners of a limited partnership. The general partner, unless that person is also a limited partner, need not be considered in determining whether a limited partnership is a qualified institutional buyer for purposes of Rule 144(a)(1)(v). See also Securities Act Rule CDI 255.18. [December 8, 2016]

Section 139. Rule 145 — Reclassification of Securities, Mergers, Consolidations and Acquisitions of Assets

Question 139.01

Question: Can an issuer that plans to register a Rule 145 transaction, and whose proxy statement will necessarily contain unrelated items such as election of directors, avoid Securities Act liability for the unrelated items by filing a Form S-1 registration statement dealing solely with the Rule 145 transaction, and incorporating the S-1 prospectus by reference into its proxy statement?

Answer: Yes. [Jan. 26, 2009]

Question 139.02

Question: Must a person subject to Rule 145(c) who is selling both Rule 145 shares and shares not subject to Rule 144(e) take into account the sales of the shares not subject to Rule 144(e) in determining whether the volume limitation of Rule 145(d) has been exceeded?

Answer: No. [Jan. 26, 2009]

Question 139.03

Question: Would a merger by Company A with a new holding company formed by Company A in another state qualify for the change in domicile exception in Rule 145(a)(2)?

Answer: No. The exception from Rule 145 provided by Rule 145(a)(2) for a change in domicile is not available when, in addition to a change in domicile, a new organizational structure is created, such as a new holding company. [Jan. 26, 2009]

Question 139.04

Question: If a corporation determines to sell its assets for a promissory note issued by another corporation, but will not distribute interests in the note to its shareholders, is the transaction a “transfer of assets” within the meaning of Rule 145(a)(3)?

Answer: No. [Jan. 26, 2009]

Question 139.05

Question: Can sales be made in reliance on Rule 145(d) before the one-year period in Rule 144(i)(2) is met?

Answer: No. [Jan. 26, 2009]

Question 139.06

Question: In determining the Rule 145(d)(2) holding period, can the holding period for restricted securities surrendered in the Rule 145 transaction be tacked to the holding period for the shares received?

Answer: No. See Rule 144(d)(3)(viii). [Jan. 26, 2009]

Question 139.07

Question: A registration statement on Form S-4 is filed to register stock to be issued in the acquisition of a non-reporting company by a reporting company. Only the non-reporting company will solicit proxies. Can a proxy card be sent with the red herring prospectus?

Answer: No. Although this solicitation is not subject to Regulation 14A, it nevertheless will involve a “sale” under Rule 145, which cannot be consummated without an effective registration statement. Accordingly, a proxy card can be sent only with the Rule 424(b) prospectus, not with the red herring. [Jan. 26, 2009]

Section 140. Rule 146 [Reserved]

Section 141. Rule 147 — Intrastate offers and sales

Question 141.01

Question: May an issuer rely on Rule 147 to offer or sell securities within a single state to a person whose principal residence is in such state but who resides temporarily out of the state?

Answer: Yes. [Jan. 26, 2009]

Question 141.02

Question: May a broker-dealer distribute securities in an intrastate offering made in reliance on Rule 147 without jeopardizing the exemption available under that rule?

Answer: Yes. [Jan. 26, 2009]

Question 141.03

Question: If an issuer plans to conduct an intrastate offering pursuant to Rule 147, may the issuer engage in general advertising or a general solicitation?

Answer: Securities Act Rule 147 does not prohibit general advertising or general solicitation. Any such general advertising or solicitation, however, must be conducted in a manner consistent with the requirement that offers made in reliance on Section 3(a)(11) and pursuant to its Rule 147 safe harbor be made only to persons resident within the state or territory of which the issuer is a resident. [April 10, 2014*]

Question 141.04

Question: An issuer plans to use a third-party Internet portal to promote an offering to residents of a single state in accordance with a state statute or regulation intended to enable securities crowdfunding within that state. Assuming the issuer met the other conditions of Rule 147, could it rely on Rule 147 for an exemption from Securities Act registration for the offering, or would use of an Internet portal necessarily entail making offers to persons outside the relevant state or territory?

Answer: Use of the Internet would not be incompatible with a claim of exemption under Rule 147 if the portal implements adequate measures so that offers of securities are made only to persons resident in the relevant state or territory. In the context of an offering conducted in accordance with state crowdfunding requirements, such measures would include, at a minimum, disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state under applicable law, and limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state (for example, by providing a representation as to residence or in-state residence information, such as a zip code or residence address). Of course, any issuer seeking to rely on Rule 147 for the offering also would have to meet all the other conditions of Rule 147. [April 10, 2014]

Question 141.05

Question: Can an issuer use its own website or social media presence to offer securities in a manner consistent with Rule 147?

Answer: Issuers generally use their websites and social media presence to advertise their market presence in a broad and open manner so that information is widely disseminated to any member of the general public. Although whether a particular communication is an "offer" of securities will depend on all of the facts and circumstances, using such established Internet presence to convey information about specific investment opportunities would likely involve offers to residents outside the particular state in which the issuer did business.

We believe, however, that issuers could implement technological measures to limit communications that are offers only to those persons whose Internet Protocol, or IP, address originates from a particular state or territory and prevent any offers to be made to persons whose IP address originates in other states or territories. Offers should include disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state under applicable law. Issuers must comply with all other conditions of Rule 147, including that sales may only be made to residents of the same state as the issuer. [October 2, 2014]

Question 141.06

Question: Would an issuer making ongoing offers and sales pursuant to Rule 147 be able to transition to offers and sales in reliance on Rule 147A?

Answer: Yes. Under Rule 147A(g)(1), offers and sales made in reliance on Rule 147A will not be integrated with prior offers and sales of securities. An issuer, however, must comply with all applicable state securities law requirements. [April 19, 2017]

Sections 142 to 149. Rules 148 to 152a [Reserved]

Section 150. Rules 153, 153a and 153b

Question 150.01

Question: An issuer has registered an "at the market" offering of its common stock in reliance on Rule 415(a)(4) and has engaged a broker dealer to sell the securities into the existing trading market. Does the broker dealer have a prospectus delivery obligation with respect to the primary offering of the issuer's securities into the trading market and, if so, may the broker dealer rely on Rule 153 to satisfy such prospectus delivery obligation? Also, does the broker dealer have an obligation to provide a Rule 173 notice and, if so, to whom?

Answer: An "at the market" offering of securities by a broker dealer on behalf of an issuer is a primary offering of the issuer's securities. There is a prospectus delivery obligation as to such primary offering. The provisions of Rule 153 apply only to transactions between brokers, as it covers the requirement of a broker or dealer to deliver a prospectus to a broker or dealer. Rule 153 does not affect a broker's delivery obligation to purchasers other than brokers or dealers. As a consequence, brokers or dealers effecting transactions in the issuer's securities under the registration statement may have a prospectus delivery obligation to their clients who acquired those securities (which may be satisfied in reliance on Rule 172) and similarly may have an obligation to provide a notice pursuant to Rule 173. Rule 173 excludes transactions solely between brokers or dealers in reliance on Rule 153, but not as to other purchasers of the issuer's securities under the registration statement. [Aug. 14, 2009]

Section 151. Rule 154 [Reserved]

Section 152. Rule 155 — Integration of Abandoned Offerings

Question 152.01

Question: Can an issuer rely on Rule 155(b) for an abandoned private offering followed by a shelf takedown if the shelf registration statement was filed prior to the private offering?

Answer: Yes, provided that the takedown is not done until after the time provided in Rule 155(b). [Jan. 26, 2009]

Question 152.02

Question: If an issuer is unsuccessful in completing an offering as a takedown from an existing shelf registration statement, may it rely on Rule 155(c) to complete the offering privately?

Answer: Yes. In a shelf offering, the filing of a prospectus supplement disclosing the termination of the offering is deemed to satisfy the Rule 155(c)(2) requirement to withdraw the registration statement. [Jan. 26, 2009]

Question 152.03

Question: Rule 155(c)(5) requires any written disclosure document used in the subsequent private offering to disclose any changes in the issuer’s business or financial condition that occurred after the issuer filed the registration statement and are material to the investment decision in the private offering. Does this requirement apply whether the written disclosure is provided on a mandatory (Rule 502(b)(1)) or voluntary basis?

Answer: Yes. [Jan. 26, 2009]

Sections 153 to 160. Rules 156 to 162 [Reserved]

Section 161. Rule 163 — Exemption from Section 5(c) of the Act for Certain Communications by or on Behalf of Well-Known Seasoned Issuers

Question 161.01

Question: If an issuer has not previously filed any shelf registration statement and at the date of its last Form 10-K did not qualify as a well-known seasoned issuer, would it be able to determine its status as a well-known seasoned issuer at the time it wants to rely on Rule 163 for pre-filing offers?

Answer: No. The definition of well-known seasoned issuer permits an issuer to evaluate its status as a well-known seasoned issuer only upon specified events; the date of intended reliance on Rule 163 is not one of those events. Therefore, if there is no shelf registration statement on file and the issuer did not satisfy the definition of well-known seasoned issuer at the time it filed its most recent Form 10-K, the issuer’s status would not change until it either files a shelf registration statement or files its next Form 10-K. [Jan. 26, 2009]

Question 161.02

Question: May Rule 163 be used for communications by an underwriter if the issuer previously authorized the communication?

Answer: No. Rule 163 is not available for use by an underwriter. [Jan. 26, 2009]

Sections 162 to 163. Rules 163A to 164 [Reserved]

Section 164. Rule 165 — Offers Made in Connection With a Business Combination Transaction

Question 164.01

Question: May an issuer contemplating a registered exchange offer subject to Exchange Act Rule 13e-4 rely on Rules 165 and 166 to communicate with its security holders before and after the first public announcement of the offering?

Answer: Yes, so long as the issuer satisfies the conditions set forth in Rules 165 and 166. In particular, the primary purpose or effect of the communication must be to convey information concerning a business combination transaction, as defined in Rule 165(f), and not to condition the market for a capital raising or resale transaction. Rules 165 and 166 are intended to apply to communications relating to exchange offers made in accordance with the applicable tender offer rules, including offers subject to Exchange Act Rule 13e-4. [June 4, 2010]

Question 164.02

Question: An electronic communication relying on the exemption in Rule 165 must contain the legend required by paragraph (c)(1) of that rule. Some electronic communication platforms, such as those made available through certain social media websites, limit the number of characters or amount of text that can be included in the communication, effectively precluding display of the legend together with the other information. Under what circumstances would the use of a hyperlink to the legend satisfy the Rule 165(c)(1) requirement?

Answer: Recognizing the growing interest in using technologies such as social media to communicate with security holders, the staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 165(c)(1) in the following limited circumstances:

The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
Including the legend in its entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
The communication contains an active hyperlink to the required legend and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the required legend, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required legend would be inappropriate. This position also applies to written communications that constitute solicitations made in reliance on Exchange Act Rule 14a-12 and pre-commencement written communications subject to Exchange Act Rules 13e-4(c), 14d-2(b) and 14d-9(a). [April 21, 2014]

Section 165. Rule 166 — Exemption from Section 5(c) for Certain Communications in Connection With Business Combination Transactions

Question 165.01

Sections 166 to 170. Rules 167 to 171 [Reserved]

Section 171. Rule 172 — Delivery of Prospectuses

Question 171.01

Question: Are the provisions of Rule 172 available to dealers that are participants in the underwriting as well as to those dealers that are not participants in the underwriting?

Answer: Yes. Rule 172 is available to dealers that participate in the underwriting, including selling an unsold allotment, as well as to dealers that do not participate. A dealer may not rely on Rule 174 to not deliver a prospectus when the dealer is participating in the offering or is selling an unsold allotment. When Section 4(3) requires delivery of a prospectus, the dealer may rely on Rule 172 to satisfy its delivery obligation, except in the case of offerings of blank check companies. [Jan. 26, 2009]

Question 171.02

Question: Securities Act 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 proved that prior to or at the same time with such communication a written prospectus meeting the requirements of subsection (a) of [S]ection 10 at the time of such communication was sent or given to the person to whom the communication was made.” Is Rule 172 available to satisfy the condition to the exception in clause (a) of Section 2(a)(10) that the Section 10(a) prospectus be “sent or given to the person to whom the communication was made?”

Answer: No. Rule 172 provides that a final Section 10(a) prospectus will be deemed to precede or accompany the carrying or delivery of a security for sale for purposes of Securities Act Section 5(b)(2) and provides a conditional exemption from Securities Act Section 5(b)(1) for written confirmations and notices of allocations. As the Commission stated in Securities Act Release No. 8591 (July 19, 2005), at footnote 561, “a final prospectus only filed as provided in 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 Securities Act Section 2(a)(10).” [Jan. 26, 2009]

Question 171.03

Question: Can special purpose acquisition companies (SPACs) rely on Rule 172 to satisfy their prospectus delivery obligations following their initial public offerings?

Answer: Yes. [Jan. 26, 2009]

Question 171.04

Question: Is Rule 172 available to satisfy prospectus delivery obligations of selling security holders if the requirements of the rule are met?

Answer: Yes. Selling security holders with a prospectus delivery obligation may rely on Rule 172. [Jan. 26, 2009]

Section 172. Rule 173 — Notice of Registration

Question 172.01

Question: Rule 173 requires that each underwriter or dealer participating in a registered offering must provide to each of its purchasers a copy of the final prospectus or, in lieu of the final prospectus, a notice that the sale was made pursuant to a registration statement, within two business days following the “completion of such sale.” In the context of Rule 173, does “completion of such sale” mean the date of settlement?

Answer: Yes. For purposes of Rule 173, “completion of such sale” means the date of settlement. The date of sale under Securities Act Section 2(a)(3) may be earlier than the date of the “completion of such sale.” [Jan. 26, 2009]

Question 172.02

Question: Must an issuer, underwriter or dealer that intends to deliver a Rule 173 notice in lieu of a final prospectus ensure that the notice is received by the purchaser within two business days in order to comply with the Rule 173 requirement to “provide” the Rule 173 notice “not later than two business days following the completion of such sale?”

Answer: No. The requirement to “provide” the Rule 173 notice requires that the notice be sent, not necessarily received, within two business days. [Jan. 26, 2009]

Section 173. Rule 174 — Delivery of Prospectus by Dealers; Exemptions Under Section 4(3) of the Act

Question 173.01

Question: Are the provisions of Rule 172 available to dealers that are participants in the underwriting as well as to those dealers that are not participants in the underwriting?

Section 174. Rule 175 — Liability for Certain Statements by Issuers

Question 174.01

Question: Rule 175 provides a safe harbor for forward-looking statements made by or on behalf of an issuer that are contained in (1) a document filed with the Commission, (2) Part I of a Form 10-Q or (3) an annual report to security holders meeting the requirements of Exchange Act Rule 14a-3(b) and (c) or Rule 14c-3(a) and (b). Does Rule 175’s forward-looking statements safe harbor also apply to statements made in a Form 6-K, notwithstanding the fact that Form 6-K is not explicitly mentioned in Rule 175 and the form is submitted and not “filed”?

Answer: Yes. The rationale for the forward-looking statements safe harbor applies with equal force to statements in Form 6-K reports as it does to statements in annual reports and Form 10-Q reports. [Jan. 26, 2009]

Sections 175 to 178. Rules 176 to 191 [Reserved]

Section 179. Rule 215 Accredited Investor

Question 179.01

[withdrawn, February 27, 2012]

Section 180. Rule 236 — Exemption of Shares Offered in Connection with Certain Transactions

Question 180.01

Question: Rule 236 provides an exemption from Securities Act registration for the aggregation of fractional shares in connection with certain transactions. The rule requires that specified information be furnished to the Commission at least 10 days prior to the offering. Is there a specific Securities Act form for this information?

Answer: No. A letter should be sent to the Commission that specifies the nature of the submission. No fee is applicable. [Jan. 26, 2009]

Section 181. Rules 237 to 250 [Reserved]

Section 182. Rules 251 to 263

Question 182.01

Question: An issuer elects to non-publicly submit a draft offering statement for staff review pursuant to Rule 252(d) of Regulation A before publicly filing its Form 1-A. The issuer elects to make the non-public, draft offering statements public on the EDGARLink Online submissions page of EDGAR at the time it publicly files its Form 1-A. Would the issuer also be required to refile (1) any non-public, draft offering statement previously submitted pursuant to Rule 252(d), or (2) any related, non-public correspondence submitted by or on behalf of the issuers as an exhibit to Part III?

Answer: No. An issuer may make its initial non-public draft offering statement and all subsequent non-public amendments publicly available on EDGAR at the time it first publicly files its Form 1-A offering statement by logging into its EDGAR account, accessing the webpage "File Regulation A Forms," and selecting the link "Disseminate Draft Offering Statement." The Commission staff, upon completion of the review of the offering statement, will make public on EDGAR all non-public correspondence related to the non-public initial draft offering statement and its amendments. [March 12, 2025] [Comparison to prior version]

Question 182.02

Question: If an issuer elects to submit a draft offering statement for non-public staff review before public filing pursuant to Rule 252(d), and, as part of that process, submits correspondence relating to its offering statement, what must it do if it wants to protect portions of that correspondence from public release?

Answer: During the review of the draft offering statement, the issuer would request confidential treatment of any information in the related correspondence pursuant to Rule 83, in the same manner it would during a typical review of a registered offering. It would submit a redacted copy of the correspondence via EDGAR, with the appropriate legend indicating that it was being submitted pursuant to a confidential treatment request under Rule 83. At the same time, it would submit an unredacted version to the Commission, non-publicly on EDGAR, in the manner required by that rule.

EDGAR does not allow an issuer to publicly disseminate any correspondence on EDGAR. Upon the completion of the review, and after qualification, the Commission staff will make all review correspondence public, including correspondence related to the publicly filed Form 1-A and the DOS, as well as staff comment letters. See also Question 182.01 above. [March 12, 2025] [Comparison to prior version]

Question 182.03

Question: Would a company with headquarters that are located within the United States or Canada, but whose business primarily involves managing operations that are located outside those countries be considered to have its “principal place of business” within the United States or Canada for purposes of determining issuer eligibility under Regulation A?

Answer: Yes, an issuer will be considered to have its “principal place of business” in the United States or Canada for purposes of determining issuer eligibility under Rule 251(b) of Regulation A if its officers, partners, or managers primarily direct, control and coordinate the issuer’s activities from the United States or Canada. [June 23, 2015]

Question 182.04

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 182.05

Question: Is a voluntary filer under the Exchange Act an eligible issuer for purposes of Rule 251(b)(2) of Regulation A?

Answer: Yes. A voluntary filer is not subject to Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. [June 23, 2015]

Question 182.06

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 182.07

Question: Can Regulation A be relied upon by an issuer for business combination transactions, such as a merger or acquisition?

Answer: Yes. The final rules do not limit the availability of Regulation A for business combination transactions, but, as the Commission (SEC Rel. No. 33-9497) indicated, Regulation A would not be available for business acquisition shelf transactions, which are typically conducted on a delayed basis. [June 23, 2015]

Question 182.08

Question: May a recently created entity choose to provide a balance sheet as of its inception date?

Answer: Yes, as long as the inception date is within nine months before the date of filing or qualification and the date of filing or qualification is not more than three months after the entity reached its first annual balance sheet date. The date of the most recent balance sheet determines which fiscal years, or period since existence for recently created entities, the statements of comprehensive income, cash flows and changes in stockholders’ equity must cover. When the balance sheet is dated as of inception the statements of comprehensive income, cash flows and changes in stockholders’ equity will not be applicable. [June 23, 2015]

Question 182.09

Question: Can an issuer solicit interest (or “test the waters”) in a Regulation A offering on a platform that limits the number of characters or amount of text that can be included, thereby preventing the inclusion in such communication of the information required by Rule 255?

Answer: Yes. The staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 255 in the following limited circumstances:

The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
The communication contains an active hyperlink to the required statements that otherwise satisfy Rule 255 and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the entirety of the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate. [June 23, 2015]

Question 182.10

Question: Are state securities law registration and qualification requirements preempted with respect to resales of securities purchased in a Tier 2 offering, due solely to the securities having initially been sold in a Tier 2 offering?

Answer: No. Pursuant to Section 18(b)(4)(D)(ii) of the Securities Act, state securities law registration and qualification requirements are only preempted with respect to primary offerings of securities by the issuer or secondary offerings by selling securityholders that are qualified pursuant to Regulation A and offered or sold to qualified purchasers pursuant to a Tier 2 offering. See Securities Act Release No. 9741 (March 25, 2015) (“In the final rules, a ‘qualified purchaser’ for purposes of Section 18(b)(4)(D)(ii) of the Securities Act includes any person to whom securities are offered or sold in a Tier 2 offering.” [Emphasis added]. Unless otherwise preempted under Section 18 of the Securities Act, resales of securities purchased in a Tier 2 offering must be registered, or offered or sold pursuant to an exemption from registration, with state securities regulators. [March 12, 2025] [Comparison to prior version]

Question 182.11

Question: When is an issuer required to engage the services of a registered transfer agent before being able to avail itself of the conditional exemption from mandatory registration under Section 12(g) of the Exchange Act described in Exchange Act Rule 12g5-1(a)(7)?

Answer: An issuer that seeks to rely on the conditional exemption from mandatory registration under Section 12(g) of the Exchange Act must at the time of reliance on the conditional exemption satisfy the requirements of Rule 12g5-1(a)(7). [June 23, 2015]

Question 182.12

Question: For an issuer that seeks to qualify an additional class of securities by post-qualification amendment to a previously qualified offering statement, does Item 4 to Part I of Form 1 A require disclosure of only the additional class of securities for which qualification is being sought?

Answer: Yes. An issuer that seeks to qualify an additional class of securities by post-qualification amendment to a previously qualified offering statement would satisfy the requirements of Item 4 to Part I of Form 1 A by providing responses that relate only to the additional class of securities for which qualification is being sought. In Item 6 to Part I of Form 1 A, an issuer is required to provide disclosure with respect unregistered securities issued or sold within the previous year, which would include any class of securities previously issued or sold pursuant to Regulation A within the previous year. [November 17, 2016]

Question 182.13

Question: How does an issuer calculate whether the change in price in an offering exceeds 20% of the maximum aggregate offering price?

Answer: The Note to Rule 253(b) provides that a change in price representing no more than a 20% change in the maximum aggregate offering price in a qualified offering statement may be made pursuant to an offering circular supplement and does not require a post-qualification amendment. The 20% change may be measured from either the high end (in the case of an increase in the offering price) or the low end (in the case of a decrease in the offering price) of that range. In no circumstances, however, may this provision be used to offer securities where the maximum aggregate offering price would result in the offering exceeding the limit set forth in Rule 251(a) or if the change would result in a Tier 1 offering becoming a Tier 2 offering. [November 17, 2016]

Question 182.14

Question: May an issuer seeking to rely on Regulation A omit financial information for historical periods if it reasonably believes that those financial statements will not be required at the time of the qualification of the Form 1-A?

Answer: Yes. Consistent with the treatment of "emerging growth companies" in Section 71003 of the Fixing America's Surface Transportation (FAST) Act, a company filing or non-publicly submitting an offering statement pursuant to Regulation A may omit financial information for historical periods otherwise required by Part F/S of the Form 1 A, including financial information of other entities required to be included in Part F/S, if it reasonably believes the omitted information will not be required to be included in a filing at the time of qualification, so long as the issuer amends the offering statement prior to qualification to include all financial information required to be included in Part F/S at the time of the qualification.

Issuers that rely on this accommodation and solicit interest from potential investors pursuant to Rule 255 should be aware of their obligation to redistribute solicitation materials under the circumstances described in Rule 255(d) at the time that any financial information previously omitted pursuant to this accommodation has been included in an amended offering statement. [November 17, 2016]

Question 182.15

Question: An issuer's ability to use the Form 8-A (short form registration statement) to register a class of securities pursuant to Section 12(b) or (g) of the Exchange Act concurrent with the qualification of a Tier 2 offering statement is conditioned on the filing of the Form 8-A and, where applicable, the receipt by the Commission of certification from the national securities exchange listed on the Form 8-A within five calendar days after the qualification of the offering statement. See Note to General Instruction A of Form 8-A. If the fifth calendar day falls on a Saturday, Sunday or federal holiday, is the issuer permitted to register its class of securities if the Form 8-A is filed and, where applicable, the certification by the national securities exchange is received by the Commission on the next business day?

Answer: Yes. See Exchange Act Rule 0-3. [March 31, 2017]

Question 182.16

Question: An issuer — not currently subject to a Tier 2 Regulation A reporting obligation — qualifies an offering statement pursuant to Tier 2 and prior to making any sales in that offering withdraws its offering statement pursuant to Rule 259. Can the issuer suspend its Tier 2 reporting obligation by filing a Form 1-Z, even though the issuer has not filed an annual report pursuant to Regulation A or the Exchange Act for the fiscal year in which the offering statement was qualified?

Answer: The staff will not object to an issuer filing a Form 1-Z to suspend its Tier 2 reporting obligation where the Tier 2 offering is validly withdrawn pursuant to Rule 259 prior to making any sales and such withdrawal occurs before the issuer has filed an annual report pursuant to Regulation A or the Exchange Act for the fiscal year in which its offering statement was qualified. [March 31, 2017]

Question 182.17

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 182.18

Question: Is an issuer qualifying an offering statement pursuant to Regulation A required to file a tax opinion as an exhibit to its Form 1-A?

Answer: No. Although not required, an issuer may elect to file additional exhibits, including a tax opinion, pursuant to paragraph 15(b) of Item 17 of Part III to Form 1-A. [March 31, 2017]

Question 182.19

Question: Will the staff object if an issuer with an ongoing Regulation A reporting obligation does not include an auditor's consent to the use of an audit report for the financial statements included in a Form 1-K (Annual Report) as an exhibit to the Form 1-K?

Answer: No. [March 31, 2017]

Question 182.20

Question: Item 19.D of Securities Act Industry Guide 5 states that an issuer should submit its sales material supplementally to the staff prior to its use. Does this guidance apply to sales material used in connection with an offering under Regulation A?

Answer: No. Item 7(c) of Part II of Form 1-A requires an issuer to follow the disclosure guidelines in the Securities Act Industry Guides. Because submission of sales material pursuant to Item 19.D is not a disclosure guideline, it is outside the scope of Item 7(c) of Part II of Form 1-A and does not apply to sales material used in connection with an offering under Regulation A. [March 31, 2017]

Question 182.21

Question: A Regulation A issuer may register a class of its securities pursuant to the Exchange Act on a Form 8‑A concurrently with (i.e., within 5 days after) the qualification of a post-qualification amendment to a Form 1-A. Must the financial statements in the post-qualification amendment be current at the time it is qualified?

Answer: Yes. As the Commission stated in the Regulation A adopting release, Form 8‑A eligibility as it relates to a Regulation A offering is limited to situations in which the Form 8-A goes effective concurrently with (i.e., within 5 days after) the qualification of the Form 1‑A (or a post-qualification amendment to the Form 1‑A) to help ensure that the disclosures in the Form 1‑A, including financial statements, are generally current at the time of effectiveness of the Exchange Act registration. See SEC Rel. No. 33-9741 (March 25, 2015), at p. 190. [September 14, 2017]

Question 182.22

Question: An issuer registers a class of securities pursuant to the Exchange Act on a Form 8‑A concurrently with (i.e., within 5 days after) the qualification of a Form 1-A (Offering Statement). The issuer’s qualified Form 1‑A did not contain financial statements for the last full fiscal year preceding the fiscal year of effectiveness of the Form 8-A. When is the issuer required to file an annual report on Form 10‑K for the preceding fiscal year?

Answer: The staff would not object if the issuer files its first annual report on Form 10‑K for the fiscal year preceding the fiscal year in which the Form 8‑A went effective within 90 calendar days after effectiveness of the Form 8‑A.

For example, the staff would not object if a calendar year‑end issuer that qualifies a Form 1‑A on March 30, 2018 and registers a class of securities pursuant to the Exchange Act on April 4, 2018 files its first annual report on Form 10-K within 90 calendar days after effectiveness of the Form 8‑A. [September 14, 2017]

Question 182.23

Question: An issuer registers a class of securities pursuant to the Exchange Act on a Form 8‑A concurrently with (i.e., within 5 days after) the qualification of a Form 1-A (Offering Statement). The issuer’s qualified Form 1‑A did not contain financial statements for one or more quarterly periods that followed the most recent annual or semiannual period for which financial statements were included in the Form 1-A and that were completed prior to effectiveness of the Form 8-A. When is the issuer required to file quarterly reports for these quarterly periods?

Answer: Exchange Act Rule 13a-13 requires the issuer to file a quarterly report on Form 10‑Q for the first fiscal quarter following the most recent annual or interim period for which financial statements were included in the registration statement. This report must be filed within 45 days of the effective date of the registration statement or on or by the required due date of the Form 10‑Q (as if the issuer already had been required to file Forms 10‑Q), whichever is later. Where the issuer’s qualified Form 1‑A did not contain financial statements for one or more quarterly periods that followed the most recent annual or semiannual period for which financial statements were included in the Form 1‑A and that were completed prior to effectiveness of the Form 8‑A, the staff would not object if the issuer files a Form 10-Q for the completed quarterly period, or two Forms 10-Q if financial statements for more than one quarterly period were not included in the Form 1‑A, within 45 days after effectiveness of the Form 8-A.

For example, a calendar year-end issuer registers a class of securities pursuant to the Exchange Act on August 10, 2018, concurrent with the qualification of a Form 1‑A that includes financial statements for the fiscal year ended December 31, 2017, but no financial statements for the two most recently completed quarterly periods in 2018. The staff would not object if that issuer files its Forms 10‑Q for the first and second fiscal quarters of 2018 on or before September 24, 2018. Unlike the Regulation A issuer, a calendar year‑end issuer that registers a class of securities pursuant to the Exchange Act on August 10, 2018, concurrent with the effectiveness of a Form S‑1, would have been required to include financial statements for the first fiscal quarter of 2018 in its registration statement and would be required to file its Form 10‑Q for its second fiscal quarter on or before September 24, 2018. [September 14, 2017]

Sections 183 to 197. Rules 264 to 400 [Reserved]

Section 198. Rule 401 — Requirements as to Proper Form

Question 198.01

Question: When an issuer with an effective Form S-3 registration statement no longer satisfies the applicable Form S-3 requirements, how can the issuer update the registration statement for purposes of complying with Section 10(a)(3)?

Answer: The issuer can update the registration statement by filing a post-effective amendment on a Securities Act registration form for which it qualifies at the time of filing such amendment, such as a Form S-1 or Form S-11. [Jan. 26, 2009]

Question 198.02

Answer: Yes. For purposes of Securities Act Rule 401(b), the filing of a Form 10-K containing the registrant’s audited financial statements for its most recently completed fiscal year operates as a Section 10(a)(3) update to a Form S-3 registration statement. Therefore, if a registrant was not eligible to use Form S-3 at the time of such updating through the filing of the Form 10-K, it would be required to file a post-effective amendment on whatever other Securities Act registration form would be available to the registrant at the time. [Nov. 26, 2008]

Question 198.03

Question: If a well-known seasoned issuer files an automatic shelf registration statement at the beginning of the year, and during that year but before its Section 10(a)(3) update is due, the issuer loses its status as a well-known seasoned issuer, what is the impact on the effectiveness and use of that automatic shelf registration statement?

Answer: An issuer’s loss of eligibility to use a registration form after effectiveness and before its Section 10(a)(3) update will not affect its ability to use that registration statement until the time of its Section 10(a)(3) update. If the issuer is no longer a well-known seasoned issuer at the time of its Section 10(a)(3) update, the issuer would be required to amend its automatic shelf registration statement onto a form it is then eligible to use to offer and sell securities. [Jan. 26, 2009]

Question 198.04

Question: Does Rule 401(e) permit a registrant updating a Form S-1 registration statement pursuant to Section 10(a)(3) to file a post-effective amendment on Form S-3 if it is eligible to use that form with respect to such offering at the time the amendment is filed?

Answer: Yes. The registrant could not, however, convert the Form S-1 to an automatic shelf registration statement by filing a post-effective amendment. [Jan. 26, 2009]

Question 198.05

Question: May a Form S-3ASR be filed, or a non-automatically effective Form S-3 be filed and declared effective, after an issuer has filed its Form 10-K but prior to filing the Part III information that will be incorporated by reference into the Form 10-K?

Answer: Yes. However, issuers are responsible for ensuring that any prospectus used in connection with a registered offering contains the information required to be included therein by Securities Act Section 10(a) and Schedule A. [March 20, 2025] [Comparison to prior version]

Question 198.06

Question: Under Rule 401(b), if an amendment to a registration statement is filed to satisfy Securities Act Section 10(a)(3), the form and contents of the amendment must conform to the applicable rules and forms as in effect on the filing date of the amendment. For example, if an issuer is no longer eligible to use Form S-3 for a primary offering at the time it files its Form 10-K that acts as a Section 10(a)(3) update, the issuer must file a post-effective amendment or new registration statement to convert the Form S-3 registration statement onto a form that the issuer is then eligible to use in order to continue offers and sales. If a well-known seasoned issuer with an effective automatic shelf registration statement will no longer be a well-known seasoned issuer at the time of filing its Form 10-K, it will no longer be eligible to rely on General Instruction I.D to Form S-3. If that issuer will remain eligible to conduct primary offerings under General Instruction I.B.1 or I.B.2 of Form S-3, may the issuer continue to offer and sell securities off of its automatic shelf registration statement pending the effectiveness of the post-effective amendment that the issuer will file in order to convert the registration statement from an automatic shelf registration statement on Form S-3 filed in reliance on General Instruction I.D to a non-automatic shelf registration statement on Form S-3 filed in reliance on General Instruction I.B.1 or I.B.2?

Answer: Yes. In this situation, the issuer may continue to offer and sell securities using the automatic shelf registration statement, but only if, prior to filing the Form 10-K, the issuer amends the automatic shelf registration statement so that it conforms to the requirements that apply to a Form S-3 filed in reliance on General Instruction I.B.1 or I.B.2. Specifically, the following conditions must be satisfied:

Prior to filing the Form 10-K, the issuer must file a post-effective amendment to the automatic shelf registration statement (on EDGAR submission type POSASR) to register a specific amount of securities and to pay the associated filing fee;
The prospectus included in the post-effective amendment to the automatic shelf registration statement may not omit information in reliance on provisions of Rule 430B that are available only to automatic shelf registration statements and instead must contain all information required to be included in a Form S-3 filed in reliance on General Instruction I.B.1 or I.B.2; and
The issuer must remain eligible to use Form S-3 in reliance on General Instruction I.B.1 or I.B.2 at the time of the filing of the Form 10-K.

At least promptly after the Form 10-K is filed, the issuer must file either a post-effective amendment using EDGAR submission type POS AM or a new Form S-3 registration statement using EDGAR submission type S-3 to convert the Form S-3 to the proper EDGAR submission type for a non-automatic shelf registration statement. Pending the effectiveness of the filing, the issuer may continue to offer and sell securities using the amended automatic shelf registration statement. [Jan. 26, 2009]

Question 198.07

Question: Rule 401(g)(2) requires an issuer to file a new registration statement or post-effective amendment "promptly" once the staff notifies the issuer of its objection to the issuer's use of an automatic shelf registration statement. Does the "promptly" requirement also extend to responding to staff comments, if any, and submitting a request for effectiveness of the new registration statement or post-effective amendment?

Answer: Yes. [Aug. 14, 2009]

Question 198.08

Question: An issuer has a registration statement on Form S-3 or Form F-3 that was declared effective before July 22, 2010 and includes or incorporates by reference ratings information that is not limited to issuer disclosure-related ratings information. Can the issuer continue to use its registration statement without filing a consent by the credit rating agency?

Answer: Yes. In this fact pattern, the staff would not object to reliance upon Rule 401(a) under the Securities Act to allow continued use of the registration statement for the limited period permitted under Rule 401(a). This would be applicable only until the next post-effective amendment to such registration statement and only if no subsequently incorporated periodic or current report contains ratings information that is not limited to issuer disclosure-related ratings information. Note that the filing of the issuer’s next annual report on Forms 10-K, 20-F or 40-F is deemed to be the post-effective amendment of such registration statement for purposes of Securities Act Section 10(a)(3), so that in accordance with Rule 401(a), the registration statement could no longer be used after the annual report is filed without the filing of the consent. [July 27, 2010]

Sections 199 to 202. Rules 401a to 404 [Reserved]

Section 203. Rule 405 — Definition of Terms

Question 203.01

Question: The Rule 405 definition of “employee benefit plan” states that consultants or advisors may participate in an employee benefit plan only if (1) they are natural persons, (2) they provide bona fide services to the registrant, and (3) the services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the registrant’s securities. Can securities issuable under a plan that permits consultants to be compensated for capital-raising services, as well as services that qualify under Rule 405, be registered on Form S-8?

Answer: No. The plan does not satisfy the Rule 405 definition of “employee benefit plan,” and therefore, no securities issuable under the plan can be registered on Form S-8. [Jan. 26, 2009]

Question 203.02

Question: A stock option plan registered on Form S-8 permits the issuance of transferable options. The registration statement covers only the issuance of the common stock on the exercise of the options. Can a non-employee, who acquires an option from an employee, exercise that option under the Form S-8 registration statement?

Answer: No. While securities issuable under the plan can continue to be registered on Form S-8, a non-employee (other than an employee’s family member who acquires an option from an employee through a gift or domestic relations order) cannot exercise options under the Form S-8 registration statement. In addition, when the issuer sponsors a program or otherwise actively arranges for employees to sell employee benefit plan options or otherwise transfer employee benefit plan options to persons who are not family members, the plan no longer would be “solely for employees” and the other persons specified in the Rule 405 definition of “employee benefit plan.” In this situation, securities issuable under the plan could not continue to be registered on Form S-8 unless a plan amendment removes the transferred options and the securities underlying them from the plan, so that the plan would continue to satisfy the Rule 405 definition of “employee benefit plan.” [Jan. 26, 2009]

Question 203.03

Question: The definition of “ineligible issuer” in Rule 405 includes an issuer, or any entity that at the time was a subsidiary of the issuer, that within the past three years “was convicted of any felony or misdemeanor described in paragraphs (i) through (iv) of [S]ection 15(b)(4)(B) of the Securities Exchange Act of 1934.” How is a conviction by a foreign court treated under this provision?

Answer: A conviction by a foreign court as to the activities described in paragraphs (i) through (iv) of Section 15(b)(4)(B) of the Exchange Act would trigger ineligibility under the definition. [Jan. 26, 2009]

Question 203.04

Question: A well-known seasoned issuer wants to form a wholly-owned finance subsidiary to sell non-convertible debt that will be fully and unconditionally guaranteed by the well-known seasoned issuer. Prior to the first offer and sale of the finance subsidiary’s debt securities, the subsidiary would have nominal assets and operations. Would the finance subsidiary be a “shell company” as defined in Rule 405, and therefore an “ineligible issuer” that could not register its debt securities on the well-known seasoned issuer parent’s automatic shelf registration statement?

Answer: Assuming the finance subsidiary satisfies the conditions of a well-known seasoned issuer majority-owned subsidiary and is not otherwise an ineligible issuer, the finance subsidiary borrowing with its parent’s full and unconditional guarantee would not be a shell company for purposes of the definition of ineligible issuer. [Jan. 26, 2009]

Question 203.05

Question: An issuer whose predecessor had previously been in bankruptcy is planning an initial public offering. The planned Form S-1 would include audited financial statements of the issuer following its emergence from bankruptcy. Under the definition of “ineligible issuer,” an issuer’s ineligibility due to a bankruptcy filing terminates when the issuer files audited financial statements in an annual report subsequent to its emergence from bankruptcy. Would the issuer continue to be an “ineligible issuer” if it included audited financials in the Form S-1 but did not file an annual report?

Answer: No. The issuer would have emerged from bankruptcy prior to the filing of the registration statement and its audited financial statements filed as part of its registration statement would be of the entity as of a date after it emerged from bankruptcy. [Jan. 26, 2009]

Question 203.06

Question: Under Rule 405, a limited partnership that “is offering and selling its securities other than through a firm commitment underwriting” is an ineligible issuer. Would a master limited partnership be an ineligible issuer if it occasionally offers securities in other than firm commitment underwritten deals?

Answer: A master limited partnership is an “ineligible issuer” with respect to any offerings conducted on other than a firm commitment underwritten basis, including resales by selling security holders. For any offering conducted on a firm commitment basis, the master limited partnership would not be an ineligible issuer. [Jan. 26, 2009]

Question 203.07

Question: Is an issuer an “ineligible issuer” that may not incorporate by reference into a Form S-1 if any registered securities offering (whether primary or resale) or any private primary securities offering occurred during the three-year look-back window at a time when the issuer’s securities would have qualified as penny stock?

Answer: Yes. The issuer would not, however, need to consider unregistered resale transactions in making this determination. [Jan. 26, 2009]

Question 203.08

Question: In determining whether an issuer qualifies as a penny stock issuer that is an ineligible issuer under Rule 405, must the issuer consider offerings registered on Form S-8 if no sales were made during the applicable three-year window?

Answer: Yes. Offers registered on Form S-8 would be considered ongoing offers during the pendency of the registration statement and therefore may result in the issuer being considered a penny stock issuer, whether or not sales occurred at a time when the issuer’s stock would have qualified as penny stock. [Jan. 26, 2009]

Question 203.09

Question: An issuer that has not previously filed a shelf registration statement believes that it meets the test for well-known seasoned issuer status and decides to file an automatic shelf registration statement. What is this issuer’s initial determination date for well-known seasoned issuer status for purposes of determining its eligibility to file an automatic shelf registration statement?

Answer: The issuer’s initial determination date for well-known seasoned issuer status will be the time it files the automatic shelf registration statement. [Jan. 26, 2009]

Question 203.10

Question: An issuer with an effective shelf registration statement believes that it meets the test for well-known seasoned issuer status and decides to file an automatic shelf registration statement. What is this issuer’s initial determination date for well known seasoned issuer status for purposes of determining its eligibility to file an automatic shelf registration statement?

Answer: The issuer’s initial determination date for well-known seasoned issuer status will be the time it files the automatic shelf registration statement. [Jan. 26, 2009]

Question 203.11

Question: If a well-known seasoned issuer files an automatic shelf registration statement, is its status as a well-known seasoned issuer re-evaluated when it files its Form 10-K or Form 20-F for the fiscal year in which the automatic shelf registration statement is filed and becomes effective? For example, if an issuer with a December 31 fiscal year end files an automatic shelf registration statement on August 15, 2006 and files its Form 10-K for its 2006 fiscal year on February 28, 2007, must it re-evaluate its well-known seasoned issuer status on the date it files that Form 10-K?

Answer: Yes. For purposes of Securities Act Section 10(a)(3), Item 512(b) of Regulation S-K provides that “each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 … that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein …” As such, the issuer in this example must re-evaluate its well-known seasoned issuer status when it files its Form 10-K on February 28, 2007. Further, issuers are required to indicate their well-known seasoned issuer status on the cover page of their Form 10-K or Form 20-F. When an issuer that was a well-known seasoned issuer and has an effective automatic shelf registration statement determines that it no longer is a well-known seasoned issuer at the time it files its annual report (or on the due date of such report in the event the annual report is not filed by the due date of the Section 10(a)(3) update), that issuer should amend its automatic shelf registration statement on the form that it is then eligible to use. [Jan. 26, 2009]

Question 203.12

Question: Can a Canadian issuer filing annual reports on Form 40-F under the Multi-Jurisdictional Disclosure System be a “well-known seasoned issuer” under the definition in Rule 405?

Answer: No. Only issuers filing annual reports on Form 10-K or Form 20-F are eligible to be well-known seasoned issuers. The Commission’s intent to limit well-known seasoned issuer status only to those issuers filing annual reports on Form 10-K and Form 20-F is evidenced by, among other things, the fact that Form 40-F was not revised to include either a well-known seasoned issuer check box or to require the disclosure of unresolved staff comments (each of which the Commission included in amended Form 10-K and Form 20-F). [Jan. 26, 2009]

Question 203.13

Question 203.14

Question: The definition of “well-known seasoned issuer” refers to the time of filing of an issuer’s “most recent shelf registration statement.” Would an issuer’s most recent shelf include a Form S-4 or Form S-8 under which securities might be offered pursuant to Rule 415 on a delayed or continuous basis?

Answer: Yes. It would include any registration statement filed in reliance on Rule 415. [Jan. 26, 2009]

Question 203.15

Question: In the definition of “well-known seasoned issuer,” does the phrase “within 60 days of the determination date” include both the 60 days before and the 60 days after filing the registration statement or the Section 10(a)(3) update?

Answer: No. It includes only a date that is within 60 days before the determination date. [Jan. 26, 2009]

Question 203.16

Question: If a spun-off subsidiary meets the conditions discussed in Questions 8 and 9 of Staff Legal Bulletin No. 4, including the 12-month segment financial reporting requirement, that permit a subsidiary to consider the parent’s reporting history when determining whether the subsidiary is eligible to use Form S-3, may the subsidiary rely on the parent’s pre-spin-off reporting history for purposes of evaluating whether the subsidiary is a well-known seasoned issuer and eligible to file a Form S-3ASR?

Answer: Yes. The spun-off subsidiary also would need to independently meet all other requirements for well-known seasoned issuer status. It should be noted that if a spun-off entity relies on its parent’s reporting history for purposes of filing a Form S-3 or a Form S-3ASR, it would need to comply with Items 308(a) and 308(b) of Regulation S-K in the first annual report that it files, to the extent its parent is required to do so. See Securities Act Release No. 8760 (Dec. 15, 2006), at fn. 76. [Jan. 26, 2009]

Question 203.17

Question: In applying the foreign private issuer definition in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how can an issuer that has multiple classes of voting stock with different voting rights determine whether more than 50 percent of its outstanding voting securities are directly or indirectly owned of record by residents in the United States?

Answer: An issuer may choose one of two methods. The issuer may look to whether more than 50 percent of the voting power of those classes on a combined basis is directly or indirectly owned of record by residents of the United States. Alternatively, an issuer may make the determination based on the number of voting securities. Issuers must apply a determination methodology on a consistent basis. [December 8, 2016]

Question 203.18

Question: In applying the foreign private issuer definition in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), what factors should be applied to determine the status of an individual as a "U.S. resident" for purposes of determining whether 50 percent of the company's outstanding voting securities are held of record by U.S. residents?

Answer: A person who has permanent resident status in the U.S. — a so-called Green Card holder — is presumed to be a U.S. resident. Other individuals without permanent resident status may also be residents of the U.S. for purposes of these provisions. In these circumstances, an issuer must decide what criteria it will use to determine residency and apply them consistently without changing them to achieve a desired result. Examples of factors an issuer may apply include tax residency, nationality, mailing address, physical presence, the location of a significant portion of their financial and legal relationships, or immigration status. [December 8, 2016]

Question 203.19

Question: In determining whether a majority of the executive officers or directors are United States citizens or residents under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), must the calculation be made separately for each group or are executive officers and directors to be treated as a single group when making the assessment?

Answer: The determination must be made separately for each group. In effect, there are four determinations: the citizenship status of executive officers, the residency status of executive officers, the citizenship status of directors, and the residency status of directors. [December 8, 2016]

Question 203.20

Question: In determining whether the majority of the directors are United States citizens or residents under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how should the determination be made when the issuer has two boards of directors?

Answer: The issuer must make the determination with respect to the board that performs the functions most closely to those undertaken by a U.S.-style board of directors. If those functions are divided between both boards, the issuer may aggregate the members of both boards for purposes of calculating the majority. [December 8, 2016]

Question 203.21

Question: In determining whether more than 50 percent of the assets of an issuer are located outside the United States under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), can an issuer use the geographic segment information determined in the preparation of its financial statements?

Answer: Yes. Alternatively, an issuer may apply on a consistent basis any other reasonable methodology in assessing the location and amount of its assets for purposes of this determination. [December 8, 2016]

Question 203.22

Question: For purposes of the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how does an issuer determine whether its business is administered principally in the United States?

Answer: There is no single factor or group of factors that are determinative under this clause. The issuer must assess on a consolidated basis the location from which its officers, partners, or managers primarily direct, control and coordinate the issuer's activities. [December 8, 2016]

Question 203.23

Question: For purposes of the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), would holding an annual or special meeting of shareholders or occasional meetings of the issuer's board of directors in the United States result in a determination that the issuer's business is administered principally in the United States?

Answer: No. Absent other factors indicating the location from which an issuer's officers, partners, or managers primarily direct, control and coordinate the issuer's activities on a consolidated basis, as described in Securities Act Rules CDI 203.22 / Exchange Act Rules CDI 110.07, there is no single factor or group of factors that is determinative of whether an issuer's business is principally administered in the United States. [December 8, 2016]

Sections 204 to 207. Rules 406 to 410 [Reserved]

Section 208. Rule 411 — Incorporation by Reference

Question 208.01

Question: May a registrant filing a Form S-1 include information about a Form S-3 company in its prospectus through incorporation by reference?

Answer: No. This procedure is not authorized by Form S-1 or Rule 411. If the information about the other company is material, it must be set forth in the prospectus in full. [Jan. 26, 2009]

Question 208.02

Question: May exhibits be incorporated by reference from a registration statement filed by another issuer?

Answer: Yes. Rule 411(c) permits exhibits to be incorporated by reference from a registration statement filed by another issuer. [Jan. 26, 2009]

Question 208.03

Question: May a registrant filing a Form S-1 to register an initial public offering incorporate by reference exhibits filed with a previous Securities Act registration statement which was withdrawn pursuant to Rule 477?

Answer: Yes. The withdrawn registration statement remains a filed document for purposes of Rule 411(c) and, accordingly, the exhibits may be incorporated by reference. [Jan. 26, 2009]

Section 209. Rule 412 [Reserved]

Section 210. Rule 413 — Registration of Additional Securities and Additional Classes of Securities

Question 210.01

Question: May a registrant request a waiver from the requirement in Rule 413(a) that a post-effective amendment cannot be used to register additional securities to be included in an offering?

Answer: No. Unless the registration statement is an automatic shelf registration statement covered by Rule 413(b), the proper procedure is to file a separate registration statement for the offer and sale of the additional securities. The registrant can use a combined prospectus pursuant to Rule 429 for the offering. [Jan. 26, 2009]

Question 210.02

Question: May a pending registration statement be amended to add additional securities prior to its effective date?

Answer: Yes. Prior to the effective date, additional securities may be added for registration with the payment of the requisite additional fee. [Jan. 26, 2009]

Question 210.03

Question: An issuer files an automatic shelf registration statement on Form S-3 to register the offer and sale of a specified number of securities of a specified class of securities. May the issuer post-effectively amend this Form S-3 to add more securities of the same class already registered?

Answer: Yes. An issuer may add to the automatic shelf registration statement on Form S-3, by post-effective amendment, more securities of the same class already registered. [May 16, 2013]

Section 211. Rule 414 [Reserved]

Section 212. Rule 415 — Delayed or Continuous Offering and Sale of Securities

Question 212.01

Question: In what circumstances does an over-allotment offering constitute a delayed offering such that compliance with Rule 415 is necessary?

Answer: As a matter of administrative practice, over-allotment options with terms of up to 45 days may be made without triggering compliance with Rule 415. [Jan. 26, 2009]

Question 212.02

Question: May securities that are registered on a shelf registration statement pursuant to Rule 415 be sold concurrently in any of the transactions for which they were registered?

Answer: Yes. For example, if the shelf registration statement indicates that the securities registered could be sold in firm commitment underwriting and at-the-market offerings, both types of transactions could be undertaken at the same time (subject to form eligibility). [Jan. 26, 2009]

Question 212.03

Question: Is there a presumptive underwriter standard under Rule 415?

Answer: No. [Jan. 26, 2009]

Question 212.04

Question: If an issuer is eligible to file a shelf registration statement on Form S-3, may it amend a pending non-shelf registration statement to become a shelf registration statement on Form S-3 prior to its effective date?

Answer: Yes. [Jan. 26, 2009]

Question 212.05

Question: Can a registration statement under Rule 415 be declared effective without an opinion of counsel as to the legality of the securities being issued when no immediate sales are contemplated?

Answer: No. However, when sales are not expected in the near future, the registrant may file a qualified opinion of counsel and have its registration statement be declared effective, subject to the understanding that an unqualified opinion will be filed no later than the closing date of the offering of the securities covered by the registration statement. An updated opinion of counsel with respect to the legality of the securities being offered may be filed in a Form 8-K report rather than a post-effective amendment to a Form S-3 shelf registration statement. This position is limited to opinions of counsel regarding the legality of the securities being offered, which are required to be filed in connection with shelf takedowns. [Aug. 14, 2009]

Question 212.06

Question: Does the existence of an effective registration statement governed by Rule 415 automatically require that sales under that registration statement be integrated with sales in a separate offering for which an exemption is claimed?

Answer: No. The existence of an effective shelf registration statement does not, in and of itself, raise integration concerns. However, a takedown off the shelf registration statement may raise integration concerns if the offering is made concurrently with another offering for which an exemption is claimed. Please see Securities Act Release No. 8828 (Aug. 3, 2007) for guidance on integration in the context of concurrent public and private offerings. [Jan. 26, 2009]

Question 212.07

Question: May a company update a Form S-1 for a continuous offering by supplementing the prospectus with a Form 10-Q?

Answer: If the Form 10-Q contains no disclosure that would constitute a fundamental change in the information contained in the prospectus, there is no Item 512(a) requirement to file a post-effective amendment. If the company must update for anti-fraud and Rule 159 purposes, it may do so by a prospectus supplement. [Jan. 26, 2009]

Question 212.08

Question: Pursuant to Rule 461, must the managing underwriters join in the written request for acceleration in connection with a shelf registration statement naming potential underwriters?

Answer: No. [Jan. 26, 2009]

Question 212.09

Question: May the combined prospectus technique of Rule 429 be used in the context of Rule 415, when an amount of securities remains unsold on an earlier shelf registration statement at the time the issuer files a new shelf registration statement?

Answer: Yes, provided that the new shelf registration statement is not an automatic shelf registration statement and complies with Rules 415(a)(5) and (6). Once Rule 429 is used to create a combined prospectus, the prospectus that is a part of the earlier registration statement generally may not be used by itself. [Jan. 26, 2009]

Question 212.10

Question: May a well-known seasoned issuer rely on Rule 429 to combine a prospectus from a prior non-automatic shelf registration statement with the prospectus in a newly filed automatic shelf registration statement?

Answer: No. Under Rule 429(b), a registration statement containing a combined prospectus acts, upon effectiveness, as a post-effective amendment to the earlier registration statement whose prospectus is combined in the latest registration statement. Because a registrant cannot file a post-effective amendment to convert a non-automatic shelf registration statement into an automatic shelf registration statement, a well-known seasoned issuer may not rely on Rule 429 to combine a prospectus from a prior non-automatic shelf registration statement with the prospectus in a newly filed automatic shelf registration statement. Instead, a well-known seasoned issuer with unused capacity on a prior non-automatic shelf may either utilize the unused fees upon filing a new automatic shelf registration statement, in accordance with Rule 457(p), or continue to sell off of the old registration statement until the capacity is used up. [Jan. 26, 2009]

Question 212.11

Question: When Form S-1 is used for a continuous offering under Rule 415, is a post-effective amendment necessary to meet the requirements of Section 10(a)(3), to reflect fundamental changes, or to disclose material changes in the plan of distribution?

Answer: Yes. A post-effective amendment is required to reflect those changes because Form S-1 does not provide for forward incorporation by reference of Exchange Act reports filed after the effective date. Other changes may be made by prospectus supplement to the extent permitted by Rule 424. [Jan. 26, 2009]

Question 212.12

Question: When a shelf registration statement is filed on Form S-3 for offerings of securities on a delayed basis under Rule 415(a)(1)(x) and the plan of distribution includes underwritings on a firm commitment basis, in connection with a shelf takedown offering, is it permissible for the registrant to name the participating underwriters in a prospectus supplement and file the underwriting agreement as an exhibit under cover of Form 8-K?

Answer: Yes. See Securities Act Release No. 8591 (July 19, 2005), at fn. 488. [Jan. 26, 2009]

Question 212.13

Question: Rule 3-01 of Regulation S-X specifies certain time periods (depending on the registrant’s accelerated filer status) in which a “filing,” other than on Form 10-K or Form 10, may be made without the balance sheet for the most recent fiscal year end. The rule is conditioned on (1) the registrant’s reasonable and good faith expectation that it will report income for the most recently completed fiscal year and (2) the registrant having reported income for at least one of the last two fiscal years. May a registrant sell securities from an effective Form S-3 registration statement during the relevant time period and file a prospectus supplement under Rule 424 to reflect the take-down, if the balance sheet for the most recent fiscal year end has not been filed and the registrant does not have a reasonable and good faith expectation that it will report income for the most recently completed fiscal year?

Answer: Yes. Rule 3-01 does not prevent the shelf take-down from occurring and would not apply to the prospectus supplement as it is not for the purpose of updating the prospectus under Section 10(a)(3). [Jan. 26, 2009]

Question 212.14

Question: Must a registration statement on Form S-8, covered by Rule 415, include all applicable undertakings in Item 512 of Regulation S-K, including specifically those in Items 512(a), (b) and (h)?

Answer: Yes. However, the Form S-8 does not have to include the undertakings contained in Items 512(a)(5)(i), 512(a)(5)(ii), and 512(a)(6). [July 3, 2008]

Question 212.15

Question: May parents, subsidiaries or affiliates of the issuer rely on Rule 415(a)(1)(i) to register secondary offerings?

Answer: Rule 415(a)(1)(i) excludes from the concept of secondary offerings sales by parents or subsidiaries of the issuer. Form S-3 does not specifically so state; however, as a practical matter, parents and most subsidiaries of an issuer would have enough of an identity of interest with the issuer so as not to be able to make “secondary” offerings of the issuer’s securities. Aside from parents and subsidiaries, affiliates of issuers are not necessarily treated as being the alter egos of the issuers. Under appropriate circumstances, affiliates may make offerings which are deemed to be genuine secondaries. [Jan. 26, 2009]

Question 212.16

Question: Pursuant to Rule 415(a)(2), securities registered in reliance on Rule 415(a)(l)(ix) that are not registered on Form S-3 or Form F-3 and securities registered in reliance on Rule 415(a)(1)(viii) may only be registered in an amount which, at the time the registration statement becomes effective, is reasonably expected to be offered and sold within two years from the initial effective date. If unsold securities remain at the end of the two years, may the registration statement continue to be used?

Answer: At the time of the initial filing, the registrant must make a bona fide estimate of the amount of securities reasonably expected to be offered and sold within two years from the initial effective date. There is no requirement that any unsold securities be deregistered at the end of two years, and the registration statement may continue to be used after that time, to the extent permitted by Rule 415(a)(5). [Jan. 26, 2009]

Question 212.17

Question 212.18

Question:When does an indenture relating to securities to be issued under an automatic shelf registration statement need to be qualified under the Trust Indenture Act?

Answer: The indenture covering securities to be issued, offered and sold pursuant to a registration statement must be qualified at the time the registration statement relating to those securities becomes effective. The indenture may not be qualified by post-effective amendment. Under the automatic shelf registration process adopted in Securities Act Release No. 8591 (July 19, 2005), a well-known seasoned issuer is permitted to add securities to an automatic shelf registration statement by means of a post-effective amendment. Because the effectiveness of a registration statement is deemed the time “when registration becomes effective as to such security(ies),” as that term is used in Section 309(a)(1) of the Trust Indenture Act, the well-known seasoned issuer will satisfy Section 309(a)(1) if the indenture is included as an exhibit to the registration statement at the time that post-effective amendment becomes effective. See Securities Act Release No. 8591 (July 19, 2005), at fn. 527. [Jan. 26, 2009]

Question 212.19

Question: If a registrant intends to file a shelf registration statement and periodically offer multiple series of debt, when is the indenture required to be qualified under the Trust Indenture Act?

Answer: The following approach has been taken with respect to shelf registration statements that contemplate a series of debt offerings under Rule 415 requiring an indenture to be qualified under the Trust Indenture Act.

(1) The indenture that is filed with, and qualified upon the effectiveness of, the registration statement may be “open-ended” (i.e., it may provide a generic, non-specific description of the securities, such as “unsecured debentures, notes or other evidences of indebtedness” which are to be issued in series). For automatic shelf registration statements, the “open-ended” indenture must be filed as an exhibit to the registration statement or as an exhibit to a post-effective amendment to the registration statement that registers the securities to be issued under the indenture.

(2) The details of the securities to be offered in each series under the indenture (i.e., type of securities [notes, debentures, or other], interest rates, and maturities) must be disclosed both in a prospectus supplement and in a supplemental indenture at the time such series is to be offered. For an automatic shelf registration statement, the base prospectus only needs to include a general description of the securities. The supplemental indenture may be filed as an exhibit to a Form 8-K (in the same manner as specified for underwriting agreements), or in an automatically effective, exhibits-only, post-effective amendment filed pursuant to Rule 462(d). For automatic shelf registration statements, the post-effective amendment would be filed pursuant to Rule 462(e). [Jan. 26, 2009]

Question 212.20

Question: How should a registrant conducting a continuous offering on Form S-1 update the prospectus to reflect the information in its subsequently filed Exchange Act reports?

Answer: If Form S-1 is used for a continuous offering, the prospectus may have to be revised periodically to reflect new information since, unlike Form S-3, the form does not provide for incorporation by reference of subsequent periodic reports. For example, in a continuous offering on a Form S-1 pursuant to Rule 415(a)(1)(ix), a registrant wants to update the prospectus to include Exchange Act reports filed after the effective date of the Form S-1. Item 512(a)(1) of Regulation S-K requires certain changes, including a Section 10(a)(3) update, to be reflected in a post-effective amendment. Other changes may be made in a prospectus supplement filed pursuant to Rule 424(b). If the registrant files a post-effective amendment, it could incorporate by reference previously filed Exchange Act reports if it satisfied the conditions in Form S-1 allowing incorporation by reference. [Apr. 24, 2009]

Question 212.21

Question: For a registration statement offering securities immediately exchangeable at the option of the security holder into securities of another issuer, must there be a registration statement to register the offer and sale of the securities that would be received in exchange and if so, what provision of Rule 415 may be relied on to cover such exchange?

Answer: The offer and sale of securities to be received in exchange for registered exchangeable securities must be registered, unless an exemption from registration is available. If no exemption from registration is available, the offer and sale of the securities to be issued in exchange could be registered as a continuous offering in reliance on Rule 415(a)(1)(ix) or as an offering of securities upon conversion of outstanding securities pursuant to Rule 415(a)(1)(iv). [June 4, 2010]

Question 212.22

Question: When does the three-year period specified in Rule 415(a)(5) expire?

Answer: The three-year period in Rule 415(a)(5) begins on the initial effective date of the registration statement, except that for registration statements effective before December 1, 2005, the three-year period begins on December 1, 2005 and ends on November 30, 2008. After November 30, 2008, an issuer may use a registration statement that was effective on or before December 1, 2005 to offer and sell securities only to the extent permitted by the grace period provisions of Rule 415(a)(5). [Nov. 21, 2008]

Question 212.23

Question: For a registration statement that was effective on or before December 1, 2005, when must the replacement registration statement be filed?

Answer: A replacement registration statement filed pursuant to Rule 415(a)(6) must be filed on or before the expiration date of the expiring registration statement. EDGAR does not accept new registration statements for filing on Saturdays or Sundays. Therefore, with respect to registration statements effective on or before December 1, 2005, any replacement registration statement filed pursuant to Rule 415(a)(6) must be filed no later than Friday, November 28, 2008. [Nov. 21, 2008]

Question 212.24

Question: How can an issuer include securities that remain unsold on the expiring registration statement as registered securities on the replacement registration statement, and when should the issuer include such unsold securities on the replacement registration statement?

Answer: Rule 415(a)(6) provides that an issuer may include on its replacement registration statement any unsold securities covered by the expiring registration statement by identifying on the facing page of the replacement registration statement, or a pre-effective amendment thereto, the amount of the unsold securities being included on the replacement registration statement and any filing fee paid in connection with the unsold securities, which will continue to be applied to such unsold securities. The issuer should include the file number of the expiring registration statement as part of this disclosure. The issuer is not required to pay any additional fee with respect to such securities included in reliance on Rule 415(a)(6), because the unsold securities (and associated fees) are being moved from the expiring registration statement to the replacement registration statement. A filing fee is required, however, for any new securities registered on the replacement registration statement.

An issuer may only rely on Rule 415(a)(6) to include on a new replacement registration statement securities that remain unsold on an expiring registration statement. For example, if the expiring registration statement had a remaining capacity of $1 million of common stock, Rule 415(a)(6) permits the issuer to include on the replacement registration statement $1 million of common stock. Rule 415(a)(6) does not, however, permit the issuer instead to include on the replacement registration statement $1 million in preferred stock.

The inclusion of unsold securities on the replacement registration statement has EDGAR filing implications. When completing the EDGAR header tags for a replacement registration statement, or any pre-effective amendment thereto, that is not an automatic shelf registration statement, the filer will be required to specify a “Proposed Maximum Aggregate Offering Price.” This EDGAR header tag should include only newly-registered securities for which a fee will be payable at the time of filing the replacement registration statement.

Except as noted below, the amount of unsold securities that are being included on the replacement registration statement pursuant to Rule 415(a)(6) should not be included as part of the “Proposed Maximum Aggregate Offering Price” EDGAR header tag. If the issuer opts not to register any new securities and the replacement registration statement therefore will cover only securities included from the expiring registration statement pursuant to Rule 415(a)(6), the filer should enter “$1” in the “Proposed Maximum Aggregate Offering Price” EDGAR header tag. The filer should enter “$0” as the fee paid. This is necessary because the EDGAR system will not accept a Securities Act registration statement (other than an automatic shelf registration statement using the “pay as you go” fee provisions of Rule 456(b)) unless a “Proposed Maximum Aggregate Offering Price” is specified in the EDGAR header tag. The $1 amount will not result in a fee assessment by the EDGAR system and will allow the acceptance of the replacement registration statement without the filing being blocked. [Nov. 21, 2008]

Question 212.25

Question: How does an issuer reflect in the replacement registration statement any sales from the expiring registration statement completed during the grace period in Rule 415(a)(5)?

Answer: Rule 415(a)(5) provides that if an issuer has filed a replacement registration statement pursuant to Rule 415(a)(6) that is not an automatic shelf registration statement, the issuer may continue to offer and sell securities covered by the expiring registration statement until the earlier of the effective date of the replacement registration statement or 180 days after the third anniversary of the initial effective date of the expiring registration statement. A continuous offering of securities covered by the expiring registration statement that commenced within three years of the initial effective date may continue until the effective date of the replacement registration statement if such offering is permitted under the replacement registration statement. Any Commission filings, such as prospectus supplements or free-writing prospectuses, related to offerings during the grace period should reflect the expiring registration statement file number. To reflect sales completed during the Rule 415(a)(5) grace period, the issuer should pre-effectively amend the replacement registration statement so that, at effectiveness, the registration statement correctly specifies on the bottom of the facing page the amount of securities that will actually be included in reliance on Rule 415(a)(6). [Nov. 21, 2008]

Question 212.26

Question: How can an issuer use the filing fee offsets under Rule 457(p) as it transitions from the expiring registration statement to the replacement registration statement, and how would that differ from including unsold securities on the replacement registration statement in reliance on Rule 415(a)(6)?

Answer: If an issuer uses Rule 415(a)(6) to include securities on a replacement registration statement, the offering of securities on the expiring registration statement will not be deemed terminated until the replacement registration statement is effective. As a result, any securities that are identified in the replacement registration statement as included pursuant to Rule 415(a)(6) may still be offered and sold from the expiring registration statement during the Rule 415(a)(5) grace period prior to effectiveness of the new registration statement.

If, instead of including unsold securities from the expiring registration statement, an issuer determines to rely on the provisions of Rule 457(p) to offset fees owed upon the initial filing of, or any pre-effective amendment to, the replacement registration statement relating to the registration of new securities, the related securities from the expiring registration statement are immediately deemed deregistered upon the filing of the replacement registration statement (or any pre-effective amendment registering the new securities). These deregistered securities may not be offered or sold during the Rule 415(a)(5) grace period off the expiring registration statement or included as unsold securities on the new registration statement in reliance on Rule 415(a)(6).

With respect to securities registered on an expiring registration statement, an issuer may choose to include a portion of the previously-registered unsold securities under Rule 415(a)(6) and, if the conditions of Rule 457(p) are satisfied, use the fees already paid attributable to the balance of the securities registered on the expiring registration statement as an offset against any new fees due in respect of newly-registered securities on the replacement registration statement. The cover page of the registration statement should clearly explain the amount of securities included (or the potential that they may be included) pursuant to Rule 415(a)(6), the amount of fees offset pursuant to Rule 457(p), and identify the related registration statements. The specific amounts of unsold securities that may be included do not need to be identified in the initial filing and may be included in a pre-effective amendment to the replacement registration statement (such as just before effectiveness of the replacement registration statement).

For example: under Rule 415(a)(6), an issuer files a new registration statement to replace a shelf registration statement that went effective November 1, 2005 and relates to a $2 million continuous offering of debt and $8 million in common stock to be offered on a delayed basis. The replacement registration statement reflects on the cover page the expiring registration statement and states that the issuer will identify in a pre-effective amendment the securities included in the replacement registration statement pursuant to Rule 415(a)(6) and the amount of any new securities to be registered. If the replacement registration statement does not include, at that time, any new securities being registered, the issuer would reflect in the “Proposed Maximum Aggregate Offering Price” EDGAR header tag an amount of $1 and a fee paid of $0.

Prior to the effectiveness of the replacement registration statement, the issuer then sells $1 million of debt and $2 million of common stock, using the expiring registration statement pursuant to Rule 415(a)(5). When the issuer is ready to request effectiveness of the replacement registration statement, it would then file a pre-effective amendment to reflect that the new registration statement is including the unsold securities from the expiring registration statement in the amounts of $1 million of debt and $6 million in common stock pursuant to Rule 415(a)(6). If the issuer does not register new securities in the pre-effective amendment, it will not need to record any “Proposed Maximum Aggregate Offering Price” in the EDGAR header tag.

Alternatively, instead of including the unsold securities from the expiring registration statement, the issuer may elect to use Rule 457(p) to utilize the fees relating to all or a portion of the unsold shares on the expiring registration statement as a fee offset. In that case, if the conditions of Rule 457(p) are satisfied, the issuer may offset fees previously paid in connection with all or a portion of the $1 million of debt and $6 million of common stock that remain unsold on the expiring registration statement against the fees due for any securities newly registered on the pre-effective amendment. The shares covered by the fees used as offsets would be deemed deregistered from the expiring registration statement and could not be offered or sold during the remainder of the Rule 415(a)(5) grace period. The EDGAR header for the pre-effective amendment would reflect as the “Proposed Maximum Aggregate Offering Price” the amount of securities to be included on the replacement registration statement other than those securities included in reliance on Rule 415(a)(6). The issuer would also need to complete the fee offset header tags in EDGAR to reflect the fee offset claimed pursuant to Rule 457(p). [Jan. 26, 2009]

Question 212.27

Question: If an issuer is no longer a well-known seasoned issuer at the time it files a replacement registration statement pursuant to Rule 415(a)(5), can the issuer continue to use its expiring automatic shelf registration statement for offers and sales during the Rule 415(a)(5) grace period?

Answer: Yes. An issuer that must file a replacement registration statement to an expiring Form S-3ASR on Form S-3 due to the issuer not satisfying the definition of well-known seasoned issuer at the time the new Form S-3 is filed may continue to use its expiring automatic shelf for offers and sales during the Rule 415(a)(5) grace period. A registration statement filed solely for purposes of complying with Rule 415(a)(5) will not be considered a reassessment of the issuer’s status as a well-known seasoned issuer for purposes of any outstanding Form S-3ASR or the Securities Act exemptions available to a well-known seasoned issuer. [Nov. 21, 2008]

Question 212.28

Question: If during the Rule 415(a)(5) grace period an issuer that is no longer a well-known seasoned issuer files a Form 10-K that acts as a Section 10(a)(3) update to its Form S-3ASR, may the issuer continue to use the Form S-3ASR for the remainder of the grace period?

Answer: The issuer’s status as a well-known seasoned issuer and its continued eligibility to use its expiring Form S-3ASR will be re-measured at the time of the filing of a Form 10-K that acts as a Section 10(a)(3) update to the Form S-3ASR registration statement. If the issuer is not a well-known seasoned issuer at the time of the Section 10(a)(3) amendment to its expiring Form S-3ASR, the issuer may no longer use the Form S-3ASR until it post-effectively amends the Form S-3ASR to a form that the issuer is then eligible to use.

A Form S-3ASR that utilizes the “pay-as-you-go” fee provisions of Rule 456(b) may not be converted to another form via a post-effective amendment because fees cannot be paid to register securities via a post-effective amendment on any form other than an automatic shelf registration statement. Consequently, registrants intending to convert a Form S-3ASR, in which payment of fees has been deferred pursuant to Rule 456(b), to another form, such as a Form S-3, should file an automatically effective post-effective amendment to the Form S-3ASR prior to the filing of the Form 10-K to pay a fee for securities it intends to offer and sell upon subsequent conversion to the new form. The filing of an automatically effective post-effective amendment for these purposes does not require a re-measurement of form eligibility as provided in Rule 401(c). [Nov. 21, 2008]

Question 212.29

Question: In an offering relying on Rule 415(a)(1)(x) and Rule 430B, the prospectus filed as part of a registration statement covering a “delayed/continuous” medium term note offering generally will contain only a generic description of the security terms. When the medium term note program begins, this base prospectus and a prospectus supplement containing a complete description of the terms of the notes other than price, specific maturity date and other limited terms will be distributed to interested persons. When the notes are priced, a pricing supplement that contains the price, specific maturity date and other limited terms previously omitted from the prospectus supplement is prepared. For each series of notes, there would be one prospectus supplement, but numerous pricing supplements reflecting prices changing frequently in response to market and economic factors. How should the prospectus supplement and pricing supplements be filed?

Answer: Under this form of medium term note program offering, the prospectus supplement should be filed under Rule 424(b)(2) or, if it also contains other substantive changes, under Rule 424(b)(5). The pricing supplements should be filed under Rule 424(b)(2). [Jan. 26, 2009]

Question 212.30

Question: May a registrant continue to use a non-automatic shelf registration statement that registers offers and sales pursuant to a dividend reinvestment plan (DRIP) more than three years after the initial effective date of the registration statement if the DRIP also permits new investors to purchase shares through the plan?

Answer: Dividend reinvestment and existing investor direct stock purchases are continuous or delayed offerings that may be made in reliance on Rule 415(a)(1)(ii). The registration of these offers and sales does not expire pursuant to Rule 415(a)(5). On the other hand, new investor direct stock purchases may only be made pursuant to Rule 415(a)(1)(ix) or Rule 415(a)(1)(x) because they do not fit within the definition of "dividend or interest reinvestment plan" in Rule 405. Consequently, the registration statement may not be used for new investor direct stock purchases upon expiration of the Rule 415(a)(5) three-year period. If the issuer continues to use the registration statement for dividend reinvestment and existing investor direct stock purchases, then the prospectus should be revised to reflect the changes to the offering. [June 4, 2010]

Question 212.31

Question: If an issuer registers the offer and sale of securities immediately exchangeable at the option of the issuer into other securities of that issuer, does the registration statement also have to register the offering of the underlying securities and, if so, does Rule 415 apply to the offering of the underlying securities?

Answer: Because the exchange is at the option of the issuer only, the investor's decision to purchase the exchangeable security is also, in effect, a decision to accept the underlying security whenever the exchange takes place. Accordingly, both offerings must be registered, and the offering of the underlying securities is deemed to be completed at the same time as the offering of the exchangeable securities. As there is no continuous or delayed offering of the underlying securities, Rule 415 would not apply. [June 4, 2010]

Section 213. Rule 416 — Securities to be Issued as a Result of Stock Splits, Stock Dividends and Anti-Dilution Provisions and Interests to be Issued Pursuant to Certain Employee Benefit Plans

Question 213.01

Question: How should a company compute the number of underlying common shares to be registered in a primary offering of immediately convertible debentures, when the conversion ratio is based on fluctuating market prices and the investors pay no additional consideration to effect the conversion?

Answer: Although the company does not have to pay an additional fee to register the underlying common shares under Rule 457(i), the company should register an amount of shares based on a reasonable good-faith estimate of the maximum amount of shares it will need to cover conversions. If the company is required to issue more shares than the estimate due to the operation of the conversion ratio disclosed in the registration statement, the company would have to file an additional registration statement or rely on an available exemption from registration, such as Securities Act Section 3(a)(9). These additional shares would not be covered by Rule 416(a). [Jan. 26, 2009]

Question 213.02

Question: May a company that has convertible securities outstanding with a conversion formula based on fluctuating market prices register for resale a good-faith estimate of the maximum amount of shares issuable upon conversion, and rely on Rule 416 to cover the resale of any additional shares issuable due to the operation of the conversion formula?

Answer: No. The company may not rely on Rule 416 to register for resale an indeterminate number of shares of common stock that it may issue under a conversion formula based on fluctuating market prices. The company must register for resale the maximum number of shares that it thinks it may issue on conversion, based on a good-faith estimate and, if the estimate turns out to be insufficient, the company must file a new registration statement to register the additional shares for resale. If available, Rule 462(b) may be used in this context. [Jan. 26, 2009]

Question 213.03

Question: When a registrant splits its stock prior to the completion of the distribution of securities included in a registration statement, and the registration statement does not specifically refer to the existence of anti-dilution provisions for such situations, must the registrant file a post-effective amendment to the registration statement to reflect the change in the amount of securities registered?

Answer: Yes. In this situation, the use of Rule 416(b) is premised upon the filing of a post-effective amendment. Similarly, a pre-effective amendment would have been required to use Rule 416(b) if the split had occurred prior to effectiveness and no mention had been made of anti-dilution provisions in the registration statement. No additional filing fee is required. [Jan. 26, 2009]

Sections 214 to 217. Rules 417 to 420 [Reserved]

Section 218. Rule 421 - Presentation of Information in Prospectuses

Question 218.01

Question: Do the “plain English” requirements of Rule 421(d) apply to forms used under the U.S./Canadian Multijurisdictional Disclosure System (“MJDS”)?

Answer: No. The provisions of Regulation C would apply only if they are specified on the particular MJDS form. Since Rule 421(d) is not specified on the MJDS forms, its “plain English” requirements do not apply. [Jan. 26, 2009]

Section 219. Rule 423 [Reserved]

Section 220. Rule 424 — Filing of Prospectuses, Number of Copies

Question 220.01

Question 220.02

Question: A registrant wishes to correct a number of non-substantive typographical errors contained in a preliminary prospectus. Must it file a revised preliminary prospectus?

Answer: No. Rule 424(a) provides that any preliminary prospectus that contains substantive changes from the previously filed prospectus must be filed as part of a formal pre-effective amendment to the registration statement. If the changes are non-substantive, the revised preliminary prospectus is not required to be filed. [Jan. 26, 2009]

Question 220.03

Question: A registrant that is not eligible to use Rule 430B(b) plans to file a resale registration statement on behalf of selling security holders related to securities issued to such selling security holders in a transaction that has already been completed. The securities to be offered on the resale registration statement are already issued and outstanding. The registrant sends questionnaires to selling security holders for the purpose of determining the names and amount of securities to be included in the resale registration statement and disclosed in the prospectus. However, a few questionnaires will not be returned until after effectiveness. May the registrant register the resale of the total amount of securities issued in the initial transaction and offered for resale, but omit from the prospectus the names and specific amounts to be offered by the unknown selling security holders?

Answer: Yes. In this case, the registrant may omit from the prospectus in the resale registration statement at the time of effectiveness the identities of, and amount of securities to be sold by, these selling security holders in accordance with Rule 409 as the information is unknown or not reasonably available to the registrant at that time. The prospectus in the registration statement at the time of effectiveness should refer to any unnamed selling security holders in a generic manner by identifying the initial offering transaction in which the securities were sold. A post-effective amendment must be filed in order to add the formerly unnamed selling security holders. [Jan. 26, 2009]

Question 220.04

Question: How should registration statements for secondary offerings reflect the addition of selling shareholders or the substitution of new selling shareholders for already named selling shareholders?

Answer: If the company is eligible to rely on Rule 430B when the registration statement was originally filed, the company may add or substitute selling shareholders to a registration statement related to a specific transaction by prospectus supplement. The supplement is filed under Rule 424(b)(7).

If the company is not eligible to rely on Rule 430B when the registration statement is initially filed, it must file a post-effective amendment to add selling shareholders to a registration statement related to a specific transaction that was completed prior to the filing of the resale registration statement. A Rule 424(b) prospectus supplement may be used to post-effectively update the selling shareholder table to reflect a transfer from a previously identified selling shareholder. The new investor’s shares must have been acquired or received from a selling shareholder previously named in the resale registration statement and the aggregate number of securities or dollar amount registered cannot change. [Apr. 24, 2009]

Sections 221 to 223. Rules 425 to 427 [Reserved]

Section 224. Rule 428 — Documents Constituting a Section 10(a) Prospectus for Form S-8 Registration Statement; Requirements Relating to Offerings of Securities Registered on Form S-8

Question 224.01

Question: Should documents constituting the current Form S-8 prospectus, as updated for Section 10(a)(3) purposes, be delivered concurrently to new plan participants?

Answer: Yes. For example, if the information to be provided pursuant to Items 1 and 2 of the Form S-8 is contained in more than one document, those documents should be delivered concurrently to new plan participants. [Jan. 26, 2009]

Question 224.02

Question: Does the Rule 428(b)(5) obligation to deliver company proxy statements and reports to employees participating in a stock option plan or plan fund that invests in the company’s securities extend to former employees, within the scope of General Instruction A.1(a)(3) to Form S-8, who participate in a stock option plan or plan fund that invests in the company’s securities?

Answer: Yes. [Jan. 26, 2009]

Section 225. Rule 429 — Prospectus Relating to Several Registration Statements

Question 225.01

Question 225.02

Question 225.03

Question: Is Rule 429 available to foreign governments or subdivisions filing registration statements on Schedule B?

Answer: Yes. Schedule B registrants may use Rule 429 to the same extent as other registrants under the Securities Act. [Jan. 26, 2009]

Section 226. Rule 430 [Reserved]

Section 227. Rule 430A — Prospectus in a Registration Statement at the Time of Effectiveness

Question 227.01

Question: For purposes of the Rule 430A(a)(3) 15-business-day filing requirement, are Saturdays, Sundays and federal holidays counted as business days?

Answer: No. [Jan. 26, 2009]

Question 227.02

Question: May a registrant omit the principal amount of securities to be offered from its registration statement in reliance on Rule 430A?

Answer: No. The principal amount of securities to be offered (i.e., volume) is not price-related information or a term of the security dependent upon the offering date, and therefore such amount cannot be omitted from the registration statement in reliance on Rule 430A(a). [Jan. 26, 2009]

Question 227.03

Question: A registrant omits pricing information from the prospectus in a registration statement at the time of effectiveness in reliance on Rule 430A. Is it required to reflect pricing information or the inclusion of additional securities in a post-effective amendment?

Answer: The second sentence of the Instruction to Rule 430A provides that a Rule 424(b) prospectus supplement may be used, rather than a post-effective amendment, when the 20% threshold is not exceeded, regardless of the materiality or non-materiality of resulting changes to the registration statement disclosure that would be contained in the Rule 424(b) prospectus supplement. When there is a change in offering size or deviation from the price range beyond the 20% threshold noted in the second sentence of the Instruction, a post-effective amendment would be required only if such change or deviation materially changes the previous disclosure. Regardless of the size of the increase, in the case of a registration statement that is not an automatic shelf registration statement, a new registration statement must be filed to register any additional securities that are offered. Additional securities cannot be registered by post-effective amendment except on automatic shelf registration statements. [Jan. 26, 2009]

Question 227.04

Question: Is it appropriate to file a post-effective amendment under Rule 462(c) if the information contained therein reflects changes in price and volume that represent more than a 20% change in the maximum aggregate offering price set forth in the effective registration statement?

Answer: No. Rule 462(c) provides a mechanism for issuers to file a post-effective amendment that becomes automatically effective. It allows issuers the flexibility of automatic effectiveness when the sole purpose of the post-effective amendment is to restart the 15-business-day period in which pricing must occur under Rule 430A(a)(3). Rule 462(c) may not be used if the post-effective amendment contains any substantive change from, or addition to, the prospectus in the effective registration statement, other than price-related information omitted from the registration statement in reliance on Rule 430A. [Jan. 26, 2009]

Section 228. Rule 430B — Prospectus in a Registration Statement After Effective Date

Question 228.01

Question: Can an issuer that has a plan of distribution that does not include “at-the-market” offerings amend that plan of distribution by prospectus supplement and then conduct at-the-market offerings in compliance with the provisions of Rule 415(a)(4)?

Answer: Yes. An issuer eligible to engage in at-the-market offerings under the provisions of Rule 415(a)(4) may amend the plan of distribution by a prospectus supplement that is deemed part of the registration statement to provide for at-the-market offerings in accordance with the provisions of Rule 415(a)(4). [Jan. 26, 2009]

Question 228.02

Question: For shelf registration of preferred stock to be issued in series, may a prospectus supplement be filed under Rule 424 to set forth more specifically the terms of the preferred stock not inconsistent with the more general terms contained in the core prospectus?

Answer: Yes. In addition, if the registration statement is on Form S-3, the instrument defining the specific terms of the preferred stock may be filed as an exhibit to a Form 8-K. [Jan. 26, 2009]

Question 228.03

Question: Under Rule 430B, may a primary shelf-eligible issuer that is not a WKSI file a resale registration statement for a dollar amount of common stock and make a general statement that the registration statement covers common stock previously sold by the company in unregistered transactions?

Answer: No. This issuer may not register the resale of unspecified common shares and then, after the effectiveness of the registration statement, specify the common shares registered. The initial offering transaction of the securities, the resale of which are being registered on behalf of the selling securityholders, must be completed, and the resale registration statement must identify the initial transaction. Because the resale registration statement must register specific securities, the issuer can include the amount of securities in the registration statement fee table pursuant to Rule 457(a). [Mar. 4, 2011]

Question 228.04

Question: If an issuer files a non-automatic shelf registration statement and is entitled to rely on Rule 430B(b) to omit from the prospectus “the identities of selling security holders and amounts of securities to be registered on their behalf” until after effectiveness of the registration statement, may the issuer also omit from the prospectus, until after effectiveness, the aggregate number of shares being registered for resale?

Answer: No. The prospectus for the non-automatic shelf registration statement must disclose the aggregate number of shares being registered for resale before effectiveness, even if the issuer is entitled to rely on Rule 430B(b) to omit information required by Item 507 of Regulation S-K regarding specific selling security holders until after effectiveness. [May 16, 2013]

Section 229. Rule 430C — Prospectus in a Registration Statement Pertaining to an Offering Other Than Pursuant to Rule 430A or Rule 430B After the Effective Date

Question 229.01

Question: Must a registration statement for an offering that is subject to Rule 430C include the undertaking in Item 512(a)(5)(ii) of Regulation S-K if the offering is not registered pursuant to Rule 415?

Answer: Yes. Although the Item 512(a) undertakings relate to Rule 415 offerings, the undertaking in Item 512(a)(5)(ii) is required for all registration statements subject to Rule 430C by Rule 430C(d). [Jan. 26, 2009]

Sections 230 to 231. Rules 431 to 432 [Reserved]

Section 232. Rule 433 — Conditions to Permissible Post-Filing Free Writing Prospectuses

Question 232.01

Question: If an offering participant, other than the issuer, unintentionally distributes a free writing prospectus in a broad, unrestricted manner, must that offering participant file the free writing prospectus?

Answer: Yes. Rule 433(d)(1)(ii) requires an offering participant, other than the issuer, to file any free writing prospectus that is used or referred to by that offering participant and distributed by or on behalf of that offering participant in a manner reasonably designed to lead to its broad unrestricted dissemination. This filing requirement applies whether or not the distribution is intentional. [Jan. 26, 2009]

Question 232.02

Question: If an issuer uses a free writing prospectus at a time when EDGAR does not accept filings, when can the issuer file the free writing prospectus and still be in compliance with Rule 433?

Answer: The issuer should file the free writing prospectus on EDGAR within the time frame provided in the rule, even if the filing is not “accepted” by EDGAR until a later time. For example, if an issuer first uses a free writing prospectus at 10:00 p.m. on a Monday night, the issuer is required to file the free writing prospectus no later than that Monday, as Rule 433(d)(1) requires the filing to be made “no later than the date of first use.” The issuer in this example would, therefore, be required to file the free writing prospectus on EDGAR no later than that Monday, even if the EDGAR system is closed for accepting filings for that day. [Jan. 26, 2009]

Question 232.03

Question: If an issuer free writing prospectus contains both descriptions of certain terms of the securities and other information, when must the issuer file the free writing prospectus?

Answer: The issuer can consider separately the filing requirements for the terms of the securities and the other information that is contained in the free writing prospectus.

With regard to the “other information,” the issuer must file the issuer free writing prospectus, other than the description of certain terms of the securities, no later than the date of first use. With regard to the terms of the securities, the issuer must file the description of the terms of the securities only if that description represents the final terms of the securities. If the description represents the final terms of the securities, the issuer must file that description of the final terms within two days after the later of:

the date of first use of that description; and
the date the final terms have been established for all classes of securities in the offering. [Jan. 26, 2009]

Question 232.04

Question: After the filing of the registration statement for an offering, if the issuer’s CEO participates in a live interview with unaffiliated and uncompensated media that is broadcast on radio or television, would that interview be an issuer free writing prospectus that the issuer must file?

Answer: Yes, if the interview constitutes an offer. In that case, the CEO’s interview on a live television or radio program conducted by unaffiliated and uncompensated media would be a written offer and would be treated the same as any other unaffiliated, uncompensated media publication or broadcast. The issuer would have to satisfy its filing obligation with regard to the interview within four business days after the broadcast. [Jan. 26, 2009]

Question 232.05

Question: After the filing of the registration statement for an offering, if the issuer’s CEO participates in an interview with unaffiliated and uncompensated media that is published and the substance of the information in the interview is contained in the registration statement, does the issuer have to file the interview as an issuer free writing prospectus?

Answer: No, even if the interview with the unaffiliated and uncompensated media constitutes an offer. If the CEO interview is an offer, it will be an issuer free writing prospectus, but it does not have to be filed as a free writing prospectus. Rule 433(f)(2) contains an exception from the filing conditions for unaffiliated and uncompensated media publications and broadcasts if the substance of the free writing prospectus has been filed previously with the Commission. Of course, the issuer will be responsible for determining whether the substance of the information has been filed previously. [Jan. 26, 2009]

Question 232.06

Question: After the filing of the registration statement for an issuer’s initial public offering, but before that registration statement becomes effective, can the issuer’s CEO participate in a broadcast that is a paid “infomercial”?

Answer: While there is an exclusion in Rule 433(f) from the requirement that the statutory prospectus must precede or accompany a media broadcast in an initial public offering, that exclusion is available only if no payment is made or consideration given by or on behalf of the issuer or such other offering participant for the written communication or its dissemination, and the other conditions to the exclusion are satisfied. Because the “no payment” condition is not satisfied for paid infomercials, the requirement that the statutory prospectus precede or accompany the communication applies and cannot be satisfied for a broadcast. Therefore, Rule 164 and Rule 433 would not be available for that communication. [Jan. 26, 2009]

Question 232.07

Question: For issuer free writing prospectuses, must the free writing prospectus be filed even if the information in the free writing prospectus is contained in the prospectus in the filed registration statement?

Answer: Yes, unless the Rule 433(f)(2) exclusion for media publications or broadcasts applies. Further, the Rule 433(d)(4) exception from the condition for an issuer to file issuer information would not be available in this situation, as that exception applies only to free writing prospectuses of offering participants other than the issuer when the information is contained in a previously filed prospectus or free writing prospectus relating to the offering. [Jan. 26, 2009]

Question 232.08

Question: For issuer free writing prospectuses, must the issuer file the free writing prospectus if the free writing prospectus does not contain substantive changes from or additions to a previously filed free writing prospectus that relates to the offering?

Answer: No. Rule 433(d)(3) provides an exception from the filing requirement in this situation. [Jan. 26, 2009]

Question 232.09

Question: If an issuer and underwriter agree that the underwriter will not use a free writing prospectus without the consent of the issuer, will the issuer’s consent to that underwriter’s use of a free writing prospectus mean that the issuer has authorized or approved the communication for purposes of determining whether it is an issuer free writing prospectus as defined in Rule 433(h)(1)?

Answer: The consent given by the issuer to the use of an underwriter free writing prospectus under these circumstances is not, in and of itself, authorization or approval. In this regard, “authorize[d]” or “approve[d]” as used in Rule 433(h)(3) refers to the substance, not the use, of the free writing prospectus. If the issuer’s actions amount to adoption of or entanglement with the free writing prospectus, then the issuer would have approved or authorized the underwriter free writing prospectus. [Jan. 26, 2009]

Question 232.10

Question: During a company’s initial public offering, an underwriter sends a free writing prospectus to its clients. A member of the media then receives the free writing prospectus from a client of that firm and not from the underwriter, and writes an article containing information derived from information in the underwriter’s free writing prospectus. Will the article be a free writing prospectus of the underwriter?

Answer: The media provisions of the free writing prospectus rules apply to articles based on information provided by or on behalf of the issuer or other offering participants to the media. If a free writing prospectus (or the information contained therein) is not provided to the media by an issuer or other offering participant or any person acting on behalf of either of them, a media publication based on that free writing prospectus (or information) would not be a free writing prospectus of the issuer or other offering participant. The staff may request information about the role, if any, that the underwriter or issuer played with regard to the provision of the free writing prospectus (or information contained therein) or the publication, at least in certain circumstances when it is not clear. If the issuer or underwriter, or a person acting on their behalf, provided, authorized, or approved the publication, the free writing prospectus rules might apply to the publication. [Jan. 26, 2009]

Question 232.11

Question: Can a non-reporting issuer that is registering an initial public offering of common equity post a transcript of an electronic road show on its web site as a “bona fide electronic road show” instead of providing an electronic presentation constituting a “bona fide electronic road show?”

Answer: No. A bona fide electronic road show is defined in Rule 433(h) as “a road show that is a written communication transmitted by graphic means that contains a presentation by one or more officers of an issuer or other persons in an issuer’s management … and, if more than one road show that is a written communication is being used, includes discussion of the same general areas of information regarding the issuer, such management, and the securities being offered as such other issuer road show or shows for the same offering that are written communications.” A transcript of a road show is not a “presentation” within the meaning of the rule and would not be considered a “bona fide electronic road show.” Such a transcript would be an issuer free writing prospectus that would have to be filed with the Commission pursuant to Rule 433. [Jan. 26, 2009]

Question 232.12

Question: If an issuer intends to distribute a subscription agreement to a limited number of institutional investors in a registered directed offering conducted through a placement agent, and the subscription agreement will not be widely disseminated, must the issuer file the subscription agreement as a free writing prospectus?

Answer: A subscription agreement that contains provisions in addition to the final terms of the securities would not qualify for the exclusion from filing in Rule 433(d)(5)(i). If the subscription agreement is not filed as an annex or appendix to the registration statement, it will be subject to Rule 433 and must be filed as an issuer free writing prospectus. The method of dissemination of the subscription agreement is not relevant in analyzing the filing conditions of an issuer free writing prospectus. The issuer could include the subscription agreement in the Form S-3 as an annex or appendix to such Form by filing it under cover of Form 8-K. [Jan. 26, 2009]

Question 232.13

Question: Under Rule 433(f)(2)(i), an issuer or offering participant does not have to file a free writing prospectus if the substance of that free writing prospectus has "previously been filed" with the Commission. Is Rule 433(f)(2)(i) available if the substance of the free writing prospectus was previously disclosed in a document that is deemed to be furnished, not filed, with the Commission (e.g., Item 2.02 Form 8-K)?

Answer: No. For Rule 433(f)(2)(i) to be available, the substance of the free writing prospectus must have previously been filed, not furnished, with the Commission. [Mar. 4, 2011]

Question 232.14

Question: An officer participates in an interview with unaffiliated and uncompensated media and provides, as part of the interview, a package of written materials consisting only of the issuer's Commission filings for possible use in the media publication. Does the package of written materials or a copy of the media publication need to be filed as a free writing prospectus?

Answer: No. Pursuant to Rule 433(f)(2)(i), the issuer is not obligated to file either the package of written materials or the media publication as a free writing prospectus so long as the package of written materials includes only information that has previously been filed with the Commission. [Mar. 4, 2011]

Question 232.15

Question: With the exception of free writing prospectuses that comply with Rule 433(f)(1), a free writing prospectus distributed in reliance on Rule 433 must contain the legend required by Rule 433(c)(2)(i). Some electronic communication platforms, such as those made available through certain social media websites, limit the number of characters or amount of text that can be included in the communication, effectively precluding display of the required legend together with the other information. Under what circumstances would the use of a hyperlink to the required legend satisfy Rule 433(c)(2)(i)?

Answer: Recognizing the growing interest in using technologies such as social media to communicate with security holders and potential investors, the staff will not object to the use of an active hyperlink to satisfy the requirements of Rule 433(c)(2)(i) in the following limited circumstances:

The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
Including the required legend in its entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
The communication contains an active hyperlink to the required legend and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Question 232.16

Section 233. Rule 436 — Consents Required in Special Cases

Question 233.01

Answer: Yes. Section 7 and Securities Act Rule 436 require that the banker’s consent to the inclusion or summary of the opinion in the registration statement be filed as an exhibit to that registration statement in these circumstances. [Nov. 26, 2008]

Question 233.02

Answer: The 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 Securities Act 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 Securities Act 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 Securities Act Section 11(b).

Question 233.03

Question: When the consent of counsel or of an expert (other than an accountant) has been included as an exhibit to a prior filing, is an updated consent generally required to be included in an amendment to the registration statement?

Answer: No. Absent a change in the portion of the filing expertized by that person, and assuming the filed consent is not limited to that particular amendment, an updated consent is not required. [Jan. 26, 2009]

Question 233.04

Question: When would a consent by a credit rating agency be required if information about credit ratings is included in, or incorporated by reference into, a Securities Act registration statement or a Section 10(a) prospectus?

Answer: A consent would be required if the issuer includes the credit rating in its registration statement or Section 10(a) prospectus (directly or through incorporation by reference), unless the rating information is included only for the purpose of satisfying disclosure requirements as described below.

For an issuer not subject to Regulation AB disclosure requirements: If the disclosure of a credit rating in a filing with the Commission is related only to changes to a credit rating, the liquidity of the registrant, the cost of funds for a registrant or the terms of agreements that refer to credit ratings (“issuer disclosure-related ratings information”), then a consent by the credit rating agency would not be required. For example, some issuers note their ratings in the context of a risk factor discussion regarding the risk of failure to maintain a certain rating and the potential impact a change in credit rating would have on the registrant. An issuer also may refer to, or describe, its ratings in the context of its liquidity discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Issuers may also need to discuss ratings when they describe debt covenants, interest or dividends that are tied to credit ratings or potential support to variable interest entities. See Release No. 33-9070 (Oct. 7, 2009) [74 FR 53086].

For an issuer subject to Regulation AB disclosure requirements: The staff anticipates that its letter to Ford Motor Credit Company LLC (July 22, 2010) should make it unnecessary for ABS issuers to include references to ratings in ABS registration statements or prospectuses as set forth in that letter. ABS issuers with questions about the need to reference ratings in their registration statements or prospectuses should contact the staff. [July 27, 2010]

Question 233.05

Question: Would a consent by a credit rating agency be required if ratings information, other than issuer disclosure-related ratings information, is included in, or incorporated by reference into, a prospectus or prospectus supplement first filed on or after July 22, 2010?

Answer: Yes. [July 27, 2010]

Question 233.06

Question: If ratings information is included in a free writing prospectus that complies with Securities Act Rule 433 or in a term sheet or press release that complies with Securities Act Rule 134, is a consent from a credit rating agency required?

Answer: No. Securities Act Rule 436, which requires the filing of written consents by experts, applies only to “registration statements” and to “prospectuses.” A Rule 433 free writing prospectus is not part of a registration statement, nor, as a Section 10(b) prospectus, is it included in the definition of “prospectus” in Securities Act Rule 405. Communications that are in compliance with Rule 134 are not prospectuses. If any of these documents are also filed as prospectuses under Rule 424, a consent would be required. [July 27, 2010]

Question 233.07

Question 233.08

Question: If a registration statement or post-effective amendment becomes effective on or after July 22, 2010 and includes or incorporates by reference ratings information that is not limited to issuer disclosure-related ratings information, is a consent by a credit rating agency required to be filed with the registration statement or post-effective amendment?

Answer: Yes. [July 27, 2010]

Sections 234 to 235. Rules 437 to 437a [Reserved]

Section 236. Rule 438 — Consents of Persons About to Become Directors

Question 236.01

Question: The registrant has two directors who will sign the registration statement. The registration statement will indicate the names of four more persons who will become directors before the registration statement becomes effective. Those persons will sign any amendments to the registration statement, but not the original filing. Should Rule 438 consents be obtained from the prospective directors in connection with the original filing?

Answer: Yes. [Jan. 26, 2009]

Sections 237 to 238. Rules 439 to 455 [Reserved]

Section 239. Rule 456 — Date of Filing; Timing of Fee Payment

Question 239.01

Question: If a well-known seasoned issuer files a prospectus supplement to pay a filing fee on its automatic shelf registration statement in advance of an offering or sale, must the issuer include the calculation of registration fee table in a prospectus supplement provided to an investor?

Answer: No. A well-known seasoned issuer may file a prospectus supplement pursuant to Rule 424(b) solely for the purpose of paying a filing fee and then file another prospectus supplement that is provided to investors. The prospectus supplement used to pay a filing fee (and which includes the calculation of registration fee table) does not have to be the same prospectus supplement used to reflect the takedown of securities from an automatic shelf registration statement. [Jan. 26, 2009]

Question 239.02

Question: A well-known seasoned issuer registers securities on an automatic shelf registration statement and elects to defer payment of filing fees pursuant to Rule 456(b). The issuer subsequently files a prospectus supplement in connection with a pay-as-you-go deferred fee payment under Rules 456(b) and 457(r) that includes the required filing fee exhibit. Must the filing fee exhibit’s Table 1 list all the securities listed in the initial filing of the related registration statement or is Table 1 permitted to list only the securities being offered by the prospectus supplement as to which the fees are being paid?

Answer: Table 1 must include the securities for which a deferred fee is being paid in the "Fees to Be Paid" lines. The issuer does not need to repeat previously included rows reflecting the registration of classes of securities in an indeterminate amount in reliance on Rule 457(r) in either the "fees to be paid" or "fees previously paid" lines. In addition, the issuer need not include in the “fees previously paid” line securities for which the issuer previously paid a fee that are part of (i) the same offering as those for which the issuer is paying a deferred fee; or (ii) any prior offering. [Nov. 20, 2023]

Section 240. Rule 457 — Computation of Fee

Question 240.01

Question: After the initial filing of a registration statement, must a company pay an additional filing fee if its per share offering price changes?

Answer: When registering pursuant to Rule 457(a), the company registers the number of securities offered, not the dollar amount. Therefore, no additional fee need be paid if the per share price rises. If the per share price falls, however, the company cannot increase the number of shares it offers without registration of additional shares and payment of an additional registration fee. Under Rule 457(o), a company registers the dollar amount of securities being offered. Consequently, if the per share price increases so that the maximum aggregate offering price would be greater than the maximum aggregate offering amount listed in the calculation of registration fee table, the company would be required to register an additional dollar amount and pay an additional registration fee, or reduce the number of shares it offers. If the per share price decreases, additional shares could be offered without further registration so long as the amount of shares offered times the per share price does not exceed the maximum aggregate offering amount listed in the calculation of registration fee table. [Jan. 26, 2009]

Question 240.02

Question: How does one calculate the filing fee under Section 6(b) for debt securities sold with original issue discount?

Answer: 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. [Nov. 26, 2008]

Question 240.03

Question: How should a company compute the filing fee for a registered spin-off?

Answer: The registrant should look to Rule 457(f) for guidance. Although the rule does not specifically mention spin-offs, it does contain provisions, such as Rule 457(f)(1) and (2), that may be helpful in determining the proper fee. Consistent with Rule 457(f)(1), the filing fee is based on the market value of the securities to be spun off. When there has been no market for the shares being spun off, consistent with Rule 457(f)(2), the filing fee may be based on the book value of the assets of the spun-off subsidiary. [Jan. 26, 2009]

Question 240.04

Question: In a Form S-4 registration statement registering both the securities offered in a business combination transaction and the resale of those securities by affiliates, must a filing fee be paid with respect to both the securities offered in the business combination transaction and the subsequent resale of those securities?

Answer: No. Under Rule 457(f)(5), if a filing fee is paid with respect to the securities offered in the business combination transaction, no separate filing fee is assessed for the registration of resale transactions. [Jan. 26, 2009]

Question 240.05

Question: When an issuer is registering units composed of common stock, common stock purchase warrants, and the common stock underlying the warrants, how is the registration fee calculated?

Answer: The registration fee is based on the offer price of the units and the exercise price of the warrants. [Jan. 26, 2009]

Question 240.06

Question: How should an issuer calculate the fee payable in connection with the simultaneous registration of warrants and the common stock underlying the warrants?

Answer: The fee payable is based on the offer price plus the exercise price of the warrants. This is analogous to Rule 457(i) which provides that the registration fee for the simultaneous registration of a convertible security and the underlying security is the proposed offering price of the convertible security plus any additional conversion consideration. The entire fee is allocated to the common stock, and no separate fee is recorded for the warrants. [Jan. 26, 2009]

Question 240.07

Question: A company’s 401(k) plan provides for an automatic company contribution of 1% of the employee’s salary, employee contributions up to 10% of the employee’s salary and a matching contribution by the company of the employee contributions up to 5% of the employee’s salary. The investment options for the 401(k) plan are such that Securities Act registration is required. For which of these contributions would the company need to pay a registration fee?

Answer: The company would not have to pay a fee for the automatic contribution since it is made without regard to employee contributions. A fee would be paid with respect to the employee contributions and the matching contributions. [Jan. 26, 2009]

Question 240.08

Question: Rule 457(h) states that if the exercise price of the options is not known in the case of an employee stock option plan, the fee should be based upon the price of the securities of the “same class.” What does “same class” refer to?

Answer: Securities Act Release No. 6867 (June 6, 1990) clarifies that “same class” refers to those securities underlying the options that are being registered. [Jan. 26, 2009]

Question 240.09

Question: If a registrant adds by post-effective amendment a resale prospectus with respect to control securities that were previously registered on Form S-8, must a filing fee be paid for the resale of such control securities?

Answer: Pursuant to Rule 457(h)(3), no additional fee need be paid for resales when a fee has been paid in connection with the registration of such securities for sale to the employees. [Jan. 26, 2009]

Question 240.10

Question: After selling securities off of a registration statement, an issuer filed a post-effective amendment to deregister the remaining unsold securities, and that post-effective amendment became effective. May the issuer transfer the fee associated with those unsold securities to a registration statement that it plans to file in the future?

Answer: No. As stated in Securities Act Release No. 7943 (Jan. 26, 2001), at footnote 68, fee transfers are not available from unsold shares that were deregistered before the new registration statement is filed. When a post-effective amendment to deregister becomes effective, filing fee transfer from the deregistered securities becomes unavailable. [Jan. 26, 2009]

Question 240.11

Question: An issuer has a Form S-8 on file that registers shares of common stock to be issued upon the exercise of outstanding options. The issuer has decided to stop granting stock options and believes that it has more shares registered on the Form S-8 than it will need to cover the exercise of the outstanding options. May the issuer transfer to a new registration statement the filing fees associated with the securities that the issuer believes it will not need to issue, and continue to use the Form S-8 to cover the exercise of the outstanding options?

Answer: No. Rule 457(p) permits filing fees to be transferred only after the registered offering has been completed or terminated or the registration statement has been withdrawn. As a result, the issuer may not transfer the fees associated with the excess securities until it completes or terminates the offering registered on Form S-8. However, as provided in Securities Act Forms CDI 126.43, if the excess securities are or may become authorized for issuance under another issuer plan, the issuer may file a post-effective amendment to the Form S-8 to disclose that these securities will be sold under the other plan. The Part I information delivered pursuant to Rule 428 with respect to each plan should be specific to that plan. [Nov. 9, 2016]

Question 240.12

Question: If a well-known seasoned issuer has an effective Form S-3 or Form F-3 registration statement, can it change that registration statement to an automatic shelf registration statement by filing a post-effective amendment?

Answer: No. If the issuer has an effective Form S-3 or Form F-3 that was not an automatic shelf registration statement when it became effective, it cannot amend that registration statement to become an automatic shelf registration statement. Instead, the issuer must file a new registration statement on Form S-3 or Form F-3 designated as an automatic shelf registration statement. When permitted by Rule 415(a)(6), the issuer may include on the new registration statement any unsold securities covered by the effective Form S-3 or Form F-3. Alternatively, the issuer may rely on Rule 457(p) to carry forward unused filing fees for unsold securities from the effective registration statement if the automatic shelf registration statement is filed within five years of the initial filing date of the effective registration statement. This approach is necessary because automatic shelf registration statements filed on Form S-3 or Form F-3 and post-effective amendments to automatic shelf registration statements are designated separately from other registration statements on Form S-3 or Form F-3 to enable them to become effective immediately. [Jan. 26, 2009]

Question 240.13

Question: Can a continuous offering registered on an effective Form S-3 (such as a dividend reinvestment program, including a program with a direct stock purchase plan) be transitioned to an automatic shelf registration statement?

When an issuer includes an ongoing offering that was registered on an effective shelf registration on a subsequently filed automatic shelf registration statement, it may include on the new registration statement any unsold securities covered by the effective registration statement in the manner provided in Rule 415(a)(6). Alternatively, it may carry forward the filing fees paid for any unsold securities under Rule 457(p) if the automatic shelf registration statement is filed within five years of the initial filing date of the effective registration statement. [Jan. 26, 2009]

Question 240.14

Question: How should the issuer complete the calculation of registration fee table on the face of an automatic shelf registration statement?

Answer: The calculation of registration fee table should list each type of security being registered and either state whether a filing fee is being paid with the filing (in which case the dollar amount of the fee should be set forth, as in the case of an unallocated shelf registration statement today), or indicate “$0” in the filing fee table and state that the filing fee will be paid subsequently in advance or on a pay-as-you-go basis. [Jan. 26, 2009]

Question 240.15

Question: An issuer has an effective Form S-8 that registers shares of common stock to be issued under the issuer's 2006 equity compensation plan, and has recently adopted a new 2016 equity compensation plan. The 2006 plan authorized the issuer to grant awards for up to 20 million shares, and to date the issuer has granted options (all of which remain outstanding) exercisable for 15 million shares. Upon effectiveness of the 2016 plan, no further awards may be granted pursuant to the 2006 plan and the 5 million shares not covered by any award under the 2006 plan become authorized for issuance under the 2016 plan. The terms of the 2016 plan provide that the 15 million shares underlying outstanding options granted pursuant to the 2006 plan will also become authorized for issuance under the 2016 plan when the outstanding options under the 2006 plan expire or are terminated or canceled. The issuer plans to file a new Form S-8 to register 10 million shares that are newly authorized for issuance under the 2016 plan. May it also include on that registration statement the 5 million shares and an estimated number of shares that will become available upon the cancellation or termination of awards, all of which were previously authorized for issuance pursuant to the 2006 plan and that will roll over to the 2016 plan? Alternatively, is there another way the issuer can offer and sell under the 2016 plan the 5 million shares that are not subject to outstanding options under the 2006 plan and any shares that become authorized under the 2016 plan upon the cancellation or termination of options under the 2006 plan without paying a new registration fee?

Answer: Yes, the issuer may register on the new Form S-8 the 5 million shares that have become authorized for issuance under the 2016 plan, an estimated number of shares that will become authorized for issuance under the 2016 plan upon cancellation or termination of awards granted under the 2006 plan, and the newly authorized 10 million shares. Because the offering is not yet completed under the 2006 plan, however, Rule 457(p) does not permit the registrant to claim the registration fee associated with the shares from the 2006 plan as an offset against the registration fee due for the new registration statement. See Securities Act Rules CDI 240.11.

Alternatively, the issuer can file a post-effective amendment to the earlier Form S-8 for the 2006 plan to indicate that the registration statement will also cover the issuance of those shares under the 2016 plan once they are no longer issuable pursuant to the 2006 plan and instead become authorized for issuance under the 2016 plan. The post-effective amendment, which would be required under Item 512(a)(1)(iii) of Regulation S-K to disclose a material change in the plan of distribution, should identify both the 2006 plan and the 2016 plan on the cover page, and describe how shares that will not be issued under the 2006 plan have or may become authorized for issuance under the 2016 plan. No new filing fee would be due upon the filing of the post-effective amendment. Because additional securities may not be added to a registration statement by means of a post-effective amendment (see Securities Act Rule 413(a)), the newly authorized 10 million shares must be registered on a separate registration statement. This alternative applies only with respect to Form S-8. [Nov. 9, 2016]

Question 240.16

Question: When filing fees paid in connection with a prior registration statement are used to offset fees due on a subsequent registration statement pursuant to Rule 457(p), what information pertaining to the offset should the issuer include in a note to the Calculation of Registration Fee table?

Answer: Rule 457(p) requires a note to the table to state the name of the registrant, the file number and initial filing date of the earlier registration statement from which the offset is claimed and the dollar amount of the offset. In addition, to assist the staff in assessing the registrant's eligibility for offset, the registrant should quantify the amount of unsold securities from the prior registration statement associated with the claimed offset and disclose either that the prior registration statement has been withdrawn or that any offering that included the unsold securities has been terminated or completed. An offering registered on Form S-8 is only completed or terminated when no additional securities will be issued pursuant to the plan covered by the Form S-8, including through the exercise of any outstanding awards. [Nov. 9, 2016]

Question 240.17

Sections 241 to 242. Rules 459 to 460 [Reserved]

Section 243. Rule 461 — Acceleration of Effective Date

Question 243.01

Question: Pursuant to Rule 461, must the managing underwriters join in the written request for acceleration in connection with a shelf registration statement naming potential underwriters?

Answer: No. [Jan. 26, 2009]

Question 243.02

Question: Does an underwriter need to join in the registrant’s request for acceleration when the registration statement is a delayed-offering shelf filing?

Answer: No. [Jan. 26, 2009]

Section 244. Rule 462 — Immediate Effectiveness of Certain Registration Statements and Post-Effective Amendments

Question 244.01

Question: In order to rely on the automatic effectiveness provisions of Rules 462 and 464 that apply to a Form S-3 or Form F-3 for a dividend reinvestment plan, must the plan satisfy the Rule 405 definition of “dividend or interest reinvestment plan?”

Answer: Yes. In particular, any plan that allows any person (including an employee) to make an initial purchase of the securities through the plan would not be a dividend or reinvestment plan under Rule 405. [Jan. 26, 2009]

Question 244.02

Question: What information may an abbreviated registration statement filed pursuant to Rule 462(b) contain?

Answer: Other than Rule 430A price-related information, an abbreviated registration statement filed pursuant to Rule 462(b) may not contain any information other than the cover page, the page incorporating the earlier registration statement by reference, the required signatures and any additional opinions and consents required as exhibits. Rule 462(b) registration statements are not available as a mechanism to make any material changes required to be made to the original effective registration statement. [Jan. 26, 2009]

Question 244.03

Question: How is the available dollar amount permitted to be registered under Rule 462(b) determined for a delayed primary shelf registration statement?

Answer: The dollar amount is based upon the amount remaining on the shelf immediately prior to the final takedown from the shelf that depletes all shelf-registered securities. Thus, Rule 462(b) can only be used once per delayed shelf registration statement and only at the time of the final takedown. Similar treatment is afforded to registration statements that are used solely for the purpose of continuous offerings in connection with dividend reinvestment plans. [Jan. 26, 2009]

Question 244.04

Question: When may Rule 462(b) be used in connection with a continuous primary offering or a delayed or continuous secondary offering pursuant to Rule 415?

Answer: Except for continuous offerings in connection with dividend reinvestment plans, Rule 462(b) may only be used to increase the number of shares registered prior to sending the confirmation for the first sale of securities in the offering. [Jan. 26, 2009]

Question 244.05

Question 244.06

Question: Is Rule 462(b) available for registration of additional securities if the conditions of the rule are satisfied, notwithstanding the fact that the financial statements in the original effective registration statement for the offering, which were within the age limitations of Rule 3-12 of Regulation S-X as of the effective date, are no longer within the age limitations set by Rule 3-12 at the filing date of the Rule 462(b) registration statement?

Answer: Yes. The registrant should consider, however, whether more current financial information would be required to be disclosed to investors to make the information in the registration statement not misleading. [Jan. 26, 2009]

Section 245. Rule 463 [Reserved]

Section 246. Rule 464 — Effective Date of Post-Effective Amendments to Registration Statements Filed on Form S-8 and on Certain Forms S-3, S-4, F-2 and F-3

Question 246.01

Answer: Yes. In particular, any plan that allows any person (including an employee) to make an initial purchase of the securities through the plan would not be a dividend or interest reinvestment plan under Rule 405. [Jan. 26, 2009]

Section 247. Rule 466 — Effective Date of Certain Registration Statements on Form F-6

Question 247.01

Question: May a depositary rely on Rule 466 to designate a date and time for a registration statement on Form F-6 to go effective when, in addition to a change in the ratio of American Depositary Receipts to the underlying foreign shares, the registration statement contains terms of deposit that differ from those disclosed in a previously filed registration statement on Form F-6?

Answer: No. Rule 466 may be used only for changes in the ratio of ADRs to the underlying foreign shares. In all other respects, the terms of deposit for the new registration statement on Form F-6 must be identical to a previously filed registration statement on Form F-6. [Jan. 26, 2009]

Section 248. Rules 467 to 476 [Reserved]

Section 249. Rule 477 — Withdrawal of Registration Statement or Amendment

Question 249.01

Question: Does the withdrawal procedure specified in Rule 477 apply only before the effective date of a registration statement and/or before any sale is made?

Answer: Yes. A registration statement may be withdrawn under Rule 477 before effectiveness or after effectiveness if no securities were sold. Once any security has been sold under a registration statement, Rule 477 withdrawal becomes unavailable. Instead, the registration statement can be post-effectively amended to deregister the remaining unsold securities. [Jan. 26, 2009]

Question 249.02

Question: May a registrant filing an initial public offering on Form S-1 incorporate by reference exhibits it filed with a previous Securities Act registration statement which was withdrawn pursuant to Rule 477?

Answer: Yes. The withdrawn registration statement remains a filed document for purposes of Rule 411(c) and, accordingly, the exhibits may be incorporated by reference. [Jan. 26, 2009]

Sections 250 to 251. Rules 478 to 479 [Reserved]

Section 252. Rules 480 to 489 [Reserved]

Section 253. Rules 490 to 498 [Reserved]

Section 254. Regulation D Interpretations of General Applicability

Question 254.01

Question: If an issuer relies on one exemption in Regulation D, but later realizes that exemption may not have been available, may it rely on another exemption in Regulation D after the fact?

Answer: Yes, assuming the offering met the conditions of the new exemption. No one exemption in Regulation D is exclusive of another. [Jan. 26, 2009]

Question 254.02

Question: May foreign issuers use Regulation D?

Answer: Yes. [March 12, 2025] [Comparison to prior version]

Question 254.03

Question: Is Regulation D available to an underwriter for the sale of securities acquired in a firm commitment offering?

Answer: No. As Rule 500(d) states, Regulation D is available only to the issuer of the securities and not to any affiliate of that issuer or to any other person for resales of the issuer’s securities. See also Rule 502(d), which limits the resale of Regulation D securities. [Jan. 26, 2009*]

Question 254.04

Question: A corporation proposes to implement an employee stock option plan for key employees. Can the issuer rely on Regulation D for an exemption from registration for the issuance of securities under the plan?

Answer: The corporation may use Regulation D for the sale of securities under the plan to the extent that such offering complies with Regulation D. The corporation may also want to explore whether the exemption from registration in Securities Act Rule 701 is available. Rule 701 was adopted after Regulation D and was designed specifically for stock option and other compensatory employee benefit plans. In a typical plan, the grant of the options will not be deemed a sale of a security for purposes of the Securities Act. The issuer, therefore, will be seeking an exemption for the issuance of the stock underlying the options. The offering of this stock generally will commence when the options become exercisable and will continue until the options are exercised or otherwise terminated. Where the key employees involved are directors or executive officers, such individuals will be accredited investors under Rule 501(a)(4) if the corporation is relying on Regulation D and they purchase securities through the exercise of their options. Other key employees may be accredited as a result of net worth or income under Rules 501(a)(5) or (a)(6). [Jan. 26, 2009]

Section 255. Rule 501 — Definitions and Terms Used in Regulation D

Question 255.01

Question: A director of a corporate issuer purchases securities offered under Rule 506. Two weeks after the purchase, and prior to completion of the offering, the director resigns due to a sudden illness. Is the former director an accredited investor?

Answer: Yes. The preliminary language to Rule 501(a) provides that an investor is accredited if the investor falls into one of the enumerated categories “at the time of the sale of securities to that person.” One such category includes directors of the issuer. See Rule 501(a)(4). The investor in this case had director status at the time of the sale. [Jan. 26, 2009*]

Question 255.02

Question: A national bank purchases $100,000 of securities from a Regulation D issuer and distributes the securities equally among ten trust accounts for which it acts as trustee. Is the bank an accredited investor?

Answer: Yes. Rule 501(a)(1) accredits a bank acting in a fiduciary capacity. [Jan. 26, 2009]

Question 255.03

Question: An ERISA employee benefit plan will purchase securities being offered under Regulation D. The plan has less than $5,000,000 in total assets and its investment decisions are made by a plan trustee that is not a bank, insurance company, or registered investment adviser. Does the plan qualify as an accredited investor?

Answer: The plan would not satisfy the requirements of Rule 501(a)(1), which accredits an ERISA plan that has a plan fiduciary that is a bank, insurance company, or registered investment adviser or that has total assets in excess of $5,000,000. Unless it satisfied another provision of Rule 501(a)(1), it would not be an accredited investor. [Jan. 26, 2009]

Question 255.04

Question: Would an ERISA plan qualify as an accredited investor under Rule 501(a)(1) if it had less than $5 million in assets but had an arrangement through its trustee with a registered investment adviser to receive investment advice, when the ultimate investment decision is made by the trustee?

Answer: The plan would not qualify as an accredited investor under Rule 501(a)(1) if the ultimate investment decision is made by the trustee. However, if the arrangement gave the registered investment adviser full discretion to make investment decisions for the plan, the plan would then qualify as an accredited investor. It should be noted that the failure of a plan to qualify under Rule 501(a)(1) would not preclude it from attempting to qualify under other provisions of Rule 501(a) as an accredited investor. [Jan. 26, 2009]

Question 255.05

Question: Although not specified in the list of organizations in Rule 501(a)(3), may a limited liability company be treated as an “accredited investor” as defined in that rule if it satisfies the other requirements of the definition?

Answer: Yes. See the Wolf, Block, Schorr and Solis-Cohen no-action letter (Dec. 11, 1996) issued by the Division. [Jan. 26, 2009]

Question 255.06

Question: Rule 501(a)(8) accredits any entity in which all of the equity owners are accredited investors. In some cases, an equity owner is itself an entity rather than a natural person. If the owner-entity does not qualify on its own merits as an accredited investor, may the issuer look through the owner-entity to its natural person owners to determine whether they are all accredited investors?

Answer: Yes. An issuer can look through various forms of equity ownership to natural persons in judging accreditation under Rule 501(a)(8). [Jan. 26, 2009]

Question 255.07

Question: Under Rule 501(a)(8), an entity is an accredited investor if all its equity owners are accredited investors. If one director of a corporate investor holds one qualifying share of the entity’s stock and is not an accredited investor, would the corporate investor be considered accredited under this provision?

Answer: No, the corporate investor would not be considered accredited. Rule 501(a)(8) requires “all of the equity owners” to be accredited investors. The director is an equity owner and is not accredited. Note that the director cannot be accredited under Rule 501(a)(4). That provision extends accreditation to a director of the issuer, not of the investor. [Jan. 26, 2009]

Question 255.08

Question: A state run, not-for-profit hospital has total assets in excess of $5,000,000. Because it is a state agency, the hospital is exempt from federal income taxation. Rule 501(a)(3) accredits any organization described in Section 501(c)(3) of the Internal Revenue Code that has total assets in excess of $5,000,000. Is the hospital accredited under Rule 501(a)(3)?

Answer: Yes. This category does not require that the investor have received a ruling on tax status under Section 501(c)(3) of the Internal Revenue Code. Rather, Rule 501(a)(3) accredits an investor that falls within the substantive description in that section. See the Voluntary Hospitals of America, Inc. no-action letter (Nov. 30, 1982) issued by the Division. [Jan. 26, 2009]

Question 255.09

Question: A not-for-profit, tax exempt hospital with total assets of $3,000,000 is purchasing securities in a Regulation D offering. The hospital controls a subsidiary with total assets of $3,000,000. Under generally accepted accounting principles, the hospital may combine its financial statements with those of its subsidiary. Is the hospital accredited? Would the result be the same if one hospital were a holding company with financial statements that are combined with those of an affiliated hospital, where the affiliated hospital is not technically a subsidiary?

Answer: Yes to both questions under Rule 501(a)(3). When the financial statements of a subsidiary or affiliate may be combined with those of the investor under generally accepted accounting principles, the assets of the subsidiary or affiliate may be added to those of the investor in computing total assets for purposes of Rule 501(a)(3). [Jan. 26, 2009]

Question 255.10

Question: The executive officer of a parent of the corporate general partner of the issuer is investing in the Regulation D offering. Is that individual an accredited investor?

Answer: Rule 501(a)(4) accredits only the directors and executive officers of the general partner itself. Unless the executive officer of the parent can be deemed an executive officer of the subsidiary, that individual is not an accredited investor. See the Prometheus Development Co., Inc. no-action letter (Nov. 6, 1985) issued by the Division. [Jan. 26, 2009]

Question 255.11

Question: Must property be held jointly between spouses to be included in the joint net worth calculation in Rule 501(a)(5), and must the securities be purchased jointly by spouses for the investor to be considered “accredited” under the joint net worth standard?

Answer: No. Joint net worth can be the aggregate net worth of an investor and the investor’s spouse; such property need not be held jointly; and the purchase need not be made jointly for an investor to qualify under the joint net worth standard. [Jan. 26, 2009]

Question 255.12

Question: A corporation with a net worth of $2,000,000 purchases securities in a Regulation D offering. Is the corporation an accredited investor under Rule 501(a)(5)?

Answer: No. Rule 501(a)(5) is limited to “natural” persons. [Jan. 26, 2009]

Question 255.13

[withdrawn, July 22, 2010]

Question 255.14

Question: May the value of vested employee stock options be included in a person’s net worth under the definition of accredited investor in Rule 501(a)(5)?

Answer: Yes. Net worth is simply the excess of assets over liabilities. The value of vested employee stock options may be included in the net worth calculation under Rule 501(a)(5). [Jan. 26, 2009]

Question 255.15

Question: For purposes of the income test in Rule 501(a)(6), may a natural person satisfy the test for the requisite three-year period by satisfying either the individual income test or the joint income test in each of the three years and neither of the tests in all three years?

Answer: If the person has had the same marital status for all three years, then no. A natural person must satisfy Rule 501(a)(6) based on that person’s satisfying the $200,000 individual income test for all three years or the $300,000 joint income test with that person’s spouse for all three years. If a person has been married for some but not all of the three years, however, he or she may satisfy the rule on the basis of the joint income test for the years during which the person was married and on the basis of the individual income test for the other years. [Jan. 26, 2009]

Question 255.16

Question: Does the term “income” in Rule 501(a)(6) include amounts contributed on the participant’s behalf to a profit-sharing plan or pension plan to the extent that a participant’s rights to benefits attributable to such contributions are vested?

Answer: Yes. See the Raymond, James & Associates, Inc. no-action letter (Nov. 19, 1984) issued by the Division. [Jan. 26, 2009]

Question 255.17

Question: May a purchaser include unrealized capital appreciation in calculating income for purposes of Rule 501(a)(6)?

Answer: Generally, no. See Securities Act Release No. 6455, Question No. 23 (Mar. 3, 1983). [Jan. 26, 2009]

Question 255.18

Question: Who are the equity owners of a limited partnership?

Answer: The limited partners. [Jan. 26, 2009]

Question 255.19

Question: May a trust qualify as an accredited investor under Rule 501(a)(1)?

Answer: Only indirectly. Although a trust standing alone cannot be accredited under Rule 501(a)(1), if a bank is its trustee and makes the investment on behalf of the trust, the trust will in effect be accredited by virtue of the provision in Rule 501(a)(1) that accredits a bank acting in a fiduciary capacity. Furthermore, a trust having a bank as a co-trustee is an accredited investor as interpreted under Rule 501(a)(1) so long as the bank is “acting” in its fiduciary capacity on behalf of the trust in reference to the investment decision and the trust follows the bank’s direction. See the Nemo Capital Partners L.P. no-action letter (Mar. 11, 1987) issued by the Division. [Jan. 26, 2009]

Question 255.20

Question: A trustee of a trust has a net worth of $1,500,000. Is the trustee’s purchase of securities for the trust that of an accredited investor under Rule 501(a)(5)?

Answer: No. Except where a bank is a trustee, the trust is deemed the purchaser, not the trustee. The trust is not a “natural” person. [Jan. 26, 2009]

Question 255.21

Question: May a trust be accredited under Rule 501(a)(8) if all of its beneficiaries are accredited investors?

Answer: Generally, no. Rule 501(a)(8) accredits any entity if all of its “equity owners” are accredited investors. This provision does not apply to the beneficiaries of a conventional trust. The result may be different, however, in the case of certain non-conventional trusts where, as a result of powers retained by the grantors, a trust as a legal entity would be deemed not to exist. The result also would be different in the case of a business trust, a real estate investment trust, or other similar entities. Thus, where the grantors of a revocable trust are accredited investors under Rule 501(a)(5) (e.g., the net worth of each exceeds $1,000,000) and the trust may be amended or revoked at any time by the grantors, the trust as a legal entity would be deemed not to exist, and the trust would be deemed accredited, because the grantors would be deemed the equity owners of the trust’s assets. See the Lawrence B. Rabkin, Esq. no-action letter (July 16, 1982) issued by the Division. [Jan. 26, 2009]

Question 255.22

Question: If the participant in an Individual Retirement Account is an accredited investor, is the account accredited under Rule 501(a)(8)?

Answer: Yes. [Jan. 26, 2009]

Question 255.23

Question: If all participants of an employee benefit or retirement plan are accredited investors under any of the categories of Rule 501 except Rule 501(a)(8), is the plan deemed accredited?

Answer: Yes. See the Thomas Byrne Swartz no-action letter (June 10, 1982) issued by the Division. [Jan. 26, 2009]

Question 255.24

Question: Are there circumstances under which the grantor of an irrevocable trust would be considered the equity owner of the trust under Rule 501(a)(8)?

Answer: The grantor of an irrevocable trust with the following characteristics could be considered the equity owner of the trust:

(1) The trust was a grantor trust for federal tax purposes. The grantor was the sole funding source of the trust. The grantor would be taxed on all income of the trust during at least the first 15 years following the investment and would be taxed on any sale of trust assets during that period. During this period, all of the assets of the trust would be includable in the grantor’s estate for federal estate tax purposes.

(2) The grantor was a co-trustee of the trust and had total investment discretion on behalf of the trust at the time the investment decision was made.

(3) The terms of the trust provided that the entire amount of the grantor’s contribution to the trust plus a fixed rate of return on the contribution would be paid to the grantor (or his estate) before any payments could be made to the beneficiaries of the trust.

(4) The trust was established by the grantor for family estate planning purposes to facilitate the distribution of his estate. In order to effectuate the estate planning goals, the trust was irrevocable.

(5) Creditors of the grantor would be able to reach the grantor’s interest in the trust at all times.

See the Herbert S. Wander no-action letter (Nov. 25, 1983) and the Herrick, Feinstein LLP no-action letter (Jan. 5, 2001) issued by the Division. [Jan. 26, 2009]

Question 255.25

Question: In computing the various dollar amount ceilings for sales under Regulation D, is a sale that was subsequently rescinded (e.g., because it was found that the investor was not “accredited”) required to be counted?

Answer: No. [Jan. 26, 2009]

Question 255.26

Question: In calculating the aggregate offering price under Rule 504, should an issuer include any additional capital contributions or assessments which investors will be obligated to meet, despite the fact that the issuer may never make such assessments?

Answer: Yes. [Jan. 26, 2009*]

Question 255.27

Question: In purchasing interests in an oil and gas partnership, investors agree to pay mandatory assessments. The assessments, essentially installment payments, are non-contingent and investors will be personally liable for their payment. Must the issuer include the assessments in the aggregate offering price?

Answer: Yes. See the Kim R. Clark, Esq. no-action letter (Nov. 8, 1982) issued by the Division. [Jan. 26, 2009]

Question 255.28

Question: In computing the aggregate offering price of an offering under Rule 504, is a limited partnership issuer required to aggregate sales by other limited partnerships solely because the other partnerships have the same general partner?

Answer: No. [Jan. 26, 2009*]

Question 255.29

Question: In computing the aggregate offering price limitation for Rule 504, is a limited partnership issuer required to include purchases of limited partnership interests by active general partners?

Answer: No. Since the general partners are essentially financing their own efforts, and not investing in those of others, any limited partnership interests so purchased are not deemed securities for purposes of this computation. [Jan. 26, 2009*]

Question 255.30

Question: Where the investors pay for their securities in installments and these payments include an interest component, must the issuer include interest payments in the “aggregate offering price”?

Answer: No. The interest payments are not deemed to be consideration for the issuance of the securities. [Jan. 26, 2009]

Question 255.31

Question: An offering of interests in an oil and gas limited partnership provides for additional voluntary assessments. These assessments, undetermined at the time of the offering, may be called at the general partner’s discretion for developmental drilling activities. Must the assessments be included in the aggregate offering price, and, if so, in what amount?

Answer: Because it is unclear that the assessments will ever be called, and because if they are called, it is unclear at what level, the issuer is not required to include the assessments in the aggregate offering price. In fact, the assessments will be consideration received for the issuance of additional securities in the limited partnership. The issuance will need to be considered along with the original issuance for possible integration, or, if not integrated, must be registered or find its own exemption from registration. [Jan. 26, 2009]

Question 255.32

Question: As part of their purchase of securities, investors deliver irrevocable letters of credit. Must the letters of credit be included in the aggregate offering price?

Answer: Yes. If these letters of credit were drawn against, the amounts involved would be considered part of the aggregate offering price. For this reason, in planning the transaction, the issuer should consider the full amount of the letters of credit in calculating the aggregate offering price. [Jan. 26, 2009]

Question 255.33

Question: Do non-U.S. investors need to be counted under Rule 501(e) in calculating whether an issuer has exceeded the limit of 35 non-accredited investors in any 90-calendar-day period for all offerings by the issuer made in reliance on Rule 506(b) under Regulation D?

Answer: As explained in Rule 500(g), if the foreign offering meets the safe harbor conditions set forth in Regulation S relating to offerings made outside the United States, then the foreign offering is not required to comply with the conditions of Regulation D, including those limiting the number of investors. But if the issuer elects to rely on Regulation D for offers and sales to non-U.S. investors, the issuer must count the non-U.S. investors in calculating whether it meets the conditions of Regulation D limiting the number of investors. [March 12, 2025] [Comparison to prior version]

Question 255.34

Question: For purposes of calculating the number of purchasers in an offering under Regulation D, may an individual and the individual’s IRA be regarded as a single purchaser?

Answer: Yes. Furthermore, if an individual purchases stock in an offering both directly and indirectly through a self-directed employee savings plan, the individual will count as only one purchaser if non-accredited. See the Lane Enterprises, Inc. no-action letter (Feb. 9, 1987) issued by the Division. [Jan. 26, 2009]

Question 255.35

Question: A group of trusts with no current beneficiaries, separately created for estate tax planning purposes, will have the same set of beneficiaries and the same trustees. May the group be treated as a single purchaser under Regulation D?

Answer: Yes. [Jan. 26, 2009]

Question 255.36

Question: Two trusts purchase securities in a Regulation D offering. The beneficiaries of these trusts are related and share the same principal residence. Even though Rule 501(e)(1), which governs the calculation of the number of purchasers, does not specifically exempt either trust from the count, does its policy of exempting related purchasers with the same residence justify counting the trusts as one purchaser?

Answer: Yes. Similarly, where a parent and a trust benefiting a child who shares the parent’s residence purchase securities in a Regulation D offering, the issuer may count these two investors as one purchaser. [Jan. 26, 2009]

Question 255.37

Question: Rule 501(e)(2) provides that in determining the number of purchasers in an offering under Regulation D, “each beneficial owner of equity securities or equity interests” in a corporation, partnership or other entity that was organized for the specific purpose of acquiring the securities offered “shall count as a separate purchaser for all provisions of Regulation D”. This means that the rules for counting individual purchasers would apply to each such beneficial owner. Would a beneficial owner who also happens to be an accredited investor, for instance, be excluded from the count?

Answer: Yes. [Jan. 26, 2009]

Question 255.38

Question: Would a not-for-profit corporation formed for the specific purpose of an investment be counted as a single purchaser under Regulation D where the members were not equity owners and could not regain any part of their investment or receive any return thereon?

Answer: Yes. [Jan. 26, 2009]

Question 255.39

Question: One purchaser in a Rule 506 offering is an accredited investor. Another is a first cousin of that investor sharing the same principal residence. Each purchaser is making his own investment decision. How must the issuer count these purchasers for purposes of meeting the 35 purchaser limitation?

Answer: The issuer is not required to count either investor. The accredited investor may be excluded under Rule 501(e)(1)(iv), and the first cousin may then be excluded under Rule 501(e)(1)(i). The issuer must satisfy all other conditions of Regulation D, however, with respect to purchasers that have been excluded from the count. Thus, for instance, the issuer would have to ensure the sophistication of the first cousin under Rule 506(b)(2)(ii). [Jan. 26, 2009]

Question 255.40

Question: An accredited investor in a Rule 506 offering will have the securities she acquires placed in her name and that of her spouse. The spouse will not make an investment decision with respect to the acquisition. How many purchasers will be involved?

Answer: The accredited investor may be excluded from the count under Rule 501(e)(1)(iv) and the spouse may be excluded under Rule 501(e)(1)(i). The issuer may also take the position, however, that the spouse should not be deemed a purchaser at all because he did not make any investment decision, and because the placement of the securities in joint name may simply be a tax or estate planning technique. [Jan. 26, 2009]

Question 255.41

Question: An investor in a Rule 506 offering is an investment partnership that is not accredited under Rule 501(a)(8). Although the partnership was organized two years earlier and has made investments in a number of offerings, not all the partners have participated in each investment. With each proposed investment by the partnership, individual partners have received a copy of the disclosure document and have made a decision whether or not to participate. How do the provisions of Regulation D apply to the partnership as an investor?

Answer: The partnership may not be treated as a single purchaser. Rule 501(e)(2) provides that if the partnership is organized for the specific purpose of acquiring the securities offered, then each beneficial owner of equity interests should be counted as a separate purchaser. Because the individual partners elect whether or not to participate in each investment, the partnership is deemed to be organized for the specific purpose of acquiring the securities in each investment. See the Madison Partners Ltd. 1982-1 no-action letter (Jan. 18, 1982) and the Kenai Oil & Gas, Inc. no-action letter (Apr. 27, 1979) issued by the Division. Thus, the issuer must look through the partnership to the partners participating in the investment. The issuer must satisfy the conditions of Rule 506 as to each partner. [Jan. 26, 2009]

Question 255.42

Question: For purposes of Regulation D, may an executive officer of the parent of the issuer be deemed an executive officer of the issuer if such officer meets the definition of “executive officer” set forth in Rule 405?

Answer: Yes. [Jan. 26, 2009]

Question 255.43

Question: Is a manager of an LLC considered an executive officer under Rule 501(f) and therefore an accredited investor?

Answer: Yes, so long as the manager of the LLC performs a policy making function for the issuer, the manager will be considered an executive officer of the issuer and therefore an accredited investor under Rule 501(a)(4). [Jan. 26, 2009]

Question 255.44

Question: May a lawyer in the law firm representing the issuer serve as a purchaser representative for an investor so long as that lawyer is not an affiliate, director, officer, employee, or 10 percent stockholder of the issuer and so long as the lawyer discloses to the purchaser such relationship and any other material relationship with the issuer?

Answer: Yes. [Jan. 26, 2009]

Question 255.45

Question: May the officer of a corporate general partner of the issuer qualify as a purchaser representative under Rule 501(i)?

Answer: Not unless the purchaser has a relationship with the officer enumerated in paragraph (i), (ii) or (iii) of Rule 501(i)(1). Rule 501(i) provides that “an affiliate, director, officer or other employee of the issuer” may not be a purchaser representative unless the purchaser has one of those three enumerated relationships with the representative. An officer or director of a corporate general partner comes within the scope of “affiliate, director, officer or other employee of the issuer.” [Jan. 26, 2009*]

Question 255.46

Question: May the issuer in a Regulation D offering pay the fees of the purchaser representative?

Answer: Yes. Nothing in Regulation D prohibits the payment by the issuer of the purchaser representative’s fees. Rule 501(i)(4), however, requires the disclosure of this fact. Note 3 to Rule 501(i) points out that disclosure of a material relationship between the purchaser representative and the issuer will not relieve the purchaser representative of the obligation to act in the interest of the purchaser. [Jan. 26, 2009*]

Question 255.47

[withdrawn, February 27, 2012]

Question 255.48

Question: If a purchaser's annual income is not reported in U.S. dollars, what exchange rate should an issuer use to determine whether the purchaser's income meets the income test for qualifying as an accredited investor?

Answer: The issuer may use either the exchange rate that is in effect on the last day of the year for which income is being determined or the average exchange rate for that year. [July 3, 2014]

Question 255.49

Question: Can assets in an account or property held jointly with another person who is not the purchaser's spouse be included in determining whether the purchaser satisfies the net worth test in Rule 501(a)(5)?

Answer: Yes, assets in an account or property held jointly with a person who is not the purchaser's spouse may be included in the calculation for the net worth test, but only to the extent of his or her percentage ownership of the account or property. [July 3, 2014]

Section 256. Rule 502 — General Conditions to be Met

Question 256.01

Question: An issuer conducts offering A under Rule 504 that concludes in January. Seven months later the issuer commences offering B under Rule 506. During that seven-month period, the issuer’s only offers or sales of securities are made in offering C under an employee benefit plan C. Must the issuer integrate A and B?

Answer: No. Rule 502(a) specifically provides that A and B will not be integrated. Rule 502(a), however, does not provide a safe harbor to the possible integration of offering C with either offering A or B. In resolving that question, the issuer should consider the factors listed in the Note to Rule 502(a). [Jan. 26, 2009]

Question 256.02

Question: Would simultaneous offerings by affiliated issuers, such as a corporate general partner and its limited partnership, selling their securities as units in a single plan of financing for the same general purpose be considered to be an integrated offering?

Answer: Yes. See the Intuit Telecom Inc. no-action letter (Mar. 24, 1982) issued by the Division. [Jan. 26, 2009]

Question 256.03

Question: May the reference in Rule 502(b)(2)(ii)(A) to the annual report to shareholders for the “most recent fiscal year” include the annual report prepared for the previous year?

Answer: Yes, provided that delivery of the annual report for the present year is not yet required under Exchange Act Rules 14a-3 or 14c-3, and the prior year’s report meets the requirements of Rule 14a-3 or 14c-3. [Jan. 26, 2009]

Question 256.04

Question: A reporting company with a fiscal year ending on December 31 is making a Regulation D offering in February. The company has filed all the material required to be filed under Sections 13, 14 and 15(d) of the Exchange Act in the last 12 calendar months. It does not have an annual report to shareholders, an associated definitive proxy statement, or a Form 10-K for its most recently completed fiscal year. The issuer’s last registration statement was filed more than two years ago. What is the appropriate disclosure under Regulation D?

Answer: The issuer may base its disclosure on the most recently completed fiscal year for which an annual report to shareholders or Form 10-K was timely distributed or filed. The issuer should supplement the information in the report used with the information contained in any reports or documents required to be filed under Sections 13(a), 14(a), 14(c) and 15(d) of the Exchange Act since the distribution or filing of that report and with a brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in the issuer’s affairs that are not disclosed in the documents furnished. See Rule 502(b)(2)(ii)(C). [Jan. 26, 2009]

Question 256.05

Question: If the issuer is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, what information does Regulation D require to be delivered to non-accredited investors in a Rule 506(b) offering?

Answer: In these types of offerings, Rule 502(b)(2)(ii) of Regulation D sets forth two alternatives for disclosure: the issuer may deliver certain recent Exchange Act reports (the annual report, the definitive proxy statement, and, if requested, the Form 10-K) or it may provide a document containing the same information as in the Form 10-K or Form 10 under the Exchange Act or in a Form S-1 or Form S-11 registration statement under the Securities Act, whichever is the most recent filing. In either case, Rule 502(b)(2)(ii)(C) calls for the delivery of certain supplemental information. [Jan. 26, 2009*]

Question 256.06

Question: Under Rule 502(b)(2)(iii), an issuer that must provide a disclosure document, whether it is a reporting or non-reporting issuer, is required to identify and make available those exhibits that would accompany the registration form or report upon which the disclosure document is modeled. Does a Regulation D issuer have to make available an opinion of counsel as to the legality of the securities being issued and, if there are representations made as to material tax consequences, a supporting opinion of counsel regarding such tax consequences?

Answer: Yes. [Jan. 26, 2009]

Question 256.07

Question: In an offering under Regulation D, must the opinion of counsel regarding the legality of the issuance of the securities contain an opinion as to whether the issuer has a valid claim to the Regulation D exemption?

Answer: No. [Jan. 26, 2009]

Question 256.08

Question: What type of information specified in Rule 502(b)(2) is an issuer required to furnish for any corporate general partner in a Regulation D offering where the issuer is a limited partnership?

Answer: The issuer should furnish for any corporate general partner an audited balance sheet as of the most recently completed fiscal year. [Jan. 26, 2009]

Question 256.09

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 256.10

Question: What are the information delivery requirements under Rule 502(b) for a private fund excluded from the definition of 'investment company' by virtue of Section 3(c)(1) of the Investment Company Act of 1940 that sells securities to non-accredited investors relying on Rule 506(b)?

Answer: Such a company must furnish to non-accredited investors, to the extent material to an understanding of the company, its business, and the securities being offered:

the same kind of non-financial information as would be required in a registration statement under the Securities Act for a registered investment company on a form that it would be entitled to use if it were registering the offering under the Securities Act, such as a registration statement on Form N-1A, or Form N-2; and
financial statement information equivalent to that required under Rule 502(b)(2)(i)(B). [Jan. 26, 2009*]

Question 256.11

Question: May an issuer of securities provide the disclosure required by Rule 502(b) by means of electronic delivery, such as an email message with electronic attachments?

Answer: Yes. Rule 502(b) requires only that the disclosures be “furnished.” It contains no requirement that the disclosures be provided or delivered using a particular medium. The Commission’s views regarding the use of electronic delivery are provided in Securities Act Release No. 7856 (Apr. 28, 2000). [Jan. 26, 2009]

Question 256.12

Question: An issuer furnishes potential investors a short form offering memorandum in anticipation of actual selling activities and the delivery of an expanded disclosure document later. Does Regulation D permit the delivery of disclosure in two installments?

Answer: So long as all the information is delivered a reasonable amount of time before sale, the use of a fair and adequate summary followed by a complete disclosure document is permitted under Regulation D. Disclosure in such a manner, however, should not obscure material information. [Jan. 26, 2009]

Question 256.13

Question: Under Rule 502(b)(2)(i)(B), for a non-reporting issuer that has been formed with minimal capitalization immediately before a Regulation D offering, must the Regulation D disclosure document contain an audited balance sheet for the issuer?

Answer: In analyzing this or any other disclosure question under Regulation D, the issuer starts with the general rule that it is obligated to furnish the specified information “to the extent material to an understanding of the issuer, its business, and the securities being offered.” Thus, in this particular case, if an audited balance sheet is not material to the investor’s understanding, then the issuer may elect to present an alternative to its audited balance sheet. [Jan. 26, 2009]

Question 256.14

Question: Rule 502(b)(2)(ii)(B) refers to the information contained “in a registration statement on Form S-1.” Does this requirement envision delivery of Parts I and II of the Form S-1?

Answer: No, only Part I. [Jan. 26, 2009*]

Question 256.15

Question: May a Canadian issuer use financial statements contained in an MJDS filing to satisfy the information requirements of Rule 502(b)?

Answer: Yes. Rules 502(b)(2)(i)(B)(1) and (2) permit a foreign private issuer to use financial statements prepared in accordance with IFRS to meet Rule 502’s information requirements. Financial statements prepared in accordance with IFRS that are included in an MJDS filing may be used to satisfy Rule 502(b)’s information requirements. [March 12, 2025] [Comparison to prior version]

Question 256.16

Question: Does Rule 502(c), which prohibits general solicitation and general advertising in connection with the offer and sale of securities, bar product advertising?

Answer: Rule 502(c) does not bar product advertising, although such advertising is not permitted under the rule when it involves the solicitation of an offer to buy a security. Whether or not particular product advertising constitutes a solicitation in contravention of Rule 502(c) depends on the facts and circumstances. [Jan. 26, 2009]

Question 256.17

Question: A reporting company proposes to offer securities under Regulation D. Because of the size and price of the offering, the company feels compelled by Section 10(b) of the Exchange Act to issue a press release discussing the offering. Would such a press release by the issuer constitute general solicitation or general advertising, activities which are not permitted by Rule 502(c) in connection with most Regulation D offerings?

Answer: The company should refer to the Rule 135c safe harbor for reporting issuers giving notice of proposed unregistered offerings. [Jan. 26, 2009]

Question 256.18

Question: If a solicitation were limited to accredited investors, would it be deemed in compliance with Rule 502(c)?

Answer: The mere fact that a solicitation is directed only to accredited investors will not mean that the solicitation is in compliance with Rule 502(c). Rule 502(c) relates to the nature of the offering, not the nature of the offerees. [Jan. 26, 2009]

Question 256.19

Question: An issuer is preparing a private placement in reliance on Rule 506(b). The offering will require the issuance of more than 20% of the outstanding stock of the corporation, triggering a NYSE shareholder approval requirement. Thus, the issuer must file a proxy statement at the same time as the beginning of the offering. At the time of filing the proxy statement, the offering will not be completed. Would the information about the private placement required in the proxy statement by the NYSE rule and Item 11 of Schedule 14A violate the ban on general solicitation in Rule 502(c)?

Answer: If the proxy statement disclosure about the private placement satisfies the conditions of Rule 135c(a), then the issuer may rely upon Rule 135c for the information about the private placement required by the NYSE rule and Item 11 of Schedule 14A. In general, issuers should be mindful that, unless the closing of the offering and the solicitation of shareholder votes are timed correctly, information about the private placement included in the proxy statement beyond that permitted by Rule 135c(a) could be viewed as conditioning the market for the securities offered in the private placement. [Jan. 26, 2009*]

Question 256.20

Question: An investor in a Regulation D offering wishes to resell the securities within three months after the offering. The issuer has agreed to register the securities for resale. Will the proposed resale under the registration statement violate Rule 502(d)?

Answer: No. The function of Rule 502(d) is to restrict the unregistered resale of securities. Where the resale will be registered, however, such restriction is unnecessary. [Jan. 26, 2009]

Question 256.21

Question: A "private" money market fund undertakes to comply with Rule 2a-7 under the Investment Company Act in order to permit registered investment companies to invest in the fund under Rule 12d1-1 under the Investment Company Act in excess of the limits set forth in Section 12(d) of the Investment Company Act. Pursuant to Rule 2a-7(h)(10), a "private" money market fund is required to post monthly on its publicly available web site specific information about securities in its portfolio as well as the weighted average maturity and weighted average life maturity of its portfolio. Would compliance with the conditions of this web posting requirement cause the fund to violate the prohibition on general solicitation and advertising in Rule 502(c) under the Securities Act? The fund relies on the exclusion provided in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act from the definition of "investment company" in Section 3(a) of that Act. Sections 3(c)(1) and 3(c)(7) both require that a fund not make or propose to make a public offering of its securities.

Answer: The fund will not be deemed to violate the prohibition on general solicitation and advertising by posting information on its web site in compliance with Rule 2a-7 for purposes of permitting registered investment companies to invest in the fund under Rule 12d1-1 in excess of the limits set forth in Section 12(d) of the Investment Company Act, so long as the fund posts only the information required by the rule and does not use its web site to offer or sell securities or in a manner that is deemed to be general solicitation or advertising for offers or sales of its securities. [Aug. 11, 2010*]

Question 256.22

Question: If an acquiror seeks written consents from the target’s shareholders, which include non-accredited investors, to approve a business combination transaction involving the issuance of securities in reliance on Rule 506(b) of Regulation D, when must the financial statement and other information specified in Rule 502(b)(2) be provided to those target shareholders that are non-accredited investors?

Answer: Rule 502(b)(1) requires such information to be delivered to non-accredited investors in “a reasonable amount of time prior to sale.” The delivery of a written consent constitutes the “sale” of securities in an offer conducted in reliance on Rule 506(b). Accordingly, to comply with the timing requirement set forth in Rule 502(b)(1), an acquiror issuing securities in a Rule 506(b) offering must provide the disclosure required by Rule 502(b)(2) to non-accredited investors a reasonable amount of time prior to obtaining any written consents from them. [May 16, 2013*]

Question 256.23

Question: Rule 502(c) prohibits an issuer or any person acting on the issuer’s behalf from offering or selling securities by any form of general solicitation or general advertising when conducting certain offerings in reliance on Regulation D. Does the use of an unrestricted, publicly available website to offer or sell securities constitute a general solicitation for purposes of Rule 502(c)?

Answer: Yes. As the Commission stated in Securities Act Release No. 7856 (Apr. 28, 2000), the use of an unrestricted, publicly available website constitutes a general solicitation and is not consistent with the prohibition on general solicitation and advertising in Rule 502(c) if the website contains an offer of securities. However, Rule 506(c) — which does not require compliance with Rule 502(c) — may be available to issuers when offering or selling securities through unrestricted, publicly available websites or other forms of general solicitation. [August 6, 2015]

Question 256.24

Question: What information can an issuer widely disseminate about itself without contravening Rule 502(c)?

Answer: Information not involving an offer of securities may be disseminated widely without violating Rule 502(c). For example, factual business information that does not condition the public mind or arouse public interest in a securities offering is not an offer and may be disseminated widely. Information that involves an offer of securities through any form of general solicitation would contravene Rule 502(c). [August 6, 2015]

Question 256.25

Question: What is factual business information?

Answer: What constitutes factual business information depends on the facts and circumstances. Factual business information typically is limited to information about the issuer, its business, financial condition, products, services, or advertisement of such products or services, provided the information is not presented in such a manner as to constitute an offer of the issuer’s securities. Factual business information generally does not include predictions, projections, forecasts or opinions with respect to valuation of a security, nor for a continuously offered fund would it include information about past performance of the fund. (Release No. 33-5180). [August 6, 2015]

Question 256.26

Question: Does an offer of securities in a Regulation D offering to a prospective investor with whom the issuer, or a person acting on the issuer’s behalf, has a pre-existing, substantive relationship constitute a general solicitation in contravention of Rule 502(c)?

Answer: No. The existence of such a pre-existing, substantive relationship is one means, but not the exclusive means, of demonstrating the absence of a general solicitation in a Regulation D offering. See Securities Act Release No. 6825 (Mar. 15, 1989), at fn. 12. Accordingly, an offer of the issuer’s securities to the person with whom the issuer, or a person acting on its behalf, has such a relationship would not constitute a general solicitation and, therefore, would not be in contravention of Rule 502(c). [August 6, 2015]

Question 256.27

Question: Are there circumstances under which an issuer, or a person acting on the issuer’s behalf, can communicate information about an offering to persons with whom it does not have a pre-existing, substantive relationship without having that information deemed a general solicitation?

Answer: Yes. Under Rule 148, issuers may participate in “demo days” or similar events, pursuant to which such communications that meet the requirements of Rule 148 are not deemed to constitute general solicitation or general advertising. See also Question 256.33.

In addition, the staff is aware of long-standing practices where issuers and persons acting on their behalf are introduced to prospective investors who are members of an informal, personal network of individuals with experience investing in private offerings. For example, we acknowledge that groups of experienced, sophisticated investors, such as “angel investors,” share information about offerings through their network and members who have a relationship with a particular issuer may introduce that issuer to other members. Issuers that contact one or more experienced, sophisticated members of the group through this type of referral may be able to rely on those members’ network to establish a reasonable belief that other offerees in the network have the necessary financial experience and sophistication.

Whether there has been a general solicitation is a fact-specific determination. In general, the greater the number of persons without financial experience, sophistication or any prior personal or business relationship with the issuer that are contacted by an issuer or persons acting on its behalf through impersonal, non-selective means of communication, the more likely the communications are part of a general solicitation. [March 12, 2025] [Comparison to prior version]

Question 256.28

Question: Is someone other than a broker-dealer able to form a pre-existing, substantive relationship with a prospective offeree as a means of establishing that a general solicitation is not present in a Regulation D offering?

Answer: Yes. We believe investment advisers registered with the Securities and Exchange Commission may be able to form a pre-existing relationship with prospective offerees that are clients of the adviser. As fiduciaries, such advisers owe their clients the duty to provide only suitable investment advice. To fulfill the obligation, an adviser must make a reasonable determination that the investment advice provided is suitable for the client based on the client’s financial situation and investment objective, such that a substantive relationship could exist. [August 6, 2015]

Question 256.29

Question: What makes a relationship “pre-existing” for purposes of demonstrating the absence of a general solicitation under Rule 502(c)?

Answer: A “pre-existing” relationship is one that the issuer has formed with an offeree prior to the commencement of the securities offering or, alternatively, that was established through either a registered broker-dealer or investment adviser prior to the registered broker-dealer or investment adviser participation in the offering. See, e.g., the E.F. Hutton & Co. letter (Dec. 3, 1985). [August 6, 2015]

Question 256.30

Question: Is there a minimum waiting period required for an issuer, or a person acting on its behalf, to establish a pre-existing, substantive relationship with a prospective offeree in order to demonstrate that a general solicitation is not involved?

Answer: No. While there is no minimum waiting period, the issuer must establish such a relationship prior to the commencement of the offering, or, if the relationship was established through either a registered broker-dealer or investment adviser, the relationship must be established prior to the time the registered broker-dealer or investment adviser began participating in the offering. The staff, however, has allowed a limited accommodation for offerings by private funds that rely on the exclusions from the definition of “investment company” set forth in Sections 3(c)(1) and 3(c)(7) of the Investment Company Act. This limited accommodation permits an individual who qualifies as an accredited or sophisticated investor to purchase, after the end of a waiting period, securities in private fund offerings that were posted on a website platform prior to the investor’s subscription to the platform, in view of the fact that private fund offerings are made on a semi-continuous basis (quarterly or annually). See the Lamp Technologies, Inc. letter (May 29, 1997). [August 6, 2015]

Question 256.31

Question: What makes a relationship “substantive” for purposes of demonstrating the absence of a general solicitation under Rule 502(c)?

Answer: A “substantive” relationship is one in which the issuer (or a person acting on its behalf) has sufficient information to evaluate, and does, in fact, evaluate, a prospective offeree’s financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor. Self-certification alone (by checking a box) without any other knowledge of a person’s financial circumstances or sophistication is not sufficient to form a “substantive” relationship. [August 6, 2015]

Question 256.32

Question: Can anyone other than registered broker-dealers and investment advisers form a pre-existing, substantive relationship with a prospective offeree as a means of establishing that a general solicitation is not involved in a Regulation D offering?

Answer: Yes. The Commission has stated that:

Generally, staff interpretations of whether a “pre-existing, substantive relationship” exists have been limited to procedures established by broker-dealers in connection with their customers. This is because traditional broker-dealer relationships require that a broker-dealer deal fairly with, and make suitable recommendations to, customers, and, thus, implies that a substantive relationship exists between the broker-dealer and its customers. [The Commission has] long stated, however, that the presence or absence of a general solicitation is always dependent on the facts and circumstances of each particular case. Thus, there may be facts and circumstances in which a third party, other than a registered broker-dealer, could establish a “pre-existing, substantive relationship” sufficient to avoid a “general solicitation.” [Securities Act Release No. 7856 (Apr. 28, 2000)]

The staff has also recognized particular instances where issuers have developed pre-existing, substantive relationships with prospective offerees. See, e.g., the Woodtrails — Seattle, Ltd. letter (Aug. 9, 1982). However, in the absence of a prior business relationship or a recognized legal duty to offerees, we believe it is likely more difficult for an issuer to establish a pre-existing, substantive relationship, especially when contemplating or engaged in an offering over the Internet. Issuers would have to consider not only whether they have sufficient information about particular offerees, but also whether they in fact use that information appropriately to evaluate the financial circumstances and sophistication of the prospective offerees prior to commencing the offering. Issuers may therefore wish to consider whether conducting the offering under Rule 506(c) would provide greater certainty that an exemption may be available for the offering. [August 6, 2015]

Question 256.33

Question: Does a demo day or venture fair necessarily constitute a general solicitation for purposes of Rule 502(c)?

Answer: No. Rule 148 provides an exemption from general solicitation or general advertising for communications if made in connection with a seminar or meeting in which more than one issuer participates that is sponsored by a group or entity (such as a university, angel investors, an accelerator, or an incubator) that invites issuers to present their businesses to potential investors with the aim of securing investment, provided that such communications meet the requirements of the rule. The Commission stated that, "[b]ecause communications that comply with proposed Rule 148 would not be deemed a general solicitation or general advertising, the limitations on the manner of offering in Rule 502(c) of Regulation D would not apply." See Securities Act Release No. 10884 (November 2, 2020).

If a demo day or venture fair does not comply with Rule 148, it still may not constitute a general solicitation, depending on the facts and circumstances. See Question 256.27. [March 12, 2025] [Comparison to prior version]

Question 256.34

Question: An issuer has been conducting a private offering in which it has made offers and sales in reliance on Rule 506(b). Less than six months after the most recent sale in that offering, the issuer decides to generally solicit investors in reliance on Rule 506(c). Is the five-factor integration analysis in the Note to Rule 502(a) the sole means by which the issuer determines whether all of the offers and sales constitute a single offering?

Answer: No. Under Securities Act Rule 152, a securities transaction that at the time involves a private offering will not lose that status even if the issuer subsequently decides to make a public offering. Therefore, we believe under these circumstances that offers and sales of securities made in reliance on Rule 506(b) prior to the general solicitation would not be integrated with subsequent offers and sales of securities pursuant to Rule 506(c). So long as all of the applicable requirements of Rule 506(b) were met for offers and sales that occurred prior to the general solicitation, they would be exempt from registration and the issuer would be able to make offers and sales pursuant to Rule 506(c). Of course, the issuer would have to then satisfy all of the applicable requirements of Rule 506(c) for the subsequent offers and sales, including that it take reasonable steps to verify the accredited investor status of all subsequent purchasers. [November 17, 2016*]

Question 256.35

Question: If an issuer does not satisfy any of the verification safe harbors in Rule 506(c)(2)(ii), are there other methods an issuer can use that will satisfy the requirement to take reasonable steps to verify accredited investor status?

Answer:Yes. The list of methods of verification in Rule 506(c)(2)(ii) are “non-exclusive and non-mandatory.” Specifically, the Commission stated that “issuers ... are not required to use any of the methods set forth in the nonexclusive list and can apply the reasonableness standard directly to the specific facts and circumstances presented by the offering and the investors.” Securities Act Release No. 10884 (November 2, 2020). As the Commission explained in Securities Act Release No. 9415 (July 10, 2013), “whether the steps taken are ‘reasonable’ will be an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction. Among the factors that issuers should consider under this facts and circumstances analysis are:

the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
the amount and type of information that the issuer has about the purchaser; and
the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.”

These factors should be considered in an interconnected manner, and are intended to help guide an issuer in assessing the reasonable likelihood that a purchaser is an accredited investor – which would, in turn, affect the types of steps that would be reasonable to take to verify a purchaser’s accredited investor status … [T]he more likely it appears that a purchaser qualifies as an accredited investor, the fewer steps the issuer would have to take to verify accredited investor status, and vice versa.” Securities Act Release No. 9415 (July 10, 2013) [March 12, 2025]

Question 256.36

Question: An issuer is conducting a Rule 506(c) offering where each accredited investor is required to make a high minimum investment in cash.

Do the terms of the offering, in particular the minimum investment amounts, satisfy the reasonable steps to verify requirement of Rule 506(c)(2)(ii) for purchasers meeting the minimum investment amount? The issuer has no actual knowledge of any facts indicating that any purchaser is not an accredited investor and the issuer has confirmed with each purchaser that its investment is not being financed in whole or part with funds from a third party.

Answer:Whether the issuer has taken reasonable steps to verify that a purchaser is an accredited investor is an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances. See Securities Act Release No. 9415 (July 10, 2013); and Question 256.35. Depending on the facts and circumstances, the issuer may be able to reasonably conclude that reasonable steps to verify have been taken when an offering requires a high minimum investment amount. As explained in Securities Act Release No. 9415 (July 10, 2013), “if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party.” See also the Latham & Watkins LLP no-action letter (Mar. 12, 2025) issued by the Division; and Securities Act Release No. 10884 (Nov. 2, 2020). [March 12, 2025]

Section 257. Rules 503 and 503T– Filing of Notice of Sales

Question 257.01

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 257.02

Question: When must an issuer file the initial Form D for an offering with the SEC?

Answer: Form D is required to be filed with the SEC within 15 days after the first sale of securities sold based on a claim of exemption under Rule 504 or 506 of Regulation D or Section 4(a)(5) of the Act. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check. If the date on which a Form D is required to be filed falls on a Saturday, Sunday or holiday, the due date is the first business day following. [Jan. 26, 2009*]

Question 257.03

Question: May the Form D be signed by the issuer’s attorney?

Answer: Form D may be signed on behalf of the issuer by anyone who is duly authorized to do so. [Jan. 26, 2009]

Question 257.04

Question: In order to avoid questions concerning when the first “sale” of securities in an offering under Regulation D takes place, may an issuer file its Form D as soon as the offering commences even though no sales have yet been made?

Answer: Yes. [Jan. 26, 2009]

Question 257.05

Question: Rule 503 requires an issuer to file a Form D not later than 15 days after the first sale in a Regulation D offering. When should the Form D be filed in a best efforts offering where subscriptions are held in escrow until a minimum level is attained?

Answer: The Form D should be filed not later than 15 days after the first subscription is received into escrow. [Jan. 26, 2009]

Question 257.06

Question: When Regulation D is used in connection with a stock option plan, when should the Form D be filed?

Answer: When Regulation D is used in connection with a stock option plan, the Form D should be filed not later than 15 days after the first option exercise. [Jan. 26, 2009]

Question 257.07

Question: Is the filing of a Form D in connection with an offer or sale a condition to the availability of a Regulation D exemption for that offer or sale?

Answer: No. The filing of a Form D is a requirement of Rule 503(a), but it is not a condition to the availability of the exemption pursuant to Rule 504 or 506 of Regulation D. Rule 507 states some of the potential consequences of the failure to comply with Rule 503. [Jan. 26, 2009*]

Question 257.08

Question: Will a Rule 506 offering lose "covered security" status under Section 18 of the Securities Act if an issuer fails to file a Form D with the SEC?

Answer: No. A "covered security" under Section 18 of the Securities Act is defined to include a security with respect to an offering that is exempt from registration under the Act pursuant to SEC rules or regulations issued under Section 4(a)(2) of the Act. Rule 506(b) was issued under Section 4(a)(2) of the Act; Congress determined in the JOBS Act that Rule 506(c) would be treated as a regulation issued under Section 4(a)(2). Filing a Form D is not a condition that must be met to qualify for the Rule 506 exemption. [Sept. 20, 2017]

Section 258. Rule 504 — Exemption for Limited Offerings and Sales of Securities Not Exceeding $10,000,000

Question 258.01

Question: May a foreign issuer that is not subject to Section 15(d) and whose securities are exempt from Section 12(g) under Rule 12g3-2(b) be eligible to use Rule 504?

Answer: Yes. Rule 504 is available to any issuer that is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. [Jan. 26, 2009]

Question 258.02

Question: The exemption under Rule 504 is not available to an investment company. How is the term “investment company” defined for purposes of Rule 504?

Answer: The provision in Rule 504 that bars an investment company from using the exemption means an investment company as that term is defined in Section 3 of the Investment Company Act of 1940. [Jan. 26, 2009*]

Question 258.03

Question: Is Rule 504 available to a private fund excluded from the definition of 'investment company' by Section 3(c)(1) or 3(c)(7) of the Investment Company Act?

Answer: Private funds are precluded from relying on Section 3(c)(1) or 3(c)(7) of the Investment Company Act if they make a 'public offering' of their securities. Offerings under Rule 504 may be public or non-public depending on the provision of the rule that is relied upon for the offering. If a private fund made a 'public offering' of its securities, that private fund would no longer be able to rely on the applicable exclusion under Section 3(c)(1) or (7) and thus would be required to be registered under the Investment Company Act, unless another exclusion or exemption is available. If no other exclusion or exemption is available, the private fund would be an 'investment company' as defined in Section 3 of the Investment Company Act and would therefore be precluded from using the Rule 504 exemption. See e.g., footnote 241 in Securities Act Release No. 33-10238. We note that Rule 504 offerings differ from Rule 506(c) offerings in this respect because Section 201(b)(2) of the JOBS Act deemed offers and sales under that exemption to not be 'public offerings' under the federal securities laws. [Sept. 20, 2017]

Question 258.04

[withdrawn, Sept. 20, 2017]

Question 258.05

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 258.06

Question: When is an issuer required to determine whether bad actor disqualification applies?

Answer: Rule 504 is not available to any issuer that is subject to disqualification under Rule 506(d) on or after January 20, 2017. On or after this date, issuers must determine if they are subject to bad actor disqualification any time they are offering or selling securities in reliance on Rule 504. See Rule 504(b)(3), Rule 506(d) and the interpretations of Rule 506(d) below. [Sept. 20, 2017]

Section 259. Rule 505 — Repealed, effective May 22, 2017

[withdrawn, Sept. 20, 2017]

Section 260. Rule 506 — Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering

Question 260.01

Question: May an issuer of securities with a projected aggregate offering price of $3,000,000 rely on Rule 506?

Answer: Yes. The availability of Rule 506 is not dependent on the dollar size of an offering. [Jan. 26, 2009]

Question 260.02

[withdrawn, Sept. 20, 2017]

Question 260.03

Question: Must offerings exempt under Rule 506 comply with state securities law requirements?

Answer: Securities issued in Rule 506 offerings are considered “covered securities” under Section 18 of the Securities Act of 1933. See Section 18(b)(4)(E) and Question 257.08 above. Section 18(a) preempts state registration and review of, but not state anti-fraud authority with respect to, offerings for these “covered securities.” For Rule 506 offerings, however, Section 18 does not preempt state requirements that the issuer file a notice with the states together with a consent to service of process and any required fee with the states. See Section 18(b)(4)(E) and Section 18(c) of the Securities Act. [Jan. 26, 2009*]

Question 260.04

Question: A company is conducting a single continuing private offering in reliance on Rule 506(b), which may be available to an unlimited number of accredited investors but is limited to 35 non-accredited, but sophisticated investors. There have been 35 non-accredited investors in the offering as calculated pursuant to Rule 501(e). May a company sell securities to additional non-accredited investors in the offering and rely on Rule 506(b) if some of the original 35 non-accredited investors have now redeemed their securities such that there are currently less than 35 non-accredited holders of the company's securities?

Answer: No. Once a company sells to 35 non-accredited investors in a single offering, as calculated pursuant to Rule 501(e), the company has reached the limitation on sales to non-accredited investors as set forth in Rule 506(b). The fact that a non-accredited investor subsequently transfers or redeems her securities does not reset the number of non-accredited investors or enable the company to sell to additional non-accredited investors. [Jan. 26, 2009*]

Question 260.05

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 260.06

Question: An issuer takes reasonable steps to verify the accredited investor status of a purchaser and forms a reasonable belief that the purchaser is an accredited investor at the time of the sale of securities. Subsequent to the sale, it becomes known that the purchaser did not meet the financial or other criteria in the definition of “accredited investor” at the time of sale. Assuming that the other conditions of Rule 506(c) were met, is the exemption available to the issuer for the offer and sale to the purchaser?

Answer: Yes. An issuer does not lose the ability to rely on Rule 506(c) for an offering if a person who does not meet the criteria for any category of accredited investor purchases securities in the offering, so long as the issuer took reasonable steps to verify that the purchaser was an accredited investor and had a reasonable belief that such purchaser was an accredited investor at the time of the sale of securities. [Nov. 13, 2013]

Question 260.07

Question: An issuer intends to conduct an offering under Rule 506(c). If all of the purchasers in the offering met the financial and other criteria to be accredited investors but the issuer did not take reasonable steps to verify the accredited investor status of these purchasers, may the issuer rely on the Rule 506(c) exemption?

Answer: No. The verification requirement in Rule 506(c) is separate from and independent of the requirement that sales be limited to accredited investors. The verification requirement must be satisfied even if all purchasers happen to be accredited investors. Under the principles-based method of verification, however, the determination of what constitutes reasonable steps to verify is an objective determination based on the particular facts and circumstances of each purchaser and transaction. [Nov. 13, 2013]

Question 260.08

Question: An issuer chooses to verify the accredited investor status of a purchaser in a Rule 506(c) offering by using the net worth verification method provided in the rule and, as required under this method, reviews the relevant documentation dated within the prior three months. If, at the time the purchaser decides to purchase securities in the offering, the previously submitted documentation is not dated within the prior three months of the time of the sale of securities, may the issuer continue to rely on the net worth verification method provided in the rule?

Answer: No. An issuer may satisfy the verification requirement of Rule 506(c) by either using the principles-based method of verification or relying upon one of the specific, non-exclusive verification methods listed in the rule. Although use of the non-exclusive verification methods is not required, an issuer that chooses to use one of the methods must satisfy the specific requirements of that method. In order to comply with the net worth verification method provided in the rule’s non-exclusive list, the relevant documentation must be dated within the prior three months of the sale of securities. If the documentation is older than three months, the issuer may not rely on the net worth verification method, but may instead determine whether it has taken reasonable steps to verify the purchaser’s accredited investor status under the principles-based method of verification. [Nov. 13, 2013]

Question 260.09

Question: Does the third-party verification method in the non-exclusive list of verification methods in Rule 506(c) include written confirmations from an attorney or certified public accountant who is licensed or duly registered, as the case may be, in good standing in a foreign jurisdiction?

Answer: Yes. This method of verification is not limited to written confirmations from attorneys and certified public accountants who are licensed or registered in a jurisdiction within the United States. [Nov. 13, 2013]

Question 260.10

Question: Does the verification method for existing investors in the non-exclusive list of verification methods apply to new issuers that have the same sponsor as the issuer in which the investor purchased securities in a prior Rule 506(b) offering (for example, a new limited partnership organized by a general partner where the investor purchased securities of a prior limited partnership sponsored by the same general partner)?

Answer: No. This non-exclusive method of verification is, by its terms, limited to verification of existing investors who purchased securities in the same issuer’s Rule 506(b) offering as accredited investors prior to September 23, 2013 and continue to hold such securities. [Nov. 13, 2013]

Question 260.11

Question: If an issuer commenced an offering intending to rely on Rule 506(c) but did not engage in any form of general solicitation in connection with the offering, may the issuer subsequently determine to rely on Rule 506(b) for the offering?

Answer: Yes, as long as the conditions of Rule 506(b) have been satisfied with respect to all sales of securities that have occurred in the offering. To the extent the issuer already filed a Form D indicating its reliance on Rule 506(c), it must amend the Form D to indicate its reliance on Rule 506(b) instead, as that decision represents a change in the information provided in the previously-filed Form D. [Nov. 13, 2013]

Question 260.12

Question: If an issuer commenced an offering in reliance on Rule 506(b), may the issuer determine, prior to any sales of securities in the offering, to rely on Rule 506(c) for the offering?

Answer: Yes, as long as the conditions of Rule 506(c) are satisfied with respect to all sales of securities in the offering. To the extent the issuer already filed a Form D indicating its reliance on Rule 506(b), it must amend the Form D to indicate its reliance on Rule 506(c) instead, as that decision represents a change in the information provided in the previously-filed Form D. [Nov. 13, 2013]

Question 260.13

Question: If the conditions of Rule 506(c) are not met in a purported Rule 506(c) offering, could the Securities Act Section 4(a)(2) private offering exemption be available to the issuer?

Answer: If the issuer has engaged in general solicitation, no. As stated in Securities Act Release No. 9415 (July 10, 2013), the mandate in the JOBS Act to permit general solicitation for a subset of Rule 506 offerings affects only Rule 506 and not Section 4(a)(2) offerings in general. The use of general solicitation continues to be incompatible with a claim of exemption under Section 4(a)(2). [Nov. 13, 2013]

Question 260.14

Question: When is an issuer required to determine whether bad actor disqualification under Rule 506(d) applies?

Answer: Rule 506(d) disqualifies an offering of securities from reliance on a Rule 506 exemption from Securities Act registration. Issuers must therefore determine if they are subject to bad actor disqualification any time they are offering or selling securities in reliance on Rule 506. An issuer that is not offering securities, such as a fund that is winding down and is closed to investment, need not determine whether Rule 506(d) applies unless and until it commences a Rule 506 offering. An issuer may reasonably rely on a covered person’s agreement to provide notice of a potential or actual bad actor triggering event pursuant to, for example, contractual covenants, bylaw requirements, or an undertaking in a questionnaire or certification. However, if an offering is continuous, delayed or long-lived, the issuer must update its factual inquiry periodically through bring-down of representations, questionnaires and certifications, negative consent letters, periodic re-checking of public databases, and other steps, depending on the circumstances. [Dec. 4, 2013]

Question 260.15

Question: If a placement agent or one of its covered control persons, such as an executive officer or managing member, becomes subject to a disqualifying event while an offering is still ongoing, could the issuer continue to rely on Rule 506 for that offering?

Answer: Yes, the issuer could rely on Rule 506 for future sales in that offering if the engagement with the placement agent was terminated and the placement agent did not receive compensation for the future sales. Alternatively, if the triggering disqualifying event affected only the covered control persons of the placement agent, the issuer could continue to rely on Rule 506 for that offering if such persons were terminated or no longer performed roles with respect to the placement agent that would cause them to be covered persons for purposes of Rule 506(d). [Dec. 4, 2013]

Question 260.16

Question: For purposes of Rule 506(d), does an “affiliated issuer” mean every affiliate of the issuer that has issued securities?

Answer: No. Under Rule 506(d), an “affiliated issuer” of the issuer is an affiliate (as defined in Rule 501(b) of Regulation D) of the issuer that is issuing securities in the same offering, including offerings subject to integration pursuant to Rule 502(a) of Regulation D. Securities Act Forms C&DIs 130.01 and 130.02 provide examples of co-issuer or multiple issuer offerings. [Dec. 4, 2013]

Question 260.17

Question: Are compensated solicitors limited to brokers, as defined in Exchange Act Section 3(a)(4), who are subject to registration pursuant to Exchange Act Section 15(a)(1), and their associated persons?

Answer: No. All persons who have been or will be paid, directly or indirectly, remuneration for solicitation of purchasers are covered by Rule 506(d), regardless of whether they are, or are required to be, registered under Exchange Act Section 15(a)(1) or are associated persons of registered broker-dealers. The disclosure required in Item 12 of Form D expressly contemplates that compensated solicitors may not appear in FINRA’s Central Registration Depository (CRD) of brokers and brokerage firms. [Dec. 4, 2013]

Question 260.18

Question: Does the term “participating” include persons whose sole involvement with a Rule 506 offering is as members of a compensated solicitor’s deal or transaction committee that is responsible for approving such compensated solicitor’s participation in the offering?

Answer: No. [Dec. 4, 2013]

Question 260.19

Question: Are officers of a compensated solicitor deemed to be “participating” in a Rule 506 offering only if they are involved with the solicitation of investors for that offering?

Answer: No. Participation in an offering is not limited to solicitation of investors. Examples of participation in an offering include participation or involvement in due diligence activities or the preparation of offering materials (including analyst reports used to solicit investors), providing structuring or other advice to the issuer in connection with the offering, and communicating with the issuer, prospective investors or other offering participants about the offering. To constitute participation for purposes of the rule, such activities must be more than transitory or incidental. Administrative functions, such as opening brokerage accounts, wiring funds, and bookkeeping activities, would generally not be deemed to be participating in the offering. [Dec. 4, 2013]

Question 260.20

Question: Is disqualification under Rule 506(d) triggered by actions taken in jurisdictions other than the United States, such as convictions, court orders, or injunctions in a foreign court, or regulatory orders issued by foreign regulatory authorities?

Answer: No. [Dec. 4, 2013]

Question 260.21

Question: Is disqualification under Rule 506(d)(1)(v) triggered by all Commission orders to cease and desist from violations of Commission rules promulgated under Exchange Act Section 10(b)?

Answer: No. Disqualification is triggered only by orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules. An order to cease and desist from violations of a non-scienter based rule would not trigger disqualification, even if the rule is promulgated under a scienter-based provision of law. For example, an order to cease and desist from violations of Rule 105 of Regulation M under the Exchange Act would not trigger disqualification, even though Rule 105 is promulgated in part under Exchange Act Section 10(b). [Dec. 4, 2013]

Question 260.22

Question: If an order issued by a court or regulator provides, in accordance with Rule 506(d)(2)(iii), that disqualification from Rule 506 should not arise as a result of the order, is it necessary to seek a waiver from the Commission or to take any other action to confirm that bad actor disqualification will not apply as a result of the order?

Answer: No. The provisions of Rule 506(d)(2)(iii) are self-executing. [Dec. 4, 2013]

Question 260.23

Question: Does the reasonable care exception only cover circumstances where the issuer has identified all covered persons but, despite the exercise of reasonable care, was unable to discover the existence of a disqualifying event? Or could it also apply where, despite the exercise of reasonable care, the issuer (i) was unable to determine that a particular person was a covered person (for example, an officer of a financial intermediary that the issuer did not know was participating in the offering, despite the exercise of reasonable care) or (ii) initially determined that the person was not a covered person but subsequently determined that the person should have been deemed a covered person?

Answer: The reasonable care exception applies whenever the issuer can establish that it did not know and, despite the exercise of reasonable care, could not have known that a disqualification existed under Rule 506(d)(1). This may occur when, despite the exercise of reasonable care, the issuer was unable to determine the existence of a disqualifying event, was unable to determine that a particular person was a covered person, or initially reasonably determined that the person was not a covered person but subsequently learned that determination was incorrect. Issuers will still need to consider what steps are appropriate upon discovery of Rule 506(d) disqualifying events and covered persons throughout the course of an ongoing Rule 506 offering. An issuer may need to seek waivers of disqualification, terminate the relationship with covered persons, provide Rule 506(e) disclosure, or take such other remedial steps to address the Rule 506(d) disqualification. [Dec. 4, 2013]

Question 260.24

Question: Is there a procedure provided in Rule 506(e) for issuers to seek a waiver of the obligation to disclose past events that would have been disqualifying, except that they occurred before September 23, 2013 (the effective date of Rule 506(d))?

Answer: No. The disclosure obligation is not subject to waiver. [Dec. 4, 2013]

Question 260.25

Question: Does Rule 506(e) require disclosure of past events that would no longer trigger disqualification under Rule 506(d), such as a criminal conviction that occurred more than ten years before the offering or an order or bar that is no longer in effect at the time of the offering?

Answer: No. Rule 506(e) requires only disclosure of events that would have triggered disqualification at the time of the offering had Rule 506(d) been applicable. Because events outside the applicable look-back period and orders that do not have continuing effect would not trigger disqualification, Rule 506(e) does not mandate disclosure of such matters in order for the issuer to be able to rely on Rule 506. [Dec. 4, 2013]

Question 260.26

Question: In an offering in which the issuer uses multiple placement agents or other compensated solicitors, is the issuer required to provide investors with disclosure under Rule 506(e) only with respect to the particular compensated solicitor or placement agent that solicited those investors and its covered control persons (i.e., general partners, managing members, directors, executive officers, and other officers participating in the offering)?

Answer: No. Issuers are required to provide all investors with the Rule 506(e) disclosure for all compensated solicitors who are involved with the offering at the time of sale and their covered control persons. [Dec. 4, 2013]

Question 260.27

Question: In a continuous offering, is the issuer required to provide disclosure under Rule 506(e) for all solicitors that were ever involved during the course of the offering?

Answer: No. A reasonable time prior to the sale of securities in reliance on Rule 506, the issuer must provide the required disclosure with respect to all compensated solicitors that are involved at the time of sale. Disclosure with respect to compensated solicitors who are no longer involved with the offering need not be provided under Rule 506(e) in order for the issuer to be able to rely on Rule 506. [Dec. 4, 2013]

Question 260.28

Question: Is a shareholder that becomes a 20% beneficial owner by purchasing securities in an offering a covered person with respect to that offering?

Answer: Rule 506(d) looks to the time of each sale of securities, and provides that no exemption will be available for the sale if any covered person is subject to a bad actor triggering event at that time. A shareholder that becomes a 20% beneficial owner upon completion of a sale of securities is not a 20% beneficial owner at the time of the sale. However, it would be a covered person with respect to any sales of securities in the offering that were made while it was a 20% beneficial owner. [Jan. 3, 2014]

Question 260.29

Question: Is the term “beneficial owner” in Rule 506(d) interpreted the same way as under Exchange Act Rule 13d-3?

Answer: Yes, “beneficial owner” under Rule 506(d) means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, under Exchange Act Rule 13d-3 has or shares, or is deemed to have or share: (1) voting power, which includes the power to vote, or to direct the voting of, such security; and/or (2) investment power, which includes the power to dispose, or to direct the disposition of, such security. [Jan. 3, 2014]

Question 260.30

Question: For purposes of determining 20% beneficial owners under Rule 506(d), is it necessary to “look through” entities to their controlling persons?

Answer: Beneficial ownership includes both direct and indirect interests, determined as under Exchange Act Rule 13d-3. [Jan. 3, 2014]

Question 260.31

Question: Some of the shareholders of a Rule 506 issuer have entered into a voting agreement under which each shareholder agrees to vote its shares of voting equity securities in favor of director candidates designated by one or more of the other parties. Are the parties to the agreement required to aggregate their holdings for purposes of determining whether they as a group are, or any single party is, a 20% beneficial owner of the issuer and, therefore, a covered person under Rule 506(d)?

Answer: Beneficial ownership of group members and groups should be analyzed the same as under Exchange Act Rules 13d-3 and 13d-5(b). Under that analysis, the shareholders have formed a group, and the group beneficially owns the shares beneficially owned by its members. In addition, the parties to the voting agreement that have or share the power to vote or direct the vote of shares beneficially owned by other parties to the agreement (through, for example, the receipt of an irrevocable proxy or the right to designate director nominees for whom the other parties have agreed to vote) will beneficially own such shares. Parties that do not have or share the power to vote or direct the vote of other parties’ shares would not beneficially own such shares solely as a result of entering into the voting agreement. See Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting CDI 105.06. If the group is a 20% beneficial owner, then disqualification or disclosure obligations would arise from court orders, injunctions, regulatory orders or other triggering events against the group itself. If a party to the voting agreement becomes a 20% beneficial owner because shares of other parties are added to its beneficial ownership, disqualification or disclosure obligations would arise from triggering events against that party. [Jan. 3, 2014]

Question 260.32

Question: Does an order issued by a court or regulator, in accordance with Rule 506(d)(2)(iii), waive the disclosure obligation set forth in Rule 506(e)?

Answer: No. The disclosure obligation in Rule 506(e) pertains to an issuer’s obligation to provide investors disclosure of disqualifying events that would have triggered disqualification, except that these events occurred before September 23, 2013. Rule 506(d)(2)(iii) permits issuers to rely on the self-executing statement of a regulatory authority to avoid Rule 506 disqualification when that regulatory authority advises the Commission in writing or in its order, decree or judgment, that Rule 506 disqualification should not arise a consequence of a disqualifying event that occurred on or after September 23, 2013.

A regulatory authority such as a state securities commission may, however, determine that an order entered before September 23, 2013 would not have triggered disqualification under Rule 506(d)(1) because the violation was not a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale. [Jan. 3, 2014]

Question 260.33

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 260.34

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 260.35

Question: Rule 506(c)(2)(ii)(A) sets forth a non-exclusive method of verifying that a purchaser is an accredited investor by, among other things, reviewing any Internal Revenue Service form that reports the purchaser's income for the "two most recent years." If such an Internal Revenue Service form is not yet available for the recently completed year (e.g., 2013), can the issuer still rely on this verification method by reviewing the Internal Revenue Service forms for the two prior years that are available (e.g., 2012 and 2011)?

Answer: No, the verification safe harbor provided in Rule 506(c)(2)(ii)(A) would not be available under these circumstances. We believe, however, that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method by:

reviewing the Internal Revenue Service forms that report income for the two years preceding the recently completed year; and
obtaining written representations from the purchaser that (i) an Internal Revenue Service form that reports the purchaser's income for the recently completed year is not available, (ii) specify the amount of income the purchaser received for the recently completed year and that such amount reached the level needed to qualify as an accredited investor, and (iii) the purchaser has a reasonable expectation of reaching the requisite income level for the current year.

Where the issuer has reason to question the purchaser's claim to be an accredited investor after reviewing these documents, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor. For example, if, based on this review, the purchaser's income for the most recently completed year barely exceeded the threshold required, the foregoing procedures might not constitute sufficient verification and more diligence might be necessary. [July 3, 2014]

Question 260.36

Question: A purchaser is not a U.S. taxpayer and therefore cannot provide an Internal Revenue Service form that reports income. Can an issuer review comparable tax forms from a foreign jurisdiction in order to rely on the verification method provided in Rule 506(c)(2)(ii)(A)?

Answer: No, the verification safe harbor provided in Rule 506(c)(2)(ii)(A) would not be available under these circumstances. In adopting this safe harbor, the Commission noted that there are "numerous penalties for falsely reporting information" in Internal Revenue Service forms. See Securities Act Release No. 33-9415 (July 10, 2013). Although the safe harbor is not available for tax forms from foreign jurisdictions, we believe that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method by reviewing filed tax forms that report income where the foreign jurisdiction imposes comparable penalties for falsely reported information.

Where the issuer has reason to question the reliability of the information about the purchaser's income after reviewing these documents, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor. [July 3, 2014]

Question 260.37

Question: Under the non-exclusive verification method set forth in Rule 506(c)(2)(ii)(B), an issuer can verify that a purchaser is an accredited investor on the basis of net worth by reviewing certain documentation of the purchaser's assets and liabilities "dated within the prior three months." Tax assessments, which are one of the types of documentation listed in this provision of the rule, are often prepared annually. Would an issuer be able to rely on this non-exclusive verification method if it reviewed the most recent tax assessment that is available, even if it is dated more than three months?

Answer: No, the verification safe harbor provided in Rule 506(c)(2)(ii)(B) would not be available under these circumstances. Although the safe harbor is not available, we believe that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method if it uses the most recently available tax assessment when determining whether the purchaser has the requisite net worth. For example, if the most recent tax assessment shows a value that, after deducting the purchaser's liabilities results in a net worth substantially in excess of $1 million, it may be sufficient verification that the purchaser has met the net worth test.

Where the issuer has reason to question whether the assessment reasonably reflects the value of the purchaser's assets, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor. [July 3, 2014]

Question 260.38

Question: Under the non-exclusive verification method set forth in Rule 506(c)(2)(ii)(B), an issuer must review a consumer report from one of the "nationwide consumer reporting agencies" to determine the purchaser's liabilities. Would a consumer report from a non-U.S. consumer reporting agency that performs similar functions as a U.S. nationwide consumer reporting agency be sufficient for purposes of this verification method?

Answer: No, such a consumer report would not satisfy the requirements of the verification safe harbor in Rule 506(c)(2)(ii)(B). Although the safe harbor is not available, we believe that an issuer could reasonably conclude that a purchaser is an accredited investor and satisfy the verification requirement of Rule 506(c) under the principles-based verification method by reviewing this report and taking any other steps necessary to determine the purchaser's liabilities (such as a written representation from the purchaser that all liabilities have been disclosed) in determining whether the purchaser has the requisite net worth.

Where the issuer has reason to question the extent of the purchaser's liabilities after reviewing these documents, it must take additional verification measures in order to establish that it has taken reasonable steps to verify that the purchaser is an accredited investor. [July 3, 2014]

Sections 261 to 270. Rules 507 to 610 [Reserved]

Section 271. Rule 701 — Exemption for Offers and Sales of Securities Pursuant to Certain Compensatory Benefit Plans and Contracts Relating to Compensation

Question 271.01

Question: Are terms used in (but not defined in) Rule 701 interpreted to have the same meanings as the same terms defined in Rule 405?

Answer: Yes. Examples of such terms include “affiliate,” “majority-owned subsidiary,” “parent,” and “subsidiary.” [Jan. 26, 2009]

Question 271.02

Question: Is a company that files Exchange Act reports on a voluntary basis, or in accordance with a contractual obligation, eligible to use Rule 701?

Answer: Yes. [Jan. 26, 2009]

Question 271.03

Question: Are foreign private issuers that are not subject to the Exchange Act’s reporting requirements eligible to use Rule 701, whether or not they publish their non-U.S. disclosure documents in accordance with Exchange Act Rule 12g3-2(b)?

Answer: Yes. [Jan. 26, 2009]

Question 271.04

Question: A company that is not subject to the reporting requirements of Exchange Act Section 13 or 15(d) issued options in reliance on Rule 701. This company is acquired by another company, which is subject to the reporting requirements of Exchange Act Section 13(a) or 15(d) and assumes the private company’s outstanding options so that they become exercisable for shares of the acquiring company. Does the acquiring company need to register the offer and sale of the shares issuable upon the exercise of the options?

Answer: No. Rule 701(b)(2) permits an issuer to rely on Rule 701 to sell securities offered prior to the issuer becoming a reporting company. Similarly, an acquirer that is subject to Exchange Act reporting requirements may rely on Rule 701 for the exercise of the assumed options. For purposes of compliance with any disclosure that may be required by Rule 701(e), the acquirer’s Exchange Act reports would satisfy any disclosure requirement under Rule 701(e). [October 19, 2016]

Question 271.05

Question: Are securities analysts excluded from receiving securities issued under Rule 701 or registered on Form S-8 as “consultants” or “advisors” because their services, as securities industry professionals, are inherently capital-raising or promote or maintain a market for the issuer’s securities?

Answer: Yes. [Jan. 26, 2009]

Question 271.06

Question: Must an issuer use a rolling period consisting of the 12 months immediately preceding the date of the transaction in question for determining whether it has exceeded the sales ceiling in Rule 701(d)(2) and whether it must comply with the additional disclosure requirements under Rule 701(e); or may the issuer elect a fixed 12-month period such as the calendar year or its fiscal year?

Answer: The issuer may choose to calculate its sales under Rule 701(d)(2) and 701(e) on the basis of either a fixed period or a rolling 12-month period but must continue using the chosen calculation method consistently. [Jan. 26, 2009]

Question 271.07

Question: If an issuer sells shares in excess of the Rule 701(d) limits, does it lose the Rule 701 exemption for all shares sold in the applicable 12-month period or just for the excess shares? May the issuer rely on another available exemption from Securities Act registration for sales of excess shares for which Rule 701 is not available?

Answer: The Rule 701 exemption would not be available for sales of shares that exceed the Rule 701(d) limits. Rule 701(f) provides, however, that sales under Rule 701 are not subject to integration with other sales that are otherwise exempt from the registration requirements of the Securities Act. Therefore, an issuer may rely on an available alternative exemption such as a limited offering exemption under Rule 504 of Regulation D or a private placement exemption under Rule 506 of Regulation D or Section 4(2) for the sales in excess of the Rule 701(d) limits, and rely on Rule 701 for sales that do not exceed the Rule 701(d) limits. [Jan. 26, 2009]

Question 271.08

Question: May an issuer sell $1,000,000 of securities under Rule 701(d)(2)(i) during any consecutive 12-month period, regardless of the calculations in Rules 701(d)(2)(ii) and (iii)?

Answer: Yes. Rule 701(d) limits the amount that may be sold to the “greatest” of $1,000,000, 15% of total assets, or 15% of the outstanding amount of the class of securities being offered. [Jan. 26, 2009]

Question 271.09

Question: To calculate the 15% of assets and the 15% of securities tests under Rule 701(d)(2)(ii) and (iii), may an issuer use either its balance sheet as of the last day of its most recently ended fiscal year or a more recent balance sheet?

Answer: Yes, an issuer is permitted to choose either balance sheet. See the American Bar Association no-action letter (Dec. 7, 2000) issued by the Division. [Jan. 26, 2009]

Question 271.10

Question: Within 12 months of an original option grant, the issuer reprices the option grant at a lower exercise price, which, in turn, lowers the aggregate sales price or amount of securities sold during the 12-month period. May the issuer exclude the original grant in determining the amount of securities that may be sold and whether it has an obligation under Rule 701 to deliver the additional disclosure called for when its issuance level exceeds $5 million?

Answer: Yes, but the issuer must count the repriced options as a new sale, and include them in determining its aggregate sales price or amount of securities sold within any consecutive 12-month period that includes the repricing date. [Jan. 26, 2009]

Question 271.11

Question: May an issuer disregard options that are cancelled or forfeited when applying the Rule 701(d) and (e) limits?

Answer: Yes. Once options are forfeited or cancelled, those options need not be counted for purposes of the Rule 701(d) and (e) limits. [Jan. 26, 2009]

Question 271.12

Question: Rule 701(e) prescribes additional disclosure that must be delivered a reasonable time before sale if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $5 million. Must this disclosure be provided to all investors in the Rule 701 offering, or only to those investors who purchase securities after the issuer exceeds the $5 million threshold? What are the consequences of non-compliance?

Answer: The Rule 701(e) disclosure must be provided to all investors in the Rule 701 offering if the issuer believes that sales will exceed the $5 million threshold in the coming 12-month period, not only to those who purchase securities after the issuer exceeds the $5 million threshold. As stated in Securities Act Release No. 7645 (Feb. 25, 1999):

“This requirement will obligate issuers to provide disclosure to all investors if the issuer believes that sales will exceed the $5 million threshold in the coming 12-month period. If the disclosure has not been provided to all investors before sale, the issuer will lose the exemption for the entire offering when sales exceed the $5 million threshold.” [Jan. 26, 2009]

Question 271.13

Question: A private issuer has a broad-based employee stock purchase plan that relies on the Rule 701 exemption. Employees sign up for payroll deductions at the start of a year, and the payroll deductions accumulated over the course of the year are applied to purchase shares on a single purchase date at the end of the year. Employees have the right to withdraw from the plan and have their payroll deductions refunded at any time during the year until shortly before the single purchase date. May the private issuer provide the Rule 701(e) disclosure shortly before the single purchase date?

Answer: Yes. [Jan. 26, 2009]

Question 271.14

Question: A foreign issuer intends to conduct a Rule 701 offering exceeding the $5 million threshold in Rule 701(e). Is the issuer required under Rule 701(e)(4) to deliver to investors financial statements that are no more than 180 days old, or can the issuer deliver its annual and interim financial statements only at the frequency required of foreign issuers that are Exchange Act reporting companies?

Answer: The issuer must follow the 180-day requirement, regardless of whether it furnishes financial statements reconciled to U.S. GAAP or prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, both of which are allowed under Rule 701(e)(4). The 180-day requirement effectively means that the financial statements must be available on at least a quarterly basis unless sales of securities are limited to particular times of the year. [Jan. 26, 2009]

Question 271.15

Question: May an issuer of securities provide the disclosure required by Rule 701(e) by means of electronic delivery, such as an email with attachments?

Answer: Yes. Rule 701(e) requires only that the disclosures be “provided” and “delivered.” It contains no requirement that the disclosures be provided or delivered using a particular medium. In general, the federal securities laws do not prescribe the medium to be used for providing information to investors by or on behalf of issuers of securities. For guidance on using electronic delivery to provide disclosure under the federal securities laws, see Securities Act Release No. 7856 (Apr. 28, 2000). [Jan. 26, 2009]

Question 271.16

Question: A company is no longer required to file reports under Exchange Act Sections 13(a) or 15(d). With respect to employee stock options that are outstanding upon the suspension or termination of the company's Exchange Act reporting obligations and for which underlying shares previously registered on Form S-8 have been removed from registration by post-effective amendment (the "Outstanding Stock Options"), is the Rule 701 exemption available to the company for the exercise of the Outstanding Stock Options? Is the Rule 701 exemption available for the exercise of stock options that the company grants in the future?

Answer: Rule 701 is available to a company upon suspension or termination of its Exchange Act reporting obligations. With respect to the Outstanding Stock Options, if the aggregate exercise price of those options exceeds $5 million, the company must deliver the disclosure required by Rule 701(e) in a reasonable period of time before the options are exercised in order to rely on the Rule 701 exemption for the sale of the underlying shares upon exercise of the options. With respect to future grants, the company is considered to start with a clean slate under Rule 701 upon suspending or terminating its Exchange Act reporting obligations. Shares underlying the Outstanding Stock Options are not included for purposes of determining compliance with the 12-month sales limitation requirements in Rule 701(d) and the disclosure requirements in Rule 701(e). [June 4, 2010]

Question 271.17

Question: In a merger transaction in which the acquirer assumes derivative securities of a target company and such derivative securities thereafter become derivative securities of the acquirer, does the acquirer need an exemption from registration for such assumption?

Answer: No. In a merger transaction, where derivative securities of the target company are assumed by the acquirer and by their terms become derivative securities for an economically equivalent amount of acquirer securities, the acquirer would not need an exemption for the assumption of such derivative securities, provided that at the time of grant by the target the compensatory benefit plan under which they were issued permitted this assumption without the consent of the holders of the derivative securities. [June 23, 2016]

Question 271.18

Question: Is the exercise or conversion of the derivative securities that the acquirer has assumed in Question 271.17 eligible for exemption under Rule 701?

Answer: Under Rule 701, an issuer must be eligible for, and comply with, the exemption at the time that any sales are made pursuant to it. For these purposes, when an eligible issuer grants derivative securities pursuant to Rule 701, the securities underlying the derivative securities are considered to have been sold on the date of the grant of the derivative securities (without regard to when the derivative securities become exercisable or convertible). So long as the target company complied with Rule 701 at the time the derivative securities assumed in the merger transaction were originally granted, the exercise or conversion of the derivative securities would be exempt, subject to compliance, where applicable, with Rule 701(e). See Questions 271.22 and 23 below. [June 23, 2016]

Question 271.19

Question: After the completion of a merger transaction, is an acquirer required to include securities previously sold by the target company pursuant to Rule 701 in its calculations for purposes of determining the amount of securities it may sell pursuant to Rule 701(d) on a going forward basis?

Answer: Yes. Post-merger, for purposes of determining the amount of securities that the acquirer may sell pursuant to Rule 701(d), the acquirer would be required to include the aggregate sales price and amount of securities for which the target company claimed the Rule 701 exemption during the same 12-month period for which the acquirer is making the determination. [June 23, 2016]

Question 271.20

Question: After the completion of a merger transaction, to calculate compliance with Rule 701(d)(2) on a going forward basis, could an acquirer use a pro forma balance sheet as of its most recent balance sheet date that reflects the merger transaction as if it had occurred on that date?

Answer: Yes. Alternatively, the acquirer also could use a balance sheet date after the merger transaction that will reflect the total assets and outstanding securities of the combined entity. [June 23, 2016]

Question 271.21

Question: Where an obligation to provide disclosure pursuant Rule 701(e) is triggered, Rule 701(e)(4) requires an issuer to provide investors with the financial statements required to be furnished by Part F/S of Form 1-A a reasonable time before the date of sale. In these circumstances, is an issuer required to follow the financial statement requirements of Part F/S as they relate to Tier 1 or Tier 2 Regulation A offerings?

Answer: An issuer could elect to provide financial statements that follow the requirements of either Tier 1 or Tier 2 Regulation A offerings, without regard to whether the amount of sales that occurred pursuant to Rule 701 during the time period contemplated in Rule 701(e) would have required the issuer to follow the Tier 2 financial statement requirements in a Regulation A offering of the same amount. [June 23, 2016]

Question 271.22

Question: After the completion of a merger transaction, for assumed derivative securities for which the target company was required to provide disclosure pursuant to Rule 701(e), does the acquirer assume that obligation? How does the acquirer satisfy the obligation?

Answer: For assumed derivative securities for which the target company was required to provide disclosure pursuant to Rule 701(e) that are exercised or converted post-merger, the acquirer would satisfy that obligation by providing information meeting the requirements of Rule 701(e) consistent with the timing requirements of Rule 701(e)(6). [June 23, 2016]

Question 271.23

Question: After the completion of the merger transaction, how does the acquirer treat securities previously sold by the target company pursuant to Rule 701 in its calculations for purposes of determining whether it has triggered a disclosure obligation pursuant to Rule 701(e)?

Answer: For purposes of Rule 701(e), following the merger transaction, in determining whether the amount of securities the acquirer sold during any consecutive 12-month period exceeds $5 million, the acquirer must include any securities that the target company sold during the same period. [June 23, 2016]

Question 271.24

Question: An issuer is relying on Rule 701 to exempt the offer and sale of a restricted stock unit (RSU) award it is making to one of its employees. The RSU award will settle upon the satisfaction of conditions based on length of service and/or company performance. No additional consideration is paid by the employee at the time of settlement. If the issuer sells an aggregate amount of securities (including the RSUs) during the consecutive 12-month period that exceeds $5 million, thus triggering the requirement to deliver the additional information specified in paragraphs (1) through (4) of Rule 701(e), when is the issuer required to provide the additional information?

Answer: Under Rule 701(e), the issuer must deliver the information specified in paragraphs (1) through (4) to investors “a reasonable period of time before the date of the sale.” For the sale of an RSU award that relies on Rule 701 for exemption, the date of sale is the date it is granted. As such, the issuer must provide the required information a reasonable time before the date the RSU award is granted. Although RSUs are derivative securities (as their value is derived from value of the underlying common stock), they are not “exercised or converted,” and thus Rule 701(e)(6) relating to the exercise or conversion of derivative securities does not apply. [October 19, 2016]

Question 271.25

Question:

To protect against the unauthorized disclosure of Rule 701(e) information, may companies that are using electronic delivery to satisfy Rule 701(e) disclosure requirements implement safeguards with respect to electronic access to Rule 701(e) information?

Answer:

We understand that some companies satisfying their Rule 701(e) delivery obligations electronically have concerns about the potential disclosure of sensitive company information. Standard electronic safeguards, such as user-specific login requirements and related measures, are permissible. The use of a particular electronic disclosure medium either alone or in combination with other safeguards, such as the use of dedicated physical disclosure rooms that house the medium used to convey the information required to be disclosed, should not be so burdensome that intended recipients cannot effectively access the required disclosures. For example, we would expect that physical disclosure rooms would be accessible during ordinary business hours upon reasonable notice. Once access to the required information has been granted, however, the medium used to communicate the required disclosure should provide the opportunity to retain the information or have ongoing access substantially equivalent to personal retention. [November 6, 2017]

Sections 272 to 275. Rules 800 to 901 [Reserved]

Section 276. Rule 902 - Definitions

Question 276.01

Question: What factors should be applied to determine the status of an individual as a "natural person resident in the United States" for purposes of the U.S. person definition under Rule 902(k)(1)(i)?

Answer: A person who has permanent resident status in the U.S. — a so-called Green Card holder - is presumed to be a U.S. resident. Other individuals without permanent resident status may also be residents of the U.S. for purposes of these provisions. In these circumstances, an issuer must decide what criteria it will use to determine residency and apply them consistently without changing them to achieve a desired result. Examples of factors an issuer may apply include tax residency, nationality, mailing address, physical presence, the location of a significant portion of their financial and legal relationships, or immigration status. [December 8, 2016]

Section 277. Rule 903 — Offers or Sales of Securities by the Issuer, a Distributor, Any of their Respective Affiliates, or Any Person Acting on Behalf of Any of the Foregoing; Conditions Relating to Specific Securities

Question 277.01

Question: When must a foreign private issuer determine the particular category of the Regulation S safe harbor for an offering of securities outside the United States?

Answer: An issuer must determine the particular category of the Regulation S safe harbor upon which it will rely at the time it makes the offshore offering. If, after the offering is made, changes occur in the issuer’s circumstances that would permit it to qualify for a different category of the safe harbor in the future, there will be no change in the distribution compliance period for the outstanding securities issued under the prior category. [Jan. 26, 2009]

Question 277.02

Question: May an issuer rely on Rule 903(b)(1)(ii) for an offering of securities in more than one country that is part of the European Union?

Answer: Yes. Regulation S was adopted before the integration of the capital markets within the European Union as a result of application of EU-wide laws and regulations relating to prospectuses, transparency, trading and other matters. Given that level of integration, issuers may rely on Rule 903(b)(1)(ii) to the extent the local laws and customary practices and documentation are those of the European Union rather than of a single country within the European Union. [December 8, 2016]

Question 277.03

Question: May an issuer rely on Rule 903(b)(1)(iv) for an offering of securities to employees if the laws, customary practices and documentation are those of the European Union rather than of a country other than the United States?

Answer: Yes, for the reasons discussed in Securities Act Rules CDI 277.02. [December 8, 2016]

Question 277.04

Question: In adopting Regulation S, the Commission stated that persons relying on the second issuer safe harbor [now referred to as Category 2] must "ensure (by whatever means they choose) that any non-distributor to whom they sell securities is a non-U.S. person and is not purchasing for the account or benefit of a U.S. person." The Commission also noted that the "safe harbor protection would not be available where offers and sales were made nominally to non-U.S. persons to evade the restrictions." See Securities Act Release No. 6863 (April 24, 1990). May a person seeking to rely on the Category 3 safe harbor under Rule 903 apply this guidance in establishing that offers and sales are not made to a U.S. person or for the account or benefit of a U.S. person?

Answer: Yes. [December 8, 2016]

Question 277.05

Question: Can the certification and agreement required under Regulation S (such as those required under Category 3 and those required with respect to warrants) be provided electronically?

Answer: There are no specific requirements under Regulation S relating to the manner in which certifications and agreements are made. As a result, issuers and distributors may use electronic procedures to obtain the certifications and agreements. Such processes may be implemented by third parties and issuers and distributors may rely on those procedures to the same extent and in the same manner as when certifications and agreements are obtained in paper. [December 8, 2016]

Question 277.06

Question: Does Rule 903(b)(4) relating to guaranteed debt securities apply to offerings of debt securities that are guaranteed by subsidiaries of a parent company guarantor or parent company issuer?

Answer: Yes. Rule 903(b)(4) would apply in situations when the parent company is the issuer (or a co-issuer) of the debt securities and one or more subsidiaries is a guarantor, and when the parent company is a guarantor and there are one or more subsidiaries which are also guarantors of the securities, in each case as long as the payment obligation of the parent company is full and unconditional. [December 8, 2016]

Section 278. Rule 904 [Reserved]

Section 279. Rule 905 — Resale Limitations

Question 279.01

Question: Rule 905 provides that any “restricted securities” under Rule 144 that are equity securities of a domestic issuer will continue to be deemed to be restricted securities notwithstanding that they were acquired in a resale transaction pursuant to Rule 901 or 904. May a holder of restricted securities, which were originally acquired from a foreign private issuer in a transaction described in Rule 144(a)(3) (other than Rule 144(a)(3)(v)), resell those securities offshore pursuant to Rule 904 and without regard to Rule 905, if the issuer no longer qualifies as a foreign private issuer at the time of resale?

Answer: Yes. Rule 905 only applies to equity securities that, at the time of issuance, were those of a domestic issuer. [Jan. 23, 2015]

Section 280. Rules 906 to 1001 [Reserved]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Sections 501 to 509. Rules 100 to 133 [Reserved]

Section 510. Rule 134 — Communications Not Deemed a Prospectus

510.01 Rule 134 does not authorize the inclusion in tombstone ads of photographs of investment properties or descriptions of the tax benefits of investments. [Jan. 26, 2009]

510.02 A tombstone ad prepared pursuant to Rule 134 for use in connection with a registered public offering generally can be provided to existing shareholders along with a regularly provided quarterly report during the pre-effective period. [Jan. 26, 2009]

510.03 A broker-dealer participating in a registered public offering may send its clients a small reply card, along with a copy of a tombstone advertisement, to assist customers who wish to request a copy of the prospectus. [Jan. 26, 2009]

510.04 Although suitability requirements are not permitted under a literal reading of Rule 134, Rule 134(a)(16) does permit the inclusion of “any statement or legend required by any state law or administrative authority.” In light of the position by the California Department of Corporations that advertisements for direct participation programs (limited partnerships) must include suitability requirements, issuers may use suitability requirements in Rule 134 advertisements distributed in California when they are included to comply with the Department’s position. [Jan. 26, 2009]

510.05 Tombstone ads may contain a statement that the securities would be subject to early redemption or could be called by the issuer. [Jan. 26, 2009]

510.06 A commodity fund was advised that even though it bears some resemblance to an investment company, this fact does not automatically entitle it to include in its Rule 134 notice all of the information about its business that investment companies are permitted to include pursuant to Rule 482. The fund was reminded that Rule 134 permits only a brief indication of an issuer’s business. [Jan. 26, 2009]

Sections 511 to 512. Rules 134a to 134b [Reserved]

Section 513. Rule 135 — Notice of Proposed Registered Offerings

513.01 A press release issued pursuant to Rule 135 in connection with an initial public offering may state that the shares to be offered have not yet been authorized and therefore their issuance is subject to shareholder approval. [Jan. 26, 2009]

513.02 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 Securities Act Sections 2(a)(3) and 5. Any such communication, if it is an offer, would either have to be registered under the Securities Act or exempt from Securities Act registration. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of such an offering, but would not allow the solicitation of indications of interest. [Jan. 26, 2009]

513.03 A cash out merger of Company A by Company B has been approved by Company B’s shareholders. Prior to consummation of the merger, Company B intends to make a registered public offering and proposes to send a Rule 135 notice to Company A’s shareholders. Such a notice would come within the term “publishe[d] through any medium” in Rule 135 and thus is permissible. [Jan. 26, 2009]

Sections 514 to 521. Rules 135a to 138 [Reserved]

Section 522. Rule 139 — Publications or Distributions of Research Reports by Brokers or Dealers Distributing Securities

522.01 Rule 139 defines “offer for sale” in relation to certain dealer publications, and provides limited relief from the application of Section 5 to such publications when used in connection with registered offerings by reporting companies or certain foreign private issuers with offshore trading histories or that have a $700 million worldwide public float. The rule cannot be extended by analogy to offerings of other non-reporting companies, since the public availability of the information contained in Exchange Act reports is a fundamental basis of the rule. [Jan. 26, 2009]

522.02 A reporting company filed a registration statement on Form S-4 for a Rule 145 merger transaction. Shareholders had voted to approve the transaction and no further shareholder vote regarding valuation contingencies was required. The approval of a regulatory authority was needed before the transaction could be closed. On these facts the sale of the shares occurred when shareholders voted to approve the merger; accordingly, the registered offering had been completed for purposes of Rule 139. [Jan. 26, 2009]

522.03 The broker-dealer that acted as underwriter in an initial public offering now has a small long position in the underwritten stock in its investment account as a result of bad orders. The issue otherwise sold out. On these facts, the distribution was concluded for purposes of the Rule 139 safe harbor provisions, notwithstanding the stock held in the investment account. As a result, the broker-dealer could make recommendations regarding the issuer’s securities without concern that those recommendations would be deemed to be offers or sales. [Jan. 26, 2009]

Section 523. Rules 139a [Reserved]

Section 524. Rule 140 — Definition of “Distribution” in Section 2(a)(11) for Certain Transactions

524.01 A limited liability company sought to issue to its employees the stock of its financing member, which has the sole purpose of issuing stock to the public and investing the proceeds thereof in the LLC’s securities. Because of this relationship, Rule 140 requires the LLC to register as co-issuer on any Securities Act registration statement filed by the financing member for the sale of the financing member’s stock. Accordingly, the LLC would be included as a registrant on any Form S-8 filed by the financing member. It is therefore not necessary to analyze whether the financing member is a “subsidiary” of the LLC for purposes of determining whether the finance member may register its stock on Form S-8 for sale to employees of its “parent.” [Jan. 26, 2009]

Sections 525 to 527. Rules 141 to 143 [Reserved]

Section 528. Rule 144 — Persons Deemed Not to be Engaged in a Distribution and therefore Not Underwriters — General Guidance

528.01 Rule 144 is not available for sales of an issuer’s securities by its subsidiary, since a parent-issuer may not do indirectly through a subsidiary what it may not do directly under Rule 144. See Securities Act Release No. 5306 (Sept. 26, 1972). For example, a subsidiary, which is not a bank or trust company, that acts as trustee for its parent’s employee benefit plan would not be permitted to rely on Rule 144 for sales of its parent’s securities in connection therewith. [Jan. 26, 2009]

528.02 Unregistered resales of restricted securities may be made in markets outside the United States, including foreign exchanges, in reliance on Rule 144 or the safe harbor provisions of Regulation S. Any arrangement to return the restricted securities to U.S. markets may indicate, as suggested by Securities Act Release No. 7190 (June 27, 1995), an evasive scheme to avoid registration, which would invalidate any safe harbor claim. [Jan. 26, 2009]

528.03 A person holds only restricted securities and has held them for less than the requisite Rule 144(d) holding period. Such person cannot effect a short sale of securities of that class, and then cover with such person’s restricted securities (even though the restricted securities are now eligible for sale) since the initial short sale did not qualify under Rule 144. See Securities Act Release No. 6099, Question 82 (Aug. 2, 1979). [Jan. 26, 2009]

528.04 Rule 144 is not available for the sale of securities acquired by an underwriter or finder as compensation for services rendered in connection with a registered public offering. The securities held by the underwriter or finder are not considered restricted securities because they were not acquired in a transaction or chain of transactions not involving any public offering. As such, Rule 144 may not be relied upon for their sale. However, Rule 144 may be applied constructively for the resale of such shares in the following manner:

(1) provided that six months has elapsed since the last sale under the registration statement, an underwriter or finder may resell the shares in accordance with the provisions of Rule 144(c), (e), and (f), except for the notice requirement. See Securities Act Release No. 6099, Question 10 (Aug. 2, 1979);

(2) a purchaser of the shares from an underwriter or finder receives restricted securities unless the sale is made with an appropriate, current prospectus, or unless the sale is made pursuant to the conditions contained in (a) above;

(3) a purchaser of the shares from an underwriter or finder who receives restricted securities may include the underwriter’s or finder’s holding period, provided that the underwriter or finder is not an affiliate of the issuer; and

(4) if an underwriter or finder transfers the shares to its employees, the employees may tack the firm’s holding period for purposes of Rule 144(d), but they must aggregate sales of the distributed shares with those of other employees, as well as those of the underwriter or finder, for a six-month period from the date of the transfer to the employees. [Jan. 26, 2009]

528.05 A company in bankruptcy proposes to issue stock to an unrelated party for the acquisition of another business. Although the issuance will be part of the court-approved reorganization plan, it will not meet the requirements for the Securities Act exemption afforded by Section 1145(a) of the Bankruptcy Code because the issuance will not be in exchange for a bankruptcy claim or administrative expense. The company will rely on Securities Act Section 4(2) for its registration exemption. Because the offer and sale of the securities under the plan of reorganization are not exempt under Section 1145, the securities are restricted securities under Rule 144(a)(3) and may be publicly resold under Rule 144 or registered prior to resale. [Jan. 26, 2009]

528.06 The cessation of affiliate status is a facts-and-circumstances determination, and counsel should not assume that it ceases instantly when, for example, the former affiliate resigns from his or her position at the company. [Jan. 26, 2009]

528.07 A company issued securities under Securities Act Section 3(a)(6) but has lost its eligibility to use that exemption in the future. Shares held by affiliates of the company may be resold pursuant to the provisions of Rule 144 (except for the holding period provisions). [Jan. 26, 2009]

528.08 A private purchaser wishes to invest directly in an issuer but wants to acquire unrestricted securities. Through arrangements and understandings with the issuer, an existing shareholder with shares that are either restricted securities currently eligible for sale under Rule 144 or unrestricted securities sells the shares to the private purchaser. At about the same time, the issuer sells an equivalent number of shares to the existing shareholder. The Division’s view is that the shares taken by the private purchaser from the existing shareholder will be restricted securities within the meaning of Rule 144(a)(3). The holding period will date to the private acquisition. A public resale of the shares acquired from the existing shareholder without regard to the conditions of Rule 144 would raise serious issues under Securities Act Section 5 for all parties to the transactions. [Jan. 26, 2009]

Section 529. Rule 144(a) — Definitions

529.01 An affiliate settlor transfers unrestricted shares to a charitable remainder trust. The control securities are the only asset of the trust. The entire income interest in the trust is held by the affiliate and the affiliate’s family members sharing the same residence. Income distributions are made annually. Whether the trust is an “affiliate” of the issuer under Rule 144(a)(1) and whether the trust and the settlor are the same “person” under Rule 144(a)(2) are separate questions to be resolved under the separate standards of Rules 144(a)(1) and (a)(2), respectively. Further, the affiliate status of the trust is not necessarily changed by the use of an independent trustee. [Jan. 26, 2009]

529.02 An affiliate purchased common stock of its company in a private transaction from a non-affiliate who acquired the shares in the open market. Since such shares are not restricted securities within the meaning of Rule 144(a)(3), the Rule 144(d)(1) holding period requirement does not apply to resales of these shares by the affiliate. However, all of the other requirements of the rule would have to be complied with by the affiliate for any of its sales of the shares under the rule. [Jan. 26, 2009]

529.03 Securities were inadvertently sold to a company’s employees under a “stale” Form S-8 registration statement. For purposes of resale by the purchasing employees, the securities would be treated as if they were unrestricted so as not to penalize innocent purchasers under the “stale” Form S-8. [Jan. 26, 2009]

529.04 An affiliate transfers securities acquired in the open market to her spouse (a non-affiliate) pursuant to, and on or subsequent to the date of, a court-approved divorce settlement agreement. The non-affiliate spouse need not consider such securities restricted because the securities were not “sold” to the spouse by the affiliate. [Jan. 26, 2009]

529.05 An underwriter receives, as compensation for managing an exempt industrial development bond offering, warrants to purchase securities of the corporation using the industrial development bond-financed facility. Such warrants will be deemed restricted securities for purposes of Rule 144. [Jan. 26, 2009]

Section 530. Rule 144(b) — Conditions to be Met

530.01 Where a non-affiliate acquired securities in a private transaction under Rule 144(b)(1), the fact that it executed an investment letter for the acquired securities would not prevent it from reselling the securities without any restrictions under Rule 144. [Jan. 26, 2009]

530.02 An affiliate pledges restricted securities of an Exchange Act reporting issuer (an issuer that is, and has been for at least the 90-day period immediately before the sale, subject to the reporting requirements of Exchange Act Section 13 or 15(d)) to a non-affiliate pledgee on a non-recourse basis. The non-affiliate pledgee receives those restricted securities after the affiliate pledgor defaults. The non-affiliate pledgee (who has not been an affiliate during the preceding three months) may utilize Rule 144(b)(1)(i) to sell the securities, provided six months have elapsed from the time of the pledge and the Rule 144(c)(1) condition is satisfied as required under Rule 144(b)(1)(i). If, however, the pledge had been made with recourse, the pledgee could tack the pledgor’s holding period to its own for purposes of satisfying the six-month holding period requirement of Rule 144(d)(1)(i). [Jan. 26, 2009]

530.03 Provided that the donor and donee have held the stock for a combined period of six months and that the Rule 144(c)(1) condition is satisfied as required under Rule 144(b)(1)(i), a non-affiliate donee (who has not been an affiliate during the preceding three months) who receives stock of an Exchange Act reporting issuer (an issuer that is, and has been for at least the 90-day period immediately before the sale, subject to the reporting requirements of Exchange Act Section 13 or 15(d)) from an affiliate donor may resell the stock under Rule 144(b)(1)(i) without a three-month waiting period because the donor and the donee are not the same “person” as defined in Rule 144(a)(2). [Jan. 26, 2009]

530.04 A non-affiliate estate may utilize Rule 144(b)(1), even though the decedent was an affiliate. [Jan. 26, 2009]

530.05 A person who enters into a binding contract for the sale of restricted securities within three months after ceasing to be an affiliate of the issuer of such securities may not utilize Rule 144(b)(1), even though the delivery of the securities takes place more than three months after such person loses affiliate status. [Jan. 26, 2009]

530.06 The settlor of a trust for the benefit of the settlor’s children (who are past the age of majority and do not live with the settlor) is an affiliate of the issuer, and the trust holds restricted securities. Neither the independent trustee nor the beneficiaries are affiliates or have been affiliates during the preceding three months. The trustee may sell the restricted securities under Rule 144(b)(1). [Jan. 26, 2009]

530.07 A person owns 20% of newly formed Company A and has held restricted securities of Company B for more than one year. The person, who is not an affiliate of Company B and has not been an affiliate during the preceding three months, effects a negotiated sale of the restricted securities to Company A, in accordance with all of the applicable requirements of Rule 144(b)(1). As a result, Company A now owns unrestricted securities of Company B. [Jan. 26, 2009]

Section 531. Rule 144(c) — Current Public Information

531.01 A corporation had a registered public offering in 2000. Since then, it has continuously filed periodic reports under Section 15(d) of the Exchange Act, even though it has always had fewer than 300 record holders. The corporation has just had a second public offering. In view of the history of voluntary reporting, the Division staff was of the view that holders of restricted securities need not wait 90 days from the effective date of the registration statement before commencing sales of such securities pursuant to Rule 144, assuming the issuer is current in its voluntary reporting. [Jan. 26, 2009]

531.02 An issuer was required to file a Form 10-K on February 14, 2005. Because its executive offices had burned down in early February, the issuer filed a Form 12b-25 for an extension of time, extending the due date for the Form 10-K to March 1. The issuer was unable to file on March 1, and thereby became delinquent. A director sold the issuer’s stock on March 4 pursuant to Rule 144. Before the sale was made, the director’s broker checked with the Division’s staff, and was told that the issuer was current in its Exchange Act filings. This information was incorrect. The issuer’s attorney was advised that Rule 144 was not available for the sale by the director, because the director’s relationship to the issuer was such that the director had reason to believe that the issuer was not current in reporting. It should be noted that a seller under Rule 144 may not rely on a verbal representation by any Division staff member as to the current reporting status of an issuer, and Division staff members therefore will decline to answer inquiries on such matters. [Jan. 26, 2009]

531.03 A parent has guaranteed the outstanding debt securities (all of which are unlisted) of its wholly owned subsidiary and furnishes summarized disclosure with respect to the subsidiary in its Exchange Act reports. The subsidiary does not file Exchange Act reports. In these circumstances, the subsidiary will be deemed to satisfy the public information requirement of Rule 144(c)(1) with respect to the guaranteed debt securities so long as its parent satisfies that requirement with respect to itself and continues to provide summarized disclosure concerning the subsidiary in accordance with Rule 3-10 of Regulation S-X. Restricted debt securities of the subsidiary could be sold in accordance with the provisions of the rule. [Jan. 26, 2009]

Section 532. Rule 144(d) — Holding Period for Restricted Securities

532.01 A pledgor who is an affiliate defaults on a loan that is secured, either with or without recourse, by a bona fide pledge of company stock acquired in the open market (i.e., these securities are not “restricted securities” in the pledgor’s hands). In the pledgee’s hands, these securities are “restricted securities” because they have been “acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering.” If the pledgee is a non-affiliate and has not been an affiliate during the preceding three months, the pledgee may resell such securities pursuant to Rule 144(b)(1) without regard to the holding period requirement in Rule 144(d) but subject to the current public information requirement in Rule 144(c)(1), as applicable. No other requirements in Rule 144 are applicable to the pledgee’s resale. [May 16, 2013]

532.02 If a preferred stockholder tenders shares to the issuer and receives in return cash plus a new series of preferred, the stockholder may tack its holding period for the old preferred to that for the new series. [Jan. 26, 2009]

532.03 New investors in a closely-held investment partnership, and existing partners to whom assets have been redistributed upon withdrawal of other partners, may rely on the position on tacking set forth in Question 34(a) in Securities Act Release No. 6099 (Aug. 2, 1979), provided the fundamental character of the partnership is not changed. [Jan. 26, 2009]

532.04 In a stock-for-stock acquisition, the closing will be delayed until the acquired corporation’s year-end revenues have been determined, giving the acquiring corporation an “out” if such revenues do not reach a pre-determined level. The Rule 144 holding period for recipients of the acquiring corporation’s stock will not begin until the closing because the recipients will not be at economic risk until that time. [Jan. 26, 2009]

532.05 A closely-held corporation distributes restricted securities of an issuer pro rata and without consideration to its shareholders, which are three limited partnerships. Each of these limited partnerships, in turn, distributes the restricted securities pro rata and without consideration to its partners (about 10 people in each instance). Tacking of holding periods from corporation to partnerships, and from partnership to partners, is permitted for purposes of Rule 144(d). [Jan. 26, 2009]

532.06 Question 23 of Securities Act Release No. 6099 (Aug. 2, 1979), dealing with the commencement of the Rule 144(d) holding period for restricted securities issued pursuant to a written agreement, provides that the holding period starts when the person who will receive the securities is deemed to have paid for the securities and thereby assumed the full risk of economic loss with respect to them. The holding period for restricted securities that an employee receives pursuant to an individually negotiated employment agreement commences when investment risk for the securities passes to the employee (which is the date that the employee is deemed to have paid for them). For full value awards, if the vesting of the securities is conditioned solely on continued employment and/or satisfaction of performance conditions that are not tied to the employee’s individual performance and the employee pays no further consideration for the securities, that date would be the date of the agreement. For awards that require additional payment upon exercise, conversion or settlement, that date would be the date on which such payment is made. [October 19, 2016]

532.07 Pro rata redemptions of partnership interests in a closely-held investment partnership with partners receiving distributions of restricted securities in kind, as, for example, in liquidation, would allow partners to tack the partnership holding period for purposes of Rule 144(d). [Jan. 26, 2009]

532.08 An affiliate transfers restricted stock to a corporation of which the affiliate owns 84%. The corporation intends to sell the restricted stock and convey to the affiliate an interest in the corporation equal to the proceeds of the sale. Tacking by the corporation of the affiliate’s holding period would not be permitted for purposes of Rule 144 because the transfer to the corporation is deemed to be a private sale which commences a new holding period for the purchaser. [Jan. 26, 2009]

532.09 Investor A purchased 100 shares of restricted stock of a reporting company by executing a promissory note which did not meet the requirement of Rule 144(d)(2). Since this obligation is not considered to be “full payment of the purchase price” under the rule, Investor A’s holding period commences only at such time or times as Investor A actually makes payment on the note. Investor A paid off half the amount of the note over six months ago and, accordingly, the holding period requirement for 50 shares (half the total of 100) has been met. Investor A recently sold 50 shares of the restricted stock in a registered offering. The question presented was whether the shares sold in the registered offering must be regarded as the shares as to which the holding period had run. Although Rule 144 does not establish a guide for this situation, it was decided that Investor A could deem the registration statement to relate solely to the shares for which the holding period requirement had not been satisfied. As a result, Investor A may now sell all of the remaining 50 shares under Rule 144, assuming Rule 144(c) is satisfied. [Jan. 26, 2009]

532.10 Securities have been escrowed by an issuer as a contingent payment in connection with an acquisition. The escrow agreement gives the intended beneficiary the right to sell the securities during the life of the escrow, on condition that the sale proceeds are returned to the escrow account. Rule 144(d)(3)(iii) provides that securities acquired as a contingent payment in connection with the sale of a business shall be deemed to have been acquired at the time of the sale, for purposes of the holding period requirement of Rule 144(d). This provision, however, applies only to those securities that have actually been acquired in satisfaction of a contingency. Since the shares in this case are still subject to a contingency and have not been formally acquired, the beneficiary may not rely on Rule 144(d)(3)(iii) to satisfy the holding period requirement of the rule for sales made during the period the escrow arrangement is in effect. [Jan. 26, 2009]

532.11 A corporation distributes to its employees as a bonus restricted securities of an affiliated issuer which it acquired at an earlier date. For purposes of the holding period provisions of Rule 144(d), the employees would not be able to tack the corporation’s holding period to their own. The employer-employee relationship of the parties suggests that the distribution is being made as a form of compensation for services rendered, rather than as a gift (for which tacking would be permitted). [Jan. 26, 2009]

532.12 An employee acquires restricted stock pursuant to a “price hook” plan, whereby the employee pays only a portion of the purchase price when acquiring the stock from the company. The remainder is to be paid when the stock is resold. The stock may not be resold under Rule 144, because the holding period requirement cannot be met under this arrangement, as the stock will not be fully paid for until the time of sale. [Jan. 26, 2009]

532.13 Convertible notes with accrued but unpaid interest are exchanged for shares of the issuer. The holding period for the notes can be tacked to the holding period on the shares under Rule 144(d)(3)(ii) only if the exchange “consist[s] solely of other securities of the same issuer.” Although the right to receive payment for the accrued interest could be construed as additional consideration that is inconsistent with Rule 144(d)(3)(ii), the holding period for the convertible notes can be tacked to the holding period for all of the shares received in the exchange. This position is consistent with Securities Act Section 3(a)(9), which exempts certain exchanges where securities of the same issuer are the only consideration. [Jan. 26, 2009]

532.14 A private offering is made on a minimum/maximum basis (i.e., shares are not issued and proceeds not delivered to the company from an escrow account unless a minimum amount is sold). The Rule 144 holding period for shares acquired in such an offering would begin at the time a shareholder pays for its shares and its payment is deposited in the escrow account. At that time, the shareholder is at risk for purposes of Rule 144(d), since it is committed to participating in the offering if the minimum amount is sold. [Jan. 26, 2009]

532.15 A Nevada corporation that holds restricted securities of another issuer effects a merger to change its domicile to Delaware. The restricted securities become the property of the Delaware successor as a result of the merger. Because of the exception for migratory transactions in Rule 145(a)(2), the merger is not a sale within the meaning of the Securities Act. The holding period of the Nevada predecessor for the restricted securities is not disturbed by the succession. [Jan. 26, 2009]

532.16 The holder of restricted securities of a foreign private issuer exchanges them for an equivalent number of American Depositary Receipts (“ADR”) with the depositary. The ADR will be a restricted security itself with a holding period identical to that on the underlying security. The ADR may be sold in reliance on Rule 144 to the same extent the underlying security could have been sold. Note that Form F-6, which relates to the issuance of depositary shares evidenced by American Depositary Receipts, requires that the deposited securities be offered and sold in transactions registered under the Securities Act or exempt from registration. See General Instruction I.A(2) of Form F-6. [Jan. 26, 2009]

532.17 An affiliate holder of restricted securities bona fide pledges the securities to a bank to secure payment of a loan. In the event of default, the bank is required to exhaust the collateral before proceeding against the pledgor personally. For purposes of Rule 144(d)(3)(iv), the pledge is a recourse arrangement, so that the bank will have the benefit of the pledgor’s holding period. [Jan. 26, 2009]

532.18 A promissory note, secured by the restricted securities purchased with the note, will meet the collateral standard of Rule 144(d)(2)(ii) if the note is also secured by other property with independent fair market value at least equal to the purchase price of the restricted securities. [Jan. 26, 2009]

532.19 An officer purchases securities from an issuer paying the full purchase price in cash. Thereafter, the officer purchases an equal number of shares through the use of a promissory note, securing the note with the officer’s first purchase of securities. The use of such collateral to secure the promissory note is within the requirements of Rule 144(d)(2)(ii), and the holding period for the second purchase would begin when the note is given to the issuer. [Jan. 26, 2009]

532.20 A company sold shares to its employees pursuant to a private placement. The employees could borrow the entire purchase price from a non-affiliate bank, giving a note guaranteed by the company and placing the shares in escrow. If the company had to repay the note, it could repurchase the shares at book value. This arrangement, in substance, is the same as giving a note to the company in payment for the shares, and therefore, pursuant to Rule 144(d)(2), full payment of the purchase price has not been satisfied. [Jan. 26, 2009]

532.21 A non-affiliate acquired warrants from an issuer more than two years ago in partial consideration for the sale of a subsidiary. The non-affiliate wanted to pay the exercise price with shares of the issuer that it planned to purchase just prior to the exercise (for tax reasons) and then tack the holding period of the warrants to the holding period for the shares received upon exercise. The holding period of warrants that are turned in for the spread’s worth of shares underlying the warrants (a “cashless exercise”) can be tacked to the holding period for the shares received. However, under these facts, because the proposed transaction would allow the non-affiliate to do indirectly what the non-affiliate could not do directly (pay the exercise price in cash and tack the holding period of the warrants to the holding period of the shares received upon exercise), tacking would not be permitted under Rule 144. A person using securities to exercise restricted stock purchase warrants should use the shorter of the holding period on the warrants or on the other securities used in payment to find the holding period for the shares received on exercise. [Jan. 26, 2009]

532.22 Where a seller surrendered a secured promissory note of the issuer as consideration for the cashless exercise of a warrant from the same issuer, the Division staff was of the view that the holding period of the note could not be tacked to the common stock received upon the exercise of the warrant. Under the particular facts, the note did not appear to be a “security” under the standards enunciated in Reves v. Ernst & Young, 494 U.S. 56 (1990), and therefore, it would not qualify as a security of the issuer for purposes of tacking under Rule 144(d)(3)(ii). [Jan. 26, 2009]

532.23 An affiliate of an issuer secures a loan with restricted securities. The restricted securities are hypothecated to the lender, rather than pledged, and an irrevocable stock power is granted. On a default under the loan, the lender could use the two instruments to cause legal title to be transferred to itself. For purposes of the lender’s holding period calculation, the hypothecation agreement and the irrevocable stock power may be construed as the equivalent of a pledge. Subject to the requirements for good faith and recourse against the borrower, the lender would be able to use the borrower’s holding period under Rule 144(d)(3)(iv). [Jan. 26, 2009]

532.24 A company issues a convertible note with interest payable in shares of the company. The decision to pay the interest on the convertible note in the form of shares is solely at the discretion of the company. In determining whether the Rule 144(d)(1) holding period requirement has been satisfied in regard to such shares received as interest, the holding period of the note may be tacked to the holding period of the shares. [Apr. 24, 2009]

Section 533. Rule 144(e) — Limitation on Amount of Securities Sold

533.01 A company’s common stock trades both on an individual share basis and in units, with each unit consisting of one share of common stock together with a detachable warrant. For purposes of Rule 144, the volume limitation for the common stock may be computed on the basis of all common shares traded, including those traded as part of a unit, since the common shares in the units are separable from the warrants. [Jan. 26, 2009]

533.02 H transfers stock to W in connection with a divorce settlement. H and W need not aggregate sales under Rule 144 once they are no longer married. Moreover, they will not be deemed to be selling in concert merely because of the settlement arrangement. [Jan. 26, 2009]

533.03 An affiliate sells both restricted convertible notes and restricted shares. The shares attributable to the notes sold plus the shares sold separately amount to less than one percent of the outstanding stock. Such sales would be within the volume limitations of Rule 144(e). See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 46. [Jan. 26, 2009]

533.04 An affiliate of an issuer is the general partner of three limited partnerships which hold restricted securities of the issuer. If such limited partnerships transfer the restricted securities to all the partners, the affiliate must, for purposes of determining its volume limit under Rule 144(e), aggregate its Rule 144 sales of the distributed securities with (1) the Rule 144 sales of the distributed securities by the other partners who are affiliates of the issuer and (2) the Rule 144 sales of the same class of securities by the limited partnerships, for a period of six months following the distribution (if the issuer had been subject to the reporting requirements of Exchange Act Section 13 or 15(d) for a period of at least 90 days immediately before the distribution) or one year following the distribution. Further aggregation may also be required if the affiliate is "acting in concert" with other persons under Rule 144(e)(3)(vi). Absent "acting in concert," the affiliate partners and the limited partnerships need not aggregate their sales of the distributed shares with the sales of the distributed shares by partners who are not affiliates of the issuer. The non-affiliate partners are not subject to the volume limitation under Rule 144(e). [Jan. 26, 2009]

533.05 A closely-held investment partnership is an affiliate of ABC Co. The partnership distributed all of its restricted securities of ABC Co. held in its portfolio to all of its partners on a pro rata basis and without consideration from its partners. The partners who are affiliates of ABC Co. must aggregate their Rule 144 sales of the distributed shares of ABC Co. with (1) the Rule 144 sales of the distributed shares by all other partners who are affiliates of ABC Co. and (2) the Rule 144 sales of the same class of securities by the partnership, for a period of six months following the distribution (if ABC Co. had been subject to the reporting requirements of Exchange Act Section 13 or 15(d) for a period of at least 90 days immediately before the distribution) or for a period of one year following the distribution. Aggregation may also be required if the partners are "acting in concert" under Rule 144(e)(3)(vi). Absent "acting in concert," the partnership and the partners who are affiliates of ABC Co. need not aggregate their sales of the distributed shares with the sales of the distributed shares by partners who are not affiliates of ABC Co. The non-affiliate partners are not subject to the volume limitation under Rule 144(e). [Jan. 26, 2009]

533.06 Warrants originally issued in tandem with common shares are now trading separately. Holders of the warrants who wish to sell rather than exercise the warrants must consider the warrants a class of securities separate from the common stock for purposes of complying with the volume limitations of Rule 144(e). [Jan. 26, 2009]

533.07 A company has notified its transfer agent of the issuance of additional common stock. No other announcement has been made. Rule 144(e)(1)(i) permits the sale of one percent of the shares outstanding as shown by “the most recent report or statement published by the issuer.” The notice to the transfer agent is insufficient publication to allow use of the increased number of shares for purposes of the alternative one percent volume limit of Rule 144(e)(1)(i). [Jan. 26, 2009]

533.08 An affiliate wishing to sell shares pursuant to Rule 144 discovered that a broker-dealer had executed, during the last week of the four-week period, a 100,000 share trade in the issuer’s stock that had not been reported in the average weekly reporting volume of trading of such securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association. The Division staff advised that the affiliate would have to rely solely on the reported volume. [Jan. 26, 2009]

533.09 Non-affiliates pledged unrestricted bank holding company securities to the holding company’s affiliated bank as collateral for loans made by the affiliated bank in the ordinary course of its business. Following default, the affiliated bank foreclosed and sought to sell the holding company securities. The Division staff took the position that sales of pledged securities by the affiliated bank could be effected pursuant to Rule 144 since the bank was effecting the sale as a pledgee in a bona fide loan situation and its decision to sell was occasioned solely by the borrowers’ default. For purposes of Rule 144(e), the Division staff also took the position that such sales would have to be aggregated with any other sales by the bank as pledgee, but not with other sales by the pledgors. The latter conclusion was based on the fact that had the pledgors sold the securities themselves, they would not have been subject to Rule 144. [Jan. 26, 2009]

533.10 [withdrawn]

Sections 534 to 535. Rules 144(f) to 144(g) [Reserved]

Section 536. Rule 144(h) — Notice of Proposed Sale

536.01 An affiliate distributee from a partnership who is required to aggregate its sales with those of other affiliate distributees need not file a Form 144 if such affiliate distributee sells no more than 5,000 shares or shares with a market value not exceeding $50,000 in any three-month period, notwithstanding sales made by other distributees. [Jan. 26, 2009]

536.02 A subsidiary bank, acting in its fiduciary capacity, sells unrestricted shares of its holding company parent for an unaffiliated trust account. Form 144 need not be filed solely because of the bank’s involvement, because the bank is not making a sale for its own account. [Jan. 26, 2009]

536.03 An affiliate of the issuer files a notice on Form 144 reporting the proposed sale of less than the full amount of securities that could be sold under the volume tests of Rule 144(e). During the same three-month period, the affiliate wishes to make additional Rule 144 sales in an amount that, taken together with the original sales, would not exceed the maximum number of securities that could have been sold at the time of the notice. The affiliate may not file an amended Form 144 to accomplish additional sales because a Form 144 must represent the affiliate’s intent at the time of its filing. The affiliate may file a new Form 144 to sell additional securities, so long as these new sales satisfy the volume limitations existing when the new Form 144 is filed. [Jan. 26, 2009]

536.04 A Form 144, filed on behalf of an affiliate of the issuer by an attorney in fact, should be accompanied by a signed copy of the power of attorney. After such power of attorney is attached to the Form 144, it does not have to be re-filed as an attachment to subsequently filed Forms 144 while it remains in effect. [Jan. 26, 2009]

536.05 An affiliate of the issuer proposes to make Rule 144 sales of both common stock and securities convertible into common stock. For purposes of determining whether the 5,000 shares or $50,000 condition to filing Form 144 has been met, the convertible securities should be regarded as having been converted into the common stock in the same manner as provided by Rule 144(e)(3)(i). [Jan. 26, 2009]

536.06 After an affiliate files a Form 144, the issuer declares a stock split. No new filing is required within the three-month period to sell the entire number of shares, on a post-split basis, for which the seller had originally filed. [Jan. 26, 2009]

Sections 537 to 538. Rules 144(i) to 144A [Reserved]

Section 539. Rule 145 — Reclassification of Securities, Mergers, Consolidations and Acquisitions of Assets

539.01 A holding company reorganization was to be carried out pursuant to Section 251(g) of the Delaware General Corporation Law and would not trigger a shareholder vote or appraisal rights. The reorganization was linked to an acquisition transaction with a third party (i.e., its consummation was a condition to closing with respect to the acquisition agreement). The purpose of the reorganization was to obtain more favorable tax treatment for the acquisition. When viewed together with the acquisition, the overall transaction changed the nature of the shareholders’ investment. Therefore the reorganization would involve a “sale” or “offer to sell” for the purposes of Securities Act Section 2(a)(3) and Rule 145. [Jan. 26, 2009]

539.02 A change from business trust status in one state to corporate status in another state would not be within the change of domicile exception of Rule 145(a)(2) because of the significant change in organizational structure that will occur. [Jan. 26, 2009]

539.03 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 United States, from one state to another. Despite the rule’s express domestic limitation, 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 incorporate within the United States, the migratory transaction is an event of sale that must be registered with the Commission or exempt from registration. [Nov. 26, 2008]

539.04 Item 17(b)(7) of Form S-4 states generally that the financial statements of acquired companies that were not previously Exchange Act reporting companies need be audited only to the extent practicable, unless the Form S-4 prospectus is to be used for resales by any person deemed an underwriter within the meaning of Rule 145(c), in which case such financial statements must be audited. The Division staff was asked whether a resale pursuant to Rule 145(d), in lieu of the Form S-4 prospectus, would require the financial statements to be audited. The Division staff noted that Rule 145(d) is not included in the Instruction to Item 9.01 of Form 8-K regarding sales pursuant to Rule 144 during the 71-day extension period for filing financial statements. As the audited financial statements for the acquired company would be required pursuant to Item 9.01 of Form 8-K, a resale pursuant to Rule 145(d) would not be permitted until they are filed. [April 2, 2008]

539.05 A proposed Rule 145 merger is submitted for a vote of shareholders at an annual meeting at which directors are also to be elected. Incumbent directors would be deemed “underwriters” with respect to the securities issuable in the merger transaction for purposes of paragraph (c) of Rule 145, even though they are not candidates for reelection. [Jan. 26, 2009]

539.06 A former affiliate of a shell company that was acquired in a registered Rule 145 transaction received four percent of the outstanding shares of the acquiring company. Although Rule 145(d)(2)(i) would permit the former affiliate to sell publicly one percent of the outstanding shares every three months, the former affiliate wishes to sell the entire four percent in a single transaction. The former affiliate (who is not an affiliate of the acquiring company) was advised that Rule 145(d) did not preclude a private sale of the entire amount, but the buyer in any such private transaction would have to step into the shoes of the seller and comply with Rule 145(d) in making public resales of the securities. [Jan. 26, 2009]

539.07 A person subject to Rule 145(c) converts preferred stock received in a Rule 145 transaction into common stock. Such person may tack the holding period for the preferred to that of the common in determining eligibility to use Rule 145(d)(2) to the extent permitted by Rule 144(d). [Jan. 26, 2009]

539.08 A partnership distributes restricted shares of shell company A to its partners, X and Y. X and Y hold enough shares of A to be deemed to be affiliates. Consequently, when corporation B later acquires shell company A, and the shares of A are exchanged for shares of B, the two partners must sell their shares of B pursuant to Rule 145(d), as Rule 145(c) applies because A is a shell company. However, they need not aggregate their sales for purposes of the volume limitation of paragraph (e) of Rule 144, except to the extent that they are acting in concert or are the same person for purposes of Rule 144. [Jan. 26, 2009]

539.09 An affiliate of company A acquires securities of company B in a Rule 145 transaction. The affiliate gives some of those securities to a charity, and then — some time later — becomes an affiliate of B. Although such affiliate must now sell B shares pursuant to all the provisions of Rule 144 since such person is an affiliate of B, the charity can continue to sell pursuant to the provisions of Rule 145(d), to the extent Rule 145(c) applies. [Jan. 26, 2009]

539.10 X acquires stock in a registered Rule 145 offering, but is subject to the resale restrictions of Rule 145(d) because X is an affiliate of the acquired company and Rule 145(c) applies. Pursuant to and on or subsequent to the date of a court-approved divorce settlement, X transfers some of the shares to spouse Y who is not an affiliate. The shares are not subject to resale restrictions in Y’s hands because Y is not subject to the Rule 145(d) restrictions and the resale status of a spouse receiving securities in a divorce proceeding under these circumstances will be determined by the status of Y and not by the status of X. [Jan. 26, 2009]

539.11 Less than six months after a Rule 145 transaction, a person deemed to be an underwriter by Rule 145(c) dies. The estate of the 145(c) underwriter may in general sell publicly in the same manner the decedent could have, that is, under paragraphs (c), (e), (f), and (g) of Rule 144, which apply due to Rule 145(d)(2)(i). If the estate is not an affiliate of the issuer, it will be able to sell subject only to the current public information requirement in Rule 144(c) because of the relief provided to unaffiliated estates by Rule 144(e) and Rule 144(f). [Jan. 26, 2009]

Section 540. Rule 146 [Reserved]

Section 541. Rule 147 — Intrastate offers and sales

541.01 A local bank, whose shares are held only by Texas residents, is planning to form a bank holding company and exchange shares with its shareholders under Rule 147. If shareholders move out of state during the time required to obtain regulatory approvals, such shareholders may be “cashed out” to retain the Rule 147 exemption, assuming cashing out is permitted under the applicable state law. [Jan. 26, 2009]

541.02

[withdrawn, Sept. 20, 2017]

541.03 A family trust that is not deemed to be a separate legal entity has two trustees, only one of which resides in a state where a Rule 147 offering is being made. Following Securities Act Release No. 33-10238, because one of the trustees resides in the state where the Rule 147 offering is being made, the issuer in the Rule 147 offering may offer and sell securities to the trust in the Rule 147 offering. [Sept. 20, 2017]

Sections 542 to 572. Rules 148 to 173 [Reserved]

Section 573. Rule 174 — Delivery of Prospectus by Dealers; Exemptions Under Section 4(3) of the Act

573.01 A registrant’s initial public offering has been consummated, but the Rule 174 prospectus delivery period is still applicable. The registrant is considering making a material acquisition that it considers probable. The registrant would need to supplement the prospectus as appropriate so that the prospectus complies with Securities Act Section 10(a) at the time of any delivery required pursuant to Rule 174. [Jan. 26, 2009]

573.02 Company A, which is not an Exchange Act reporting company, proposes to use Form S-3 to issue debt securities that would be guaranteed by its Exchange Act reporting parent. Company A is a wholly-owned subsidiary of parent and the guarantee is full and unconditional. The exemption from prospectus delivery requirements provided by Rule 174(b) would be available for this offering because the parent would be subject to the Exchange Act reporting requirements immediately prior to the time of filing the registration statement, Company A would be wholly-owned by parent, and parent would fully and unconditionally guarantee the debt securities. [Jan. 26, 2009]

573.03 If an exchange has approved an issue for trading as of the earlier of the effective date or the day the offering commences, but actual trading cannot commence until closing, with when-issued trading occurring in the interim, Rule 174(d) would be available for the when-issued trading. [Jan. 26, 2009]

573.04 The prospectus delivery requirements of Rule 174(d) apply in the context of savings and loan conversions, when a subscription offering to existing depositors at a specified price range is followed by an offering to the general public at a fixed price. The commencement of the subscription offer would be the commencement of a bona fide public offering for purposes of Rule 174(d). Although the security would not commence trading until closing, if, as of commencement of the offering, the security is authorized for inclusion in an electronic inter-dealer quotation system sponsored and governed by the rules of a registered securities association, the 25-day prospectus delivery period of Rule 174(d) would be available. [Jan. 26, 2009]

573.05 Rule 174 shortens to 25 days the prospectus delivery period for initial public offerings that are immediately listed for trading on an exchange or eligible for quotation on an automated quotation system of a national securities association. However, Exchange Act Rule 15c2-8(d) provides that broker-dealers must continue to deliver the same prospectuses, upon request, for the full 90-day period. While Rule 174(d) relieves broker-dealers of an obligation to deliver prospectuses in connection with every deal during the full 90-day period, it does not change broker-dealers’ obligations to deliver prospectuses upon request during that time. [Jan. 26, 2009]

Sections 574 to 597. Rules 175 to 400 [Reserved]

Section 598. Rule 401 — Requirements as to Proper Form

598.01 As set forth in Rule 401, a registration statement must meet the form requirements at the time it is first filed, and also at the time of any Section 10(a)(3) post-effective amendment. A registration statement on one form may be changed to any other form for which it is then eligible by pre-effective or post-effective amendment, with one exception. An issuer may not file a pre-effective or post-effective amendment to change a registration statement that is not an automatic shelf registration statement to an automatic shelf registration statement. Instead, the issuer must file a new registration statement on Form S-3 or Form F-3, designated as an automatic shelf registration statement. Except for registration statements and post-effective amendments described in Rule 401(g), once a registration statement is declared effective, it is deemed to be on the proper form. [Apr. 24, 2009]

598.02 Pursuant to Instruction 3 to the signature requirements for Form S-3, a corporation may sign and file a registration statement on Form S-3 for an offering of non-convertible debt or preferred securities if it has a reasonable basis to believe that the investment rating of such securities at the time of sale will permit use of the form. If an investment grade rating is not received, a post-effective amendment would be required when the issuer cannot satisfy Form S-3 eligibility requirements without such a rating. [Jan. 26, 2009]

598.03 A registrant has an effective Form S-3 for a secondary offering. At the time of filing, all requirements for use of the form were met. Now, three months later, it appears that a dividend payment on certain preferred stock may be missed. The registrant may continue to use the effective Form S-3 so long as there is no need to update the registration statement for purposes of Securities Act Section 10(a)(3). At the time that updating is necessary, Rule 401 would require the use of whatever form is available to the registrant at that time. [Jan. 26, 2009]

Sections 599 to 602. Rules 401a to 404 [Reserved]

Section 603. Rule 405 — Definition of Terms

603.01 Under Rule 405, the definition of “dividend or interest reinvestment plan” would cover a plan whereby limited partners could reinvest cash flow distributions into the partnership for additional partnership interests. [Jan. 26, 2009]

603.02 A company with a December 31 fiscal year-end emerged from bankruptcy in mid-January of 2008. In March 2008, the company filed a Form 10-K with audited financial statements for the fiscal year ended December 31, 2007. The Form 10-K did not include audited financial statements for the period in the beginning of January prior to the company’s emergence from bankruptcy. The company will remain an “ineligible issuer” pursuant to sub-paragraph (1)(iv)(B) of the definition of “ineligible issuer” in Rule 405 until it files audited financial statements for a period ending subsequent to its emergence from bankruptcy. [Jan. 26, 2009]

603.03 A well-known seasoned issuer with an effective automatic shelf registration statement filed a Form 10-K prior to the Form 10-K due date. Because the Form 10-K failed to include audited financial statements and was therefore materially deficient, the issuer planned to amend the Form 10-K, and asked whether eligibility as a well-known seasoned issuer would be reassessed at the time of the amendment. Rule 405 requires an issuer to reassess its well-known seasoned issuer status at the time it files a Form 10-K to update a shelf registration statement for Section 10(a)(3) purposes. Under these facts, as the originally filed Form 10-K was so materially deficient that it would not be considered filed for purposes of assessing form eligibility, the issuer would need to reassess its well-known seasoned issuer status at the time it files its amended Form 10-K. If the amended Form 10-K is not filed by the Form 10-K due date, the issuer would not be eligible as a well-known seasoned issuer on or after that due date, because it would not be timely in its Exchange Act filings. [Jan. 26, 2009]

Sections 604 to 608. Rules 406 to 411 [Reserved]

Section 609. Rule 412 — Modified or Superseded Documents

609.01 A calendar year company proposed to file a registration statement on Form S-3 on February 1, 2006. The registrant would include financial statements for the year ended December 31, 2005, and incorporate its Form 10-K for the year ended December 31, 2004. The registrant was concerned because the financial statements in the 2004 Form 10-K would become out of date. Rule 412(a), however, has the effect in these circumstances of automatically superseding the December 31, 2004 financial statements for purposes of the Form S-3 filing. In the event the registrant wished to remove all doubt about outdated financial statements in the Form 10-K being superseded by later financials included in the Form S-3, Rule 412(b) permits it to include a specific statement in the Form S-3 on the subject. [Jan. 26, 2009]

Section 610. Rule 413 — Registration of Additional Securities and Additional Classes of Securities

610.01 An issuer filed a registration statement on Form S-4 for a merger. Inadvertently, the number of shares registered was not sufficient to cover certain shares issuable upon the exercise of options during the period after the effective date of the registration statement but prior to the consummation of the merger. Rule 413(a) does not permit the registration of additional shares by post-effective amendment. Counsel was informed that: (1) it could rely on Rule 462(b) to prepare and file a short-form registration statement provided the amount to be registered was within the 20% limit and the other conditions were met; or (2) it could file a new registration statement that could be combined with the earlier registration statement pursuant to Rule 429. [Jan. 26, 2009]

610.02 In its effective Form S-8, a company registered 500,000 shares for sale by the company pursuant to an option plan, and 1,000 previously unregistered shares for resale on a resale prospectus pursuant to General Instruction C to Form S-8. The company may not rely on General Instruction C.3.(a) (which applies only to control securities and allows the addition of persons to the resale prospectus list of selling shareholders by means of a post-effective amendment or Rule 424(b) prospectus supplement) to shift any of the 500,000 shares registered on the primary portion to the resale prospectus since to do so would amount to registering additional securities by means of a post-effective amendment in contravention of Rule 413. [Jan. 26, 2009]

Section 611. Rule 414 — Registration by Certain Successor Issuers

611.01 A California corporation merged with a Delaware corporation for the purpose of changing its domicile. Rule 414 permits the Delaware corporation to use the registration statements of the California corporation by filing an amendment expressly adopting the statements of the predecessor. Because the merger entails the issuance of securities of a corporation different from the original registrant, the amendment should contain a new opinion of counsel on the legality of the issuance and counsel’s consent. [Jan. 26, 2009]

611.02 In order for Rule 414 to effect registration of a successor issuer, paragraph (c) requires that the succession be approved by the predecessor’s security holders at a meeting for which proxies were solicited pursuant to Exchange Act Section 14(a) or information was furnished to security holders pursuant to Exchange Act Section 14(c). When the predecessor is an Exchange Act Section 15(d) company rather than a Section 12 company, and thus not subject to Section 14, the requirements of Rule 414(c) will be met when the proxy or information statement is prepared and votes are solicited substantially in accordance with Section 14. [Jan. 26, 2009]

611.03 A Form S-4 registration statement will be filed to convert an existing corporation into a trust that will have the same assets and management as its predecessor. Because of applicable tax law or state law provisions, the new trust will not be created until after the Form S-4 has become effective. The company sought advice as to who would be the registrant for the Form S-4 and who should sign the registration statement. Using Rule 414 as a model, the existing company may execute and file the registration statement. At the time the trust is formed, it should file a post-effective amendment adopting the registration statement. [Jan. 26, 2009]

Section 612. Rule 415 — Delayed or Continuous Offering and Sale of Securities

612.01 Rule 415(a)(1)(vii) permits a delayed or continuous offering in the case of mortgage-related securities. Although the Securities Act and the rules thereunder do not define mortgage-related securities, the Exchange Act was amended to provide such a definition in Section 3(a)(41). Because the term in Rule 415 was intended to have the same meaning as ultimately decided upon by Congress, a security meeting the definition in Exchange Act Section 3(a)(41) will also be deemed to be a mortgage-related security for purposes of Rule 415. In the case of a traditional mortgage-related securities offering which does not fall within the definition, consideration should be given to whether another subsection of Rule 415(a)(1) is available, for example, Rule 415(a)(1)(ix) or (x). Securities offerings registered in reliance on Rule 415(a)(i)(ix), unlike those registered in reliance on subsections (vii) and (x), are subject to the two-year limitation of Rule 415(a)(2), unless registered on Form S-3 or Form F-3. [Jan. 26, 2009]

612.02 An insurance company acquired 55% of the common stock of a company in a private transaction. It now holds these restricted securities as a reserve against claims. As the result of an annual state inspection, the insurance company has been questioned regarding the sufficiency of its reserves. In order to enhance the value of the restricted securities, it wishes to have them registered. Any registration statement filed for this purpose would be governed by Rule 415 because the insurance company may not intend to sell the securities immediately. Since the issuer would be deemed a subsidiary of the insurance company, it would be unable to rely upon Rule 415(a)(1)(i). Therefore, another paragraph of Rule 415 (a)(1) would have to be available in order to register the offering on a delayed or continuous basis. [Jan. 26, 2009]

612.03 An issuer that is not eligible to register a delayed primary offering on Form S-3 pursuant to Instruction I.B.1. of the form intends to conduct a rights offering for 30 days. Following that time, the shares not subscribed for will be sold in a firm commitment underwriting. The offering may be made in reliance on Rule 415(a)(1)(ix). Item 512(c) of Regulation S-K contemplates this result. [Jan. 26, 2009]

612.04 In the case of a registration statement pertaining to an offering of convertible debentures and the common stock underlying the debentures, Rule 415 typically is not applicable to the continuous offering of the underlying common stock because that offering is exempt from registration pursuant to Section 3(a)(9). In cases when the Section 3(a)(9) exemption is unavailable (for example, when securities are convertible into securities of another issuer, when conversion terms require that the shareholder pay consideration at the time of conversion, or when conversion arrangements involve the payment of compensation for soliciting the exchange), absent another exemption, Rule 415(a)(1)(iv) is applicable. Rule 415 applies to registered offerings made on a delayed or continuous basis. [Jan. 26, 2009]

612.05 A registrant files a Form S-3 shelf registration statement for the delayed sale of debentures. Depending upon the level of interest rates at the time the offering actually takes place, the registrant may seek an opinion of California counsel to the effect that the offering does not violate the California usury laws. Such an opinion may be filed as an exhibit to a Form 8-K, since such forms are automatically incorporated by reference into Form S-3 registration statements. [Jan. 26, 2009]

612.06 An issuer with an effective acquisition shelf registration statement may follow the procedures described in Securities Act Release No. 6578 (Apr. 23, 1985) and the Service Corporation International interpretive letter (Oct. 31, 1985) issued by the Division to update the registration statement for use in subsequent acquisitions. [Jan. 26, 2009]

612.07 Questions have arisen concerning the application of Rule 415 to medium term note offerings. Many of these offerings begin promptly and are made on a continuous basis in reliance on Rule 415(a)(1)(ix). Others, however, are made on a delayed basis in reliance on Rule 415(a)(1)(x) since they do not begin promptly after effectiveness, but are continuous in nature once begun. An issuer eligible to rely on Rule 415(a)(1)(x) may file one registration statement that covers several immediate, continuous or delayed offerings, each a different program for a new series of notes. [Jan. 26, 2009]

612.08 A Rule 415 offering provides that purchasers within the first 60 days will receive a security with a higher yield than that to be received by subsequent purchasers. The registrant wished to extend the preferential purchase period for an additional 30 days. The Division staff has taken the position that such an extension is a material change in the plan of distribution, which according to the Item 512(a)(iii) undertaking would require a post-effective amendment (or, for registration statements on Form S-3 or F-3, compliance with one of the methods in Item 512(a)(1)(B)). [July 3, 2008]

612.09 It is important to identify whether a purported secondary offering is really a primary offering, i.e., the selling shareholders are actually underwriters selling on behalf of an issuer. Underwriter status may involve additional disclosure, including an acknowledgment of the seller’s prospectus delivery requirements. In an offering involving Rule 415 or Form S-3, if the offering is deemed to be on behalf of the issuer, the Rule and Form in some cases will be unavailable (e.g., because of the Form S-3 “public float” test for a primary offering, or because Rule 415(a)(1)(i) is available for secondary offerings, but primary offerings must meet the requirements of one of the other subsections of Rule 415). The question of whether an offering styled a secondary one is really on behalf of the issuer is a difficult factual one, not merely a question of who receives the proceeds. Consideration should be given to how long the selling shareholders have held the shares, the circumstances under which they received them, their relationship to the issuer, the amount of shares involved, whether the sellers are in the business of underwriting securities, and finally, whether under all the circumstances it appears that the seller is acting as a conduit for the issuer. [Jan. 26, 2009]

612.10 The registrant filed a registration statement on Form S-11 relating to a “shelf” offering of mortgage backed bonds to be issued in series. The registrant was informed that it would not be necessary to file post-effective amendments and supplemental indentures each time a new series of bonds was to be issued. The response was conditioned upon two factors:

1. A basic form of supplemental indenture including everything but the collateral for a particular series is filed at the time the registration is declared effective and the basic indenture is qualified; and

2. The registrant files a prospectus supplement in supplement form describing the issuance of the series and the collateral therefor.

This position is consistent with Instruction 1 to Item 601(a) of Regulation S-K. When a registrant does not satisfy these conditions, supplemental indentures and amended underwriting agreements may be filed only by post-effective amendment and not as exhibits to a Form 8-K. The reason is that Form S-11 does not permit incorporation by reference to subsequently filed Exchange Act reports, such as a Form 8-K. [Jan. 26, 2009]

612.11 Securities to be issued in connection with business combinations may be registered for the shelf pursuant to Rule 415(a)(1)(viii). While this rule does not limit the Securities Act registration form used, not all forms are available for business combinations. In particular, Form S-3 is not available for business combinations of any kind. The “for cash” proviso in General Instruction I.B.1 of Form S-3 is interpreted as prohibiting the use of the form not only for third-party exchange offers but also for any other business combination, however structured. See Securities Act Release No. 6534 (May 9, 1984), at fn. 14. Form S-3 may be used for a secondary offering of shares which were originally received from the issuer in connection with a business combination, assuming it is a genuine secondary offering. [Jan. 26, 2009]

612.12 A controlling person of an issuer owns a 73% block. That person will sell the block in a registered “at-the-market” equity offering. Rule 415(a)(4) applies only to offerings by or on behalf of the registrant. A secondary offering by a control person that is not deemed to be by or on behalf of the registrant is not restricted by Rule 415(a)(4). [Jan. 26, 2009]

612.13 Pursuant to a shelf registration statement, from time to time a company issues securities through a firm commitment underwriting at a fixed price based on the prior day’s closing price. These firm commitment takedowns would not be considered “at the market offerings” because they are at a fixed price. However, sales into an existing trading market of securities of the same class made by broker-dealer firms who buy securities in such takedowns may be deemed indirect primary offerings made “at the market” within the meaning of Rule 415(a)(4), thereby triggering registration and prospectus delivery requirements. [Jan. 26, 2009]

612.14 In exchange for “consulting services,” a private operating company intended to sell about 13 percent of its stock to a public company whose sole business was providing consulting services. The consulting services involved preparing a registration statement, applying for listing, obtaining market makers and several other services related to developing a market or raising capital. The public company intended to distribute about half of the 13 percent of the operating company stock it would receive to its stockholders as a “dividend” through a “spin-off.” It also wanted to register the rest of the stock it would receive for resale pursuant to Rule 415(a)(1)(i). The transaction is a primary offering of the operating company through the public company and its shareholders and the registration statement would need to cover the entire distribution of these shares and the dividend shares, including their further distribution to the public. The registration statement would need to name the public company and its shareholders as underwriters and include appropriate disclosure about them, such as the information described in Item 507 of Regulation S-K. In addition, because the operating company was not eligible to do an at the market offering on a primary basis pursuant to Rule 415(a)(4), the securities offered and sold pursuant to the registration statement would have to be offered and sold at a fixed price for the duration of the offering. [Jan. 26, 2009]

612.15 A company with minimal operations (parent company) and about 750 shareholders intended to create a subsidiary with no significant operations and spin it off to its shareholders, immediately after which the subsidiary would merge with a private operating company that has about 20 shareholders. After the merger, about 95 percent of the equity of the merged entity would be owned by former shareholders of the operating company, about four percent would be owned by the shareholders of the parent company, and about one percent would by owned by some insiders of the parent company who would receive stock in the operating company as a finder’s fee in connection with structuring the transaction. It was contemplated that Securities Act registration statements covering the shares to be issued in the spin-off and the merger would be filed. In addition, after the merger some insiders of the parent company would sell shares of the merged entity that they would receive due to the spin-off and due to the exchange of the finder’s fee shares in the merger.

Based on these facts, the transaction is a primary offering of the operating company through the parent company and its shareholders. As such, rather than registering parts of this transaction (i.e., the spin-off and merger), the entire distribution of the operating company shares to the public would need to be registered as a primary offering. The registration statement would have to name the parent company and its shareholders as underwriters, and include appropriate disclosure about them, such as the information described in Item 507 of Regulation S-K. In addition, because the operating company was not eligible to do an at the market offering on a primary basis pursuant to Rule 415(a)(4), the registration statement would have to include a fixed price for the duration of the offering. [Jan. 26, 2009]

612.16 A real estate investment trust utilizes an UPREIT structure whereby the REIT is the general partner of a limited partnership that holds all of the REIT’s properties. Limited partners of the limited partnership may elect to convert their limited partnership units into common shares of the REIT on a one-for-one basis; however, the REIT may elect to pay cash instead of shares upon conversion. The REIT may register the issuance of common shares underlying outstanding limited partnership units pursuant to Rule 415(a)(1)(iv). If the REIT satisfies the registrant eligibility requirements in Instruction I.A of Form S-3, it may register the offering on Form S-3 pursuant to Instruction I.B.4 of the form. [Jan. 26, 2009]

612.17 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 such 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. [Nov. 26, 2008]

Section 613. Rule 416 — Securities to be Issued as a Result of Stock Splits, Stock Dividends and Anti-Dilution Provisions and Interests to be Issued Pursuant to Certain Employee Benefit Plans

613.01 A registration statement for warrants and the underlying common stock was declared effective. The terms of the warrants included an anti-dilution clause, providing for a change in the amount of securities to be issued to prevent dilution resulting from stock splits or stock dividends. Subsequent to effectiveness, the issuer declared a preferred stock dividend on its common stock. Under the terms of the anti-dilution provision, warrant holders, upon exercise, would receive shares of common stock and a corresponding number of shares of preferred stock. Assuming a “sale” of preferred stock to the warrant holders is involved in the exercise of the warrant, the registration statement would not, under Rule 416, be deemed to cover the shares of preferred stock to be issued in connection with the anti-dilution provision, since these shares are of a different class from those registered. [Jan. 26, 2009]

613.02 When a registrant has a stock split prior to the completion of a registered distribution that is not covered by anti-dilution provisions, Rule 416(b) provides that the registration statement may be deemed to cover the additional securities if a post-effective amendment is filed to reflect the increase in the amount of securities registered. A company with securities registered on Form S-3 may not increase the number of shares registered by filing a Form 8-K. Instead, a post-effective amendment is required. The post-effective amendment could be limited to the facing page, an explanatory note and the Part II information, unless additional changes are being made to the prospectus. [Jan. 26, 2009]

Sections 614 to 615. Rules 417 to 418 [Reserved]

Section 616. Rule 419 — Offerings by Blank Check Companies

616.01 In a blank check offering, if a consummated acquisition meeting the requirements of Rule 419 has not occurred by a date 18 months after the effective date of the initial registration statement, funds held in the escrow or trust account must be returned to investors pursuant to Rule 419(e)(2)(iv) and escrowed securities must be returned to the registrant. In sum, the transaction must be unwound. For example, when the securities of a blank check company are all gifted to charities and no cash is actually paid, if after the expiration of the 18-month period no acquisition has been consummated, such escrowed shares must be returned to the registrant. [Jan. 26, 2009]

616.02 When a blank check company files a registration statement covering the resale of securities by selling shareholders, the issuer is required to comply with Rule 419 if the securities offered under the registration statement are “penny stock.” Rule 419 applies to all registered offerings of securities by blank check companies when the securities are “penny stock,” as defined in Exchange Act Rule 3a51-1. [Jan. 26, 2009]

Sections 617 to 619. Rules 420 to 423 [Reserved]

Section 620. Rule 424 — Filing of Prospectuses, Number of Copies

620.01 For EDGAR header purposes, when filing a Rule 424(b) prospectus supplement in connection with an offering that involves an initial effective registration statement and a second registration statement registering additional securities under Rule 462(b), the Rule 424(b) supplement must be filed under the registration number (33- or 333-) for the initial registration statement. The cover page of the Rule 424(b) supplement should, however, set forth the registration numbers of both the initial registration statement and the Rule 462(b) registration statement. [Jan. 26, 2009]

620.02 When a supplement to a prospectus is used, the Securities Act prospectus delivery requirements are not satisfied by delivery to broker/dealers of a supplement unattached to the prospectus. The supplement must be attached to the prospectus either physically or electronically so that the prospectus being delivered includes both the supplement and the prospectus. See Securities Act Release No. 6714 (May 27, 1987). The exceptions to this position involve Form S-8 and dividend reinvestment plans filed on Form S-3. In those cases, updating of the existing registration statement, without including the full prospectus, is accomplished through the use of Rule 424 supplements that are distributed to plan participants who have previously received a prospectus, or, in the case of Form S-8, through compliance with Rule 428. Such supplements must include a legend indicating that a full prospectus will be provided upon request. [Jan. 26, 2009]

620.03 A change in currency in which securities may be issued is not a fundamental change and may be accomplished by prospectus supplement under Rule 424(c). [Jan. 26, 2009]

620.04 A reduction of the commission paid to the underwriter or selling agent may be accomplished by prospectus supplement when the price of the securities is not changed. [Jan. 26, 2009]

Sections 621 to 623. Rules 425 to 427 [Reserved]

Section 624. Rule 428 — Documents Constituting a Section 10(a) Prospectus for Form S-8 Registration Statement; Requirements Relating to Offerings of Securities Registered on Form S-8

624.01 Rule 428(b)(2) requires the registrant to deliver, along with the documents containing the information required by Part I of Form S-8, one of: the latest Rule 14a-3(b) annual report, the latest Form 10-K, the latest Rule 424(b) prospectus, or an effective Form 10. An issuer that changed its fiscal year filed a six-month transition report on Form 10-K subsequent to its latest annual report on Form 10-K. When such issuer is relying on the Rule 428(b) Form 10-K delivery alternative, it must deliver both the latest annual report on Form 10-K and the transition report on Form 10-K in order to satisfy the Rule 428(b) requirement. [Jan. 26, 2009]

Section 625. Rule 429 — Prospectus Relating to Several Registration Statements

625.01 An issuer filed a registration statement on Form S-4 for a merger. Inadvertently, the number of shares registered was not sufficient to cover certain shares issuable upon the exercise of options during the period after the effective date of the registration statement but prior to the consummation of the merger. Rule 413(a) does not permit the registration of additional shares by post-effective amendment. Counsel was informed that: (1) it could rely on Rule 462(b) to prepare and file a short-form registration statement provided the amount to be registered was within the 20% limit and the other conditions were met; or (2) it could file a new registration statement that could be combined with the earlier registration statement pursuant to Rule 429. [Jan. 26, 2009]

Section 626. Rule 430 [Reserved]

Section 627. Rule 430A — Prospectus in a Registration Statement at the Time of Effectiveness

627.01 The instruction to paragraph (a) of Rule 430A provides that changes in volume and price representing no more than a 20% change in the maximum offering price set forth in the registration statement fee table may be made pursuant to a Rule 424(b)(1) prospectus supplement. The 20% threshold may be calculated using the high end of the range in the prospectus at the time of effectiveness and may be measured from either the high end (in the case of an increase in the offering price) or low end (in the case of a decrease in the offering price) of that range. [Apr. 24, 2009]

627.02 [Reserved]

627.03 A registration statement went effective listing $800 million of debt generically in its fee table and containing a prospectus specifying three classes of debt. The prospectus states that $300 million would be offered of each of the first two classes of debt and $200 million of the third class would be offered. The registrant wishes to change the allocation of the $800 million among the 3 classes after the effective date. Instruction to paragraph (a) of Rule 430A would allow the registrant, without filing a post-effective amendment, to increase a class or classes of debt by up to $160 million (20% of $800 million) with a corresponding reduction of the other class or classes by $160 million. The decrease and increase are not each counted as a 20% change (and thereby equating to a 40% change) since they are made in parallel as one reallocation. [Jan. 26, 2009]

Section 628. Rule 430B — Prospectus in a Registration Statement After Effective Date

628.01 An issuer that was eligible to conduct a primary offering of securities pursuant to General Instruction I.B.1 of Form S-3 planned to file an unallocated shelf registration statement and conduct an immediate takedown following effectiveness. The issuer would include a base prospectus in the Form S-3 and asked whether a prospectus supplement for the immediate takedown would also need to be filed as part of the registration statement prior to effectiveness. With regard to the immediate takedown, the issuer was not required to include a prospectus supplement pre-effectively to disclose the information about the immediate takedown that would be known at the time of effectiveness because Rule 415(a)(1)(x) permits immediate takedowns and the prospectus supplement for such takedown would become part of the registration statement and the filing would cause a new effective date of the registration statement. [Jan. 26, 2009]

Sections 629 to 631. Rules 430C to 432 [Reserved]

Section 632. Rule 433 — Conditions to Permissible Post-Filing Free Writing Prospectuses

632.01 Rule 433(d)(4) does not provide an exception from the filing requirements of Rule 433(d)(1)(i)(C). Accordingly, if a free writing prospectus is used by the issuer or any offering participant that includes the final terms of the securities or of the offering, the issuer must file a description of the final terms regardless of whether the issuer has previously filed a final prospectus supplement that includes the final terms of the securities under Rule 424. [Jan. 26, 2009]

632.02 An underwriter distributed a free writing prospectus through a widely-used subscription news and financial data service and the free writing prospectus was available to all subscribers of the service. In this case, the free writing prospectus was “distributed . . . in a manner reasonably designed to lead to its broad unrestricted dissemination” for purposes of Rule 433(d)(1) notwithstanding the fact that the news and financial data service was a subscription service. [Jan. 26, 2009]

Section 633. Rule 436 — Consents Required in Special Cases

633.01 A registrant filing on Form S-8 incorporated a Form 10-K that contained its 2007 financial statements certified by one accounting firm, and its 2005 and 2006 financial statements certified by a different accounting firm. Rule 436 would require the filing of the consents of both accounting firms for purposes of the Form S-8 registration statement. [Jan. 26, 2009]

Sections 634 to 638. Rules 437 to 455 [Reserved]

Section 639. Rule 456 — Date of Filing; Timing of Fee Payment

639.01 After filing a Form S-3ASR that relied on the pay-as-you-go provisions in Rule 456(b), an issuer filed a 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 underwriter’s over allotment option and the issuer did not pay a fee for those shares within the cure period permitted by Rule 456(b)(1)(i). Although failing to identify the over allotment shares in the fee table and pay the fee constituted a Section 6 violation, Rule 456(b)(2) provides that such 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 over allotment option was identified in the Form S-3ASR at the time it was filed. The issuer was advised that it 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 over allotment shares and paying the associated filing fee at that time. [Jan. 26, 2009]

639.02 Well-known seasoned issuers that rely on Rule 456(b) to defer payment of filing fees are required to pay the fees “within the time required to file the prospectus supplement pursuant to Rule 424(b) . . . for the offering.” When an issuer plans to use both a preliminary and a final prospectus, the required fee must be paid within the time required to file the final prospectus supplement, as the issuer may not know the actual amount offered at the time the preliminary prospectus is filed. [Jan. 26, 2009]

Section 640. Rule 457 — Computation of Fee

640.01 When a registrant has filed a registration statement for two separate securities and then wishes to increase the amount of one security and decrease the other, the registrant can file a pre-effective amendment to reflect such increase and decrease in the calculation of registration fee table and reallocate the fees already paid under the registration statement between the two securities. [Jan. 26, 2009]

640.02 A registrant using Rule 457(a) can increase the number of shares covered by a registration statement by adding them in the pricing amendment prior to effectiveness. The registration fee for the additional shares should be based on the actual offering price, rather than the estimated offering price used for the initial filing. [Jan. 26, 2009]

640.03 A registration statement for 1,000,000 shares of preferred stock went effective with an estimated offering price of $15 per share. The fee was calculated and paid in reliance on Rule 457(a). After the effective date, but prior to the commencement of sales, the registrant sought to increase the number of shares to 1,150,000 and increase the offering price to $17.50 per share. Because more shares are going to be sold than were registered, the registrant must file a new registration statement to register the additional 150,000 shares at $17.50 per share. A short-form registration statement under Rule 462(b) would be possible since the number of additional shares (150,000) times the new price ($17.50) is less than 20% of the aggregate dollar amount in the calculation of registration fee table in the original effective registration statement ($15,000,000); provided, however, that no confirmations may be sent prior to the filing of the Rule 462(b) registration statement. [Jan. 26, 2009]

640.04 A registration statement went effective registering $15,000,000 of preferred stock under Rule 457(o). The prospectus indicated that 1,000,000 shares were being offered. After the effective date, but prior to the commencement of sales, the registrant sought to increase the price from the intended $15 maximum to $17.50, without changing the number of shares in the offering. Because registration was done by dollar amount (Rule 457(o)), not by number of shares (Rule 457(a)), and such dollar amount is increasing, the registrant must file a new registration statement to register the additional $2,500,000 of preferred stock. A short-form registration statement under Rule 462(b) would be possible since the $2,500,000 is less than 20% of the aggregate dollar amount registered in the calculation of registration fee table in the original effective registration statement ($15,000,000); provided, however, that no confirmations may be sent prior to the filing of the Rule 462(b) registration statement. [Jan. 26, 2009]

640.05 A registration statement went effective registering $15,000,000 of preferred stock under Rule 457(o). The prospectus indicated that 1,000,000 shares were being offered. After the effective date, but prior to the commencement of sales, the registrant sought to increase the number of shares in the offering to 1,300,000 and decrease the price from the intended $15 to $11.50. Because the new aggregate offering amount (1,300,000 x $11.50) does not exceed the $15,000,000 registered, no new registration statement need be filed. [Jan. 26, 2009]

640.06 Company A planned to register its securities for issuance in connection with the purchase of company B’s assets. Company B would not be liquidated after completion of the transaction. In calculating the filing fee, Company A should look to Rule 457(d) and base the fee on the market value of the assets to be received. [Jan. 26, 2009]

640.07 Rule 457(f) provides that the filing fee for an acquisition registration statement is determined on the basis of the value of the shares of the acquired company. However, this method does not work for a registration statement filed for an acquisition shelf, since the entities to be acquired are not yet known. The filing fee for such a shelf registration statement should therefore be based on the market value of the registrant’s shares as provided in Rule 457(c). [Jan. 26, 2009]

640.08 A company was registering shares issuable on exercise of stock options. At the time of filing, the company had not yet issued options so that there was no option exercise price. The company only had public debt outstanding and there was no market for its common stock. The company had a negative book value. The company was advised to calculate the filing fee, for purposes of Rule 457(h), based on a good faith estimate of the value of the securities underlying the options. [Jan. 26, 2009]

640.09 A question was raised as to the filing fee for a letter of credit guarantee backing municipal bonds. Because the letter of credit was issued by a corporation rather than a bank, it had to be registered even though the underlying securities were exempt. If the filing fee were based on the amount of municipal securities covered by the guarantee the fee would be overstated. The entire amount of the offering need not be allocated to the guarantee and the filing fee may be based on the amount charged by the corporation for issuing the letter of credit by analogy to Rule 457(k) and (l). [Jan. 26, 2009]

640.10 An issuer proposed to register redeemable notes in a series of registration statements. 90% of the notes to be issued under each registration statement was expected to redeemed within 30 days of issuance. Because most of the securities being registered would be outstanding for only a brief period of time, the issuer sought relief from the filing fee requirements. The issuer cited Rule 457(m), which provides relief in certain circumstances when exempt commercial paper is being registered along with non-exempt commercial paper. Since the notes in question were not commercial paper, the full filing fee was payable. [Jan. 26, 2009]

640.11 A company filed a registration statement on October 1, 2003, paying a $50,000 filing fee. Only half of the securities so registered were sold. On March 1, 2008, the company filed a different registration statement for which it owed a filing fee of $15,000. The company was able to offset this fee by transferring $25,000 of the earlier $50,000 filing fee. The $25,000 represented the entire filing fee paid on all unsold shares from the October 1, 2003 registration statement. For purposes of future transfers under Rule 457(p), the $25,000 so transferred was considered paid on March 1, 2008. Assuming the other conditions of Rule 457(p) were satisfied, the $10,000 that was transferred in excess of the fee due for the second registration statement, as well as any portion of the $15,000 fee that remained unused after completion or termination of the offering would be available for transfer to another registration statement initially filed before March 1, 2013. [Jan. 26, 2009]

640.12 An asset-backed issuer inquired whether it could offset fees paid by another registrant/depositor if both registrant/depositors were wholly-owned subsidiaries of the same parent company. These “brother-sister” entities may use the fee offset provisions of Rule 457(p) to offset fees paid by the other “brother-sister” entity. [Jan. 26, 2009]

Sections 641 to 642. Rules 459 to 460 [Reserved]

Section 643. Rule 461 — Acceleration of Effective Date

643.01 Written notification that the issuer and the underwriter will be making oral acceleration requests may be made by counsel for the issuer or the underwriter in its cover letter accompanying the registration statement or an amendment thereto. Oral acceleration requests should not simply be left on voicemail of a Division staff member. [Jan. 26, 2009]

Section 644. Rule 462 — Immediate Effectiveness of Certain Registration Statements and Post-Effective Amendments

644.01 Pursuant to Rule 457(a), a company registered 2,300,000 shares at $22.6875 per share for an aggregate offering price of $52,181,250. After effectiveness, the shares were priced at $31. That higher price was never reflected in the calculation of registration fee table on the cover page of the registration statement. The company wishes to increase the size of the offering using Rule 462(b). It must register the additional shares at the $31 price. Thus, the company may register up to 336,653 additional shares at $31 under Rule 462(b) (calculated by taking 20% of $52,181,250 and dividing it by $31). [Jan. 26, 2009]

644.02 In a single offering not relying on Rule 415 that is both primary and secondary, the 20% increase in the offering size available under Rule 462(b) is calculated on the total aggregate dollar amount of the offering and may be allocated between the primary and secondary sellers in any manner desired. For example, an offering of $100 million in securities — $80 million primary and $20 million secondary — could be increased by $20 million under Rule 462(b) and all $20 million could be allocated to the previously identified secondary seller(s). [Jan. 26, 2009]

644.03 Pursuant to Rule 457(a), a company included in the calculation of registration fee table on its initially filed version of Form S-3 1,000,000 shares of common stock at $20 per share for an aggregate offering price of $20,000,000. Before effectiveness, the company included a supplemental fee table in an amendment to the S-3 to register 200,000 more shares of common stock at the new higher bona fide estimate of $25 per share (for an increase in the aggregate offering of $5,000,000). After effectiveness and pricing at $26 per share, the company wishes to register additional shares under Rule 462(b). The Rule 462(b) limit for registering additional shares is calculated by taking 20% of $25,000,000 (derived by adding the $20,000,000 and the $5,000,000) and dividing it by the $26 actual price to permit registration under Rule 462(b) of no more than 192,307 shares. [Jan. 26, 2009]

644.04 A registration statement for 1,000,000 shares of preferred stock under Rule 457(a) went effective with an offering price of $15 per share. After the effective date, but prior to the commencement of sales, the registrant sought to increase the number of shares to 1,150,000 and increase the offering price to $17.50 per share. Because more shares are going to be sold than were registered, the registrant must file a new registration statement to register the additional 150,000 shares at $17.50 per share. A short-form registration statement under Rule 462(b) would be possible since the number of additional shares (150,000) times the new price ($17.50) is less than 20% of the aggregate dollar amount in the calculation of registration fee table in the original effective registration statement ($15,000,000); provided, however, that no confirmations may be sent prior to the filing of the Rule 462(b) registration statement. [Jan. 26, 2009]

644.05 A registration statement went effective registering $15,000,000 of preferred stock under Rule 457(o). The prospectus indicated that 1,000,000 shares were being offered. After the effective date, but prior to the commencement of sales, the registrant sought to increase the price from the intended $15 maximum to $17.50, without changing the number of shares in the offering. Because registration was done by dollar amount (Rule 457(o)), not by number of shares (Rule 457(a)), and such dollar amount is increasing, the registrant must file a new registration statement to register the additional $2,500,000 of preferred stock. A short-form registration statement under Rule 462(b) would be possible since the $2,500,000 is less than 20% of the aggregate dollar amount registered in the calculation of registration fee table in the original effective registration statement ($15,000,000); provided, however, that no confirmations may be sent prior to the filing of the Rule 462(b) registration statement. [Jan. 26, 2009]

644.06 For EDGAR header purposes, when filing a Rule 424(b) prospectus supplement in connection with an offering that involves an initial effective registration statement and a second registration statement registering additional securities under Rule 462(b), the Rule 424(b) supplement must be filed under the registration number (33- or 333-) for the initial registration statement. The cover page of the Rule 424(b) supplement should, however, set forth the registration numbers of both the initial registration statement and the Rule 462(b) registration statement. [Jan. 26, 2009]

644.07 A registrant has an effective shelf registration statement with $500 million of unused capacity. The registrant wanted to use Rule 462(b) to increase the shelf capacity by 20% to $600 million, and then simultaneously takedown $200 million in common stock and $400 million in convertible debt, in separate offerings. However, Rule 462(b) was not available in this situation, as it can only be used once per delayed shelf offering and only at the time of final takedown. The registrant could takedown $200 million in common stock and then increase the convertible debt capacity from $300 million to $360 million in connection with a final takedown of convertible debt that would deplete the shelf. [Jan. 26, 2009]

644.08 An issuer filed a registration statement on Form S-4 for a merger. Inadvertently, the number of shares registered was not sufficient to cover certain shares issuable upon the exercise of options during the period after the effective date of the registration statement but prior to the consummation of the merger. Rule 413(a) does not permit the registration of additional shares by post-effective amendment. Counsel was informed that: (1) it could rely on Rule 462(b) to prepare and file a short-form registration statement provided the amount to be registered was within the 20% limit and the other conditions were met; or (2) it could file a new registration statement that could be combined with the earlier registration statement pursuant to Rule 429. [Jan. 26, 2009]

Section 645. Rule 463 — Report of Offering of Securities and Use of Proceeds Therefrom

645.01 Rule 463 requires periodic disclosure of sales of securities and use of proceeds during an issuer’s first registered offering. If the offering is a shelf offering of asset-backed securities, the Rule 463 reporting obligation is deemed satisfied by a report at the end of the first takedown. However, if new issuers are formed in connection with subsequent takedowns, for example, a series of single purpose corporations, each takedown by a new issuer will give rise to a new Form 10-D or Form 10-K Rule 463 reporting obligation. [Jan. 26, 2009]

645.02 Since a registered spin-off transaction typically does not generate any proceeds for the issuer, Item 701(f) of Regulation S-K disclosure pursuant to Rule 463 is not required. [Jan. 26, 2009]

645.03 Securities of a one-bank holding company are issued pursuant to an automatically effective registration statement filed in reliance on General Instruction G to Form S-4. At a later date, the company files a registration statement on Form S-1 covering an offering for cash. The reporting obligation of Rule 463 is conditioned on the effectiveness of the issuer’s first registration statement and, accordingly Regulation S-K Item 701(f) disclosure need not be provided with respect to the offering registered on Form S-1. [Jan. 26, 2009]

645.04 When a registration statement contemplates separate closings of limited partnerships to be formed in a series, the closing of each partnership in the series will be considered an “effective date” for purposes of triggering an obligation to provide disclosure pursuant to Rule 463. [Jan. 26, 2009]

645.05 If a registrant’s first filing under the Securities Act is a secondary offering, no disclosure need be provided in response to Item 701(f) of Regulation S-K since there is no use of proceeds. However, such a secondary offering would not constitute “the first registration statement filed under the Act by an issuer” for purposes of Rule 463. Accordingly, the first primary Securities Act offering by that registrant would necessitate disclosure under Item 701(f). [July 3, 2008]

645.06 Use of proceeds disclosure is required in the issuer’s first periodic report filed following the effective date of its first registration statement filed under the Securities Act, even if the registration statement covered a best-efforts offering that has not closed on the due date of that periodic report. [July 3, 2008]

645.07 On the same registration statement, in its initial public offering, a company registered X shares for sale to the public and Y shares for issuance pursuant to employee benefit plans. The Division staff agreed with the company’s analysis that it need report the use of proceeds as required by Rule 463 and Item 701(f) of Regulation S-K only for the shares sold to the public, and could omit the information relating to the employee benefit plan shares in reliance on Rule 463(d)(3). The Division staff’s response is premised on the representation that the employee benefit plan shares were originally registered for that purpose; had it been a matter of converting shares originally registered for sale to the public that remained unsold to the employee benefit purpose, this position would not apply. [July 3, 2008]

Sections 646 to 654. Rules 464 to 498 [Reserved]

Section 655. Rule 501 — Definitions and Terms Used in Regulation D

655.01 In a Regulation D offering, an owner of a mining property is selling interests in the property to investors for cash. The owner is retaining a royalty interest in the property providing the owner the right to share in a percentage of production. In computing the aggregate offering price under Rule 501(c), only the purchase price should be considered, which may include the initial cash payment, plus any subsequent payments that are fixed at the transaction date. This position reflects the fact that the royalty payments that will be made to the seller of the property as a share in future production are treated as operating expenses, rather than capitalized costs for the property. See Securities Act Release No. 6455, Question No. 32 (Mar. 3, 1983). [Jan. 26, 2009]

Section 656. Rule 502 — General Conditions to be Met

656.01 A promotional brochure that solicits investors for a proposed Regulation D offering is intended to be mailed to the members of the Thoroughbred Owners and Breeders Association, to be distributed at a sale of horses, and to be run as an advertisement in a trade journal. These activities would constitute a general solicitation in connection with the offer or sale of a security, and therefore would render those aspects of Regulation D subject to Rule 502(c) unavailable. [Jan. 26, 2009]

656.02 A corporation that has purchased securities in a Regulation D offering commences dissolution proceedings before it has received the actual stock certificates. The corporation requests the issuer to issue the certificates in the name of the corporation’s three shareholders to whom the corporation is distributing all of its assets. The Regulation D issuer may do this without violating the limitations on resale in Rule 502(d). [Jan. 26, 2009]

Sections 657 to 658. Rules 503 to 1001 [Reserved]

Regulation Crowdfunding

Last Update: March 12, 2025

These Compliance and Disclosure Interpretations ("C&DIs") comprise interpretations of Regulation Crowdfunding by staff of the Division of Corporation Finance.

They are not rules, regulations, or statements of the Commission. Further, the Commission has neither approved nor disapproved these interpretations.

These positions do not necessarily contain a discussion of all material considerations necessary to reach the conclusions stated, and they are not binding due to their highly informal nature. Accordingly, these responses are intended as general guidance and should not be relied on as definitive. There can be no assurance that the information presented in these interpretations is current, as the positions expressed may change without notice.

The bracketed date following each C&DI is the latest date of publication or revision.

Rule 100: Crowdfunding exemption and requirements

Question 100.01

Question: What information can an issuer disseminate prior to filing the Form C with the Commission and providing it to the relevant intermediary?

Answer: Subject to certain conditions, an issuer may communicate orally or in writing at any time prior to filing a Form C in order to determine whether there is any interest in a contemplated securities offering. These communications are deemed to be offers of a security for purposes of the antifraud provisions of the Federal securities laws. Pursuant to Rule 206, the issuer must clearly state that (i) no money or other consideration is being solicited, and if sent, will not be accepted; (ii) no offer to buy securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only through an intermediary’s platform; and (iii) a prospective purchaser’s indication of interest involves no obligation or commitment of any kind. Rule 201(z) requires that the issuer include any Rule 206 solicitation materials with the Form C that is filed with the Commission.

For an issuer considering an offering of securities exempt from registration under the Act, but that has not determined a specific exemption from registration on which it intends to rely, Rule 241 permits an issuer to make communications orally or in writing, similar to that permitted under Rule 206, to determine whether there is any interest in a contemplated offering of securities, provided legends similar to those detailed above are included.

In addition, information not constituting an offer of securities may be disseminated by an issuer prior to the commencement of a Regulation Crowdfunding offering. For example, factual business information that does not condition the public mind or arouse public interest in a securities offering is not an offer and may be disseminated widely. The Commission has interpreted the term "offer" broadly and has explained that "the publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer…" Securities Act Release No. 8591 (July 19, 2005). See also Securities Act Rule 169 and Securities Act Rule C&DI 256.25. [March 12, 2025] [Comparison to prior version]

Question 100.02:

Question: Are non-natural persons that invest in Regulation Crowdfunding offerings subject to investment limits?

Answer: Yes. The investment limits in Rule 100(a)(2) of Regulation Crowdfunding apply to all non-accredited investors. Instead of calculating investment limits based on annual income or net worth, a non-natural person calculates the limits based on its revenue or net assets (as of its most recent fiscal year end). Accredited investors are not subject to investment limits in Regulation Crowdfunding offerings. [March 12, 2025] [Comparison to prior version]

Rule 201: Disclosure Requirements

Question 201.01:

Question: May a recently formed issuer choose to provide a balance sheet as of its inception date?

Answer: Yes, if the offering is conducted during the period from inception until 120 days after reaching the annual balance sheet date for the first time, the issuer must include a balance sheet as of a date in that period, which may be inception date. When the balance sheet is dated as of inception the statements of comprehensive income, cash flows and changes in stockholders’ equity will not be applicable. For an offering conducted more than 120 days after the issuer’s first annual balance sheet date, the date of the most recent annual balance sheet determines the period for which statements of comprehensive income, cash flows and changes in stockholders’ equity must be provided. For example, depending on its date of inception, an issuer with a December 31 fiscal year end that starts a Regulation Crowdfunding offering in June 2016 would provide financial statements as follows:

Date of Inception	Balance Sheet	Other Financial Statements
May 2016	As of inception	Not applicable
May 2015	As of December 31, 2015	For the period from inception to December 31, 2015
May 2014	As of December 31, 2015 and 2014	For the year ended December 31, 2015 and the period from inception to December 31, 2014

[May 13, 2016]

Question 201.02:

Question: Rule 201(r) requires the issuer to disclose any related party transaction that exceeds 5% of the amount raised by the issuer in reliance on section 4(a)(6) during the preceding 12-month period, including the amount the issuer seeks to raise in the current offering. An issuer sets a target offering amount (i.e., the minimum amount of investment commitments needed for the offering to close) in a Regulation Crowdfunding offering, but will accept offering proceeds in excess of the target offering amount up to a specified maximum amount. Which dollar amount should the issuer use to determine the threshold at which disclosure of related party transactions is required under Rule 201(r)?

Answer: The issuer should determine the threshold for disclosure of related party transactions based on the target offering amount plus any amount already raised in reliance on 4(a)(6) in the preceding 12-month period. For example, if an issuer that raised $60,000 in reliance on section 4(a)(6) in the previous 12-month period sets a $100,000 target offering amount but will accept offering proceeds of up to $940,000, the issuer would need to disclose related party transactions of more than $8,000 (5% of $160,000, which is the sum of the $100,000 target offering amount plus the $60,000 previously raised). [April 5, 2017]

Rule 202: Ongoing Reporting Requirements

Question 202.01

Question: How does an issuer calculate the number of holders of record for purposes of determining eligibility to terminate its duty to file ongoing reports pursuant to Rule 202(b)(2) of Regulation Crowdfunding?

Answer: The issuer would count all holders of record of securities of the same class of securities issued in the Regulation Crowdfunding offering for which the reporting obligation exists, regardless of whether the holders of record purchased their securities in the Regulation Crowdfunding offering. [April 5, 2017]

Rule 204: Advertising

Question 204.01

Question: May an issuer advertise the "terms of the offering" under Regulation Crowdfunding?

Answer: Yes, but any such advertising that is made other than through communication channels provided by the intermediary on the intermediary’s platform will be limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding. "Terms of the offering" is defined to include "the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the planned use of proceeds, and the issuer’s progress towards its funding target." See Instruction to Rule 204. [March 12, 2025] [Comparison to prior version]

Question 204.02

Question: May an issuer advertise the "terms of the offering" through a video that complies with Rule 204(b) of Regulation Crowdfunding?

Answer: Yes. [May 13, 2016]

Question 204.03

Question: If an issuer’s advertisement does not include any of the "terms of the offering," is the issuer limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding?

Answer: No. The limitation on advertisement applies only when the advertisement includes any of the "terms of the offering." [May 13, 2016]

Question 204.04

Question: Could a third party publication, such as a media article, constitute a notice that would subject an issuer to the limitations of Rule 204?

Answer: Yes. If the media article advertises the terms of the offering and the issuer has been directly or indirectly involved in the preparation of the publication, the article would be a notice subject to Rule 204. Because Rule 204 limits the information that may be in such a notice, it would likely be difficult for the issuer to comply with the rule’s requirements. If the media article did not advertise the terms of the offering, it would not be a notice subject to Rule 204, although it could still constitute an "offer" under the securities laws. [May 13, 2016]

Rule 205: Promoter Compensation

Question 205.01

Question: When an issuer is compensating a third party to promote the issuer’s offering outside of the intermediary’s communication channels, do those third-party communications need to comply with the notice requirements of Rule 204(b) of Regulation Crowdfunding?

Answer: Yes. See Rule 205(b). [May 13, 2016]

Securities Act Forms

Last Update: March 20, 2025

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Securities Act Forms. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Securities Act Forms Generally

Question 101.01

Question: May a registrant obtain a waiver from form eligibility requirements?

Answer: Requests for waivers of form eligibility requirements are granted only under very limited circumstances and are handled solely by the Division's Office of Chief Counsel. [Feb. 27, 2009]

Question 101.02

Question: In many registered public offerings, registrants choose to include text and/or artwork inside the front and back cover pages. Are graphic presentations permitted in the prospectus?

Answer: Yes. Registrants should refer to Rule 304 of Regulation S-T. In addition, when including graphic presentations in the prospectus, registrants should be sure that:

The graphic presentations accurately represent their current business — for example, it would not be appropriate to depict products that do not exist or are not the registrant's products, to present only the most favorable aspects of a registrant's business, to include testimonials or statistical data that are taken out of context, or to identify specific customers that are not representative of the registrant's overall customer base;
The text in the graphic presentations adheres to plain English principles — for example, it would not be appropriate to use industry jargon or terms that are unfamiliar to the average investor or to include extensive narrative text that repeats information already contained in the summary or business sections; and
The graphic presentations are not confusing, do not obscure other prospectus disclosure, or give undue prominence to selected portions of the registrant's business or operations. [Feb. 27, 2009]

Question 101.03

Question: Immediately after an issuer files a Securities Act registration statement, it appoints a new principal financial officer. Is the new principal financial officer required to sign any amendments to the registration statement in his or her capacity as principal financial officer?

Answer: Yes. This would be the case even if the individual had been employed as principal financial officer for only one week. [Feb. 27, 2009]

Question 101.04

Question: What financial information may an Emerging Growth Company omit from its draft and publicly filed registration statements?

Answer: Under Section 71003 of the FAST Act, an Emerging Growth Company may omit from its filed registration statements annual and interim financial information that “relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering.” Interim financial information that will be included in a longer historical period relates to that period. Accordingly, interim financial information that will be included in a historical period that the issuer reasonably believes will be required to be included at the time of the contemplated offering may not be omitted from its filed registration statements. However, under staff policy, an Emerging Growth Company may omit from its draft registration statements interim financial information that it reasonably believes it will not be required to present separately at the time of the contemplated offering.

For example, consider a calendar year-end Emerging Growth Company that submits a draft registration statement in November 2017 and reasonably believes it will commence its offering in April 2018 when annual financial information for 2017 will be required. This issuer may omit from its draft registration statements its 2015 annual financial information and interim financial information related to 2016 and 2017. Assuming that this issuer were to first publicly file in April 2018 when its annual information for 2017 is required, it would not need to separately prepare or present interim information for 2016 and 2017. If this issuer were to file publicly in January 2018, it may omit its 2015 annual financial information, but it must include its 2016 and 2017 interim financial information in that January filing because that interim information relates to historical periods that will be included at the time of the public offering. [Aug. 17, 2017]

Question 101.05

Question: What financial information may an issuer that is not an Emerging Growth Company omit from its draft and publicly filed registration statements?

Answer: The relief provided by Section 71003 of the FAST Act is not available to issuers other than Emerging Growth Companies. However, under staff policy, an issuer that is not an Emerging Growth Company may omit from its draft registration statements interim and annual financial information that it reasonably believes it will not be required to present separately at the time it files its registration statement publicly. The issuer may not omit any required financial information from its filed registration statements.

For example, consider a calendar year-end issuer that is not an Emerging Growth Company that submits a draft registration statement in November 2017 and reasonably believes it will first publicly file in April 2018 when annual financial information for 2017 will be required. This issuer may omit from its draft registration statements its 2014 annual financial information and interim financial information related to 2016 and 2017 because this information would not be required at the time of its first public filing in April 2018. [Aug. 17, 2017]

Section 102. F-Series Forms Generally

Question 102.01

Question: The F-Series registration statements require the signature of the registrant's authorized U.S. representative. Who is qualified to sign as an authorized U.S. representative?

Answer: The term "authorized U.S. representative" is discussed in Securities Act Release No. 6360 (Nov. 20, 1981). The release states that "the Commission generally accepts the signature of an individual who is an employee of the registrant or an affiliate, or who is the registrant's counsel or underwriter in the United States for the offering, because the signature clearly identifies an individual that is connected with the offering as subject to the liability provisions of the Securities Act. By similar reasoning, the Commission generally has refused to accept the appointment of a newly formed or shell corporation in the United States as the authorized representative."

In the case of registrants with dual governing boards, the registration statement should be signed by whichever board has the authority to bind the company and performs functions most similar to those of a U.S. company's board of directors. In some cases, this may require the signatures of the members of both governing boards. The registration statement disclosure requirements relating to the registrant's board of directors generally would apply to members of both governing boards. [Feb. 27, 2009]

Question 102.02

Question: Item 2 of Forms F-7, F-8, F-9 and F-80 and Item 3 of Form F-10 specify certain legends that should be included, to the extent applicable, on the outside front cover page of the prospectus. May a Canadian issuer substitute plain English versions of these legends? If so, is there required language that should be used in the plain English versions?

Answer: Issuers eligible to use these forms may substitute the following plain English versions of the first four legends required by these items of the forms, in place of the versions currently set forth in the forms:

"We are permitted to prepare this prospectus in accordance with Canadian disclosure requirements, which are different from those of the United States. We prepare our financial statements in accordance with Canadian generally accepted accounting practices, and they may be subject to Canadian auditing and auditor independence standards. They may not be comparable to financial statements of United States companies."

"Owning the [securities] may subject you to tax consequences both in the United States and Canada. This prospectus or any applicable prospectus supplement may not describe these tax consequences fully. You should read the tax discussion in any applicable prospectus supplement."

"Your ability to enforce civil liabilities under the United States federal securities laws may be affected adversely because we are incorporated in [province/Canada], [some/all] of our officers and directors and [some/all] of the experts named in this prospectus are Canadian residents, and [many/all] of our assets are located in Canada."

"Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense."

In addition, the legend required by Item 2 of Form F-9 and Item 3 of Form F-10 for prospectuses used before the effective date of the registration statement may be presented in the following plain English version:

"The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted." [Feb. 27, 2009]

Question 102.03

Question: When a foreign private issuer guarantees securities of a subsidiary that is not a foreign private issuer, may the parent company-guarantor and subsidiary-issuer of guaranteed securities use an F- series registration statement to register an offering of the securities under the Securities Act and use Form 20-F with respect to any reporting obligations?

Answer: Yes, if certain requirements are satisfied. Rule 3-10 of Regulation S-X permits modified reporting by subsidiary issuers of guaranteed securities and subsidiary guarantors. Separate financial statements need not be filed for subsidiaries if any of Rules 3-10(b) through 3-10(d) apply and all applicable conditions of the rule relied upon are met in the parent company's filings. If the parent and issuer are eligible to present condensed consolidated financial information in the parent company's filings and the parent qualifies as a foreign private issuer, the parent company and its subsidiaries may use an F-series registration statement to register an offering of guarantees and guaranteed securities that are issued by a domestic or foreign subsidiary that does not qualify as a foreign private issuer and use Form 20-F with respect to any reporting obligations associated with such registration statement. The same would apply if the parent and subsidiaries are eligible to present narrative disclosure in lieu of condensed consolidating financial information under Rule 3-10. [December 8, 2016]

Question 102.04

Question: When a parent foreign private issuer issues securities that are guaranteed or co-issued by one or more subsidiaries that do not themselves qualify as a foreign private issuer, may the parent company-issuer and subsidiary-guarantor(s) or co-issuers use an F- series registration statement to register an offering of the securities under the Securities Act and use Form 20-F with respect to any reporting obligations?

Answer: Yes, if certain requirements are satisfied. In this situation, separate financial statements need not be filed for subsidiaries if either Rule 3-10(e) or 3-10(f) applies and all applicable conditions of the rule relied upon are met in the parent company's filings. As described in the last two sentences of Securities Act Forms CDI 102.03 / Exchange Act Forms CDI 110.03, when a parent foreign private issuer issues securities guaranteed or co-issued by one or more subsidiaries that do not themselves qualify as a foreign private issuer, the parent and subsidiary may use an F- series registration statement when they are eligible to present condensed consolidating financial information or narrative disclosure. [December 8, 2016]

Section 103. Form F-1

Question 103.01

Question: May a foreign issuer register only part of a worldwide equity or debt offering with the Commission?

Answer: Yes. Foreign issuers may register only a portion of a worldwide equity or debt offering so long as the amount registered with the Commission covers the securities sold in the U.S. and any possible flow-back of securities into the U.S. [Feb. 27, 2009]

Question 103.02

Question: May a foreign issuer use a U.K.-style or other foreign-style document as a prospectus in the U.S.?

Answer: Yes. A foreign issuer may use a U.K-style or other foreign-style document as a prospectus in the U.S., so long as the information required under the Commission's rules is included in the document. Some modification of the presentation and placement of information may be necessary in order to reflect the Commission's "plain English" requirements, such as the requirements for presentation of risk factors. [Feb. 27, 2009]

Question 103.03

Question: Must a foreign issuer include a risk factor addressing possible illiquidity of its offered securities in the U.S. when making its U.S. equity initial public offering if the issuer has an existing, established trading market for its equity securities outside the U.S.?

Answer: No. Although risk factors disclosure is generally required for all initial public offerings, a foreign issuer that is making its U.S. equity initial public offering and has an existing and established trading market for its equity securities outside the U.S. generally is not required to include a risk factor addressing possible illiquidity of the offered securities in the U.S. [Feb. 27, 2009]

Section 104. Form F-4 [Reserved]

Section 105. Form F-6

Question 105.01

Question: May Form F-6 be used for the registration of installment receipts?

Answer: Yes. Form F-6 may be used to register installment receipts even though the form, by its terms, is not available in cases where the underlying shares are not withdrawable. [Feb. 27, 2009]

Question 105.02

Question: May Form F-6 be used to register American Depositary Shares ("ADS") when local government law prohibits the withdrawal and holding of underlying shares by U.S. and other foreign persons?

Answer: Yes. Form F-6 may be used to register ADS even though local government law prohibits the withdrawal and holding of underlying shares by U.S. and other foreign persons. For example, certificates of participation issued by a master trust established with respect to the securities of Mexican companies should be registered on Form F-6, even though the form, by its terms, is not available in cases where the underlying shares are not withdrawable. [Feb. 27, 2009]

Question 105.03

Question: Does a change in the depositary of an American Depositary Receipt ("ADR") program require the filing of a new registration statement on Form F-6?

Answer: Yes. A new registration statement on Form F-6 must be filed if the depositary for an ADR program changes. [Feb. 27, 2009]

Question 105.04

Question: When establishing a company-sponsored ADR program, what steps must the depositary and company take regarding an existing unsponsored ADR program for the company's securities?

Answer: When a registration statement on Form F-6 is filed in connection with the establishment of a company-sponsored ADR program, the depositary and the company will be required to provide a representation that arrangements are in place to terminate any existing unsponsored ADR programs for the company's securities in a prompt and orderly fashion. Written confirmation from the depositaries of the unsponsored programs as to their concurrence with such arrangements may be required. [Feb. 27, 2009]

Section 106. Form F-7

Question 106.01

Question: May the U.S./Canadian Multijurisdictional Disclosure System ("MJDS"), and in particular, Form F-7, be used for rights offers exempt from Canadian registration requirements, notwithstanding the general prohibition on the use of the system for exempt offerings?

Answer: Yes. The MJDS, and in particular, Form F-7, may be used for rights offers exempt from Canadian registration requirements, notwithstanding the general prohibition on the use of the system for exempt offerings. The offering circular and any other material used to make the offers constitute the "prospectus" for purposes of Form F-7. [Feb. 27, 2009]

Section 107. Form F-8

Question 107.01

Question: Under what circumstances may a Form F-8 filer modify the required legend regarding the securities not being approved or disapproved by the Commission?

Answer: The required legend with respect to the securities not being approved or disapproved by the Commission may be modified to add a reference to the fact that state regulators have not approved or disapproved such securities. [Feb. 27, 2009]

Question 107.02

Question: May Form F-8 or Form F-80 be used for a statutory share exchange, which only requires the vote of the shareholders of the company being acquired?

Answer: Yes. Although Forms F-8 and F-80 refer to business combinations requiring the vote of the shareholders of the companies that are the parties to the combination, either form may be used in the case of a statutory share exchange, which only requires the vote of the shareholders of the company being acquired. [Feb. 27, 2009]

Section 108. Form F-9

Question 108.01

Question: May Form F-9 be used to register Form F-9-eligible securities that are convertible after one year into another class of the issuer's securities?

Answer: Yes. Form F-9-eligible securities which are convertible after one year into another class of the issuer's securities may be registered on Form F-9, but the securities into which they are convertible also must be F-9-eligible securities, independent of the convertible securities. [Feb. 27, 2009]

Question 108.02

Question: When an issuer files a registration statement on Form F-9 or Form F-10 in connection with a shelf offering in Canada and updates that shelf registration in Canada, must the issuer also file a post-effective amendment to its registration statement on Form F-9 or Form F-10?

Answer: Yes. When updating its shelf registration in Canada, an issuer must also file a post-effective amendment to its registration statement on Form F-9 or Form F-10 relating to its shelf registration in Canada. [Feb. 27, 2009]

Section 109. Form F-10

Question 109.01

Question: Item 2 of Form F-10 requires that financial statements included in the home jurisdiction document must be reconciled to U.S. GAAP as required by Item 18 of Form 20-F. Does this reconciliation requirement apply to all financial statements filed under cover of Form F-10, including interim financial statements?

Answer: The reconciliation requirement in Item 2 of Form F-10 applies to the issuer's annual financial statements and year-to-date financial statements (including comparative periods) and does not require that any other interim financial statements be reconciled to U.S. GAAP. This interpretation is consistent with the reconciliation requirements of Form F-1. Reconciliation of annual and year-to-date financial statements is required regardless of whether they are included directly or incorporated by reference. However, the reconciliation requirement does not apply to year-to-date financial statements included under cover of Form F-10 if Item 8.A.5 of Form 20-F would not require a Form F-1 registrant to provide interim financial statements for the same period. [Feb. 27, 2009]

Question 109.02

Question: May an issuer use Form F-10 if it satisfies the eligibility requirements of the form at the time of filing, but will not satisfy such requirements upon the closing of the offering?

Answer: Yes. Under Securities Act Rule 401(a), form eligibility is established at the time of the initial filing. [Feb. 27, 2009]

Question 109.03

Question: May Form F-10 be used for secondary offerings?

Answer: Yes. [Feb. 27, 2009]

Question 109.04

Question: May a Canadian issuer use Form F-10 for a dividend reinvestment plan ("DRIP") even though there is a Canadian exemption from registration that is available for DRIPs?

Answer: Yes. If a MJDS-eligible issuer wants to use Form F-10 for a DRIP and is willing to voluntarily file a registration statement in Canada despite the Canadian registration exemption that is available for DRIPs, the issuer may file on Form F-10. In doing so, however, the Canadian issuer is, in effect, waiving the benefit of this exemption and should consider itself subject to Canadian requirements applicable to offerings generally (including, if applicable, the requirement that the prospectus be circulated to Canadian shareholders). [Feb. 27, 2009]

Question 109.05

Question: May an issuer use Form F-10 to register a rights offering that is not eligible for registration on Form F-7, even though the issuer is exempt from the requirement to file a prospectus with the Canadian authorities?

Answer: Yes. The Commission revised General Instruction I.J of Form F-10 in Securities Act Release No. 6902A (Mar. 23, 1992) to clarify that a Form F-10 registrant may file a rights offering circular prepared pursuant to Canadian requirements in lieu of a prospectus. In such case, the registrant must include in the Form F-10 a reconciliation to U.S. GAAP for those financial statements that are required to accompany a rights offering circular filed with the Canadian authorities. [Feb. 27, 2009]

Question 109.06

Question: May MJDS-eligible registrants use Form F-10 to register so-called "A/B" or "Exxon Capital" exchange offers?

Answer: Yes. MJDS-eligible registrants may use Form F-10 to register so-called "A/B" or "Exxon Capital" exchange offers that would otherwise be eligible for registration on Form F-1 or Form F-4, if appropriate procedures are followed. [Feb. 27, 2009]

Question 109.07

Section 110. Form F-80

Question 110.01

Question: May Form F-8 or Form F-80 be used for a statutory share exchange, which only requires the vote of the shareholders of the company being acquired?

Section 111. Form F-X [Reserved]

Section 112. Form F-N [Reserved]

Section 113. Form S-1

Question 113.01

Question: If a continuous offering under Securities Act Rule 415 is registered on Form S-1, is a post-effective amendment required to be filed in order to satisfy the requirements of Securities Act Section 10(a)(3), to reflect fundamental changes or to disclose material changes in the plan of distribution?

Answer: Yes. A post-effective amendment is required in these circumstances pursuant to the issuer's Item 512(a) undertakings. Form S-1 does not provide for forward incorporation by reference of Exchange Act reports filed after the effective date of the registration statement. Other changes to the information in the prospectus contained in the registration statement generally may be made by filing a prospectus supplement. [Feb. 27, 2009]

Question 113.02

Question: How should a registrant conducting a continuous offering on Form S-1 update the prospectus to reflect the information in its subsequently filed Exchange Act reports?

Question 113.03

Question: Is a registrant that operates a resort (hotel, golf course and spa) in a service industry or the real estate business? The registrant is unsure whether Form S-1 or Form S-11 would be the appropriate registration statement for an offering.

Answer: A registrant that operates a resort (hotel, golf course and spa) is in a service industry. Accordingly, Form S-1, and not Form S-11, would be appropriate for its offering. [Feb. 27, 2009]

Question 113.04

Question: The ability to incorporate by reference previously filed Exchange Act reports and other materials in Form S-1 is conditioned on the issuer making its incorporated Exchange Act reports and other materials readily accessible on a web site maintained by or for the issuer. May an issuer link to the Commission's EDGAR system to satisfy this requirement?

Answer: An issuer may satisfy this requirement by including on the web site maintained by or for the issuer hyperlinks directly to the issuer's reports or other materials filed on EDGAR. It also may link directly to the issuer's EDGAR filing page. However, linking to the Commission's EDGAR system generally, or to a page where an investor would be required to select the issuer or input the issuer's name, will not satisfy this requirement. [Feb. 27, 2009]

Question 113.05

Question: Form S-1 allows eligible registrants to elect "backwards" incorporation by reference of previously filed Exchange Act reports and other materials. At effectiveness, must the prospectus filed as part of the Form S-1 registration statement identify all previously filed Exchange Act reports and materials that are incorporated by reference?

Answer: Yes. If the registrant elects to incorporate by reference pursuant to General Instruction VII and Item 12 of Form S-1, then it must incorporate by reference, in their entirety, all Exchange Act reports and other materials required by Item 12. If a registrant wants to incorporate by reference an Exchange Act report that the registrant files after the filing date of a Form S-1 or an amendment thereto but prior to effectiveness, the registrant must file a pre-effective amendment to include a specific reference to such report in the prospectus filed as part of the registration statement. [Feb. 27, 2009]

Question 113.06

Question: If the issuer's annual report on Form 10-K and other periodic reports filed since the end of the fiscal year for which the annual report was filed provide only a portion of the information required by any Form S-1 line item requirement, can the issuer incorporate the periodic reports by reference and supplement or update that information with additional information included directly in the Form S-1 in order to satisfy the line item requirements of the form?

Answer: Yes. [Feb. 27, 2009]

Question 113.07

Question: May a registrant filing a Form S-1 include information about a Form S-3 company in its prospectus through incorporation by reference?

Answer: No. This procedure is not authorized by Form S-1 or Rule 411. If the information about the other company is material, it must be set forth in the prospectus in full. [Jan. 26, 2009]

Question 113.08

Question: May a Form S-1 be post-effectively amended at the time of the required Section 10(a)(3) update to incorporate by reference the issuer's new Form 10-K?

Answer: Yes, provided that the post-effective amendment is filed only after the issuer has filed its new Form 10-K and the issuer meets all of the requirements for incorporation by reference into Form S-1 at the time of the post-effective amendment. As Form S-1 does not provide for forward incorporation by reference, a post-effective amendment filed after the issuer files its new Form 10-K would meet the requirements of Form S-1 at the date of filing, and the effective date of the post-effective amendment would be a new effective date of the registration statement for purposes of Securities Act Sections 10(a)(3) and 11. [Feb. 27, 2009]

Section 114. Form S-3 — General

Question 114.01

Question: May an issuer file a new Form S-3 notwithstanding its inability to satisfy General Instruction I.A.3(b) of the form?

Answer: No. However, an issuer can request relief from the timeliness requirements of General Instruction I.A.3(b). Relief is granted only in very limited circumstances. Issuers should contact the Division's Office of Chief Counsel for additional information on how to make such a request. [Feb. 27, 2009]

Question 114.02

Question: At the time of an update of the registration statement under Securities Act Section 10(a)(3), the market value of the registrant's common equity held by non-affiliates does not meet the minimum required by General Instruction I.B.1. May the registrant continue to use Form S-3 to conduct primary offerings pursuant to that instruction?

Answer: No. A registrant must be eligible to use Form S-3 each time it updates the registration statement under Section 10(a)(3). In this case, because the registrant no longer meets the transactional requirements of General Instruction I.B.1, it must amend its registration statement onto the form it is then eligible to use for a primary offering. If the registrant has a class of common equity securities listed and registered on a national securities exchange, it should consider whether it is eligible to use Form S-3 pursuant to General Instruction I.B.6. [Feb. 27, 2009]

Question 114.03

Question: How should the issuer complete the calculation of registration fee table on the face of an automatic shelf registration statement?

Answer: The calculation of registration fee table should list each type of security being registered and either state whether a filing fee is being paid with the filing (in which case the dollar amount of the fee should be set forth, as in the case of an unallocated shelf registration statement today), or indicate "$0" in the filing fee table and state that the filing fee will be paid subsequently in advance or on a pay-as-you-go basis. [Jan. 26, 2009]

Question 114.04

Question: Must a registrant evaluate its eligibility to use Form S-3 at the time it files a Form 10-K?

Answer: Yes. For purposes of Rule 401(b), the updating of a Form S-3 registration statement through the incorporation of a Form 10-K is the equivalent of filing a post-effective amendment to update the registration statement pursuant to Section 10(a)(3). This means that if the registrant is not eligible to use Form S-3 at the time of such updating, it would be required to file a post-effective amendment on whatever other form would be available at the time. [Feb. 27, 2009]

Question 114.05

Question: May a Form S-3ASR be filed, or a non-automatically effective Form S-3 be filed and declared effective, after an issuer has filed its Form 10-K but prior to filing the Part III information that will be incorporated by reference into the Form 10-K?

Answer: Yes. However, issuers are responsible for ensuring that any prospectus used in connection with a registered offering contains the information required to be included therein by Securities Act Section 10(a) and Schedule A. [March 20, 2025] [Comparison to prior version]

Question 114.06

Question: If an issuer has a resale registration statement on Form S-3 or Form F-3 that became effective prior to December 1, 2005, may it rely on Rule 430B to use prospectus supplements for the purpose of making material amendments to the plan of distribution or replacing selling security holders due to transfers or adding new selling security holders?

Answer: Yes. An issuer with an effective resale registration statement may rely on Rule 430B and file prospectus supplements pursuant to Rule 424(b) to make material amendments to the plan of distribution or to add or replace selling security holders, provided that in the case of adding or replacing selling security holders, the other conditions in Rule 430B regarding naming selling security holders by prospectus supplement are satisfied. [Feb. 27, 2009]

Question 114.07

Question: May a well-known seasoned issuer file an automatic shelf registration statement while it has a pending confidential treatment request on an exhibit to a periodic or current report?

Answer: Yes. Well-known seasoned issuers are not required to delay filing an automatic shelf registration statement until pending confidential treatment applications are acted upon. However, the well-known seasoned issuer must assure that any prospectus used in an offering contains the information required to be included by Securities Act Section 10(a) and applicable rules thereunder. [Feb. 27, 2009]

Section 115. Form S-3 — General Instructions I.A.1 to I.A.8 — Registrant Requirements

Question 115.01

Question: Will the delinquent filing of a Form 11-K by an issuer's employee benefit plan disqualify the issuer from using Form S-3?

Answer: No. While General Instruction I.A.3 of Form S-3 requires an issuer to have timely filed all periodic reports during the preceding twelve months, the Form 11-K filing obligation is the plan's obligation, not the issuer's. Hence, a late filing of a Form 11-K is not considered in determining the issuer's eligibility for Form S-3. [Feb. 27, 2009]

Question 115.02

Question: In annual reports for fiscal years ending on or after December 15, 2007 but before December 15, 2009, non-accelerated filers are required to provide management's report on internal control over financial reporting pursuant to Item 308T of Regulation S-K. The report is deemed not to be "filed" for purposes of Section 18 of the Exchange Act, unless the company specifically states that the report is to be considered "filed" under the Exchange Act or incorporates it by reference into a filing under the Securities Act or the Exchange Act. Does a non-accelerated filer's failure to provide management's report in its Form 10-K under Item 308T(a) affect its form eligibility or the ability to use Rule 144?

Answer: It is the Division's view that the failure to provide this management report renders the annual report materially deficient. As a result, if management did not complete the evaluation and provide the report as required by Item 308T(a), the company would not be timely or current in its Exchange Act reporting. This would result in the company not being eligible to file new Form S-3 or Form S-8 registration statements and the loss of the availability of Rule 144. Because the filing of the Form 10-K constitutes the Section 10(a)(3) update for any effective Forms S-3 or S-8, the company also would be required to suspend any sales under already effective registration statements.

However, if the company subsequently amends its Form 10-K to provide management's report on whether or not internal control is effective, the company can file new Forms S-8 and resume making sales under already effective Forms S-8, and shareholders can avail themselves of Rule 144 (assuming all other conditions to use of the form or rule are satisfied). This would be the case regardless of whether management reached an effective or ineffective conclusion about its internal control. Although amending the Form 10-K to provide management's report may result in the company becoming current, it would remain untimely and would not be eligible to file new Forms S-3. [July 3, 2008]

Question 115.03

Question: An issuer otherwise eligible to use Form S-3 failed to file a current report on Form 8-K fourteen months before the proposed filing of the Form S-3. Is Form S-3 available to the registrant?

Answer: Yes. Form S-3 is available because the condition to have filed all required Exchange Act reports and on a timely basis applies only to reports required to be filed in the preceding twelve months. [Feb. 27, 2009]

Question 115.04

Question: General Instruction I.A.3 to Form S-3 requires that the registrant have timely filed all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement. What reports are covered by this Instruction?

Answer: In determining eligibility for use of Form S-3, the requirement that the registrant has filed in a timely manner all reports required to be filed during the past twelve calendar months refers only to Section 13(a) or 15(d) reports and Section 14(a) and 14(c) materials. [Feb. 27, 2009]

Question 115.05

Question: May a domestic company that succeeds to the reporting obligations of a foreign private issuer, and is otherwise eligible to file a Form S-3, incorporate by reference the predecessor's annual report on Form 20-F to satisfy the disclosure requirements of Form S-3?

Answer: No. Either the issuer would have to include audited financial statements and other disclosures satisfying the requirements of Form S-3 or it could wait until it has filed its first annual report on Form 10-K to incorporate by reference the Form 10-K into the Form S-3. [Feb. 27, 2009]

Question 115.06

Question: General Instruction I.A.3 of Form S-3 requires that the registrant have filed all material required to be filed for a period of at least twelve calendar months immediately preceding the filing of the registration statement. The instruction also requires that the registrant have filed in a timely manner all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement. How is calendar month calculated?

Answer: For purposes of these eligibility requirements, a calendar month begins on the first day of the month and ends on the last day of that month. Hence, if a registrant were not timely on a Form 10-Q due on September 15, 2008, but was timely thereafter, it would first be eligible to use Form S-3 on October 1, 2009. [Feb. 27, 2009]

Question 115.07

Question: A company failed to furnish an Item 2.02 Form 8-K. As a result, does the company lose its eligibility to file a registration statement on Form S-3?

Answer: General Instruction I.A.3(b) to Form S-3 requires that all reports required to be filed with the Commission during the preceding 12 months have been filed. Because an Item 2.02 Form 8-K is furnished, rather than filed, this failure to furnish does not adversely affect the company's eligibility to use Form S-3. [Feb. 27, 2009]

Question 115.08

Question: What does the reference to "material" in General Instruction I.A.5 of Form S-3 apply to?

Answer: The reference to materiality applies to defaults on indebtedness and on long-term lease rentals. It does not apply to the failure to declare dividends or make sinking fund installments on preferred stock. [Feb. 27, 2009]

Question 115.09

Question: Is the omission to declare a dividend on non-cumulative preferred stock a payment failure disqualifying an issuer from using Form S-3?

Answer: No, because there is no liability to pay the dividend that arises under the terms of the non-cumulative preferred. This omission cannot be equated to a payment default on a debt instrument or capital lease. A declared but unpaid dividend on preferred stock, however, would disqualify the issuer from using Form S-3, as would the existence of accrued and unpaid dividends on cumulative preferred stock. [Feb. 27, 2009]

Question 115.10

Question: Does a default on a covenant not involving an "installment on indebtedness" disqualify a company from using Form S-3?

Answer: No. A default will be disqualifying only if it involves failure to pay principal or interest on indebtedness and is material to the financial position of the registrant and its subsidiaries, taken as a whole. [Feb. 27, 2009]

Question 115.11

Question: In the event an installment payment on indebtedness has been missed, but the terms of the debt do not define a missed payment as a default until the creditors take some action, can an issuer satisfy General Instruction I.A.5 of Form S-3?

Answer: Yes, if the company makes a determination that there is no default as a legal matter. [Feb. 27, 2009]

Question 115.12

Question: An issuer committed a material default on indebtedness but the holders of the securities subsequently waived the default. Can an issuer satisfy General Instruction I.A.5 of Form S-3?

Answer: No. Regardless of the fact that a disqualifying default is either cured or waived after it occurs, the form may not be used between the date of the default and the audit at the end of the fiscal year in which such material default occurred. [Feb. 27, 2009]

Question 115.13

Question: In the event a prospective default never occurs because the lenders have waived payment in advance of the due date, can an issuer satisfy General Instruction I.A.5 of Form S-3?

Answer: Yes. [Feb. 27, 2009]

Question 115.14

Question: From which date should an issuer measure the twelve-month period in General Instruction I.A.3 to Form S-3?

Answer: The twelve-month period for which a registrant must have been subject to the requirements of Section 12 or 15(d) of the Exchange Act, and filed certain required materials under Section 13, 14 or 15(d) of the Exchange Act, relates to the effective date of the registrant's Securities Act or Exchange Act registration statement that gave rise to the filing obligation. Thus, the date on which the registration statement was initially filed is not taken into consideration in computing the twelve-month period. [Feb. 27, 2009]

Question 115.15

Question: Would an issuer that timely filed its Exchange Act reports during the past twelve months, but was not required to file reports under the Exchange Act for a portion of that period, be able to satisfy Instruction I.A.3 of Form S-3?

Answer: In order to be eligible to use Form S-3, an issuer must have been subject to the requirements of Exchange Act Section 12 or 15(d) for a period of at least twelve months. An issuer that timely filed its Exchange Act reports during the past twelve months, but was not subject to Section 12 or 15(d) for a portion of that period (and therefore was reporting on a voluntary basis during that portion), would be eligible to use Form S-3 only under the conditions specified in the Lamar Advertising Co. no-action letter (Nov. 18, 1996) issued by the Division. [Aug. 14, 2009]

Question 115.16

Question: If a company defaults on indebtedness, which default is material to the company as a whole, or fails to pay a dividend on preferred stock, can the company satisfy the eligibility requirement in Instruction I.A.5 of Form S-3 in the following fiscal year even if the default has not been cured, or the dividends have not been paid?

Answer: Yes, provided that the company has filed a Form 10-K including audited financial statements covering the period in which the material event of default or failure to pay preferred dividends occurred. If, after the end of the fiscal year, the company has a new material event of default or a new failure to pay dividends on preferred stock, then the company would not be eligible to use Form S-3 until the filing of its next Form 10-K. See Securities Act Release No. 6331 (Aug. 6, 1981). [June 4, 2010]

Question 115.17

Question: If a company declares bankruptcy and subsequently fails to make interest or principal payments on indebtedness as required pursuant to the terms of the indebtedness, can the company nonetheless satisfy the eligibility requirement in Instruction I.A.5 of Form S-3 since the filing of bankruptcy results in an automatic stay of creditors' rights with respect to the company's indebtedness?

Answer: No. [June 4, 2010]

Question 115.18

Question: Following the merger of a private operating company or companies with or into a reporting shell company (for example, a special purpose acquisition company), may the resulting combined entity rely on the reporting shell company’s pre-combination reporting history to satisfy the eligibility requirements of Form S-3 during the 12 calendar months following the business combination?

Answer: If the registrant is a new entity following the business combination transaction with a shell company, the registrant would need 12 calendar months of Exchange Act reporting history following the business combination transaction in order to satisfy General Instruction I.A.3 before Form S-3 would become available. If the registrant is a “successor registrant,” General Instruction I.A.6(a) would not be available because the succession was not primarily for the purpose of changing the state of incorporation of the predecessor or forming a holding company. General Instruction I.A.6(b) also would not be available because the private operating company or companies would not have met the registrant requirements to use Form S-3 prior to the succession. Where the registrant is not a new entity or a “successor registrant,” the combined entity would have less than 12 calendar months of post-combination Exchange Act reporting history. Form S-3 is premised on the widespread dissemination to the marketplace of an issuer’s Exchange Act reports over at least a 12-month period. Accordingly, in situations where the combined entity lacks a 12-month history of Exchange Act reporting, the staff is unlikely to be able to accelerate effectiveness under Section 8(a) of the Securities Act, which requires the staff, among other things, to give “due regard to the adequacy of the information respecting the issuer theretofore available to the public,…and to the public interest and the protection of investors.” [September 21, 2020]

Section 116. Form S-3 — General Instructions I.B.1 to I.B.6 — Transaction Requirements

Question 116.01

Question: May a registrant use Form S-3 for the registration of securities issued under an employee benefit plan?

Answer: Yes, so long as the sponsoring company, as issuer of the securities, meets all of the requirements for use of the form, including those set forth in General Instruction I.B.1 for primary offerings. The information concerning the plan required by Form S-8 would have to be included in the Form S-3 prospectus. Plan interests, however, may not be registered on Form S-3 because the plan, as issuer, typically will not satisfy Form S-3 eligibility standards. When plan interests are being registered, the plan will be subject to S-1 level disclosure (regardless of whether the sponsoring company registers its securities on Form S-1 or Form S-3), including Section 10(a)(3) updating requirements. [Feb. 27, 2009]

Question 116.02

Question: A registrant meets the registrant requirements for Form S-3, but does not meet the transaction requirements for a primary offering. The registrant has two majority-owned subsidiaries. Would Form S-3 be available for secondary offerings of its securities by the two subsidiaries?

Answer: No. In these circumstances, the offerings of the registrant's securities by its majority-owned subsidiaries would be treated as if they were primary offerings by the registrant, since the subsidiaries are considered alter egos of the registrant. Accordingly, since the registrant is not eligible to use Form S-3 for a primary offering, the offering of the registrant's securities by its subsidiaries likewise may not be registered on Form S-3. [Feb. 27, 2009]

Question 116.03

Question: Is Form S-3 available to an issuer that meets the form's registrant requirements to register offers and sales pursuant to customer stock purchase plans?

Answer: Form S-3 is not available to register offers and sales pursuant to customer stock purchase plans unless the issuer meets the form's registrant requirements as well as the transaction requirements for primary offerings set forth in General Instruction I.B.1 of Form S-3. [Feb. 27, 2009]

Question 116.04

Question: Is Form S-3 available to register shares underlying options whose exercise consideration can be cash or, in the alternative, shares of the same class as those underlying the options?

Answer: Yes. [Feb. 27, 2009]

Question 116.05

Question: In reliance on Securities Act Section 4(2), a merger transaction will not be registered. May resales of earnout shares to be issued in connection with the merger be registered on Form S-3 pursuant to General Instruction I.B.3 after the consummation of the merger, even though the shares have not been earned and are not outstanding at the time the registration statement is filed?

Answer: Yes. [Feb. 27, 2009]

Question 116.06

Question: For purposes of computing the "float" under General Instruction I.B.1, what day should be used in determining the number of shares held by non-affiliates?

Answer: General Instruction I.B.1 to Form S-3 provides, in part, that the form may be used for a primary offering when the aggregate market value of the outstanding voting and non-voting common equity held by non-affiliates of the registrant is $75 million or more. As the instruction indicates, the aggregate market value may be computed by taking the average of the bid and asked prices of such common equity, as of a date within 60 days prior to the date of filing, and multiplying that price by the number of shares of such common equity held by non-affiliates. In making this computation, it is not necessary to calculate the number of shares held by non-affiliates for the same day on which the average price of the stock is determined. For example, the number of shares outstanding on the date of filing might be used, together with the average price of stock for any day within the 60-day period. [Feb. 27, 2009]

Question 116.07

Question: When a registrant reassesses Form S-3 eligibility in connection with a Section 10(a)(3) update, for purposes of computing the "float" under General Instruction I.B.1, what day should be used in determining the number of shares held by non-affiliates?

Answer: The registrant can use any day during the 60-day "look back" period from the filing date of the Form 10-K in determining the number of shares held by non-affiliates. [Feb. 27, 2009]

Question 116.08

Question: General Instruction I.B.I requires that the aggregate market value of the voting and non-voting common equity held by non-affiliates be at least $75 million. In order to calculate whether this condition has been met, must the common equity be traded on a public market, such as an exchange, the OTC Bulletin Board, or the Pink Sheets?

Answer: Yes. [Feb. 27, 2009]

Question 116.09

Question: What is the meaning of the "for cash" requirement in General Instruction I.B.1 of Form S-3?

Answer: The "for cash" reference was intended only to make clear that Form S-3 is not available for exchange offers or other business combination transactions. Accordingly, Form S-3 would be available, for example, for transactions in which the consideration for the securities consists of promissory notes or services performed for the issuer by the recipient of the securities. [Feb. 27, 2009]

Question 116.10

Question: May a company use Form S-3 to register the offer and sale of both an immediately convertible security and the underlying security?

Answer: Yes. A company meeting the float test of General Instruction I.B.1 of Form S-3 may use that form to register the offer and sale of both an immediately convertible security and the underlying security. The fact that subsequent conversions may occur at a time when the company does not meet the transaction requirement of General Instruction I.B.4 of Form S-3, which is available for conversions, would not affect the initial registration of the offer of such underlying securities. If it becomes necessary to update the registration statement in accordance with Section 10(a)(3), the company may accomplish such update by incorporation by reference or post-effective amendment on Form S-3 only if it meets the conditions for the use of the form at that time. [Feb. 27, 2009]

Question 116.11

Question: In order to use General Instruction I.B.3 of Form S-3 for the secondary offering of a convertible or exercisable security, such as a common stock purchase warrant, is it necessary that the warrants themselves be listed on an exchange or quoted on an automated quotation system of a national securities association?

Answer: No. The fact that the underlying common stock is listed or quoted is sufficient to satisfy the requirements of the instruction. [Feb. 27, 2009]

Question 116.12

Question: For purposes of General Instruction I.B.3 of Form S-3, does "quoted on the automated quotation system of a national securities association" include securities quoted on the OTC Bulletin Board or the Pink Sheets?

Answer: No. [Feb. 27, 2009]

Question 116.13

Question: Are securities to be issued in an exchange exempt under Securities Act Section 3(a)(9) deemed outstanding for purposes of General Instruction I.B.3 of Form S-3?

Answer: Yes. [Feb. 27, 2009]

Question 116.14

Question: If an issuer meets the float test in General Instruction I.B.1 of Form S-3, may it use Form S-3 for secondary offerings, even though the securities to be issued are not listed on a national securities exchange or quoted on an automated quotation system of a national securities association, as required by General Instruction I.B.3?

Answer: Yes. [Feb. 27, 2009]

Question 116.15

Question: May parents, subsidiaries or affiliates of the issuer rely on Rule 415(a)(1)(i) to register secondary offerings?

Answer: Rule 415(a)(1)(i) excludes from the concept of secondary offerings sales by parents or subsidiaries of the issuer. Form S-3 does not specifically so state; however, as a practical matter, parents and most subsidiaries of an issuer would have enough of an identity of interest with the issuer so as not to be able to make "secondary" offerings of the issuer's securities. Aside from parents and subsidiaries, affiliates of issuers are not necessarily treated as being the alter egos of the issuers. Under appropriate circumstances, affiliates may make offerings that are deemed to be genuine secondaries. [Jan. 26, 2009]

Question 116.16

Question: The Skadden Arps/Registration of Rights Issuable Pursuant to Stockholder Rights Plans no-action letter (Jan. 7, 1987) issued by the Division relates to registration requirements in connection with rights plans. As described in the no-action letter, a prospectus to a previously effective Form S-3, pursuant to which sales are still being made, may be revised to reflect the rights plan by filing a Rule 424(c) prospectus supplement. For a Form S-8, Rule 428 would apply instead of Rule 424(c). However, if a company has an existing rights plan and is filing any new Securities Act registration statement for shares of the class of security to which the rights relate, should the rights be registered on the new registration statement as a separate security?

Answer: Yes. [Feb. 27, 2009]

Question 116.17

Question: Securities to be issued in connection with business combinations may be registered on a shelf filing pursuant to Rule 415(a)(l)(viii). May Form S-3 be used for these purposes?

Answer: No. Form S-3 is not available for business combinations. Form S-3 may be used for a secondary offering of shares which were originally received from the issuer in connection with a business combination, assuming it is a genuine secondary offering. [Feb. 27, 2009]

Question 116.18

Question: A company privately placed convertible securities in reliance on the exemption provided by Section 4(2). The company agreed to file a registration statement within two months after the private placement closing to register the resale of the common stock issuable on conversion of the convertible securities. The securities were convertible into common stock using a conversion ratio based on the company's common stock trading price at the time of conversion. Can the company use Form S-3 to register the resale of the common stock prior to conversion? Can the company use Rule 416 to register for resale an indeterminate number of shares that it may issue due to the operation of the conversion formula?

Answer: 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. Rule 416 does not apply by its terms in these circumstances, because the floating conversion rate is not "similar" to an anti-dilution provision. Instead, the company must make a good-faith estimate of the maximum number of shares that it may issue on 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.

Question 116.19

Question: A company privately placed convertible securities in reliance on the exemption provided by Section 4(2), but has not yet issued some or all of the convertible securities. The company agreed to file a registration statement within two months after the private placement closing to register the resale of the common stock issuable on conversion of the convertible securities. The securities were convertible into common stock using a conversion ratio based on the company's common stock trading price at the time of conversion. Can the company use Form S-3 to register the resale of the common stock prior to conversion?

Answer: Unless the transaction involving the issuance of the convertible security meets the conditions under which a company may file a registration statement for resale of privately placed securities before their actual issuance (commonly known as a "PIPE," or private-investment, public-equity transaction, as discussed below), the registration for resale of the common stock underlying the unissued convertible security would not be viewed as a valid secondary offering. 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 such 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 Section 4(2) exemption generally claimed for the entire convertible securities offering.

In a PIPE transaction, a company will be permitted to register the resale of securities prior to their issuance if the company has completed a Section 4(2)-exempt sale of the securities (or in the case of convertible securities, of the convertible security itself) to the investor, 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. [Nov. 26, 2008]

Question 116.20

Question: An issuer intended to grant rights to subscribe to shares of common stock (on a pro rata basis to all shareholders) after it filed a registration statement on Form S-3. The issuer was not eligible to rely on General Instruction I.B.1 of Form S-3 because it did not have the requisite public float, and the aggregate amount of securities that the issuer intended to register exceeded the amount permitted pursuant to General Instruction I.B.6. Can the issuer rely on General Instruction I.B.4 to file a Form S-3 registration statement to cover the issuance of the shares on exercise of the rights prior to the time that the issuer granted the rights and without complying with the information provision requirements of that instruction?

Answer: No, the issuer could not rely on General Instruction I.B.4 to file the Form S-3 registration statement because the rights are not outstanding at the time of the filing of the registration statement, and the issuer would not be able to satisfy the requirement that an annual report and other disclosures be provided to the holders of the rights prior to the filing of the registration statement. Similarly, an issuer could not conduct a takedown of the securities off an effective unallocated shelf registration statement in reliance on General Instruction I.B.4 if the rights are not outstanding at the time of the takedown. The issuer could file a Form S-1 to register the rights offering if the offering would be made on a continuous basis in reliance on Rule 415(a)(1)(ix).

In addition, although General Instruction I.B.4 of Form F-3 does not have the same requirement to provide specified information to the holders of the rights, Form F-3 does require that the rights are outstanding at the time the registration statement is filed. Therefore, similar to Form S-3, foreign private issuers could not rely on General Instruction I.B.4 of Form F-3 to conduct such offerings. [Aug. 14, 2009]

Question 116.21

Question: How does a company register, as a primary offering (rather than as a "resale" registration in a private equity line financing), the issuance of the put securities under an equity line?

Answer: An equity line financing done as a primary offering in which the put price is based on or at a discount to the underlying stock's market price at the time of the put exercise is an "at the market" offering under Rule 415(a)(4) and must 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 or General Instruction I.B.6 of such form or on Form F-3 in reliance on General Instruction I.B.1 or General Instruction I.B.5 of such form. 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. [Nov. 26, 2008]

Question 116.22

Question: May a company with an effective shelf registration statement on Form S-3, in reliance on General Instruction I.B.6, file a prospectus supplement for a new offering of an amount of securities that exceeds the 1/3 limit of the instruction, so long as the actual amount sold does not exceed the limit?

Answer: No. The capacity remaining under the 1/3 limit in General Instruction I.B.6 is measured immediately prior to the registered takedown and applies to the amount of securities offered for sale pursuant to the prospectus supplement, not the amount actually sold. The concept of rolling measurement dates is limited to different takedowns, not individual sales within a takedown. When measuring the amount available for a later takedown, only those securities actually sold are counted against the 1/3 limit. [Aug. 11, 2010]

Question 116.23

Question: A company is able to sell up to $10 million in securities using its effective shelf registration statement on Form S-3, in reliance on General Instruction I.B.6. On Monday, June 7, the company files a prospectus supplement to offer and sell up to $5 million of securities in a continuous offering. The company promptly begins its offering and has sold $2.5 million of securities to date. The company intends to file a prospectus supplement for another continuous offering on the following Monday, June 14. What is the maximum amount of securities that can be offered by the June 14 prospectus supplement, assuming the 1/3 limit in General Instruction I.B.6 continues to be $10 million?

Answer: The general rule is that, when measuring the amount available for a later takedown, only those securities actually sold are counted against the 1/3 limit. See Question 116.22. In the context of multiple, concurrent continuous offerings, however, any securities that continue to be offered in other continuous offerings in reliance on General Instruction I.B.6 would also count against the 1/3 limit. In this example, the company has sold $2.5 million of securities to date and therefore, as of June 14, can offer and sell up to $7.5 million of securities pursuant to General Instruction I.B.6. Because the company continues to offer up to $2.5 million of securities with the June 7 prospectus, it can only offer and sell up to $5 million of securities with the June 14 prospectus. To permit otherwise would allow a company to do in two or more transactions what it cannot do in one transaction. [Aug. 11, 2010]

Question 116.24

Question: In calculating whether the size of an offering consisting of common stock and warrants exceeds the one-third cap in General Instruction I.B.6(a) of Form S-3, is an issuer required to follow Instruction 2 to General Instruction I.B.6 when the warrants are not exercisable for common stock within 12 calendar months?

Answer: Yes. Instruction 2 to General Instruction I.B.6 applies to calculating the market value of warrants for purposes of the one-third cap, even when the warrants are not exercisable for common stock within 12 months. [May 16, 2013]

Question 116.25

Question: An issuer with less than $75 million in public float is eligible to use Form S-3 for a primary offering in reliance on Instruction I.B.6, which permits it to sell no more than one-third of its public float within a 12-month period. May it sell securities to the same investor(s), with a portion coming from a takedown from its shelf registration statement for which it is relying on Instruction I.B.6 and a portion coming from a separate private placement that it concurrently registers for resale on a separate Form S-3 in reliance on Instruction I.B.3, if the aggregate number of shares sold exceeds the Instruction I.B.6 limitation that would be available to the issuer at that time?

Answer: No. Because we believe that this offering structure evades the offering size limitations of Instruction I.B.6, the securities registered for resale on Form S-3 should be counted against the issuer’s available capacity under Instruction I.B.6. Accordingly, an issuer may not rely on Instruction I.B.3 to register the resale of the balance of the securities on Form S-3 unless it has sufficient capacity under Instruction I.B.6 to issue that amount of securities at the time of filing the resale registration statement. If it does not, it would need to either register the resale on Form S-1 or wait until it has sufficient capacity under that instruction to register the resale on Form S-3. [November 2, 2016]

Section 117. Form S-3 — General Instructions I.C.1 to I.C.5 — Majority-Owned Subsidiaries

Question 117.01

Question: May a majority-owned subsidiary of a parent that meets the registrant requirements of Form S-3 rely on General Instruction I.C.2 to use Form S-3 to register the offer and sale of investment grade debt if the subsidiary is not registered under the Exchange Act?

Answer: No. The subsidiary may use Form S-3 only after it voluntarily registers under the Exchange Act pursuant to an effective Form 10. The Form 10 must be filed prior to the filing of the Form S-3 and may be incorporated by reference pursuant to Form S-3, Item 12(a)(l) in substitution for the Form 10-K. The security that must be registered on the Form 10 is the registrant-subsidiary's common stock, and not the debt security registered on Form S-3. [Feb. 27, 2009]

Section 118. Form S-3 — General Instructions I.D.1 to I.D.5 — Automatic Shelf Offerings by Well-Known Seasoned Issuers

Question 118.01

Question: In Part II of an automatic shelf registration statement, what information should be included under "Other Expenses of Issuance and Distribution"?

Answer: As with unallocated shelf registration statements, the information included under "Other Expenses of Issuance and Distribution" should include only the information that is known at the time of filing the registration statement. [Feb. 27, 2009]

Question 118.02

Question: If an automatic shelf registration statement initially registers one or more classes of securities and a new class of securities is subsequently added to that automatic shelf registration statement by post-effective amendment, when must the Exhibit 5 legality opinion for the new class of securities be filed? More generally, when must the Exhibit 5 legality opinion for the specific securities sold in a particular offering be filed?

Answer: An Exhibit 5 legality opinion must be filed at the time a class of securities is first included in an automatic shelf registration statement, whether as part of the initial registration statement or in a post-effective amendment to the registration statement. The signed opinion covering the specific securities sold in a particular offering must be filed as part of the registration statement or incorporated by reference into the registration statement no later than the closing date of the offering of such securities. This position is limited to opinions of counsel regarding the legality of the securities being offered, which are required to be filed in connection with shelf takedowns. [Aug. 14, 2009]

Question 118.03

Question: If a well-known seasoned issuer files an automatic shelf registration statement and during that year, before its Section 10(a)(3) update is due, the issuer loses its status as a well-known seasoned issuer, what is the impact on the effectiveness and use of that automatic shelf registration statement?

Answer: An issuer's loss of eligibility to use a registration form after effectiveness and before its Section 10(a)(3) update will not affect its ability to use that registration statement until the time of its Section 10(a)(3) update. If the issuer is no longer eligible as a well-known seasoned issuer at the time of its Section 10(a)(3) update, the rules would require the issuer to amend its automatic shelf registration statement onto the form it is then eligible to use to sell the securities. [Feb. 27, 2009]

Question 118.04

Question: How does Rule 3-10(g)(1)(ii) of Regulation S-X (which refers to the principal amount of securities being registered) apply in the context of an automatic shelf registration statement for an unspecified amount of securities?

Answer: As with a Form S-3 or Form F-3 unallocated shelf registration statement that includes subsidiary issuers or subsidiary guarantors, in the context of an automatic shelf registration statement, the determination of the principal amount of securities being registered for purposes of Rule 3-10(g)(1)(ii) of Regulation S-X would be based on the principal amount of the guaranteed securities being sold in the particular offering. [Feb. 27, 2009]

Question 118.05

Answer: No. If the issuer has an effective Form S-3 or Form F-3 that was not an automatic shelf registration statement when it became effective, it cannot amend that registration statement to become an automatic shelf registration statement. Instead, the issuer must file a new registration statement on Form S-3 or Form F-3 designated as an automatic shelf registration statement. When permitted by Rule 415(a)(6), the issuer may include on the new registration statement any unsold securities covered by the effective registration statement. Alternatively, the issuer may rely on Rule 457(p) to carry forward unused filing fees for unsold securities from the effective registration statement if the automatic shelf registration statement is filed within five years of the initial filing date of the effective registration statement. This approach is necessary because automatic shelf registration statements filed on Form S-3 or Form F-3 and post-effective amendments to automatic shelf registration statements will be designated separately, for EDGAR purposes, from other registration statements on Form S-3 or Form F-3 to enable them to become effective immediately. [Feb. 27, 2009]

Question 118.06

Answer: Yes. When an issuer files an automatic shelf registration statement, it can register any primary offerings for cash, including continuous offerings that were previously registered on a shelf registration statement. This would include, without limitation, unallocated shelf offerings, dividend reinvestment programs with direct stock purchase plans, and offerings of securities by selling security holders. The issuer cannot include business combination transactions, such as acquisition shelf registration statements, on the automatic shelf registration statement.

When an issuer includes an ongoing offering that was registered on an effective shelf registration on a subsequently filed automatic shelf registration statement, it may include on the new registration statement any unsold securities covered by the effective registration statement when permitted by Rule 415(a)(6). Alternatively, it may carry forward the filing fees paid for any unsold securities under Rule 457(p) if the automatic shelf registration statement is filed within five years of the initial filing date of the effective registration statement. [Feb. 27, 2009]

Question 118.07

Question: May a majority-owned subsidiary of a well-known seasoned issuer parent use the parent's automatic shelf registration statement to register the subsidiary's guarantee of the parent's registered debt securities that are convertible into equity securities of the parent and not any other securities of the subsidiary, provided that the parent is eligible to register any of its securities on an automatic shelf registration statement?

Answer: Yes. General Instruction I.D of Form S-3 and General Instruction I.C of Form F-3 refer to guarantees of non-convertible securities, other than common stock, of the parent. However, each security would be analyzed separately and the form may be used to register the subsidiary's guarantee of the parent's registered debt securities that are convertible into equity securities of the parent and not any other securities of the subsidiary when the parent is primarily eligible as a well-known seasoned issuer to register any of its securities on the automatic shelf registration statement (and is not limited to registering only debt securities). [Feb. 27, 2009]

Question 118.08

Question: If a spun-off subsidiary meets the conditions discussed in Questions 8 and 9 of Staff Legal Bulletin No. 4, including the 12-month segment financial reporting requirement, that permit a subsidiary to consider the parent's reporting history when determining whether the subsidiary is eligible to use Form S-3, may the subsidiary rely on the parent's pre-spin-off reporting history for purposes of evaluating whether the subsidiary is a well-known seasoned issuer and eligible to file a Form S-3ASR?

Answer: Yes. The spun-off subsidiary also would need to independently meet all other requirements for well-known seasoned issuer status. It should be noted that if a spun-off entity relies on its parent's reporting history for purposes of filing a Form S-3 or a Form S-3ASR, it would need to comply with Items 308(a) and 308(b) of Regulation S-K in the first annual report that it files, to the extent its parent is required to do so. See Securities Act Release No. 8760 (Dec. 15, 2006), at fn. 76. [Jan. 26, 2009]

Question 118.09

Question: Must an issuer test its well-known seasoned issuer status when it adds a new class of securities to an existing automatic shelf registration statement on Form S-3 via post-effective amendment pursuant to Rule 413(b)?

Answer: No. When a well-known seasoned issuer adds a new class of securities to an existing automatic shelf registration statement on Form S-3 by filing a post-effective amendment pursuant to Rule 413(b), that filing is not itself an event requiring testing of well-known seasoned issuer status unless it also serves as a Section 10(a)(3) update. [Feb. 27, 2009]

Section 119. Form S-3 — General Instructions II.A to II.G — Application of General Rules and Regulations

Question 119.01

Question: Must a Form S-3 include a table of contents?

Answer: No. General Instruction II.B of Form S-3 expressly states that no table of contents is required to be included in the prospectus or in the registration statement prepared on the form, Part I, Item 2 of the form notwithstanding. [Feb. 27, 2009]

Question 119.02

Question: Rule 3-01 of Regulation S-X specifies certain time periods (depending on the registrant's accelerated filer status) in which a "filing," other than on Form 10-K or Form 10, may be made without the balance sheet for the most recent fiscal year end. The rule is conditioned on (1) the registrant's reasonable and good faith expectation that it will report income for the most recently completed fiscal year and (2) the registrant having reported income for at least one of the last two fiscal years. May a registrant sell securities from an effective Form S-3 registration statement during the relevant time period and file a prospectus supplement under Rule 424 to reflect the take-down, if the balance sheet for the most recent fiscal year end has not been filed and the registrant does not have a reasonable and good faith expectation that it will report income for the most recently completed fiscal year?

Question 119.03

Question: May a company continue to use a registration statement that is predicated on timely filed reports (such as Form S-3) during the Rule 12b-25 extension period for a periodic report?

Answer: Rule 12b-25(d) provides that, during the extension period, a company "will not be eligible to use any registration statement form under the Securities Act the use of which is predicated on timely filed reports until the subject report is actually filed." The staff interprets the term "use" contained in the rule to mean that a company would not be eligible to file a new registration statement on Form S-3 until the subject report is filed within the extension period. The staff does not interpret the term to mean that the company cannot continue to use an already effective Form S-3 to make offers and sales during the extension period. Rather, the company's ability to continue to make such offers or sales will depend on whether it determines that the prospectus included in the Form S-3 is a valid Section 10(a) prospectus and there are no Section 12(a)(2) or anti-fraud concerns with the prospectus. If the company determines that it does not have a valid Section 10(a) prospectus, it should cease making any offers or sales under the registration statement that includes that prospectus. [September 30, 2008]

Section 120. Form S-3 — General Instruction III — Dividend or Interest Reinvestment Plans: Filing and Effectiveness of Registration Statement; Requests for Confidential Treatment

Question 120.01

Question: May a dividend reinvestment plan prospectus, which will not be distributed on a preliminary basis, bear the anticipated effective date of the registration statement to permit savings in printing costs?

Answer: Yes. [Feb. 27, 2009]

Question 120.02

Question: Does the language in General Instruction III to Form S-3 relating to advance processing of confidential treatment requests and reduced numbers of extra copies to be filed apply to all offerings?

Answer: No. The language in General Instruction III applies only to offerings made for dividend or interest reinvestment plans. [Feb. 27, 2009]

Section 121. Form S-3 — General Instructions IV.A to IV.B — Registration of Additional Securities and Additional Classes of Securities [Reserved]

Section 122. Form S-3 — General Instructions V.A to V.B — Offerings of Asset-Backed Securities [Reserved]

Section 123. Form S-3 — Part I — Information Required in Prospectus

Question 123.01

[Withdrawn March 20, 2025] [Comparison to prior version]

Question 123.02

Question: May a wholly-owned subsidiary that files a reduced disclosure Form 10-K pursuant to General Instruction I of that form still use Form S-3 if otherwise eligible to do so?

Answer: Yes. [Feb. 27, 2009]

Question 123.03

Question: Company A, a wholly-owned subsidiary of Company B, intends to file a registration statement on Form S-3 for the sale of its debt securities. May Company A include information concerning Company B in the registration statement by incorporating Company B's Exchange Act reports by reference even though Company B is not guaranteeing the debt obligation?

Answer: Item 12 of Form S-3 refers only to the incorporation by reference of certain reports and information of the registrant, and makes no provision for incorporation by reference of reports of the registrant's parent (unless the parent was guaranteeing the obligation or was otherwise also a registrant). Nevertheless, Company A may incorporate Company B's Exchange Act reports by reference so long as all the applicable consents are filed and assuming Company B also meets the eligibility requirements of Form S-3. [Feb. 27, 2009]

Question 123.04

Question: May the description of securities registered on Form S-3 be set forth in a different "core" prospectus for each particular class of securities so that, for example, offerings of preferred stock and senior notes off the shelf could use different "core" prospectuses?

Answer: Yes. The use of multiple "core" prospectuses is consistent with the requirements of the form and Securities Act Rule 430B. [Feb. 27, 2009]

Question 123.05

Question: Item 12(a) of Form S-3 requires a registrant to specifically incorporate its latest Form 10-K and any other Section 13(a) or 15(d) reports filed since the end of the fiscal year covered by the Form 10-K. Item 12(b) states that all documents subsequently filed by the registrant pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering shall be deemed to be incorporated by reference into the prospectus. If a Form 10-Q is filed before a registration statement becomes effective, must it be specifically incorporated (thereby requiring a pre-effective amendment) or would it be considered to be "subsequently filed" and therefore deemed to be incorporated by reference.

Answer: A registrant need not file a pre-effective amendment solely to incorporate an Exchange Act report filed prior to effectiveness, provided that the registrant includes a statement in its initial registration statement (in addition to the statement regarding incorporation after the date of the prospectus) to the effect that all filings filed by the registrant pursuant to the Exchange Act after "the date of the initial registration statement and prior to effectiveness of the registration statement" shall be deemed to be incorporated by reference into the prospectus. In the first prospectus used after effectiveness, a copy of which is required to be filed under Rule 424(b), the registrant should identify all Exchange Act reports filed prior to effectiveness (by type, date and Commission file number). If the registration statement does not specifically incorporate reports filed during the waiting period, a pre-effective amendment would be required in order to incorporate the Form 10-Q. [Feb. 27, 2009]

Question 123.06

Question: Issuers filing automatic shelf registration statements do not request acceleration of effectiveness. Do these well-known seasoned issuers nonetheless need to include the Item 512(h) undertaking in these registration statements?

Answer: Yes. An automatic shelf registration statement on Form S-3, other than one relating solely to securities offered pursuant to a dividend or interest reinvestment plan, should include the Item 512(h) undertaking rather than the indemnification disclosure required by Item 510 of Regulation S-K even though the issuer will not request acceleration of effectiveness. Automatic shelf registration statements relating solely to securities offered pursuant to a dividend or interest reinvestment plan should include the disclosure under Item 510 of Regulation S-K. [Feb. 27, 2009]

Question 123.07

Question: Item 12(a)(3) of Form S-3 requires incorporation by reference of the description of securities of companies with a class of securities registered pursuant to Section 12 of the Exchange Act that is contained in a registration statement filed under Section 12 of the Exchange Act. How is this done when it is no longer deemed desirable or possible to incorporate that registration statement (because of the length of time that has passed or other events that have occurred since it was filed)?

Answer: A Form 8-K should be filed containing the description, and that Form 8-K should be incorporated by reference. [Feb. 27, 2009]

Section 124. Form S-3 — Part II — Information Not Required in Prospectus [Reserved]

Section 125. Form S-4

Question 125.01

Question: Must the annual report to shareholders delivered pursuant to Item 12(a) of Form S-4 comply in all respects with the disclosure requirements set forth in Exchange Act Rules 14a-3 or 14c-3?

Answer: Yes. Waivers will not be given with respect to annual reports that do not fully comply with the specific requirements of Rule 14a-3 or Rule 14c-3. In certain limited circumstances, however, when a registrant is compelled to hold a meeting of security holders as a result of a security holder demand under state law and is unable to furnish audited financial statements, the Director of the Division of Corporation Finance may grant exemptive relief from the requirement to furnish an annual report to security holders that contains audited financial statements as required by Rule 14a-3 or Rule 14c-3. See Exchange Act Release No. 57262 (Feb. 4, 2008). [Feb. 27, 2009]

Question 125.02

Question: A registrant included in its Form S-4 registration statement securities to be issued subsequent to the merger, in connection with a dividend reinvestment plan and an employee benefit plan. After the merger, can the registrant amend the registration statement for use by the two plans, providing a separate prospectus for each?

Answer: Yes, the registrant could file a post-effective amendment to the Form S-4 (on Form S-8) for the employee benefit plan, and a second post-effective amendment to the Form S-4 (on Form S-3) to cover the dividend reinvestment plan. [Feb. 27, 2009]

Question 125.03

Question: An issuer intends to use Form S-4 to register common stock to be issued in a merger transaction. The merger agreement has a contingency clause, which may require the payment of additional consideration in the form of notes or other securities to the shareholders of the acquired company two years after the merger, if the price of the issuer's stock should decline. Should the contingent notes be registered in the Form S-4?

Answer: Yes. The contingent notes should be included in the Form S-4, inasmuch as they are also being offered at the time of the merger vote. [Feb. 27, 2009]

Question 125.04

Question: Where the number of shares to be issued in a merger transaction is based upon a formula that will not be applied until the closing date for the transaction, how should the issuer determine the appropriate number of shares to register?

Answer: The issuer should register sufficient shares to cover the maximum number (or a dollar amount sufficient to cover the maximum dollar amount) that could be issued under the formula. [Feb. 27, 2009]

Question 125.05

Question: Is General Instruction J intended to limit the application of Rule 457(o) to Form S-4 only where securities of more than one class are being registered?

Answer: No. Securities Act Rule 457(o) may be used to register securities by aggregate dollar amount on Form S-4 even if the securities registered are all of a single class of securities. [Feb. 27, 2009]

Question 125.06

Answer: No. Although this solicitation is not subject to Regulation 14A, it nevertheless will involve a "sale" under Rule 145, which cannot be consummated without an effective registration statement. Accordingly, a proxy card can be sent only with the Rule 424(b) prospectus, not with the red herring. [Jan. 26, 2009]

Question 125.07

Question: A registrant can use its Form S-4 proxy statement/prospectus as a red herring. May a registrant include a proxy card in the red herring?

Answer: No. Registrants may solicit before and after the filing of a registration statement or proxy statement provided that the registrant files all written communications on the date of first use and does not furnish a form of proxy. Because a vote on the transaction would amount to an investment decision with respect to the securities being registered, no proxy card could be sent until after the registration statement became effective and the final prospectus was delivered. [Feb. 27, 2009]

Question 125.08

Question: An issuer filed a registration statement on Form S-4 that contained its proxy statement. After the effective date of the registration statement and the delivery of the final prospectus, the issuer decided to mail an additional letter to shareholders in connection with the transaction. How should the issuer file the additional letter?

Answer: The issuer should file the letter as additional soliciting material pursuant to Exchange Act Rule 14a-6(b) upon first use. If the issuer files the letter in connection with a registered offering under Rule 425, the letter will be deemed to be filed under Rule 14a-6(b). [Feb. 27, 2009]

Question 125.09

Question: Does the "for cash" requirement contained in General Instruction I.B.1 of Form S-3 preclude the use of that Form for a spin-off because no cash will be paid for the spun-off shares?

Answer: No. Form S-3 may be used for a spin-off if a company is eligible to use the form for a primary offering. It should be noted, however, that absent compliance with Staff Legal Bulletin No. 4, most companies that are spun-off are not reporting companies and, therefore, would not be eligible to use Form S-3. Additionally, while the spin-off of shares of a reporting company does not constitute a business combination, a company may use a combined proxy statement/registration statement on Form S-4 to register the shares being distributed if the spin-off is being voted on. [Feb. 27, 2009]

Question 125.10

Question: A company filed a combined proxy statement/prospectus and incorporated by reference information about both the acquired company and the acquiring company. The shareholders of both companies are voting on the transaction. Must the combined proxy statement/prospectus be sent to each company's security holders 20 business days in advance of the vote?

Answer: Yes. The requirement that the combined proxy statement/prospectus be sent to security holders 20 business days in advance of the vote if incorporation by reference is used applies both to the acquired company and the acquiring company. [Feb. 27, 2009]

Question 125.11

Question: An issuer intends to use Form S-4 to register common stock to be issued in a merger transaction. The target company, although not a public company, satisfies the definition of a "smaller reporting company" under Item 10(f)(1) of Regulation S-K. May the issuer present information regarding the target company in accordance with the scaled disclosure provisions in Regulations S-X and S-K that are available to smaller reporting companies?

Answer: Yes. However, the financial statements of the target company included in a subsequent Form 8-K reporting the consummation of the business acquisition must comply with the Regulation S-X provisions applicable to the combined company. Additionally, a smaller reporting company filing a Form S-4 to acquire a target that would not qualify as a smaller reporting company would not be able to present the target's information using the scaled disclosure provisions available to smaller reporting companies. [Feb. 27, 2009]

Question 125.12

Question: If a registrant “meets the requirements for use of Form S-3,” as set forth in General Instruction B of Form S-4, and incorporates by reference registrant information into the Form S-4 pursuant to General Instruction B and either Item 11 or 13 of Form S-4, may the registrant incorporate the risk factors from its latest Form 10-K in response to Item 3 of Form S-4?

Answer: Yes. Although Item 3 does not expressly contemplate incorporation by reference, a registrant may incorporate by reference into the Form S-4 the risk factors that it disclosed in its most recent Form 10-K. The offering-specific risks, however, would be required to be disclosed in the Form S-4 itself. [May 16, 2013]

Question 125.13

The issuer has not entered into any arrangement or understanding with any person who will receive Exchange securities in the Exchange Offer to distribute those securities following completion of the Offer. The issuer is not aware of any person that will participate in the Exchange Offer with a view to distribute the Exchange Securities.
The issuer will disclose to each person participating in the Exchange Offer that if such participant acquires the Exchange Securities for the purpose of distributing them, such person:
- Cannot rely on the staff’s interpretive position expressed in the Exxon Capital line of no-action letters, and
- Must comply with the registration and prospectus delivery requirements of the Securities Act in order to resell Exchange Securities, and be identified as an underwriter in the prospectus.
The issuer will include in the transmittal letter an acknowledgement to be executed by each person participating in the Exchange Offer that such participant does not intend to engage in a distribution of the Exchange Securities. In addition, the issuer will include in the transmittal letter an acknowledgement for each person that is a broker-dealer exchanging securities it acquired for its own account as a result of market-making activities or other trading activities that such broker-dealer will satisfy any prospectus delivery requirements in connection with any resale of Exchange Securities received pursuant to the Exchange Offer. The transmittal letter may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

The staff believes that the representations may be provided either in the prospectus or in correspondence submitted in connection with the filing. [July 11, 2016]

Section 126. Form S-8

Question 126.01

Question: May a company that files reports under Sections 13 or 15(d) of the Exchange Act, but is not statutorily required to do so, use Form S-8?

Answer: No. [Feb. 27, 2009]

Question 126.02

Question: 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. Is there an exception to this position with respect to Form S-8?

Answer: Yes. The only exception to this position is with respect to Form S-8, in which 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 general analysis set forth above is based solely on a "policy determination that transactions registered on Form S-8 should be allowed more flexibility because of the unique character of the employee/employer relationship and the compensatory purpose involved." See Securities Act Release No. 7646 (Feb. 25, 1999), text preceding fn. 65. [Feb. 27, 2009]

Question 126.03

Question: At the time that its Form S-8 registration statement was required to be updated under Section 10(a)(3), a company was no longer eligible to use Form S-8 because the company was not current in its reporting obligations and therefore did not satisfy General Instruction A to Form S-8. May the company permit options underlying shares registered on the Form S-8 to be exercised pursuant to an exemption from registration?

Answer: No. The company must cease using the Form S-8 registration statement at the time it is required to update the Form S-8 registration statement to satisfy Section 10(a)(3). The company may file a new registration statement on the form it is eligible to use for a primary offering to register the exercise of the outstanding options. Use of the Form S-8 may resume once the company becomes current in its reporting obligations and satisfies General Instruction A. [Feb. 27, 2009]

Question 126.04

Question: Under what circumstances must the exercise of shares underlying a stock appreciation right (SAR) be registered?

Answer: If an SAR can be settled only in cash, then such exercise need not be registered. Shares issuable on exercise of an SAR that may be settled in stock must be registered. When a stock option and a cash-only SAR are granted in tandem and the holder must choose between either exercising the option or the SAR, registration of the shares underlying the option is required. [Feb. 27, 2009]

Question 126.05

Question: Notwithstanding the definition of employee in Rule 405, is a director considered to be an employee for purposes of Form S-8?

Answer: Yes. See the definition of "employee benefit plan" in Rule 405. [Feb. 27, 2009]

Question 126.06

Question: May a company register securities to be issued pursuant to two plans on the same registration statement? If so, how is this done?

Answer: Yes. The full title of each plan should be listed on the face of the registration statement on the appropriate line. The Part I information delivered pursuant to Rule 428 with respect to each plan should be specific to that plan. If any Part II information relates specifically to one plan, the disclosure should make that relationship clear. [Nov. 9, 2016]

Question 126.07

Question: May a rescission offer be conducted on Form S-8?

Answer: No, because this kind of offer is outside the scope of the form. The company would have to use a form otherwise available. [Feb. 27, 2009]

Question 126.08

Question: Founders of a company intended to issue options on the common stock they hold. The transaction would be structured as part of an employee benefit plan. The Board would authorize the issuance of the options and the founders would make assurances that they would not otherwise pledge or encumber the underlying common shares. Is Form S-8 available to register the underlying shares?

Answer: No. Form S-8 would not be the appropriate form for registration because issuance of the shares underlying the options would involve a secondary or resale offering by the founders. The only situation in which Form S-8 is available for an employee option plan structured as a secondary offering is where the laws of a foreign jurisdiction prohibit a foreign issuer from directly issuing the shares underlying compensatory options. In this limited circumstance, Form S-8 is available for the offer and sale of the underlying shares by a special purpose trust or other entity established to comply with such foreign law. [Feb. 27, 2009]

Question 126.09

Answer: Yes. [Feb. 27, 2009]

Question 126.10

Question: Do the general requirements of Form S-8 require only that all reports required to be filed with the Commission during the preceding 12 months have been filed, or do they also require that such reports have been timely filed?

Answer: General Instruction A.1 to Form S-8 requires that all reports required to be filed with the Commission during the preceding 12 months have been filed, but does not require such reports to have been timely filed. [Feb. 27, 2009]

Question 126.11

Question: May an issuer file or use a registration statement on Form S-8 after the issuer has filed its Form 10-K but prior to filing the Part III information that will be incorporated by reference into the Form 10-K?

Question 126.12

Question: A company failed to furnish an Item 2.02 Form 8-K. As a result, does the company lose its eligibility to file a registration statement on Form S-8?

Answer: General Instruction A.1 to Form S-8 requires that all reports required to be filed with the Commission during the preceding 12 months have been filed. Because an Item 2.02 Form 8-K is furnished, rather than filed, this failure to furnish does not adversely affect the company's eligibility to use Form S-8. [Feb. 27, 2009]

Question 126.13

Question 126.14

Question: Company A acquires Company B and, in connection with the acquisition, assumes outstanding Company B options held by current and former employees of Company B. May Company A register on Form S-8 Company A shares to be sold to former employees of Company B upon the exercise of the assumed options?

Answer: Based on these facts, Form S-8 could not be used. Under General Instruction A.1(a)(3) to Form S-8, a person who is a former employee of the issuer may use Form S-8 to exercise options only if the options were granted to that person while employed by the issuer. Here, Company A may register the exercise of the options by former employees of Company B on a registration form that the company is eligible to use. [Feb. 27, 2009]

Question 126.15

Question: Are securities analysts excluded from receiving securities issued under Rule 701 or registered on Form S-8 as "consultants" or "advisors" because their services, as securities industry professionals, are inherently capital-raising or promote or maintain a market for the issuer's securities?

Answer: Yes. [Jan. 26, 2009]

Question 126.16

Question: The Rule 405 definition of "employee benefit plan" states that consultants or advisors may participate in an employee benefit plan only if (1) they are natural persons, (2) they provide bona fide services to the registrant, and (3) the services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the registrant's securities. Can securities issuable under a plan that permits consultants to be compensated for capital-raising services, as well as services that qualify under Rule 405, be registered on Form S-8?

Answer: No. The plan does not satisfy the Rule 405 definition of "employee benefit plan," and therefore, no securities issuable under the plan can be registered on Form S-8. [Jan. 26, 2009]

Question 126.17

Question: A stock option plan registered on Form S-8 permits the issuance of transferable options. The registration statement covers only the issuance of the common stock on the exercise of the options. Can a non-employee, who acquires an option from an employee, exercise that option under the Form S-8 registration statement?

Answer: No. While securities issuable under the plan can continue to be registered on Form S-8, a non-employee (other than an employee's family member who acquires an option from an employee through a gift or domestic relations order) cannot exercise options under the Form S-8 registration statement. In addition, when the issuer sponsors a program or otherwise actively arranges for employees to sell employee benefit plan options or otherwise transfer employee benefit plan options to persons who are not family members, the plan no longer would be "solely for employees" and the other persons specified in the Rule 405 definition of "employee benefit plan." In this situation, securities issuable under the plan could not continue to be registered on Form S-8 unless a plan amendment removes the transferred options and the securities underlying them from the plan, so that the plan would continue to satisfy the Rule 405 definition of "employee benefit plan." [Jan. 26, 2009]

Question 126.18

Question: An issuer that has maintained a 401(k) employee savings plan for several years has decided to add its common stock as an investment option in the plan. As a result, both the plan interests and the employer stock will be subject to Securities Act registration. Prior to the addition of the employer stock, the plan interests would not be regarded as securities. General Instruction A.2 to Form S-8 will ordinarily require a plan that has been in existence more than 90 days to file a Form 11-K contemporaneously with the registration of the offering of plan interests and employer securities. Does this Instruction require a Form 11-K to be filed contemporaneously with the Form S-8 in this situation?

Answer: No. Because the plan interests were not securities before adoption of the amendment adding employer securities, the initial Form 11-K will not be required. [Feb. 27, 2009]

Question 126.19

Question: A company's 401(k) plan provides for an automatic company contribution of 1% of the employee's salary, employee contributions up to 10% of the employee's salary and a matching contribution by the company of the employee contributions up to 5% of the employee's salary. The investment options for the 401(k) plan are such that Securities Act registration is required. For which of these contributions would the company need to pay a registration fee?

Answer: The company would not have to pay a fee for the automatic contribution since it is made without regard to employee contributions. A fee would be paid with respect to the employee contributions and the matching contributions. [Jan. 26, 2009]

Question 126.20

Question: Part II, Item 8(a) of Form S-8 provides that an opinion of counsel as to the legality of the securities being registered is required only with respect to the issuance of securities by the issuer. If a plan currently intends to acquire all shares to be distributed pursuant to the Form S-8 through open market purchases and subsequently decides to purchase newly-issued shares directly from the company, may the Form S-8 be amended at that subsequent time to include an opinion of counsel?

Answer: Yes. [Feb. 27, 2009]

Question 126.21

Answer: Yes. However, the Form S-8 does not have to include the undertakings contained in Items 512(a)(5)(i), 512(a)(5)(ii), and 512(a)(6). [July 3, 2008]

Question 126.22

Question: In its Form S-8, an issuer will incorporate by reference financial statements from its Form 10-K. How must the issuer file the accountant's consent to use of the accountant's report?

Answer: The issuer may include the accountant's consent to use of the accountant's report either directly in the registration statement as an exhibit or via incorporation by reference to a consent filed with the Form 10-K. [Feb. 27, 2009]

Question 126.23

Question: Item 3(c) of Form S-8 requires incorporation by reference of the description of securities of companies with a class of securities registered pursuant to Section 12 of the Exchange Act that is contained in a registration statement filed under Section 12 of the Exchange Act. How is this done when it is no longer deemed desirable or possible to incorporate that registration statement (because of the length of time that has passed or other events that have occurred since it was filed)?

Answer: A Form 8-K should be filed containing the description, and that Form 8-K should be incorporated by reference. [Feb. 27, 2009]

Question 126.24

Question: Should documents constituting the current Form S-8 prospectus, as updated for Section 10(a)(3) purposes, be delivered concurrently to new plan participants?

Question 126.25

Question: Item 2 of Form S-8 requires a statement indicating the availability without charge, upon written or oral request, of documents required to be delivered to employees pursuant to Rule 428(b). Do all Rule 428(b) documents need to be described pursuant to Item 2 of the Form S-8?

Answer: No. [Feb. 27, 2009]

Question 126.26

Question: Does the Rule 428(b)(5) obligation to deliver company proxy statements and reports to employees participating in a stock option plan or plan fund that invests in the company's securities extend to former employees, within the scope of General Instruction A.1(a)(3) to Form S-8, who participate in a stock option plan or plan fund that invests in the company's securities?

Answer: Yes. [Jan. 26, 2009]

Question 126.27

Question: Do the procedures applicable to Form S-8 apply to updating a reoffer prospectus filed with a Form S-8?

Answer: Yes. When a Form S-8 registration statement contains a reoffer prospectus prepared in accordance with Part I of Form S-3, the registration statement is, nonetheless, simply a registration statement on Form S-8 with a separate reoffer prospectus. Accordingly, if a registrant must update such a Form S-8 in accordance with the undertakings of Item 512 of Regulation S-K, that updating may be accomplished through the procedures applicable to Form S-8 registration statements. [Feb. 27, 2009]

Question 126.28

Question: May a reoffer prospectus prepared in accordance with Part I of Form S-3 be incorporated by reference into the Form S-8?

Answer: No, it must be filed in the Form S-8. [Feb. 27, 2009]

Question 126.29

Question: General Instruction C.1 permits a reoffer prospectus, prepared in accordance with the requirements of Part I of Form S-3 or F-3 (as applicable), to be filed with the registration statement on Form S-8. Does the use of "with" in this Instruction indicate that a General Instruction C reoffer prospectus must be filed as part of a Form S-8 that otherwise registers securities to be offered to employees under an employee benefit plan, and not as a stand-alone resale offering wrapped under the cover of Form S-8?

Answer: Yes. [Feb. 27, 2009]

Question 126.30

Question: General Instruction C to Form S-8 provides for preparation of a reoffer prospectus in accordance with the requirements of Part I of Form S-3. A company eligible to use Form S-8 may not yet have filed its first annual report on Form 10-K at the time the Form S-8 is filed. With respect to its reoffer prospectus, may this company incorporate by reference to its Securities Act registration statement to satisfy the information requirements of Form S-3 (otherwise required to be incorporated from Exchange Act reports)?

Answer: Yes. The company must, however, separately evaluate whether or not the information so incorporated meets the requirements of Section 10(a) (e.g., whether it is current, meets the financial requirements, etc.). [Feb. 27, 2009]

Question 126.31

Question 126.32

Question: May the amount of securities registered for resale by individual officers and directors of an issuer pursuant to General Instruction C.2(b) of Form S-8 exceed the three-month volume limitation specified in Rule 144(e), provided that resales are monitored so that actual sales by such individuals during a three-month period do not exceed such volume limitations?

Answer: Yes. [Feb. 27, 2009]

Question 126.33

Question: Do shares issued in reliance upon Rule 701 constitute shares issuable under a plan for purposes of determining securities that can be included in a reoffer prospectus under General Instruction C to Form S-8?

Answer: Yes. [Feb. 27, 2009]

Question 126.34

Question: Do the provisions of General Instruction C of Form S-8 applicable to reoffer prospectuses require that affiliates have a present intention to sell the securities acquired under the Form S-8 in order to have them included in the reoffer prospectus?

Answer: No. [Feb. 27, 2009]

Question 126.35

Answer: As such securities are not being registered by post-effective amendment, pursuant to Rule 457(h)(3), no fee need be paid for resales when a fee is paid in connection with the registration of such securities for sale to the employees. [Feb. 27, 2009]

Question 126.36

Question: Under General Instruction E to Form S-8, can a post-effective amendment be used to register additional securities for the employee benefit plan covered by the Form S-8?

Answer: No. A new registration statement must be filed under General Instruction E. Rule 413 does not permit the registration of additional securities by means of a post-effective amendment to Form S-8. [Feb. 27, 2009]

Question 126.37

Question: A Form S-8 for a 401(k) plan registered a number of shares of company stock and an indeterminate number of plan interests. When filing a new Form S-8 under General Instruction E to register additional shares of company stock authorized for issuance under the plan, is it necessary also to register additional plan interests?

Answer: No, it is not necessary to register additional plan interests if an indeterminate number of plan interests previously were registered on the plan's Form S-8. [Feb. 27, 2009]

Question 126.38

Question: What must be included in a post-effective amendment to Form S-8 that will be filed to deregister the unsold securities for that employee benefit plan?

Answer: Deregistration of an employee benefit plan registered on Form S-8 requires nothing more than a cover page, a one-paragraph statement indicating the number of shares deregistered and the reason for deregistration, and a signature page. [Feb. 27, 2009]

Question 126.39

Question: A recently acquired company had a Form S-8 for its 401(k) plan. The new parent company wishes to continue the plan. Must the new parent file a new Form S-8 registration statement registering shares of its own stock, which will now be offered and sold under the plan to employees of its new subsidiary, and plan interests?

Answer: Yes. In addition, the Form S-8 filed by the acquired company must be post-effectively amended to deregister all unsold securities. [Feb. 27, 2009]

Question 126.40

Question: After its Form 10-K is filed, a registrant has a change in accounting principles (or changes in segment presentation or discontinued operations), which will cause the financial presentation in its subsequent Form 10-Qs to differ from that in its most recent Form 10-K. In this situation, Item 11(b)(ii) of Form S-3 would require the annual audited financial statements filed in the Form 10-K to be restated to reflect the change in accounting principles (or changes in segment presentation or discontinued operations). Would General Instruction G.2 of Form S-8, which requires that "material changes in the registrant's affairs" be disclosed in the registration statement, also require such restatement?

Answer: Not necessarily. Form S-8 does not contain express language similar to Item 11(b)(ii) of Form S-3, requiring the restatement of financial statements to reflect specified events. The fact that financial statements eventually will be retroactively restated does not necessarily mean that there are "material changes in the registrant's affairs," thereby requiring the financial statements to be restated for inclusion, or incorporation by reference, in a Form S-8. In other words, financial statements for which Item 11(b)(ii) of Form S-3 would require restatement may not necessarily need to be restated for incorporation by reference in a Form S-8. The registrant is responsible for determining if there has been a material change and, if so, the related information that is required to be disclosed in a Form S-8. Correspondingly, it is the auditor's responsibility to determine if it will issue a consent to use of its report in a Form S-8 if there has been a change in the financial statements in a subsequent Form 10-Q and the financial statements in the Form 10-K have not been retroactively restated. [Aug. 14, 2009]

Question 126.41

Question 126.42

Question 126.43

Question 126.44

Section 127. Form S-11

Note: The Form S-1 interpretations are generally applicable to Form S-11.

Question 127.01

Question: May a real estate company that typically would file on Form S-11 use Form S-3 if it meets the issuer requirements of that form?

Answer: Yes, however, the company must disclose the information required by Items 13-16 of Form S-11, where appropriate. [Feb. 27, 2009]

Question 127.02

Answer: A registrant that operates a resort (hotel, golf course and spa) is in a service industry. Accordingly, Form S-1, and not Form S-11, would be appropriate for its offering. [Feb. 27, 2009]

Section 128. Form 1-A

Question 128.01

[withdrawn, June 23, 2015]

Question 128.02

Question: Does the SEC impose a filing fee for filing an offering statement on Form 1-A?

Answer: No. [Apr. 24, 2009]

Question 128.03

[withdrawn, June 23, 2015]

Question 128.04

Question: Does a company incur Exchange Act reporting obligations after its Form 1-A offering statement is qualified?

Answer: No. Because offers and sales under Regulation A are exempt transactions under the Securities Act, the offering does not subject the issuer to reporting obligations under Section 15(d) of the Exchange Act. [Apr. 24, 2009]

Question 128.05 [Reserved]

Question 128.06 [Reserved]

Question 128.07 [Reserved]

Section 129. [Reserved]

Section 130. Form D

Question 130.01

Question: In an offering involving multiple issuers, can a single Form D be filed for the offering?

Answer: Yes. A single Form D may be used for an offering made in reliance on Regulation D that involves multiple issuers, assuming the offers and sales by the issuers are part of the same Regulation D offering as provided in Rule 502(a). For example, in a master fund offering conducted through feeder funds created for the sole purpose of investing their proceeds in the master fund, where all of the offers and sales of the funds are part of the same offering under Rule 502(a), the aggregate offers and sales of the Regulation D offering should be reflected on a single Form D. Offers and sales that are not part of the same Regulation D offering must be reflected in a separate Form D filing. [Feb. 27, 2009]

Question 130.02

Question: If multiple issuers make a combined Form D filing, how do they determine which is the "primary issuer" in the Form D filing?

Answer: The "primary issuer" is the most important issuer in the offering. For example, the primary obligor in a debt offering with multiple guarantors would likely be identified as the primary issuer. In an offering that includes real estate limited partnerships as multiple issuers, the primary issuer would likely be the partnership expected to receive the largest share of the proceeds. Customary usage in identifying important co-issuers on the cover page of Securities Act registration statements and prospectuses may provide helpful guidance. [Feb. 27, 2009]

Question 130.03

Question: When completing "Item 11—Minimum Investment" of Form D what is the appropriate response when an issuer may waive any required minimum investment amount from an outside investor?

Answer: When an issuer may waive any required minimum investment amount from an outside investor, the appropriate response to Item 11 of Form D is zero, since there is, in effect, no minimum investment amount. [Feb. 27, 2009]

Question 130.04

Question: How does an issuer determine the minimum investment amount from an outside investor in Item 11 of Form D when an outside investor provides only non-cash consideration, such as in a share exchange?

Answer: The issuer should enter an amount based on its good faith valuation of the consideration. In valuing the consideration, the issuer may follow the method of determining "aggregate offering price" in Rule 501(c) of Regulation D, which provides that, to determine the value of non-cash consideration, issuers should use bona fide sales of the consideration made within a reasonable time or, in the absence of sales, an accepted fair value standard. [Feb. 27, 2009]

Question 130.05

Question: In completing Item 11 of Form D, are immediate family members of inside investors, as well as trusts and affiliates controlled by inside investors, also deemed to be inside investors and therefore excluded from the definition of "outside investor"?

Answer: Yes. Immediate family members, and trusts or affiliates whose investment decisions are controlled by or for the benefit of any persons otherwise considered inside investors (including immediate family members), are deemed to be inside investors and are excluded from the definition of "outside investor." For this purpose, the phrase "immediate family member" includes spouses, spousal equivalents and dependents, as in Rule 2-01(f)(13) of Regulation S-X. [Feb. 27, 2009]

Question 130.06

Question: "Item 14—Investors" of Form D instructs the issuer to enter the total number of investors who already have invested in the offering. Does this mean the historic total number of purchasers to date or the number of purchasers still holding at the date of the filing?

Answer: Item 14 of Form D requires that an issuer enter the historic total number of purchasers to date, regardless of whether such purchasers continue to hold the issuer's shares at the date of filing or how long the offering has been ongoing. [Feb. 27, 2009]

Question 130.07

Question: In entering offering and sales amounts, sales commissions and use of proceeds for related party payments in Form D filings, does the issuer enter the aggregate historic amounts from the beginning of the offering, or just the amounts since the last Form D filing?

Answer: Form D requires that the issuer provide the aggregate historic amounts since the beginning of the offering. [Feb. 27, 2009]

Question 130.08

Question: Under "Item 15—Sales Commissions and Finders' Fees Expenses" of Form D, are issuers required to provide only the amount of sales commissions and finders' fees that are paid directly or indirectly out of the offering proceeds?

Answer: No. The requirement is to provide the amounts of sales commissions and finders' fees. There is no limitation to commissions and fees paid out of the offering proceeds. [Feb. 27, 2009]

Question 130.09

Question: On what basis would an issuer completing "Item 15—Sales Commissions and Finders' Fees Expenses" of Form D provide an amount that is paid other than in cash?

Answer: The issuer should base its submission on the instructions to "Item 13—Offering and Sales Amounts" of Form D, which provides that the amount should be based on the issuer's good faith valuation of the payment. The issuer may use the clarification box that accompanies Item 15 if a further explanation of its response is necessary. [Feb. 27, 2009]

Question 130.10

Question: How does an issuer provide financial information in foreign currency amounts in Form D, such as if the issuer derives its revenues principally from outside of the U.S. and in a foreign currency?

Answer: Issuers should translate foreign currency amounts into U.S. dollar amounts at a currency exchange rate in effect on or about the date of the Form D filing. Subsequent changes in exchange rates do not necessitate an amended Form D, and in the event an amended Form D is otherwise required, foreign currency calculations in prior Form D filings need not be recalculated to reflect current exchange rates. [Feb. 27, 2009]

Question 130.11

[Withdrawn March 12, 2025] [Comparison to prior version]

Question 130.12

Question: If a sale occurs after an issuer has submitted a Form D filing that indicates that a sale has yet to occur in its response to "Item 7—Type of Filing," must the issuer file an amendment solely because of that first sale?

Answer: No. An issuer is not required to file an amendment to a previously filed notice solely to reflect the first sale because an issuer is not required under the Form D amendment rules to file an amendment merely to reflect a change to the amount of securities sold in the offering. [Feb. 27, 2009]

Question 130.13

Question: If an issuer changes its entity type after submitting a Form D notice, must that issuer amend that prior filing solely because of its new entity type status while the offering is ongoing?

Answer: Yes. If, after submitting a Form D notice, an issuer organizes or reorganizes as a different type of entity than the type indicated in "Item 1—Issuer's Identity," the issuer should file an amendment to reflect the change. [Feb. 27, 2009]

Question 130.14

Question: The Item-by-Item instructions for Item 7 of Form D indicate that an issuer must enter the date of the first sale of securities in the offering if the issuer is filing a "new notice." If an issuer is filing an amendment to a Form D filing, must the issuer provide current information about the date of first sale in the amendment?

Answer: Yes. Rule 503(a)(4) provides that an issuer that files an amendment must provide current information in response to all requirements of the form, regardless of why the amendment is filed. For example, if, in the original Form D, the issuer indicated that the first sale has "Yet to Occur" and if, by the time of the amendment, the date of first sale is known, then the issuer must disclose the actual date of first sale in the amendment. [Aug. 14, 2009]

Question 130.15

Question: How should an issuer address Item 12 “Sales Compensation” of Form D if the information requested by this item is not applicable to its Regulation D offering?

Answer: When the information solicited by Item 12 of Form D is not applicable to an issuer’s Regulation D offering because the issuer has not or does not expect to pay directly or indirectly any commission or other similar compensation in connection with the sale of its securities in a Regulation D offering, the issuer should not enter any information in any of the fields under Item 12 of Form D and should proceed directly to Item 13. [August 6, 2015]

Section 131. Form 144

Question 131.01

Question: Does an amendment to Form 144 need to be filed in the event that a person does not sell the securities referred to in the Form?

Answer: No. If a person who has filed a Form 144 does not sell the securities referred to therein, no amendment reflecting this fact need be filed. [Jan. 26, 2009]

Question 131.02

Question: Does an amended Form 144 need to be filed to reflect a company's listing on a national securities exchange or a stock split?

Answer: No. A Form 144 need not be amended to reflect: (1) a company's listing on a national securities exchange; or (2) a stock split. [Jan. 26, 2009]

Question 131.03

Question: If a person intends to use two brokers, must the person allocate a specific number of shares to each broker on the Form 144?

Answer: A person who files a Form 144 indicating that it may sell shares through either of two brokers need not allocate a specific number of shares to each broker on the form. [Jan. 26, 2009]

Question 131.04

Question: Does the de minimis exemption of Rule 144(h) apply to each individual seller who is required to file a Form 144 when sales are required to be aggregated under Rule 144(e)?

Question 131.05

Question: When a Form 144 is required to be filed, is a waiting period required between the time the person places an order with a broker and the time the broker executes the order?

Question 131.06

Question: Should a Form 144 be amended to reflect a change in broker?

Question 131.07

Question: What is the effect of an amended Form 144 that is filed to correct inaccuracies?

Question 131.08

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Securities Act Forms Generally [Reserved]

Section 202. F-Series Forms Generally [Reserved]

Section 203. Form F-1

203.01 If a foreign issuer is conducting a worldwide offering of securities in a currency other than U.S. dollars and there is appropriate cover page prospectus disclosure, the issuer may require U.S. persons to pay U.S. dollars in an amount equal to up to 110% of the U.S. dollar value of the other currency (based on the most recently available exchange rate as of the pricing date) and subsequently refund to U.S. persons any amounts over, or charge U.S. persons any deficiency with respect to, such U.S. dollar value based on the exchange rate on the closing date. [Feb. 27, 2009]

Section 204. Form F-4 [Reserved]

Section 205. Form F-6 [Reserved]

Section 206. Form F-7 [Reserved]

Section 207. Form F-8 [Reserved]

Section 208. Form F-9 [Reserved]

Section 209. Form F-10 [Reserved]

Section 210. Form F-80 [Reserved]

Section 211. Form F-X [Reserved]

Section 212. Form F-N [Reserved]

Section 213. Form S-1

213.01 A Form S-1 is proposed to be filed by a limited partnership. The general partner ("GP") consists of a general partnership comprised of two partners: one corporation and another general partnership. Pursuant to a management agreement, the corporation has the power to bind the GP. For purposes of the issuer's signature requirement, the GP must sign, and giving effect to GP's management agreement, an appropriate official of GP's corporate partner may sign for GP. [Feb. 27, 2009]

Section 214. Form S-3 — General

214.01 A registrant has an effective Form S-3 for a secondary offering. At the time of filing, all requirements for use of the form were met. Three months later, a dividend payment on certain preferred stock was missed. The registrant may continue to use the effective Form S-3 so long as there is no need to update the registration statement for the purposes of Section 10(a)(3). At the time that updating is necessary, Rule 401 would require the use of whatever form is available to the registrant at that time. [Feb. 27, 2009]

214.02 It is important to identify whether a purported secondary offering is really a primary offering, i.e., the selling shareholders are actually underwriters selling on behalf of an issuer. Underwriter status may involve additional disclosure, including an acknowledgment of the seller's prospectus delivery requirements. In an offering involving Rule 415 or Form S-3, if the offering is deemed to be on behalf of the issuer, the Rule and Form in some cases will be unavailable (e.g., because of the Form S-3 "public float" test for a primary offering, or because Rule 415(a)(1)(i) is available for secondary offerings, but primary offerings must meet the requirements of one of the other subsections of Rule 415). The question of whether an offering styled a secondary one is really on behalf of the issuer is a difficult factual one, not merely a question of who receives the proceeds. Consideration should be given to how long the selling shareholders have held the shares, the circumstances under which they received them, their relationship to the issuer, the amount of shares involved, whether the sellers are in the business of underwriting securities, and finally, whether under all the circumstances it appears that the seller is acting as a conduit for the issuer. [Jan. 26, 2009]

214.03 A registrant was an investment company listed on a national securities exchange and filing Exchange Act reports as a Investment Company Act company. The registrant subsequently changed its business and became exempt from the Investment Company Act, although its securities continued to be listed on the national securities exchange. The company sought to use Form S-3. Because of important differences in the disclosure requirements for periodic reports of investment companies and non-investment companies, including the accounting presentation, the registrant's reporting history under the Investment Company Act could not be used in determining its eligibility to use Form S-3. [Feb. 27, 2009]

Section 215. Form S-3 — General Instructions I.A.1 to I.A.8 — Registrant Requirements

215.01 The registration of a corporation's guarantee of exempt industrial development bonds to be issued by a governmental authority may be made on Form S-3, provided the corporation meets the registrant requirements of the form. For purposes of the transaction requirements of the form, the issuance of the guarantee is deemed to be non-convertible debt offered for cash. [Feb. 27, 2009]

215.02 A company that failed to make a required principal payment on indebtedness was denied a waiver from General Instruction I.A.5 of Form S-3. The company had sought the waiver on the premise that Form S-3 is based on the "efficient market" theory, and the company had already conformed to that theory by announcing in a previous annual report that it would not pay the principal of outstanding debt when it became due. [Feb. 27, 2009]

215.03 General Instruction I.A.5 of Form S-3 provides that to satisfy the registrant eligibility requirements of the form, the registrant may not have failed to pay any required dividend on preferred stock. This requirement will not be waived even when the registrant has a history of cumulating such dividends for three quarters before paying them at the end of each year. [Feb. 27, 2009]

215.04 [withdrawn, June 4, 2010]

215.05 A registrant had failed to make interest payments on its revolving bank credit agreement and outstanding debentures for the first quarter of the fiscal year. These defaults were cured shortly before a Form S-3 registration statement was to be filed. The registrant sought a waiver of General Instruction I.A.5. The waiver request was denied since the defaults had not been exposed to at least one audit, and such defaults in the aggregate are material to the financial position of the registrant and its subsidiaries, taken as a whole. [Feb. 27, 2009]

215.06 General Instruction I.A.7 to Form S-3 provides that a successor issuer will be deemed to have met the registrant requirements in Instructions I.A.1, I.A.2, I.A.3 and I.A.5 of Form S-3 if its predecessor and it taken together have met those conditions. In the case of a bank holding company, the requirement in General Instruction I.A.3(a) of Form S-3 will be satisfied if: the predecessor bank has securities registered under Section 12(i) of the Exchange Act; the bank has filed periodic reports with one of the banking agencies for at least one year; and the reports met Commission requirements. [Feb. 27, 2009]

215.07 A domestic issuer satisfied all Form S-3 requirements other than the General Instruction I.A.1 registrant requirement that the issuer's principal business operations occur in the U.S. or its territories. The issuer could use Form S-3 based on General Instruction I.A.6, which permits a foreign issuer that satisfies all Form S-3 requirements other than the provisions in I.A.1 relating to organization and principal business operations to use Form S-3. [Feb. 27, 2009]

215.08 A default by a subsidiary which occurred and was cured prior to the time it became a subsidiary would not disqualify the parent from using Form S-3. [Feb. 27, 2009]

215.09 When a company and its creditors are having a dispute about whether there is a disqualifying default, the company must determine whether, as a legal matter, there is a default. Caution should be exercised in making such a determination because by filing the form, the company is certifying that there is no such default. [Feb. 27, 2009]

215.10 A company engages in a trust preferred financing whereby the company issues a subordinated note to a special purpose subsidiary, and the special purpose subsidiary issues to investors cumulative preferred shares with financial terms that generally mirror the note, except that the preferred shares are convertible into common stock of the company. The subsidiary exists only to hold the note and issue the preferred shares; the interest and principal payments on the note are the sole source of cash for the subsidiary to pay dividends and the liquidation preference on the preferred shares. The note permits the company to defer interest payments for a specific time period, and such deferral is not a default. If interest payments on the note are deferred, the subsidiary may defer the payment of quarterly dividends on the preferred shares, and the unpaid dividends will accrue and accumulate. Finally, the trust preferred financing is treated as company indebtedness for GAAP financial reporting and rating agency purposes. On these facts, for purposes of determining whether the company satisfies the requirements of Instruction I.A.5 of Form S-3 if a company defers interest payments on the subordinated note and its subsidiary correspondingly defers payment of quarterly dividends on the trust preferred shares, the trust preferred financing should be treated as company indebtedness. Since there was no default on the note, there is no violation of Instruction I.A.5. [Apr. 24, 2009]

Section 216. Form S-3 — General Instructions I.B.1 to I.B.6 — Transaction Requirements

216.01 A company intends to register a stock option plan. Since certain participants in the plan are persons that do not meet the definition of "employee" under General Instruction A.1(a) of Form S-8, Form S-8 is not available for the plan. The registrant, however, meets the primary offering requirements of Form S-3, and the plan may be registered on that form as a primary offering. If the plan is registered on Form S-3, the information concerning the plan required by S-8 would have to be included in the Form S-3 prospectus. [Feb. 27, 2009]

216.02 Form S-3 is not available for the dividend reinvestment plan of a newly formed bank holding company because the annual report to shareholders of the predecessor bank contained only two years of audited financial statements. In this regard, General Instruction I.B.4 of Form S-3 requires that the registrant provide an annual report which meets the requirements of Rule 14a-3(b). That rule requires an annual report with three years of audited financial statements. [Feb. 27, 2009]

216.03 A long-term holder of convertible debentures and warrants to purchase common stock proposed to sell the debentures and the warrants to an underwriter who would exercise the warrants, convert the debentures and make an underwritten public offering of the common stock. Because the proposed distribution appeared to be a primary offering by the issuer, it therefore could not be registered on Form S-3 in reliance on General Instruction I.B.3 as a secondary offering. [Feb. 27, 2009]

216.04 A registrant with an obligation to make matching cash contributions to its profit sharing/401(k) plan sought to contribute shares of its common stock to the plan and then register those shares for resale by the plan's trustee. The proceeds from the sale of the shares were to be used to fund the registrant's obligations under the plan. The use of Form S-8 was inappropriate for trustee's resales because the offering was not for compensatory purposes but rather to satisfy the registrant's own contractual obligations under the plan. Since the offering was on behalf of the registrant and the registrant was not eligible to use Form S-3 for primary offerings, the use of that form was also inappropriate. [Feb. 27, 2009]

216.05 General Instruction I.B.1 of Form S-3 requires an issuer to have $75 million of voting and non-voting common equity held by non-affiliates. The instruction indicates that the $75 million public float requirement may be computed on the basis of the last price at which the issuer's common equity was sold as of a date within 60 days prior to the date of filing. An interim daily price may not be used instead of a closing daily price. In addition, an issuer may not include shares in the public float computation until they are actually issued. [Feb. 27, 2009]

216.06 A registrant wished to use Form S-3 for a combination primary offering by the registrant and secondary offering by an affiliate, but did not meet the $75 million float test of General Instruction I.B.1 to the form. The registrant asked for a waiver, contending that the securities to be sold in the secondary portion of the offering should be included in the float computation, and that the addition of such securities would permit the registrant to meet the float test. The waiver request was denied. [Feb. 27, 2009]

216.07 A waiver request for the use of Form S-3 for a primary offering by an issuer was denied when the aggregate market value of the issuer's voting and non-voting common equity held by non-affiliates was inadequate under General Instruction I.B.1 of Form S-3. The staff does not grant requests for waivers of the "float" tests set forth in General Instruction I.B.1. [Feb. 27, 2009]

216.08 General Instruction I.B.3 of Form S-3 permits the use of the form for secondary offerings if securities of the same class are listed on a national securities exchange or quoted on the automated quotation system of a national securities association. A prospective registrant desired to use Form S-3 for a secondary offering of preferred stock. Although one series of the company's preferred stock was listed on the NYSE, the stock proposed to be registered was a different series with different terms, most notably, a different dividend rate. Under the circumstances, Form S-3 was not available. [Feb. 27, 2009]

216.09 Pursuant to a private placement, securities were to be issued into an escrow account upon partial payment equal to the securities' par value. The issuer contemplated that the securities would be released from escrow upon payment of the remainder of the market price, simultaneously with effectiveness of a Form S-3 for resale of the securities. Although the securities would be considered outstanding under Delaware law at the time of issuance into escrow, they would not be "outstanding" for purposes of General Instruction I.B.3. In addition, the use of the escrow arrangement and the de minimis down payment suggests that the offering was in substance a "primary offering" for purposes of Form S-3 eligibility. [Feb. 27, 2009]

216.10 An issuer contemplating a rights offering believed that the offering would not be fully subscribed. In such event, the issuer contemplated offering the unsubscribed securities to its employees. Form S-3 would not be available because General Instruction I.B.4 contemplates rights offerings only to existing shareholders and not to employees. [Feb. 27, 2009]

216.11 A twelve-month reporting company wishes to use Form S-3 for a rights offering to its security holders and a standby offering to the public of any unsubscribed securities. Although the rights offering may be made on Form S-3, the standby offering can be included on the same form only if the issuer is eligible to make primary offerings under General Instruction I.B.1 to the form. The reference to eligible standby arrangements in General Instruction I.B.3 is limited to those done in connection with certain calls or redemptions. [Feb. 27, 2009]

216.12 General Instruction I.B.4 is intended to assure that issuers who are subject only to the periodic reporting obligations of Section 15(d) have provided annual report and proxy type information to persons who will be purchasing securities registered on Form S-3. Most issuers include the disclosure concerning executive officers required by Item 401(b) of Regulation S-K in the Form 10-K rather than in the proxy statement. As a result, that information often is not regularly delivered to shareholders. A separate distribution of that information would not be required in order for Form S-3 to be available to such issuers. [Feb. 27, 2009]

216.13 A company relied on General Instruction I.B.1 to file a Form S-3 that is now effective. When it files its next Form 10-K, the company will not meet the $75 million float requirement in General Instruction I.B.1, but it will meet the requirements of General Instruction I.B.6. Assuming a post-effective amendment is not needed for any other reason, the company does not need to file a post-effective amendment solely to include the information required by Instruction 7 to General Instruction I.B.6; this information may be included on the outside front cover of the prospectus via a prospectus supplement. [Feb. 27, 2009]

216.14 Secondary sales by affiliates may be made under General Instruction I.B.3 to Form S-3, even in cases where the affiliate owns more than 50% of the issuer's securities, unless the facts and circumstances indicate that the affiliate is acting as an underwriter or by or on behalf of the issuer. See Question 116.15. [Feb. 27, 2009]

216.15 A finance company, which is wholly-owned by an issuer that meets the eligibility requirements for Form S-3, proposed to issue a letter of credit guaranteeing certain lease payments on an exempt industrial revenue bond. Form S-3 was available for the registration of the letter of credit since it was considered investment grade debt by virtue of its AAA rating by one of the nationally recognized statistical rating organizations. See General Instructions I.B.2 and I.C.1 of Form S-3. [Feb. 27, 2009]

216.16 An issuer that proposes to register debt on Form S-3 is attempting to meet the "investment grade securities" test of General Instruction I.B.2 of the form. The rating of the issuer's securities by a nationally recognized statistical rating organization ("NRSRO") will not be completed by the date the issuer hopes to become effective. The NRSRO, however, will have assigned a preliminary rating indicating investment grade. General Instruction I.B.2 of Form S-3 allows such a Form S-3 to become effective with a preliminary rating. See also Instruction 3 to the Signatures section of Form S-3. [Feb. 27, 2009]

216.17 A registrant eligible to use Form S-3 only to register investment grade securities must amend that registration statement prior to sale — by filing an amendment on a form it is then eligible to use — if the securities receive a final rating which is below the four highest rating categories specified by General Instruction I.B.2 of Form S-3. The amendment should be filed pre-effectively if the rating is received prior to the effective date. [Feb. 27, 2009]

216.18 A domestic non-reporting subsidiary of a foreign private issuer that is eligible to file on Form F-3 seeks to register the issuance of investment grade debt that is not guaranteed by the parent. The domestic issuer is permitted to register this offering on Form F-3 under General Instruction I.A.5(ii), and would be permitted to register the offering on Form S-3 pursuant to General Instruction I.C.2 (as a subsidiary of the parent) were it not for the requirement that the parent meet the registrant requirements of Form S-3. (The parent does not file its Exchange Act reports on domestic forms.) Because registering the offering on Form S-3 would result in more information being provided to investors, the domestic subsidiary may register its offering of investment grade debt on Form S-3 rather than Form F-3, assuming that it filed, and went effective on, a Form 10 with full Form 10-K information and incorporated by reference the Form 10 into the Form S-3. The parent must meet the requirements for filing on Form F-3 at the time the subsidiary files the Form S-3. [Feb. 27, 2009]

Section 217. Form S-3 — General Instructions I.C.1 to I.C.5 — Majority-Owned Subsidiaries

217.01 A Form S-3-eligible issuer has a majority-owned subsidiary that has a wholly-owned non-reporting subsidiary. The second-tier subsidiary proposes to sell its own debt publicly. The debt will be guaranteed by the second-tier subsidiary's non-reporting parent. This guarantee will, in turn, be guaranteed by the Form S-3-eligible parent. The Form S-3-eligible parent's guarantee will extend to the benefit of holders of the second-tier subsidiary's debt instrument. The offering may be registered on Form S-3 in reliance on General Instruction I.C.3 of the form. [Feb. 27, 2009]

217.02 A wholly-owned limited purpose subsidiary of a Form S-3 eligible parent company sought to use Form S-3 for an offering of debt securities which were fully and unconditionally guaranteed by the parent. The debt securities were convertible into common stock of the parent and would not be convertible into any other securities of the subsidiary. Although General Instruction I.C.3 of Form S-3 refers to non-convertible securities of a registrant-subsidiary guaranteed by its parent, we analyzed each security separately and did not object to the use of the form because: (1) the parent was primarily eligible to offer its common stock under General Instruction I.B.1.; and (2) the subsidiary's debt securities being guaranteed by its Form S-3 eligible parent could be registered on Form S-3. [Feb. 27, 2009]

217.03 A foreign issuer proposed to register on Form S-3 debt securities guaranteed by its parent, a Delaware corporation that met the applicable registrant and transaction requirements of Form S-3. Notwithstanding the requirement of General Instruction I.A.1 that a registrant be organized under the laws of the U.S. or any State or Territory or the District of Columbia and have its principal business operations in the United States or its territories, the foreign subsidiary would be permitted to use Form S-3 pursuant to General Instruction I.C.3 because the guaranteeing parent satisfies this requirement. [Feb. 27, 2009]

217.04 A subsidiary of a Form S-3-eligible company filed a voluntary Form 10 in order to be able to issue investment grade debt on Form S-3, as permitted by General Instruction I.C.2 of Form S-3. The following year, the subsidiary filed another Form S-3 for investment grade debt, but by this time the subsidiary was delinquent in its own reporting obligations, not having filed any Form 10-Qs. In order to use the Form S-3, the subsidiary must file the delinquent Form 10-Qs; otherwise, the Form S-3, which incorporates by reference the reports filed by the subsidiary, would be deficient. However, once the subsidiary files the missing reports, Form S-3 may be used. The reports of the subsidiary are used for the informational purposes of the Form S-3, rather than form eligibility. Eligibility for the subsidiary to use the form is based on General Instruction I.C.2, which provides form eligibility for the subsidiary based on the parent's satisfaction of the eligibility requirements. When the subsidiary is relying on General Instruction I.C.2 for form eligibility, the timeliness requirement of General Instruction I.A.3. relates to the reports of the parent, not the subsidiary. [Feb. 27, 2009]

Section 218. Form S-3 — General Instructions I.D.1 to I.D.5 — Automatic Shelf Offerings by Well-Known Seasoned Issuers

218.01 A master limited partnership cannot register limited partnership interests for resale on an automatic shelf registration statement and would not be a well-known seasoned issuer because the offering would not be on a firm commitment basis, and therefore, the limited partnership would be an ineligible issuer. [Feb. 27, 2009]

Section 219. Form S-3 — General Instructions II.A to II.G — Application of General Rules and Regulations [Reserved]

Section 220. Form S-3 — General Instruction III — Dividend or Interest Reinvestment Plans: Filing and Effectiveness of Registration Statement; Requests for Confidential Treatment [Reserved]

Section 221. Form S-3 — General Instructions IV.A to IV.B — Registration of Additional Securities and Additional Classes of Securities [Reserved]

Section 222. Form S-3 — General Instructions V.A to V.B — Offerings of Asset-Backed Securities [Reserved]

Section 223. Form S-3 — Part I — Information Required in Prospectus

223.01 Despite the fact that Form S-3 does not specifically refer to the requirements of Regulation S-X, the provisions of Rule 3-12 of Regulation S-X (Age of Financial Statements) are applicable to Form S-3. Under Rule 3-12(b), if a Form S-3 registration statement will become effective within the first 90 days of the fiscal year for non-accelerated filers, the first 75 days for accelerated filers, or the first 60 days for large accelerated filers, the filing need not include financial statements more current than as of the end of the third quarter of the most recently completed fiscal year (with incorporation by reference of the third quarter Form 10-Q), unless (1) the audited financial statements for such fiscal year are available; or (2) the anticipated effective date will be more than 45 days subsequent to the end of the fiscal year and the registrant does not meet the conditions prescribed under paragraph (c) of Section 210.3-01 of Regulation S-X. The interpretation of the first qualification to Rule 3-12(b) requires a factual determination as to whether or not audited financial statements are "available." [Feb. 27, 2009]

223.02 When the parent of the issuer of securities to be registered on Form S-11 is also the guarantor of certain obligations on those securities, and the parent meets the eligibility requirements for Form S-3, the information concerning the guaranteeing parent in the Form S-11 registration statement may be provided in accordance with the disclosure requirements of Form S-3. [Feb. 27, 2009]

223.03 A registrant proposing to file on Form S-3 requested relief from Item 12(b) of Form S-3, insofar as it related to a Schedule TO to be filed with respect to a tender offer for the equity securities of a subsidiary pursuant to Section 14(d) of the Exchange Act. Item 12(b) requires that the prospectus state that all documents subsequently filed by the issuer, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, are incorporated by reference. The issuer contended that a literal application of Item 12(b) would result in describing the tender offer in the prospectus, and draw unwarranted attention to an immaterial transaction not related to the offering. The registrant was advised that it must comply with the incorporation by reference requirement for the Schedule TO. [Feb. 27, 2009]

Section 224. Form S-3 — Part II — Information Not Required in Prospectus [Reserved]

Section 225. Form S-4

225.01 A bank holding company formation is not for the sole purpose of forming a bank holding company when the holding company proposes an acquisition of another bank immediately following the formation. Staff Accounting Bulletin No. 50 would not be available and financial statements of both banks must be provided. [Feb. 27, 2009]

225.02 A company registers on Form S-4 shares to be issued in a Rule 145(a) transaction, together with shares to fund a successor employee benefit plan. A post-effective amendment to the Form S-4 is to be filed on Form S-8 containing a complete description of the plan. The registrant is also allowed to file, as part of that amendment, a reoffer prospectus prepared in accordance with Part I of Form S-3 to be used by affiliates making sales of securities acquired under the employee benefit plan. [Feb. 27, 2009]

225.03 A registrant filing a Form S-4 registration statement in connection with an acquisition sought to include shares which had previously been issued pursuant to Section 4(2) to certain officers and directors of the company to be acquired. The purpose was to facilitate resales by such persons. Those shares were not permitted to be registered on Form S-4 because they were not issued in connection with the Rule 145 transaction. [Feb. 27, 2009]

225.04 A real estate limited partnership filing an acquisition shelf registration statement for the purpose of acquiring properties may use Form S-4 even though the acquisition of properties rather than securities is not explicitly provided for in the form. However, the 20.D. undertaking of Industry Guide 5 is inappropriate and the procedure set forth for updating the registration statement to reflect acquisitions may not be used. The undertaking is applicable only to offerings for cash. [Feb. 27, 2009]

225.05 General Instruction G to Form S-4, permitting automatic effectiveness of certain bank holding company formation filings, is limited by the terms of Instruction G.l. to the issuance of common stock of the holding company in exchange for common stock of the bank. Nevertheless, Instruction G will also be available when common and preferred stock are being issued, on a share for share basis, to holders of existing common and preferred stock of the bank. Like Staff Accounting Bulletin No. 50, General Instruction G is intended to be available when the holding company formation does not involve a change to the existing capital structure. [Feb. 27, 2009]

225.06 A Form S-4 registration statement will be filed to convert an existing corporation into a trust that will have the same assets and management as its predecessor. Because of applicable tax law or state law provisions, the new trust will not be created until after the Form S-4 has become effective. Using Rule 414 as a model, the existing corporation may execute and file the original registration statement. At the time the trust is formed, it should file a post-effective amendment adopting the registration statement. [Feb. 27, 2009]

225.07 Two companies propose a joint Form S-4 registration statement for a stock-for-assets acquisition. Although the company to be acquired is not the registrant, it should file as exhibits any contracts or other documents that would be material to the new entity. [July 3, 2008]

225.08 A parent, which is eligible to use Form S-3, and its wholly owned subsidiary both have outstanding debt securities. From time to time and on an individual basis, the parent intends to offer the debt holders newly issued common stock in exchange for their debt securities. Prior to entering into any negotiations, the parent may file a shelf registration statement on Form S-4 for the purpose of registering these individually negotiated transactions and the parent's registration statement would be kept current through forward incorporation by reference. The parent will need to consider the applicability of the tender offer rules. [Feb. 27, 2009]

225.09 Instruction F to Form S-4, which allows a U.S. acquirer to include F-4 type financial disclosure with respect to a target that is a foreign private issuer, is not applicable to the domestication of a non-U.S. entity as a Delaware corporation pursuant to Delaware General Corporation Law Section 388. [Feb. 27, 2009]

225.10 An acquiring company may seek a commitment from management and principal security holders of a target company to vote in favor of a Rule 145(a) transaction, frequently referred to as a “lock-up agreement.” The execution of a lock-up agreement may constitute an investment decision under the Securities Act. If so, the offer and sale of the acquiring company's securities would be made to persons who entered into those agreements before the Rule 145(a) transaction is presented to non-affiliated security holders for their vote.

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 target company (“target company insiders”);
the persons signing the lock-up agreements collectively own less than 100% of the voting equity securities of the target company;
votes will be solicited from security holders of the target company who have not signed the agreements if such votes are needed to approve the Rule 145(a) transaction under state or foreign law; and
the acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.

target company insiders who delivered the written consents will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
the securities registered on the Form S-4 (or Form F-4) will be offered and sold only to those security holders of the target company who did not deliver written consents approving the Rule 145(a) transaction. [March 6, 2025] [Comparison to prior version]

Section 226. Form S-8

226.01 Plan interests were inadvertently omitted from the Form S-8 registering company securities to be offered under the employee benefit plan. In this situation the company may register an indeterminate amount of plan interests pursuant to Rule 416(c), and there would be no filing fee. [Feb. 27, 2009]

226.02 A company issues options to independent distributors of pharmaceutical products. The company considered the individual distributors to be de facto employees of the issuer because they would be doing this kind of work only for the issuer, and the issuer would keep them informed through the distribution of Exchange Act reports. Based on these facts and considering that the nature of the services provided to the issuer would be Amway-style pyramid "network distribution," which would not necessarily be the primary source of the distributors' earned income, the use of Form S-8 was not permitted. [Feb. 27, 2009]

226.03 Item 8.A.5 of Form 20-F requires foreign private issuers to provide interim financial statements as of an interim date within nine months of the effective date. The undertaking in Item 512(a)(4) of Regulation S-K generally requires a foreign private issuer to update its financial statements in a registration statement, as required by Item 8.A of Form 20-F, during continuous offerings under Rule 415. However, for offerings on Form S-8, pursuant to Note 2 to Item 9 of that form, foreign private issuers are not required to provide the Regulation S-K Item 512(a)(4) undertaking and thus are not subject to this updating requirement. [Feb. 27, 2009]

226.04 A Form S-8 registration statement is being filed for an employee benefit plan that is available only to Canadian employees. Under these circumstances, the discussion and legal opinion relating to U.S. tax aspects of the plan are not required, but an opinion of Canadian counsel on the Canadian tax treatment is required. [Feb. 27, 2009]

226.05 An issuer is preparing to register additional shares of employer stock for its employee thrift plan. The plan trustee, which is an affiliate, participates in the issuer's dividend reinvestment plan (DRIP), which is registered on Form S-3. In calculating the number of shares remaining available under the Form S-8, the issuer need not subtract the number of shares distributed through the registered DRIP. This position is based on the view that the DRIP shares were taken on behalf of thrift plan participants, so that the trustee's distribution of such shares should not require further registration. [Feb. 27, 2009]

226.06 Item 8(b) of Form S-8 permits registrants, in lieu of filing an opinion of counsel concerning compliance with the requirements of ERISA or a determination letter with the IRS that the plan is qualified under Section 401 of the IRC (see Item 601(b)(5)(ii) and (iii) of Regulation S-K), to undertake to submit a plan or amendment to the IRS in a timely manner and make all changes required by the IRS in order to qualify the plan.

Prior to seeking a determination letter, and in order to avoid certain sanctions for plan "defects" under the IRC, a registrant wished to voluntarily contact the IRS under its "Closing Agreement Program" ("CAP," and when done voluntarily, a "Walk-in CAP") to resolve the "defects." If a registrant filed a Form S-8, but participated in the Walk-in Cap (estimated to take 3-6 months) prior to seeking the IRS determination letter, such participation prior to the submission of the plan or amendment for a determination letter would not render the submission "untimely" for purposes of Item 8(b) of Form S-8, as long as the registrant was diligently and in good faith participating in this Walk-in CAP program. This is based in part on the recognition in Securities Act Release No. 6867 (June 6, 1990) of delays inherent in the determination letter process. [Feb. 27, 2009]

226.07 Rule 428(b)(2) requires the registrant to deliver, along with the documents containing the information required by Part I of Form S-8, one of: the latest Rule 14a-3(b) annual report, the latest Form 10-K, the latest Rule 424(b) prospectus, or an effective Form 10. An issuer that changed its fiscal year filed a six-month transition report on Form 10-K subsequent to its latest annual report on Form 10-K. When such issuer is relying on the Rule 428(b) Form 10-K delivery alternative, it must deliver both the latest annual report on Form 10-K and the transition report on Form 10-K in order to satisfy the Rule 428(b) requirement. [Jan. 26, 2009]

226.08 A registrant filing on Form S-8 incorporated a Form 10-K that contained its 2007 financial statements certified by one accounting firm, and its 2005 and 2006 financial statements certified by a different accounting firm. Rule 436 would require the filing of the consents of both accounting firms for purposes of the Form S-8 registration statement. [Jan. 26, 2009]

226.09 In its effective Form S-8, a company registered 500,000 shares for sale by the company pursuant to an option plan, and 1,000 previously unregistered shares for resale on a resale prospectus pursuant to General Instruction C to Form S-8. The company may not rely on General Instruction C.3.(a) (which applies only to control securities and allows the addition of persons to the resale prospectus list of selling shareholders by means of a post-effective amendment or Rule 424(b) prospectus supplement) to shift any of the 500,000 shares registered on the primary portion to the resale prospectus since to do so would amount to registering additional securities by means of a post-effective amendment in contravention of Rule 413. [Jan. 26, 2009]

226.10 A registrant with an obligation to make matching cash contributions to its profit sharing/401(k) plan sought to contribute shares of its common stock to the plan and then register those shares for resale by the plan's trustee. The proceeds from the sale of the shares were to be used to fund the registrant's obligations under the plan. The use of Form S-8 for trustee's resales was inappropriate because the offering was not for compensatory purposes, but rather to satisfy the registrant's own contractual obligations under the plan. Since the offering was on behalf of the registrant and the registrant was not eligible to use Form S-3 for primary offerings, the use of that form was also inappropriate. [Feb. 27, 2009]

226.11 A company was registering shares issuable on exercise of stock options. At the time of filing, the company had not yet issued options so that there was no option exercise price. The company only had public debt outstanding and there was no market for its common stock. The company had a negative book value. The company was advised to calculate the filing fee, for purposes of Rule 457(h), based on a good faith estimate of the value of the securities underlying the options. [Jan. 26, 2009]

226.12 A limited liability company sought to issue to its employees the stock of its financing member, which has the sole purpose of issuing stock to the public and investing the proceeds thereof in the LLC's securities. Because of this relationship, Rule 140 requires the LLC to register as co-issuer on any Securities Act registration statement filed by the financing member for the sale of the financing member's stock. Accordingly, the LLC would be included as a registrant on any Form S-8 filed by the financing member. It is therefore not necessary to analyze whether the financing member is a "subsidiary" of the LLC for purposes of determining whether the finance member may register its stock on Form S-8 for sale to employees of its "parent." [Jan. 26, 2009]

226.13 The Pension Protection Act of 2006 conditions IRC Section 401 tax qualification for defined contribution plans on providing employees the opportunity to diversify out of company stock. Related regulations require the opportunity to reinvest the diversified funds in company stock. In some circumstances, the reinvestment of diversified funds in company stock may require a plan that otherwise did not require registration to file a Form S-8. If a plan was completely noncontributory (i.e., no employee money can be contributed to any investment under the plan), there would be no requirement to register. If the plan permits employee contributions, but only to investments other than company stock (so that Securities Act Section 3(a)(2) exempts the plan from registration), registration would be required if the plan commingles the diversified funds with employee contribution funds. This is because employee contributions could possibly be invested in company stock, making the Section 3(a)(2) exemption unavailable. If, however, diversified funds that originated from non-employee contributions are segregated from employee contribution funds, the non-employee funds could be reinvested in company stock without losing the Section 3(a)(2) exemption. [Feb. 27, 2009]

226.14 If securities being registered are issued under a plan and the plan is subject to the requirements of ERISA, Item 601(b)(5)(ii) requires the filing of either: (1) an opinion of counsel confirming compliance with certain requirements of ERISA; or (2) a copy of the IRS determination letter indicating the plan is qualified under Section 401 of the Internal Revenue Code. A Puerto Rican plan is not subject to the IRS, but rather to a Puerto Rican governmental authority. Because Puerto Rico is a United States territory, a Puerto Rican plan may file a letter akin to the IRS determination letter that is issued by the Puerto Rican governmental authority. [Feb. 27, 2009]

226.15

withdrawn [Sep. 22, 2016; see 126.41]

226.16 When the shares of Company A and Company B are paired for trading and issuance, A and B may file a registration statement for B's stock option plan on Form S-8 which will be signed by both A and B and will contain information about both companies. [Feb. 27, 2009]

Section 227. Form S-11

227.01 The registrant filed a registration statement on Form S-11 relating to a "shelf" offering of mortgage backed bonds to be issued in series. The registrant was informed that it would not be necessary to file post-effective amendments and supplemental indentures each time a new series of bonds was to be issued. The response was conditioned upon two factors:

A basic form of supplemental indenture including everything but the collateral for a particular series is filed at the time the registration is declared effective and the basic indenture is qualified; and
The registrant files a prospectus supplement describing the issuance of the series and the collateral therefor.

227.02 When the parent of the issuer of securities to be registered on Form S-11 is also the guarantor of certain obligations on those securities, and the parent meets the eligibility requirements for Form S-3, the information concerning the guaranteeing parent in the Form S-11 registration statement may be provided in accordance with the disclosure requirements of Form S-3. [Feb. 27, 2009]

Section 228. Form 1-A

228.01 Issuer is conducting a Regulation A offering of units consisting of common stock and warrants to purchase common stock. The warrants will not be exercisable until at least one year from the completion of the Regulation A offering, and the issuer intends to register the exercise of the warrants on a registration statement when they become exercisable. Because the warrants are not exercisable for at least one year, the issuer is not deemed to be offering the common shares underlying the warrants in the Regulation A offering. Hence, the exercise price of the warrants will not be included in calculating the aggregate offering price under Securities Act Rule 251(b), although the warrant value as part of the unit will be included. The registration statement covering the exercise of the warrants can be filed and declared effective before the expiration of one year so long as the warrants by their terms cannot be exercisable before one year from the completion of the Regulation A offering. [Apr. 24, 2009]

Section 229. Form 2-A [Reserved]

Section 230. Form D [Reserved]

Section 231. Form 144

231.01 An affiliate distributee from a partnership who is required to aggregate its sales with those of other affiliate distributees need not file a Form 144 if such affiliate distributee sells no more than 5,000 shares or shares with a market value not exceeding $50,000 in any three-month period, notwithstanding sales made by other distributees. [Jan. 26, 2009]

231.02 A subsidiary bank, acting in its fiduciary capacity, sells unrestricted shares of its holding company parent for an unaffiliated trust account. Form 144 need not be filed solely because of the bank's involvement, because the bank is not making a sale for its own account. [Jan. 26, 2009]

231.03 An affiliate of the issuer files a notice on Form 144 reporting the proposed sale of less than the full amount of securities that could be sold under the volume tests of Rule 144(e). During the same three-month period, the affiliate wishes to make additional Rule 144 sales in an amount that, taken together with the original sales, would not exceed the maximum number of securities that could have been sold at the time of the notice. The affiliate may not file an amended Form 144 to accomplish additional sales because a Form 144 must represent the affiliate's intent at the time of its filing. The affiliate may file a new Form 144 to sell additional securities, so long as these new sales satisfy the volume limitations existing when the new Form 144 is filed. [Jan. 26, 2009]

231.04 A Form 144, filed on behalf of an affiliate of the issuer by an attorney in fact, should be accompanied by a signed copy of the power of attorney. After such power of attorney is attached to the Form 144, it does not have to be re-filed as an attachment to subsequently filed Forms 144 while it remains in effect. [Jan. 26, 2009]

231.05 An affiliate of the issuer proposes to make Rule 144 sales of both common stock and securities convertible into common stock. For purposes of determining whether the 5,000 shares or $50,000 condition to filing Form 144 has been met, the convertible securities should be regarded as having been converted into the common stock in the same manner as provided by Rule 144(e)(3)(i). [Jan. 26, 2009]

231.06 After an affiliate files a Form 144, the issuer declares a stock split. No new filing is required within the three-month period to sell the entire number of shares, on a post-split basis, for which the seller had originally filed. [Jan. 26, 2009]

Exchange Act Sections

Last Update: June 9, 2022

These Compliance and Disclosure Interpretations ("C&DIs") principally comprise the Division's interpretations of the registration and reporting provisions of the Exchange Act — Sections 12, 13 and 15. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

N.B. C&DIs for Exchange Act Section 16 have been separately published and can be found at Exchange Act Section 16 and Related Rules and Forms.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Sections 101 to 109. Exchange Act Section 3

Section 101. Section 3(a)

Question 101.01

Question: Would the staff of the Division of Corporation Finance or the Division of Trading and Markets consider a future or forward contract that permits cash or physical settlement to be “intended to be physically settled” and therefore excluded from the definitions of “swap” and “security-based swap” if, at the time the parties enter into the contract, the underlying securities cannot be legally transferred, or the transfer of the underlying securities is restricted by contract?

Answer: No. In Release 33-9338, the Commission stated that the analysis as to whether sales of securities for deferred shipment or delivery are intended to be physically settled is a facts and circumstances determination. However, the Commission also stated in Release 33-9338 that the purchase and sale of the underlying securities occurs at the time when the parties enter into the contract, and that the determination of whether an instrument is a swap or security-based swap should be made prior to execution, but no later than when the parties offer to enter into the instrument. To the extent that at the time of sale the securities underlying a future or forward contract could not be legally transferred, or the transfer of the underlying securities would be restricted by contract, the staff of the Division of Corporation Finance and the Division of Trading and Markets would not consider the contract to be “intended to be physically settled” for purposes of the definitions of “swap” and “security-based swap.” Accordingly, for the staff to conclude that a sale of securities for deferred shipment or delivery is intended to be physically settled, it is a necessary prerequisite that at the time the parties enter into the contract (i) the offer and sale of the underlying securities must be registered in compliance with Section 5 of the Securities Act or an exemption from registration must be available with respect to the underlying securities, and (ii) any applicable contractual provisions restricting the transfer of the underlying securities must be satisfied or otherwise waived. [June 9, 2022]

Sections 102 to 109. [Reserved]

Sections 110 to 129. Exchange Act Section 12

Section 110. Section 12(a)

None

Sections 111 to 115. [Reserved]

Section 116. Section 12(g)

Question 116.01

Question: Are benefit plan options regarded as a separate class of equity securities for Section 12(g) purposes?

Answer: Yes. [September 30, 2008]

Question 116.02

Question: A company that is not required to register a class of equity securities under Section 12(b) or Section 12(g) nevertheless voluntarily registers the class under Section 12(g). Since the registration of the securities under Section 12(g) is voluntary, can the company later stop filing periodic and current reports without first deregistering the securities under the Exchange Act?

Answer: No. Once a company registers a class of equity securities under Section 12(g), it is required to file periodic and current reports, even if the registration of the securities under Section 12(g) is voluntary. The only method provided by the Exchange Act and rules for such a company to properly cease filing periodic and current reports is to deregister the class of securities under the Exchange Act. [September 30, 2008]

Question 116.03

Question: Can a company file periodic and current reports without first registering the offer and sale of securities under the Securities Act or a class of securities under the Exchange Act?

Answer: No. Assuming that the company did not previously have a Section 15(d) or Section 13(a) reporting obligation, it would not be able to file periodic or current reports without first registering an offer and sale of securities under the Securities Act or a class of securities under the Exchange Act. If a company's reporting obligation has been suspended or terminated, our EDGAR system will continue to accept Exchange Act reports that are filed on a voluntary basis, and the company must disclose that it is a voluntary filer on the cover of its Form 10-K or Form 20-F. [October 8, 2008]

Question 116.04

Question: Can a company that files a Section 12(g) registration statement on Form 10, Form 20-F, or Form 8-A delay the effectiveness of the registration statement to a date after the 60-day period specified in Section 12(g)?

Answer: No. A registration statement on Form 10, Form 20-F, or Form 8-A to register a class of equity securities under Section 12(g) becomes automatically effective 60 days after the date of filing. A company cannot seek to delay the automatic effectiveness of such registration statement. The only way to delay or prevent effectiveness is to withdraw the Section 12(g) registration statement before the effective date. Such a withdrawal, however, is not permitted for a company that is required to register a class of equity securities under Section 12(g). [September 30, 2008]

Question 116.05

Question: Can a company withdraw a Section 12(g) registration statement before it becomes effective?

Answer: Yes. A company can withdraw a Section 12(g) registration statement prior to the date of effectiveness. If the last day before the registration statement becomes automatically effective pursuant to Section 12(g) falls on a non-business day, however, the company cannot rely on Exchange Act Rule 0-3 to submit the withdrawal request on the first business day following. The withdrawal request must be filed with the Commission before the date of effectiveness. [September 30, 2008]

Question 116.06

Question: A company files a Form 10 registration statement to register a class of equity securities under Section 12(g). This registration statement will become effective automatically 60 days after it is filed with the Commission. If the registration statement is selected for review by the Commission’s staff, is the company still required to file periodic and current reports?

Answer: Yes. Once the Section 12(g) registration statement becomes effective, the company is subject to Exchange Act reporting obligations, including the filing of periodic and current reports. The fact that the staff has selected the registration statement for review, or that the review is not completed at the time of effectiveness, does not relieve the company of these obligations. [September 30, 2008]

Question 116.07

Question: As part of its plan of liquidation and dissolution, a company plans to form a liquidating trust, transfer its remaining assets to the trust, and distribute interests in the trust to the company’s security holders. The company plans to request a no-action position from the Division that would relieve the trust from having to register its interests under Section 12(g). The company is required to file a certificate of dissolution with the proper state authorities. Will the Division grant no-action relief from the Section 12(g) registration requirement if the certificate of dissolution is not yet effective?

Answer: No. A company’s certificate of dissolution must be filed and effective before a no-action position granting relief from Section 12(g) for the interests in the liquidating trust is issued by the Division. [September 30, 2008]

Section 117. Section 12(h)

Question 117.01

Question: Are lack of trading and an inability to locate a significant number of stockholders sufficient bases to warrant a Section 12(h) exemption for a Section 12(g) registered company?

Answer: No. These bases alone are not sufficient to warrant a Section 12(h) exemption for a Section 12(g) registered company. [September 30, 2008]

Question 117.02

Question: Does Section 12(h) of the Exchange Act afford any exemptive relief for periodic reports that are delinquent?

Answer: No. [September 30, 2008]

Sections 118 to 129. [Reserved]

Sections 130 to 149. Exchange Act Section 13

Section 130. Section 13(a)

Question 130.01

Question: How does an issuer in bankruptcy demonstrate that the nature and extent of the trading in its securities is sufficiently limited to warrant no-action relief to file modified Exchange Act reports?

Answer: The Division is regularly asked to express a “no-action” position regarding an issuer in bankruptcy’s ability to file modified Exchange Act reports. In reviewing these no-action requests, the Division applies the general criteria in Exchange Act Release No. 9660 (June 30, 1972) and the specific factors outlined in Staff Legal Bulletin No. 2 (Apr. 15, 1997). With respect to the nature and extent of trading in the issuer’s securities, the Division has indicated that it will not issue a favorable response to a request for modified reporting if there is an active market for the issuer’s securities. Specifically, the Division has required issuers to demonstrate that their securities are not traded on a national securities exchange and that there is otherwise minimal trading in the securities. The staff believes that the nature and extent of trading of the issuer’s securities as described in the Evolve Software, Inc. no-action letter (Jul. 16, 2003) is representative of “minimal” trading for purposes of determining whether modified Exchange Act reporting is consistent with the protection of investors. [September 30, 2008]

Question 130.02

Question: When a registrant becomes delinquent in its reporting obligation under Section 13(a) or 15(d), what must it do to become current?

Answer: A delinquent filer must file all delinquent reports in order to become current in its Exchange Act reporting. While filing required documents late will not “cure” Section 13(a) or 15(d) violations, and will not make the registrant timely for purposes of eligibility to use certain Securities Act forms, it will permit the registrant to become current in its Exchange Act reporting. [September 30, 2008]

Sections 131 to 132. [Reserved]

Section 133. Section 13(d)

Question 133.01

Question: The application of Exchange Act Sections 13(d), 13(g), 14(a), 14(c) and 14(d) to a class of securities depends on whether the class is registered under Exchange Act Section 12. If unregistered securities convey a right to acquire or are convertible into or exercisable for Section 12-registered securities, should the unregistered securities be treated as Section 12-registered securities for purposes of determining whether Sections 13(d), 13(g), 14(a), 14(c) and 14(d) apply?

Answer: No, with one exception. Unregistered classes of securities convertible into, exercisable for, or that otherwise grant a right to acquire, securities registered under Section 12 generally are not treated as if they were securities registered under Section 12 for purposes of Sections 13(d), 13(g), 14(a), 14(c) and 14(d). The exception is that in some cases, Exchange Act Rule 13d-3(d) will require certain security holders to treat the unregistered securities as if they had been exercised for or converted into the Section 12-registered securities for purposes of Sections 13(d) and 13(g). [Aug. 14, 2009]

Sections 134 to 146. [Reserved]

Section 147. Section 13(r)

Question 147.01

Question: Section 219(b) of the Iran Threat Reduction and Syria Human Rights Act of 2012, signed into law on August 10, 2012, specifies that new Section 13(r) of the Exchange Act “shall take effect with respect to reports required to be filed with the Securities and Exchange Commission after the date that is 180 days after the date of the enactment of this Act,” which would be February 6, 2013. If an issuer’s periodic report is required to be filed on a date after February 6, 2013 — such as, for example, the 2012 Form 10-K for calendar year filers — is the issuer required to disclose Iran-related business activities pursuant to Section 13(r) if it files the periodic report on or before February 6, 2013?

Answer: Yes. We interpret “reports required to be filed” to include any periodic report with a due date after February 6, 2013, regardless of when the report is actually filed. [Dec. 4, 2012]

Question 147.02

Question: If an issuer’s annual report is required to be filed after February 6, 2013, must it include disclosure of activities specified in Section 13(r)(1) that occurred during the fiscal year but prior to enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012 on August 10, 2012?

Answer: Yes. An issuer is required to disclose activities specified in Section 13(r)(1) that occurred during the period covered by the report, which, for a Form 10-K, is the entire fiscal year. For example, an issuer that files an annual report for the fiscal year ending December 31, 2012 is required to disclose any activities specified in Section 13(r)(1) that took place between January 1, 2012 and December 31, 2012. [Dec. 4, 2012]

Question 147.03

Question: Section 13(r) covers activities by an issuer “or any affiliate of the issuer.” How is the term “affiliate” defined for purposes of Section 13(r)?

Answer: The term “affiliate” in Section 13(r) is as defined in Exchange Act Rule 12b-2. [Dec. 4, 2012]

Question 147.04

Question: If an issuer and its affiliates have not engaged in any of the activities specified in Section 13(r)(1) during the period covered by the report, must the issuer include a statement to that effect in its periodic report?

Answer: No. Disclosure is required only if the issuer or any of its affiliates engaged in any of the activities specified in Section 13(r)(1) during the period covered by the report. [Dec. 4, 2012]

Question 147.05

Question: Section 13(r)(1)(D)(iii) requires disclosure if an issuer or any of its affiliates knowingly conducts any transaction or dealing with “any person or entity identified under section 560.304 of title 31, Code of Federal Regulations (relating to the definition of the Government of Iran) without the specific authorization of a Federal department or agency.” Would this provision allow issuers to omit disclosure of transactions or dealings that have been specifically authorized by foreign governmental authorities, but not any U.S. federal department or agency?

Answer: No. A transaction or dealing with any person or entity identified under 31 CFR § 560.304 must be disclosed unless it was specifically authorized by a U.S. federal department or agency. If a disclosable transaction was specifically authorized by a foreign governmental authority, an issuer could disclose that fact in addition to the other information required by Section 13(r)(2) to provide the appropriate context for the disclosure. [Dec. 4, 2012]

Question 147.06

Question: The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury issues both general and specific licenses. A general license authorizes a particular type of transaction for a class of persons without the need to apply for a specific license. A specific license is a document issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application. See OFAC’s Frequently Asked Questions and Answers #74, available at http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#60 (explaining the difference between a general license and a specific license). Does a general license issued by OFAC count as a “specific authorization of a Federal department or agency” for purposes of Section 13(r)(1)(D)(iii)?

Answer: Yes. Both general and specific licenses constitute specific authorization by OFAC to engage in a transaction, provided all conditions of the applicable license are strictly observed. [Dec. 4, 2012]

Question 147.07

Question: If an issuer includes disclosure responsive to Section 13(r) in a periodic report filed with the Commission, will the disclosure become public?

Answer: Yes. All periodic reports filed with the Commission are made public automatically upon filing through the Commission’s EDGAR system. [Dec. 4, 2012]

Sections 148 to 149. [Reserved]

Sections 150 to 169. Exchange Act Section 15

Sections 150 to 152. [Reserved]

Section 153. Section 15(d)

Question 153.01

Question: A registrant with one or more effective Form S-3 and/or Form S-8 registration statements has less than 300 holders of record of the class of securities covered by those effective registration statements at the beginning of its fiscal year. In order to rely on the automatic reporting suspension contained in Section 15(d) of the Exchange Act, must the registrant post-effectively amend the registration statements to deregister any remaining unsold securities prior to filing the Form 10-K for the prior fiscal year?

Answer: Yes. In order to rely on the Section 15(d) automatic reporting suspension, an issuer must post-effectively deregister any remaining unsold securities from all existing Form S-3 and Form S-8 registration statements prior to filing the Form 10-K for the prior fiscal year. Otherwise, the Form 10-K would serve as a post-effective amendment, rendering the automatic suspension in Section 15(d) unavailable. [September 30, 2008]

Question 153.02

Question: May a company subject to Section 15(d) delay the due date, or avoid filing a quarterly or annual report, by filing a Form 8-A at or after the end of the fiscal quarter or fiscal year but prior to the due date of the applicable report?

Answer: No. A company subject to Section 15(d) with respect to a fiscal quarter or fiscal year cannot delay the due date or avoid filing the related quarterly or annual report by filing a Form 8-A at or after the end of the fiscal quarter or fiscal year but prior to the due date of the applicable report. Form 8-A explicitly provides that a company subject to Section 15(d) with respect to a fiscal year cannot do so. [September 30, 2008]

Question 153.03

Question: A limited partnership offers securities on a Form S-11 that goes effective on December 15, but does not commence selling efforts, acquire properties, or admit limited partners until after December 31, the end of its fiscal year. Escrow is not broken until September 30 of its next fiscal year. Should the partnership file a Form 10-K for the fiscal year in which the Form S-11 went effective?

Answer: Yes. The partnership should file the Form 10-K for the fiscal year in which the Form S-11 went effective, regardless of the fact that selling efforts began in the next fiscal year. [September 30, 2008]

Question 153.04

Question: Can a company file periodic and current reports without first registering the offer and sale of securities under the Securities Act or a class of securities under the Exchange Act?

Question 153.05

Question: If an issuer files Exchange Act reports on a voluntary basis — for example, because its Section 15(d) filing obligation is suspended — must the issuer comply with the interactive data requirements and, if so, what is the first interactive data submission required?

Answer: Yes. The issuer would be included in the group of filers required to comply with the interactive data requirements beginning with the first Form 10-Q, 20-F or 40-F for a fiscal period ending on or after June 15, 2011. [May 29, 2009]

Sections 154 to 169. [Reserved]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Sections 201 to 209. Exchange Act Section 3

Section 201. Section 3(a)

201.01. A registrant that is eligible to use Form S-3 is issuing debentures that will be guaranteed by its parent. Because the guarantee is neither listed on a stock exchange, nor considered to be an “equity security” as defined in Section 3(a)(11) of the Exchange Act, an Exchange Act registration statement is not required to be filed for it. [September 30, 2008]

Sections 202 to 209. [Reserved]

Sections 210 to 229. Exchange Act Section 12

Section 210. Section 12(a)

210.01. 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 Division 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. [September 30, 2008]

Sections 211 to 215. [Reserved]

Section 216. Section 12(g)

None

Section 217. Section 12(h)

None

Sections 218 to 229. [Reserved]

Sections 230 to 249. Exchange Act Section 13

Section 230. Section 13(a)

None

Sections 231 to 232. [Reserved]

Section 233. Section 13(d)

233.01 Where a limited partnership voluntarily registered its securities under Section 12(g) of the Exchange Act in order to qualify those securities for sale to “direct participant” retirement plans, the Division staff would not provide relief under Sections 13(d), 13(g), and 13(e), since such relief would undermine the Department of Labor’s intent to require the protections of the Exchange Act reporting requirements for pension plan instruments. [September 30, 2008]

Sections 234 to 249. [Reserved]

Sections 250 to 269. Exchange Act Section 15

Sections 250 to 252. [Reserved]

None

Section 253. Section 15(d)

253.01 A registration statement offered limited partnerships in series. A Form 15 was filed for the first partnership after the close of its fiscal year. Subsequently, the offering commenced for the second partnership. Section 15(d) reporting with respect to the second partnership should commence beginning with the quarter in which the offering of the second partnership’s interests starts. [September 30, 2008]

Sections 254 to 269. [Reserved]

Exchange Act Rules

Last Update: August 27, 2025

These Compliance and Disclosure Interpretations ("C&DIs") principally comprise the Division's interpretations of the rules promulgated under the registration and reporting provisions of Sections 12, 13 and 15 of the Exchange Act. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

N.B. C&DIs for Exchange Act Section 16 rules have been separately published and can be found at Exchange Act Section 16 and Related Rules and Forms.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Sections 101 to 107. Rules of General Application: Rules 0-1 to 0-10

None

Section 108. Rule 0-11

Question 108.01

Question: What fee rates apply to repurchases of securities and to proxy solicitations and statements in corporate control transactions?

Answer: The fee rates (as adjusted annually) under Exchange Act Section 13(e) and Section 14(g) apply to repurchases of securities and to proxy solicitations and statements in corporate control transactions, respectively. The fee rates set forth in Exchange Act Rule 0-11 do not apply. The Commission publishes orders and related press releases concerning current fee rates on the Commission's web site at www.sec.gov. [June 4, 2010]

Question 108.02

Question: If Company A files proxy materials for the transfer of substantially all of its assets to its wholly-owned subsidiary, Company B, in exchange for shares of Company B stock, will Company A have to pay the filing fee contemplated by Rule 0-11 or Exchange Act Section 14(g)?

Answer: No, because this transaction is an internal recapitalization and is not deemed to be a "sale or other disposition" for filing fee purposes. [June 4, 2010]

Section 109. Rule 0-12

None

Sections 110 to 119. Definitions: Rules 3a11-1 to 3b-19

Question 110.01

Question: A foreign issuer qualifies as a foreign private issuer on the last business day of its most recently completed second fiscal quarter, which is the "determination date" for foreign private issuer status under Exchange Act Rule 3b-4(c). Shortly thereafter, the foreign issuer reincorporates in Delaware. May it continue to use the foreign private issuer forms and rules until it retests its foreign private issuer status on the next determination date?

Answer: No. Under Exchange Act Rule 3b-4(e), a foreign issuer generally may use the foreign private issuer forms and rules until the first day of the fiscal year following the determination date on which it no longer qualifies as a former private issuer. That provision, however, does not apply to domestic issuers. A U.S.-domiciled company can never be a foreign issuer or foreign private issuer, no matter how few U.S. shareholders it may have or where its assets, business, officers or directors are located. Therefore, as a successor to the foreign issuer's reporting obligations, the Delaware corporation must immediately begin filing Exchange Act reports on domestic issuer forms. [Aug. 11, 2010]

Question 110.02

Question 110.03

Question 110.04

Question 110.05

Question 110.06

Question 110.07

Question 110.08

Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1

Question 120.01

Question: On January 1, a person adopts a written plan for selling securities that satisfies all applicable affirmative defense conditions of Rule 10b5-1(c)(1). The first sale of securities under the plan will take place on April 15 in reliance on Rule 144. The person will need to file a Form 144. Does adoption of the Rule 10b5-1 plan change the due date for the Form 144?

Answer: No. The Form 144 must be transmitted for filing concurrently with either the placement of a sell order for a brokerage transaction, or the execution of such sale directly with a market maker, as provided in Rule 144(h). The adoption of the plan itself may not be the same as placement of a sell order. The notice on Form 144 is effective for a maximum of three months, so that sales over longer periods will involve multiple requirements of notice under Rule 144(h). [Apr. 25, 2025] [Comparison to prior version]

Question 120.02

[Withdrawn Apr. 25, 2025] [Comparison to prior version]

Question 120.03

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a trust. In establishing the trust, she specifies that the trust shall sell 1,000 shares of issuer stock each quarter. Apart from this specification, she does not have or share any control over the trust’s assets. Is a defense available under Rule 10b5-1(c)(1)(i)(B)(3) for the quarterly sales by the trust?

Answer: Yes. Rule 10b5-1(c)(1)(i)(B)(3) contemplates that a person, while not aware of material nonpublic information, may delegate to a third party under a contract, instruction or written trading plan, all subsequent influence over how, when or whether to effect purchases or sales. Reliance on this affirmative defense does not prevent the person from setting some of the terms of the purchases or sales at the creation of the contract, instruction or plan so that no one has subsequent discretion as to those terms.

For example, this defense would be available if, in creating the contract, instruction or plan, the person specifies one or two of the amount, price or date of transactions. Whether or not any terms are set at creation, for a Rule 10b5-1(c)(1)(i)(B)(3) defense to be available, the person is not permitted to exercise any subsequent influence over how, when, or whether a transaction occurs. The third party who has been granted discretion must not be aware of material nonpublic information when exercising that discretion. [Apr. 25, 2025] [Comparison to prior version]

Question 120.04

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person will establish a blind trust to which he will contribute some, but not all, of the issuer securities that he owns. The person intends to delegate investment control over trust assets to the trustee so as to establish a defense under Rule 10b5-1(c)(1)(i)(B)(3) for trust transactions. Within the meaning of Rule 144(a)(2), the person and the trust will be a single person.

During any three-month period, sales of issuer securities by the trust will share the Rule 144(e) volume limitation with the person's sales of other issuer securities he owns. Does the manner of allocating the Rule 144(e) volume limitation between sales by the trust and the person's other sales of issuer securities affect whether the person is permitted to exercise any subsequent influence over how, when, or whether to effect purchases or sales under the trust within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)?

Answer: Yes. If during the term of the trust the person can control what portion of the Rule 144(e) volume limitation is available for trust sales, the person would be permitted to exercise subsequent influence over trust sales within the meaning of Rule 10b5-1(c)(1)(i)(B)(3). As a result, the Rule 10b5-1(c)(1)(i)(B)(3) defense would be unavailable.

However, the person would not be permitted to exercise subsequent influence over trust sales if the instrument creating the trust specified either (1) the percentage of the volume limit to be allocated to sales by the trust and other sales by the person, or (2) that the trustee would determine that allocation for each applicable three-month period without consulting the person. [Apr. 25, 2025] [Comparison to prior version]

Question 120.05

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person buys a put option, giving him the right at any time during the 12-month term of the option to sell 10,000 shares at a fixed exercise price. Two months later, he wishes to exercise the option. If he is aware of material nonpublic information at the time of exercise, can he rely on a Rule 10b5-1(c)(1) defense in exercising the option?

Answer: No. The exercise of the option is a separate investment decision from the purchase of the option. See Securities Act Release No. 7881 (Aug. 15, 2000) at fn. 115. For a defense to be available under Rule 10b5-1(c)(1), each of the amount, price and date of the transaction must be specified or determined by formula, or all subsequent discretion over purchases and sales must be delegated to a third party who must not be aware of material nonpublic information when exercising that discretion. The person must make this specification or delegation in good faith before becoming aware of material nonpublic information.

In this example, the person has retained discretion over the timing of the option exercise. Consequently, if he is aware of material nonpublic information at the time of exercise, no defense will be available under Rule 10b5-1(c)(1). The same analysis applies whether the option is a put or a call. [Apr. 25, 2025] [Comparison to prior version]

Question 120.06

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person purchases a put option. At the same time, the person instructs his broker to exercise the option on its expiration date, June 30, 2025, if the option is in-the-money on that date. Is the exercise of the option covered by a Rule 10b5-1(c)(1)(i)(B)(1) defense despite the fact that the amount, price and date are not specified by the same method?

Answer: Yes. The terms of the option, which is a binding contract within the meaning of Rule 10b5-1(c)(1)(i)(A)(1), specify the amount of shares to be sold and the price at which they will be sold under the option. The instruction to the broker, which is an instruction to another person within the meaning of Rule 10b5-1(c)(1)(i)(A)(2), specifies the date of the transaction and imposes a limit on the price, within the meaning of Rule 10b5-1(c)(1)(iii)(B). Viewed together, the option and the instruction specify the amount of securities, the price and the date of the transaction for purposes of Rule 10b5-1(c)(1)(i)(B)(1). The same analysis applies whether the option is a put or a call. [Apr. 25, 2025] [Comparison to prior version]

Question 120.07

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person writes a call option, giving the option purchaser the right at any time during the life of the option to buy 10,000 shares from her at a fixed exercise price. Two months later, the option writer receives an exercise notice, requiring her to sell the shares to the counterparty at the exercise price. Is the sale pursuant to the option exercise covered by an affirmative defense under Rule 10b5-1(c)(1)?

Answer: Yes. As long as the terms of the option contract do not permit the person to exercise any subsequent influence over how, when or whether she sells the shares covered by the option, and she does not in fact influence the timing of the option exercise, a defense would be available under Rule 10b5-1(c)(1)(i)(B)(3). [Apr. 25, 2025] [Comparison to prior version]

Question 120.08

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person obtains a bank loan to invest in real estate, and pledges securities as collateral. She fails to pay the loan as due. The bank proceeds against the stock that was posted as collateral and sells it in the open market. Is the Rule 10b5-1(c)(1)(i)(B)(3) defense available to the person when the bank sells the stock?

Answer: No. The sale was not pursuant to a contract, instruction or plan that did not permit the person to exercise any subsequent discretion over how, when, or whether to effect purchases or sales. First, the person could have exercised discretion not to pay the loan, resulting in default and the transfer of the securities. Also, she may have had the discretion to substitute collateral or provide additional collateral or cash to prevent foreclosure and sale of the stock. [Apr. 25, 2025] [Comparison to prior version]

Question 120.09

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person obtains a $1 million loan from a brokerage firm and places $2 million of stock in a margin account with the broker. The stock price falls and the broker issues a margin call. The person does not deposit additional securities in the margin account (although he could have), so the broker sells sufficient margined securities to satisfy the margin call. Is the Rule 10b5-1(c)(1)(i)(B)(3) defense available to the person for the broker's sales?

Answer: No. Where the person retains any discretion to substitute or provide additional collateral, or to repay the loan before the pledged securities may be sold, Rule 10b5-1(c)(1)(i)(B)(3) does not provide a defense. This is because the terms of the margin account contract would permit him to exercise subsequent influence over how, when, or whether to effect purchases or sales.

If the margin account contract did not permit the insider to exercise any subsequent influence over how, when, or whether to effect purchases or sales, and the broker did not in fact give the person the opportunity to substitute or provide additional collateral or cash, a defense would be available under Rule 10b5-1(c)(1)(i)(B)(3) if the broker is not aware of material nonpublic information in selling the margined securities. [Apr. 25, 2025] [Comparison to prior version]

Question 120.10

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a written trading plan to sell 5,000 shares each month, on a date to be selected by her broker during the second or third week of each month, at or above $20 per share. The person does not communicate any information to the broker that could influence when sales would occur. Does Rule 10b5-1(c)(1)(i)(B)(3) provide a defense for sales under this plan?

Answer: Yes, assuming two additional facts are present: (1) the terms of the plan do not permit her to exercise any subsequent influence over the timing of sales under the plan; and (2) the broker is not aware of material nonpublic information when selling securities under the plan. [Apr. 25, 2025] [Comparison to prior version]

Question 120.11

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a written trading plan to sell 10,000 shares each month, at or above $20 per share. To implement the sales, the plan provides that on the last day of each month the person will place a limit order with a broker, valid until the last day of the next month, to sell 10,000 shares at or above $20 per share. The person may be aware of material nonpublic information when she places the limit order. Do Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) provide a defense for sales under this plan if the limit order is non-discretionary (requiring the broker to execute a sale as soon as a buyer is available at or above $20 per share)?

Answer: Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) could provide a defense if the limit order is non-discretionary. The written trading plan would need to specify the amount, price and dates of the sales. As defined in Rule 10b5-1(c)(1)(iii)(C), in the case of a limit order, "date" means a day of the year on which the limit order is in force. For Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) to provide a defense, the terms of the plan must specify the dates on which the monthly non-discretionary limit orders will be in force. [Apr. 25, 2025] [Comparison to prior version]

Question 120.12

Question: How does the analysis in Question 120.11 change if the written trading plan doesn't specify when the non-discretionary limit order will be in force?

Answer: If the written trading plan by its terms doesn't specify these dates, a defense would be available under Rule 10b5-1(c)(1)(i)(A)(2) and (B)(1) if: (1) the person is not aware of material nonpublic information at the time she instructs the broker and satisfies all other applicable conditions of Rule 10b5-1(c)(1)(ii); and (2) in placing a non-discretionary limit order, she specifies the dates on which that limit order will be in force. [Apr. 25, 2025] [Comparison to prior version]

Question 120.13

Question: Do Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) provide a defense for sales under the written trading plan described in Question 120.11 when the limit order is discretionary (where the broker is granted discretion such that the broker is not required to execute a sale as soon as a buyer is available at or above $20 per share)?

Answer: If a limit order is discretionary, the discretion granted to the broker over the timing of a sale would require the conditions of Rule 10b5-1(c)(1)(i)(B)(3) to be satisfied for a defense to be available. Rule 10b5-1(c)(1)(i)(B)(1) would not be available. [Mar. 25, 2009]

Question 120.14

Question: Assume that the written trading plan described in Question 120.11 also includes a provision requiring the number of securities to be sold during each month to be reduced, if necessary, to comply with the applicable volume limitation under Rule 144(e). What effect does this have on the availability of a Rule 10b5-1(c)(1) defense?

Answer: The analysis depends on the manner in which the adjustment is effected:

(a) First, the written plan could provide for adjustment of the amount of securities to be sold each month based on a written formula specified in the plan within the meaning of Rule 10b5-1(c)(1)(i)(B)(2). Where a written formula specifies one or more of the price, amount and dates of transactions that are all specified in a contract, instruction or written plan, the Rule 10b5-1(c)(1)(i)(B)(2) defense would apply.

(b) Alternatively, the written plan could provide for adjustment of the amount of securities to be sold each month based on a delegation of discretion to the broker. In this case, where one or more of the price, amount and dates of transactions under a contract, instruction or written plan are to be determined based on a delegation of discretion to another person, the availability of a defense depends upon satisfaction of the conditions of Rule 10b5-1(c)(1)(i)(B)(3). [Apr. 25, 2025] [Comparison to prior version]

Question 120.15

Question: During a month when the written trading plan described in Question 120.11 is in effect, the person calls the broker to place an order to sell an additional 15,000 shares at the market where the market order is not provided for by the written trading plan in 120.11 and the person does not intend that the market order qualify for the affirmative defense of Rule 10b5-1(c)(1). How would the market order transaction affect the availability of the affirmative defense for the plan described in Question 120.11?

Answer: The market order transaction would not affect the availability of the written trading plan defense for the limit order sales under the written trading plan described in Question 120.11. The market order does not effect an alteration or deviation of a plan transaction within the meaning of Rule 10b5-1(c)(1)(i)(C) because the 10,000 share limit order under the plan will continue to be executed when the price limit is met. The market order is not a corresponding or hedging transaction within the meaning of Rule 10b5-1(c)(1)(i)(C) because it does not reduce or eliminate the economic consequences of the limit order sales under the written trading plan. Further, the market order would not be an additional contract, instruction, or plan that would qualify for the affirmative defense under Rule 10b5-1(c)(1) for purchases or sales of the issuer's securities on the open market within the meaning of Rule 10b5-1(c)(1)(ii)(D). [Apr. 25, 2025] [Comparison to prior version]

Question 120.16

Question: During a month when the written trading plan described in Question 120.11 is in effect, the person calls the broker to increase the non-discretionary limit order currently in force from 10,000 shares to 15,000 shares. How is this analyzed for purposes of Rule 10b5-1(c)(1)?

Answer: Rule 10b5-1(c)(1)(iv) provides in relevant part that “Any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying a contract, instruction, or written plan as described in paragraph (c)(1)(i)(A) of this section is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan.” Consequently, sales pursuant to the altered limit order would not be pursuant to the existing plan.

A purchase or sale that complies with a modified contract, instruction, or written plan will be considered pursuant to a new contract, instruction, or written plan, and the person will need to comply with Rule 10b5-1(c)(1) with respect to that new contract, instruction, or written plan. [Apr. 25, 2025] [Comparison to prior version]

Question 120.17

Question: After the written trading plan described in Question 120.11 has been in effect for several months, the person terminates the selling plan by calling the broker and canceling the limit order. Standing alone, does the act of terminating a plan while aware of material nonpublic information, and thereby not engaging in the planned securities transaction, result in liability under Section 10(b) and Rule 10b-5?

Answer: No. Section 10(b) and Rule 10b-5 apply to any fraudulent conduct "in connection with the purchase or sale of any security." The “in connection with” requirement is satisfied when a fraud “coincides” with a securities transaction. See, e.g., SEC v. Zandford, 535 U.S. 813 (2002) and Merrill Lynch, Pierce, Fenner & Smith, Inc., v. Dabit, 547 U.S. 71 (2006). [Mar. 25, 2009]

Question 120.18

Question: Does termination of a plan affect the availability of the Rule 10b5-1(c) defense for prior plan transactions? Does canceling one or more plan transactions affect the availability of the Rule 10b5-1(c) defense for prior plan transactions?

Answer: Termination of a plan, or the cancellation of one or more plan transactions, could affect the availability of the Rule 10b5-1(c) defense for prior plan transactions if it calls into question whether the plan was entered into in good faith and not as part of a plan or scheme to evade the insider trading rules and whether the person who entered into the plan has acted in good faith with respect to the plan within the meaning of Rule 10b5-1(c)(1)(ii)(A). The absence of good faith or presence of a scheme to evade would eliminate the Rule 10b5-1(c) defense for prior transactions under the plan. [Apr. 25, 2025] [Comparison to prior version]

Question 120.19

[Withdrawn Apr. 25, 2025] [Comparison to prior version]

Question 120.20

Question: Is the Rule 10b5-1(c) affirmative defense available where a person establishes a Rule 10b5-1 written trading plan while aware of material nonpublic information if the plan is structured so that plan transactions will not begin until after the material nonpublic information is made public?

Answer: No. [Mar. 25, 2009]

Question 120.21

Question: A person purchases employer stock through her participation in the employer's 401(k) plan. The purchases are made pursuant to bi-weekly payroll deductions invested in the plan’s employer stock fund. The 401(k) plan also allows employees to transfer the assets in their accounts among funds within the plan (including the employer stock fund) through fund-switching transactions. Is a Rule 10b5-1(c)(1) defense available for payroll deduction purchases made under the 401(k) plan pursuant to the employer stock fund?

Answer: Assuming the employee’s enrollment in the 401(k) plan satisfies the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A) and all conditions of Rule 10b5-1(c)(1)(ii)(B)-(C) applicable to the employee, a Rule 10b5-1(c)(1) defense would be available for payroll deduction purchases under the plan. See Securities Act Release No. 11138 (Dec. 14, 2022) at fn. 120. [Apr. 25, 2025] [Comparison to prior version]

Question 120.22

Question: Under the 401(k) plan described in Question 120.21, is a Rule 10b5-1(c)(1) defense available for fund-switching transactions that result in purchases or sales of employer stock?

Answer: A fund-switching transaction in a 401(k) plan requires an analysis of the written or oral instruction for the transaction that is independent of the Question 120.21 analysis of the employee’s enrollment in the plan. Specifically, the instruction for the fund-switching transaction must satisfy the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A) and all conditions of Rule 10b5-1(c)(1)(ii)(B)-(C) applicable to the person. See Securities Act Release No. 11138 at fn. 120. [Apr. 25, 2025] [Comparison to prior version]

Question 120.23

Question: Could fund-switching transactions under the 401(k) plan described in Question 120.21 be considered "corresponding or hedging transactions" within the meaning of Rule 10b5-1(c)(1)(i)(C) with respect to payroll deduction purchases under the 401(k) plan?

Answer: Possibly, depending upon the facts and circumstances. Rule 10b5-1(c)(1)(i)(C) requires, as a condition to the exemption, that the purchase or sale be pursuant to the contract, instruction, or plan. The rule provides that a purchase or sale is not "pursuant to a contract, instruction, or plan" if, among other things, the person entered into or altered a corresponding or hedging transaction or position with respect to those securities.

As a general matter, a fund-switching transaction that effects a sale could be a corresponding or hedging transaction under Rule 10b5-1(c)(1)(i)(C) with respect to a payroll deduction purchase under the 401(k) plan. If, however, the instruction for the fund-switching transaction satisfies the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A), and all conditions of Rule 10b5-1(c)(1)(B)-(C) applicable to the person, the fund-switching transaction would not disturb the Rule 10b5-1(c)(1) defense for a payroll deduction purchase under the 401(k) plan. [Apr. 25, 2025] [Comparison to prior version]

Question 120.24

Question: Under applicable state law, an oral agreement would be considered a binding contract. Does the contract nevertheless need to be written to establish a defense under Rule 10b5-1(c)(1)?

Answer: No. The rule specifies when a writing is necessary to establish a defense. The rule does not require a binding contract (Rule 10b5-1(c)(1)(i)(A)(1)) or an instruction to another person (Rule 10b5-1(c)(1)(i)(A)(2)) to be written. In contrast, the rule requires a plan for trading securities (Rule 10b5-1(c)(1)(i)(A)(3)) and a formula, algorithm or computer program for determining amounts, prices and dates of transactions (Rule 10b5-1(c)(1)(i)(B)(2)) to be written. [Apr. 25, 2025] [Comparison to prior version]

Question 120.25

Question: Is the institutional defense provided by Rule 10b5-1(c)(2) available to the issuer of the securities for a repurchase plan?

Answer: Yes, assuming the conditions of that rule are satisfied. [Mar. 25, 2009]

Question 120.26

Question: When are companies required to begin providing the quarterly Item 408(a) disclosures and the annual Item 402(x) and Item 408(b) disclosures (Item 16J of Form 20-F disclosures for foreign private issuers) in periodic reports?

Answer: Release No. 33-11138 states that companies other than smaller reporting companies will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F “in the first filing that covers the first full fiscal period that begins on or after April 1, 2023.” Therefore, the following compliance dates apply:

December 31 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-Q for the period ended June 30, 2023, and should continue to be provided in the Form 10-Q for the period ended September 30, 2023 and the Form 10-K for the fiscal year ended December 31, 2023.
June 30 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2023.
December 31 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
June 30 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2024.

Smaller reporting companies must comply with these new disclosure and tagging requirements in the first filing that covers the first full fiscal period that begins on or after October 1, 2023. Therefore, the following compliance dates apply:

December 31 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2023.
June 30 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-Q for the period ended December 31, 2023.
December 31 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
June 30 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2025. [May 25, 2023]

Question 120.27

Question: When are companies required to begin providing the disclosures in proxy or information statements?

Answer: For transition purposes only, companies other than smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after April 1, 2023. Smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after October 1, 2023.[May 25, 2023]

Question 120.28

Question: The Rule 10b5-1(c) affirmative defense generally is not available if a person has multiple Rule 10b5-1 contracts, instructions, or plans in place. However, Rule 10b5-1(c)(1)(ii)(D)(2) permits a person (other than the issuer) to maintain two separate Rule 10b5-1 plans at the same time so long as trading pursuant to the later-commencing plan is not authorized to begin until after all trades under the earlier-commencing plan are completed or have expired without execution. If an individual terminates the earlier-commencing plan (i.e., the earlier-commencing plan does not end by its terms and without any action by the individual), when can trading begin under the later-commencing plan?

Answer: Pursuant to Rule 10b5-1(c)(1)(ii)(D)(2), if an individual terminates the earlier-commencing plan, the later-commencing plan will be subject to an “effective cooling-off period.” The effective cooling-off period will begin on the termination date of the earlier-commencing plan and will last for the time period specified in Rule 10b5-1(c)(1)(ii)(B). On the other hand, if the earlier-commencing plan ends by its terms without action by the individual, the cooling-off period for the later-commencing plan is not reset and trading may begin as soon as the plan’s original cooling-off period is satisfied. Depending on when the later-commencing plan was adopted, this could be as soon as immediately after the earlier-commencing plan ends. See Footnote 180 of Release No. 33-11138.[May 25, 2023]

Question 120.29

Question: Under Rule 10b5-1(c)(1)(ii)(B)(1), the required cooling-off period for directors and officers subject to Exchange Act Section 16 reporting is the later of 90 days after the adoption of the contract, instruction, or plan or “[t]wo business days following the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the completed fiscal quarter in which the plan was adopted.” Does the filing date count as the first business day for the purposes of the Rule 10b5-1(c)(1)(ii)(B)(1) required cooling-off period?

Answer: No. For purposes of the cooling-off period specified in Rule 10b5-1(c)(1)(ii)(B)(1), the date of disclosure of the issuer’s financial results is the filing date of the relevant Form 10-Q or Form 10-K, and the first business day would be the next business day that follows the filing date. To determine the filing date of the relevant form, refer to Rule 13(a)(2) of Regulation S-T. For example, if the relevant form is filed on a Monday, trading may commence under the contract, instruction, or plan on Thursday (assuming no intervening Federal holidays). In addition, whether a form is filed before or after trading opens on a given day has no bearing on the calculation. [August 25, 2023]

Question 120.30

Question: Under a 401(k) plan, an issuer advances cash to the plan administrator who purchases stock in the open market to make matching grants of the issuer’s common stock to plan participants. If a participant relies on Rule 10b5-1 to participate in the 401(k) plan, would the Rule 10b5-1 affirmative defense be available to the participant for a concurrent plan for purchases or sales on the open market?

Answer: Yes. Even though participants elect how much to contribute to their individual 401(k) accounts, an open-market transaction conducted at the direction of the plan administrator, and not at the direction of the plan participant, to match a contribution by the participant with employer stock would not be an overlapping plan for purposes of Rule 10b5-1(c)(1)(ii)(D) that would disqualify a plan participant’s reliance on Rule 10b5-1 for a concurrent open market trading plan. [August 25, 2023]

Question 120.31

Question: Does the Rule 10b5-1(c) check box on Form 4 for securities transactions made pursuant to a Rule 10b5-1 trading plan apply to trading plans that were adopted prior to the effective date of the amendments to Rule 10b5-1?

Answer: No. The Rule 10b5-1 check box on Form 4 applies to transactions that are made pursuant to a contract, instruction, or written plan for the purchase or sale of equity securities of the issuer that is intended to satisfy the affirmative defense conditions of amended Rule 10b5-1(c). See Release No. 33-11138 (Dec. 14, 2022). [August 25, 2023]

Question 120.32

Question: A company sponsors a 401(k) plan that permits both employer and employee contributions to be invested through a self-directed “brokerage window.” How are purchases and sales of issuer securities through the 401(k) plan pursuant to such a self-directed “brokerage window” treated for purposes of Rule 10b5-1(c)(1)?

Answer: Because the counterparty to the self-directed “brokerage window” transaction will be an open market participant, the instruction for any self-directed “brokerage window” transaction will need to satisfy all conditions of Rule 10b5-1(c)(1), including those applicable to purchases and sales of the issuer’s securities on the open market. [Apr. 25, 2025]

Question 120.33

Question: Rule 10b5-1(c)(1)(ii)(D) provides that an individual claiming the Rule 10b5-1(c) affirmative defense to insider trading may not have multiple Rule 10b5-1 plans that provide for purchases or sales of issuer securities on the open market. Rule 10b5-1(c)(1)(ii)(D)(3) provides an exception for an eligible sell-to-cover transaction. An eligible sell-to-cover transaction is a contract, instruction, or plan that authorizes an agent to sell only such securities as are necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation rights, where the insider does not otherwise exercise control over the timing of such sales. Does “necessary to satisfy tax withholding obligations” refer to the minimum tax withholding obligation imposed under the applicable tax rules, or to tax withholding payments calculated to satisfy the employee or director’s expected effective tax obligation with respect to the vesting transaction?

Answer: For purposes of Rule 10b5-1(c)(1)(ii)(D)(3), “necessary to satisfy tax withholding obligations” refers to tax withholding payments that are calculated in good faith to satisfy the employee or director’s expected effective tax obligation solely with respect to the vesting transaction, consistent with applicable tax law and accounting rules. [Apr. 25, 2025]

Section 121. Rule 12a-5

Question 121.01

Question: Does Rule 12a-5 provide an exemption from registration for “poison pill” rights under stockholder rights plans?

Answer: No. “Poison pill” rights issuable under stockholder rights plans are not the type of rights contemplated by Rule 12a-5, which provides a temporary exemption from registration for substituted or additional securities to allow when-issued trading. [September 30, 2008]

Sections 121A to 121F. [Reserved]

Section 121G. Requirements Under Section 10C: Rule 10C-1 ? Listing standards relating to compensation committees

None

Section 121H. Requirements Under Section 10D: Rule 10D-1 ? Listing standards relating to recovery of erroneously awarded compensation

Question 121H.01

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 27, 2023]

Question 121H.02

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item 6.F of Form 20-F must be provided?

Answer: Item 6.F of Form 20-F provides for individualized disclosure for an issuer’s named executive officers. Foreign private issuers that file on domestic forms and provide executive compensation disclosure under Item 402 of Regulation S-K should provide individualized disclosure for their named executive officers to the extent required by Form 20-F. For foreign private issuers that use Form 20-F, individualized disclosure is required about members of their administrative, supervisory, or management bodies for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 121H.03

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item B.(19) of Form 40-F must be provided?

Answer: Item B.(19) of Form 40-F provides for individualized disclosure for an issuer’s named executive officers. Such individualized disclosure is required about executive officers for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 121H.04

Question: Because the clawback rule applies broadly to incentive-based compensation, would the rules affect compensation that is in any sort of plan, other than tax-qualified retirement plans, including long term disability, life insurance, SERPs, or any other compensation that is based on the incentive-based compensation?

Answer: The rule is intended to apply broadly. For plans that take into account incentive-based compensation, an issuer would be expected to claw back the amount contributed to the notional account based on erroneously awarded incentive-based compensation and any earnings accrued to date on that notional amount. [January 27, 2023]

Sections 122 to 129. [Reserved]

Sections 130 to 139. Regulation 12B: Rules 12b-1 to 12b-37

Section 130. Rule 12b-2

Question 130.01

Question: A condition for meeting the definitions of “accelerated filer” and “large accelerated filer” in Rule 12b-2 is that the issuer must have been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least “twelve calendar months” as of the end of its fiscal year. What is a “calendar month” for purposes of the definitions of “accelerated filer” and “large accelerated filer”?

Answer: The term “calendar month” under Rule 12b-2 is interpreted in a manner consistent with the term “calendar month” in determining Form S-3 eligibility. In both cases, a “calendar month” begins on the first day of the month and ends on the last day of that month. For example, if an issuer became subject to the requirements of Section 13(a) on January 15 and remains subject to Section 13(a) through the end of the year, it will have been subject to the requirements of Section 13(a) for eleven “calendar months” as of December 31. [September 30, 2008]

Question 130.02

Question: Can an issuer that submits Exchange Act reports on a voluntary basis satisfy the definitions of “accelerated filer” or “large accelerated filer” in Rule 12b-2?

Answer: No. Rule 12b-2 requires that an accelerated filer or large accelerated filer be “subject to” the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. A voluntary filer is not “subject to” Section 13(a) or 15(d) of the Exchange Act because it is not obligated to file Exchange Act reports pursuant to either of those provisions. [September 30, 2008]

Question 130.03

Question: For purposes of determining “accelerated filer” and “large accelerated filer” status, may an issuer take into account its reporting history as a voluntary filer?

Answer: No. The reporting history of an issuer while it was a voluntary filer is not considered part of the “twelve calendar months” during which the issuer must have been subject to the reporting provisions of the Exchange Act. As discussed in Question 130.02, voluntary filers submit Exchange Act reports without being obligated to do so pursuant to Section 13(a) or 15(d) of the Exchange Act. As such, these filers do not meet the requirement that they be “subject to” Section 13(a) or 15(d) of the Exchange Act, which is among the criteria for meeting Rule 12b-2’s definitions of “accelerated filer” and “large accelerated filer.” [September 30, 2008]

Question 130.04

[Withdrawn, November 7, 2018]

Question 130.05

Question: An issuer is a smaller reporting company under the revenue test in paragraph (2) or (3)(iii)(B) of the “smaller reporting company” definition in Rule 12b-2. On the last business day of its second fiscal quarter of 2025, the issuer conducts its annual determination of smaller reporting company status and determines that it no longer qualifies as a smaller reporting company. When the issuer assesses its accelerated filer or large accelerated filer status, as of the end of fiscal year 2025, will this issuer become an accelerated filer or large accelerated filer?

Answer: No. When determining its accelerated filer or large accelerated filer status as of the end of its fiscal year, the issuer must assess, among other things, whether it is “eligible to use the requirements for smaller reporting companies under the revenue test in paragraph (2) or (3)(iii)(B) of the ‘smaller reporting company’ definition” in Rule 12b-2. See paragraph (1)(iv) of the definition of “accelerated filer” and paragraph (2)(iv) of the definition of “large accelerated filer” in Rule 12b-2. In this case, the issuer would be eligible to continue to use the requirements for smaller reporting companies through the end of fiscal year 2025 and until its Form 10-Q for the first fiscal quarter of 2026. See paragraph (3)(i)(C) of the definition of “smaller reporting company” in Rule 12b-2. Accordingly, the issuer would not satisfy the condition in paragraph (1)(iv) of the definition of “accelerated filer” or paragraph (2)(iv) of the definition of “large accelerated filer” as of the end of fiscal year 2025. The issuer would be a non-accelerated filer for filings due in fiscal year 2026 and would be ineligible to use the requirements for smaller reporting companies beginning with its Form 10-Q for the first fiscal quarter of 2026. [August 27, 2025]

Sections 131 to 132. [Reserved]

Section 133. Rule 12b-15

Question 133.01

Question: When a registrant is amending multiple Exchange Act reports at the same time, may it do so in a single filing?

Answer: No. Where several Exchange Act reports are being amended at the same time, the amendments should not be made in a single filing. Amendments should be filed separately for each Exchange Act report to be amended. [September 30, 2008]

Question 133.02

Question: Is it necessary for a majority of the board of directors of the registrant to sign an amendment to a Form 10-K?

Answer: No. An amendment to Form 10-K does not require signatures of the majority of the board of directors. Rule 12b-15 provides that amendments may be signed by a duly authorized representative of the registrant. [September 30, 2008]

Section 134. Rule 12b-23

Question 134.01

Question: May an issuer incorporate by reference into its own Exchange Act documents information contained in the filed documents of another issuer?

Answer: Yes. Within the guidelines specified by Rule 12b-23, an issuer may incorporate by reference into its own Exchange Act documents any information contained in the filed documents of another issuer. [September 30, 2008]

Section 135. Rule 12b-25

Question 135.01

Question: Is Rule 12b-25(b) available to a parent with respect to a subsidiary whose financial statements are to be filed by amendment to the parent’s Form 10-K under Rule 3-09 of Regulation S-X?

Answer: Paragraph (f) of Rule 12b-25 excludes from the operation of the rule a company with a subsidiary whose financial statements are to be filed by amendment to the company’s Form 10-K, as provided in Rule 3-09 of Regulation S-X. However, in cases in which the subsidiary under Rule 3-09: (1) is less than 50% owned, (2) is itself a reporting company, and (3) will be filing its financial statements late and is itself eligible to use Rule 12b-25 for an extension, the Division staff will construe Rule 12b-25(b) to be available to the parent with respect to the subsidiary’s filing. [September 30, 2008]

Question 135.02

Question: Is a company required to file a Form 12b-25 even when it anticipates filing a periodic report after the Rule 12b-25 extension period?

Answer: Yes. Under Rule 12b-25(a), a company must file a Form 12b-25 for a periodic report that is filed after the due date regardless of whether it anticipates filing the periodic report within the extension period. See Exchange Act Release No. 16718 (Apr. 2, 1980). If the company does not anticipate filing the periodic report within the extension period, it should not check the box in Part II of Form 12b-25. [September 30, 2008]

Question 135.03

Question: What is the due date of a Form 12b-25 when the due date of the periodic report falls on a Saturday, Sunday or federal holiday?

Answer: Rule 12b-25 provides that an annual or quarterly report shall be deemed timely filed if a Form 12b-25 making certain specified representations is filed no later than one business day after the due date of the annual or quarterly report, and the report itself is filed no later than fifteen or five calendar days, respectively, after the due date. Rule 0-3 under the Exchange Act provides that when the due date of a report falls on a Saturday, Sunday or holiday, the report will be considered timely filed if it is filed on the first business day following the due date. If a report is due on a Saturday, Sunday or holiday, the issuer can timely file a Form 12b-25 on the second business day following the due date and timely file the report fifteen calendar days (annual report) or five calendar days (quarterly report) after the first business day following the due date. For example, where the due date for a Form 10-K is Sunday, March 31, the Form 10-K would be due on Monday, April 1 and the Form 12b-25 would be timely if filed on Tuesday, April 2. The Form 10-K would then be due for filing on Tuesday, April 16 (15 days after April 1, not 15 days after April 2). [September 30, 2008]

Question 135.04

Question: If the Rule 12b-25 extension period ends on a Saturday, Sunday or federal holiday, may the periodic report be filed on the next business day and still be deemed to have been timely filed?

Answer: Yes. If a registrant properly files a Form 12b-25 with respect to a periodic report, and the Rule 12b-25 extension period for the filing of the periodic report ends on a Saturday, Sunday or federal holiday, the periodic report will be deemed to have been filed within the Rule 12b-25 extension period if the registrant files the periodic report by the next business day, consistent with Exchange Act Rule 0-3. [September 30, 2008]

Question 135.05

Question: Are there any additional extensions for the timely filing of periodic reports beyond those provided in Rule 12b-25?

Answer: No. Pursuant to Rule 12b-25, there are no additional extensions of time beyond the 15 calendar days for annual reports and the 5 calendar days for quarterly reports. [September 30, 2008]

Question 135.06

Question: May a company continue to use a registration statement that is predicated on timely filed reports (such as Form S-3) during the Rule 12b-25 extension period for a periodic report?

Answer: Rule 12b-25(d) provides that, during the extension period, a company “will not be eligible to use any registration statement form under the Securities Act the use of which is predicated on timely filed reports until the subject report is actually filed.” The staff interprets the term “use” contained in the rule to mean that a company would not be eligible to file a new registration statement on Form S-3 until the subject report is filed within the extension period. The staff does not interpret the term to mean that the company cannot continue to use an already effective Form S-3 to make offers and sales during the extension period. Rather, the company’s ability to continue to make such offers or sales will depend on whether it determines that the prospectus included in the Form S-3 is a valid Section 10(a) prospectus and there are no Section 12(a)(2) or anti-fraud concerns with the prospectus. If the company determines that it does not have a valid Section 10(a) prospectus, it should cease making any offers or sales under the registration statement that includes that prospectus. [September 30, 2008]

Question 135.07

Question: A registrant has failed to file its Form 10-K. May the registrant continue to use an effective Form S-3, which is predicated on timely filed reports, after expiration of the Rule 12b-25 extension period relating to the Form 10-K, but before the date on which the registrant is required to update the registration statement under Section 10(a)(3) of the Securities Act?

Answer: If the registrant has not filed a Form 10-K after the Rule 12b-25 extension period has run, and the registrant is not yet required to update the registration statement under Section 10(a)(3) of the Securities Act, the registrant’s ability to make offers and sales will depend on whether the company determines that the prospectus included in the Form S-3 is a valid Section 10(a) prospectus and there are no Section 12(a)(2) or anti-fraud concerns with the prospectus.

After the registrant files the Form 10-K, however, all offers and sales under the registration statement must cease. This is because the Form 10-K serves as the Section 10(a)(3) update to the Form S-3, as provided in the undertakings in Item 512 of Regulation S-K. Further, for purposes of Rule 401(b) under the Securities Act, the filing of the Form 10-K constitutes a post-effective amendment to the Form S-3. Therefore, the registrant would not satisfy General Instruction I.A.3 to Form S-3 at the time of its Section 10(a)(3) update because, while the company may be “current” in its Exchange Act reporting at that time, it would not be “timely” in that reporting for the twelve calendar months preceding the filing of the Section 10(a)(3) update. Therefore, in order to resume making sales under the effective registration statement, the company would have to file (and have declared effective) a post-effective amendment on whatever form the company is eligible to use for that offering at that time. [September 30, 2008]

Question 135.08

Question: When the conditions of Rule 144(c)(1) must be satisfied in selling securities under the Rule 144 safe harbor, may sales continue during the Rule 12b-25 extension period?

Answer: There is a risk in selling under Rule 144 during the 5-day or 15-day period following the filing of the Form 12b-25 because, if the missing report or portion thereof is not filed during that period, the issuer may be deemed not current until it is filed. [September 30, 2008]

Question 135.09

Question: May an issuer rely on Rule 12b-25 for an extension to file a special financial report under Rule 15d-2?

Answer: Yes. Rule 12b-25 is available to registrants filing special financial reports under Rule 15d-2. [September 30, 2008]

Question 135.10

Question: Can Rule 12b-25 be used to extend the due date for timely filing of information incorporated by reference from definitive proxy materials into Item III of Form 10-K?

Answer: No. General Instruction G.(3) to Form 10-K permits a reporting issuer subject to the proxy rules to omit Part III information concerning management and its compensation from the Form 10-K, if the information omitted from Part III is disclosed in the issuer’s proxy statement and if the proxy statement is filed with the Commission no later than 120 days from the end of the fiscal year. In other words, the instruction permits forward incorporation by reference of the proxy statement into the already filed Form 10-K.

The effect of the instruction is to deem the Part III information to have been timely filed on the due date applicable to the Form 10-K. The effect is not to constitute the 120th day as a second due date for the Part III information.

As a result, Rule 12b-25 cannot be used to extend the time available for satisfying Part III’s line-items by incorporating the proxy statement. The Form 10-K must be amended by the 120th day to disclose the Part III information if the definitive proxy statement has not been filed, as stated in the general instruction. The proxy statement still must be filed independently to comply with Rule 14a-6.

If a filer does not file its proxy statement or amend its Form 10-K within 120 days, it would be considered an untimely filer. Thus, the company would be eligible to use Form S-3 only after it subsequently filed its Exchange Act reports on a timely basis for 12 calendar months after the original Form 10-K due date. [September 30, 2008]

Question 135.11

Question: Can a filer rely on Exchange Act Rule 12b-25 to extend the due date of an Interactive Data File?

Answer: No. Rule 12b-25 has been amended to state that its provisions do not apply to Interactive Data Files. Filers that are unable to submit or post Interactive Data Files when required must comply with the hardship exemption requirements of either Rule 201 (temporary hardship exemption) or Rule 202 (continuing hardship exemption) of Regulation S-T. However, filers that are unable to file their traditional format financial statements by the prescribed due date — but qualify for the additional time permitted under Rule 12b-25 and file their traditional format financial statements within that time — would not be required to submit and post their interactive data until the traditional format financial statements are filed. [May 29, 2009]

Question 135.12

Question: A registrant expects that due to COVID-19 it will be unable to file a report of the type covered by Rule 12b-25 on a timely basis without incurring an unreasonable effort or expense. It is uncertain as to its ability to file the required report within the applicable Rule 12b-25(b)(2)(ii) period. Should the registrant instead furnish a report on Form 8-K or 6-K, as applicable, relying on the COVID-19 Order (Release No. 34-88465 (March 25, 2020))?

Answer: Yes. As a condition to its use, the COVID-19 Order requires, among other things, that the registrant furnish certain specified statements by the later of March 16, 2020 or the original due date of the required report. If the registrant only files a Form 12b-25 by the original due date of the required report, it will have not met the condition of the COVID-19 Order to provide the statements called for by the original filing deadline on a furnished Form 8-K or Form 6-K. Unless this condition is met, the 45 day relief period provided in COVID-19 Order will not be available. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]

Question 135.13

Question: Can a registrant that filed a Form 12b-25 subsequently rely on the COVID-19 Order (Release No. 34-88465 (March 25, 2020)), to extend the filing deadline for the subject report?

Answer: The COVID-19 Order is conditioned on a registrant having furnished a Form 8-K or Form 6-K by the later of March 16, 2020 or the original due date of the report. A Form 12b-25 filing does not extend the original due date of a report. Therefore, unless a registrant that filed a Form 12b-25 also furnished a Form 8-K or Form 6-K by March 16, 2020 or the original due date of the report, it would not be able to rely on the COVID-19 Order.

On the other hand, a registrant that relies on the COVID Order for a report will be considered to have a due date 45 days after the original filing deadline for the report. As such, the registrant would be permitted to subsequently rely on Rule 12b-25 if it is unable to file the report on or before the extended due date. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]

Sections 136 to 139. [Reserved]

Sections 140 to 149. Regulation 12d1; Regulation 12d2

Sections 140 to 143. [Reserved]

Section 144. Rule 12d2-2

Question 144.01

Question: For a class of securities that is being delisted from a national securities exchange, may a Form 15 be filed with respect to that class of securities before the effective date of the delisting pursuant to a Form 25?

Answer: No. The effective date of a Form 25 for the delisting of an issuer’s securities may not be earlier than 10 days following the date on which such form is filed with the Commission. A Form 15 with respect to the class of securities being delisted may not be filed prior to the effective date of the Form 25 for the delisting since the reporting obligations pursuant to Sections 12(g) and 15(d) remain suspended until that date. [September 30, 2008]

Question 144.02

Question: After its Form 25 is effective for the delisting of a class of securities from a national securities exchange (and assuming that the same class of securities is not listed on any other national securities exchange), a registrant files a Form 15 with respect to the Section 12(g) registration and/or Section 15(d) reporting obligation relating to the same class of securities. What Exchange Act filings must the registrant make after it files the Form 15?

Answer: In this case, a registrant would not have to file Section 13(a) reports during the period after the filing of the Form 15 through the effectiveness of the termination of the Section 12(g) registration and/or Section 15(d) reporting obligation, notwithstanding Rules 12d2-2(d)(6) and (7), if the company would not otherwise be required to file Exchange Act reports under Sections 13(a) or 15(d) of the Exchange Act. [September 30, 2008]

Question 144.03

Question: An issuer files a Form 25 to delist a class of securities from a national securities exchange and to terminate the Section 12(b) registration of that class. After filing the Form 25, the issuer files a Form 12b-25 with respect to a periodic report that is due between the date it filed the Form 25 and the effective date for the delisting under Rule 12d2-2(d)(1). The date by which the periodic report must be filed pursuant to Rule 12b-25(b)(3) falls after the effective date of the delisting. The issuer is not otherwise required to file Exchange Act reports under Sections 13(a) or 15(d) of the Exchange Act after the effective date of the delisting. Must the issuer file the periodic report?

Answer: Yes. Rule 12d2-2(d)(5) specifies that the issuer’s duty to file any reports under Section 13(a) solely because of registration pursuant to Section 12(b) is suspended only when the Form 25 is effective for the delisting. Therefore, an issuer may not look to Rule 12b-25 to avoid filing a periodic report that becomes due after the filing of the Form 25 but before the effectiveness of the delisting. [September 30, 2008]

Question 144.04

Question: An issuer files a Form 25 to delist a class of securities from a national securities exchange and to terminate the Section 12(b) registration of that class. The issuer is not otherwise required to file Exchange Act reports under Section 13(a) or 15(d) of the Exchange Act after the effective date of the delisting. Between the date of filing the Form 25 and the effective date of the delisting under Rule 12d2-2(d)(1), a periodic report becomes due. Assume that the due date of the periodic report is a Saturday, Sunday or federal holiday, and the effective date of the delisting occurs on the first business day following that due date. Must the issuer file the periodic report?

Answer: Yes. Rule 12d2-2(d)(5) specifies that the issuer’s duty to file any reports under Section 13(a) solely because of registration pursuant to Section 12(b) will be suspended upon the effective date of the delisting. An issuer may not look to Exchange Act Rule 0-3(a) to avoid filing the periodic report in the event that the due date of the periodic report falls on a Saturday, Sunday or federal holiday and the effective date of the delisting occurs on the first business day following that due date. [September 30, 2008]

Sections 145 to 149. [Reserved]

Sections 150 to 159. Extensions and Temporary Exemptions; Definitions: Rules 12g-1 to 12h-6

Section 150. Rule 12g-3

Question 150.01

Question: Under Exchange Act Rule 12g-3, must a Form 8-A, or any other form, be filed in order for the securities of a successor issuer to be deemed registered under Section 12?

Answer: No. Rule 12g-3 provides for the registration of the securities of successor issuers under the Exchange Act. The securities of a successor issuer described in Rule 12g-3 are deemed to be registered under Section 12 by operation of law, and no Exchange Act registration statement on Form 8-A or any other form therefore need be filed. Under Rule 12g-3(f), the successor must file a Form 8-K with respect to the succession transaction, using the predecessor’s file number. After the Form 8-K is filed, a new file number will be generated for the successor company. When two reporting companies consolidate, each of the predecessor companies should file a Form 15 in connection with the succession. [September 30, 2008]

Question 150.02

Question: What filings should a non-reporting foreign private issuer make when it succeeds to the reporting obligation of an issuer under Exchange Act Rule 12g-3? For example, if a non-reporting foreign private issuer acquires a reporting foreign private issuer using shares as consideration in a transaction exempt from registration under the Securities Act (such as under Section 3(a)(10)), how should the non-reporting foreign private issuer begin filing on EDGAR?

Answer: The foreign private issuer's initial filing to evidence the succession should be a Form 6-K announcing the succession, filed on EDGAR using the 8-K submission type that is appropriate to the specific transaction. Thereafter, the issuer should make all other Exchange Act filings as appropriate. [December 8, 2016]

Section 151. Rule 12g-4

Question 151.01

Question: An issuer files a Form 12b-25 in connection with a periodic report, and then files a Form 15 under Rule 12g-4 during the Rule 12b-25 extension period. Is an issuer nonetheless required to file the periodic report in this situation?

Answer: Yes. An issuer which files a Form 12b-25 for an extension of the period for filing a periodic report, and subsequently files a Form 15 under Rule 12g-4 prior to the expiration of the extension, would still be required to file the periodic report. Rule 12g-4 does not suspend an obligation to file a Form 10-K or Form 10-Q when either form was due before the Form 15 was filed. [September 30, 2008]

Question 151.02

Question: When does Rule 12g-4 suspend an issuer’s Section 13(a) and Section 14(a) reporting obligations?

Answer: The filing of a certification on Form 15 pursuant to Rule 12g-4 immediately suspends an issuer’s obligation to file periodic reports pursuant to Section 13(a), but the issuer’s obligations under Section 14(a) continue until the effective date of the issuer’s Section 12(g) deregistration. Rule 12g-4 affects only Section 13(a) reporting requirements that arise from Section 12(g) registration and does not affect any reporting requirement under Section 15(d) of the Exchange Act that may become operative in connection with the termination of Section 12(g) registration. [September 30, 2008]

Question 151.03

Question: A registrant with a calendar year end has less than 300 holders of record as of February 15 and files a Form 15 to terminate its Section 12(g) obligations under Rule 12g-4 before the due date of the Form 10-K for the most recently completed fiscal year. Assuming the registrant had more than 300 holders of record as of January 1, the registrant then has a Section 15(d) obligation that revives because it had an effective Form S-3 and Form S-8 that were updated during the registrant’s last fiscal year by virtue of the filing and incorporation by reference of a Form 10-K into the Form S-3 and Form S-8. How can the registrant suspend its Section 15(d) obligation on a going forward basis?

Answer: The registrant can suspend the Section 15(d) obligation on a going forward basis provided: (1) the registrant first files post-effective amendments to the Form S-3 and Form S-8 to terminate those offerings; (2) those post-effective amendments become effective before the registrant files a Form 10-K for the last fiscal year; and (3) all of the applicable conditions in Rule 12h-3 are met. The registrant would still need to file a Form 10-K for the last fiscal year because the Form S-3 and Form S-8 were updated that year. [September 30, 2008]

Question 151.04

Question: A company has filed a Form 25 which will become automatically effective on a Sunday. Once the Form 25 is effective the company may file a Form 15 which will immediately suspend its Exchange Act reporting obligations. The company’s next Form 10-Q is due on the same Sunday the Form 25 will become effective. If the company files the Form 15 on the next business day, is it required to file the Form 10-Q?

Answer: No. [Apr. 24, 2009]

Section 152. Rule 12g5-1

Question 152.01

Question: How is the number of record holders determined under Rule 12g5-1?

Answer: Rule 12g5-1 defines “held of record” for purposes of Exchange Act Section 12(g) and 15(d). It is the counting rule for determining whether an issuer has sufficient security holders to become or remain subject to Section 12(g) and to remain subject to Section 15(d). Rule 12g5-1(a)(3) provides a special counting method for securities held in a custodial capacity for a single trust, estate or account. In such a case, each trust, estate or account is a distinct holder of record for purposes of Sections 12(g) and 15(d). Institutional custodians, such as Cede & Co. and other commercial depositories, are not single holders of record for purposes of the Exchange Act’s registration and periodic reporting provisions. Instead, each of the depository’s accounts for which the securities are held is a single record holder.

In contrast, securities held in street name by a broker-dealer are held of record under the rule only by the broker-dealer. The Commission originally proposed a version of the rule that would have looked through to the beneficial owners of the street-name securities, but adopted the rule in a form that does not produce this result. [September 30, 2008]

Section 153. Rule 12h-3

Question 153.01

Question: Section 15(d) of the Exchange Act provides an automatic suspension of the periodic reporting obligation as to any fiscal year (except for the fiscal year in which the registration statement became effective) if an issuer has fewer than 300 security holders of record at the beginning of such fiscal year. In contrast, Rule 12h-3 permits a company to suspend its reporting obligation under Section 15(d) if the requirements of the rule are met at any time during the fiscal year. Is a Form 15 required to be filed under Rule 12h-3 as a condition of the suspension?

Answer: Because situations exempted by Rule 12h-3 (e.g., there are fewer than 300 security holders of record in the middle of a fiscal year) do not meet the literal test of Section 15(d), Rule 12h-3 requires the filing of Form 15 as a condition of the suspension. By contrast, under Rule 15d-6, if an issuer has fewer than 300 security holders of record at the beginning of the fiscal year, a Form 15 should be filed to notify the Commission of such suspension, but the suspension is granted by statute and is not contingent on filing the Form 15. [September 30, 2008]

Question 153.02

Question: A company’s obligation to file periodic reports was automatically suspended under Section 15(d) for fiscal year 2007 because the class of securities at issue was held by less than 300 record holders on the first day of the company’s fiscal year. Subsequently, on the first day of fiscal year 2010, the number of record holders exceeded 300, and as a result, the company’s obligation to file periodic reports under section 15(d) “revived.” What is the first report due for this company?

Answer: The first report due will be a Form 10-K for the previous fiscal year (fiscal year 2009). This position is consistent with the “look back” provision of Rule 12h-3(e), which provides that a company that suspends its reporting obligation under Rule 12h-3, but subsequently has that reporting obligation “revived,” must begin reporting again under Section 15(d) by filing a Form 10-K for its previous fiscal year. Similarly, a company that must file a registration statement on Form 10 to register a class of securities under Section 12(g) must include financial statements for its previous fiscal year. [September 30, 2008]

Question 153.03

Question: Can a company suspend its reporting obligations under Section 15(d) with respect to “the fiscal year within which such registration statement became effective”?

Answer: No. A company must always file the Form 10-K for the fiscal year in which the registration statement is declared effective. The Form 10- K is required regardless of whether the company suspends its reporting obligation under Section 15(d) or Rule 12h-3. [September 30, 2008]

Section 154. Rule 12h-5

Question 154.01

Question: When must a parent company’s full and unconditional guarantee be in effect in order for the parent’s subsidiary to be exempt from the requirements of Section 13(a) or 15(d) pursuant to Exchange Act Rule 12h-5?

Answer: In order for the subsidiary to be exempt from filing a periodic report pursuant to Rule 12h-5, the full and unconditional parent guarantee of the subsidiary’s debt securities must be in effect before the end of the period that would have been covered by the periodic report, assuming that all other applicable conditions of Rule 3-10 of Regulation S-X are met. [September 30, 2008]

Section 155. Rule 12h-6

Question 155.01

Question: For purposes of applying the primary trading market definition under Rule 12h-6(f)(5), may an issuer consider all securities trading markets in countries that are part of the European Union as a single foreign jurisdiction?

Answer: Yes, because the capital markets within the European Union have become more integrated as a result of application of EU-wide laws and regulations relating to prospectuses, transparency, trading and other matters. [December 8, 2016]

Sections 156 to 159. [Reserved]

Sections 160 to 164. Regulation 13A: Rules 13a-1 to 13a-20

Section 160. Rule 13a-1

Question 160.01

Question: If a registrant with a December 31 fiscal year-end files a Form 10 in November 2007 which goes effective in January 2008, what is the first Form 10-K that the registrant is required to file?

Answer: The registrant’s first Form 10-K should be filed with respect to its fiscal year ended December 31, 2007. [September 30, 2008]

Section 161. Rule 13a-14

Question 161.01

Question: May the principal executive officer and principal financial officer of an issuer omit certain paragraphs from the certifications required by Rules 13a-14(a) and 15d-14(a) when the issuer is filing an amendment to a periodic report?

Answer: If there are no financial statements or other financial information in the amendment, then paragraph 3 may be omitted from the certifications that are filed with the amendment. If the amendment does not contain or amend disclosure pursuant to Item 307 or 308 of Regulation S-K (or the equivalent disclosure requirement in Form 20-F or 40-F), and such disclosure is not otherwise required to be amended given the nature of the reasons for the amendment, paragraphs 4 and 5 may be omitted from the certifications that are filed with the amendment. Paragraphs 1 and 2 may not be omitted under any circumstances. [September 30, 2008]

Question 161.02

Question: If an officer signs the certification without altering the wording to indicate he or she is providing the certification as principal financial officer, how will readers know whether the signatory is the principal executive officer or the principal financial officer?

Answer: The officer should include his or her title under the signature. [September 30, 2008]

Question 161.03

Question: If the same individual is both the principal executive officer and principal financial officer, must he or she sign two certifications?

Answer: The individual may provide one certification and provide both titles underneath the signature. [September 30, 2008]

Question 161.04

Question: A CEO resigned after the end of the quarter but before the filing of the upcoming Form 10-Q. The company appointed a new CEO prior to the filing. Who signs the certification?

Answer: The new CEO, provided that he or she is the principal executive officer at the time of the filing. [September 30, 2008]

Question 161.05

Question: A company’s CEO is resigning at the end of the year and is no longer performing the functions of a principal executive officer even though she remains employed with the company and has the title of the CEO. At the time of the filing of the periodic report, another officer is performing the functions of a principal executive officer. Should this other officer sign the certification despite the fact that there is a titular CEO?

Answer: The individual performing the functions of a principal executive officer at the time of the filing must provide the certification. If it is not the titular CEO, the company should disclose in the filing that the certifying individual is performing the functions of a principal executive officer. [September 30, 2008]

Question 161.06

Question: An issuer does not have a principal executive officer or a principal financial officer. Who must execute the certifications required by Rules 13a-14(a) and 15d-14(a)?

Answer: As set forth in paragraph (a) of Rules 13a-14 and 15d-14, where an issuer does not have a principal executive officer or a principal financial officer, the person or persons performing similar functions at the time of filing of the report must execute the required certification. [September 30, 2008]

Question 161.07

Question: Must co-principal executive officers (or co-principal financial officers) execute separate certifications or may both execute the same certification?

Answer: Co-principal executive officers (or co-principal financial officers) should each execute separate certifications. [September 30, 2008]

Question 161.08

Question: If the certifications required by Rules 13a-14(a) and 15d-14(a) are not included as exhibits to a Form 10-K or 10-Q, and an amendment will be filed to include the certifications as exhibits, must the entire periodic report be re-filed or can the amendment include only the signature page?

Answer: Because the certification relates to the entire Form 10-K or 10-Q, the amendment should include the entire report, not just the signature page. [September 30, 2008]

Question 161.09

Question: Using the same facts in Question 161.08 above, if the amendment is not filed within the time period required for the periodic report, is the report deemed to be untimely?

Answer: Yes. The periodic report will not be deemed timely for purposes of form eligibility, and the issuer will not be deemed current until the amended periodic report containing the certification is filed. [September 30, 2008]

Question 161.10

Question: Where the registrant is a limited partnership that does not have an audit committee, who should be considered the persons performing the equivalent function as referenced in paragraph 5 of the certifications required by Rules 13a-14(a) and 15d-14(a)?

Answer: This is a question of fact. Relevant considerations may include: who is responsible for engaging the external auditor and for pre-approving audit and non-audit services? To whom is the registered public accounting firm reporting critical accounting policies and practices? To whom are the principal executive and financial officers disclosing significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, or fraud involving management or other employees who have a significant role in the registrant’s internal control over financial reporting? Oftentimes, if there is ultimately a corporation serving as the general partner of a limited partner in the chain of ownership, the corporation’s audit committee or full board is likely performing the equivalent functions of an audit committee for the registrant. Or, if there is ultimately an individual serving as the general partner of a limited partner in the chain of ownership, then that individual is likely performing the equivalent functions of an audit committee for the registrant. [September 30, 2008]

Section 162. Rule 13a-15

Question 162.01

Question: The interactive data adopting release provides that controls and procedures with respect to interactive data fall within the scope of "disclosure controls and procedures." See Securities Act Release No. 9002 (Jan. 30, 2009). Exchange Act Rules 13a-15 and 15d-15 require certain officers to evaluate the effectiveness of the filer's disclosure controls and procedures, and Item 307 of Regulation S-K requires the filer to disclose the officers' conclusions regarding the effectiveness of those disclosure controls and procedures. However, the adopting release also adopts amendments to Exchange Act Rules 13a-14 and 15d-14 that exclude interactive data from officer certifications, which, among other things, describe the officers' responsibility for establishing and maintaining disclosure controls and procedures and require statements regarding their design and evaluation. Is a filer that submits interactive data in an exhibit to a Form 10-K or 10-Q required to consider controls and procedures with respect to interactive data in complying with Exchange Act Rules 13a-15 and 15d-15 and Item 307?

Answer: Yes. Controls and procedures with respect to interactive data fall within the scope of "disclosure controls and procedures." That the principal executive and financial officers do not need to consider such controls in making their individual certifications about their responsibility for establishing and maintaining the filer's disclosure controls and procedures does not mean that the filer can exclude such controls in complying with Rules 13a-15 and 15d-15 and Item 307 of Regulation S-K. [May 29, 2009]

Sections 163 to 164. [Reserved]

Sections 165 to 169. Regulation 14A: Rules 14a-1 to 14b-2

Sections 165 to 168 [Reserved]

Section 169. Rule 14a-21

Question 169.01

[Withdrawn, November 7, 2018]

Question 169.02

[Withdrawn, November 7, 2018]

Question 169.03

[Withdrawn, November 7, 2018]

Question 169.04

Question: Must the vote on say-on-frequency, as required by Rule 14a-21(b), be in the form of a "resolution"?

Answer: No. [Feb. 11, 2011]

Question 169.05

Question: Is it permissible for the say-on-pay vote to omit the words, "pursuant to Item 402 of Regulation S-K," and to replace such words with a plain English equivalent, such as "pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement"?

Answer: Yes, it is permissible to use a plain English equivalent in lieu of the words, "pursuant to Item 402 of Regulation S-K." [Feb. 11, 2011]

Question 169.06

Question: Is it permissible for the say-on-frequency vote to include the words "every year, every other year, or every three years, or abstain" in lieu of "every 1, 2, or 3 years, or abstain"?

Answer: Yes. [Feb. 11, 2011]

Question 169.07

Question: On its proxy card and voting instruction form, how should a company describe the advisory vote to approve executive compensation that is required by Exchange Act Rule 14a-21?

Answer: The following are examples of advisory vote descriptions that would be consistent with Rule 14a-21’s requirement for shareholders to be given an advisory vote to approve the compensation paid to a company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K.

To approve the company’s executive compensation
Advisory approval of the company’s executive compensation
Advisory resolution to approve executive compensation
Advisory vote to approve named executive officer compensation

The following is an example of an advisory vote description that would not be consistent with Rule 14a-21 because it is not clear from the description as to what shareholders are being asked to vote on. Shareholders could interpret this example as asking them to vote on whether or not the company should hold an advisory vote on executive compensation, rather than asking shareholders to actually approve, on an advisory basis, the compensation paid to the company’s named executive officers.

To hold an advisory vote on executive compensation

[Feb. 13, 2012]

Sections 170 to 179. Reports of Registrants Under the Securities Act of 1933: Rules 15d-1 to 15d-6

Section 170. Rule 15d-2

None

Section 171. Rule 15d-6

Question 171.01

Answer: No. Under Rule 15d-6, if an issuer has fewer than 300 security holders of record at the beginning of the fiscal year, a Form 15 should be filed to notify the Commission of such suspension, but the suspension is granted by statute and is not contingent on filing the Form 15. [September 30, 2008]

Sections 172 to 179. [Reserved]

Sections 180 to 189. Other Reports: Rules 15d-10 to 15g-100

Section 180. Rule 15d-10

None

Section 181. Rule 15d-14

Question 181.01

Question: Must an issuer that is filing or submitting reports exclusively under Section 15(d) of the Exchange Act on a “voluntary” basis (for example, pursuant to a covenant in an indenture or similar document), due to a statutory suspension of the Section 15(d) filing obligation, comply with Rules 15d-14 and 15d-15 and the disclosures required by Item 307 and Item 308 of Regulation S-K?

Answer: Yes. All issuers filing or submitting reports under Section 15(d) on a voluntary basis must comply with those provisions whether or not a Form 15 has been filed pursuant to Rule 15d-6. [September 30, 2008]

Section 182. Rule 15d-15

Question 182.01

Question 182.02

Section 183. Rule 15d-21

Question 183.01

Question: Is an employee benefit plan with a Section 15(d) reporting obligation that files Forms 11-K, or that has its filing obligation satisfied by compliance with Exchange Act Rule 15d-21, required to file any other current or periodic reports under the Exchange Act?

Answer: No. An employee benefit plan with a Section 15(d) reporting obligation that files Forms 11-K, or that has its filing obligation satisfied by compliance with Exchange Act Rule 15d-21, is not required to file any other periodic reports or any current reports. In the Citizens and Southern Corp. no-action letter (Feb. 8, 1988) issued by the Division, we state that, for a plan filing annual reports on Form 11-K, “no other reports required by Section 13 of the 1934 Act would be required.” [September 30, 2008]

Section 184. Rule 15g-9

None

Sections 185 to 189. [Reserved]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Sections 201 to 209. Rules of General Application: Rules 0-1 to 0-12

None

Sections 210 to 219. Definitions: Rules 3a11-1 to 3b-19

None

Section 220. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1

220.01 [Withdrawn Apr. 25, 2025] [Comparison to prior version]

220.02 A company sought to establish a stock repurchase plan that would comply with Rules 10b5-1(c)(1) and 10b-18. Most shares would be repurchased through open market transactions, but the company intended to negotiate repurchase of at least one large block of stock through a privately negotiated transaction. The company proposed that the plan provide for an automatic reduction in the aggregate number of shares authorized for repurchase under the plan equal to the number of shares, if any, that the company discloses in Form 10-Q, Part II, Item 2 that it has repurchased in privately negotiated transactions. The broker executing plan repurchases would review company filings to determine the amount of any such repurchases that had been disclosed. Because this would give the issuer the potential to effectively modify the plan by doing the block trades while aware of material nonpublic information, the Division staff took the view that the Rule 10b5-1(c)(1) affirmative defense would not be available. Question 120.14, which provides that delegation of discretion to a broker to reduce the number of shares to be sold under a trading plan to comply with the Rule 144(e) volume limitations, was distinguished because the reductions in Question 120.14 reflect limitations imposed by law rather than an exercise of discretion by the seller. [Apr. 25, 2025] [Comparison to prior version]

Section 221. Rule 12a-5

None

Sections 222 to 229. [Reserved]

Sections 230 to 239. Regulation 12B: Rules 12b-1 to 12b-37

Section 230. Rule 12b-2

230.01 If two accelerated filers or large accelerated filers merge and become subsidiaries of a newly formed holding company, that newly formed holding company will be deemed an accelerated or large accelerated filer, respectively. [September 30, 2008]

230.02 If a newly formed public company uses Form S-3 on the basis of another entity’s (e.g., its parent’s) reporting history and that other entity is an “accelerated filer,” then the newly formed public company is also deemed an accelerated filer. In such a case, the newly formed public company would not wait until the end of its fiscal year to determine its accelerated filer status. It must comply with the accelerated filer deadlines for its Forms 10-Q filed after its formation but prior to the filing of its first Form 10-K, and the company must check the box on the cover pages of these Forms 10-Q indicating that it is an accelerated filer. [September 30, 2008]

Sections 231 to 232. [Reserved]

Section 233. Rule 12b-15

None

Section 234. Rule 12b-23

234.01 Where a company is being acquired, the acquiring company may incorporate by reference the acquired company’s Form 10-K financial statements into the acquiring company’s Form 8-K, so long as copies of the pertinent pages of the Form 10-K are filed as an exhibit to the Form 8-K. The consent(s) of the accountant(s) for the acquired company should be filed with the Form 8-K. [September 30, 2008]

234.02 An issuer with a pending Securities Act registration statement files its Form 10-K and seeks to incorporate by reference into the Form 10-K information from the pending registration statement. This is permissible, provided two conditions are met: (1) the portion of the registration statement to be incorporated does not include any incorporation by reference to another document (see Item 10(d) of Regulation S-K), and (2) a copy of the incorporated portion of the registration statement is filed as an exhibit to the Form 10-K, as required by Rule 12b-23(a)(3) under the Exchange Act. [September 30, 2008]

Section 235. Rule 12b-25

None

Sections 236 to 239. [Reserved]

Sections 240 to 249. Regulation 12d1; Regulation 12d2

Sections 240 to 243. [Reserved]

Section 244. Rule 12d2-2

None

Sections 245 to 249. [Reserved]

Sections 250 to 259. Extensions and Temporary Exemptions; Definitions: Rules 12g-1 to 12h-6

Section 250. Rule 12g-3

250.01 Under Rule 12g-3, the securities issued by a holding company that acquires a company with a class of securities registered under Section 12(g) of the Exchange Act are automatically deemed to be registered under Section 12(g), whether or not a Form 8-K or 8-A has been filed with respect to such securities. The rule serves to eliminate any possible gap in the application of Exchange Act protection to the security holders of the predecessor. [September 30, 2008]

250.02 The successor to a Section 12(g) registrant that underwent a re-incorporation merger to change its state of incorporation reported the merger in the next Form 10-Q that would have been required of the Section 12(g) registrant, and thereafter continued to file Exchange Act reports in reliance upon Rule 12g-3. The successor later learned that at the time of the merger, the predecessor had fewer than 300 record shareholders. Although Rule 12g-3 does not provide for the succession to the predecessor’s Section 12(g) registration if at the time of the succession the securities of the class are held by fewer than 300 record holders, the Division staff has taken the position that Section 12(g) registration could be voluntarily continued by the successor pursuant to Rule 12g-3 in these circumstances without the filing of a new Exchange Act registration statement. [September 30, 2008]

250.03 Where the Rule 12g-3 succession involves the formation of a one-bank holding company, the subsidiary bank does not have an Exchange Act file number. In such situations, the Commission assigns an Exchange Act file number for the successor holding company when the Form 8-K is filed. [September 30, 2008]

250.04 Following emergence from bankruptcy, the same issuer issues a new class of common stock that has substantially the same terms as its old common stock, except for a different par value. Under the bankruptcy plan, all shares of the old common stock are canceled simultaneously with the issuance of the new common stock to new holders. Although Rule 12g-3 technically does not apply because only one issuer is involved, the Division is of the view that the new common stock would succeed to the registered status of the old common stock, so that continuous Exchange Act reporting would be required. [September 30, 2008]

250.05 Rule 12g-3(a) would be available to effect Section 12 registration of securities of a successor issuer formed as part of the predecessor’s emergence from bankruptcy, even though the class of securities so registered will be issued to persons other than the holders of the registered class of the predecessor. [September 30, 2008]

Section 251. Rule 12g-4

251.01 Following a tender offer, a company has sufficiently few shareholders to be eligible to file a Form 15 pursuant to Rules 12g-4 and 12h-3. Subsequently, the company will have a back-end merger. The Division staff ordinarily will not accelerate termination of Section 12(g) registration under Rule 12g-4 where an Exchange Act event is anticipated. Accordingly, the company will be required to file a Schedule 14A proxy statement or a Schedule 14C information statement relating to the back-end merger during the 90-day period between filing the Form 15 and termination of registration pursuant to Rule 12g-4. [September 30, 2008]

Section 252. Rule 12g5-1

252.01 Rule 12g5-1 does not require an issuer to look through record ownership to the beneficial holders in determining whether it has 500 security holders for purposes of registration under Section 12(g) of the Exchange Act. [September 30, 2008]

252.02 An ESOP is a “trust,” and counts as one holder of record for purposes of Rule 12g5-1(a)(2). An ESOP is not a “voting trust” under Rule 12g5-1(b). [September 30, 2008]

Section 253. Rule 12h-3

253.01 A registrant formed two limited partnerships, the A partnership and the B partnership, both having between 300 and 500 shareholders. The registrant has been filing a combined Form 10-K report for those partnerships using the 33- file number from the Securities Act registration statement. The B partnership is now eligible to suspend filing pursuant to Rule 12h-3 because it has had less than $10 million in assets for its last three fiscal years. The registrant can file a Form 15 relating to the B partnership indicating the suspension of reporting with respect to that partnership, and continue filing reports under the 33- number for the remaining partnership. [September 30, 2008]

253.02 Rule 12h-3(c)-(d) operates to relieve a holding company of the Section 15(d) reporting obligation which would normally arise from the registration statement filed for the reorganization of a non-reporting company into a one-subsidiary holding company where the equity holders receive the same proportional interests in the holding company and the holding company emerges from the reorganization with more than 300 shareholders. [September 30, 2008]

253.03 A SPAC completed a de-SPAC transaction wherein the target company or companies were included as co-registrants on the effective Securities Act registration statement for the de-SPAC transaction. As a result, these co-registrants incurred an obligation to file reports under Section 15(d) of the Exchange Act upon effectiveness of the de-SPAC registration statement. Notwithstanding that a class of securities offered and sold using such registration statement remains outstanding, consistent with the Commission’s discussion beginning on page 204 of Release No. 33-11265 (Jan. 24, 2024), once the de-SPAC transaction has closed, the staff will not object if each target company files a Form 15 to suspend its 15(d) reporting obligations in reliance on Rule 12h-3 as long as the target company is wholly owned by the combined company and the target company remained current in its 15(d) reporting obligations through the date of filing the Form 15. [April 11, 2025]

Section 254. Rule 12h-5

254.01 If an issuer of a guaranteed security has a different class of securities that is registered under Section 12 of the Exchange Act, the issuer cannot rely on Rule 12h-5 for reporting relief until it deregisters the other class of securities. [September 30, 2008]

Sections 255 to 259. [Reserved]

Sections 260 to 264. Regulation 13A: Rules 13a-1 to 13a-20

Section 260. Rule 13a-1

260.01 An issuer goes effective with a Securities Act registration statement after its fiscal year end without including audited financial statements as of such year end in such registration statement. Concurrently, the issuer registers under the Exchange Act using a Form 8-A that also does not contain the final year end audited financial statements. The issuer is not permitted to file a special financial statement report containing such audited financial statements pursuant to Rule 15d-2 (as opposed to an annual report in accordance with Rule 13a-1). The Rule 13a-1 annual report would be due at the same time as any other such annual report. [September 30, 2008]

Section 261. Rule 13a-14

261.01 An issuer filing a special financial report on Form 10-K under Rule 15d-2 must file the certification required by Item 601(b)(31) of Regulation S-K, but may omit paragraphs 4 and 5 of the certification because the report will contain only audited financial statements and not Item 307 or 308 of Regulation S-K disclosures. [September 30, 2008]

Section 262. Rule 13a-15

None.

Sections 263 to 264. [Reserved]

Sections 265 to 269. Regulation 14A: Rules 14a-1 to 14b-2

Sections 265 to 268 [Reserved]

Section 269. Rule 14a-21

None

Sections 270 to 279. Reports of Registrants Under the Securities Act of 1933: Rules 15d-1 to 15d-6

Section 270. Rule 15d-2

270.01 An issuer goes effective with a Securities Act registration statement after its fiscal year end without including audited financial statements as of such year end in the registration statement. Concurrently, the issuer registers under the Exchange Act using a Form 8-A that also does not contain the final year end audited financial statements. The issuer is not permitted to file a special financial statement report containing such audited financial statements pursuant to Rule 15d-2 (as opposed to an annual report in accordance with Rule 13a-1). The Rule 13a-1 annual report would be due at the same time as any other such annual report. [September 30, 2008]

Section 271. Rule 15d-6

None

Sections 272 to 279. [Reserved]

Sections 280 to 289. Other Reports: Rules 15d-10 to 15g-100

Section 280. Rule 15d-10

280.01 Exchange Act Release No. 26589, which significantly amended Rule 15d-10, states that “[a] change from a fiscal year ending as of the last day of the month to a 52-53 week fiscal year commencing within seven days of the month end (or from a 52-53 week to a month end) is not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or 15d-10 if the new fiscal year commences with the end of the old fiscal year. In such cases, a transition report would not be required. Either the old or new fiscal year could, therefore, be as short as 359 days, or as long as 371 days (372 in a leap year).” While a transition report would not be required, a Form 8-K (Item 5.03) may have to be filed to report the change in fiscal year-end. [September 30, 2008]

280.02 A company planned to file a Form 11-K for a 6-month year period for an ERISA plan. Form 11-K provides that the due date for an ERISA plan’s Form 11-K is 180 days after fiscal year end. Notwithstanding the due dates prescribed by Rule 15d-10(j)(1) for transition reports to be filed on the form appropriate for annual reports of the issuer, the Division staff took the position that the short-year Form 11-K could be filed 180 days after the plan’s fiscal year end. [September 30, 2008]

Section 281. Rule 15d-14

None

Section 282. Rule 15d-15

None

Section 283. Rule 15d-21

None

Section 284. Rule 15g-9

284.01 A registration statement under the Securities Act relates to the initial public offering of common stock. After the offering, the issuer’s net tangible assets will be less than $2 million and the common stock will not be an NMS Stock, as defined in Section 242.600(b)(47) of Regulation NMS. The public offering price is $5 a share.

The question is whether the prospectus forming part of the registration statement should disclose the applicability of Rule 15g-9, the penny stock cold-calling rule, in the event of a price decline in the aftermarket. With the advice of the Division of Trading and Markets, the Division staff recommended disclosure concerning the rule in the prospectus. The purpose of the disclosure in these circumstances is to alert dealers required to deliver a prospectus in the 90 days after the effective date of their additional responsibilities under Rule 15g-9 if the trading price falls below $5. [September 30, 2008]

Sections 285 to 289. [Reserved]

Exchange Act Forms

Last Update: April 11, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of Exchange Act forms commonly used by issuers. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

N.B. C&DIs for Form 8-K and for Section 16 forms have been separately published and can be found at Exchange Act Form 8-K and Exchange Act Section 16 and Related Rules and Forms, respectively.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Form 6-K

None

Section 102. Form 8-A

Question 102.01

Question: May a registrant use a single Form 8-A to register securities on more than one national securities exchange concurrently under Section 12(b)?

Answer: No. It must file a separate registration statement for each exchange. A registrant also cannot amend an already effective Form 8-A to register securities on an additional national securities exchange. It must instead file a new registration statement. [October 1, 2008]

Question 102.02

Question: Does the requirement for identifying the exchange on which the registered security is traded apply to over-the-counter markets?

Answer: No. [September 30, 2008]

Question 102.03

Question: A company was required to file reports pursuant to Section 15(d). After its reporting obligation was suspended, it continued to file voluntarily all reports required by Section 15(d), but it did not file a Form 15. In these circumstances, may the company use Form 8-A to register its securities pursuant to Section 12(g), even though use of Form 8-A is conditioned on the company being “required to file reports pursuant to Section 13 or 15(d)”?

Answer: Yes, because (1) the company was current in all Section 15(d) reports; and (2) no additional information would have been made available to the public by requiring a Form 10 to be filed. However, in general, a company that is voluntarily filing periodic reports would not be permitted to use Form 8-A to register a class of its securities. [September 30, 2008]

Question 102.04

Section 103. Form 10

Question 103.01

Question: May a wholly-owned subsidiary that meets the requirements set forth in Instruction I to Form 10-K for omitting certain information from Form 10-K also rely on that instruction to omit the same information from a Form 10?

Answer: Yes. [September 30, 2008]

Question 103.02

Question: Is a company that is eligible to use Form 8-A precluded from using Form 10?

Answer: No. [September 30, 2008]

Section 104. Form 10-K

Question 104.01

Question: In order to incorporate information from the annual report to shareholders into the Form 10-K pursuant to General Instruction G(2), the report must be prepared in time to be submitted with the Form 10-K. If the annual report is available only in printer’s proof form when the Form 10-K is due, may it be filed as an exhibit to the Form 10-K and still satisfy this instruction?

Answer: Yes. [September 30, 2008]

Question 104.02

Question: Although General Instruction G(3) indicates that the information regarding executive officers required by Item 401 of Regulation S-K may be included in Part I of Form 10-K, can that information be included in Part III of the Form 10-K?

Answer: Yes. [September 30, 2008]

Question 104.03

Question: How is General Instruction D(2)(a)’s requirement that a Form 10-K be signed by a majority of the board satisfied if there are vacancies on the board?

Answer: This signature requirement is satisfied if a majority of the current directors signs the Form 10-K. For example, a company’s by-laws provide for a 15-person board of directors, and at present there are two vacancies. The signature requirement of a majority of the board is satisfied if a majority (i.e., 7 out of 13) of the current directors signs the Form 10-K. [September 30, 2008]

Question 104.04

Question: May directors’ signatures be provided pursuant to powers of attorney?

Answer: Yes. [September 30, 2008]

Question 104.05

Question: General Instruction D(2)(a) states that where the registrant is a limited partnership, the Form 10-K must be signed by the majority of the board of directors of any corporate general partner who signs the report. How is this requirement applied if there is more than one general partner? How is it applied if only one general partner manages the registrant and other general partners retain no control?

Answer: If there is more than one general partner, then a majority of the general partners must sign the Form 10-K. Where one general partner is managing and others retain no control, only the managing general partner must sign the Form 10-K. [September 30, 2008]

Question 104.06

Question: General Instruction G(3) to Form 10-K permits an issuer to incorporate Part III information into the Form 10-K from its definitive proxy material, if the definitive proxy material is filed within 120 days after the end of the issuer’s fiscal year. Where the 120^th day falls on a Saturday, Sunday or holiday, may the definitive proxy material be filed on the first business day following?

Answer: Yes, pursuant to Exchange Act Rule 0-3. [September 30, 2008]

Question 104.07

Question: May an issuer filing a Form 10-K pursuant to Section 15(d) rely on General Instruction G(3) to incorporate by reference into the Form 10-K Part III information presented in a proxy statement that was not subject to the Commission’s Section 14(a) requirements at the time it was prepared and delivered?

Answer: No, unless such proxy statement is filed as an exhibit to the Form 10-K, as required by Exchange Act Rule 12b-23(a)(3). [September 30, 2008]

Question 104.08

Question: In General Instruction I(l)(b), which defaults are covered by the language “not cured within thirty days”?

Answer: “Not cured within thirty days” in General Instruction I(l)(b) of Form 10-K relates to defaults in the payment of principal, interest, a sinking or purchase fund installment, as well as any other material defaults. [September 30, 2008]

Question 104.09

Question: A company filed its annual report on Form 10-K, intending to incorporate by reference Part III information from its proxy statement to be filed within 120 days, pursuant to General Instruction G(3) to Form 10-K. If the proxy statement will not be filed within the 120-day period, what must the company do?

Answer: The company must amend the Form 10-K prior to the end of the 120-day period to provide the information that was to have been incorporated by reference. [September 30, 2008]

Question 104.10

Question: A company omits the Part III information in its annual report on Form 10-K because it intends to incorporate this information by reference from its proxy statement to be filed within 120 days, pursuant to General Instruction G(3) to Form 10-K. If the company is acquired between the due date of its Form 10-K and the 120^th day after the end of its fiscal year, and will not file a proxy statement after the acquisition closes, must the company still amend its Form 10-K to include the Part III information?

Answer: Yes. [September 30, 2008]

Question 104.11

Question: An issuer with a pending Securities Act registration statement files its Form 10-K and seeks to incorporate by reference into the Form 10-K information from the pending registration statement. Is this permissible?

Answer: Yes, provided that two conditions are met: (1) the portion of the registration statement to be incorporated does not include any incorporation by reference to another document (see Item 10(d) of Regulation S-K), and (2) a copy of the incorporated portion of the registration statement is filed as an exhibit to the Form 10-K, as required by Exchange Act Rule 12b-23(a)(3). [September 30, 2008]

Question 104.12

Question: Must the Rule 14a-3(c) annual report to shareholders be filed as an exhibit to the company’s Form 10-K?

Answer: The annual report to shareholders must be filed as an exhibit to Form 10-K only if information contained in the annual report is incorporated by reference in the Form 10-K or the registrant specifically requests that it be treated as part of the proxy soliciting material. Only those portions of the annual report incorporated by reference are deemed to be filed as part of the Form 10-K. [September 30, 2008]

Question 104.13

Question: An issuer files its 2019 Form 10-K using the disclosure permitted for smaller reporting companies under Regulation S-K. The cover page of the Form 10-K indicates that the issuer will no longer qualify to use the smaller reporting company disclosure for 2020 because its public float exceeded $250 million at the end of its second fiscal quarter in 2019. The issuer proposes to rely on General Instruction G(3) to incorporate by reference executive compensation and other disclosure required by Part III of Form 10-K into the 2019 Form 10-K from its definitive proxy statement to be filed not later than 120 days after its 2019 fiscal year end. May the issuer use smaller reporting company disclosure in this proxy statement, even though it does not qualify to use smaller reporting company disclosure for 2020?

Answer: Yes, because the issuer could have used the smaller reporting company disclosure for Part III of its 2019 Form 10-K if it had not used General Instruction G(3) to incorporate that information by reference from the definitive proxy statement. [November 7, 2018]

Question 104.14

Question: A filer's annual report on Form 10-K includes the financial statements of the filer, which is a limited partnership, and the financial statements of its corporate general partner, which is not a separate issuer and not required to file a Form 10-K. May the Interactive Data File include the financial statements of the corporate general partner?

Answer: No. Under Rule 405(b) of Regulation S-T, only the filer's financial statements, financial statement footnotes, and financial statement schedules are permitted to be included in the Interactive Data File submitted to the Commission. [May 29, 2009]

Question 104.15

Question: A filer's annual report on Form 10-K includes the consolidated parent company's financial statements as well as financial statements of one of its wholly-owned subsidiaries. The parent company has registered equity, and the subsidiary has registered debt. The single filing on Form 10-K is intended to satisfy the reporting obligation of both issuers. While the face financial statements are presented for each issuer separately, there is one set of combined financial statement footnotes. Should all of these financial statements be included in a single Interactive Data File?

Answer: Yes, if interactive data are being submitted for more than one filer whose financial statements are required to be filed and those financial statements appear in a single filing, such as Form 10-K or 10-Q, they must be included in a single Interactive Data File. See Chapter 6 of Volume II of the EDGAR Filer Manual for detailed instructions on how to prepare the interactive data in this circumstance, including how to format the combined footnotes. Note, however, that the Interactive Data File need only include the financial statements for entities mandated under the phase-in provisions. For example, if only the parent company is required to submit its interactive data in year one of the phase in, then the Interactive Data File in year one need only contain the parent company's complete financial statements. [May 29, 2009]

Question 104.16

Question: An annual report on Form 10-K is intended to satisfy the reporting obligation of two "dual listed" companies by including a single set of financial statements. Each of these companies is a separate legal entity with its own file number and Central Index Key ("CIK"). Which company's CIK should be tagged with the Central Index Key element for this submission?

Answer: The Central Index Key element must tag the CIK of just one of the "dual listed" companies, and the filer may choose which of those CIKs to use. As long as the registrants continue to be dual listed and file joint reports, the same CIK should be used in every filing. [May 29, 2009]

Question 104.17

Question: A company filed its annual report on Form 10-K. As permitted by General Instruction G(3) to Form 10-K, the company intended to incorporate by reference Part III information from its definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by the Form 10-K. The company filed a preliminary proxy statement that contained the Part III information within the 120-day period, but the definitive proxy statement will now be filed after the 120-day period. Must the company amend the Form 10-K prior to the end of the 120-day period to file the Part III information that was to have been incorporated by reference?

Answer: Yes. Pursuant to General Instruction G(3) to Form 10-K, the Part III information may be incorporated by reference only from a company's definitive proxy statement or information statement. Therefore, in this situation, the Part III information must be filed as an amendment to the Form 10-K not later than the end of the 120-day period. [Aug. 11, 2010]

Question 104.18

Question: Form 10-K allows Part III information to be incorporated by reference from a registrant’s definitive proxy or information statement, or, under certain circumstances, filed as an amendment to the Form 10-K, not later than 120 days after the end of the related ﬁscal year. May a registrant that is unable to file the Part III information by the 120-day deadline avail itself of the relief provided by the COVID-19 Order (Release No. 34-88465 (March 25, 2020)) for the filing of the Part III information?

Answer: Yes, as long as the 120-day deadline falls within the relief period specified in the Order and the registrant meets the conditions of the Order.

A registrant that timely filed its annual report on Form 10-K without relying on the COVID-19 Order should furnish a Form 8-K with the disclosures required in the Order by the 120-day deadline. The registrant would then need to provide the Part III information within 45 days of the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement.
A registrant may invoke the COVID-19 Order with respect to both the Form 10-K and the Part III information by furnishing a single Form 8-K by the original deadline for the Form 10-K that provides the disclosures required by the Order, indicates that the registrant will incorporate the Part III information by reference and provides the estimated date by which the Part III information will be filed. The Part III information must then be filed no later than 45 days following the 120-day deadline.
A registrant that properly invoked the COVID-19 Order with respect to its Form 10-K by furnishing a Form 8-K but was silent on its ability to timely file Part III information may (1) include the Part III information in its Form 10-K filed within 45 days of the original Form 10-K deadline, or (2) furnish a second Form 8-K with the disclosures required in the Order by the original 120-day deadline and then file the Part III information no later than 45 days following the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement. [April 6, 2020]

Question 104.19

Question 104.20

Question: When a listed issuer reports a change to its previously issued financial statements in an annual report, how should the issuer determine whether “the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements” for purposes of determining whether the check box indicating such correction of an error should be marked on the cover of its annual report?

Answer: The listed issuer should look to the guidance under the generally accepted accounting principles applicable to its financial statements in determining whether the change represents the correction of an error. When the financial statements of the registrant included in the filing have been revised to reflect the correction of an error to previously issued financial statements, regardless of whether those restatements are required or not, the listed issuer must mark the check box.

A required restatement includes (1) an accounting restatement to correct an error in previously issued financial statements that is material to those financial statements (commonly referred to as a “Big R” restatement) and (2) an accounting restatement to correct an error that is immaterial to those financial statements but would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as a “little r” restatement).

The correction of an immaterial prior period error that is recorded in the current year (commonly referred to as an “out-of-period adjustment”) does not require the listed issuer to mark the check box because the previously issued financial statements are not revised. [April 11, 2025]

Question 104.21

Question: In 20X4, a listed issuer reports a “Big R” restatement to the 20X3 financial statements in an amendment to its 20X3 annual report and marks the check box on the cover to indicate that the financial statements reflect the correction of an error to previously issued financial statements. After applying its recovery policy pursuant to Exchange Act Rule 10D-1(b), the listed issuer determines that no recovery of erroneously awarded compensation is required.

Is the listed issuer also required to mark the check box on the cover of the amended 20X3 annual report to indicate that the restatement “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” pursuant to Exchange Act Rule 10D-1(b) and explain in that amended report why application of the recovery policy resulted in no recovery?

Answer: Yes, the listed issuer must mark the check box indicating that the restatement required the recovery analysis. This would include circumstances when:

no incentive-based compensation was received by any executive officers at all during the relevant time frame, or
incentive-based compensation was received by an issuer’s executive officers during the relevant time frame, but that incentive-based compensation was not based on a financial reporting measure impacted by the restatement.

Further, the listed issuer should briefly explain why application of its recovery policy resulted in no recovery. [April 11, 2025]

Question 104.22

Question: Assume the same facts in Question 104.21. In its subsequent 20X4 annual report, the listed issuer includes in its financial statements the restated 20X3 annual period that was previously included in the amended 20X3 annual report. Is the listed issuer required to mark both of the check boxes discussed in Question 104.21 on the cover and provide disclosure pursuant to Item 402(w)(2) of Regulation S-K?

Answer: Assuming there are no additional restatements, the staff will not object to the check boxes remaining unmarked on the cover page of the listed issuer’s 20X4 annual report.

However, when the listed issuer files its proxy or information statement during 20X5 that includes 20X4 executive compensation information pursuant to Item 402 of Regulation S-K, it must also include the disclosure of Item 402(w)(2) of Regulation S-K. The Commission has stated in the adopting release that this information is similar to other executive compensation information required by Item 402 and is likely to serve a similar purpose for investors in evaluating the issuer and making voting decisions. Accordingly, because the restatement took place during 20X4 and Item 402(w)(2) applies to restatements “during or after [the issuer’s] last completed fiscal year,” the issuer’s proxy or information statement filed during 20X5 must include Item 402(w)(2) disclosure, to the extent Item 402 applies to such proxy or information statement. This is the case even if the issuer included in the amended 20X3 annual report information explaining why application of its recovery policy resulted in no recovery. This is also the case if the required disclosure is (1) provided in the annual report (and not incorporated by reference from a proxy or information statement) or (2) made pursuant to the applicable requirements of Form 20-F or Form 40-F. [April 11, 2025]

Question 104.23

Question: In 20X5 (prior to filing the 20X4 annual report), a listed issuer with a calendar fiscal year discovers an error in its previously issued 20X3 financial statements that requires a “little r” restatement. After applying its recovery policy pursuant to Exchange Act Rule 10D-1(b), the listed issuer determines that no recovery of erroneously awarded compensation is required. The listed issuer checks both boxes on its 20X4 annual report, which is filed in 20X5, and provides Item 402(w)(2) disclosure in the proxy or information statement incorporated by reference in that report. Must the listed issuer subsequently include the Item 402(w)(2) disclosure in its proxy or information statement incorporated by reference in its 20X5 annual report, which is filed in 20X6, given the restatement occurred “during… [the issuer’s] last completed fiscal year”?

Answer: If there are no additional facts that would affect the conclusion of the prior Exchange Act Rule 10D-1(b) recovery analysis that no recovery is required, the staff will not object if the 20X5 annual report does not include or incorporate by reference Item 402(w)(2) disclosure, notwithstanding that the restatement occurred “during…the [issuer’s] last completed fiscal year.” Under the same facts, the staff will similarly not object if a foreign private issuer who has previously provided the applicable disclosure pursuant to Item 6.F(2) of Form 20-F or Instruction (B)(19)(c) to Form 40-F omits the disclosure in its subsequent annual report. [April 11, 2025]

Question 104.24

Question: A listed issuer initially reports a restatement of an annual period in its financial statements in a form that does not include a check box requirement on the cover page for indicating that the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements – for example, a Form 8-K or a Securities Act registration statement. If that annual period is presented in the issuer’s financial statements in its next annual report, is the issuer required to mark that check box on the cover page of that annual report?

Answer: Yes. [April 11, 2025]

Question 104.25

Question: If a listed issuer determines in the fourth quarter of its 20X5 fiscal year that it is required to prepare restatements of its first, second and third quarterly periods of that year, is the listed issuer required to mark any of the check boxes discussed in Question 104.21 on the cover page of its 20X5 annual report or provide any disclosure pursuant to Item 402(w) of Regulation S-K in that annual report?

Answer: The listed issuer is not required to mark the related check boxes on the cover page of the 20X5 annual report because the restatements do not impact the annual periods in the issuer’s financial statements included in that annual report. This is true even if the issuer includes disclosures about the interim restatements in a footnote to the annual period financial statements pursuant to Item 302(a) of Regulation S-K.

However, the listed issuer is required to include or incorporate by reference from its proxy or information statement, disclosure pursuant to Item 402(w) of Regulation S-K in the 20X5 annual report filed in fiscal year 20X6, because the issuer determined during fiscal year 20X5 that it needed to prepare an accounting restatement. For purposes of that disclosure, an accounting restatement is not limited to an accounting restatement that impacts annual periods, but also includes an accounting restatement that impacts interim periods only. This position also applies to disclosure pursuant to Item 6.F of Form 20-F or Instruction (B)(19) to Form 40-F filed in fiscal year 20X6. [April 11, 2025]

Section 105. Form 10-Q

Question 105.01

Question: Does Part II, Item 4 of Form 10-Q require disclosure of the results of the vote on all matters voted upon at the annual or special meeting, including shareholder proposals and any matter raised on the floor of the meeting, whether or not included in management’s proxy materials?

Answer: Yes. [September 30, 2008]

Question 105.02

Question: A company’s initial registration statement under the Securities Act became effective during its quarter ended September 30. Prior to the effective date, but during this quarter, the company submitted matters to a vote of its security holders. Does Part II, Item 4 of Form 10-Q require disclosure of the results of the matters voted on?

Answer: Yes. Because Form 10-Q applies to the entire quarter, disclosure of Part II, Item 4 matters should be provided in the initial Form 10-Q filed pursuant to Section 15(d). [September 30, 2008]

Question 105.03

Question: If a company is current but not timely in its reporting obligations, may it check the “yes” box on the cover page of a Form 10-Q indicating that it has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months?

Answer: Yes. The company may check the “yes” box referred to above even if all required reports were not filed on time, so long as they are filed by the date of the filing of the Form 10-Q. [April 24, 2009]

Question 105.04

Question: If a company is not yet required to submit Interactive Data Files with its Exchange Act reports, should it check the box on the cover pages of the reports relating to compliance with Interactive Data File submission requirements?

Answer: No. A company should not start checking the cover page box relating to Interactive Data File compliance until it is required to submit those files. For example, if a company is first required to include an Interactive Data File with its second quarter Form 10-Q and, as permitted by the grace period rules, includes such file in a Form 10-Q amendment 30 days after the date the report is due and filed, the company should not check the Interactive Data File box on the cover page of its initial Form 10-Q. Rather, it should check the box once the first Interactive Data File is submitted — in this case, with the Form 10-Q amendment. Companies that have been voluntarily submitting Interactive Data Files should not check the box until they are required to submit the files. [April 30, 2009]

Question 105.05

[Withdrawn, Sept. 17, 2010]

Question 105.06

[Withdrawn, Sept. 17, 2010]

Question 105.07

Question: What is the first interactive data submission required of a calendar-year, domestic filer whose initial registration statement on Form S-1 is declared effective on July 2, 2009 and whose first periodic report is a Form 10-Q for the quarter ended June 30, 2009?

Answer: The filer must assess whether it is a large accelerated filer in order to determine how to apply the phase-in schedule for submitting interactive data. Large accelerated filer status is determined based on the criteria set forth in Exchange Act Rule 12b-2 at the end of a fiscal year. On these facts, the earliest date the filer could qualify as a large accelerated filer is December 31, 2010. If at that date the filer qualifies as a large accelerated filer, interactive data would be required beginning with its Form 10-Q for the quarter ended March 31, 2011. However, if at that date the filer does not qualify as a large accelerated filer, the interactive data would be required to be submitted beginning with the filer's Form 10-Q for the quarter ended June 30, 2011. [May 29, 2009]

Question 105.08

Question: The Document and Company Information Taxonomy includes an "Amendment Flag" element. When should the filer set the Amendment Flag to "True" in preparing its Interactive Data File for submission?

Answer: The Amendment Flag signifies that the Interactive Data File is an amendment to a prior Interactive Data File. It is not intended to signify that a new Interactive Data File is being filed as part of an amendment to a periodic report or registration statement. As a result, a filer should set the Amendment Flag to "True" only when the filer is amending the Interactive Data File itself. For example, if a company is first required to include an Interactive Data File with its second quarter Form 10-Q and, as permitted by the grace period rules, includes such file in a Form 10-Q amendment 30 days after the date the report is due and filed, the company should not set the Amendment Flag to "True" when it prepares its Interactive Data File for submission in the Form 10-Q amendment. [May 29, 2009]

Question 105.09

Question: On August 17, 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments will become effective on November 5, 2018. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. Refer to Rules 8-03(a)(5) and 10-01(a)(7) of Regulation S-X. When are filers expected to comply with this new requirement?

Answer: The amendments are effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the staff would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. For example, a December 31 fiscal year-end filer could omit this disclosure from its September 30, 2018 Form 10-Q. Likewise, a June 30 fiscal year-end filer could omit this disclosure from its September 30, 2018 and December 31, 2018 Forms 10-Q; however, the staff would object if it did not provide the disclosures in its March 31, 2019 Form 10-Q. (Sept. 25, 2018 and updated October 4, 2018)

Section 106. Form 11-K

Question 106.01

Question: The general instructions to Form 11-K state that plans subject to ERISA “shall file the plan financial statements within 180 days after the plan's fiscal year.” Does this mean that ERISA plans may file the entire Form 11-K (not only the financial statements) within 180 days after the end of the plan fiscal year?

Answer: Yes. As stated in Release No. 33-6867, “plans subject to ERISA will be permitted to file their Forms 11-K within 180 days after the plan’s fiscal year end.” Note also that the Form 11-K now contains only financial statements, and Exchange Act Rule 15d-21 has been amended to allow the filing of ERISA plan financial statements as an amendment to the Form 10-K. [September 30, 2008]

Question 106.02

Question: Are reports regarding internal control over financial reporting required to be included in a Form 11-K?

Answer: No. Form 11-K does not require the reports called for by Item 308 of Regulation S-K. [September 30, 2008]

Question 106.03

Question: Footnote 47 of Release No. 33-8124 provides that the certification requirements of Section 302 of the Sarbanes-Oxley Act of 2002 do not apply to annual reports on Form 11-K. Do the certification requirements of Sarbanes-Oxley Act Section 906 apply to annual reports on Form 11-K?

Answer: No. [September 30, 2008]

Question 106.04

Question: An issuer that has maintained a 401(k) employee savings plan for several years has decided to add its common stock as an investment option in the plan. Under the Division’s position issued in the Diasonics no-action letter (Dec. 29, 1982), both the plan interests and the employer stock will be subject to the Securities Act. Prior to the addition of the employer stock, the plan interests would not be regarded as securities. General Instruction A.2. to Form S-8 will ordinarily require a plan that has been in existence for more than 90 days to file a Form 11-K concurrently with the registration of the offering of plan interests and employer securities. Does General Instruction A.2 require a Form 11-K to be filed concurrently with the Form S-8 in this situation?

Answer: No. Because the interests were not securities before adoption of the amendment adding employer securities, a Form 11-K is not required to be filed concurrently with the Form S-8. [September 30, 2008]

Section 107. Form 12b-25

Question 107.01

Question: Is a company required to file a Form 12b-25 even when it anticipates filing a periodic report after the Rule 12b-25 extension period?

Answer: Yes. Under Rule 12b-25(a), a company must file a Form 12b-25 for a periodic report that is filed after the due date regardless of whether it anticipates filing the periodic report within the extension period. See Release No. 34-16718. If the company does not anticipate filing the periodic report within the extension period, it should not check the box in Part II of Form 12b-25. [September 30, 2008]

Question 107.02

Question: An issuer files a Form 12b-25 to provide notice that its Form 10-K will be late. The issuer does not check the box in Part II of the Form to indicate that it seeks to use the extension in Rule 12b-25(b) because it anticipates that its Form 10-K will be filed after the 15th calendar day following the initial due date for the Form 10-K, which is outside of the Rule 12b-25(b) extension period. The issuer actually files its Form 10-K before the 15th calendar day. Can the issuer avail itself of the extension in Rule 12b-25(b) and have its Form 10-K be considered timely?

Answer: Yes. A company is required to file a Form 12b-25 to provide notice of a late periodic report filing, regardless of whether it will be able to avail itself of the Rule 12b-25(b) extension period. If an issuer believes that it will not be able to file the periodic report within the extension period, it should not check the box in Part II of Form 12b-25 indicating that it will do so. In the event that the issuer does, in fact, file its periodic report within the Rule 12b-25(b) extension period and the periodic report includes all required disclosures, then the periodic report will be considered timely, even though the issuer did not check the box in Part II of Form 12b-25. [July 8, 2011]

Section 108. Form 15

Question 108.01

Question 108.02

Question: A company submits a request for a no-action letter, seeking to rely on Rule 12h-3 to suspend its Section 15(d) reporting obligations. No-action relief is needed because the company had a Securities Act registration statement that became effective or was updated pursuant to Securities Act Section 10(a)(3) during the fiscal year, and consequently the company does not satisfy the conditions of Rule 12h-3(c). May the company file a Form 15 to suspend its Section 15(d) reporting obligation before the staff grants the requested no-action letter?

Answer: No. Because no-action relief is prospective, the company may not file a Form 15 checking the Rule 12h-3 box until the staff grants the requested no-action letter. If the company files a Form 15 checking the Rule 12h-3 box before the staff grants the no-action letter, the company should withdraw that Form 15 by filing an amendment indicating in an explanatory note that the Form 15 is withdrawn. [September 30, 2008]

Question 108.03

Question: In 2007, Rule 12g-4 was amended to remove the prior Rule 12g-4(a)(2) and to redesignate Rules 12g-4(a)(1)(i) and 12g-4(a)(1)(ii) as Rules 12g-4(a)(1) and (2), respectively. However, Form 15 was not amended in connection with this amendment to Rule 12g-4, so that the Rule 12g-4 boxes in Form 15 do not correspond with the current Rule 12g-4. If a company files Form 15 under one of the redesignated rules, which box should it check?

Answer: Until Form 15 is amended to reflect the current Rule 12g-4, filers should (1) check the “Rule 12g-4(a)(1)(i)” box if the registrant is terminating its Section 12(g) registration pursuant to the current Rule 12g-4(a)(1), and (2) check the “Rule 12g-4(a)(1)(ii)” box if the registrant is terminating its Section 12(g) registration pursuant to the current Rule 12g-4(a)(2). See Exchange Act Rule 0-5. In addition to checking the “Rule 12g-4(a)(1)(i)” or “Rule 12g-4(a)(1)(ii)” box, filers can also include an explanatory note in the Form 15 regarding the change to Rule 12g-4. [September 30, 2008]

Section 109. Form 15F

None

Section 110. Form 20-F

Question 110.01

Question: A foreign private issuer that has prepared its financial statements in a currency other than U.S. currency must provide the current and historical exchange rate information required by Item 3.A.3 of Form 20-F. What source of exchange rate information must be used?

Answer: An issuer may use any reliable source for the rates of exchange as long as it identifies the source. One example of a reliable source is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. Although the Federal Reserve Bank of New York is no longer publishing these exchange rates on its web site, it is still certifying them for customs purposes. The Board of Governors of the Federal Reserve Bank publishes these exchange rates on a weekly basis on its web site at http://www.federalreserve.gov/releases/h10/. [April 24, 2009]

Question 110.02

Question: When the securities being registered on Form 20-F are in the form of ADRs, must a description of the ADRs be included in the response to Item 12.D of Form 20-F? Must the depositary sign the registration statement?

Answer: When the securities being registered on Form 20-F are in the form of ADRs, the issuer must provide the information required by Item 12.D of Form 20-F. However, the depositary is not required to sign the registration statement. [September 30, 2008]

Question 110.03

Question 110.04

Question 110.05

Question: What is the deadline for filing a Form 20-F annual report when the issuer's fiscal year ends on the last day of a month? What if the fiscal year ends before the last day of a month?

Answer: Form 20-F is due four months after the end of an issuer's fiscal year. See General Instruction A.(b)(2) to Form 20-F. When the last day of the issuer's fiscal year is the last day of a month, the annual report on Form 20-F is due four complete months after that day. For example, a February 28 fiscal year end results in a due date of June 30. When the last day of the issuer's fiscal year is other than the end of a month, the annual report on Form 20-F is due on the same day four months ahead. For example, a February 20 fiscal year end results in a due date of June 20. [December 8, 2016]

Question 110.06

Question: May a wholly-owned subsidiary of a foreign private issuer omit certain information from its Form 20-F annual report in the same manner that a wholly-owned subsidiary required to file a Form 10-K may omit information if it meets the requirements set forth in General Instruction I to that form?

Answer: Yes, so long as the registrant includes a prominent statement on the cover page of the Form 20-F that it meets the conditions set forth in General Instruction I(1)(a) and (b) to Form 10-K and is therefore filing the form with the reduced disclosure format. If so, the registrant may omit comparable information enumerated in General Instruction I(2) that would apply to a foreign private issuer filing on Form 20-F. Specifically, the registrant may omit the following:

information required by Item 3.A, Selected financial data, and Item 5, Operating and Financial Review and Prospects, subject to the same disclosure requirements in General Instruction I(2)(a) to Form 10-K;
the list of subsidiaries exhibit required by Item 8 of Instructions as to Exhibits;
information required by Item 6.A, Directors and Senior Management, Item 6.B, Compensation, 6.D, Employees, Item 6.E, Share Ownership, Item 7, Major Shareholders and Related Party Transactions, Item 16A, Audit Committee Financial Expert, and Item 16B, Code of Ethics; and
information required by Item 4, Information on the Company, subject to the same disclosure requirements in General Instruction I(2)(d) to Form 10-K.

[December 8, 2016]

Question 110.07

Question: May a foreign private issuer incorporate by reference into a Form 20-F annual report information that has previously been filed with the Commission, for example, on a Form 6-K?

Answer: Yes, Exchange Act Rule 12b-23 permits information to be incorporated by reference in answer, or partial answer, to any item required to be disclosed by Form 20-F, subject to the limitations set forth in that rule. Issuers using incorporation by reference must identify with specificity the information that is being incorporated by reference. [December 8, 2016]

Question 110.08

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item 6.F of Form 20-F must be provided?

Question 110.09

Question 110.10

Question: Item 16F(a) of Form 20-F requires disclosure about a change in a registrant’s certifying accountant. Instruction 2 to this item states the disclosure called for need not be provided if it has been “previously reported,” as defined in Exchange Act Rule 12b-2. The rule states that information has been “previously reported” if it has been reported in, among other things, a report under Exchange Act Sections 13 or 15(d). Would disclosure about a change in accountant that otherwise satisfies the requirements of Item 16F(a) of Form 20-F but has been included in a Form 6-K be considered “previously reported,” such that it does not need to be included in Form 20-F?

Answer: Yes, if the Form 6-K contains disclosure that satisfied the requirements of Item 16F(a), then it is considered “previously reported” and is not required to be included in Form 20-F. [March 20, 2025]

Section 111. Form 25

Question 111.01

Question: For securities that are being delisted from an exchange, may the Form 15 be filed prior to the effective date of the Form 25?

Answer: No. The effective date of a Form 25 for the delisting of an issuer’s securities may not be earlier than 10 days following the date on which such form is filed with the Commission. A Form 15 with respect to securities being delisted may not be filed prior to the effective date of the Form 25 for the delisting since Sections 12(g) and 15(d) are suspended during the period in which Section 12(b) applies. [September 30, 2008]

Section 112. Form 40-F

Question 112.01

Question: May eligible Canadian issuers rely on Securities Act Rule 402(e) or Exchange Act Rule 12b-11(d) to use typed, duplicated or facsimile versions of manual signatures in connection with Form 40-F?

Answer: Yes, provided that the issuer complies with the requirements of those rules regarding retention of manual signatures and provision of copies thereof to the Commission or its staff upon request. See Cleary, Gottlieb, Steen & Hamilton no-action letter (Aug. 13, 1996). [September 30, 2008]

Question 112.02

Question: An MJDS filer is required to file its Form 40-F on the same day the information included therein is due to be filed with any securities commission or equivalent regulatory authority in Canada. If an MJDS filer properly relies on any applicable Canadian COVID-19-related relief for extension of its filing deadline with the securities commission or equivalent regulatory authority, does the MJDS filer need to comply with the conditions for exemptive relief in the SEC’s COVID-19 Order (Release No. 34-88465 (March 25, 2020)) on the date the Form 40-F would have been due in the United States?

Answer: No. Under these facts, compliance with the conditions of the SEC’s COVID-19 Order on the original due date of the Form 40-F is not required. MJDS filers should also consider promptly disclosing their reliance on the Canadian COVID-19-related relief. [Apr. 6, 2020]

Question 112.03

Question 112.04

Section 113. Form F-SR

Question 113.01

[Withdrawn March 20, 2025] [Comparison to prior version]

Question 113.02

[Withdrawn March 20, 2025] [Comparison to prior version]

Question 113.03

[Withdrawn March 20, 2025] [Comparison to prior version]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Form 6-F

None

Section 202. Form 8-A

202.01 A Canadian company filed a Securities Act registration statement in connection with a proposed merger. The registration statement became effective but was not used. The company desired to register under the Exchange Act and wanted to use Form 8-A. The company was subject to Section 15(d) of the Exchange Act because of the effective registration statement, but it had not made any of the periodic filings required by Section 13(a). Form 8-A is available to register the securities of any issuer that is required to file reports pursuant to Section 15(d). Counsel was informed that the Division staff would not object to the use of the Form 8-A as long as the company first filed all of the delinquent Exchange Act reports. [September 30, 2008]

202.02 A company has over 500 shareholders and $10 million in assets on December 31, the last day of its fiscal year, and is thus required to file an Exchange Act registration statement within 120 days of December 31. On March 1 of the next year, the company’s first Securities Act registration statement becomes effective, and the company becomes subject to Section 15(d) of the Exchange Act. The company may file its Exchange Act registration statement on Form 8-A because at the time that filing is required, the company will be subject to Section 15(d). [September 30, 2008]

202.03 A company issued units of common stock and warrants, and more than a year has passed since the effectiveness of the Securities Act registration statement. The warrants are now exercisable and the company wants the common stock to be listed on NASDAQ. As to warrant exercises, post-effective amendments would be required to keep the prospectus current for Section 10(a)(3) purposes. If the company is still subject to Section 15(d), the company may use a Form 8-A to register under the Exchange Act. [September 30, 2008]

202.04 A publicly-held company registered under the Exchange Act and emerging from bankruptcy proposes to issue, pursuant to the bankruptcy plan, a new class of common stock with a different par value from its other common stock. Since the prior class of common stock was cancelled as part of the bankruptcy proceedings, the company will be permitted to amend its current Form 8-A Exchange Act registration statement to effect registration of the new class of common stock. [September 30, 2008]

202.05 No objection would be raised to the filing of a Form 8-A prior to the effective date of a Securities Act registration for the same shares, where the purpose was to facilitate listing on an exchange as soon as the Securities Act registration became effective. [September 30, 2008]

Section 203. Form 10

203.01 A publicly-held company registered under the Exchange Act and emerging from bankruptcy proposes to issue, pursuant to the bankruptcy plan, a new class of common stock with a different par value from its other common stock. Since the prior class of common stock was cancelled as part of the bankruptcy proceedings, the company will be permitted to amend its current Form 10 Exchange Act registration statement to effect registration of the new class of common stock. [September 30, 2008]

Section 204. Form 10-K

204.01 General Instruction I to Form 10-K permits the filing of an abbreviated Form 10-K by certain wholly-owned subsidiaries of a reporting company. One of the conditions for the use of the abbreviated form is that all of the registrant’s equity securities must be held by a single person. A request to use the abbreviated form was received from a company that had a series of non-voting preferred stock held by 135 persons. All of the common stock was held by a single person. The company was permitted to use the abbreviated Form 10-K on the condition that the number of holders of the non-voting preferred remained below 500 and therefore did not necessitate registration of that class pursuant to Section 12(g) of the Exchange Act. [September 30, 2008]

204.02 For purposes of Form 10-K, Item 601(b)(10)(iii) of Regulation S-K requiring disclosure of remunerative contracts would apply to a deferred compensation plan entered into during the fiscal year, even though the officer/director retired during that fiscal year and no longer was an officer/director. [September 30, 2008]

204.03 A limited partnership, which offers securities on Form S-11 that goes effective on December 15th, does not commence selling efforts nor does it acquire properties or admit limited partners until after December 31st, the end of its fiscal year. Escrow is not broken until June 30th of its next fiscal year. Regardless of the fact that selling efforts began in the next fiscal year, the partnership should file a Form 10-K for the fiscal year in which the Form S-11 went effective. [September 30, 2008]

204.04 A calendar year Exchange Act company proposes to file a Form N-8A and become a registered management investment company prior to March 31, the due date for its Form 10-K. Its first N-CSR, which would satisfy both Investment Company Act and Exchange Act reporting obligations, will not be due until after the period ending June 30. The Division staff advised that the company should file the Form 10-K due March 31, even though the company will be an investment company as of that date, and a Form 10-Q for the period from January 1 through the date the Form N-8A is filed. [September 30, 2008]

204.05 A voluntary filer, which must indicate its voluntary status by checking the appropriate box on the Form 10-K cover page, seeks to indicate that it is “current” in its Exchange Act reporting. In doing so, it should not check the box on the cover page representing that it has filed all reports required by Section 13(a) or 15(d) required during the preceding 12 months and has been subject to such filing requirements for the past 90 days, as this would create confusion since the company has indicated that it is a voluntary filer. However, because this information can assist sellers in determining whether the company satisfies the current public information requirements of Rule 144(c), the company should add an explanatory note indicating, if correct, that it had filed all Exchange Act reports for the preceding 12 months. [September 30, 2008]

204.06 A publicly-traded REIT has a commonly used structure (called an UPREIT) in which the publicly traded corporation acts as general partner of a majority-owned limited partnership that holds and operates all of the properties. The executive officers of the corporation are also executive officers of the operating partnership. The compensation paid to those executives is for services provided to both entities (i.e., they are not separately compensated for their services to the operating partnership). Both entities report pursuant to Exchange Act obligations. Pursuant to General Instruction G(3), the corporation’s Form 10-K will forward incorporate its Regulation S-K Item 402 disclosure from its definitive proxy statement. The operating partnership does not file a proxy statement. Because the corporation’s and the operating partnership’s compensation are integrally related, the operating partnership may incorporate Part III information into its Form 10-K from the corporation’s definitive proxy statement. [September 30, 2008]

204.07. An amendment solely to correct the signature page of a Form 10-K by providing the previously omitted signatures of both the principal financial officer and the principal accounting officer does not require new signatures by the directors. [September 30, 2008]

Section 205. Form 10-Q

None

Section 206. Form 11-K

206.01 A company filed a Form S-8 registration statement to register participations in a profit sharing plan. It has been determined that the participations would, in fact, be exempt from registration under Section 3(a)(2) of the Securities Act. The remaining participations are being deregistered. The company was informed that under the circumstances the Division staff would not require the continued filing of Form 11-K annual reports for the profit sharing plan. [September 30, 2008]

206.02 A company planned to file a Form 11-K for a 6-month year period for an ERISA plan. Form 11-K provides that the due date for an ERISA plan Form 11-K is 180 days after the fiscal year end. However, Rule 15d-10 provides that for short years of 6 months or more, an annual report would be due 90 days after the fiscal year end. The Division staff took the position that the short-year Form 11-K could be filed 180 days after the fiscal year end. [September 30, 2008]

Section 207. Form 12b-25

207.01 A Form 12b-25 submitted in connection with a late Form 11-K to be filed in paper pursuant to Item 101(b) of Regulation S-T may also be filed in paper. [September 30, 2008]

Section 208. Form 15

None.

Section 209. Form 15F

None

Section 210. Form 20-F

None.

Section 211. Form 25

None.

Section 212. Form 40-F

None.

Exchange Act Form 8-K

Last Update: June 24, 2024

These interpretations replace the Form 8-K interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations, the June 13, 2003 Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures and the November 22, 2004 Form 8-K Frequently Asked Questions. Some of the interpretations included here were originally published in the sources noted above, and have been revised in some cases. The bracketed date following each interpretation is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Form 8-K — General Guidance

Question 101.01

Question: If a triggering event specified in one of the items of Form 8-K occurs within four business days before a registrant's filing of a periodic report, may the registrant disclose the event in its periodic report rather than a separate Form 8-K? If so, under what item of the periodic report should the event be disclosed? Item 5 of Part II of Form 10-Q and Item 9B of Form 10-K appear to be limited to events that were required to be disclosed during the period covered by those reports.

Answer: Yes, a triggering event occurring within four business days before the registrant's filing of a periodic report may be disclosed in that periodic report, except for filings required to be made under Item 4.01 of Form 8-K, Changes in Registrant's Certifying Accountant and Item 4.02 of Form 8-K, Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. The registrant may disclose triggering events, other than Items 4.01 and 4.02 events, on the periodic report under Item 5 of Part II of Form 10-Q or Item 9B of Form 10-K, as applicable. All Item 4.01 and Item 4.02 events must be reported on Form 8-K. Of course, amendments to previously filed Forms 8-K must be filed on a Form 8-K/A. See also Exchange Act Form 8-K Question 106.04 regarding the ability to rely on Item 2.02 of Form 8-K. [April 2, 2008]

Question 101.02

Question: Some items of Form 8-K are triggered by the specified event occurring in relation to the “registrant” (such as Items 1.01, 1.02, 2.03, 2.04). Other items of Form 8-K refer also to majority-owned subsidiaries (such as Item 2.01). Should registrants interpret all Form 8-K Items as applying the triggering event to the registrant and subsidiaries, other than items that obviously apply only at the registrant level, such as changes in directors and principal officers?

Answer: Yes. Triggering events apply to registrants and subsidiaries. For example, entry by a subsidiary into a non-ordinary course definitive agreement that is material to the registrant is reportable under Item 1.01 and termination of such an agreement is reportable under Item 1.02. Similarly, Item 2.03 disclosure is triggered by definitive obligations or off-balance sheet arrangements of the registrant and/or its subsidiaries that are material to the registrant. [April 2, 2008]

Question 101.03

Question: General Instruction E to Form 8-K requires that a copy of the report be filed with each exchange where the registrant's securities are listed. Does the term "exchange" as used in the instruction refer only to domestic exchanges?

Answer: Yes. The term "exchange" as used in the instruction refers only to domestic exchanges and, accordingly, Form 8-K reports need be furnished only to domestic exchanges. [April 2, 2008]

Question 101.04

Question: If a Form 8-K contains audited annual financial statements that are a revised version of financial statements previously filed with the Commission and have been revised to reflect the effects of certain subsequent events, such as discontinued operations, a change in reportable segments or a change in accounting principle, then under Item 601(b)(101)(i) of Regulation S-K, the filer must submit an interactive data file with the Form 8-K for those revised audited annual financial statements. Paragraph 6(a) of General Instruction C of Form 6-K contains a similar requirement. Item 601(b)(101)(ii) of Regulation S-K and Paragraph 6(b) of General Instruction C of Form 6-K permit a filer to voluntarily submit an interactive data file with a Form 8-K or 6 K, respectively, under specified conditions. Is a filer permitted to voluntarily submit an interactive data file with a Form 8-K or 6-K for other financial statements that may be included in the Form 8-K or 6-K, but for which an interactive data file is not required to be submitted? For example, if the Form 6-K contains interim financial statements other than pursuant to the nine-month updating requirement of Item 8.A.5 of Form 20-F?

Answer: Yes, if the filer otherwise complies with Item 601(b)(101)(ii) of Regulation S-K and Paragraph 6(b) of General Instruction C of Form 6-K, as applicable. [Sep. 14, 2009]

Question 101.05

Question: If a filer is required to submit an interactive data file with a form other than a Form 8-K or 6-K, may the filer satisfy this requirement by submitting the interactive data file with a Form 8-K or 6-K?

Answer: No. If a filer does not submit an interactive data file with a form as required, the filer must amend the form to include the interactive data file. [Sep. 14, 2009]

Section 102. Item 1.01 Entry into a Material Definitive Agreement

Question 102.01

Question: If an agreement that was not material at the time the registrant entered into it becomes material at a later date, must the registrant file an Item 1.01 Form 8-K at the time the agreement becomes material?

Answer: No. If an agreement becomes material to the registrant but was not material to the registrant when it entered into, or amended, the agreement, the registrant need not file a Form 8-K under Item 1.01. In any event, the registrant must file the agreement as an exhibit to the periodic report relating to the reporting period in which the agreement became material if, at any time during that period, the agreement was material to the registrant. In this regard, the registrant would apply the requirements of Item 601 of Regulation S-K to determine if the agreement must be filed with the periodic report. [April 2, 2008]

Question 102.02

Question: Is a placement agency or underwriting agreement a material definitive agreement for purposes of Item 1.01? If so, does the requirement to disclose the parties to the agreement require disclosure of the name of the placement agent or underwriter? Would such disclosure render the safe harbor from the definition of an "offer" included in Securities Act Rule 135c not available for the Form 8-K filing?

Answer: The registrant must determine whether specific agreements are material using established standards of materiality and with reference to Instruction 1 to Item 1.01. If the registrant determines that such an agreement requires filing under Item 1.01, it may, as under Item 3.02, omit the identity of the underwriters from the disclosure in the Form 8-K to remain within the safe harbor of Rule 135c. [April 2, 2008]

Question 102.03

Question: Must a material definitive agreement be summarized in the body of the Form 8-K if it is filed as an exhibit to the Form 8-K?

Answer: Yes. Item 1.01 requires "a brief description of the material terms and conditions of the agreement or amendment that are material to the registrant." Therefore, incorporation by reference of the actual agreement would not satisfy this disclosure requirement. In some cases, the agreement may be so brief that it may make sense to disclose all the terms of the agreement into the body of the Form 8-K. [April 2, 2008]

Question 102.04

Question: A registrant enters into a business combination agreement, such as a merger agreement, that is reportable under Item 1.01 of Form 8-K as a material definitive agreement. What material terms and conditions of the agreement should the registrant disclose in the Form 8-K?

Answer: Item 1.01 of Form 8-K requires a brief description of the terms and conditions of the agreement that are material to the registrant. Although the materiality of a term or condition of the business combination agreement will ultimately depend on the particular facts and circumstances, the following terms should generally be viewed as material and disclosed in the Form 8-K:

the amount and nature of consideration offered for the business combination (or the method, exchange ratio, or formula for determining the consideration);
any committed financing arrangements (e.g., PIPE investments), or the need for financing to close the business combination transaction, along with the material terms of such arrangements;
any material terms regarding the securities ownership or management structure of the combined or surviving company after the closing of the business combination transaction;
any material conditions to the closing of the transaction; and
the anticipated timeframes for filing any Securities Act registration statement, proxy or information statement, or tender offer materials, as well as for the closing of the business combination transaction.

The Form 8-K also must include all other material information that is necessary to make the required disclosure, in light of the circumstances under which it is made, not misleading. See Exchange Act Rule 12b-20 and Exchange Act Section 10(b). For example, the registrant should consider disclosing the following information in the Form 8-K so that investors can evaluate the business combination agreement with the proper context:

if a material term of the agreement has not yet been determined by the parties, the Form 8-K should affirmatively state so; and
in the case where the registrant is the acquiror, the Form 8-K should briefly describe the nature of the target company’s business, including, at a minimum, whether it has existing operations or has generated revenues, as well as any information disclosed by the target company in announcing the business combination transaction. [March 22, 2022]

Question 102.05

Question: Under the factual circumstances described in Question 102.04 above, should the registrant file the material definitive agreement as an exhibit to the Item 1.01 Form 8-K?

Answer: Registrants are encouraged, as a best practice, to file the agreement as an exhibit to the Item 1.01 Form 8-K. The Commission did not require the material definitive agreement to be filed as an exhibit to the Item 1.01 Form 8-K due to the registrant’s need for time to (1) request confidential treatment of sensitive terms of the agreement and (2) prepare the agreement in the proper EDGAR format. See Release No. 33-8400 (March 16, 2004).

The Commission, however, recently amended Form 8-K to permit registrants to redact sensitive terms of a material definitive agreement without submitting a confidential treatment request. See Instructions 5 and 6 to Item 1.01 of Form 8-K; see also Release No. 33-10618 (March 20, 2019). The need for confidential treatment generally can no longer be the basis for declining to file the material definitive agreement as an exhibit to the Item 1.01 Form 8-K. This is consistent with the Commission’s previous views. See Release No. 33-8400 (“[W]e encourage companies to file the exhibit with the Form 8-K when feasible, particularly when no confidential treatment is requested.”).

Further, absent unusual circumstances, it should generally be feasible to prepare the agreement in the proper EDGAR format within the four business day timeframe for filing an Item 1.01 Form 8-K, given technological advances since 2004 and widespread availability of EDGAR filing services. Registrants that are unable to prepare the agreement in the proper EDGAR format and file the agreement as an exhibit should, as a best practice, provide an explanation in the Form 8-K. [March 22, 2022]

Section 103. Item 1.02 Termination of a Material Definitive Agreement

Question 103.01

Question: A material definitive agreement has an advance notice provision that requires 180 days advance notice to terminate. The counterparty delivers to the registrant written advance notice of termination. Even though the registrant intends to negotiate with the counterparty and believes in good faith that the agreement will ultimately not be terminated, is an Item 1.02 Form 8-K required when the registrant receives the appropriate advance notice of termination?

Answer: Yes. Although Instruction 1 to Item 1.02 notes that no disclosure is required solely by reason of that item during negotiations or discussions regarding termination of a material definitive agreement unless and until the agreement has been terminated, and Instruction 2 indicates that no disclosure is required if the registrant believes in good faith that the material definitive agreement has not been terminated, Instruction 2 clarifies that, once notice of termination pursuant to the terms of the agreement has been received, the Form 8-K is required, notwithstanding the registrant's continued efforts to negotiate a continuation of the contract. [April 2, 2008]

Question 103.02

Question: A material definitive agreement expires automatically on June 30, 200X, but is continued for successive one-year terms until the next June 30th unless one party sends a non-renewal notice during a 30-day window period six months before the automatic renewal – in other words, January. Does non-renewal of this type of agreement by sending the notice in January trigger Item 1.02 disclosure?

Answer: Yes. The triggering event is the sending of the notice in January, not the termination of the agreement on June 30th. However, automatic renewal in accordance with the terms of the agreement (in other words, when no non-renewal notice is sent) does not trigger the filing of an Item 1.01 Form 8-K. [April 2, 2008]

Question 103.03

Question: A material definitive agreement expires on June 30, 200X. It provides that either party may renew the agreement for another one-year term ending on June 30th if it sends a renewal notice to the other party during January, and the other party does not affirmatively reject that notice in February. If neither party sends a renewal notice during January, which means that the agreement terminates on June 30th, is an Item 1.02 Form 8-K filing required?

Answer: No. This would be a termination on the agreement's stated termination date that does not trigger an Item 1.02 filing. If one party sends a renewal notice that is not rejected, an Item 1.01 Form 8-K is required. Such a filing would be triggered by the passage of the rejection deadline on February 28th, and not the sending of the renewal notice in January. [April 2, 2008]

Section 104. Item 1.03 Bankruptcy or Receivership

None

Section 104A. Item 1.04 Mine Safety – Reporting of Shutdowns and Patterns of Violations

None

Section 104B. Item 1.05 Material Cybersecurity Incidents.

Question 104B.01

Answer: The registrant must file the Item 1.05 Form 8-K within four business days of its determination that the incident is material. Requesting a delay does not change the registrant’s filing obligation. The registrant may delay providing the Item 1.05 Form 8-K disclosure only if the Attorney General determines that disclosure would pose a substantial risk to national security or public safety and notifies the Commission of such determination in writing before the Form 8-K otherwise would be due. For further information on the Department of Justice’s procedures with respect to Item 1.05(c) of Form 8-K, please see Department of Justice Material Cybersecurity Incident Delay Determinations, Department of Justice (2023), at https://www.justice.gov/media/1328226/dl?inline [December 12, 2023]

Question 104B.02

Question: A registrant experiences a material cybersecurity incident, and requests that the Attorney General determine that disclosure of the incident on Form 8-K poses a substantial risk to national security or public safety. The Attorney General makes such determination and notifies the Commission that disclosure should be delayed for a time period as provided for in Form 8-K Item 1.05(c). The registrant subsequently requests that the Attorney General determine that disclosure should be delayed for an additional time period. The Attorney General declines to make such determination or does not respond before the expiration of the current delay period. What is the deadline for the registrant to file an Item 1.05 Form 8-K disclosing the incident?

Answer: The registrant must file the Item 1.05 Form 8-K within four business days of the expiration of the delay period provided by the Attorney General. For further information on the Department of Justice’s procedures with respect to Item 1.05(c) of Form 8-K, please see Department of Justice Material Cybersecurity Incident Delay Determinations, Department of Justice (2023), at https://www.justice.gov/media/1328226/dl?inline [December 12, 2023]

Question 104B.03

Question: A registrant experiences a material cybersecurity incident and disclosure of the incident on Form 8-K is delayed pursuant to Form 8-K Item 1.05(c) for a time period of up to 30 days, as specified by the Attorney General. Subsequently, during the pendency of the delay period, the Attorney General determines that disclosure of the incident no longer poses a substantial risk to national security or public safety. The Attorney General notifies the Commission and the registrant of this new determination. What is the deadline for the registrant to file an Item 1.05 Form 8-K disclosing the incident?

Answer: The registrant must file the Item 1.05 Form 8-K within four business days of the Attorney General’s notification to the Commission and the registrant that disclosure of the incident no longer poses a substantial risk to national security or public safety. See also “Changes in circumstances during a delay period” in Department of Justice Material Cybersecurity Incident Delay Determinations, Department of Justice (2023), at https://www.justice.gov/media/1328226/dl?inline [December 12, 2023]

Question 104B.04

Question: Would the sole fact that a registrant consults with the Department of Justice regarding the availability of a delay under Item 1.05(c) necessarily result in the determination that the incident is material and therefore subject to the requirements of Item 1.05(a)?

Answer: No. As the Commission stated in the adopting release, the determination of whether an incident is material is based on all relevant facts and circumstances surrounding the incident, including both quantitative and qualitative factors, and should focus on the traditional notion of materiality as articulated by the Supreme Court.

Furthermore, the requirements of Item 1.05 do not preclude a registrant from consulting with the Department of Justice, including the FBI, the Cybersecurity & Infrastructure Security Agency, or any other law enforcement or national security agency at any point regarding the incident, including before a materiality assessment is completed. [December 14, 2023]

Question 104B.05

Question: A registrant experiences a cybersecurity incident involving a ransomware attack. The ransomware attack results in a disruption in operations or the exfiltration of data. After discovering the incident but before determining whether the incident is material, the registrant makes a ransomware payment, and the threat actor that caused the incident ends the disruption of operations or returns the data. Is the registrant still required to make a materiality determination regarding the incident?

Answer: Yes. Item 1.05 of Form 8-K requires a registrant that experiences a cybersecurity incident to determine whether that incident is material. The cessation or apparent cessation of the incident prior to the materiality determination, including as a result of the registrant making a ransomware payment, does not relieve the registrant of the requirement to make such materiality determination.

Further, in making the required materiality determination, the registrant cannot necessarily conclude that the incident is not material simply because of the prior cessation or apparent cessation of the incident. Instead, in assessing the materiality of the incident, the registrant should, as the Commission noted in the adopting release for Item 1.05 of Form 8-K, determine “if there is a substantial likelihood that a reasonable shareholder would consider it important in making an investment decision, or if it would have significantly altered the total mix of information made available,” notwithstanding the fact that the incident may have already been resolved. Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11216; 34-97989 (July 26, 2023) [88 FR 51896, 51917 (Aug. 4, 2023)] (quoting Matrixx Initiatives v. Siracusano, 563 U.S. 27, 38-40 (2011); Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988); TSC Indus. v. Northway, 426 U.S. 438, 449 (1976)) (internal quotation marks omitted). [June 24, 2024]

Question 104B.06

Question: A registrant experiences a cybersecurity incident that it determines to be material. That incident involves a ransomware attack that results in a disruption in operations or the exfiltration of data and has a material impact or is reasonably likely to have a material impact on the registrant, including its financial condition and results of operations. Subsequently, the registrant makes a ransomware payment, and the threat actor that caused the incident ends the disruption of operations or returns the data. If the registrant has not reported the incident pursuant to Item 1.05 of Form 8-K before it made the ransomware payment and the threat actor has ended the disruption of operations or returned the data before the Form 8-K Item 1.05 filing deadline, does the registrant still need to disclose the incident pursuant to Item 1.05 of Form 8-K?

Answer: Yes. Because the registrant experienced a cybersecurity incident that it determined to be material, the subsequent ransomware payment and cessation or apparent cessation of the incident does not relieve the registrant of the requirement to report the incident under Item 1.05 of Form 8-K within four business days after the registrant determines that it has experienced a material cybersecurity incident. [June 24, 2024]

Question 104B.07

Question: A registrant experiences a cybersecurity incident involving a ransomware attack, and the registrant makes a ransomware payment to the threat actor that caused the incident. The registrant has an insurance policy that covers cybersecurity incidents and is reimbursed for all or a substantial portion of the ransomware payment. Is the incident necessarily not material as a result of the registrant being reimbursed for the ransomware payment under its insurance policy?

Answer: No. The standard that the Commission articulated for assessing the materiality of a cybersecurity incident under Item 1.05 of Form 8-K is set forth in the adopting release for the rule and is reiterated in Question 104B.05. Further, as the Commission noted in the adopting release for Item 1.05 of Form 8-K, when assessing the materiality of cybersecurity incidents, registrants “should take into consideration all relevant facts and circumstances, which may involve consideration of both quantitative and qualitative factors” including, for example, “consider[ing] both the immediate fallout and any longer term effects on its operations, finances, brand perception, customer relationships, and so on, as part of its materiality analysis.” Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11216; 34-97989 (July 26, 2023) [88 FR 51896, 51917 (Aug. 4, 2023)]. Under the facts described in this question, such consideration also may include an assessment of the subsequent availability of, or increase in cost to the registrant of, insurance policies that cover cybersecurity incidents. [June 24, 2024]

Question 104B.08

Question: A registrant experiences a cybersecurity incident involving a ransomware attack. Is the size of the ransomware payment, by itself, determinative as to whether the cybersecurity incident is material? For example, would a ransomware payment that is small in size necessarily make the related cybersecurity incident immaterial?

Answer: No. The standard that the Commission articulated for assessing the materiality of a cybersecurity incident under Item 1.05 of Form 8-K is set forth in the adopting release for the rule and reiterated in Question 104B.05. Under that standard, the size of any ransomware payment demanded or made is only one of the facts and circumstances that registrants should consider in making its materiality determination regarding the cybersecurity incident. Further, in the adopting release for Item 1.05 of Form 8-K, the Commission declined “to use a quantifiable trigger for Item 1.05 because some cybersecurity incidents may be material yet not cross a particular financial threshold.”

Any ransomware payment made is only one of the various potential impacts of a cybersecurity incident that a registrant should consider under Item 1.05. As the Commission further stated in Item 1.05’s adopting release:

[T]he material impact of an incident may encompass a range of harms, some quantitative and others qualitative. A lack of quantifiable harm does not necessarily mean an incident is not material. For example, an incident that results in significant reputational harm to a registrant . . . may not cross a particular quantitative threshold, but it should nonetheless be reported if the reputational harm is material.

Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11216; 34-97989 (July 26, 2023) [88 FR 51896, 51906 (Aug. 4, 2023)]. [June 24, 2024]

Question 104B.09

Question: A registrant experiences a series of cybersecurity incidents involving ransomware attacks over time, either by a single threat actor or by multiple threat actors. The registrant determines that each incident, individually, is immaterial. Is disclosure of those cybersecurity incidents nonetheless required pursuant to Item 1.05 of Form 8-K?

Answer: Disclosure of those cybersecurity incidents may, depending on the particular facts and circumstances, be required pursuant to Item 1.05 of Form 8-K. In these circumstances, the registrant should consider whether any of those incidents were related, and if so, determine whether those related incidents, collectively, were material. The definition of “cybersecurity incident” under Item 106(a) of Regulation S-K (which, as noted in Instruction 3 to Item 1.05, is the definition that applies to Item 1.05 of Form 8-K) includes “a series of related unauthorized occurrences.” In the adopting release for Item 1.05, the Commission noted:

[W]hen a company finds that it has been materially affected by what may appear as a series of related cyber intrusions, Item 1.05 may be triggered even if the material impact or reasonably likely material impact could be parceled among the multiple intrusions to render each by itself immaterial. One example was provided in the Proposing Release: the same malicious actor engages in a number of smaller but continuous cyberattacks related in time and form against the same company and collectively, they are either quantitatively or qualitatively material. Another example is a series of related attacks from multiple actors exploiting the same vulnerability and collectively impeding the company’s business materially.

Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11216; 34-97989 (July 26, 2023) [88 FR 51896, 51910 (Aug. 4, 2023)]. [June 24, 2024]

Section 105. Item 2.01 Completion of Acquisition or Disposition of Assets

None

Section 106. Item 2.02 Results of Operations and Financial Condition

Question 106.01

Question: Item 2.02 of Form 8-K contains a conditional exemption from its requirement to furnish a Form 8-K where earnings information is presented orally, telephonically, by webcast, by broadcast or by similar means. Among other conditions, the company must provide on its web site any financial and other statistical information contained in the presentation, together with any information that would be required by Regulation G. Would an audio file of the initial webcast satisfy this condition to the exemption?

Answer: Yes, provided that: (1) the audio file contains all material financial and other statistical information included in the presentation that was not previously disclosed, and (2) investors can access it and replay it through the company's web site. Alternatively, slides or a similar presentation posted on the web site at the time of the presentation containing the required, previously undisclosed, material financial and other statistical information would satisfy the condition. In each case, the company must provide all previously undisclosed material financial and other statistical information, including information provided in connection with any questions and answers. Regulation FD also may impose disclosure requirements in these circumstances. [Jan. 11, 2010]

Question 106.02

Question: A company issues its earnings release after the close of the market and holds a properly noticed conference call to discuss its earnings two hours later. That conference call contains material, previously undisclosed, information of the type described under Item 2.02 of Form 8-K. Because of this timing, the company is unable to furnish its earnings release on a Form 8-K before its conference call. Accordingly, the company cannot rely on the exemption from the requirement to furnish the information in the conference call on a Form 8-K. What must the company file with regard to its conference call?

Answer: The company must furnish the material, previously non-public, financial and other statistical information required to be furnished on Item 2.02 of Form 8-K as an exhibit to a Form 8-K and satisfy the other requirements of Item 2.02 of Form 8-K. A transcript of the portion of the conference call or slides or a similar presentation including such information will satisfy this requirement. In each case, all material, previously undisclosed, financial and other statistical information, including that provided in connection with any questions and answers, must be provided. [Jan. 11, 2010]

Question 106.03

Question: Item 2.02 of Form 8-K contains a conditional exemption from its requirement to furnish a Form 8-K where earnings information is presented orally, telephonically, by webcast, by broadcast or by similar means. Among other conditions, the company must provide on its web site any material financial and other statistical information not previously disclosed and contained in the presentation, together with any information that would be required by Regulation G. When must all of this information appear on the company's web site?

Answer: The required information must appear on the company's web site at the time the oral presentation is made. In the case of information that is not provided in a presentation itself but, rather, is disclosed unexpectedly in connection with the question and answer session that was part of that oral presentation, the information must be posted on the company's web site promptly after it is disclosed. Any requirements of Regulation FD also must be satisfied. A webcast of the oral presentation would be sufficient to meet this requirement. [Jan. 11, 2010]

Question 106.04

Question: Company X files its quarterly earnings release as an exhibit to its Form 10-Q on Wednesday morning, prior to holding its earnings conference call Wednesday afternoon. Assuming that all of the other conditions of Item 2.02(b) are met, may the company rely on the exemption for its conference call even if it does not also furnish the earnings release in an Item 2.02 Form 8-K?

Answer: Yes. Company X's filing of the earnings release as an exhibit to its Form 10-Q, rather than in an Item 2.02 Form 8-K, before the conference call takes place, would not preclude reliance on the exemption for the conference call. [Jan. 11, 2010]

Question 106.05

Question: Does a company's failure to furnish to the Commission the Form 8-K required by Item 2.02 in a timely manner affect the company's eligibility to use Form S-3?

Answer: No. Form S-3 requires the company to have filed in "a timely manner all reports required to be filed in twelve calendar months and any portion of a month immediately preceding the filing of the registration statement." Because an Item 2.02 Form 8-K is furnished to the Commission, rather than filed with the Commission, failure to furnish such a Form 8-K in a timely manner would not affect a company's eligibility to use Form S-3. While not affecting a company's Form S-3 eligibility, failure to comply with Item 2.02 of Form 8-K would, of course, be a violation of Section 13(a) of the Exchange Act and the rules thereunder. [Jan. 11, 2010]

Question 106.06

Question: Company A issues a press release announcing its results of operations for a just-completed fiscal quarter, including its expected adjusted earnings (a non-GAAP financial measure) for the fiscal period. Would this press release be subject to Item 2.02 of Form 8-K?

Answer: Yes, because it contains material, non-public information regarding its results of operations for a completed fiscal period. The adjusted earnings range presented would be subject to the requirements of Item 2.02 applicable to non-GAAP financial measures. [Jan. 11, 2010]

Question 106.07

Question: A registrant reports "preliminary" earnings and results of operations for a completed quarterly period, and some of these amounts may even be estimates. In issuing this preliminary earnings release, must the registrant comply with all of the requirements of, and instructions to, Item 2.02 of Form 8-K?

Answer: Yes. [April 24, 2009]

Section 107. Item 2.03 Creation of a Direct Financial Obligation under an Off-Balance Sheet Arrangement of a Registrant

Question 107.01

Question: Instruction 2 to Item 2.03 states that if the registrant is not a party to the transaction creating the contingent obligation arising under the off-balance sheet arrangement, the four business day period begins on the "earlier of" (1) the fourth business day after the contingent obligation is created or arises, and (2) the day on which an executive officer becomes aware. How can a registrant disclose something of which it is not aware?

Answer: A registrant must maintain disclosure and internal controls and procedures designed to ensure that information required to be disclosed by the issuer in the reports that it files under the Exchange Act, including Current Reports on Form 8-K, is recorded, processed, summarized and reported within the required time frames. Instruction 2 to Item 2.03 provides for an additional four business days as a "grace" period given the nature of the requirement. [April 2, 2008]

Question 107.02

Question: If a registrant has a long-term debt issuance in a private placement that is coming due, and replaces it or refunds it with another long term debt issuance of the same principal amount and with similar terms in another private placement, is a Form 8-K required to be filed under Item 2.03?

Answer: Item 2.03 requires disclosure of a direct financial obligation that is material to the registrant. Materiality is a facts and circumstances determination. Whether the financial obligation is a refinancing on similar terms is one such fact; the amount of the obligation is another. Depending on other facts and circumstances (including but not limited to factors such as current impact on covenants, liquidity and debt capacity and other debt requirements), a registrant may be able to conclude that a financial obligation in this situation is not material. [April 2, 2008]

Section 108. Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

Question 108.01

Question: Is an Item 2.04 Form 8-K required if all conditions necessary to an event triggering acceleration or an increase in a direct financial obligation under an agreement have occurred but the counterparty has not declared, or provided notice of, a default?

Answer: It depends on how the agreement is written. If, as is often the case, such declaration or notice is necessary prior to the increase or the acceleration of the obligation, then Item 2.04 is not triggered. If no such declaration or notice is necessary and the increase or acceleration is triggered automatically on the occurrence of an event without declaration or notice and the consequences of the event are material to the registrant, then disclosure is required under Item 2.04. [April 2, 2008]

Section 109. Item 2.05 Costs Associated with Exit or Disposal Activities

Question 109.01

Question: Are costs associated with an exit activity limited to those addressed in FASB Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146)?

Answer: No. SFAS 146 addresses certain costs associated with an exit activity. Paragraph 2 of SFAS 146 states that such costs include, but are not limited to, those costs addressed by the SFAS. Other costs that may need to be disclosed pursuant to Item 2.05 of Form 8-K are addressed by FASB Statements of Financial Accounting Standards Nos. 87, 88, 106 and 112. [April 2, 2008]

Question 109.02

Question: If a registrant, in connection with an exit activity, is terminating employees, must it file the Form 8-K when the registrant commits to the plan, or can it wait until it has informed its employees?

Answer: Item 2.05 was intended to be generally consistent with SFAS 146. SFAS 146 states that, if a registrant is terminating employees as part of a plan to exit an activity, it need not disclose the commitment to the plan until it has informed affected employees. Similarly, a Form 8-K need not be filed until those employees have been informed. See paragraphs 8, 20 and 21 of SFAS 146. [April 2, 2008]

Section 110. Item 2.06 Material Impairments

Question 110.01

Question: The Instruction to Item 2.06 of Form 8-K indicates that a filing is not required if an impairment conclusion is made "in connection with" the preparation, review or audit of financial statements required to be included in the next periodic report due to be filed under the Exchange Act, the periodic report is filed on a timely basis and such conclusion is disclosed in the report. If an impairment conclusion is made at a time that coincides with, but is not in connection with, the preparation, review or audit of financial statements required to be included in the next periodic report due to be filed under the Exchange Act, is an Item 2.06 Form 8-K required?

Answer: No. If the impairment conclusion coincides with the preparation, review or audit of financial statements required to be included in the next periodic report due to be filed under the Exchange Act and the other conditions of the Instruction to Item 2.06 are satisfied, a filing would not be required under Item 2.06. [May 16, 2013]

Question 110.02

Question: Does the re-measurement of a deferred tax asset ("DTA") to incorporate the effects of newly enacted tax rates or other provisions of the Tax Cuts and Jobs Act ("Act") trigger an obligation to file under Item 2.06 of Form 8-K?

Answer: No, the re-measurement of a DTA to reflect the impact of a change in tax rate or tax laws is not an impairment under ASC Topic 740. However, the enactment of new tax rates or tax laws could have implications for a registrant's financial statements, including whether it is more likely than not that the DTA will be realized. As discussed in Staff Accounting Bulletin No. 118 (Dec. 22, 2017), a registrant that has not yet completed its accounting for certain income tax effects of the Act by the time the registrant issues its financial statements for the period that includes December 22, 2017 (the date of the Act's enactment) may apply a "measurement period" approach to complying with ASC Topic 740. Registrants employing the "measurement period" approach as contemplated by SAB 118 that conclude that an impairment has occurred due to changes resulting from the enactment of the Act may rely on the Instruction to Item 2.06 and disclose the impairment, or a provisional amount with respect to that possible impairment, in its next periodic report. [December 22, 2017]

Section 111. Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

None

Section 112. Item 3.02 Unregistered Sales of Equity Securities

Question 112.01

Question: Does the grant of stock options pursuant to an employee stock option plan require disclosure under Item 3.02 of Form 8-K?

Answer: If a grant of stock options pursuant to an employee stock option plan does not constitute a "sale" or "offer to sell" under Securities Act Section 2(a)(3), the grant need not be reported under Item 3.02 of Form 8-K. See, e.g., Millennium Pharmaceuticals, Inc. (May 21, 1998). [April 2, 2008]

Question 112.02

Question: If a registrant sells, in an unregistered transaction, shares of a class of equity securities that is not currently outstanding, would the volume threshold under Item 3.02 of Form 8-K be exceeded by such sale?

Answer: Yes. As such, in these circumstances, an Item 3.02 Form 8-K filing requirement would be triggered. [April 2, 2008]

Section 113. Item 3.03 Material Modification to Rights of Security Holders

None

Section 114. Item 4.01 Changes in Registrant's Certifying Accountant

Question 114.01

Question: If a principal accountant resigns, declines to stand for re-election or is dismissed because its registration with the PCAOB has been revoked, should the registrant disclose this fact when filing an Item 4.01 Form 8-K to report a change in certifying accountant?

Answer: Yes. Disclosure of the revocation of the accountant's PCAOB registration is necessary to understanding the required disclosure with respect to whether the former accountant resigned, declined to stand for re-election or was dismissed. [Jan. 14, 2011]

Question 114.02

Question: A registrant engages a new principal accountant that is related in some manner to the former principal accountant (e.g., the firms are affiliates or are member firms of the same network), but the new principal accountant is a separate legal entity and is separately registered with the PCAOB. Should the registrant file an Item 4.01 Form 8-K to report a change in certifying accountant?

Answer: Yes. Because the new principal accountant is a different legal entity from the former principal accountant and is separately registered with the PCAOB, there is a change in certifying accountant, which must be reported on Item 4.01 Form 8 K. [Jan. 14, 2011]

Question 114.03

Question: If a registrant's principal accountant enters into a business combination with another accounting firm, should the registrant file an Item 4.01 Form 8-K to report a change in certifying accountant?

Answer: Whether an Item 4.01 Form 8-K is required will depend on how the combination is structured and on other facts and circumstances. Accounting firms that enter into business combinations are encouraged to discuss their transactions with the Division's Office of Chief Accountant. [Jan. 14, 2011]

Section 115. Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

Question 115.01

Question: If a registrant has taken appropriate action to prevent reliance on the financial statements and also has filed a Form 8-K under Item 4.02(a), must the registrant file a second Form 8-K under Item 4.02(b) if it is separately advised by, or receives notice from, its auditor that the auditor has reached the same conclusion?

Answer: No. If the registrant has reported that reliance should not be placed on previously issued financial statements because of an error in such financial statements, the issuer does not need to file a second Form 8-K to indicate that the auditor also has concluded that future reliance should not be placed on its audit report, unless the auditor's conclusion relates to an error or matter different from that which triggered the registrant's filing under Item 4.02(a). [April 2, 2008]

Question 115.02

Question: Does the Item 4.02 requirement to file a Form 8-K if a company concludes that any previously issued financial statements should no longer be relied upon because of an error in such financial statements, as addressed in FASB Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, apply to pro forma financial information?

Answer: No. The Item 4.02 requirement does not apply to pro forma financial information. If an error is detected in pro forma financial information, an amendment to the form containing such information may be required to correct the error. [April 2, 2008]

Question 115.03

Question: Must a filer provide disclosures under Item 4.02(a) of Form 8-K when it discovers a material error in its Interactive Data File while the financial statements upon which they are based do not contain an error and may continue to be relied on?

Answer: No. Item 4.02(a) requires a Form 8-K only when the filer determines that previously issued financial statements should no longer be relied upon because of an error in those financial statements. If a filer wants to voluntarily provide non-reliance disclosure similar to Item 4.02(a) that pertains only to the interactive data, it can do so under either Item 7.01 or Item 8.01 of Form 8-K. In any event, if a filer finds a material error in its Interactive Data File, it must file an amendment to correct the error. In addition, once a filer becomes aware of the error in its Interactive Data File, it must correct the error promptly in order for the Interactive Data File to be eligible for the modified treatment under the federal securities laws provided by Rule 406T of Regulation S-T. [May 29, 2009]

Section 116. Item 5.01 Changes in Control of Registrant

None

Section 117. Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Question 117.01

Question: When is the obligation to report an event specified in Item 5.02(b) of Form 8-K triggered? Must the Form 8-K filed to report an Item 5.02(b) event disclose the effective date of the resignation or other event?

Answer: With respect to any resignation, retirement or refusal to stand for re-election reportable under Item 5.02(b), other than in the corporate governance policy situations addressed in Question 117.15, the Form 8-K reporting obligation is triggered by a notice of a decision to resign, retire or refuse to stand for re-election provided by the director, whether or not such notice is written, and regardless of whether the resignation, retirement or refusal to stand for re-election is conditional or subject to acceptance. The disclosure shall specify the effective date of the resignation or retirement. In the case of a refusal to stand for re-election, the registrant must disclose when the election in question will occur, for example, at the registrant's next annual meeting. No disclosure is required solely by reason of Item 5.02(b) of discussions or consideration of resignation, retirement or refusal to stand for re-election. Whether communications represent discussion or consideration, on the one hand, or notice of a decision, on the other hand, is a facts and circumstances determination. A registrant should ensure that it has appropriate disclosure controls and procedures in place – for example, a board policy that all directors must provide any such notice directly to the corporate secretary – to determine when a notice of resignation, retirement or refusal has been communicated to the registrant. [June 26, 2008]

Question 117.02

Question: Item 5.02(b) of Form 8-K requires current disclosure when any named executive officer retires, resigns or is terminated from that position. Since status as a named executive officer is determined based on the level of total compensation under Item 402(a)(3) of Regulation S-K, does this mean that disclosure on Form 8-K is triggered when the person is no longer required to be included in the Summary Compensation Table because of the executive officer's level of total compensation?

Answer: No. Under Instruction 4 to Item 5.02, the term "named executive officer" refers to those executive officers for whom disclosure under Item 402(c) of Regulation S-K was required in the most recent Commission filing. A Form 8-K is triggered under Item 5.02(b) when one of those officers retires, resigns or is terminated from the position that the executive officer is listed as holding in the most recent filing including executive compensation disclosure under Item 402(c) of Regulation S-K. [April 2, 2008]

Question 117.03

Question: A registrant's principal operating officer has his duties and responsibilities as principal operating officer removed and reassigned to other personnel in the organization; however, the person remains employed by the registrant, and the person's title remains the same. Is the registrant required to file a Form 8-K under Item 5.02 to report the principal operating officer's termination?

Answer: Yes. The term "termination" includes situations where an officer identified in Item 5.02 has been demoted or has had his or her duties and responsibilities removed such that he or she no longer functions in the position of that officer. [April 2, 2008]

Question 117.04

Question: If a registrant decides not to nominate a director for re-election at its next annual meeting, is a Form 8-K required?

Answer: No. That situation is not covered under the phrase "is removed." However, if the director, upon receiving notice from the registrant that it does not intend to nominate him or her for re-election, then resigns his or her position as a director, then a Form 8-K would be required pursuant to Item 5.02. If the director tells the registrant that he or she refuses to stand for re-election, a Form 8-K is required because the director has communicated a "refusal to stand for re-election," whether or not in response to an offer by the registrant to be nominated. [April 2, 2008]

Question 117.05

Question: If a registrant appoints a new executive officer, it may delay disclosure until it makes a public announcement of the event under the Instruction to Item 5.02(c). If the new executive officer were simultaneously appointed to the board of directors of the registrant, would the registrant have to disclose such appointment pursuant to Item 5.02(d) within four business days following such appointment, even if that date is before the public announcement of the officer's appointment?

Answer: No. In these circumstances, disclosures under paragraph (d) of Item 5.02 may be delayed to the time of public announcement consistent with Item 5.02(c). Similarly, any disclosure required under paragraph (e) of Item 5.02 may be delayed to the time of public announcement consistent with Item 5.02(c). [April 2, 2008]

Question 117.06

Question: If the registrant does not consider its principal accounting officer an executive officer for purposes of Items 401 or 404 of Regulation S-K, must the registrant make all of the disclosures required by Item 5.02(c)(2) of Form 8-K?

Answer: Yes. All of the information required by Item 5.02(c)(2) regarding specified newly appointed officers, including a registrant's principal accounting officer, is required to be reported on Form 8-K even if the information was not required to be disclosed in the Form 10-K because the position does not fall within the definition of an executive officer for purposes of Items 401 or 404 of Regulation S-K. [April 2, 2008]

Question 117.07

Question: If a director is elected to the board of directors other than by a vote of security holders at a meeting, but the director's term will begin on a later date, when is the reporting requirement under Item 5.02(d) of Form 8-K triggered?

Answer: The reporting requirement is triggered as of the date of the director's election to the board. The Item 5.02(d) Form 8-K should disclose the date on which the director's term begins. [April 2, 2008]

Question 117.08

Question: The board of directors of the registrant adopts a material equity compensation plan in which named executive officers are eligible to participate. No awards have been made under the plan. Does board adoption of the plan trigger disclosure under Item 5.02(e)? Does the fact that adoption of the plan is subject to shareholder approval affect the timing of disclosure under Item 5.02(e)?

Answer: Adoption by the registrant's board of directors of a material equity compensation plan in which named executive officers are eligible to participate requires current disclosure pursuant to Item 5.02(e) of Form 8-K. Where the registrant's board adopts a compensation plan subject to shareholder approval, the obligation to file a Form 8-K pursuant to Item 5.02(e) is triggered upon receipt of shareholder approval of the plan. Similarly, if a reportable plan amendment or stock option grant is adopted subject to shareholder approval, the obligation to file a Form 8-K pursuant to Item 5.02 is triggered upon receipt of shareholder approval of the plan amendment or grant. [April 2, 2008]

Question 117.09

Question: The board of directors of the registrant adopts a material cash bonus plan under which named executive officers participate. No specific performance criteria, performance goals or bonus opportunities have been communicated to plan participants. Does the adoption of such a plan require disclosure pursuant to Item 5.02(e) of Form 8-K?

Answer: Yes. Moreover, if the plan is adopted and is also subject to shareholder approval, the receipt of shareholder approval – and not the plan's adoption – triggers the obligation to file a Form 8-K pursuant to Item 5.02(e). [April 2, 2008]

Question 117.10

Question: After the adoption of a material cash bonus plan has been disclosed in an Item 5.02(e) Form 8-K, the board of directors sets specific performance goals and business criteria for named executive officers during the performance period. Does this action require disclosure pursuant to Item 5.02(e) of Form 8-K if the specific performance goals and business criteria set for the performance period are materially consistent with the previously disclosed terms of the plan?

Answer: No. In reliance on Instruction 2 to Item 5.02(e), the registrant is not required to file an Item 5.02(e) Form 8-K to report this action if the specific performance goals and business criteria set for the performance period are materially consistent with the previously disclosed terms of the plan, for example if the specific goals and criteria are among the previously disclosed performance goals and business criteria (such as EBITDA, return on equity or other applicable measure) that the plan may apply or has applied. [April 2, 2008]

Question 117.11

Question: A registrant pays out a material cash award pursuant to a cash bonus plan for which disclosure previously was filed consistent with Exchange Act Form 8-K Questions 117.09 and 117.10. Does payment of the award require disclosure pursuant to Item 5.02(e) of Form 8-K?

Answer: Disclosure under Item 5.02(e) depends on the circumstances relating to the payment of the cash award. If the registrant pays out a cash award upon determining that the performance criteria have been satisfied, pursuant to Instruction 2 to Item 5.02(e), a Form 8-K reporting such a payment would not be required under Item 5.02(e) because the payment was materially consistent with the previously disclosed terms of the plan. However, if the registrant exercised discretion to pay the bonus even though the specified performance criteria were not satisfied, a Form 8-K reporting such a payment would be required under Item 5.02(e) because the payment was not materially consistent with the previously disclosed terms of the plan, even if the plan provided for the exercise of such discretion. [April 2, 2008]

Question 117.12

Question: If an Item 5.02(e) Form 8-K is filed to disclose an annual non-equity incentive plan award, does the disclosure have to include the specific target levels?

Answer: The registrant is not required to provide disclosure pursuant to Item 5.02(e) of target levels with respect to specific quantitative or qualitative performance related-factors, or any other factors or criteria involving confidential trade secrets or confidential commercial or financial information, the disclosure of which would result in competitive harm for the registrant. This position is consistent with the treatment of similar information under Instruction 4 to Item 402(b) of Regulation S-K and Instruction 2 to Item 402(e)(1) of Regulation S-K. [April 24, 2009]

Question 117.13

Question: If a previously-disclosed employment agreement provides that the principal executive officer is entitled to receive a cash bonus in an amount determined by the compensation committee in its discretion, would an Item 5.02(e) Form 8-K be required when the committee makes an ad hoc determination of the amount of the principal executive officer's bonus at the end of the first year that the contract is in effect? Would an Item 5.02(e) Form 8-K be required if the committee makes an ad hoc determination of the amount of the CEO's bonus at the end of the second year in which the contract is in effect?

Answer: No. In both cases, no Item 5.02(e) Form 8-K would be required to report the discretionary bonus amount. Disclosure regarding material information about the bonus should be included in the registrant's Compensation Discussion and Analysis and related disclosures under Item 402 of Regulation S-K. [April 2, 2008]

Question 117.14

Question: A registrant intends to terminate an executive compensation plan. Item 5.02(e) requires that material amendments or modifications of compensatory arrangements be disclosed on Form 8-K. Does this item require disclosure of plan terminations?

Answer: Yes. A termination should be disclosed if it constitutes a material amendment or modification of the executive compensation plan. Release No. 33-8732A stated that "[i]nstead of being required to be disclosed based on the general requirements with regard to material definitive agreements in Item 1.01 and Item 1.02 of Form 8-K, employment compensation arrangements will now be covered under Item 5.02 of Form 8-K, as amended." [April 2, 2008]

Question 117.15

Question: If a company has a corporate governance policy that requires a director to tender her resignation from the board of directors upon the occurrence of an event — such as reaching mandatory retirement age, changing jobs or failing to receive a majority of votes cast for election of directors at the annual meeting of shareholders — when must a company file a Form 8-K under Item 5.02(b)?

Answer: Under these circumstances, in which a director tenders her resignation only because she is required to do so in order to comply with a corporate governance policy, the company must file a Form 8-K under Item 5.02(b) within four business days of the board's decision to accept the director's tender of resignation. If the board does not accept the director's tender of resignation — and thus, the director remains on the board — the company should consider informing shareholders as to whether and to what extent corporate governance policies are being followed and enforced. [June 26, 2008]

Question 117.16

Question: A registrant appoints a new director, triggering the obligation to file a Form 8-K pursuant to Item 5.02(d). The newly appointed director enters into the standard compensatory and other agreements and arrangements that the company provides its non-employee directors (e.g., an equity award, annual cash compensation and an indemnification agreement). Pursuant to Item 5.02(d)(5), must the Form 8-K describe these compensatory and other agreements and arrangements?

Answer: Yes. Item 5.02(d)(5) requires a brief description of the newly appointed director's compensatory and other agreements and arrangements, even if they are consistent with the registrant's previously disclosed standard agreements and arrangements for non-employee directors. In lieu of describing any material plan, contract or arrangement to which the director is a party or in which he or she participates, (but not material amendments or grants or awards or modifications thereto), the registrant may cross-reference the description of such plan, contract or arrangement from the Item 402 disclosure in the company's most recent annual report on Form 10-K or proxy statement. [May 29, 2009]

Section 118. Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

Question 118.01

Question: Does the restatement of a registrant's articles of incorporation, without any substantive amendments to those articles or any requirement to be approved by security holders, trigger a Form 8-K filing requirement?

Answer: No. An Item 5.03 Form 8-K is not required to be filed when the registrant is merely restating its articles of incorporation (e.g., a restatement that merely consolidates previous amendments without any substantive changes to the articles of incorporation). However, the Division staff recommends that a registrant refile its complete articles of incorporation, if restated, in its next periodic report for ease of reference by investors. [April 2, 2008]

Section 119. Item 5.04 Temporary Suspension of Trading Under Registrant's Employee Benefit Plans

Question 119.01

Question: Is a Form 8-K filing required for the notice of any time period that constitutes a "blackout period" for purposes of the notice requirements under ERISA, without regard to whether it is also a "blackout period" for purposes of Section 306(a) of the Sarbanes-Oxley Act of 2002 and Regulation BTR?

Answer: No. Item 5.04 applies only to a notice of a "blackout period" under Section 306(a) of Sarbanes-Oxley and Regulation BTR. [May 29, 2009]

Section 120. Item 5.05 Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

None

Section 121. Item 5.06 Change in Shell Company Status

None

Section 121A. Item 5.07 Submission of Matters to a Vote of Security Holders

Question 121A.01

Question: How should an issuer calculate the four business day filing period for an Item 5.07 Form 8-K?

Answer: Pursuant to Instruction 1 to Item 5.07, the date on which the shareholder meeting ends is the triggering event for an Item 5.07 Form 8-K. Day one of the four-business day filing period is the day after the date on which the shareholder meeting ends. For example, if the meeting ends on Tuesday, day one would be Wednesday, and the four-business day filing period would end on Monday. [Feb. 16, 2010]

Question 121A.02

Question: Does the Item 5.07(b) requirement to report the number of shareholder votes cast for, against or withheld with respect to a matter apply only to matters voted upon at a meeting that involves the election of directors?

Answer: No. This reporting obligation applies with respect to any matter submitted to a vote of security holders, through the solicitation of proxies or otherwise. [June 4, 2010]

Question 121A.03

Question: Item 5.07(b) requires disclosure of the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each matter submitted to a vote of security holders. With respect to the advisory vote on the frequency of shareholder advisory votes on executive compensation, Item 5.07(b) requires disclosure of the number of votes cast for each of the one, two and three year frequency options, as well as the number of abstentions. Are companies also required to state the number of broker non-votes with respect to the frequency of shareholder advisory votes on executive compensation?

Answer: No. Item 5.07(b) does not require disclosure of the number of broker non-votes with respect to the advisory vote on the frequency of shareholder advisory votes on executive compensation. If a company believes this information would be useful for investors, then it may disclose such information under Item 5.07(b). [July 8, 2011]

Question 121A.04

Question: May an issuer disclose its decision as to how frequently it will include a shareholder advisory vote on executive compensation in its proxy materials in a periodic report instead of an Item 5.07 Form 8-K, pursuant to General Instruction B.3 to Form 8-K?

Answer: Yes. Pursuant to General Instruction B.3, an issuer may report Item 5.07 Form 8-K information in a periodic report that is filed on or before the date that an Item 5.07 Form 8-K would otherwise be due. If the issuer reports its annual meeting voting results in a Form 10-Q or Form 10-K, it may file a new Item 5.07 Form 8-K, rather than an amended Form 10-Q or Form 10-K, to report its decision as to how frequently it will include a shareholder advisory vote on executive compensation in its proxy materials. However, if the issuer reports its annual meeting voting results in an Item 5.07(b) Form 8-K and also intends to report its frequency decision in a Form 8-K, then, as required by Item 5.07(d), that Form 8-K must be filed as an amendment to the Item 5.07(b) Form 8-K - using submission type 8-K/A - and not as a new Form 8-K. [July 8, 2011]

Section 122. Item 6.01 ABS Information and Computational Material

None

Section 123. Item 6.02 Change of Servicer or Trustee

None

Section 124. Item 6.03 Change in Credit Enhancement or Other External Support

None

Section 125. Item 6.04 Failure to Make a Required Distribution

None

Section 126. Item 6.05 Securities Act Updating Disclosure

None

Section 127. Item 7.01 Regulation FD Disclosure

None

Section 128. Item 8.01 Other Events

None

Section 129. Item 9.01 Financial Statements and Exhibits

Question 129.01

Question: Is the automatic 71-day extension of time in Item 9.01 of Form 8-K available with respect to dispositions?

Answer: No. The automatic 71-day extension of time in Item 9.01 of Form 8-K is available only with respect to acquisitions, not dispositions. The Division's Office of the Chief Accountant will continue to address questions regarding dispositions on a case-by-case basis. [April 2, 2008]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Form 8-K – General Guidance

None

Section 202. Item 1.01 Entry into a Material Definitive Agreement

202.01 If an Item 1.01 Form 8-K filing requirement is triggered in early April for a registrant with a calendar year fiscal year (i.e., after the end of the registrant's first quarter but before the registrant is required to file its Form 10-Q for that quarter), and the registrant timely files the Item 1.01 Form 8-K but does not file the agreement (to which the Item 1.01 Form 8-K relates) as an exhibit to that Form 8-K, the registrant is required to file the agreement as an exhibit to its second quarter Form 10-Q. The disclosure requirement under Item 1.01 of Form 8-K does not alter the existing requirements for the filing of exhibits under Item 601 of Regulation S-K. [April 10, 2008]

Section 203. Item 1.02 Termination of a Material Definitive Agreement

None

Section 204. Item 1.03 Bankruptcy or Receivership

None

Section 205. Item 2.01 Completion of Acquisition or Disposition of Assets

205.01 Item 2.01 of Form 8-K, which calls for disclosure of the acquisition or disposition of a significant amount of assets, does not require disclosure of the execution of a contract to acquire or dispose of the assets. Disclosure under Item 2.01 is specifically required only when such an acquisition or disposition is consummated. Nevertheless, the filing of a Form 8-K reporting the execution of a contract for the acquisition or disposition of assets may be required earlier by Item 1.01 of Form 8-K if the registrant has entered into a material definitive agreement not made in the ordinary course of business of the registrant (or an amendment of such agreement that is material). Even if Item 1.01 and Item 2.01 do not require disclosure, if the registrant deems the contract to be of importance to security holders, then the registrant may voluntarily disclose it pursuant to Item 8.01. The financial statement requirement of Item 9.01 is triggered by Item 2.01, but is not triggered by Item 1.01 or 8.01. [April 2, 2008]

205.02 The purchase by a reporting company of a minority stock interest in a business from an independent third party (which is accounted for under the cost method) would not require the filing of the financial statements of that business with any Form 8-K filed to report the transaction, so long as that minority position did not result in the reporting company's control of the assets. [April 2, 2008]

205.03 A wholly-owned subsidiary acquires a significant amount of assets from its parent. Both the subsidiary and the parent are reporting companies. The term "any person" found in Instruction 1 to Item 2.01 of Form 8-K refers to the company that has the obligation to file the report. Therefore, while Instruction 1 would not require a filing by the parent, the subsidiary would be required to file the report. [April 2, 2008]

205.04 An indefinite closing of a portion of a company's restaurant facilities, coupled with a write-down of its assets in excess of 10 percent, constitutes an "other disposition" for purposes of Instruction 2 to Item 2.01 of Form 8-K, and thus requires the filing of a Form 8-K report. [April 2, 2008]

205.05 Paragraph (iii) of Instruction 1 to Item 2.01 of Form 8-K indicates that a Form 8-K filing is not required to report the redemption or acquisition of securities from the public, or the sale or other disposition of securities to the public, by the issuer of such securities or by a wholly-owned subsidiary of that issuer. This instruction does not apply to the sale of a subsidiary's equity, because the subsidiary would not be wholly-owned after the transaction is completed. [April 2, 2008]

Section 206. Item 2.02 Results of Operations and Financial Condition

206.01 Item 2.02(b) provides that a Form 8-K is not required to report the disclosure of material nonpublic information that is disclosed orally, telephonically, by webcast, broadcast or similar means if, among other things, that presentation is complementary to and initially occurs within 48 hours following a related written announcement or release that has been furnished on an Item 2.02 Form 8-K. This 48-hour safe harbor is construed literally and is not the equivalent of two business or calendar days. [April 2, 2008]

Section 207. Item 2.03 Creation of a Direct Financial Obligation under an Off-Balance Sheet Arrangement of a Registrant

None

Section 208. Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

208.01 A voluntary redemption of convertible notes by a registrant is not a triggering event for purposes of Item 2.04 of Form 8-K. [April 2, 2008]

208.02 A company disagrees with the legitimacy of a notice of default and brings the matter to arbitration, pursuant to its rights under the terms of the applicable loan agreement. The matter is pending with an arbitrator. Notwithstanding its good faith belief that no event of default has taken place and the fact that the arbitrator has yet to rule on the legitimacy of the event of default, the notice of default is a triggering event under Item 2.04. When the company files the Form 8-K, it may include a discussion of the basis for its belief that no event of default has occurred. [April 2, 2008]

Section 209. Item 2.05 Costs Associated with Exit or Disposal Activities

209.01 An Item 2.05 Form 8-K filing requirement is triggered when a registrant's board or board committee, or the registrant's officer(s) authorized to take such action if board action is not required, commits the registrant to a "plan of termination" that meets the description of such a plan in paragraph 8 of SFAS No. 146, under which material charges will be incurred under generally accepted accounting principles applicable to the registrant under the plan. The "plan of termination" need not fall within an "exit activity," as defined in SFAS No. 146, or otherwise constitute an "exit or disposal plan" (or part of one), to trigger an Item 2.05 Form 8-K filing requirement. [April 2, 2008]

Section 210. Item 2.06 Material Impairments

None

Section 211. Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

211.01 A registrant's common stock is traded on the OTC Bulletin Board, which is not an automated inter-dealer quotation system of a registered national securities association, and is not otherwise traded on an exchange. The registrant has applied to list its common stock on the American Stock Exchange. In this instance, an Item 3.01 Form 8-K filing requirement is not triggered upon the registrant's application for listing on the American Stock Exchange, or upon the approval of the application. [April 2, 2008]

Section 212. Item 3.02 Unregistered Sales of Equity Securities

212.01 An Item 3.02 Form 8-K filing requirement is triggered when a registrant enters into an agreement enforceable against the registrant to issue unregistered equity securities to a third party in exchange for services and the applicable volume threshold is exceeded. [April 2, 2008]

212.02 If an Exchange Act reporting, wholly-owned subsidiary receives an additional equity investment from its Exchange Act reporting parent and the volume threshold under Item 3.02 of Form 8-K is exceeded, the wholly-owned subsidiary is required to file an Item 3.02 Form 8-K to report the additional equity investment, regardless of whether the wholly-owned subsidiary meets the conditions for the filing of abbreviated periodic reports under General Instruction H of Form 10-Q and General Instruction I of Form 10-K. [April 2, 2008]

212.03 An Item 3.02 Form 8-K filing requirement is triggered upon an unregistered sale of warrants to purchase equity securities (or an unregistered sale of options outside a stock option plan), if the volume threshold under Item 3.02 is exceeded, or upon an unregistered sale of convertible notes (convertible into equity securities), if the volume threshold under Item 3.02 of the underlying equity security issuable upon conversion is exceeded. Pursuant to Item 701(e) of Regulation S-K, the registrant must disclose the terms of, as applicable, the exercise of the warrants or the options or the conversion of the convertible notes in the Item 3.02 Form 8-K. If the Item 3.02 Form 8-K that discloses the initial sale of the warrants, the options, or the convertible notes also discloses the maximum amount of the underlying securities that may be issued through, as applicable, the exercise of the warrants or the options or the conversion of the convertible notes, then a subsequent Item 3.02 Form 8-K filing requirement is not triggered upon the exercise of the warrants or the options or the conversion of the notes. [April 2, 2008]

Section 213. Item 3.03 Material Modifications to Rights of Security Holders

213.01 Upon adoption of a shareholder rights plan, a registrant undertook to make a dividend of a preferred share purchase right for each outstanding share of common stock. The Plan was adopted by the board on August 9. The certificate of designation related to the preferred share purchase right was filed with the state on August 25. The dividend, not yet declared, will occur only upon certain change in control events. Under Item 3.03(b) of Form 8-K, the triggering event related to the plan occurs not upon adoption of the plan or upon filing of the certificate of designation with the state, but rather upon the issuance of the dividend. The rights of the holders of the registered common stock are not materially limited or qualified until the issuance of, in this case, the preferred share purchase rights. The preferred share purchase rights are not issued until the dividend is declared and the rights are distributed. Although the registrant is not required to file an Item 3.03 Form 8-K until the issuance of the dividend, the registrant must file an Item 1.01 Form 8-K when it enters into the shareholder rights plan if the plan constitutes a material definitive agreement not made in the ordinary course of business. [April 2, 2008]

Section 214. Item 4.01 Changes in Registrant's Certifying Accountant

214.01 Item 4.01 of Form 8-K requires an issuer to report a change in its certifying accountant. The item also requires that the issuer request the former accountant to furnish a letter stating whether the former accountant agrees with the issuer's statements concerning the reasons for the change. Where the former accountant declines to provide such a letter, the issuer should indicate that fact in the Form 8-K. [April 2, 2008]

214.02 Item 4.01 of Form 8-K requires a registrant to report changes in its certifying accountant. The company must file the report on a Form 8-K and must file any required amendments to the report on a Form 8-K/A. It is not sufficient to report the event in a periodic report. See Exchange Act Form 8-K Question 101.01. [April 2, 2008]

Section 215. Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

215.01 Item 4.02 of Form 8-K requires an issuer to report a decision that its past financial statements should no longer be relied upon. The company must file the report on a Form 8-K and file any required amendments on a Form 8-K/A. It is not sufficient to report the event in a periodic report. See Exchange Act Form 8-K Question 101.01. [April 2, 2008]

Section 216. Item 5.01 Changes in Control of Registrant

None

Section 217. Item 5.02 Departure of Certain Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

217.01 Item 5.02(a) of Form 8-K requires registrants to describe the circumstances of a director's resignation when he or she resigned "because of a disagreement with the registrant… on any matter related to the registrant's operations, policies or practices." A disagreement with the process chosen by the Chairman and other board members to address a director's alleged violation of a company's policy regarding unauthorized public disclosures and the board's related decision to ask the director to resign is a disagreement on matters "related to the registrant's operations, policies or practices." See In the Matter of Hewlett Packard Company, Release 34-55801 (May 23, 2007). [April 2, 2008]

217.02 When a principal financial officer temporarily turns his or her duties over to another person, a company must file a Form 8-K under Item 5.02(b) to report that the original principal financial officer has temporarily stepped down and under Item 5.02(c) to report that the replacement principal financial officer has been appointed. If the original principal financial officer returns to the position, then the company must file a Form 8-K under Item 5.02(b) to report the departure of the temporary principal financial officer and under Item 5.02(c) to report the "re-appointment" of the original principal financial officer. [April 2, 2008]

217.03 A director who is designated by an issuer's majority shareholder gives notice that he will resign if the majority shareholder sells its entire holdings of issuer stock. This notice triggers an obligation to file an Item 5.02(b) Form 8-K, which should state clearly the nature of the contingency and the extent to which the resigning director can control occurrence of the contingency. [April 2, 2008]

217.04 Item 5.02(b) of Form 8-K does not require a registrant to report the death of a director or listed officer. [April 2, 2008]

217.05 If, pursuant to a contractual provision in a named executive officer's employment contract or otherwise, the registrant must notify the named executive officer of the termination of his or her employment a specified number of days prior to the date on which the named executive officer's employment would end, an Item 5.02(b) Form 8-K filing requirement is triggered on the date the registrant notifies the named executive officer of his or her termination, not on the date the named executive officer's employment actually ends. [April 2, 2008]

217.06 A registrant appoints a new principal accounting officer, which triggers an Item 5.02(c) Form 8-K filing requirement. The registrant can decide to delay the filing of the Item 5.02(c) Form 8-K until it makes a public announcement of the appointment of the new principal accounting officer, pursuant to the Instruction to paragraph (c) of Item 5.02. The new principal accounting officer replaces the old principal accounting officer, who retired, resigned, or was terminated from that position. The retirement, resignation, or termination of the old principal accounting officer triggers an Item 5.02(b) Form 8-K filing requirement. The registrant may not delay the filing of the Item 5.02(b) Form 8-K until the filing of the Form 5.02(c) Form 8-K. Rather, the Item 5.02(b) Form 8-K filing obligation is triggered by the old principal accounting officer's notice of a decision to retire or resign or by the notice of termination, whether or not such notice is written. [April 2, 2008]

217.07 A director was appointed by board vote and, at the same time, named to the audit committee. Both the appointment of the director to the board and the committee assignment were disclosed under Item 5.02(d) of Form 8-K. Three months later, the board rotates committee assignments, and the new director is moved from the audit committee to the compensation committee. No new Form 8-K or amendment to the Item 5.02(d) Form 8-K is required by Instruction 2 to Item 5.02 in this situation, provided that the change in committee assignment was not contemplated at the time of the director's initial election to the board and appointment to the audit committee. [April 2, 2008]

217.08 In the past, a named executive officer entered into an employment agreement that will, pursuant to its terms, expire after two years. The employment agreement automatically extends for an additional two-year term, unless the registrant or the named executive officer affirmatively gives notice that it is not renewing the agreement. The automatic renewal of the employment agreement (i.e., when the original two-year term of the employment agreement expires and neither party gives notice that it does not wish to renew the agreement) does not trigger an Item 5.02(e) Form 8-K filing requirement. [April 2, 2008]

217.09 Foreign private issuers that satisfy the Item 402 of Regulation S-K disclosure requirement by providing compensation disclosure in accordance with Item 402(a)(1) should refer to Instruction 4 to Item 5.02 to determine who is a "named executive officer." The named executive officers will be those individuals for whom disclosure was provided in the last Securities Act or Exchange Act filing pursuant to Item 6.B or 6.E.2 of Form 20-F. [April 2, 2008]

Section 218. Item 5.03 Amendments to Articles of Incorporation or Bylaws; Changes in Fiscal Year

218.01 Release No. 34-26589, which significantly amended Rule 15d-10, states that "[a] change from a fiscal year ending as of the last day of the month to a 52-53 week fiscal year commencing within seven days of the month end (or from a 52-53 week to a month end) is not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or 15d-10 if the new fiscal year commences with the end of the old fiscal year. In such cases, a transition report would not be required. Either the old or new fiscal year could, therefore, be as short as 359 days, or as long as 371 days (372 in a leap year)." While a transition report would not be required in such a situation, an Item 5.03(b) Form 8-K would have to be filed to report the change in fiscal year-end. [April 2, 2008]

Section 219. Item 5.04 Temporary Suspension of Trading Under Registrant's Employee Benefit Plans

None

Section 220. Item 5.05 Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

None

Section 221. Item 5.06 Change in Shell Company Status

None

Section 222. Item 6.01 ABS Information and Computational Material

None

Section 223. Item 6.02 Change of Servicer or Trustee

None

Section 224. Item 6.03 Change in Credit Enhancement or Other External Support

None

Section 225. Item 6.04 Failure to Make a Required Distribution

None

Section 226. Item 6.05 Securities Act Updating Disclosure

None

Section 227. Item 7.01 Regulation FD Disclosure

None

Section 228. Item 8.01 Other Events

None

Section 229. Item 9.01 Financial Statements and Exhibits

229.01 Item 20.D. of Industry Guide 5 requires, inter alia, an undertaking to file every three months post-effective amendments containing financial statements of acquired properties. Even if the automatic 71-day extension of time to file the financial statements for an acquired property is applicable to a Form 8-K, this extension does not apply to the Guide 5 post-effective amendment. Accordingly, the post-effective amendment must be filed when required by Item 20 of Guide 5, and must contain the required financial statements. This is the same position as that taken before the Form 8-K extensions were made automatic. [April 2, 2008]

229.02 During the pendency of a 71-day extension applicable to a Form 8-K, Securities Act offerings may not be made except as provided in the Instruction to Item 9.01 of Form 8-K. The Division staff has been asked whether this provision applies to real estate limited partnership offerings, thus prohibiting sales from being made until financial statements for properties acquired during the offering period have been filed (even when the quarterly post-effective amendment is not yet due). The amendment to Form 8-K was not intended to change the procedure established in Item 20.D. of Guide 5. Accordingly, when properties are acquired during the offering period, the registrant may continue sales activities notwithstanding the pendency of an 8-K extension, so long as the quarterly post-effective amendments containing the financial statements are filed when required. [April 2, 2008]

229.03 The Instruction to Item 9.01 of Form 8-K addresses the status of transactions in securities registered under the Securities Act and Rule 144 sales during the pendency of an extension, but does not address the status of such sales after a denial of a request for waiver of financial statements. This question will be dealt with on a case-by-case basis. [April 2, 2008]

229.04 Item 17(b)(7) of Form S-4 states generally that the financial statements of acquired companies that were not previously Exchange Act reporting companies need be audited only to the extent practicable, unless the Form S-4 prospectus is to be used for resales by any person deemed an underwriter within the meaning of Rule 145(c), in which case such financial statements must be audited. The Division staff was asked whether a resale pursuant to Rule 145(d), in lieu of the Form S-4 prospectus, would require the financial statements to be audited. The Division staff noted that Rule 145(d) is not included in the Instruction to Item 9.01 of Form 8-K regarding sales pursuant to Rule 144 during the 71-day extension period for filing financial statements. As the audited financial statements for the acquired company would be required pursuant to Item 9.01 of Form 8-K, a resale pursuant to Rule 145(d) would not be permitted until they are filed. [April 2, 2008]

Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting

Last Update: July 11, 2025

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Exchange Act Section 13(d), Section 13(g), and Regulation 13D-G, including Schedules 13D and 13G. The bracketed date following each of these beneficial ownership reporting C&DIs is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Section 13(d)

Question 101.01

Question: A security holder owns over five percent of a class of an issuer's equity securities. The issuer's Form 10 registering this class of securities under Section 12(g) of the Exchange Act just became effective. If the security holder has not added any securities to its holdings since the effective date of the Form 10, should the security holder report its beneficial ownership on Schedule 13G pursuant to Rule 13d-1(d)?

Answer: Yes. The security holder must file a Schedule 13G pursuant to Rule 13d-1(d). Since the security holder has not "acquired" any securities of a class registered under Section 12 of the Exchange Act, the security holder is not required to file a Schedule 13D pursuant to Rule 13d-1(a), or under Section 13(d). The security holder must file the Schedule 13G within 45 days after the end of calendar quarter in which the class of securities was registered. Note that the security holder is not required to certify that the shares were acquired or are held in the ordinary course or without the purpose or the effect of changing or influencing the control of the issuer of the securities.

If the security holder acquires additional equity securities after the effective date of the Form 10, the security holder must report its entire holdings on Schedule 13D or evaluate whether it is eligible to rely on Rules 13d-1(b) or 13d-1(c) to continue to report on Schedule 13G if the most recent acquisition, when added to all other acquisitions of securities of the same class during the 12 months immediately preceding the date of the most recent acquisition, aggregates to more than two percent of the class of such securities. See Section 13(d)(6)(B) of the Exchange Act. This 12-month period will run back from the date of the acquisition to the time when the issuer was privately held if the acquisition occurs within 12 months after the effective date of the Form 10. If the security holder has acquired two percent or less during this period, the security holder simply may continue to rely on Rule 13d-1(d) and reflect the present acquisition in its Schedule 13G pursuant to Rule 13d-2(b). [July 11, 2025] [Comparison to prior version]

Question 101.02

Question: Should shares that an issuer repurchased to fund a stock option plan be included in the number of shares outstanding for purposes of Section 13(d) of the Exchange Act?

Answer: No. Shares that an issuer repurchased do not count as outstanding shares, even if the issuer did not retire the shares or account for them as treasury stock. Section 13(d)(4) of the Exchange Act excludes shares "held by or for the account of the issuer or a subsidiary of the issuer" from the class of outstanding shares. [Sep. 14, 2009]

Question 101.03

Question: A group comprised of a limited partnership and two general partners owned more than five percent of the outstanding equity securities of a non-public company and held the securities with the purpose or effect of influencing control of the issuer. The company subsequently registered the class securities under Section 12(g) of the Exchange Act, and the group filed beneficial ownership reports on Schedule 13G pursuant to Rule 13d-1(d). If the group later adds a new member that owns more than two percent of the same class of equity securities, would the group be required to report its holdings on Schedule 13D?

Answer: Yes. By adding a new member that beneficially owns more than two percent of the class of equity securities registered under Section 12, the group effectively acquired those securities. The group and all of its members would be required to report their holdings on Schedule 13D since they would not qualify for the exemption set forth under Section 13(d)(6)(B) of the Exchange Act, would no longer meet the requirements of Rule 13d-1(d) and would not be eligible to file a Schedule 13G pursuant to Rules 13d-1(b) and 13d-1(c). [Sep. 14, 2009]

Question 101.04

Question: If an investor owns more than five percent of the outstanding American Depositary Receipts, or ADRs, of an issuer, but those ADRs represent five percent or less of the outstanding class of Section 12 registered equity securities of the issuer that the ADRs represent, is the investor required to report its beneficial ownership of the ADRs on a Schedule 13D or Schedule 13G?

Answer: No. ADRs, which are exempt from registration under the Exchange Act pursuant to Exchange Act Rules 12a-8 and 12g3-2(c), are not considered a separate class of equity securities for purposes of calculating beneficial ownership of securities. See Section II.D.2., Exchange Act Release No. 29226 (May 23, 1991), which states that "[a] reporting obligation under Section 13(d) is determined by ownership of the class of deposited securities, including ownership of those securities through ADRs." [Sep. 14, 2009]

Question 101.05

Question: In a merger where security holders of the target company will receive consideration in the form of the acquiring company's Section 12 registered equity securities in a registered stock-for-stock exchange, may a target security holder that receives greater than five percent of the class in the share exchange rely upon Section 13(d)(6)(A) to avoid having to file a beneficial ownership report?

Answer: No. The target security holder must report beneficial ownership of those securities on Schedule 13D or, if eligible, on Schedule 13G under Rules 13d-1(b) or 13d-1(c). Section 13(d)(6)(A) provides an exemption from the application of Section 13(d) only in relation to those securities that an issuer acquires through a registered stock-for-stock exchange, such as in a merger where the shares of the target company will be merged out of existence. See, e.g., the Tyler Corporation (December 14, 1978) and Allied Artist Industries, Inc. (January 8, 1979) no-action letters. [Sep. 14, 2009]

Question 101.06

Question: A customer instructed its broker to purchase up to 4.9 percent of the outstanding class of Section 12 registered voting common stock of a company. The broker mistakenly purchased over five percent for the customer's account. The customer refused to pay for the excess shares and instructed the broker to sell all shares in excess of 4.9 percent. Is the customer required to file a Schedule 13D or 13G pursuant to Rule 13d-1?

Answer: Yes. The customer is “deemed” to have acquired beneficial ownership of greater than five percent of the class pursuant to Rule 13d-5(a) and, therefore, must file a Schedule 13D, or Schedule 13G in lieu thereof, under Section 13(d) of the Exchange Act and corresponding Rule 13d-1. The absence of an intent to acquire in excess of five percent is not a consideration with respect to the applicability of Section 13(d). [July 11, 2025] [Comparison to prior version]

Section 102. Section 13(g)

None

Regulation 13D-G

Section 103. Rule 13d-1 — Filing of Schedules 13D and 13G

Question 103.01

Question: If a security holder acquires more than 10 percent of a class of equity securities before the registration of that class under Section 12 of the Exchange Act, is it required to file a Schedule 13D when the issuer registers the class of securities under Section 12? If the security holder is not required to file a Schedule 13D, when must it file a Schedule 13G?

Answer: The security holder is not required to file a Schedule 13D upon registration of the class of securities under Section 12. See Section 13(d), which requires a filing of Schedule 13D only upon the "acquisition" of equity securities of a class registered under Section 12. However, the security holder must file a Schedule 13G pursuant to Rule 13d-1(d) within 45 days after the end of the calendar quarter in which the Exchange Act registration becomes effective. Note that the provisions of Rule 13d-1(b)(2), which require certain beneficial owners of greater than 10 percent of a class of equity securities registered under Section 12 to file a Schedule 13G within five business days after the end of a designated month, are limited to the institutional investors listed in Rule 13d-1(b)(1), and do not apply to beneficial owners that file a Schedule 13G pursuant to Rule 13d-1(d). [July 11, 2025] [Comparison to prior version]

Question 103.02

Question: A broker-dealer and several individuals form a limited partnership, with the broker-dealer as the sole general partner and the individuals as limited partners. The partnership itself is not one of the persons listed in Rule 13d-1(b)(1)(ii) as eligible to file ownership reports on Schedule 13G. Is the partnership eligible to report on Schedule 13G pursuant to Rule 13d-1(b) as a result of the general partner's qualification to use Schedule 13G pursuant to Rule 13d-1(b)?

Answer: No. In order to be eligible to use Schedule 13G pursuant to Rule 13d-1(b), the partnership, and not just the general partner, must be a person listed in Rule 13d-1(b)(l)(ii). The partnership's inability to file on Schedule 13G pursuant to Rule 13d-1(b) does not change as a result of the general partner's qualification to use Schedule 13G pursuant to Rule 13d-1(b). The partnership must file a Schedule 13D or otherwise meet the requirements to file a Schedule 13G pursuant to Rule 13d-1(c). [Sep. 14, 2009]

Question 103.03

Question: A security holder owned 5.1 percent of a bank's equity securities and filed the equivalent of a Schedule 13G with the Comptroller of the Currency. When the bank converted to a bank holding company, and after the class of the holding company's securities were registered under Section 12(g), the security holder received 5.1 percent of the holding company's stock in a one-for-one exchange. Is the security holder required to file a Schedule 13D because it received the holding company's securities after the class had been registered under Section 12?

Answer: No. The security holder is eligible to file on Schedule 13G, rather than Schedule 13D, because it acquired the bank's securities before the registration of the class of holding company securities under Section 12. See Rule 13d-1(d). The Schedule 13G is considered the security holder's initial filing with the Commission, not an amendment to the filings previously made with the Comptroller. [Sep. 14, 2009]

Question 103.04

Question: One of the requirements for eligibility to file a Schedule 13G pursuant to Rule 13d-1(c) is that a reporting person must not have "acquired the securities with any purpose, or with the effect of, changing or influencing the control of the issuer." See Rule 13d-1(c)(1). Item 10 of Schedule 13G requires that reporting persons relying on Rule 13d-1(c) certify to this requirement. May an officer or director that beneficially owns more than five percent of a voting class of the issuer's equity securities registered under Section 12 of the Exchange Act rely on Rule 13d-1(c) to file on Schedule 13G?

Answer: The role of officers or directors will most likely eliminate their eligibility to file on Schedule 13G pursuant to Rule 13d-1(c). Notwithstanding any specific control intent, the fact that officers and directors have the ability to directly or indirectly influence the management and policies of an issuer will generally render officers and directors unable to certify to the requirements of Rule 13d-1(c)(1). See footnote 18 in the Brief of the Securities and Exchange Commission, Amicus Curiae in Edelson v. Ch'ien. [Sep. 14, 2009]

Question 103.05 [withdrawn]

Question 103.06

Question: A group comprised of three entities filed a Schedule 13G pursuant to Rules 13d-1(c) and 13d-1(k)(1). One of the group members transfers its securities (constituting six percent of the issuer's class of equity securities registered under Section 12 of the Exchange Act) to its parent as a dividend. The parent, a Schedule 13G filer with respect to these securities, has not acted as a group with the other group members for the purpose of acquiring, holding, voting or disposing of equity securities of the issuer. What beneficial ownership reports must the parent and the group file after the subsidiary transfers the securities to its parent?

Answer: The parent must file an amended Schedule 13G 45 days after the end of the calendar quarter in which the subsidiary transfers the securities if becoming the direct beneficial owner of the transferred securities constitutes a material change in the information the parent previously disclosed. See Rule 13d-2(b). Because the parent already was the indirect beneficial owner of the securities owned by the subsidiary before the transfer, the parent does not "acquire" the securities within the meaning of Section 13(d)(1) as a result of the transfer and, therefore, does not incur an obligation to file a Schedule 13D. The group is required to amend its Schedule 13G to reflect the reduction in the amount beneficially owned and the departure of the subsidiary from the group. [July 11, 2025] [Comparison to prior version]

Question 103.07

Question: Can a security holder that has reported its beneficial ownership on Schedule 13D switch to reporting on a Schedule 13G?

Answer: Only a security holder who was initially eligible to report its beneficial ownership on a Schedule 13G and was later required to file a Schedule 13D may switch to reporting on a Schedule 13G. See Rule 13d-1(h), which states that any person who has filed a Schedule 13D may again report its beneficial ownership on Schedule 13G so long as the shares are no longer held with control intent. A security holder who intends to switch to a Schedule 13G must meet the eligibility requirements of Rules 13d-1(b) or (c). In this case, the Schedule 13G may operate as an amendment of the Schedule 13D under Rule 13d-2(a). If the security holder was not originally eligible to file a Schedule 13G, instead files a Schedule 13D to report its beneficial ownership and later files a final amendment on Schedule 13D to report that its beneficial ownership of the class of securities fell to five percent or below, then the security holder may thereafter qualify to file a Schedule 13G if the security holder's beneficial ownership of the securities again increases to above five percent. [Sep. 14, 2009]

Question 103.08

Question: Does a security holder have an obligation to file a beneficial ownership report to reflect ownership of more than five percent of a Section 12 registered voting class of equity securities of an issuer that resulted solely from a change in the aggregate number of outstanding securities?

Answer: Yes, but since the security holder became the beneficial owner of more than five percent of the class of outstanding securities as a result of an involuntary change in circumstances rather than an acquisition of securities, the security holder may file a Schedule 13G pursuant to Rule 13d-1(d). This exception from the obligation to file a Schedule 13D is not available to persons who influence or control the change in the aggregate number of outstanding securities, including, but not limited to, officers and directors of the issuer. In contrast, if a security holder had filed a Schedule 13D before the change in the aggregate number of outstanding securities, then Rule 13d-2(a) would require the security holder to file an amendment to the Schedule 13D to reflect "any material increase or decrease in the percentage of the class beneficially owned." This amendment requirement arises irrespective of whether the Schedule 13D filer has taken any actions to cause the changes in reported ownership. Rule 13d-2(b), however, relieves Schedule 13G filers from having to file an amendment under the same circumstances. [Sep. 14, 2009]

Question 103.09

Question: A security holder of a parent company receives more than five percent of a Section 12 registered class of equity securities of the parent's subsidiary in a spin-off transaction. The spin-off was not conditioned upon the approval of the parent's security holders. Does the security holder have an obligation to file a beneficial ownership report to reflect its ownership of the subsidiary's equity securities?

Answer: Yes, but the security holder is eligible to file a Schedule 13G pursuant to Rule 13d-1(d) within 45 days after the end of the calendar quarter in which the spin-off occurred, since the receipt of securities in a spin-off transaction does not constitute an "acquisition" within the meaning of Section 13(d) and Rule 13d-1. This exception from the obligation to file a Schedule 13D is not available to persons who influence or control the parent's decision to spin-off the subsidiary, including, but not limited to, officers and directors of the parent. Instead, this exception only applies to those security holders that became beneficial owners as a result of an involuntary change in circumstances. [July 11, 2025] [Comparison to prior version]

Question 103.10

Question: Rule 13d-1(a) states that a Schedule 13D must be filed within five business days after the date of acquisition of more than five percent of a class of equity securities registered under Section 12 of the Exchange Act. Is the Schedule 13D due five business days after the trade date or the settlement date of a securities transaction that creates the reporting obligation?

Answer: The Schedule 13D beneficial ownership report must be filed within five business days after the trade date of the securities transaction. Although under contract law the date on which the ownership of the shares is transferred may be the settlement date, an investor may, at a minimum, exercise investment power over the securities that were acquired through the trade as of the trade date. For purposes of calculating the five business day time period, the first calendar day after the trade date counts as day number one. [July 11, 2025] [Comparison to prior version]

Question 103.11

Question: The Hart-Scott-Rodino (“HSR”) Act provides an exemption from the HSR Act’s notification and waiting period provisions if, among other things, the acquisition of securities was made “solely for the purpose of investment,” with the acquiror having “no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.” 15 U.S.C. 18a(c)(9); 16 C.F.R. 801.1(i)(1). Does the fact that a shareholder is disqualified from relying on this HSR Act exemption due to its efforts to influence management of the issuer on a particular topic, by itself, disqualify the shareholder from initially reporting, or continuing to report, beneficial ownership on Schedule 13G?

Answer: No. The inability to rely on the HSR Act exemption alone would not preclude a shareholder from filing on Schedule 13G in lieu of the Schedule 13D otherwise required. Instead, eligibility to report on Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c) will depend, among other things, on whether the shareholder acquired or is holding the subject securities with the purpose or effect of changing or influencing control of the issuer. This determination is based upon all the relevant facts and circumstances and will be informed by the meaning of “control” as defined in Exchange Act Rule 12b-2. [Feb. 11, 2025] [Comparison to prior version]

Question 103.12

Question: Shareholders filing a Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c) must certify that the subject securities were not acquired and are not held “for the purpose of or with the effect of changing or influencing the control of the issuer.” Under what circumstances would a shareholder’s engagement with an issuer’s management on a particular topic cause the shareholder to hold the subject securities with a disqualifying “purpose or effect of changing or influencing control of the issuer” and, pursuant to Rule 13d-1(e), lose its eligibility to report on Schedule 13G?

Answer: The determination of whether a shareholder acquired or is holding the subject securities with a purpose or effect of “changing or influencing” control of the issuer is based on all the relevant facts and circumstances and will be informed by the meaning of “control” as defined in Exchange Act Rule 12b-2.

The subject matter of the shareholder’s engagement with the issuer’s management may be dispositive in making this determination. For example, Schedule 13G would be unavailable if a shareholder engages with the issuer’s management to specifically call for the sale of the issuer or a significant amount of the issuer’s assets, the restructuring of the issuer, or the election of director nominees other than the issuer’s nominees.

In addition to the subject matter of the engagement, the context in which the engagement occurs is also highly relevant in determining whether the shareholder is holding the subject securities with a disqualifying purpose or effect of “influencing” control of the issuer. Generally, a shareholder who discusses with management its views on a particular topic and how its views may inform its voting decisions, without more, would not be disqualified from reporting on a Schedule 13G. A shareholder who goes beyond such a discussion, however, and exerts pressure on management to implement specific measures or changes to a policy may be “influencing” control over the issuer. For example, Schedule 13G may be unavailable to a shareholder who:

recommends that the issuer remove its staggered board, switch to a majority voting standard in uncontested director elections, eliminate its poison pill plan, change its executive compensation practices, or undertake specific actions on a social, environmental, or political policy and, as a means of pressuring the issuer to adopt the recommendation, explicitly or implicitly conditions its support of one or more of the issuer’s director nominees at the next director election on the issuer’s adoption of its recommendation; or
discusses with management its voting policy on a particular topic and how the issuer fails to meet the shareholder’s expectations on such topic, and, to apply pressure on management, states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes to align with the shareholder’s expectations. [Feb. 11, 2025]

Section 104. Rule 13d-2 — Filing of Amendments to Schedules 13D or 13G

Question 104.01

Question: When a Schedule 13D or 13G reporting person sells the subject securities short, does the reporting person's beneficial ownership change?

Answer: No. Short sales normally will not change a reporting person's Rule 13d-3 beneficial ownership since such sales do not change the amount of shares over which the person has "voting or investment power." However, short sales may trigger a requirement to amend the Schedule 13D pursuant to Rule 13d-2 unless all applicable changes in the facts previously set forth in the reporting person's Schedule 13D are not material. For example, the short sale may represent a change in the source of funds (Item 3), a possible shift in purpose (Item 4) (particularly to the extent that a plan or proposal to dispose of securities of the issuer was not disclosed previously), a "transaction" in the subject security (Item 5), as well as a contract, arrangement, understanding, or relationship with respect to securities of the issuer (Item 6) or require that an exhibit be filed (Item 7). The same analysis applies to a pledge of the securities in a secured transaction or the writing of call options. [July 11, 2025] [Comparison to prior version]

Question 104.02

Question: Are all Schedule 13G filers required to file an amendment to the Schedule within 45 days after the end of the calendar quarter to report any material changes in the information previously disclosed, or is this obligation limited to institutional investors who file on Schedule 13G pursuant to Rule 13d-1(b)?

Answer: All Schedule 13G filers must file an amendment to report any material changes in the information previously disclosed. The Schedule 13G does not need to be amended if there has been no material change to the information disclosed in the Schedule or if the only change is to the percentage of securities beneficially owned by the filing person resulting solely from a change in the aggregate number of the issuer's securities outstanding. See Rule 13d-2(b). [July 11, 2025] [Comparison to prior version]

Question 104.03

Question: What steps should a security holder take if it failed to file required amendments to a Schedule 13D in a timely manner?

Answer: Rule 13d-2(a) requires that a security holder amend its Schedule 13D within two business days after the date of "any material change … in the facts set forth in the Schedule 13D." If a security holder has failed to timely file any required Schedule 13D amendments, the security holder should immediately amend its Schedule 13D to disclose the required information. If the security holder failed to file multiple amendments to the Schedule 13D when required, it may disclose that information by filing multiple amendments or filing one combined amendment. Regardless of the approach taken, the security holder must ensure that the filings contain the information that it should have disclosed in each required amendment, including the dates and details of each event that necessitated a required amendment. Any of these steps taken by the security holder in these situations will not necessarily affect the determination of liability under the federal securities laws for the failure to timely file a required amendment to a Schedule 13D. [July 11, 2025] [Comparison to prior version]

Question 104.04

Question: A security holder owns variable-rate convertible notes. The number of common shares into which the notes are convertible within the next 60 days varies daily with the price of the underlying common stock. Does the holder of the convertible notes have the obligation to amend the Schedule 13D pursuant to Rule 13d-2(a) whenever a change in the conversion rate results in a one percent or more change in beneficial ownership of the underlying common shares?

Answer: Yes. Under Rule 13d-3(d), the right to acquire additional securities through changes in the amount of securities deemed beneficially owned based on a conversion rate is viewed in the same manner as the initial receipt of the right to acquire securities upon conversion that first triggered a filing obligation under Rule 13d-1(a). [July 11, 2025] [Comparison to prior version]

Question 104.05

Question: Does a security holder reporting beneficial ownership on Schedule 13D have an obligation to file a final amendment to disclose that its beneficial ownership of the class of securities fell to five percent or less, even though the disposition amounted to less than one percent of the class?

Answer: The security holder must file an amendment to Schedule 13D to the extent the decline in beneficial ownership to five percent or less constitutes a material change within the meaning of Rule 13d-2(a) and/or to reflect any other material changes to the information previously reported, including Items 4, 5(a)-(c) and 6 of Schedule 13D. It is important to note that the security holder's obligation to amend the Schedule 13D to report material changes to the information previously reported will continue until it files a final amendment disclosing the date on which it ceased to be the beneficial owner of more than five percent of the class of securities pursuant to Item 5(e) of Schedule 13D. [Sep. 14, 2009]

Question 104.06

Question: Are individual security holders that separately report on Schedule 13D required to amend their Schedules 13D when they later form a group together under Section 13(d)(3) of the Exchange Act?

Answer: Yes. The security holders are required to amend their Schedules 13D because becoming a member of a group constitutes a material change under Rule 13d-2(a). The security holders may file separate amendments to their individual Schedules 13D, which would also satisfy the group's reporting obligation pursuant to Rule 13d-1(k)(2). Alternatively, they may file a joint Schedule 13D under Rule 13d-1(k)(1). The joint filing would constitute an initial Schedule 13D by the newly-formed group, but the group is required to file the Schedule 13D within two business days under Rule 13d-2(a) rather than within five business days of the group's formation since the report is intended to amend the three previously filed individual Schedules 13D. [July 11, 2025] [Comparison to prior version]

Question 104.07

Question: If a security holder reporting on Schedule 13D sells all of its shares after a voting record date but before the date of the shareholder meeting and retains the right to vote the shares through the meeting date, when should it file a final amendment on Schedule 13D to report that it is no longer a beneficial owner of more than five percent of the class of securities?

Answer: The security holder should not file the final amendment on Schedule 13D until the end of the shareholder meeting. While the security holder must file an amendment to the Schedule 13D under Rule 13d-2(a) after the sale to disclose the disposition of greater than one percent of the outstanding shares, it should not file a final amendment upon the sale of all of its shares because its voting power is not extinguished until the conclusion of the meeting. [July 11, 2025] [Comparison to prior version]

Section 105. Rule 13d-3 — Determination of Beneficial Ownership

Question 105.01

Question: A pledgee of securities was not required to file a beneficial ownership report on Schedule 13D or Schedule 13G before default by the obligor because the pledgee lacked the power either to vote or to dispose of the pledged securities and was not otherwise deemed to be a beneficial owner by application of Rules 13d-3(d)(3)(i)-(iii). Upon default by the pledgor, should the pledgee immediately examine whether it is required to file a beneficial ownership report or may it wait until it takes all formal steps necessary to declare a default?

Answer: After a default by the pledgor has occurred, the pledgee should re-examine the pledge agreement to determine whether the pledgee has been granted voting power or investment power irrespective of whether it has taken all formal steps necessary to declare a default or perfect its rights. To the extent that, upon default, the pledge agreement grants the pledgee voting or investment power over greater than five percent of the class of outstanding securities, the pledgee will be deemed to have acquired beneficial ownership of the pledged securities on the date of default and must report its beneficial ownership on a Schedule 13D within five business days after that date or, if eligible, a Schedule 13G within the requisite time frame. [July 11, 2025] [Comparison to prior version]

Question 105.02

Question: An investor receives a right to acquire more than five percent of an issuer's voting class of equity securities registered under Section 12 of the Exchange Act without the purpose or effect of changing or influencing control of the issuer. The right is exercisable within 60 days and conditioned upon the effectiveness of a related registration statement. Must the investor report beneficial ownership of the underlying securities?

Answer: The investor is not required to file a beneficial ownership report on Schedule 13D or Schedule 13G until the contingency to acquiring the underlying securities is removed and the right becomes exercisable by the investor within 60 days from that date. Under Rule 13d-3(d)(1), an investor is not deemed to be a beneficial owner of the underlying equity securities when satisfaction of conditions to an investor's right to acquire the securities, such as the effectiveness of a registration statement, remains outside the investor's control. [Sep. 14, 2009]

Question 105.03

Question: If a security holder owns convertible preferred securities that are convertible into greater than five percent of a class of equity securities registered under Section 12 of the Exchange Act, is the security holder obligated to file a beneficial ownership report even though the conversion terms of the preferred securities expressly provide that the security holder may not convert the preferred securities if doing so would cause it to own more than five percent of the issuer's outstanding underlying equity securities?

Answer: Depending on the conversion terms, it is possible that the security holder would not be obligated to file a beneficial ownership report. Rule 13d-3(d)(1)(i) states that a security holder is deemed to beneficially own any underlying securities that the security holder has the right to acquire within sixty days, including the right to acquire through conversion. Conversion provisions that limit the ownership of a class of securities must be binding and valid (e.g., provisions that are non-waivable, enforceable, established in the issuer's governing instruments, applicable to affiliates and assigns, etc.) to effectively eliminate the right of the holder of the convertible securities to acquire the underlying shares and, thereby, relieve the holder of a beneficial ownership report filing obligation. [For a further discussion of the factors that may indicate that a conversion cap is binding and valid, see Brief of the Securities and Exchange Commission, Amicus Curiae in Levy v. Southbrook International Investments, Ltd.] [Sep. 14, 2009]

Question 105.04

Question: A security holder that owns greater than five percent of a voting class of equity securities registered under Section 12 of the Exchange Act has delegated all authority to vote and dispose of its stock to an investment advisor. Must the security holder still continue to report beneficial ownership of the shares?

Answer: Yes, assuming the security holder retains the right under the contract to rescind the authority granted to the investment advisor and regain investment or voting power over the shares within 60 days. See Rule 13d-3(d)(1) and Example 11 in Exchange Act Release No. 13291 (February 24, 1977). [Sep. 14, 2009]

Question 105.05

Question: A husband and wife share the same household. One spouse beneficially owns more than five percent of a voting class of equity securities registered under Section 12 of the Exchange Act. Is the other spouse deemed the beneficial owner of the same securities under Rule 13d-3(a) by virtue of their marital relationship alone?

Answer: No. For purposes of Regulation 13D-G, an analysis of the facts and circumstances is necessary in determining whether a husband, wife or child beneficially owns shares held by another family member sharing the same household. The relationship between family members should be analyzed to determine whether a family member directly or indirectly either has or shares voting and/or dispositive power over the shares held by any other family member living in the same household. [Sep. 14, 2009]

Question 105.06

Question: Certain shareholders have entered into a voting agreement under which each shareholder agrees to vote the shares of a voting class of equity securities registered under Section 12 that it beneficially owns in favor of the director candidates nominated by one or more of the other parties to the voting agreement. Under Section 13(d)(3), the shareholders have formed a group given that they have agreed to act together for the purpose of voting the equity securities of the issuer. Under what circumstances is the beneficial ownership of a party to the voting agreement attributed to one or more other parties to the agreement?

Answer: The formation of a group under Section 13(d)(3), without more, does not result in the attribution of beneficial ownership to each group member of the securities beneficially owned by other members. Under Section 13(d)(3) of the Exchange Act, this group is treated as a new “person” for purposes of Section 13(d)(1) and is deemed to have acquired, due to the agreement among its members and corresponding operation of Rule 13d-5(b), beneficial ownership of the shares beneficially owned by its members. (Note that the analysis is different for Section 16 purposes. See Section II.B.3 of Exchange Act Release No. 28869 (February 8, 1991).)

In order for one party to the voting agreement to be treated as having or sharing beneficial ownership of securities held by any other party to the voting agreement, evidence beyond formation of the group under Section 13(d)(3) would need to exist. For example, if a party to the voting agreement has the right to designate one or more director nominees for whom the other parties have agreed to vote, the party with that designation right becomes a beneficial owner of the securities beneficially owned by the other parties under Rule 13d-3(a) if the agreement gives that person the power to direct the voting of the other parties’ securities. Similarly, if a voting agreement confers the power to vote securities pursuant to a bona fide irrevocable proxy, the person to whom voting power has been granted becomes a beneficial owner of the securities under Rule 13d-3. See Example 7 in Exchange Act Release No. 13291 (February 24, 1977). Conversely, parties that do not have or share the power to vote or direct the vote of other parties’ shares would not beneficially own such shares solely as a result of entering into the voting agreement. Note, however, that a contract, arrangement, understanding or relationship concerning voting or investment power among parties to the agreement, other than the voting agreement itself, may result in a party to the voting agreement having or sharing beneficial ownership of securities held by other parties to the voting agreement under Rule 13d-3. [July 11, 2025] [Comparison to prior version]

Question 105.07

Question: An exchange-traded fund (“ETF”) does not disclose on each trading day the identities and quantities of its portfolio securities. To maintain confidentiality of this information, authorized participants (“APs”) effect creation and redemption transactions through a confidential brokerage account (“Confidential Account”) with an agent (“AP Representative”) for the benefit of the AP. Although the AP will not know the identities and quantities of the ETF’s portfolio securities, the AP will have some control over the timing of when the ETF’s portfolio securities will be purchased and sold on its behalf by the AP Representative through its ability to place creation and redemption orders with the ETF. Can the AP rely on informational barriers to calculate and report its Exchange Act Rule 13d-3 beneficial ownership of the ETF’s portfolio securities that are acquired on its behalf in a Confidential Account on a disaggregated basis from other accounts of the AP?

Answer: Yes, as long as the arrangement is consistent with the Commission’s guidance set forth in Release No. 34-39538 (Jan. 12, 1998), including the following conditions:

the agreements governing the Confidential Account contain confidentiality provisions that operate as an effective informational barrier between the AP and the AP Representative and other persons with knowledge of the composition of the ETF’s portfolio;
the AP, AP Representative, and the ETF’s custodian are unaffiliated entities that do not share officers, directors, or employees with investment discretion over the Confidential Account and their respective directors, officers, and employees do not participate in common compensation pools; and
the AP obtains an annual, independent assessment of the operation of the policies and procedures established to prevent the flow of information related to the Confidential Account. [Oct. 7, 2022]

Section 106. Rule 13d-4 — Disclaimer of Beneficial Ownership

None

Section 107. Rule 13d-5 — Acquisition of Securities

Question 107.01

Question: An investment advisor represents several major shareholders of an issuer that is contemplating a rights offering. The major shareholders beneficially own, in the aggregate, more than five percent of the issuer’s Section 12 registered voting class of equity securities and retained the investment advisor to persuade the issuer to revise or drop the offer. Would such an arrangement result in the formation of a group under Section 13(d)(3) by the major shareholders that engaged the investment advisor?

Answer: Yes, the major shareholders have formed a group under Section 13(d)(3) because they acted as a group for the common purpose or goal of holding their securities. The major shareholders' joint decision to retain an investment advisor in a collective attempt to gain influence over a management decision with respect to a rights offering accordingly requires that the security holdings of the major shareholders be aggregated and reported on a Schedule 13D. A shareholder will cease to be a member of the group when it no longer acts as a group with the other group members for the purpose of holding the equity securities of the issuer. [July 11, 2025] [Comparison to prior version]

Section 108. Rule 13d-6 — Exemption of Certain Acquisitions

Question 108.01

Question: Can a security holder that reports beneficial ownership on Schedule 13D rely on Rule 13d-6, which exempts acquisitions of securities by beneficial owners upon exercise of subscription rights from the reporting requirements of Section 13(d), to avoid amending its previously filed Schedule 13D when it acquires securities upon exercise of subscription rights?

Answer: No, because Rule 13d-6 only relates to the initial obligation to file a Schedule 13D. While a security holder previously exempt from filing on Schedule 13D is not subject to the beneficial ownership filing requirement solely by virtue of the exercise of subscription rights, a security holder that has previously filed a Schedule 13D is required to file an amendment pursuant to Rule 13d-2(a) to disclose any material change in the information previously filed with the Commission, including subsequent material acquisitions upon exercise of subscription rights. [Sep. 14, 2009]

Section 110. Schedule 13D

Question 110.01

Question: Is a Schedule 13D reporting person required to file an amended Schedule 13D if it acquires warrants from an issuer that are not exercisable for six months?

Answer: Yes. Although an amendment to the Schedule 13D is not required for purposes of reflecting a material change in the amount of securities beneficially owned (since the warrants are not exercisable within 60 days), an amendment is required to amend the Item 4(a) (plans to acquire additional securities) and Item 6 (contracts) disclosures and to file the warrant agreement as an exhibit pursuant to Item 7 of Schedule 13D. [Sep. 14, 2009]

Question 110.02

Question: Should a beneficial owner include specific quantitative disclosures, such as the dollar amount of any penalty or the duration of any injunction ordered or bar imposed on the beneficial owner, in its summary of the terms of any judgment, decree or final order covered by Item 2(e) of Schedule 13D?

Answer: Yes, the summary of the terms of any judgment, decree or final order under Item 2(e) of Schedule 13D must include such specific quantitative disclosure. [Sep. 14, 2009]

Question 110.03

Question: Do the references to "securities of the issuer" in Items 4(a) and 6 of Schedule 13D include all securities of the issuer, such as debt securities?

Answer: Yes, the references to "securities of the issuer" in Items 4(a) and 6 of Schedule 13D include all of the issuer's securities, whether or not the securities are a class of equity, have voting rights or are registered or to be registered under Section 12 of the Exchange Act. For example, a reporting person who has formulated any plans or proposals or entered into any agreements involving the acquisition of debt securities of the issuer will be required to amend its Schedule 13D Item 4 and 6 disclosures to the extent material. [July 11, 2025] [Comparison to prior version]

Question 110.04

Question: When a Schedule 13D reporting person enters into a contingent contract with an unaffiliated third party for the sale of enough shares that would cause the third party to hold over five percent of a class of equity securities registered under Section 12 when the sale occurs, is the third party required to file a beneficial ownership report? Is the Schedule 13D reporting person required to amend its Schedule 13D upon execution of the contract?

Answer: The third party does not acquire beneficial ownership until it has a right to acquire the shares within 60 days; accordingly, the third party has no beneficial ownership reporting obligation until the material contingencies over which it has no control are waived or satisfied. If all material contingencies are within the third party's control either to waive or satisfy, then the third party has a beneficial ownership reporting obligation upon execution of the contract. In addition, as a result of the execution of the contract, the person already reporting on Schedule 13D must amend its Schedule 13D to disclose any material changes to its Item 4 and Item 6 disclosures. [July 11, 2025] [Comparison to prior version]

Question 110.05

Question: Should the disclosure in an initial or amended Schedule 13D be provided as of the date of the event that triggered the requirement to file the Schedule 13D or the date that the Schedule 13D is filed?

Answer: The disclosure in an initial or amended Schedule 13D should be current through the date that the beneficial owner files the report. For example, the reporting person should reflect its ownership totals on the cover page of the Schedule 13D as of the date it files the report. Similarly, the reporting person should disclose pursuant to Item 5(c) of Schedule 13D any transactions in the class of securities that were effected within the 60 days before the date on which the filing is made rather than 60 days before the event date. [Sep. 14, 2009]

Question 110.06

Question: A security holder owns six percent of a public company's common stock and files beneficial ownership reports on Schedule 13D. In response to Item 4 of Schedule 13D, the security holder states that it has no current plans to engage in any of the kinds of transactions enumerated in Item 4(a)-(j), but reserves the right to engage in such a transaction in the future. The security holder later determines to take the subject company private and engages an investment bank that formulates terms for the contemplated transaction. The security holder has not yet approached management of the target company or taken other steps to commence the transaction. Does the security holder have an obligation to amend its Schedule 13D? If so, when is the amendment requirement triggered?

Answer: Yes, the security holder is required to amend its Schedule 13D to disclose the material change to the information appearing in Item 4 because it has formed a plan that would or could result in delisting or deregistration of the subject securities and its existing Item 4 disclosure is no longer accurate. A plan or proposal, as those terms are used in Item 4, is not deemed to exist only upon execution of a formal agreement or commencement of a tender offer, solicitation or similar transaction. Generic disclosure reserving the right to engage in any of the kinds of transactions enumerated in Item 4(a)-(j) must be amended when the security holder has formulated a specific intention with respect to a disclosable matter. [July 11, 2025] [Comparison to prior version]

Question 110.07

Question: May a Schedule 13D filer include commentary in Items 4 or 6, or attach an exhibit to Schedule 13D that opposes management, its initiatives and/or a pending transaction in an effort to influence security holder voting related to such matters without also considering the application of Regulation 14A to the communications?

Answer: No. The Schedule 13D filer must analyze its item disclosure and attached exhibits to determine whether any disclosures or communications reasonably constitute soliciting material. Beneficial ownership reporting was not intended to create an additional exception to the application of Regulation 14A. To the extent the Schedule 13D disclosure constitutes soliciting material under Rule 14a-1(l), the Schedule 13D filer would need to be eligible to rely upon an exception from the proxy rules to make public, written statements in opposition to a management proposal without contemporaneously filing pursuant to Rule 14a-12. If no exception is available, the Schedule 13D disclosure would then need to be filed under cover of Schedule 14A pursuant to Rule 14a-12. Note, however, that only persons who have an intention to file and disseminate a proxy statement are permitted under Rule 14a-12 to engage in soliciting activities before furnishing security holders with a proxy statement. [Sep. 14, 2009]

Question 110.08

Question: Item 5(c) of Schedule 13D requires a reporting person to describe any transactions in the class of securities reported on that were effected within the past 60 days, including the date of the transaction, the amount of securities involved, and the price per share or unit. Since broker-dealers may execute trade orders in small increments and at multiple prices that may be as little as a fraction of a penny apart and provide their clients with average, instead of per share or per unit, prices, are there circumstances under which a Section 13(d) reporting person may aggregate purchase or sale transactions executed by a broker-dealer on the same day to fulfill its disclosure obligation under Item 5(c)?

Answer: Yes. A reporting person under Section 13(d) who, through a trade order executed by a broker-dealer, effects multiple open market purchase or sale transactions on the same day at different prices may disclose in the aggregate all purchase or sale transactions that occur within a one dollar price range on the basis of the weighted average purchase or sale price for those transactions. The reporting person must then: (1) specify, in a footnote or otherwise, the range of prices for each such one-dollar aggregate disclosure; and (2) undertake to provide upon request by the staff full information regarding the number of shares purchased or sold at each separate price. [Sep. 14, 2009]

Section 111. Schedule 13G

None

Exchange Act Section 16 and Related Rules and Forms

Last Update: August 25, 2023

These interpretations replace the Section 16 interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations, the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations, the Section 16 Electronic Reporting Frequently Asked Questions and the November 2002 Sarbanes-Oxley Act Frequently Asked Questions. Some of the interpretations included herein were originally published in the sources noted above, and have been revised in some cases. The bracketed date following each interpretation is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Section 16 – General Guidance

Question 101.01

Question: A company reincorporated from Canada to Delaware, thus losing its "foreign private issuer" status (see Exchange Act Rule 3b-4). Before the reincorporation, an officer of the company purchased shares of company common stock, which he sold after the reincorporation but within six months of his purchase. Would the officer's purchase be subject to Section 16?

Answer: Yes. The officer's purchase would be subject to Section 16, and the officer would be required to file a Form 3 within 10 days of the reincorporation and a Form 4 reporting both the purchase and sale of the common shares following the sale of those shares. While the staff is of the view, generally, that transactions effected by officers and directors of a foreign company before the loss of "foreign private issuer" status are not subject to Section 16 (see Question 110.03), this position has not been applicable if the event that culminated in the loss of "foreign private issuer" status also involved the company's initial registration of equity securities under Exchange Act Section 12 (cf. Question 110.04). In such event, Rule 16a-2(a) would be applicable, which subjects to Section 16 transactions effected by a director or officer in the six months before the initial Section 12 registration. In the staff's view, for purposes of Section 16, a reincorporation by a foreign company that causes it to lose its "foreign private issuer" status is analogous to a company's initial registration of equity securities under Section 12 because, in each event, the change in the company's "foreign private issuer" status was within the control of the company and insiders should have been aware of the change sufficiently in advance to take potential Section 16 responsibilities into account when buying and selling the company's equity securities. [Aug. 11, 2010]

Question 101.02

Question: Exchange Act Rule 3b-4(c) provides that a foreign issuer determines whether it is a foreign private issuer as of the last business day of its most recently completed second fiscal quarter (the "determination date"). Under Rule 3b-4(e), if a foreign issuer with securities registered under Exchange Act Section 12 does not qualify as a foreign private issuer as of the determination date, it must begin using the forms prescribed for domestic companies and complying with Section 16, starting on the first day of the fiscal year following the determination date. In this situation, when must a Form 3 be filed?

Answer: A Form 3 must be filed on or before the first day of the fiscal year following the determination date. [Aug. 11, 2010]

Section 102. Section 16(a)

Question 102.01

Question: If an insider purchases units consisting of common stock and debentures of the insider's company, must the insider file a Section 16(a) report covering the acquisition of the stock?

Answer: Yes. An insider who purchases units consisting of common stock and debentures of the insider's company must file a Section 16(a) report covering the acquisition of the stock. The debentures need not be reported unless they are also deemed to be equity securities, as would occur, for example, if they were convertible into common stock. [May 23, 2007]

Question 102.02

Question: Section 16(a)(3)(B) of the Exchange Act, as amended by the Sarbanes-Oxley Act of 2002, states, in part, that Forms 4 and 5 "shall indicate ownership by the filing person at the date of filing." Does this mean that an insider must report ownership of all classes of equity securities of the issuer each time the insider files a Form 4 or 5?

Answer: When an insider files a Form 4 or 5, the insider need only report ownership after the transaction or at the end of the fiscal year, respectively, of the class(es) of equity securities of the issuer as to which the insider reports a transaction. Because Section 16 contained the same language before the statutory amendment, the amendment did not expand an insider's obligation to report post-transaction ownership. [May 23, 2007]

Question 102.03

Question: Can an issuer satisfy its Web site posting obligation if it posts forms directly in PDF only?

Answer: Assuming an issuer otherwise satisfies the Web site posting requirements, it is permissible to post forms directly in PDF only if the Web site explains clearly the need to use Adobe Acrobat to access the forms and provides clear directions on how to download it easily and without cost using a readily accessible link provided on the issuer's Web site. [May 23, 2007]

Section 103. Section 16(b)

Question 103.01

Question: Will the Division staff express a view as to whether a particular transaction involves a "purchase" or "sale" for purposes of Section 16(b)?

Answer: No. Since the enforcement of Section 16(b) is left to private parties and the courts, the Division staff ordinarily will not express a view as to whether a particular transaction involves a "purchase" or "sale" for purposes of this section. [May 23, 2007]

Section 104. Section 16(c)

None

Section 105. Section 16(d)

None

Section 106. Section 16(e)

Question 106.01

Question: Section 16(e) exempts foreign and domestic arbitrage transactions from the other provisions of Section 16. Rule 16e-1 provides that the Section 16(e) exemption does not apply to such arbitrage transactions by officers and directors. Will the Division staff express a view as to whether any particular transaction qualifies for the Section 16(e) exemption?

Answer: No. In Release No. 34-26333 (Dec. 2, 1988), the Commission noted that Section 16(e) "gives the Commission rulemaking authority to define 'bona fide arbitrage,' but the Commission has not exercised this authority, opting instead to leave such interpretation to the courts." In Release No. 34-26333, the Commission solicited comment on "whether further guidance in this area is needed" without proposing any additional Section 16(e) rules. Because the Commission did not subsequently adopt any rules defining "bona fide arbitrage" or otherwise address the subject, the Release No. 34-26333 statement about leaving such interpretation to the courts remains the Commission's statement regarding its intentions. Accordingly, the staff will not express a view as to whether any particular transaction qualifies for the Section 16(e) exemption, but instead will direct counsel to relevant case law, e.g., Falco v. Donner, 208 F.2d 600 (2d Cir. 1953). [May 23, 2007]

Section 107. Section 16(f)

None

Section 108. Section 16(g)

None

Section 109. Rule 16a-1 – Definition of Terms

Question 109.01

Question: Would an Assistant Secretary ordinarily be considered an officer of a company under Section 16(a)?

Answer: No. An Assistant Secretary would not ordinarily be considered an officer of a company under Section 16(a), unless such person performs any of the functions that would make such person an officer as defined in Rule 16a-1(f). [May 23, 2007]

Question 109.02

Question: An exchange-traded fund (“ETF”) does not disclose on each trading day the identities and quantities of its portfolio securities. To maintain confidentiality of this information, authorized participants (“APs”) effect creation and redemption transactions through a confidential brokerage account (“Confidential Account”) with an agent (“AP Representative”), for the benefit of the AP. Although the AP will not know the identities and quantities of the ETF’s portfolio securities, the AP will have some control over the timing of when the ETF’s portfolio securities will be purchased and sold on its behalf by the AP Representative by virtue of its ability to place creation and redemption orders with the ETF. For the purposes of Rule 16a-1(a)(1), can the AP rely on informational barriers to determine whether the AP is a greater than 10% beneficial owner of the ETF’s portfolio securities that are acquired on its behalf in a Confidential Account on a disaggregated basis from other accounts of the AP?

Answer: Yes, as long as the arrangement is consistent with the Commission’s guidance regarding the calculation and reporting of beneficial ownership status set forth in Release No. 34-39538 (Jan. 12, 1998), including the following conditions:

the agreements governing the Confidential Account contain confidentiality provisions that operate as an effective informational barrier between the AP and the AP Representative and other persons with knowledge of the composition of the ETF’s portfolio;
the AP, AP Representative, and the ETF’s custodian are unaffiliated entities that do not share officers, directors, or employees with investment discretion over the Confidential Account and their respective directors, officers, and employees do not participate in common compensation pools; and
the AP obtains an annual, independent assessment of the operation of the policies and procedures established to prevent the flow of information related to the Confidential Account. [Oct. 7, 2022]

Section 110. Rule 16a-2 – Persons Subject to Section 16

Question 110.01

Question: Where Rule 16a-2(a) makes Section 16 applicable to a transaction that occurs before the issuer's Section 12 registration, are the exemptions provided by the other rules under Section 16 available to the same extent as for any other transaction subject to Section 16?

Answer: Yes. The exemptions provided by the other rules under Section 16 should be available to the same extent as for any other transaction subject to Section 16. [May 23, 2007]

Question 110.02

Question: Rule 16a-2(c) provides that “a ten percent beneficial owner not otherwise subject to Section 16 of the Act must report only those transactions conducted while the beneficial owner of more than ten percent of a class of equity securities of the issuer registered pursuant to Section 12 of the Act.” A person is subject to Section 16 solely by being a member of a group, as described in Section 13(d)(3) and Rule 13d-5(b) thereunder, that beneficially owns more than 10 percent of such a class of equity security. The person no longer agrees to act together with the other group members for the purpose of acquiring, holding, voting or disposing of equity securities of the issuer. Does Rule 16a-2(c) require the person to report his or her transactions in issuer equity securities that occur after the person ceases to act as a member of the group?

Answer: No. Group membership is construed the same way for purposes of Section 16(a) and Rule 16a-2(c) as for purposes of Section 13(d). Group membership terminates when the person no longer agrees to act together with the other group members for the purpose of acquiring, holding, voting or disposing of equity securities of the issuer. If after ceasing to act as a member of the group, the person’s beneficial ownership does not exceed 10 percent of a class of issuer equity securities registered under Section 12, and the person is not otherwise subject to Section 16 with respect to the issuer, Rule 16a-2(c) does not require the person to report his or her transactions in issuer equity securities that occur after the person ceases to act as a member of the group. [Apr. 24, 2009]

Question 110.03

Question: If a foreign issuer with securities registered under Exchange Act Section 12 loses foreign private issuer status as described in Question 101.02, would Rule 16a-2(a) apply to make transactions effected by its officers and directors before a Form 3 is due subject to Section 16 and reportable on Form 4?

Answer: No. [Aug. 11, 2010]

Question 110.04

Question: A foreign issuer that is not a foreign private issuer files its initial registration statement to register equity securities under Exchange Act Section 12. Would Rule 16a-2(a) apply to make transactions by its officers and directors within six months before the effectiveness of the registration statement subject to Section 16 and reportable on Form 4?

Answer: Yes. [Aug. 11, 2010]

Section 111. Rule 16a-3 – Reporting Transactions and Holdings

Question 111.01

Question: If a company otherwise maintains a dividend reinvestment plan that satisfies the exemptive conditions of Rule 16a-11, are automatic dividend reinvestments under a non-qualified deferred compensation plan also eligible for the Rule 16a-11 exemption, so that those reinvestment transactions would not be required to be reported, thus reducing the number of Forms 4 due?

Answer: Non-qualified deferred compensation plans are not Excess Benefit Plans, as defined by Rule 16b-3(b)(2) under the Exchange Act, in which transactions are exempted by Rule 16b-3(c). See interpretive letter to American Bar Association (Feb. 10, 1999, Q. 2(c)). Under Rule 16a-3(g)(1), as amended in Release No. 34-46421 (Aug. 27, 2002), each transaction in a non-qualified deferred compensation plan must be reported on a Form 4 not later than the end of the second business day following the day on which the transaction was executed. However, if a company maintains a dividend reinvestment plan that satisfies the exemptive conditions of Rule 16a-11, automatic dividend reinvestments under a non-qualified deferred compensation plan are also eligible for the Rule 16a-11 exemption. See interpretive letter to American Home Products (Dec. 15, 1992). [May 23, 2007]

Question 111.02

Question: For purposes of satisfying the affirmative defense conditions of Rule 10b5-1(c), an insider adopts a written plan for the purchase or sale of issuer equity securities. In the plan, which was drafted by a broker-dealer, the broker-dealer specified the dates on which plan transactions will be executed. Can the insider rely on Rule 16a-3(g)(2) to compute the Form 4 due date for plan transactions based on a deemed execution date?

Answer: No. By adopting a written plan that specifies the dates on which plan transactions will be executed, the insider will have selected the date of execution for plan transactions. Consequently, the insider will not be able to rely on Rule 16a-3(g)(2) to compute the Form 4 due date for plan transactions based on a deemed execution date. [May 23, 2007]

Question 111.03

Question: Where a new beneficial owner joins an existing set of beneficial owners who file as a group, does the new beneficial owner have to file a new Form 3, even if the new owner is not adding any new securities to the group holdings?

Answer: Yes. Under Rule 16a-3(j), the new beneficial owner must file a new Form 3 even if the new owner is not adding any new securities to the group holdings. [May 23, 2007]

Question 111.04

Question: In order to reduce the number of Forms 4 due annually, an insider makes the following choices: In connection with the annual year-end election to defer some of the following year's salary into a non-qualified deferred compensation plan, the insider elects to have payroll deductions invested in the plan's interest-only account. The insider also elects for the deferred salary so invested to be "swept" on a quarterly basis into the plan's stock fund account. How should these "sweep" transactions be reported?

Answer: Each "sweep" transaction would be reportable separately on Form 4. If the "sweep" election satisfies the Rule 16b-3(f ) exemptive conditions for Discretionary Transactions (as defined in Rule 16b-3(b)(1)), the "sweep" transactions would be reported using Code I. Further, if the reporting person does not select the date of execution for a "sweep" that is a Discretionary Transaction, Rules 16a-3(g)(3) and (4) would apply to determine the deemed execution date. [May 23, 2007]

Section 112. Rule 16a-4 – Derivative Securities

None

Section 113. Rule 16a-5 – Odd-Lot Dealers

None

Section 114. Rule 16a-6 – Small Acquisitions

None

Section 115. Rule 16a-7 – Transactions Effected in Connection with a Distribution

None

Section 116. Rule 16a-8 – Trusts

None

Section 117. Rule 16a-9 – Splits, Stock Dividends, and Pro Rata Rights

Question 117.01

Question: Does Rule 16a-9(a) exempt a stock dividend payable where there is only one shareholder of the class on which the dividend is paid?

Answer: No. This position reflects the staff's concern that such a transaction would represent a manipulative use of the rule for the purpose of benefiting one shareholder. For purposes of this interpretation, a single group required to file a Schedule 13D is treated the same way as a single shareholder. [May 23, 2007]

Question 117.02

Question: Does Rule 16a-9(b) exempt from Section 16 the pro rata acquisition of rights by a shareholder who is a stand-by purchaser?

Answer: Rule 16a-9(b) exempts from Section 16 the acquisition of rights, such as shareholder or preemptive rights, pursuant to a pro rata grant to all holders of the same class of equity securities registered under Section 12. Where the distribution of rights is pro rata, the acquisition of rights so distributed is exempt, including a pro rata acquisition by a shareholder who is a stand-by purchaser. However, such stand-by purchaser's acquisition of underlying shares pursuant to the exercise of rights not exercised by other shareholders is not exempted by Rule 16a-9(b) because such acquisition is the result of an independently negotiated contract with the issuer that is not available to all shareholders on a pro rata basis. [May 23, 2007]

Question 117.03

Question: A company will effect a 1-for-4 reverse stock split for all of its outstanding common stock. Rather than issue fractional shares, the company will pay cash for the value of the fractional shares. Is this transaction exempt from Section 16?

Answer: Yes. Rule 16a-9(a) exempts from Section 16 "the increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class, including a stock dividend in which equity securities of a different issuer are distributed." This rule is available to exempt the disposition of fractional shares incidental to the reverse stock split where the cash-out of fractional shares, like the reverse split itself, applies equally to all securities of the class, and there is no choice to receive fractional shares instead of cash. [Aug. 14, 2009]

Section 118. Rule 16a-10 – Exemptions under Section 16(a)

None

Section 119. Rule 16a-11 – Dividend or Interest Reinvestment Plans

Question 119.01

Question: Rule 16a-11 exempts from Sections 16(a) and 16(b) of the Exchange Act the acquisition of securities by insiders through the reinvestment of dividends pursuant to dividend reinvestment plans that satisfy the conditions of the rule. Is the disposition of such securities also exempted by Rule 16a-11?

Answer: No. Dispositions of securities acquired by insiders through the reinvestment of dividends pursuant to dividend reinvestment plans that satisfy the conditions of the rule is not exempted by Rule 16a-11. Further, Rule 16a-11 does not exempt from the liability provisions of Section 16(b) the acquisition of additional securities through voluntary additional investments permitted by such plans. [May 23, 2007]

Question 119.02

Question: When a dividend reinvestment plan meeting the requirements of Rule 16a-11 is terminated and the stock held by the plan is distributed to participants, does the distribution of the shares of stock to persons covered by Section 16 need to be reported?

Answer: No. In this situation there is no effective change in beneficial ownership, and therefore, pursuant to Rule 16a-13, the distribution of shares to persons covered by Section 16 need not be reported as an acquisition of securities, assuming that those shares previously had been reported as indirectly beneficially owned. [May 23, 2007]

Section 120. Rule 16a-12 – Domestic Relations Orders

None

Section 121. Rule 16a-13 – Change in Form of Beneficial Ownership

None

Section 122. Rule 16b-1 – Transaction Approved by a Regulatory Authority

None

Section 123. Rule 16b-3 – Transactions Between an Issuer and Its Officers or Directors

Question 123.01

Question: Does Rule 16b-3 exempt issuer equity securities transactions between the issuer and persons who are subject to Section 16 solely because they are more than 10 percent beneficial owners?

Answer: No. Rule 16b-3 exempts issuer equity securities transactions between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer. The rule, however, does not exempt similar transactions by persons who are subject to Section 16 solely because they are more than 10 percent beneficial owners. Rule 16b-3 is available to a more than 10 percent beneficial owner who is also subject to Section 16 by virtue of being an officer or director of the issuer (see Release No 34-37260 (May 31, 1996) at n. 42 (Part 1 and Part 2)), including a "deputized" director (see Brief of the Securities and Exchange Commission, Amicus Curiae in Roth v. Perseus, L.L.C.) [May 23, 2007]

Question 123.02

Question: Does Rule 16b-3 exempt a transaction between the issuer and (1) an officer's charitable remainder trust, or (2) an investment advisor of which a director is a principal?

Answer: No. Rule 16b-3 exempts issuer equity securities transactions between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer. Rule 16b-3 will not exempt a transaction between the issuer and (1) an officer's charitable remainder trust, or (2) an investment advisor of which a director is a principal. However, in its interpretive letter to American Bar Association (Feb. 10, 1999), Q. 4, the Division staff has stated that Rule 16b-3 is available to exempt an officer's or director's indirect pecuniary interest in certain specific transactions. [May 23, 2007]

Question 123.03

Question: For purposes of determining whether a plan is a "Stock Purchase Plan," as defined by Rule 16b-3(b)(5), how are satisfaction of the coverage and participation requirements of Internal Revenue Code Section 410 measured?

Answer: Satisfaction of the coverage and participation requirements of Internal Revenue Code Section 410 are measured by reference to employees eligible to participate, rather than employees actually participating. [May 23, 2007]

Question 123.04

Question: Does the definition of a "Stock Purchase Plan" in Rule 16b-3(b)(5), which includes employee benefit plans that satisfy the coverage and participation requirements of Sections 423(b)(3) and (b)(5) of the Internal Revenue Code, contemplate that such plans are broad-based?

Answer: Yes. While Rule 16b-3(b)(5) does not specifically indicate that such plans must also meet the broad-based plan requirements in Section 423(b)(4) of the Internal Revenue Code (because these requirements may be more restrictive than was intended for purposes of Rule 16b-3(b)(5)), Rule 16b-3(b)(5) contemplates that Stock Purchase Plans are broad-based. See footnote 50 to Release No. 34-37260 (May 31, 1996) (Part 1 and Part 2). Accordingly, a director-only or senior-executive only plan would not be a Stock Purchase Plan within the meaning of Rule 16b-3(b)(5) or Rule 16b-3(c). [May 23, 2007]

Question 123.05

Question: A Stock Purchase Plan, as defined in Rule 16b-3(b)(5), includes a dividend reinvestment feature. Would dividend acquisitions pursuant to this plan be exempted by Rule 16b-3(c)?

Answer: Yes. Dividend acquisitions pursuant to the Stock Purchase Plan are exempted by Rule 16b-3(c), because any acquisition pursuant to a Stock Purchase Plan is exempted by Rule 16b-3(c). [May 23, 2007]

Question 123.06

Question: Would a stand-alone top hat plan that qualifies for an exemption under Section 201(2) of ERISA be an Excess Benefit Plan eligible for exemption under Rule 16b-3(c)?

Answer: No. A stand-alone top hat plan that qualifies for an exemption under Section 201(2) of ERISA would not be an Excess Benefit Plan eligible for exemption under Rule 16b-3(c), because such plan would not be operated in conjunction with a Qualified Plan, as defined in Rule 16b-3(b)(4). [May 23, 2007]

Question 123.07

Question: Are the Non-Employee Director standards of Rule 16b-3(b)(3) independent of the "outside director" standards of Internal Revenue Code Section 162(m)?

Answer: Yes. Accordingly, satisfaction of the Non-Employee Director standards cannot be presumed based on satisfaction of the Section 162(m) "outside director" standards. [May 23, 2007]

Question 123.08

Question: What is the relevant date for determining Non-Employee Director status under Rule 16b-3?

Answer: The relevant date for determining Non-Employee Director status is the date such director proposes to act as a Non-Employee Director. This would be the date on which approval is obtained, even where an award is not deemed to occur until a later date, for example, upon the satisfaction of conditions (other than the passage of time and continued employment) that are not tied to the market price of an equity security of the issuer. Cf. Bioject Medical Technologies Inc. (Nov. 24, 1993). [May 23, 2007]

Question 123.09

Question: Rule 16b-3(b)(3)(i)(A) disqualifies for service as a Non-Employee Director any director who currently is an officer of or otherwise currently employed by the issuer, its parent or subsidiary. How is the term "subsidiary" defined for the purposes of this rule?

Answer: For the purposes of Rule 16b-3(b)(3)(i)(A), "subsidiary" would be defined pursuant to the broad standards of Rule 12b-2, i.e., as an affiliate controlled directly or indirectly through one or more intermediaries. [May 23, 2007]

Question 123.10

Question: Will a sale into the open market from a Stock Purchase Plan or other Tax-Conditioned Plan be exempt pursuant to Rule 16b-3(c)? Will such a sale be a Discretionary Transaction (as defined in Rule 16b-3(b)(1)) eligible for exemption pursuant to Rule 16b-3(f)?

Answer: No to both questions. Such transactions will not be eligible for exemption from Section 16(b) pursuant to Rule 16b-3. [May 23, 2007]

Question 123.11

Question: Would stock acquisitions through an open market purchase plan that is not a Rule 16b-3(b) Stock Purchase Plan (and hence ineligible for Rule 16b-3(c) exemption) but is "sponsored by the issuer" as interpreted in the interpretive letter to American Bar Association (Oct. 15, 1999) be considered "acquisitions from the issuer" eligible for the Rule 16b-3(d) exemption?

Answer: No. [May 23, 2007]

Question 123.12

Question: Is a diversification transaction permitted by Section 401(a)(35) of the Internal Revenue Code a "Discretionary Transaction," as defined in Rule 16b-3(b)(1), subject to the exemptive conditions of Rule 16b-3(f)?

Answer: Yes. Section 401(a)(35) of the Internal Revenue Code provides diversification rights to qualifying participants in defined contribution plans that hold publicly-traded employer securities. Specifically, Section 401(a)(35) makes intra-plan transfers out of and back into the plan's issuer securities fund available no less frequently than quarterly. As explained in Release No. 34-37260 (May 31, 1996) (Part 1 and Part 2), periodic fund-switching transactions involving an issuer equity securities fund may present opportunities for abuse, because the investment decision is similar to that involved in a market transaction. Moreover, the plan may buy and sell issuer equity securities in the market in order to effect these transactions, so that the actual counterparty to the transaction is not the issuer, but instead is a market participant.

Rule 16b-3(b)(1)(iii) excludes from the definition of "Discretionary Transaction" a transaction "required to be made available to a plan participant pursuant to a provision of the Internal Revenue Code." This provision was adopted in 1996 to exclude:

the diversification elections and distributions that Section 401(a)(28) of the Internal Revenue Code makes available t 10-year plan participants wh have reached age 55, and
the distributions that Section 401(a)(9) of the Internal Revenue Code requires at the later of the employee's retirement or reaching age 70ݮ

The basis for the Rule 16b-3(b)(1)(iii) exclusion was that the insider's opportunity to speculate in the context of the specified events was well circumscribed. In contrast, Section 401(a)(35) of the Internal Revenue Code, which was added by Section 901 of the Pension Protection Act of 2006, makes available the periodic fund-switching transactions for which the exemptive conditions of Rule 16b-3(f) were designed to apply. Because the Commission did not consider the later-enacted Section 401(a)(35) of the Internal Revenue Code when it adopted Rule 16b-3(b)(1)(iii), this rule should not be construed to exclude Section 401(a)(35) transactions from the exemptive conditions of Rule 16b-3(f). [May 23, 2007]

Question 123.13

Question: May a plan be bifurcated so that it is eligible in part for exemption under Rule 16b-3(c)?

Answer: A plan may be bifurcated so that it is eligible in part for exemption under Rule 16b-3(c) only if it works entirely as a Tax-Conditioned Plan with respect to a segregable class of participants and entirely as a non-Tax-Conditioned Plan as to a different class of participants. [May 23, 2007]

Question 123.14

Question: Would an amendment to a material term of a security acquired pursuant to the full board, Non-Employee Director or shareholder approval conditions of Rule 16b-3(d) require further approval pursuant to any one of those approval conditions?

Answer: Yes, an amendment to a material term of a security acquired pursuant to the full board, Non-Employee Director or shareholder approval conditions of Rule 16b-3(d) would require further approval pursuant to any one of those approval conditions in order for the specific approval conditions of Note 3 to the rule to be satisfied. This is required because allowing a material term to be changed without subsequent approval would vitiate the specific approval requirement of the rule. Such further approval is required whether or not the amendment would result in the cancellation and regrant of the security. For example, an amendment to accelerate vesting (which, pursuant to the interpretive letter to Foster Pepper & Shefelman (Dec. 20, 1991), does not effect a cancellation and regrant) would require further approval. [May 23, 2007]

Question 123.15

Question: Will initial approval of a plan satisfy the specificity requirement where the specific terms and conditions of each acquisition are fixed in advance, such as a formula plan?

Answer: Yes. [May 23, 2007]

Question 123.16

Question: Would approval of a grant that by its terms provides for automatic reloads satisfy the specificity of approval requirements under Rule 16b-3(d) for the reload grants?

Answer: Yes. Approval of a grant that by its terms provides for automatic reloads would satisfy the specificity of approval requirements under Rule 16b-3(d) for the reload grants, unless the automatic reload feature permitted the reload grants to be withheld by the issuer on a discretionary basis. The same result applies under Rule 16b-3(e) where the automatic feature is a tax- or exercise-withholding right. [May 23, 2007]

Question 123.17

Question: Could the six-month holding period of Rule 16b-3(d)(3) be used to exempt an officer's or director's purchase of the issuer's stock in an underwritten public offering?

Answer: No. Rule 16b-3 would not exempt this transaction, because the rule was not intended to cover a situation where someone other than the issuer controls to whom the sales are made and on what terms. For the same reasons, Rule 16b-3 would not exempt an officer's or director's purchase of the issuer's stock in a public offering pursuant to a "friends and family" allocation. [May 23, 2007]

Question 123.18

Question: Are the dispositions of issuer securities that take place in cashless exercises through a broker eligible for exemption pursuant to Rule 16b-3(e)?

Answer: No. The dispositions that take place pursuant to these transactions are not eligible for exemption pursuant to Rule 16b-3(e) because cashless exercises through a broker do not involve a transaction with the issuer or the issuer's employee benefit plan. [May 23, 2007]

Question 123.19

Question: Is the disclosure regarding loans by a bank, savings and loan association, or broker-dealer contemplated by Instruction 4.c to Item 404(a) (loan made in ordinary course of business, on substantially same terms as for unrelated persons, no more than normal risk of collectibility, etc.) Item 404(a) disclosure that would disqualify a director from being a Non-Employee Director, as defined in Rule 16b-3(b)(3)?

Answer: No. Statements disclosed pursuant to Instruction 4.c to Item 404(a) will not be considered Item 404(a) disclosure that would disqualify a director from being a Non-Employee Director. Release No. 33-8732A, in the Item 404 discussion at Section V.A.3, characterizes this instruction as addressing a situation that "do[es] not raise the potential issues underlying our principle for disclosure."

Section 124. Rule 16b-5 – Bona Fide Gifts and Inheritance

None

Section 125. Rule 16b-6 – Derivative Securities

Question 125.01

Question: Would Rule 16b-6(b) be available to exempt the cash settlement of phantom stock?

Answer: No. Rule 16b-6(b) would not be available to exempt the cash settlement of phantom stock, because the deemed sale of the underlying stock following exercise of the phantom stock is outside the exemptive scope of Rule 16b-6(b). In contrast, Rule 16b-6(b) would be available to exempt the stock settlement of phantom stock because such transaction involves only the exercise of a derivative security. [May 23, 2007]

Section 126. Rule 16b-7 – Mergers, Reclassifications and Consolidations

None

Section 127. Rule 16b-8 – Voting Trusts

None

Section 128. Rule 16c-1 – Brokers

None

Section 129. Rule 16c-2 – Transactions Effected in Connection with a Distribution

None

Section 130. Rule 16c-3 – Exemption of Sales of Securities to be Acquired

None

Section 131. Rule 16c-4 – Derivative Securities

None

Section 132. Rule 16e-1 – Arbitrage

None

Section 133. Forms 3, 4 and 5 – General

Question 133.01

Question: What information does an insider report for the issuer's ticker or trading symbol (Item 3 of Form 3, and Item 2 of Forms 4 and 5) if there is none?

Answer: The insider should enter "NONE." [May 23, 2007]

Question 133.02

Question: Does an insider need to file a power of attorney with the filing?

Answer: If the Form is signed on behalf of an individual by another person, the power of attorney establishing the authority of such person to sign the Form must be filed in an exhibit to the Form or as soon as practicable in an amendment to the Form, unless a previously filed paper or electronic power of attorney is still in effect. The power of attorney need only indicate that the reporting person authorizes and designates the named person or persons to sign and file the Form on the reporting person's behalf and state its duration. [May 23, 2007]

Question 133.03

Question: How should an insider sign the document when it uses a power of attorney?

Answer: The staff recommends that the document signature be the typed signature of the person holding the power of attorney. The remainder of the signature line would then indicate that the person is signing on behalf of the named officer, director or more than 10 percent shareholder under a power of attorney. For example, "John Jones, by power of attorney," where John Jones holds power of attorney for insider Susan Smith. [May 23, 2007]

Question 133.04

Question: How can a filer indicate the title of the person filing the Form?

Answer: The title of the person may be included on the same line as the signature. [May 23, 2007]

Question 133.05

Question: Do all officers and directors need filing codes?

Answer: Yes. Each officer, director and more than 10 percent shareholder will need his/her own CIK, CCC and Password codes. The codes are needed whether the insider is filing as an individual or as part of a group. It is very important to use the insider's CIK rather than, for example, the issuer's CIK, so that users can readily identify the insider filing the form (if the wrong CIK has been used, file a new form with the correct CIK). Only one set of codes is permitted even if the filer is an officer, director, or more than 10 percent shareholder of more than one company. We strongly recommend that companies applying for codes on behalf of their insiders verify that the persons do not already have codes assigned to them. [May 23, 2007]

Question 133.06

Question: When reporting derivative securities on Table II of Form 4 or Form 5, are options that have different economic characteristics (such as exercise price and expiration date) considered different classes of securities?

Answer: Yes. General Instruction 4(a)(i) to Form 4 requires an insider to "report total beneficial ownership following the reported transaction(s) for each class of securities in which a transaction was reported." In reporting derivative securities on Table II, options that have different economic characteristics (such as exercise price and expiration date) are considered different classes of options. For example, in reporting the grant of options with an exercise price of $10 per share and an expiration date of March 1, 2014, the holdings column should show the total number of options with the same terms, and should not include the insider's holdings of options with an exercise price of $8 per share and an expiration date of November 1, 2012. On a voluntary basis, the insider may report on a separate line(s) holdings of options that are of a different class(es) than the options transaction reported. General Instruction 4(a)(iii) to Form 5, which requires an insider to "report total beneficial ownership as of the end of the issuer's fiscal year for all classes of securities in which a transaction was reported," is construed the same way. [May 23, 2007]

Question 133.07

Question: Column 8 of Table II in Form 4 and Form 5 requires disclosure of the "Price of Derivative Security." Does this column require the exercise price of the derivative security, the fair market value of the underlying security on the date of the reported transaction, or some other price?

Answer: The "Price of Derivative Security" required in Column 8 of Table II is the price, if any, that the insider paid to acquire the derivative security (where an acquisition is reported) or received when disposing of the derivative security (where a disposition is reported). It is not the exercise price of the derivative security (which is reportable in Column 2) or the fair market value of the underlying security on the date of the reported transaction. [May 23, 2007]

Question 133.08

[Reserved]

Section 134. Form 3

Question 134.01

Question: Must an estate that holds more than 10 percent of a class of an issuer's equity securities file a Form 3 to report its holdings?

Answer: Yes. An estate that holds more than 10 percent of a class of an issuer's equity securities must file a Form 3 to report its holdings. Rule 16a-2(d), which permits an executor not to report transactions in securities held by an estate for the first 12 months following appointment as an executor, does not apply to the reporting of holdings on a Form 3. However, if the executor is already an insider (e.g., by virtue of being an officer of the issuer), in accordance with Rule 16a-3(b)(2) the executor need not file an additional Form 3 in the capacity of executor. Rather, when the executor next files a Form 4 (e.g., in the executor's individual capacity or for the estate after the 12 month period has elapsed), the executor would indicate the additional capacity in Box 5. [May 23, 2007]

Section 135. Form 4

Question 135.01

Question: May an officer of a company whose securities are registered under Section 12(g) of the Exchange Act file a Form 4 report solely to indicate the officer's resignation?

Answer: Yes. An officer of a company whose securities are registered under Section 12(g) of the Exchange Act may, but is not legally required to, file a Form 4 report, checking the exit box, solely to indicate the officer's resignation. [May 23, 2007]

Question 135.02

Question: On Form 4, what date should be entered for Item 3 (Date of Earliest Transaction Required to be Reported)?

Answer: The date in Item 3 should be the transaction date of the earliest transaction reported that you are required to report on Form 4. This is the same date you enter in Column 2 of Table I (or Column 3 of Table II), not the Deemed Execution Date you would enter in Column 2A of Table I (or Column 3A of Table II). Where the transactions reported on the Form 4 include a transaction that the insider previously failed to report timely on Form 4, the transaction date for that transaction should be entered in Item 3. [May 23, 2007]

Question 135.03

Question: What date should be entered for Item 3 on a Form 4 filed solely to report voluntarily a transaction that is eligible for deferred reporting on Form 5, such as a Rule 16b-5 gift or a Rule 16a-6(a) small acquisition?

Answer: Enter the transaction date reported in Column 2 of Table I (or Column 3 of Table II). In reporting the transaction, make sure that "V" is designated in Column 3 of Table I (or Column 4 of Table II). [May 23, 2007]

Question 135.04

Section 136. Form 5

Question 136.01

Question: Are Discretionary Transactions required to be reported on Form 5 individually, rather than on an aggregate basis, even when they are "same way" rather than "opposite way" transactions?

Answer: Yes. Discretionary Transactions are required to be reported individually, rather than on an aggregate basis, even when they are "same way" rather than "opposite way" transactions. [May 23, 2007]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Section 16 – General Guidance

None

Section 202. Section 16(a)

202.01 In connection with a bank holding company formation, in which jurisdiction over a Section 12(g) entity passes from a banking agency to the Commission, officers, directors and more than 10 percent shareholders are not required to file either a Form 3 or Form 4 with the Commission to reflect the transaction establishing the holding company. However, in the interest of ownership reporting continuity, the next filing on Form 4 or Form 5 by an insider reporting a change in his or her ownership of equity securities should reflect that the holding company is the issuer for purposes of filing under Section 16(a). [May 23, 2007]

Section 203. Section 16(b)

None

Section 204. Section 16(c)

None

Section 205. Section 16(d)

205.01 A broker-dealer that had ceased making a market in a public company's securities cannot rely upon the Section 16(d) exemption with respect to sales of securities remaining in its inventory. Furthermore, even if the cessation was only temporary, the broker-dealer would not regain eligibility for the exemption unless it resumed market-making activities on a bona fide basis, i.e., the broker-dealer cannot re-register as a market maker simply to liquidate its inventory. [May 23, 2007]

Section 206. Section 16(e)

None

Section 207. Section 16(f)

None

Section 208. Section 16(g)

None

Section 209. Rule 16a-1 – Definition of Terms

209.01 For purposes of the various ownership tests of Rule 16a-1, a limited liability company should be treated consistently as a general partnership, limited partnership or a corporation, depending on which form of organization it more closely resembles. [May 23, 2007]

209.02 Following a company's buy-back of its stock, a person who previously owned less than 10 percent of the company's stock may own more than 10 percent of the stock without having purchased additional shares. If, before the buy-back, the person is aware that the buy-back will occur and will have this result on his or her holdings, the person should file a Form 3 within 10 days after the buy-back. If the person does not have advance awareness of the buy-back and/or its consequences, he or she would need to determine whether he or she is a more than 10 percent beneficial owner and satisfy any obligation to file a Form 3 within ten days after information in the company's most recent quarterly, annual or current report indicates the amount of securities outstanding following the buy-back. [May 23, 2007]

209.03 In connection with termination of employment, an officer was awarded options that would become exercisable (in installments) when the issuer's stock reached and maintained specified price levels for a period of 30 days, conditioned on the terminated officer's continued provision of services as a consultant. These options would be derivative securities under Rule 16a-1(c) and thereby subject to Section 16 upon grant because their exercisability would not be subject to conditions (other than the passage of time and continued employment) that are not tied to the market price of an equity security of the issuer. Cf. Certilman Balin Adler & Hyman (April 20, 1992). [May 23, 2007]

209.04 Rule 16a-1(c)(3) excludes from "derivative security" rights or obligations to surrender a security, or have a security withheld, upon the receipt or exercise of a derivative security or the receipt or vesting of equity securities, in order to satisfy the exercise price or tax withholding consequences of receipt, exercise or vesting. The federal state, local and foreign taxes that may be paid through the withholding, tendering back or delivery of previously owned shares may exceed minimum withholding requirements as along as the amount withheld does not exceed the participant's estimated federal state, local and foreign tax obligations attributable to the underlying transaction. Such amount may include capital gains tax on the shares that were surrendered or withheld in settlement of the tax-withholding right or exercising the derivative security. [May 23, 2007]

209.05 A caller contemplated writing a short put option, whereby the counterparty would have the right to put the security to the writer at any point after execution of the contract. Provided that the counterparty who is "long" the put option retains its discretion as to whether and when to exercise the put option, then the writer of the put option is not deemed to beneficially own the securities underlying the put option because the right to receive the underlying securities is dependent upon factors that are not within the control of the writer of the put option. Thus, in calculating its beneficial ownership for purposes of Section 16, the party that is short the put option should not count the underlying securities. [May 23, 2007]

209.06 An exchange-traded fund (“ETF”) has authorized participants (“APs”) whose directors or officers, or the directors or officers of the AP’s parent holding company, serve as a director of an issuer of securities purchased or sold as part of the ETF’s in-kind creation or redemption baskets. The AP or its parent holding company may be deemed to be a director of that issuer for the purposes of Section 16 based on expressly or impliedly “deputizing” that individual to serve as its representative on the issuer’s board of directors. See Blau v. Lehmann, 368 U.S. at 403, 408-10 (1962); see also Feder v. Martin Marietta Corp., 406 F.2d 260, 263-64 (2d Cir. 1969). An AP and its parent holding company would avoid being deemed to have a pecuniary interest in a security in the creation or redemption basket, for the purposes of Rule 16a-1(a)(2), if the ETF substitutes cash for that basket security, so that neither the AP, nor anyone transacting on the AP’s behalf, would purchase, receive, or sell the security. [Oct. 7, 2022]

Section 210. Rule 16a-2 – Persons Subject to Section 16

None

Section 211. Rule 16a-3 – Reporting Transactions and Holdings

211.01 A Discretionary Transaction in a phantom stock account that is exempt pursuant to Rule 16b-3(f) is reportable under Rule 16a-3(f)(1) on Table II of Form 4 on a single line using Code "I." [May 23, 2007]

211.02 Any issuer that maintains a corporate Web site must post on that Web site by the end of the business day after filing any Form 3, 4 or 5 under Section 16(a) as to the equity securities of that issuer, and must keep each such form accessible on that website for at least a 12-month period in accordance with Section 16(a)(4)(C) and Rule 16a-3(k). In a bank holding company, the bank subsidiary maintains a corporate Web site, but the bank holding company does not. The staff advised that the subsidiary Web site should be considered a corporate Web site for purposes of these posting requirements. [May 23, 2007]

211.03 One public company will acquire another public company. After the merger, the acquiring company will shut down the Web site of the acquired company. Under Rule 16a-3(k), any issuer that maintains a Web site is required to post Section 16 forms on its Web site. Because the acquired company will no longer exist, and its Web site will be shut down, the staff would not object if the acquiring company stopped posting the pre-acquisition Section 16 reports of the acquired company. [May 23, 2007]

Section 212. Rule 16a-4 – Derivative Securities

None

Section 213. Rule 16a-5 – Odd-Lot Dealers

None

Section 214. Rule 16a-6 – Small Acquisitions

None

Section 215. Rule 16a-7 – Transactions Effected in Connection with a Distribution

None

Section 216. Rule 16a-8 – Trusts

None

Section 217. Rule 16a-9 – Splits, Stock Dividends, and Pro Rata Rights

217.01 Rule 16a-9(a) exempts from Section 16 "the increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class, including a stock dividend in which equity securities of a different issuer are distributed." This rule is available to exempt payment of a "pay-in-kind" dividend where there is no choice to receive the dividend in cash rather than stock. [May 23, 2007]

217.02 A limited partnership will make a pro rata distribution to its limited partners of portfolio securities that it holds. The limited partnership is subject to Section 16 with respect to the securities that will be distributed. The Division staff was asked whether Rule 16a-9(a) would exempt this distribution for the limited partnership as the distributing party. The Division staff expressed the view that Rule 16a-9(a), which exempts from Sections 16(a) and (b) "the increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class, including a stock dividend in which equity securities of a different issuer are distributed," would not provide the limited partnership an exemption. Instead, the scope of Rule 16a-9(a) is limited to persons subject to Section 16 who experience an increase or decrease in the number of securities held as a result of a stock distribution or reverse stock split effected by the distributing party, and is not available to the distributing party. [May 23, 2007]

Section 218. Rule 16a-10 – Exemptions under Section 16(a)

None

Section 219. Rule 16a-11 – Dividend or Interest Reinvestment Plans

219.01 A dividend reinvestment plan that is sponsored by a broker-dealer and available only to customers of that broker-dealer does not provide for "broad-based participation" within the meaning of Rule 16a-11. Accordingly, Rule 16a-11 is not available to exempt dividend or interest reinvestment transactions pursuant to such a plan. However, if a dividend reinvestment plan sponsored by a broker-dealer essentially mirrors a dividend reinvestment plan sponsored by the issuer that satisfies the conditions of Rule 16a-11, acquisitions pursuant to dividend reinvestment under the broker-dealer sponsored plan would be exempted by Rule 16a-11. See interpretive letter to Merrill, Lynch, Pierce, Fenner & Smith (Mar. 16, 1994). [May 23, 2007]

Section 220. Rule 16a-12 – Domestic Relations Orders

None

Section 221. Rule 16a-13 – Change in Form of Beneficial Ownership

221.01 A limited liability company ("LLC") makes a distribution of portfolio securities to its members. If the members have been relying upon Rule 16a-1(a)(2)(iii) to exclude the portfolio securities from their individual pecuniary interest (where the members do not control the LLC and do not exercise voting or investment control over the portfolio securities), Rule 16a-13 cannot be relied on to exempt (from reporting and profit liability) the distribution of the portfolio securities. [May 23, 2007]

221.02 For estate planning purposes, a director of an issuer transfers shares of that issuer to a newly created foreign domiciled mutual fund in exchange for shares of the mutual fund. The mutual fund's equity investments would be limited to the issuer's shares. While significant restrictions would likely make the mutual fund an unattractive investment to the general public, the fund would have one shareholder other than the director and would be open to investment by the general public. Rule 16a-13 would not be available for the director's transfer of the issuer's shares to the mutual fund. [May 23, 2007]

221.03 An insider is a partner in a partnership that owns securities of the issuer. The insider's Section 16 reports reported all of the issuer shares owned by the partnership, which exceeded the insider's individual pecuniary interest, and did not disclaim an interest in the excess. The insider planned to "recapitalize" the partnership by contributing cash and withdrawing more issuer shares than his individual pecuniary interest. The insider cannot rely on Rule 16a-13 with respect to the amount that he withdraws in excess of his individual pecuniary interest. [May 23, 2007]

Section 222. Rule 16b-1 – Transaction Approved by a Regulatory Authority

None

Section 223. Rule 16b-3 – Transactions Between an Issuer and its Officers or Directors

223.01 If, pursuant to the terms of a plan, a transaction to re-balance holdings among accounts other than the issuer equity securities account results in a transfer of assets into or out of an issuer equity securities account, the transaction will be a Discretionary Transaction, subject to Rule 16b-3(f). [May 23, 2007]

223.02 A rollover of funds into the issuer equity securities fund from a plan maintained by the insider's former employer will not be a Discretionary Transaction subject to Rule 16b-3(f) because it does not involve a reallocation of funds already invested in a plan of the issuer. An automatic rollover of a phantom stock account upon the issuer's abolition of the plan in which it is maintained into a restricted stock account in another plan of the issuer would not be a Discretionary Transaction. However, other rollovers or transfers between different plans sponsored by the same issuer may be Discretionary Transactions, and need to be analyzed on a case-by-case basis as to the character of the funds involved and whether the transaction is volitional to the insider. [May 23, 2007]

223.03 Where there are two issuer equity securities funds (one containing 100 percent issuer equity securities and the other 50 percent issuer equity securities), a transfer from the 100 percent fund to the 50 percent fund would be a transfer out of an issuer equity securities fund for purposes of measuring the six-month period before the next Discretionary Transaction. Conversely, a transfer from the 50 percent fund to the 100 percent fund would be a transfer into an issuer equity securities fund for the same purpose. But a transfer out of either fund into a non-issuer equity securities fund would be a transfer out, and a transfer into either fund from a non-issuer equity securities fund would be a transfer into an issuer equity securities fund.

223.04 Under Rule 16b-3(b)(3)(i)(B), a director will not be disqualified for service as a Non-Employee Director by virtue of receiving compensation from the issuer for services rendered "in any capacity other than as a director" where the director receives a higher director's fee in consideration for service as chairman of the board or on a committee of the board. [May 23, 2007]

223.05 Rule 16b-3(b)(3)(i)(B) provides that a Non-Employee Director may not receive compensation from the issuer, its parent or subsidiary, for services in any capacity other than as a director, except for an amount that does not exceed the dollar amount for which disclosure is required under Item 404(a) of Regulation S-K. The "services" in question refer to current services or services recently provided. Accordingly, a director's receipt from the issuer of a pension that is paid as a result of the director's prior service as an employee of the issuer would not trigger disqualification under paragraph (B), without regard to amount. In contrast, a director's receipt of a severance payment, in excess of the referenced amount, would trigger disqualification to the extent it relates to recent service. [May 23, 2007]

223.06 An Internal Revenue Code Section 423 plan permits a lump sum purchase at the end of the purchase period as an alternative to payroll deductions. However, a participant must enroll at the beginning of a purchase period and elect at that time whether to use payroll deductions or the lump sum payment. Such a plan would be a Stock Purchase Plan, as defined by Rule 16b-3(b)(5) and purchases under either form of payment would be exempt under Rule 16b-3(c). [May 23, 2007]

223.07 A routine disposition of shares to fund an administrative fee assessment under a Tax-Conditioned Plan would be exempt without further condition. However, the staff is of the view that dispositions that are not similarly incidental to plan administration are outside the purview of the plan and thus not exempted by Rule 16b-3(c). See the staff interpretive letter to American Bar Association (Oct. 15, 1999). [May 23, 2007]

223.08 Under a plan that is otherwise a formula plan, following a change in control (as objectively defined in the plan) participants will receive benefits in the form of cash or stock. The decision as to whether payment is made in cash or stock is made by the issuer's compensation committee. Although issuer discretion is limited to the form of payment (rather than the amount) this issuer discretion must be exercised by the full board, the committee of Non-Employee Directors, or shareholders. Alternatively, any securities received by insiders must be held for six months for the Rule 16b-3(d)(3) exemption to apply. [May 23, 2007]

223.09 The six-month holding period Rule 16b-3(d)(3) will remain satisfied if, during the six months, the insider transfers the securities to a family trust, provided that the insider retains a pecuniary interest in the securities so transferred. In contrast, an outright transfer to a family member during the six months (either by gift or for consideration) will result in failure to satisfy the six-month holding period. [May 23, 2007]

223.10 A company grants options in reliance on the six-month holding period of Rule 16b-3(d)(3). Shortly thereafter, the company authorizes tax-withholding rights with respect to the same options pursuant to Non-Employee Director approval under Rule 16b-3(e). This bifurcated procedure should not alter the availability of Rule 16b-3(d)(3), provided that the withholding rights are not exercised before the conclusion of the six-month holding period for the related option grant. [May 23, 2007]

223.11 Board approval of a buy-back plan providing for the issuer to buy back option shares at any time at fair market value would not satisfy the approval requirement of Rule 16b-3(e), because the resultant open-ended buy-back transactions would not have been approved with sufficient specificity. [May 23, 2007]

223.12 Consistent with the staff interpretive letter to American Bar Association (Dec. 20, 1996), an insider elects to defer salary into a phantom stock account in a single fund plan, and at the same time makes an election to receive the ultimate cash payout at a fixed date more than six months following the election. The payout election will not be subject to the conditions applicable to Discretionary Transactions under Rule 16b-3(f). [May 23, 2007]

223.13 A deferred compensation plan allows deferrals to either a phantom stock account or a cash account. Transfers between the phantom stock account and cash account are permitted. At the time a participant elects to defer compensation, the participant determines that the balance of both accounts will be paid in cash at a fixed date more than six months following the election. Because of the transfer feature, the plan is treated as a multi-fund deferral plan under Q. 4(c) of the staff interpretive letter to American Bar Association (Dec. 20, 1996), rather than a single-fund deferral plan under Q. 4(b) of that interpretive letter. A cash-out from the phantom stock account pursuant to the election described above would be a Discretionary Transaction, eligible for exemption under Rule 16b-3(f). Because the transfer feature permits assets to be transferred between the accounts, the balance of assets that will be in the phantom stock account at the fixed date payout cannot be determined until the fixed date occurs. Therefore, for purposes of Rule 16b-3(f) the fixed date payout election will be deemed to occur on the fixed date. The fixed date payout is not eligible for exemption under Rule 16b-3(e). [May 23, 2007]

223.14 A deferred compensation plan allows deferrals to either a phantom stock account or a cash account (which is credited with interest at the market rate). No transfers between the phantom stock account and the cash account are permitted, except that if a participant elects a payout in installments, the participant may make a one-time election (effective simultaneously with commencement of payouts) to transfer all or part of the phantom stock account balance to the cash account. Because of this transfer feature, pursuant to the staff interpretive letter to American Bar Association (Dec. 20, 1996) Q. 4(c), the plan is treated as a multi-fund deferral plan, rather than as a single-fund deferral plan. Generally, a transfer pursuant to this feature would be a Discretionary Transaction, eligible for exemption under Rule 16b-3(f). However, where such a transaction is not a Discretionary Transaction (for example, where it is in connection with the participant's death, disability or retirement, as provided by Rule 16b-3(b)(1)), it is eligible for exemption under Rule 16b-3(e). In that case, if the participant irrevocably elects to make such a transfer at the time he or she elects to defer funds, the approval requirement of Rule 16b-3(e) and Note 3 may be satisfied by approval of the plan. Cf. staff interpretive letter to American Bar Association (Dec. 20, 1996) Q. 4(b). However, if the election is made at a later point, approval of the individual transaction is necessary. [May 23, 2007]

223.15 If an election to effect a Discretionary Transaction is revocable until a specified date, such specified date should be used as the date of the election for purposes of measuring the six-month period before election of the next "opposite way" Discretionary Transaction eligible for exemption under Rule 16b-3(f). [May 23, 2007]

Section 224. Rule 16b-5 – Bona Fide Gifts and Inheritance

None

Section 225. Rule 16b-6 – Derivative Securities

None

Section 226. Rule 16b-7 – Mergers, Reclassifications and Consolidations

None

Section 227. Rule 16b-8 – Voting Trusts

None

Section 228. Rule 16c-1 – Brokers

None

Section 229. Rule 16c-2 – Transactions Effected in Connection with a Distribution

None

Section 230. Rule 16c-3 – Exemption of Sales of Securities to be Acquired

None

Section 231. Rule 16c-4 – Derivative Securities

231.01 Rule 16c-4 provides that establishing or increasing a put equivalent position will be exempt from the Section 16(c) prohibition against short sales so long as the amount of securities underlying the put equivalent position does not exceed the amount of underlying securities otherwise owned. The insider had issued DECS (put equivalents) backed by issuer common stock. The insider proposed to sell all its issuer common stock in excess of the minimum amount deliverable in settlement of the DECS at maturity, and asked the Division staff to concur that the insider would continue to satisfy Rule 16c-4 following such sale. The Division staff did not agree because if a price decline occurred prior to maturity the insider would need to deliver a greater number of shares, at which point the insider would be short (in violation of Section 16(c)) and would be benefited by a stock decline so that it could go into the market and cover. Rule 16c-4 is construed to apply during the entire lifetime of the put equivalent so that at any such time the insider would have no net benefit resulting from a price decline in the issuer's shares. [May 23, 2007]

Section 232. Rule 16e-1 – Arbitrage

None

Section 233. Forms 3, 4 and 5 – General

233.01 Phantom stock is a derivative security reportable on Table II of Forms 4 and 5. Accordingly, in reporting an open market purchase of common stock, an insider would not need to update phantom stock holdings. The exception to this position is where phantom stock units that settle automatically on a one-for-one basis in common stock have been reported on Table I as common stock, in reliance on the staff interpretive letters to Lincoln National Corporation (Mar. 20, 1992), Q. 3 and American Bar Association (Dec. 20, 1996), Q. 4(d)(3). [May 23, 2007]

233.02 An insider may rely in good faith on the last plan statement in reporting holdings pursuant to 401(k) plans and other plans eligible for the Rule 16b-3(c) exemption on Forms 4 and 5, unless the insider is aware of subsequent plan transactions. [May 23, 2007]

233.03 When reporting a transaction on Form 4 or Form 5, care should be taken that the characterization of securities as "Acquired (A)" or "Disposed (D)" in Table I Column 4 or Table II Column 5 is consistent with the transaction code reported in Table I Column 3 or Table II Column 4. For example, a transaction coded "P" should not report "D" in Table I Column 4 or Table II Column 5, because a purchase is not a disposition. [May 23, 2007]

Section 234. Form 3

None

Section 235. Form 4

235.01 An insider planned to file a Form 4 to report the sale of securities of a closed-end investment company. Each shareholder in the investment company owns one share of stock, but a shareholder's voting interest is tied to its economic interest, rather than the number of shares of stock held. The staff advised that the insider must include information that would convey the amount of equity sold or purchased in the transaction. Specifically, while the insider may report on the Form 4 that one share was involved in the transaction, the insider should also include a footnote to explain the amount of equity involved in the transaction, stating: (1) the percentage held before transaction; (2) the percentage sold/purchased in the transaction; and (3) the percentage held after the transaction. [May 23, 2007]

Section 236. Form 5

None

Going Private Transactions, Exchange Act Rule 13e-3 and Schedule 13E-3

Last Update: January 26, 2009

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of Exchange Act Rule 13e-3 as it applies to “going private” transactions and related Schedule 13E-3. These C&DIs replace the Rule 13e-3 and Schedule 13E-3 interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations, the July 2001 Interim Supplement to the Manual of Publicly Available Telephone Interpretations and the November 2000 Current Issues and Rulemaking Projects Outline. Some of these C&DIs were originally published in the sources noted above and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Going Private Transactions by Certain Issuers or Their Affiliates: Rule 13e-3

Question 101.01

Question: In a “going private” merger transaction involving the leveraged buy-out of a class of equity securities subject to Section 12(g) or Section 15(d) of the Exchange Act by an affiliate of the issuer of those securities, must both the issuer and the affiliate, as filing persons on Schedule 13E-3, speak to the issuer’s unaffiliated shareholders as to the fairness of the transaction?

Answer: Yes. The issuer’s obligation to comply with Rule 13e-3 arises from its engagement in a solicitation subject to Regulation 14A, or a distribution subject to Regulation 14C, in connection with the going private merger with its affiliate. See Rule 13e-3(a)(3)(i)(C). The affiliate, as a Rule 13e-3(a)(3)(i)(A) purchaser of the equity securities of the issuer, is also subject to Rule 13e-3. The affiliate is deemed to be a “purchaser” of the equity securities of the issuer due to the definition of “purchase” in Rule 13e-3(a)(2). This definition states that “purchase” includes “any acquisition pursuant to a merger.” Both the affiliate and the issuer, therefore, are required under Rule 13e-3(b)(2)(i) to complete, file and disseminate a Schedule 13E-3 in accordance with Rules 13e-3(d), (e) and (f). Item 8 of Schedule 13E-3 and corresponding Item 1014(a) of Regulation M-A direct that each person filing the Schedule state whether it “… reasonably believes that the Rule 13e-3 transaction is fair or unfair to unaffiliated security holders.” Because both the issuer and the affiliate are persons required to file the Schedule 13E-3, each must evaluate the going private transaction from the standpoint of fairness to the issuer’s unaffiliated shareholders and appropriately disclose the results of such evaluation. See Question and Answer No. 5 in Exchange Act Release No. 17719 (April 13, 1981). [January 26, 2009]

Question 101.02

Question: Is an acquisition vehicle created by an affiliated purchaser in a going private transaction required to be included as a filing person on Schedule 13E-3? Is the intermediate or ultimate parent of that acquisition vehicle also required to be included as a filing person?

Answer: Yes. Where the purchaser has created a merger subsidiary or other acquisition vehicle to effect the transaction, the staff will “look through” the acquisition vehicle and treat as a separate, affiliated purchaser the intermediate or ultimate parent of that acquisition vehicle. Accordingly, both the acquisition vehicle and the entity or person who formed it to acquire the issuer are considered affiliates engaged in the Rule 13e-3 transaction that have separate filing obligations. The filing persons may satisfy their separate filing obligations by making a joint filing on a Schedule 13E-3 that contains both of their signatures and required disclosures. [January 26, 2009]

Question 101.03

Question: In a going private transaction subject to Rule 13e-3, is the target company to a tender offer considered to be “engaged” in the transaction pursuant to Rule 13e-3 if the target merely recommends the tender offer to its security holders, even where the target company has not signed a business combination agreement with the offeror?

Answer: Yes. If the affiliation between the offeror and target company is sufficient to trigger Rule 13e-3, the favorable recommendation alone would be sufficient to cause the target company to be “engaged” in the going private transaction. As a result, the target company would have to comply with Rules 13e-3(d), (e) and (f). Given the importance to security holders of their management’s recommendation and the conflicted nature of the transaction, the protections of Rule 13e-3 are warranted in these circumstances. While the staff understands that the target company has an obligation under Rule 14e-2 to make a statement with respect to the tender offer, the target company is not required to recommend in favor of the offer. The target company’s choices are to recommend acceptance or rejection of the offer, express no opinion and remain neutral, or state that it is unable to take a position. Illustration two to Question and Answer No. 5 in Exchange Act Release No. 17719 (April 13, 1981) is not inconsistent with this view, since that illustration does not contemplate that the target company recommended the tender offer to its security holders. [January 26, 2009]

Sections 102 to 105. Definitions: Rules 13e-3(a)(1) to 13e-3(a)(4)

Section 102. Rule 13e-3(a)(1)

Question 102.01

Question: Security holder A owns a significant stake in a class of securities, but another unrelated holder, security holder B, owns a larger interest in the same class, or owns a percentage greater than 50% of that class. Is security holder A precluded from being considered an affiliate for purposes of Rule 13e-3(a)(1) due to the existence of security holder B?

Answer: The presence of another controlling or majority security holder does not necessarily preclude a holder of a lesser amount of securities from being considered an “affiliate” for purposes of Rule 13e-3. [January 26, 2009]

Section 103. Rule 13e-3(a)(2)

None

Section 104. Rule 13e-3(a)(3)

Question 104.01

Question: An issuer is eligible to terminate the registration of a class of equity securities under Section 12(g) or to suspend the obligation to report under Section 15(d) of the Exchange Act. The issuer is eligible to terminate the class’ registration or suspend its reporting obligation because the relevant class of securities is held of record by less than the threshold amounts specified in Exchange Act Rules 12g-4, 12h-3, 12h-6 or Section 15(d) and all other conditions under those provisions have been met. The issuer, however, continues to file Exchange Act reports on a voluntary basis. Is the issuer required to file a Schedule 13E-3 when it engages in a transaction specified in Rule 13e-3(a)(3)(i) that further reduces the number of record holders?

Answer: No. Because the issuer was already eligible to terminate the registration under Section 12(g) or to suspend the obligation to report under Section 15(d), the transaction would not be deemed to have “caused” the class of securities to become eligible for termination of registration or suspension of the obligation to report. The reduction in the number of security holders pursuant to this transaction would therefore not produce the going private effect specified in Rule 13e-3(a)(3)(ii)(A). The issuer would need to separately evaluate whether this transaction, considered independently or as the first step in a series of such transactions, was reasonably likely to produce or undertaken with the purpose of producing the going private effect specified in Rule 13e-3(a)(3)(ii)(B). [January 26, 2009]

Question 104.02

Question: An issuer will conduct a transaction specified in Rule 13e-3(a)(3)(i) that has either a reasonable likelihood or a purpose of producing one of the effects described in Rule 13e-3(a)(3)(ii)(A). May the issuer avoid the requirement to file a Schedule 13E-3 if it represents that it will continue to file Exchange Act reports on a voluntary basis?

Answer: No. No exception from Rule 13e-3 arises by virtue of an issuer’s intent to voluntarily continue its Section 12(g) registration or file Exchange Act reports after consummation of a transaction that causes the class of securities to become eligible for termination of registration under Section 12(g) or suspension of the obligation to report under Section 15(d) of the Exchange Act. [January 26, 2009]

Question 104.03

Question: For purposes of Rule 13e-3(a)(3)(ii)(B), is the over the counter bulletin board, or OTCBB, considered an “inter-dealer quotation system of a registered national securities association?”

Answer: For purposes of the rule, “an inter-dealer quotation system of a registered national securities association” does not include quotations on the OTCBB. [January 26, 2009]

Section 105. Rule 13e-3(a)(4)

None

Sections 106 to 110. [Reserved]

Sections 111 to 116. Exemptions: Rules 13e-3(g)(1) to 13e-3(g)(6)

Section 111. Rule 13e-3(g)(1)

Question 111.01

Question: If a third-party bidder that is unaffiliated with an issuer “reserves the right” to acquire any issuer securities that remain outstanding after the completion of the bidder’s tender offer for all such securities, is the bidder eligible to rely on the exception in Rule 13e-3(g)(1) for the second-step purchase of the remaining issuer securities?

Answer: No. If an unaffiliated bidder makes a tender offer for all securities of the class of an issuer, the offer to purchase must fully disclose the bidder’s intention to engage in a Rule 13e-3 transaction, the form and effect of the subsequent transaction, and, to the extent known, the proposed transaction terms. The bidder’s use of non-committal language such as “not obligated” or “conditional upon the costs of such an offer or the potential benefits of continuing access to the equity capital markets through the listed shares” does not satisfy the exception’s disclosure requirements with respect to a second-step transaction to acquire remaining target securities. Similarly, if the bidder expresses its “current intention” to undertake a minority buy-out offer after a first-step tender offer, but the final decision whether or not to proceed with such offer will be made based on certain subjective considerations, the bidder’s use of such highly qualified language compromises its ability to rely on Rule 13e-3(g)(1). [January 26, 2009]

Section 112. Rule 13e-3(g)(2)

Question 112.01

Question: Is the Rule 13e-3(g)(2) exception available for transactions in which non-voting common stock is offered as consideration in exchange for voting common stock? What if tracking stock is offered?

Answer: No, in both cases. As the Commission stated in the Rule 13e-3 adopting release, Exchange Act Release No. 16075 (August 2, 1979), a transaction in which either common stock or equity securities with essentially the same attributes are offered is outside the purpose of Rule 13e-3 “since all holders of that class of security are on an equal footing and are permitted to maintain an equivalent or enhanced equity interest.” When the securities given up by unaffiliated security holders are voting common stock, the offer of new securities without voting rights would not fit within the Rule 13e-3(g)(2) exception, even though the new securities are denominated as common stock, because security holders will not receive an equivalent or enhanced equity interest. Similarly, the issuance of tracking stock in exchange for an issuer’s common stock would not satisfy the Rule 13e-3(g)(2) exception. Even though the tracking stock may be denominated as common stock, the tracking stock restricts the income stream to only certain assets of the issuer. As a result, security holders will not maintain an equivalent or enhanced equity interest in the issuer. [January 26, 2009]

Question 112.02

Question: The exception in Rule 13e-3(g)(2) provides that security holders must be offered only an equity security. Are there any circumstances in which the Rule 13e-3(g)(2) exception is available when cash is offered as consideration?

Answer: If security holders are offered the opportunity to elect either cash or stock consideration, the exception in Rule 13e-3(g)(2) remains available provided that the cash, at the time it is first offered, is substantially equivalent to the value of the security offered and both options are offered to all security holders. See Question and Answer No. 11 in Exchange Act Release No. 17719 (April 13, 1981). The Rule 13e-3(g)(2) exception is not available when security holders are offered consideration consisting of a combination of cash and stock. Similarly, where unaffiliated security holders receive an equivalent equity security but other participants in the transaction receive cash and/or something other than an equivalent equity security, the exception is not available. [January 26, 2009]

Section 113. Rule 13e-3(g)(3)

None

Section 114. Rule 13e-3(g)(4)

Question 114.01

Question: Is the exemption provided in Rule 13e-3(g)(4) for redemptions, calls or similar purchases of an equity security by an issuer pursuant to specific provisions set forth in the instrument(s) creating or governing that class of equity securities available when the equity security will be repurchased at a price to be set through an established formula, based in part on the average daily trading price of the subject securities?

Answer: The exemption provided in Rule 13e-3(g)(4) applies only where all of the terms of the redemption, call or similar purchase are set pursuant to the provisions of the governing instrument, including the price and timing of the redemption. A provision in the governing instruments that provides that securities will be repurchased at a price to be set through an established formula, based in part on the average daily trading price of the subject securities, does not fit within the exemption in Rule 13e-3(g)(4) unless the governing instruments established a set date or dates upon which the price will be calculated. [January 26, 2009]

Sections 115 to 116. [Reserved]

Section 117. Schedule 13E-3

Question 117.01

Question: The term “associate” as used in Item 11 of Schedule 13E-3 and corresponding Item 1008 of Regulation M-A is not defined in the Schedule or Rule 13e-3, and it is not discussed in the Rule 13e-3 adopting or interpretive releases. What is the definition of “associate” in the Rule 13e-3 context?

Answer: The definition of “associate” in Rule 12b-2 should be used for purposes of providing disclosure pursuant to Item 11 of Schedule 13E-3 and corresponding Item 1008 of Regulation M-A. [January 26, 2009]

Question 117.02

Question: An issuer and its affiliate are engaged in a Rule 13e-3 going private transaction. Are the issuer and its affiliate permitted to make a joint filing on Schedule 13E-3?

Answer: Yes, a joint filing is permissible so long as each filing person individually makes the required disclosures (e.g., the statement of “reasonable belief” as to the fairness or unfairness of the proposed transaction) and signs the Schedule 13E-3. [January 26, 2009]

Question 117.03

Question: When should the Schedule 13E-3 in a “going private” issuer tender offer be filed?

Answer: General Instruction D.3 to Schedule 13E-3 provides that the Schedule 13E-3 shall be filed as soon as practicable on the date the tender offer is first published, sent, or given to security holders. For an issuer tender offer that is a “going private” transaction subject to Rule 13e-3, Rule 13e-3(f)(2) provides that the requirements of Rule 13e-4 govern when the initial and amended offer materials published, sent, or given, and these materials will include the disclosure required by Rule 13e-3(e). The requirements of General Instruction D.4 to Schedule 13E-3 that the schedule must be filed with the Commission 30 days before any purchase of the subject securities, and the requirements of Rule 13e-3(f)(1)(i) that the statement containing the disclosures required by Rule 13e-3 be provided to shareholders twenty days before any purchase of the subject securities, do not apply. Rule 13e-3(f)(1) only applies to the kinds of transactions described in Rules 13e- 3(a)(3)(i)(A) and (C), and not to subparagraph (B) which deals with tender offers. [January 26, 2009]

Question 117.04

Question: In a registered exchange offer that is also a going private transaction, where the bidder files a joint Schedule 13E-3/Schedule TO, when must the Schedule 13E-3 be filed?

Answer: The general instructions to Schedule TO state that a bidder may file a combined Schedule 13E-3/TO where the transaction is both a tender offer and a going private transaction. In a standard unaffiliated transaction, a Schedule TO is typically filed when the Form S-4 is declared effective (unless the tender offer has been commenced early under Securities Act Rule 162, in which case the Schedule TO is filed at the time of offer commencement). However, where a joint Schedule 13E-3/TO is filed, it must be filed when the Form S-4 is initially filed. This will alert the public and the staff that a going private transaction is involved. This is consistent with General Instruction D.2. to Schedule 13E-3, which states that the schedule must be filed “[a]t the same time as filing a registration statement under the Securities Act of 1933.” The bidder should make it clear in the joint schedule that the offer has not yet commenced and not include a transmittal letter (the letter furnished to security holders for transmission of securities sought in the tender offer) with the filing. The bidder should file an amended schedule with a transmittal letter filed as an exhibit when the offer does commence. [January 26, 2009]

Question 117.05

Question: May a party that is required to file a Schedule TO and/or Schedule 13E-3 rely on the Private Securities Litigation Reform Act of 1995, or PSLRA, for disclosures made in tender offers or Rule 13e-3 going private transactions?

Answer: No. Disclosure made in connection with a tender offer or a going private transaction is not entitled to the safe harbor provisions of the PSLRA. The Act does not apply to statements made in connection with a tender offer. See Section 21E(b)(2)(C) of the Securities Exchange Act of 1934. Similarly, the Act does not apply to statements made in connection with a going private transaction. See Section 21E(b)(1)(E) of the Exchange Act. Parties should not refer to the PSLRA in disclosure made in connection with a tender offer or a going private transaction, including press releases, offers to purchase, and proxy materials. [January 26, 2009]

Question 117.06

Question: An acquiror in a going private transaction subject to Rule 13e-3 engages an investment bank to advise on structuring the transaction. The financial advisor does not analyze or advise on the consideration to be paid to target security holders in the acquisition. The financial advisor meets with management of the acquiror several times regarding its findings and makes an oral presentation regarding the transaction. However, it does not provide written materials to the acquiror. Do the oral analyses provided by the financial advisor regarding the structure of the transaction constitute a report within the meaning of Item 9 of Schedule 13E-3 and corresponding Item 1015 of Regulation M-A?

Answer: Yes. Item 9 and Item 1015 encompass both written and oral “reports, opinions, appraisals and negotiations” that are materially related to a going private transaction. This may include reports or opinions that address matters other than the fairness of the consideration to be provided in the transaction. Where the acquiror receives information in non-written form, it must summarize that information in detail in the disclosure document provided to target security holders. See Item 1015(b)(6) of Regulation M-A. In addition, any limitations on the scope of the analyses imposed on the outside party providing the report must be detailed. [January 26, 2009]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Going Private Transactions by Certain Issuers or Their Affiliates: Rule 13e-3

201.01. An acquiror enters into arms-length negotiations concerning its acquisition of a target company. The acquiror is not affiliated with the target. Pursuant to the resultant agreement for the acquisition, target will become a wholly-owned subsidiary of the acquiror; however, target’s management will remain intact. Exchange Act Release No. 16075 (August 2, 1979) suggests that where such continuity of management exists, the parties engaged in the transaction may be required to file a Schedule 13E-3. Factors considered to determine whether such a requirement exists include: increases in consideration to be received by management, alterations in management’s executive agreements favorable to such management, the equity participation of management in the acquiror, and the representation of management on the board of the acquiror. [January 26, 2009]

201.02. The “unitary transaction” no-action position, which permits certain persons to conduct multi-step acquisitions without filing Schedule 13E-3, is dependent upon, among other things, the acquisition of the entire class of securities at the same unit price. See, e.g., Federal-Mogul Corporation (August 27, 1980) and HM Acquisition Corp. (January 29, 1981). Sellers in an initial block transaction, however, may receive installment notes while the remaining security holders receive only cash, provided that the value represented by the notes (giving effect to the yield) is no more than the cash amounts offered to the other shareholders. [January 26, 2009]

201.03. A parent corporation holds a majority of a subsidiary’s outstanding common stock. The subsidiary’s common stock is registered pursuant to Section 12(g) of the Exchange Act. The parent proposes to make the subsidiary wholly-owned through the following sequence of transactions: (1) a tender offer for any and all of the subsidiary’s common stock; (2) the filing of a Form 15; and (3) after effectiveness of the Form 15, a short-form merger with a newly formed, wholly-owned subsidiary. On the date the tender offer commences, a Schedule TO and Schedule 13E-3 must be filed with the Commission and dissemination must occur in accordance with the tender offer rules. Provided that the Schedule 13E-3 appropriately discloses the plans for the “squeeze-out” merger and the anticipated Rule 12g-4/15d-6 filing, the filer(s) need not amend the Schedule 13E-3 when the squeeze-out merger ultimately takes place. Because the Form 15 will be effective at the time the squeeze-out merger occurs, the issuer will no longer be subject to either Section 12(g) or Section 15(d) of the Exchange Act, and an amendment to Schedule 13E-3 is therefore not required when the squeeze-out is consummated. [January 26, 2009]

201.04. An affiliate of a subject company will conduct a Regulation 14D tender offer that has either a reasonable likelihood or a purpose of producing one of the effects described in Rule 13e-3(a)(3)(ii) and will result in the subject company “going private.” The bidder will disseminate the tender offer materials and the disclosures required by Rule 13e-3 by mailing the disclosure document to security holders. The subject company provided the shareholder list to the bidder on a voluntary basis without the latter’s invocation of Rule 14d-5. Although Rule 14d-4(a)(2)(i) states that a summary advertisement may not be used to commence a tender offer subject to Rule 13e-3, the staff will not object where several days after the tender offer already validly commenced via other permissible means (see, e.g., Instruction to paragraph (a) of Rule 14d-4(a)), the bidder publishes a summary advertisement complying with Rule 14d-6(b) and notes that the offer will result in the issuer “going private.” [January 26, 2009]

201.05. Rule 13e-3 requires that each issuer and affiliate engaged, directly or indirectly, in a going private transaction file a Schedule 13E-3 and furnish the required disclosures (e.g., the statement of “reasonable belief” as to the fairness or unfairness of the proposed transaction) directly to the holders of the class of equity securities that is the subject of the transaction. Two separate but related issues may be raised with respect to the determination of “filing-person” status in situations where a third party proposes a transaction with an issuer that has at least one of the going private effects described in Rule 13e-3(a)(3)(ii): (1) whether the entities or persons are “affiliates” of the issuer within the scope of Rule 13e-3(a)(1); and, (2) whether those affiliates are deemed to be engaged, either directly or indirectly, in the going private transaction.

The staff consistently has taken the position that members of senior management of the issuer that is going private are affiliates of that issuer. Depending on the facts and circumstances of the transaction, such management affiliates also might be deemed to be engaged in the transaction and may incur a Schedule 13E-3 filing obligation separate from that of the issuer. For example, the staff has taken the position that members of senior management of an issuer that will be going private are required to file a Schedule 13E-3 where the transaction will be effected through the merger of the issuer into the purchaser or that purchaser’s acquisition subsidiary, even though:

management’s involvement in the issuer’s negotiations with the purchaser is limited to the terms of each manager’s future employment with and/or equity participation in the surviving company; and
the issuer’s board of directors appointed a special committee of outside directors to negotiate all other terms of the transaction except management’s role in the surviving entity.

An important aspect of the staff’s analysis was the fact that the issuer’s management ultimately would hold a material amount of the surviving company’s outstanding equity securities, occupy seats on the board of the company in addition to senior management positions, and otherwise be in a position to “control” the surviving company within the meaning of Exchange Act Rule 12b-2 (i.e., “possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”).

In the situation described above, where management of the issuer-seller that will be going private is essentially “on both sides” of the transaction, the acquiring person or “purchaser” also may be deemed to be an affiliate of the issuer engaged in the transaction and, as a consequence, required to file on Schedule 13E-3. See Exchange Act Release No. 16075 (August 2, 1979) (noting that “affiliates of the seller often become affiliates of the purchaser through means other than equity ownership, and thereby are in control of the seller's business both before and after the transaction. In such cases the sale, in substance and effect, is being made to an affiliate of the issuer...”). Accordingly, the issuer-seller, its senior management and the purchaser may be deemed Schedule 13E-3 filing persons in connection with the going private transaction. [January 26, 2009]

201.06. A financial buyer, previously unaffiliated with an issuer that it had agreed to acquire, planned to enter into a separate agreement with certain members of the issuer’s senior management whereby they would collectively receive 20% of the surviving entity’s equity after the acquisition transaction closed. Members of the issuer’s senior management who were to receive the equity stake were not involved in the negotiation of the merger agreement and had not executed any documents regarding their future equity participation. Where there exists a general understanding that a target’s senior management will receive equity in a surviving entity, whether derived from unexecuted documents or otherwise, Rule 13e-3 may apply. This transaction would be subject to Rule 13e-3 despite the fact that the terms of the target management’s future equity participation were not finalized. Because target management generally understood they would be equity holders in a surviving entity, the financial buyer was deemed to be on both sides of the transaction. Rule 13e-3 would apply because the financial buyer was deemed to be an affiliate engaged in the Rule 13e-3 transaction. In view of the amount of equity participation being considered by senior management, each of whom would remain responsible for influencing the policy and direction of the issuer, the financial buyer could be, directly or indirectly, in control of the issuer in advance of the acquisition closing. [January 26, 2009]

Sections 202 to 205. Definitions: Rules 13e-3(a)(1) to 13e-3(a)(4)

Section 202. Rule 13e-3(a)(1)

None

Section 203. Rule 13e-3(a)(2)

None

Section 204. Rule 13e-3(a)(3)

None

Section 205. Rule 13e-3(a)(4)

None

Sections 206 to 210. [Reserved]

Sections 211 to 216. Exemptions: Rules 13e-3(g)(1) to 13e-3(g)(6)

Section 211. Rule 13e-3(g)(1)

211.01. Rule 13e-3(g)(l) provides an exception from the requirement to file a Schedule 13E-3 for second-step clean-up transactions within one year of a tender offer provided, among other things, that the consideration offered in the second step is “at least equal to the highest consideration offered during such tender offer.” When the consideration in the second step is a security, the value of the security at the time the second step occurs (not at the time preceding the tender offer when the original agreement concerning the series of transactions is signed) is used to determine whether the consideration in the second step is sufficient to satisfy this requirement. [January 26, 2009]

211.02. Rule 13e-3(g)(1) provides an exemption from the requirement to file a Schedule 13E-3 for second-step clean-up transactions within one year of the tender offer in which the bidder becomes an affiliate of the subject company. If the affiliation between bidder and issuer existed before the tender offer, then the exemption provided by Rule 13e-3(g)(l) is not available. Rule 14e-5 prohibits a bidder from purchasing or arranging to purchase securities that are the subject of a tender offer from the public announcement of the offer until the offer is terminated. Rule 14e-5(b)(7) provides an exception from this prohibition for purchases or arrangements to purchase pursuant to contractual obligations, under certain conditions, including that the obligation to purchase is unconditional. Where the bidder enters into unconditional purchase agreements with shareholders of the subject company before announcement of the tender offer, as required by the exception in Rule 14e-5(b)(7), pursuant to which the holders’ shares (which represent a sizable block of the subject company’s outstanding securities that, by its proportion, will make the bidder an affiliate) will be sold to the bidder after the expiration of the tender offer, the bidder becomes an affiliate of the subject company on the date the agreement is signed. The exception in Rule 13e-3(g)(l) is, therefore, not available for any acquisitions after the completion of the tender offer. The unitary transaction no-action position, however, may be available, so long as all the conditions of that position are satisfied. See, e.g., Federal-Mogul Corporation (August 27, 1980), HM Acquisition Corp. (January 29, 1981) and Question and Answer No. 8 in Exchange Act Release No. 17719 (April 13, 1981). [January 26, 2009]

Section 212. Rule 13e-3(g)(2)

212.01. An issuer offers to exchange new non-interest bearing convertible debentures for outstanding interest-bearing convertible debentures. The exchange will be exempt from registration under Section 3(a)(9) of the Securities Act. The new debentures may or may not be accepted for listing on an exchange, depending on the number of debenture holders participating in the exchange. The existing debentures are registered under Section 12(b) of the Exchange Act and listed on a national exchange. The exemption provided in Rule 13e-3(g)(2) is not available because: (1) the new debentures may not be accepted for listing on a national exchange; and, (2) the new non-interest bearing debentures being offered do not contain substantially the same rights as the interest-bearing debentures being exchanged. [January 26, 2009]

212.02. In a two-step acquisition where the first step is a cash tender offer and the second step is a merger under which shareholders of the subject company are to receive shares of common stock of the bidder, the parties may claim a Rule 13e-3(g)(2) exemption from Rule 13e-3 for the second-step merger transaction so long as all of the conditions for that exemption are satisfied. The availability of the exemption would not be affected if the value of the security offered in the second step is lower than the cash amount offered in the tender offer or the board of directors of the subject company is changed by the bidder immediately following the tender offer. [January 26, 2009]

212.03. A limited partnership roll-up offers an option to the limited partners to take notes instead of an equity interest in the new master limited partnership that is otherwise offered as consideration. The general partner is an affiliate of all the limited partnerships. The option to receive notes instead of an equity security does not defeat the availability of the Rule 13e-3(g)(2) exemption for transactions in which security holders are offered or receive “only” an equity security, where the notes will be substantially equivalent in value to the limited partnership interests. The exemption remains available so long as all security holders continue to have an option to maintain an equity interest. See Question and Answer No. 11 in Exchange Act Release No. 17719 (April 13, 1981). [January 26, 2009]

Section 213. Rule 13e-3(g)(3)

None

Section 214. Rule 13e-3(g)(4)

214.01. Rule 13e-3(g)(4) provides that Rule 13e-3 shall not apply to redemptions, calls, or similar purchases of an equity security by an issuer “pursuant to specific provisions set forth in the instrument(s) creating or governing that class of equity securities.” This exemption is not lost when provisions relating to the repurchase of limited partnership interests by the general partner are contained in an attachment to the limited partnership agreement as opposed to being in the agreement itself, provided that each limited partner has consented to the buy-back provisions and the provisions are uniformly applied to each limited partner. [January 26, 2009]

Sections 215 to 216. [Reserved]

Section 217. Schedule 13E-3

217.01. Neither Rule 13e-3 nor the disclosure requirements in Schedule 13E-3 require the preparer of a report, opinion or appraisal materially related to the going private transaction, such as an investment banker, to be “independent” of the issuer. Any material relationship between the issuer and/or its affiliates and the preparer of the report, opinion or appraisal, however, must be disclosed pursuant to Item 9 of Schedule 13E-3 and corresponding Item 1015(b)(4) of Regulation M-A. This disclosure should describe whether or not any of the compensation is contingent upon the successful completion of the transaction, and must quantify, including cases in which the fee is zero, any compensation received or to be received as a result of the relationship. [January 26, 2009]

Proxy Rules and Schedules 14A/14C

Last Update: January 27, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of the proxy rules and Schedules 14A/C. (For reference purposes, links to certain superseded C&DIs remain available here: Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations; March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations.)

The bracketed date following each C&DI is the latest date of publication or revision.

Question and Answers of General Applicability

Sections 101 to 115. Section 14

Section 101. General

Question 101.01

Question: A cooperative subject to reporting obligations under Exchange Act Section 12 has a procedure for sending an advisory ballot to its members seeking their recommendations on who should be nominated to the board of directors. Are these advisory vote materials subject to the requirements of Exchange Act Section 14(a) and Regulation 14A?

Answer: Yes, the advisory vote materials constitute a solicitation for the election of directors. Accordingly, the advisory vote materials, including the advisory ballot, are required to comply with the requirements of Section 14(a) and Regulation 14A. [May 11, 2018]

Question 101.02

Question: An acquiror and a target company plan to engage in a business combination transaction. The acquiror is subject to the federal proxy rules and will file a proxy statement to solicit shareholder approval for the transaction. The target company is a non-reporting company that does not need to file a proxy statement to solicit its own shareholders. It does plan to issue press releases and make other public communications, including through its social media channels, to publicize the merits of the proposed transaction and its benefits for both companies’ shareholders. Could the target company’s public communications constitute a solicitation subject to the proxy rules?

Answer: Yes. A solicitation includes any “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” See Exchange Act Rule 14a-1(l)(1)(iii). Accordingly, a target company that does not plan to solicit its own shareholders could nevertheless be engaged in a solicitation of the acquiror’s shareholders if its public communications promote the proposed transaction or may be reasonably expected to influence the voting decisions of the acquiror’s shareholders. Any target company communication that constitutes a solicitation would be subject to the liability provision of Exchange Act Rule 14a-9, which prohibits materially false or misleading statements or material omissions, as well as the filing and information requirements of the federal proxy rules. Also see Question 132.01 below. [March 22, 2022]

Sections 116 to 120. [Reserved]

Sections 121 to 150. Regulation 14A, Solicitation of Proxies

Section 121. [Reserved]

Section 122. Rule 14a-2

Question 122.01

Question: Does a person holding securities in several nominee accounts count as one “person” for purposes of Rule 14a-2(b)(2)?

Answer: Yes. [May 11, 2018]

Question 122.02

Question: Does providing a form of proxy to a security holder in response to that security holder’s unsolicited request count against the ten-person limit of Rule 14a-2(b)(2)?

Answer: No, because such an act is not a solicitation under Rule 14a-1(l)(2)(i). [May 11, 2018]

Question 122.03

Question: Can the filing of a Schedule 13D preclude reliance on Rule 14a-2(b)(2)?

Answer: Yes. A dissident intending to engage or engaging in a solicitation of no more than ten persons under Rule 14a-2(b)(2) should be mindful that its filing of a Schedule 13D – depending on the content of this document and other relevant facts and circumstances – may constitute a more widespread solicitation that may preclude reliance upon Rule 14a-2(b)(2). For example, the filing of a Schedule 13D that states no more than what is explicitly required by the schedule generally would not be viewed as a more widespread solicitation. By contrast, where the Schedule 13D or any of its exhibits invites security holders to contact the filer in order to discuss the solicitation, or urges security holders to take some action, the Schedule 13D filing may be viewed as a solicitation of all of the registrant’s security holders. [May 11, 2018]

Question 122.04

Question: If securities are purchased prior to the record date, but title does not pass until after the record date, would the efforts by the purchaser to obtain proxies from the sellers be an exempt solicitation under Rule 14a-2(a)(2)? Would such efforts count toward the ten-person limitation of Rule 14a-2(b)(2)?

Answer: As these efforts would be an exempt solicitation under Rule 14a-2(a)(2), which exempts any solicitation by a person in respect of securities of which he or she is the beneficial owner, they would not count towards the ten-person limitation in Rule 14a-2(b)(2). [May 11, 2018]

Section 123. Rule 14a-3

Question 123.01

Question: If the information in an annual report to security holders required by Rule 14a-3 is included in a proxy statement contained in a Form S-4 filed for the same security holder meeting, is a separate Rule 14a-3 annual report nevertheless required?

Answer: No. [May 11, 2018]

Question 123.02

Question: A limited partnership has units registered under Exchange Act Section 12, but it does not hold director elections and therefore does not solicit proxies for the election of directors. Is the limited partnership required to file copies of its annual report with the Commission pursuant to Rule 14a-3?

Answer: No. [May 11, 2018]

Question 123.03

Question: Would a special meeting of a limited partnership held for the purpose of adding a general partner be an annual meeting (or a special meeting in lieu of an annual meeting) of security holders to elect directors of a corporation for purposes of Exchange Act Rule 14a-3?

Answer: Yes. Accordingly, an annual report prepared in accordance with Rule 14a-3 should be provided to the limited partners in connection with the meeting. However, the limited partnership would not be required to provide more than one annual report to its limited partners during any fiscal year. [May 11, 2018]

Question 123.04

Question: What does the reference to the “most recent fiscal years” in Rule 14a-3(b)(1) mean?

Answer: The “most recent fiscal years” referenced in Rule 14a-3(b)(1) are the most recently completed fiscal years as of the date of a registrant’s annual meeting, not as of the date the registrant mails proxy materials for its annual meeting. For example, a registrant with a December 31 fiscal year end, holding an annual meeting in early February 2018, must include audited balance sheets as of the end of each of fiscal years 2017 and 2016 in the annual report that accompanied or preceded the annual meeting proxy statement.[May 11, 2018]

Section 124. Rule 14a-4

Question 124.01

Question: Rule 14a-4(b)(1) states that a proxy may confer discretionary authority with respect to matters as to which a choice has not been specified by the security holder, so long as the form of proxy states in bold-faced type how the proxy holder will vote where no choice is specified. If action is to be taken with respect to the election of directors and the persons solicited have cumulative voting rights, can a soliciting party cumulate votes among director nominees by simply indicating this in bold-faced type on the proxy card?

Answer: Yes, as long as state law grants the proxy holder the authority to exercise discretion to cumulate votes and does not require separate security holder approval with respect to cumulative voting. [May 11, 2018]

Question 124.02

Question: When is notice of a non-Rule 14a-8 matter to be presented to a vote considered to be untimely under Rule 14a-4(c)?

Answer: Notice of a non-Rule 14a-8 matter to be presented to a vote that the registrant receives after the Rule 14a-4(c)(1) “timeliness” deadline (i.e., as measured under the registrant’s advance notice provision or, absent such a provision, the 45-day standard of Rule 14a-4(c)(1)) is considered untimely. This means that a registrant can exclude the matter from its proxy statement, while preserving discretionary authority to vote management proxies on such matter, as long as the registrant includes a specific statement in its proxy statement regarding how it intends to exercise its discretionary authority to vote on the matter if presented at the meeting. Additional disclosure may be necessary to satisfy Rule 14a-9. State law governs whether the matter may be properly introduced and voted upon at the meeting.[May 11, 2018]

Question 124.03

Question: If the last day of the 45-day deadline in Rule 14a-4(c)(1) for a registrant to receive timely notice from a security holder of a matter to be presented to a vote outside of Rule 14a-8 is not a business day (e.g., such last day is a weekend day or a holiday), when does the notice have to be received in order to be timely for purposes of the rule?

Answer: The notice must be received on the preceding business day. [May 11, 2018]

Question 124.04

Question: If a registrant has an advance notice by-law or charter provision that governs when notice of a matter is deemed to be timely, may it exercise discretionary voting authority in accordance with Rule 14a-4(c)(1)?

Answer: Yes. A registrant that has an advance notice by-law or charter provision governing when notice of a matter is deemed timely may exercise discretionary voting authority in accordance with Rule 14a-4(c)(1), even if the advance notice provision does not specifically reference the use of discretionary voting authority. [May 11, 2018]

Question 124.05

Question: For purposes of determining whether it has discretionary authority under Rule 14a-4(c)(1), should a registrant rely on the deadline prescribed in its advance notice provision for submission of non-Rule 14a-8 matters, or should it instead rely on the 45-day deadline specified in Rule 14a-4(c)(1)?

Answer: A registrant must rely on the deadline for submission of non-Rule 14a-8 matters prescribed in its advance notice provision in determining when notice of a matter is received in a timely manner for purposes of Rule 14a-4(c)(1). See Exchange Act Release No. 39093 (Sept. 18, 1997) (noting that Rule 14a-4(c)(1) is not intended “to interfere with the operation of state law authorized definitions of advance notice set forth in corporate bylaws and/or articles of incorporation…”). Hence, if a registrant’s advance notice provision requires receipt of notice of a matter 60 days before the date on which the registrant mailed its proxy materials for the prior year’s annual meeting of security holders, the registrant should use this deadline to determine compliance with the “timely notice” standard defined in Rule 14a-4(c)(1), rather than the 45-day period in Rule 14a-4(c)(1). [May 11, 2018]

Question 124.06

Question: When a registrant has changed its annual meeting date to be more than 30 days from the date it was held the prior year, or if the registrant did not hold an annual meeting last year, what is a “reasonable time” for notice of a matter to be submitted by a security holder for purposes of Rule 14a-4(c)(1)?

Answer: The term “reasonable time” should be determined based upon the particular facts and circumstances. In such a situation, the registrant must publicly disclose through means reasonably calculated to inform security holders the date change and the date by which a notice of a matter proposed by security holders must be received. [May 11, 2018]

Question 124.07

Question: The Division has permitted registrants to avoid filing proxy materials in preliminary form despite receipt of adequate advance notification of a non-Rule 14a-8 matter as long as the registrant disclosed in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter is actually presented for a vote at the meeting. See Section IV.D of Release No. 34-40018 (May 21, 1998). Can a registrant rely on this position if it cannot properly exercise discretionary authority on the matter in accordance with Rule 14a-4(c)(2)?

Answer: No. [May 11, 2018]

Question 124.08

Question: When a registrant receives notice of a matter submitted by a security holder that is timely but deficient for purposes of Rule 14a-4(c)(2)(i.e., it does not comply with the requirements listed in the rule by, for example, failing to indicate that the security holder intends to deliver a proxy statement and form of proxy to holders of at least that percentage of the registrant’s voting shares necessary to approve the matter), does the registrant have discretionary voting authority on the matter?

Answer: If the notice is timely but deficient, the registrant would not be required to put the matter on its proxy card. The registrant’s ability to exercise discretionary authority, however, is conditioned on including in its proxy statement advice on the nature of the matter and how the registrant intends to exercise its discretion to vote on that matter. The registrant’s ability to avoid filing a preliminary proxy statement and instead file a definitive proxy statement pursuant to Rule 14a-6 will depend upon, among other factors, the extent of its comments on, or discussion in, its proxy material of any solicitation in opposition in connection with the meeting. [May 11, 2018]

Section 125. [Reserved]

Section 126. Rule 14a-6

Question 126.01

Question: If a registrant proposes to approve or ratify awards made pursuant to a compensation plan, is it required to file the proxy statement in preliminary form?

Answer: Yes. While Rule 14a-6(a)(5) relieves registrants of the obligation to file a proxy statement in preliminary form for solicitations relating to the approval or ratification of a compensation plan or amendments, it does not extend to the ratification or approval by security holders of awards made pursuant to such plans. [May 11, 2018]

Question 126.02

Question: Is a registrant required to file a preliminary proxy statement in connection with a proposed corporate name change to be submitted for security holder approval at the annual meeting?

Answer: No. As set forth in Release No. 34-25217 (Dec. 21, 1987), the underlying purpose of the exclusions from the preliminary proxy filing requirement is “to relieve registrants and the Commission of unnecessary administrative burdens and preparation and processing costs associated with the filing and processing of proxy material that is currently subject to selective review procedures, but ordinarily is not selected for review in preliminary form.” Consistent with this purpose, a change in the registrant’s name, by itself, does not require the filing of a preliminary proxy statement. [May 11, 2018]

Question 126.03

Question: How are “days” counted for purposes of the “10 calendar day” period in Rule 14a-6?

Answer: For purposes of calculating the “10 calendar day” period in Rule 14a-6, the date of filing is day one pursuant to Rule 14a-6(k). For example, if the preliminary proxy statement is filed on Friday, October 20, 2023, then Sunday, October 29, 2023, would be day ten for purposes of Rule 14a-6. The registrant may send the definitive proxy statement to security holders starting at 12:01 a.m. on October 30, 2023. The foregoing assumes that the preliminary proxy statement is submitted on or before 5:30 p.m. Eastern Time on October 20, 2023. If the filing is submitted after 5:30 p.m., the 10-day period does not start until the next business day, which would be Monday, October 23, 2023. See Rule 13(a)(2) of Regulation S-T. [November 17, 2023]

Question 126.04

Question: Can a registrant that filed a Form S-4 send proxy cards to its security holders upon the filing of a preliminary proxy statement/prospectus?

Answer: No, as Exchange Act Rule 14a-4(f) prohibits the delivery of proxy cards unless the security holders concurrently or previously received a definitive proxy statement filed with the Commission. Further, because a vote on the transaction described also would amount to a sale of the securities being registered, no proxy card can be sent until after the Form S-4 is declared effective and the final prospectus has been furnished to security holders. [May 11, 2018]

Question 126.05

Question: A registrant files a registration statement on Form S-4 that contains its proxy statement disclosure pursuant to Instruction E.1 of Form S-4. After the effective date of the registration statement, the registrant sends an additional communication to security holders relating to the transaction. Does this communication need to be filed as other soliciting material pursuant to Rule 14a-6(b) no later than the date it is first sent or given to security holders?

Answer: Yes. Given the communication was sent after the furnishing of the definitive proxy statement, it should not be filed under Rule 14a-12. [May 11, 2018]

Question 126.06

Question: Exchange Act Rule 14a-6(g)(1) requires any person who engages in a solicitation pursuant to Exchange Act Rule 14a-2(b)(1) and beneficially owns over $5 million of the class of securities that is the subject of the solicitation to furnish or mail to the Commission a statement containing the information specified in the Notice of Exempt Solicitation (Exchange Act Rule 14a-103) no later than three days after the date the written solicitation is first sent or given to any security holder. Rule 14a-103 requires the soliciting person to attach only those written soliciting materials “required to be submitted” pursuant to Rule 14a-6(g)(1). If a soliciting person is not subject to Rule 14a-6(g)(1), is it permitted to submit a Notice of Exempt Solicitation?

Answer: Although the requirements of Rule 14a-6(g)(1), including the submission of a Notice of Exempt Solicitation, only apply to a soliciting person who beneficially owns more than $5 million of the class of subject securities, the staff will not object to a voluntary submission of such a notice by a soliciting person who does not beneficially own more than $5 million of the class of subject securities, provided that the written soliciting material is submitted under the cover of Notice of Exempt Solicitation as described in Question 126.07 and such cover notice clearly states that:

the soliciting person does not beneficially own more than $5 million of the class of subject securities; and
the notice is therefore being provided on a voluntary basis.

[January 27, 2025] [Comparison to prior version]

Question 126.07

Question: Rule 14a-6(g)(1) requires a Notice of Exempt Solicitation to contain the information specified in Rule 14a-103, including the name and address of the person relying on the exemption in Rule 14a-2(b)(1), and that the written soliciting material be attached to the notice. When submitting a Notice of Exempt Solicitation to the Commission electronically on EDGAR, can the written soliciting material appear in the notice before the Rule 14a-103 information is presented?

Answer: No. Rule 14a-103 is designed to be a “cover” to which previously disseminated written soliciting material is “attached.” See Rule 14a-103 (“Attach written material required to be submitted pursuant to Rule 14a-6(g)(1).”); Release No. 34-31326 (Oct. 16, 1992) (noting that the written soliciting material must be submitted “under cover” of the Notice of Exempt Solicitation). Therefore, when submitting a notice on EDGAR, whether voluntarily or to satisfy the requirements of Rule 14a-6(g)(1), all of the information required by Rule 14a-103 must be presented in the submission before any written soliciting materials (including any logo or other graphics used by the soliciting person) are presented. [January 27, 2025] [Comparison to prior version]

Question 126.08

Question: Can a person submit written soliciting material under the cover of a Notice of Exempt Solicitation on EDGAR if the written soliciting material has not been sent or given to security holders?

Answer: No. The submission of a Notice of Exempt Solicitation on EDGAR is not intended to be the means through which a person disseminates written soliciting material to security holders. Rather, its purpose is to notify the public of the written soliciting material that the person has sent or given to security holders through other means. See Release No. 34-30849 (June 23, 1992) (proposing the notice requirement so there would be public notice of extensive soliciting activity made in reliance on the Rule 14a-2(b)(1) exemption); Release No. 34-31326 (Oct. 16, 1992) (adopting the notice requirement in response to commenters’ concerns that, absent such a requirement, the Rule 14a-2(b)(1) exemption would permit large shareholders to conduct “secret” solicitation campaigns). [January 27, 2025]

Question 126.09

Question: Can a person submit a Notice of Exempt Solicitation on EDGAR for a written communication that does not constitute a “solicitation” under Rule 14a-1(l)?

Answer: No. Because Rule 14a-6(g) only applies to solicitations made pursuant to the Rule 14a-2(b)(1) exemption, only written communications that constitute a “solicitation” should be submitted under the cover of a Notice of Exempt Solicitation. For example, a written communication solely about matters that are not the subject of a solicitation by the registrant or a third party for an upcoming shareholder meeting generally would not be viewed as a solicitation and, therefore, should not be submitted under the cover of a Notice of Exempt Solicitation. [January 27, 2025]

Question 126.10

Question: Does Rule 14a-9, which prohibits materially false or misleading statements, apply to written soliciting materials sent or given to security holders in reliance on the Rule 14a-2(b)(1) exemption and filed under the cover of a Notice of Exempt Solicitation?

Answer: Yes. Rule 14a-2(b) does not provide an exemption from Rule 14a-9. As a result, written soliciting material attached to a Notice of Exempt Solicitation is subject to liability under Rule 14a-9. See also Release No. 34-31326 (Oct. 16, 1992) (“Pursuant to the [Rule 14a-2(b)(1)] exemption, solicitations by or on behalf of eligible persons would be exempt from all of the proxy statement filing, delivery and information requirements imposed by the proxy rules but remain subject to Rule 14a-9, which prohibits false or misleading statements in connection with written or oral solicitations.”). [January 27, 2025]

Sections 127 to 131. [Reserved]

Section 132. Rule 14a-12

Question 132.01

Question: Under the factual circumstances described in Question 101.02 above, can the target company rely upon Exchange Act Rule 14a-12 to communicate publicly about the proposed business combination transaction even though it does not plan to file its own definitive proxy statement?

Answer: Yes, subject to the conditions described below. Rule 14a-12 permits solicitations before the furnishing of a proxy statement, provided, among other things, that “a definitive proxy statement…is sent or given to security holders solicited in reliance” on the rule. See Rule 14a-12(a)(2). Recognizing the need for the target company to publicly announce the proposed transaction and the fact that the acquiror will send its own definitive proxy statement to its shareholders, the staff will not object if the target company relies on Rule 14a-12 for its public written communications, provided that:

the target company identifies itself as a participant in the acquiror’s proxy solicitation;
the target company satisfies the remaining applicable requirements of Rule 14a-12, including the filing of its communications with the Commission; and
the acquiror complies with the conditions specified in Question 102.04 of the Exchange Act Form 8-K C&DIs.

The target company may have its written communication filed by the acquiror on its behalf and under the acquiror’s Exchange Act file number, provided the communication is clearly identified as that of the target company. [March 22, 2022]

Question 132.02

Question: Is the Rule 14a-12 position described in Question 132.01 above also available for an acquiror that makes public communications regarding a proposed business combination transaction in which it will not file a definitive proxy statement for the transaction but the target company will?

Answer: Yes, as long as the following conditions are satisfied:

the acquiror identifies itself as a participant in the target company’s proxy solicitation;
the acquiror complies with all other requirements of Rule 14a-12, including the filing of its communications with the Commission; and
the target company complies with the conditions specified in Question 102.04 of the Exchange Act Form 8-K C&DIs.

The acquiror may have its written communication filed by the target company on its behalf and under the target company’s Exchange Act file number, provided the communication is clearly identified as that of the acquiror. [March 22, 2022]

Question 132.03

Question: Rule 14a-12 permits solicitations before the furnishing of a proxy statement, provided that, among other things, written soliciting material includes the required participant information or a prominent legend advising shareholders where they can find that information. See Rule 14a-12(a)(1)(i). Can a soliciting party satisfy Rule 14a-12(a)(1)(i) through a legend that only includes a general reference to filings made by the soliciting party or the participants (e.g., a legend that refers shareholders to the prior year annual report on Form 10-K and proxy statement for participant information)?

Answer: No. Rule 14a-12(a)(1)(i) requires a soliciting party to disclose the “identity of the participants in the solicitation…and a description of their direct or indirect interests, by security holdings or otherwise, or a prominent legend in clear, plain language advising security holders where they can obtain that information.” The availability of participant information allows shareholders evaluating soliciting materials to understand the interests of those soliciting the shareholders at the time when the solicitations occur, including before the shareholders receive a proxy statement. When the Commission amended Rule 14a-12 to expand the ability to solicit before furnishing a proxy statement, the Commission cited the legend information as one of the safeguards to protect against misleading solicitations and maintain the integrity of the solicitation process. See Section II.C.1. in Release No. 34-42055 (Oct. 22, 1999). General references in the legend to filings made or to be made by the soliciting party or participants do not sufficiently advise shareholders where they can obtain the required participant information. Instead, the legend should:

clearly identify the specific filing(s) where participant information appears (including by filing date);
clearly describe the specific locations of the participant information in such filings, whether by reference to the relevant section headings, captions or otherwise; and
include active hyperlinks to the referenced filings, when possible.

Soliciting parties also are reminded that participants’ direct and indirect interests in the solicitation are not limited to such participants’ security holdings. [November 17, 2023]

Section 133. Rule 14a-13

Question 133.01

Question: Is a broker search letter a proxy solicitation within the meaning of Exchange Act Rule 14a-1(l)?

Answer: No, it is not a proxy soliciting material where it is sent to a broker and only requests information about the number of copies of the proxy materials that the broker will need to forward to beneficial owners. [May 11, 2018]

Section 139. Rule 14a-19

Question 139.01

Question: Rule 14a-19(a)(1), in conjunction with Rule 14a-19(b), generally requires a dissident shareholder in an election contest to provide the registrant with notice of the names of the dissident shareholder’s nominees for whom it intends to solicit proxies at least 60 calendar days before the anniversary of the prior year’s annual meeting date. Can a dissident shareholder include in the Rule 14a-19(b) notice the names of more nominees than there are director seats up for election, without the intent of actually soliciting proxies for all of them but, instead, finalizing its slate of nominees after the Rule 14a-19(b) deadline and closer to the date of the shareholder meeting?

Answer: No. The Rule 14a-19(b) notice must contain only the names of nominees for whom the dissident shareholder intends to solicit proxies. The purpose of this requirement is to provide a definitive date by which the parties in a contested election will have the names of all nominees in order to compile a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021). Knowingly submitting the names of more nominees than there are director seats up for election, with the intention of finalizing the actual slate of nominees after the Rule 14a-19(b) notice deadline, would be inconsistent with the purpose of the rule.

The staff, however, recognizes that a dissident shareholder may need to change its slate of nominees after the Rule 14a-19(b) notice deadline (for example, because a nominee withdraws from the slate or the registrant increases the number of director seats up for election). Therefore, the staff will not object if the dissident shareholder includes in its Rule 14a-19(b) notice: (1) the names of the nominees for whom it intends to solicit proxies and (2) the names of additional or alternate nominees who, in accordance with the registrant’s governing documents and state law, would be presented for election in the event of a need to change the original slate, so long as the notice clearly identifies the persons who are being presented as additional or alternate nominees. If the dissident shareholder later changes its slate to include any of the additional or alternate nominees, then it must promptly notify the registrant of the change as required by Rule 14a-19(c).

The views above also apply to the ability of a registrant to include in its Rule 14a-19(d) notice the names of more nominees than director seats up for election. [August 25, 2022]

Question 139.02

Question: Rule 14a-19(b) generally requires a dissident shareholder in an election contest to send a notice to the registrant with the names of its nominees. Similarly, Rule 14a-19(d) requires the registrant to provide the names of the registrant’s nominees to any person conducting a solicitation pursuant to Rule 14a-19. In a contested director election where more than one dissident shareholder intends to present a slate of director nominees, should the registrant inform each dissident shareholder of the Rule 14a-19(b) notice that the registrant received with respect to persons nominated by other dissident shareholders?

Answer: Yes. The Rule 14a-19 notification requirements are intended to provide the parties in a contested election with the names of all director nominees by a definitive date so they can compile a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021). Although Rule 14a-19 does not expressly address a situation where there is more than one dissident shareholder submitting a slate of nominees, the registrant is best positioned to notify all parties of the slates submitted by the dissident shareholders as it alone receives the Rule 14a-19(b) notices that all dissident shareholders must send in a contested election. Accordingly, the registrant should notify each dissident shareholder, by the deadline prescribed in Rule 14a-19(d), of not only the names of its nominees and any nominees submitted under a “proxy access” provision but also of the names of any other persons nominated by another dissident shareholder who provided a Rule 14a-19(b) notice. This view also applies to the Rule 14a-19 requirements with respect to prompt notifications of any changes in the registrant’s and dissident shareholders’ slates of nominees. [August 25, 2022]

Question 139.03

Question: Rule 14a-19(b)(1) requires the dissident shareholder in an election contest to send notice of its director nominees generally no later than 60 calendar days before the anniversary of the prior year’s annual meeting. In addition, Rule 14a-5(e)(4) requires the registrant to disclose in its proxy statement the Rule 14a-19(b)(1) deadline for a dissident shareholder to provide notice of its director nominees for election at the next annual meeting. If the registrant’s advance notice bylaw provision imposes an earlier deadline for notice of a dissident shareholder’s nominees than Rule 14a-19(b)(1), must the registrant’s proxy statement also include disclosure of Rule 14a-19(b)(1)’s later deadline?

Answer: Rule 14a-19(b)(1) establishes a minimum, not a maximum, notice period for a dissident shareholder to inform the registrant of its intent to present its own director nominees. See Release No. 34-93596 (Nov. 17, 2021)(“Rule 14a-19’s notice requirement is a minimum period that does not override or supersede a longer period established in the registrant’s governing documents.”). Accordingly, where the registrant’s advance notice bylaw provision requires earlier notice than Rule 14a-19(b)(1), then the registrant disclosing only the earlier advance notice bylaw deadline would satisfy Rule 14a-5(e)(4).

Note, however, that Rule 14a-19(b) requires specific information to be included in the notice, such as a statement that the dissident shareholder intends to solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors. To the extent that the registrant’s advance notice bylaw provision does not require the same information as that required by Rule 14a-19(b), then the registrant’s proxy statement must clearly state the need for a dissident shareholder to comply with the additional requirements of Rule 14a-19(b). [August 25, 2022]

Question 139.04

Question: A registrant receives director nominations from a dissident shareholder purporting to nominate candidates for election to the registrant’s board of directors at an upcoming annual meeting. The registrant, however, determines that the nominations are invalid due to the dissident shareholder’s failure to comply with its advance notice bylaw requirements. Must the registrant include the names of the dissident shareholder’s nominees on its proxy card pursuant to Rule 14a-19(e)(1) under these circumstances?

Answer: No. Only duly nominated candidates are required to be included on a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021) (noting that universal proxy cards “must include the names of all duly nominated director candidates presented for election by any party…”, and explaining that “[a] duly nominated director candidate is a candidate whose nomination satisfies the requirements of any applicable state or foreign law provision and a registrant’s governing documents as they relate to director nominations”). If the registrant determines, in accordance with state or foreign law, that the dissident shareholder’s nominations do not comply with its advance notice bylaw requirements, then it can omit the dissident shareholder’s nominees from its proxy card. [December 6, 2022]

Question 139.05

Question: A registrant determines that a dissident shareholder’s director nominations do not comply with its advance notice bylaw requirements and excludes the dissident shareholder’s nominees from its proxy card. The dissident shareholder then initiates litigation challenging the registrant’s determination regarding the validity of the director nominations. Under these factual circumstances, what are the registrant’s obligations with respect to its proxy statement disclosures and solicitation efforts?

Answer: The registrant must disclose in its proxy statement its determination that the dissident shareholder’s director nominations are invalid, a brief description of the basis for that determination, the fact that the dissident shareholder initiated litigation challenging the determination, and the potential implications (including any risks to the registrant or its shareholders) if the dissident shareholder’s nominations are ultimately deemed to be valid.

If a registrant furnishes proxy cards that do not include the dissident shareholder’s director candidates and a court subsequently determines that the dissident shareholder’s candidates are duly nominated, then the registrant is obligated under Rule 14a-19 to furnish universal proxy cards with the dissident shareholder’s candidates. Accordingly, it should discard any previously-furnished proxy cards that it received. The registrant also should ensure that shareholders are provided with sufficient time to receive and cast their votes on the universal proxy cards prior to the shareholder meeting, including, if necessary, through the postponement or adjournment of the meeting. [December 6, 2022]

Question 139.06

Question: Can a dissident shareholder conducting a non-exempt solicitation in support of its own director nominees simply file a proxy statement on EDGAR, avoid providing its own proxy card, and instead rely exclusively on the registrant’s proxy card to seek to have its director nominees elected?

Answer: No. Rule 14a-19(e) requires each soliciting party in a director election contest to use a universal proxy card that includes the names of all director candidates, including those nominated by other soliciting parties and proxy access nominees. Rule 14a-19(a)(3) further requires a dissident shareholder to solicit holders of at least 67% of the voting power of shares entitled to vote on the director election contest and to include a representation to that effect in its proxy statement. This requirement is intended to prevent a dissident shareholder from capitalizing on the inclusion of its nominees on the registrant’s universal proxy card without undertaking meaningful solicitation efforts. See Release No. 34-93596 (Nov. 17, 2021). A dissident shareholder would fail to comply with these rules if it does not furnish its own universal proxy cards to holders of at least 67% of the voting power through permitted methods of delivering proxy materials (such as the Rule 14a-16 “notice and access” method). [December 6, 2022]

Question 139.07

Question: Rule 14a-19(e) mandates that each soliciting party in a non-exempt director election contest include all director nominees of all soliciting parties on each universal proxy card. As a result, in a contested director election, each soliciting party’s universal proxy card will include more nominees than director seats up for election. Rule 14a-19(e)(6) mandates that a universal proxy card prominently disclose the maximum number of director nominees for whom a shareholder may grant authority to vote. Rule 14a-19(e)(7) requires that a universal proxy card prominently disclose the treatment and effect of a proxy executed in a manner that grants authority to vote “for” the election of more nominees than the number of director seats up for election (an “overvoted proxy card”) or fewer nominees than the number of director seats up for election (an “undervoted proxy card”). Can a soliciting party use discretionary authority to vote the shares represented by overvoted proxy cards in accordance with that party’s voting recommendation for the director election?

Answer: No. Rule 14a-4(e) provides that where a person solicited specifies on a proxy card “a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the specifications so made.” When a shareholder has specified its choice(s) for the election of directors with an overvoted proxy card, the shares represented by an overvoted proxy card cannot as a practical matter be voted in accordance with the shareholder’s specifications. Because the shareholder has specified its choice(s) for the election of directors with an overvoted proxy card, a soliciting party cannot rely on discretionary authority pursuant to Rule 14a-4(b)(1) to vote the shares represented by an overvoted proxy card on the election of directors. Although the shares represented by an overvoted proxy card cannot be voted on the election of directors, such shares can be voted on other matters included on the proxy card for which there is no overvote and can be counted for purposes of determining a quorum. The treatment and effect of the corresponding voting instruction form (“VIF”) should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). The staff understands that some intermediaries will contact shareholders or beneficial owners to seek a correction of an overvoted proxy card or VIF before the meeting date. The interpretive position described in this CDI does not prohibit this helpful practice. [November 17, 2023]

Question 139.08

Question: Can a soliciting party use discretionary authority to vote the shares represented by undervoted proxy cards for the remaining director seats up for election in accordance with that party’s voting recommendation?

Answer: No. A shareholder has specified its choice(s) for the election of directors with an undervoted proxy card, and the shares represented by an undervoted proxy card can be voted in accordance with the shareholder’s specifications. See Rule 14a-4(e). Because the shareholder has specified its choice(s) for the election of directors with an undervoted proxy card, a soliciting party cannot rely on discretionary authority pursuant to Rule 14a-4(b)(1) to vote the shares represented by an undervoted proxy card for the remaining director seats up for election. The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). [November 17, 2023]

Question 139.09

Question: Can a soliciting party use discretionary authority to vote the shares represented by a signed but unmarked proxy card in accordance with that party’s voting recommendations?

Answer: Yes. Because the shareholder has not specified any choices, the soliciting party can use discretionary authority in this manner and as permitted by Rule 14a-4(b)(1). Rule 14a-4(b)(1) states that “[a] proxy may confer discretionary authority with respect to matters as to which a choice is not specified by the security holder,” so long as the form of proxy states in bold-faced type how the proxy holder will vote where no choice is specified. Note that Rule 14a-19(e)(7) requires that a universal proxy card prominently disclose the treatment and effect of a proxy executed in a manner that does not grant authority to vote with respect to any nominees. The treatment and effect of the corresponding VIF should be the same as that disclosed on a universal proxy card pursuant to Rule 14a-19(e)(7). [November 17, 2023]

Sections 151 to 164. Schedule 14A: Information Required in Proxy Statement

Section 151. General

Question 151.01

Question: A registrant solicits its security holders to approve the authorization of additional common stock for issuance in a public offering. While the registrant could use the cash proceeds from the public offering as consideration for a recently announced acquisition of another company, it has alternative means for fully financing the acquisition (such as available credit under an executed credit agreement in the full amount of the acquisition consideration) and may choose to use those alternative financing means instead. Would the proposal to authorize additional common stock “involve” the acquisition for purposes of Note A of Schedule 14A?

Answer: No. Raising proceeds through a sale of common stock is not an integral part of the acquisition transaction because at the time the acquisition consideration is payable, the registrant has other means of fully financing the acquisition. The proposal would therefore not involve the acquisition and Note A would not apply. By contrast, if the cash proceeds from the public offering are expected to be used to pay any material portion of the consideration for the acquisition, then Note A would apply. [May 11, 2018]

Question 151.02

Question: A registrant closes the acquisition of another company in a transaction in which security holder approval is not required. A portion of the consideration paid in the acquisition consists of convertible securities that, at the holder’s option, can be converted into shares of the registrant’s common stock or, at the registrant’s option, cash. Following the acquisition, the registrant files a proxy statement to solicit security holder approval for the authorization of additional shares of common stock that it could issue upon the conversion of the securities issued in connection with the acquisition. Would the solicitation of security holder approval for the authorization of the additional shares of common stock “involve” the acquisition for purposes of Note A of Schedule 14A?

Answer: A proposal “involves” another matter within the meaning of Note A when information about the other matter that is called for by Schedule 14A is material to a security holder’s voting decision on the proposal presented. The determination as to whether there is a substantial likelihood that a reasonable security holder would consider the information important in making a voting decision on a proposal ultimately depends on all the relevant facts and circumstances.

The authorization of additional shares of common stock is an integral part of the acquisition because it is necessary for the registrant to meet its obligation under the convertible securities issued as consideration for the acquisition. Therefore, the proposal to authorize additional shares of common stock “involves” the acquisition. In such circumstances, the registrant would have to include in the proxy statement information about the acquisition called for by Schedule 14A, unless such information has already been disclosed or sufficient time has passed so that the registrant’s historical filings fully reflect the acquisition. [November 17, 2023]

Sections 152 to 154. [Reserved]

Section 155. Item 4

Question 155.01

Question: Is a subsidiary created by a parent for the purpose of engaging in a proxy solicitation a participant in the solicitation?

Answer: Yes. Both the parent and the subsidiary would be participants in the solicitation pursuant to Instruction 3(a)(vi) to Item 4 of Schedule 14A. [May 11, 2018]

Sections 156 to 157. [Reserved]

Section 158. Item 7

Question 158.01

Question: A registrant will hold a special meeting to elect one new person to its board of directors. The incumbent directors were elected at the annual security holder meeting three months ago and will not be up for re-election. Do the proxy materials for the special meeting have to include the information required by Items 7 and 8 of Schedule 14A for the incumbent directors?

Answer: Yes. [May 11, 2018]

Question 158.02

Question: Does a registrant soliciting proxies for a special meeting at which management will propose a classification of the board of directors (but not the election of any directors under the proposed new board structure) need to include information pursuant to Items 7 and 8 of Schedule 14A in the proxy statement for the special meeting?

Answer: No, provided that the proposal, if adopted, will not have the effect of shortening or lengthening the term of any incumbent directors. [May 11, 2018]

Question 158.03

Question: B is to be merged into A in a Rule 145 transaction. B’s security holders will be voting to approve the proposed transaction and will become security holders of A. A’s security holders are not voting on the proposed transaction. Three of B’s directors will become directors of A. Is it necessary to include the information required by Items 7 and 8 of Schedule 14A as to the directors of A in A’s Form S-4, which includes B’s proxy statement?

Answer: Yes. Pursuant to Note A to Schedule 14A, the Form S-4 should contain the information required by Items 7 and 8 of Schedule 14A as to the A directors. [May 11, 2018]

Sections 159 to 160. [Reserved]

Section 161. Item 10

Question 161.01

Question: Do all actions on compensation plans that must be submitted for security holder approval need all of the disclosure required under Item 10 of Schedule 14A?

Answer: Any action on a compensation plan that must be submitted for security holder approval requires all of the disclosure called for under Item 10 of Schedule 14A. If the action proposed is only an amendment to an existing plan (e.g., adding shares available under an option plan, or adding a new class of participants), the Item 10 disclosure still must include a complete description of any material features of the plan (Item 10(a)(1)), including the material differences from the existing plan (Instruction 2). [May 11, 2018]

Question 161.02

Question: When should registrants provide the disclosure required by Item 10(a)(2)(i) of Schedule 14A regarding the benefits or amounts that will be received or allocated to each of the named executive officers and certain groups?

Answer: Item 10(a)(2)(i) disclosure regarding benefits or amounts that will be received by or allocated to each of the named executive officers and certain groups will only be called for if the plan being acted upon is: (i) a plan with set benefits or amounts (e.g., director option plans); or (ii) one under which some grants or awards have been made by the board or compensation committee subject to security holder approval (e.g., action is to add shares available under an existing option plan because there are not enough shares remaining under the plan to honor exercises of all outstanding options). [May 11, 2018]

Question 161.03

Question: If a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, should it list in the table all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is “0”?

Answer: Yes. Alternatively, the registrant can choose to identify any individual or group for which the award and benefit information to be reported is “0” through narrative disclosure that accompanies the New Plan Benefits Table. [May 11, 2018]

Question 161.04

Question: Can a registrant include other information, such as that called for by Item 10(b) of Schedule 14A, in the New Plan Benefits Table mandated by Item 10(a)(2) of Schedule 14A?

Answer: No. [May 11, 2018]

Question 161.05

Question: Should a registrant report the “dollar value” for option plans in the New Plan Benefits Table required by Item 10(a)(2) of Schedule 14A?

Answer: For option plans, no “dollar value” information should be given in the table (i.e., no Black-Scholes or other valuation). The number of shares underlying the options should be provided in the “Number of Units” column. [May 11, 2018]

Question 161.06

Question: Does Item 10(a)(2)(iii) of Schedule 14A require disclosure of actual awards made under an existing plan for the prior fiscal year?

Answer: No. The language of Item 10(a)(2)(iii) stating “if the plan had been in effect” contemplates plans that were not in effect for the prior fiscal year. Accordingly, Item 10(a)(2)(iii) disclosure of actual awards under an existing plan for the last fiscal year is not required. Disclosure under this item would be required when action is being taken on an existing plan only where the existing plan is being amended to alter a formula or other objective criteria to be applied to determine benefits. [May 11, 2018]

Question 161.07

Question: Does Item 10(a)(2)(i) or 10(a)(2)(iii) of Schedule 14A require a “pro forma” presentation of the benefits or amounts that would have been received under a plan where such awards or benefits are discretionary?

Answer: No, as such discretionary awards or benefits would not be considered to be determinable for purposes of these two item requirements. [May 11, 2018]

Question 161.08

Question: Does the disclosure requirement in Item 10(a)(2)(iii) of Schedule 14A apply to all compensation plans?

Answer: This disclosure requirement applies only to plans that have objective criteria for determining the compensation payable under the plan so that the registrant can take the criteria and, assuming the variables of the last year, determine what would have been paid under the plan had it been in place then. An example would be a bonus or long-term incentive plan with award opportunities based upon a fixed percentage of salary and actual payment earned based upon corporate performance against fixed measures (such as percentage growth in earnings over previous years). [May 11, 2018]

Question 161.09

Question: How should the “market value of the securities underlying the options, warrants, or rights as of the latest practicable date” be calculated for purposes of Item 10(b)(2)(i)(D) of Schedule 14A?

Answer: The “market value of the securities underlying the options, warrants, or rights as of the latest practicable date” may be presented as either: (i) market price per share or (ii) aggregate market value of the total number of shares underlying all options (granted or available for grant) under the plan. [May 11, 2018]

Question 161.10

Question: Does Item 10(b)(2)(ii) of Schedule 14A, which requires the registrant to state separately the amount of options received or to be received, cover options under all plans or only the plan upon which action is to be taken?

Answer: The requirement covers only options under the plan upon which action is being taken. For example, it would be inapplicable if a new plan was being considered because there would be no grants under that new plan to report. No disclosure is required if a new plan is being considered, even if the registrant has other plans under which there have been or will be options granted, and even if a previous or existing plan appears identical to the new plan in all but name. [May 11, 2018]

Question 161.11

Question: Does the disclosure under Item 10(b)(2)(ii) of Schedule 14A need to appear in a table?

Answer: No. This disclosure does not have to be in a table; narrative disclosure is acceptable. [May 11, 2018]

Question 161.12

Question: Does Item 10(b)(2)(ii) of Schedule 14A apply only to options received during the last year?

Answer: No. It applies to all options received at any time (not just last year) and options to be received (if determinable) by the specified persons and groups. The information called for under this item requirement should be given for each individual and group (including those for which the amount of options received or to be received is “0”). [May 11, 2018]

Section 162. [Reserved]

Section 163. Item 12

Question 163.01

Question: Does a proxy statement seeking security holder approval for the elimination of preemptive rights from a security involve a modification of that security for purposes of Item 12 of Schedule 14A?

Answer: Yes. Accordingly, financial and other information would be required in the proxy statement to the extent required by Item13 of Schedule 14A. [May 11, 2018]

Section 164. Item 13

Question 164.01

Question: Does a proxy statement seeking security holder approval of an increase in authorized common shares and the elimination of an authorized but unissued class of preferred stock require the inclusion or incorporation of financial statements?

Answer: No, unless the authorization is being sought in connection with an exchange, merger, consolidation, acquisition, or similar transaction. See Instruction 1 of Item 13 of Schedule 14A. [May 11, 2018]

Question 164.02

Question: Is it permitted for a proxy statement to incorporate by reference the financial information required by Item 13(a) of Schedule 14A from a prospectus?

Answer: Yes. The proxy statement may incorporate by reference from a prospectus the information required by Item 13(a) despite the fact that Item 13(b)(2) refers only to a previously-filed “statement or report.” [May 11, 2018]

Question 164.03

Question: Are the financial statements required by Item 13 of Schedule 14A needed for a proxy statement filed in connection with a merger that is intended solely to change the registrant’s domicile from one state to another?

Answer: No. [May 11, 2018]

Question 164.04

Question: Instruction 1 to Item 13 of Schedule 14A states that the information required by Item 13(a) is not deemed material where the matter to be acted upon is the authorization of preferred stock for issuance for cash in an amount constituting fair value. For purposes of this instruction, is the issuance of preferred stock upon conversion of debentures the equivalent to the authorization of preferred stock for cash?

Answer: No, they are not equivalent. Therefore, the registrant must provide Item 13 financial information in the proxy statement to the extent the financial information is material. [May 11, 2018]

Sections 165 to 200. [Reserved]

Proxy Rules and Schedule 14A (Regarding Submission of Annual Reports to SEC under Rules 14a-3(c) and 14c-3(b))

[Withdrawn, January 11, 2023. “Glossy” annual reports to security holders must be submitted electronically on EDGAR. See SEC Rel. No. 33-11070 (Jun. 2, 2022).]

Exchange Act Rule 14a-4(a)(3)

Last Update: March 22, 2016

Questions and Answers of General Applicability

Section 301. Description under Rule 14a-4(a)(3) of Rule 14a-8 Shareholder Proposals

Question 301.01

Question: Rule 14a-4(a)(3) requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” How specifically must a registrant describe a Rule 14a-8 shareholder proposal on its proxy card?

Answer: The proxy card should clearly identify and describe the specific action on which shareholders will be asked to vote. This same principle applies to both management and shareholder proposals. For example, it would not be appropriate to describe a management proposal to amend a company’s articles of incorporation to increase the number of authorized shares of common stock as “a proposal to amend our articles of incorporation.” Similarly, it would not be appropriate to describe a shareholder proposal to amend a company’s bylaws to allow shareholders holding 10% of the company’s common stock to call a special meeting as “a shareholder proposal on special meetings.” The following descriptions of shareholder proposals also would not satisfy Rule 14a-4(a)(3):

A shareholder proposal on executive compensation;
A shareholder proposal on the environment;
A shareholder proposal, if properly presented; and
Shareholder proposal #3.

Exchange Act Rule 14a-4(a)(3)

Last Update: October 27, 2015

Exchange Act Rule 14a-4(a)(3) concerns the “unbundling” of separate matters that are submitted to a shareholder vote by a registrant or any other person soliciting proxy authority. These interpretations relate to unbundling under Rule 14a-4(a)(3) in the context of mergers, acquisitions, and similar transactions and replace the “September 2004 Interim Supplement to Publicly Available Telephone Interpretations (Regarding Unbundling under Rule 14a-4(a)(3) in the M&A Context).” The bracketed date following each interpretation is the latest date of publication or revision.

Questions and Answers of General Applicability

Section 201. Unbundling under Rule 14a-4(a)(3) in the M&A Context

Question 201.01

Question: Rule 14a-4(a)(3) requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” Rule 14a-4(b)(1) further requires that the form of proxy provide a means for shareholders “to specify by boxes a choice … with respect to each separate matter referred to therein as intended to be acted upon.” In a merger, acquisition, or similar transaction in which shareholders of the target are receiving equity securities of the acquiror, amendments to the organizational documents of the acquiror can often be required by the transaction agreement. Under these proxy rules, under what circumstances must a target seeking shareholder approval of such a transaction present separately on its form of proxy a proposal or proposals relating to the amendments to the organizational documents of the acquiror? In other words, when are these amendments which are embedded within the transaction agreement a “separate matter” for target shareholders?

Answer: As a preliminary matter, if a material amendment to the acquiror’s organizational documents would require the approval of its shareholders under state law, the rules of a national securities exchange, or its organizational documents if presented on a standalone basis, the acquiror’s form of proxy must present any such amendment separately from any other material proposal, including, if applicable, approval of the issuance of securities in a triangular merger or approval of the transaction agreement in a direct merger. See Question 101.02 relating to “Unbundling under Rule 14a-4(a)(3) Generally.” As a general principle, however, only material matters must be unbundled, and acquirors should consider whether the provisions in question substantively affect shareholder rights. Examples of provisions meeting this standard that may be adopted in connection with a transaction include governance- and control-related provisions, such as classified or staggered boards, limitations on the removal of directors, supermajority voting provisions, delaying the annual meeting for more than a year, eliminating the ability to act by written consent, or changes in minimum quorum requirements. In contrast, provisions such as name changes, restatements of charters, or technical changes, such as those resulting from anti-dilution provisions, would likely be immaterial.

If, consistent with the guidance in Question 101.02, the acquiror is required under Rule 14a-4(a)(3) to present an amendment or multiple amendments separately on its form of proxy, or would be so required if it were conducting a solicitation subject to Regulation 14A, then a target subject to Regulation 14A also must present any such amendment separately on its form of proxy. This is because the amendment, which is a term of the transaction agreement that target shareholders are being asked to approve, would effect a material change to the equity security that target shareholders are receiving in the transaction. Target shareholders should have an opportunity to express their views separately on these material provisions that will establish their substantive rights as shareholders, even if as a matter of state law these provisions might not require a separate vote. Similarly, if the acquiror presents a material amendment on its form of proxy as the only matter to be approved by acquiror’s shareholders, then the target must present the amendment separately on its form of proxy. The target need not present as a separate matter on its form of proxy an amendment to increase the number of authorized shares of the acquiror’s equity securities, provided that the increase is limited to the number of shares reasonably expected to be issued in the transaction.

In all cases, the parties are free to condition completion of a transaction on shareholder approval of any separate proposals. Any such conditions should be clearly disclosed and indicated on the form of proxy. [October 27, 2015]

Question 201.02

Question: Does the answer to Question 201.01 change if the parties form a new entity to act as an acquisition vehicle that will issue equity securities in the transaction?

Answer: No. In that case, the party whose shareholders are expected to own the largest percentage of equity securities of the new entity following consummation of the transaction would be considered the acquiror for purposes of this analysis. As in Question 201.01, the acquiror must present separately on its form of proxy any material provision or provisions of the new entity’s organizational documents that are a term of the transaction agreement, if the provision or provisions represent a material change from the acquiror’s organizational documents, and the change would require the approval of the acquiror’s shareholders under state law, the rules of a national securities exchange, or its organizational documents if proposed to be made directly to its own organizational documents. Provisions that are required by law in the jurisdiction of incorporation of the new entity need not be presented separately on the form of proxy. As in Question 201.01, if the acquiror is or would be required under Rule 14a-4(a)(3) to present separately on its form of proxy any provision of the new entity’s organizational documents that is a term of the transaction agreement, then a target subject to Regulation 14A must also present the same provision separately on its form of proxy. [October 27, 2015]

Exchange Act Rule 14a-4(a)(3)

Last Update: January 24, 2014

Exchange Act Rule 14a-4(a)(3) concerns the “unbundling” of separate matters that are submitted to a shareholder vote by a company or any other person soliciting proxy authority. These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division's interpretations of Rule 14a-4(a)(3) generally. For guidance on the application of Rule 14a-4(a)(3) in the specific context of mergers, acquisitions, and similar transactions, refer to the Compliance and Disclosure Interpretations (Regarding Unbundling under Rule 14a-4(a)(3) in the M&A Context. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Unbundling under Rule 14a-4(a)(3) Generally

Question 101.01

Question: Management of a registrant has negotiated concessions from holders of a series of its preferred stock to reduce the dividend rate on the preferred stock in exchange for an extension of the maturity date. Must a single proposal submitted by management to holders of the registrant’s common stock to approve a charter amendment containing these modifications be unbundled into separate proposals under Rule 14a‑4(a)(3) – one relating to the reduction of the dividend rate, and another relating to the extension of the maturity date?

Answer: No. Multiple matters that are so “inextricably intertwined” as to effectively constitute a single matter need not be unbundled. The staff, in this particular case, would view the matters relating to the terms of the preferred stock as being inextricably intertwined, because each of the proposed provisions relates to a basic financial term of the same series of capital stock and was the sole consideration for the countervailing provision. Note, however, that the staff would not view two arguably separate matters as being inextricably intertwined merely because the matters were negotiated as part of a transaction with a third party, nor because the matters represent terms of a contract that one or the other of the parties considers essential to the overall bargain. [Jan. 24, 2014]

Question 101.02

Question: Management of a registrant intends to present an amended and restated charter to shareholders for approval at an annual meeting. The proposed amendments would change the par value of the common stock, eliminate provisions relating to a series of preferred stock that is no longer outstanding and is not subject to further issuance, and declassify the board of directors. Under Rule 14a‑4(a)(3), must the individual amendments that are part of the restatement be unbundled into separate proposals?

Answer: No. The staff would not ordinarily object to the bundling of any number of immaterial matters with a single material matter. While there is no bright-line test for determining materiality in the context of Rule 14a‑4(a)(3), registrants should consider whether a given matter substantively affects shareholder rights. While the declassification amendment would be material under this analysis, the amendments relating to par value and preferred stock do not substantively affect shareholder rights, and therefore both of these amendments ordinarily could be included in a single restatement proposal together with the declassification amendment. However, if management knows or has reason to believe that a particular amendment that does not substantively affect shareholder rights nevertheless is one on which shareholders could reasonably be expected to wish to express a view separate from their views on the other amendments that are part of the restatement, the amendment should be unbundled.

The staff notes that the analysis under Rule 14a-4(a)(3) is not governed by the fact that, for state law purposes, these amendments could be presented to shareholders as a single restatement proposal. If, for example, the restatement proposal also included an amendment to the charter to add a provision allowing shareholders representing 40% of the outstanding shares to call a special meeting, the staff would view the special meeting amendment as material and therefore required to be presented to shareholders separately from the similarly material declassification amendment. [Jan. 24, 2014]

Question 101.03

Question: Management of a registrant intends to present for a vote of shareholders a single proposal covering an omnibus amendment to a registrant’s equity incentive plan. The amendment makes the following changes to the terms of the plan:

increases the total number of shares reserved for issuance under the plan;
increases the maximum amount of compensation payable to an employee during a specified period for purposes of meeting the requirements for qualified performance-based compensation under Section 162(m) of the Internal Revenue Code;
adds restricted stock to the types of awards that can be granted under the plan; and
extends the term of the plan.

Must any of these proposed changes be unbundled into a separate proposal pursuant to Rule 14a‑4(a)(3)?

Answer: No. While the staff generally will object to the bundling of multiple, material matters into a single proposal – provided that the individual matters would require shareholder approval under state law, the rules of a national securities exchange, or the registrant’s organizational documents if presented on a standalone basis – the staff will not object to the presentation of multiple changes to an equity incentive plan in a single proposal. See Section III of Exchange Act Release No. 33229 (Nov. 22, 1993). This is the case even if the changes can be characterized as material in the context of the plan and the rules of a national securities exchange would require shareholder approval of each of the changes if presented on a standalone basis. [Jan. 24, 2014]

Tender Offer Rules and Schedules

Last Update: March 6, 2025

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of the tender offer rules. Many of the C&DIs replace the interpretations previously published in the Tender Offer Rules and Schedules Manual of Publicly Available Telephone Interpretations, Excerpt from November 2000 Current Issues Outline, and Excerpt from March 2001 Quarterly Update to Current Issues Outline (namely, C&DIs 101.05 through 101.16; 104.01; 104.02; 130.01 through 130.03; 131.01 through 131.03; 144.01; 146.01; 149.01; 158.01; 161.01; 162.06; 162.07; 163.01; 164.01; and 181.01). C&DI 101.04 replaces Question 2 in the Schedule TO section of the July 2001 Interim Supplement to Publicly Available Telephone Interpretations.

Questions and Answers of General Applicability

Section 101. General Questions

Question 101.01

Question: An offeror conditions its obligation to complete its tender offer upon the occurrence or non-occurrence of certain events and discloses these conditions in its offer to purchase. May some of these conditions be determinable based on subjective criteria?

Answer: No. A tender offer may be subject to conditions only where the conditions are based upon objective criteria and otherwise not within the offeror's control. See Release No. 34-43069 (July 24, 2000). If an offeror could arbitrarily determine or control whether an offer condition has been triggered (e.g., by stating that determination of whether a condition has been triggered is in the offeror's "sole" discretion instead of its "reasonable" discretion), the offer would be illusory and may constitute a manipulative or deceptive act or practice under Section 14(e). Whether or not each condition has been triggered should therefore be objectively verifiable. Once a condition is determined to have been triggered under the objective criteria, however, the offeror can then lawfully decide, in its sole discretion, to assert or waive that condition. [March 17, 2023]

Question 101.02

Question: A tender offer is conditioned on receipt of regulatory approvals, such as receipt of permits from a state authority. The offeror further discloses that the conditions may be invoked, and the offer terminated, "regardless of the circumstances giving rise to such conditions, including any action or inaction by the offeror." Is inclusion of such a term at risk of constituting a manipulative or deceptive act or practice under Section 14(e)?

Answer: Yes. If an offeror may terminate an offer "regardless of the circumstances giving rise to such conditions," including its own actions or inaction, the offer, according to its terms, could be terminated at any time for any reason. Because such an offeror might intentionally fail to take the requisite steps to obtain the regulatory approvals, the offer may be illusory and thus undertaken in contravention of Section 14(e). [March 17, 2023]

Question 101.03

Question: An offeror issues a press release stating that the offer has been terminated "pursuant to the offer conditions." The press release does not specify which offer condition or conditions were triggered. Could the issuance of a press release without specifying the exact condition(s) upon which the offeror relied to terminate the tender offer constitute an omission of a material fact within the meaning of Section 14(e)?

Answer: Yes. The failure to disclose the specific basis for the termination of the offer may constitute a material omission under Section 14(e) and raises the possibility that the offer might have been illusory. [March 17, 2023]

Question 101.04

Question: Because Rule 14d-2 provides that commencement does not begin until the means of tendering have been given to security holders, would the staff review a Schedule TO filing that does not include a transmittal form, issue and clear comments, and then allow a bidder to disseminate their tender offer materials?

Answer: Yes. The staff, however, will give priority in its review to transactions that have already commenced. Because prompt review of a tender offer that has not commenced may be impracticable, the staff still encourages concurrent filing and dissemination of tender offer documents. Prospective bidders are reminded that Rule 14e-8 requires bidders to have a bona fide intent to commence a tender offer once a Schedule TO has been filed. In addition, if a bidder files a Schedule TO before commencing the offer, the materials should make it clear that the offer has not yet commenced in order to avoid confusing investors. Furthermore, the Schedule TO filed should be filed using EDGAR tag "SC TO-C," and not EDGAR tag "SC TO-I" or "SC TO-T." [March 17, 2023]

Question 101.05

Question: Does the determination of who is the "bidder" for purposes of Regulations 14D and 14E stop at the entity used to make the offer and purchase the securities?

Answer: No. Rule 14d-1(c)(1) also requires persons "on whose behalf" the tender offer is being made to be included as bidders. For instance, where a parent company forms an acquisition entity for the purpose of making the tender offer, both the acquisition entity and the parent company are bidders even though the acquisition entity will purchase all securities tendered. The staff views the acquisition entity as the nominal bidder and the parent company as the real bidder. They both should be named bidders in the Schedule TO. Each offer must have at least one real bidder, and there can be co-bidders as well. [March 17, 2023]

Question 101.06

Question: Does the fact that the parent company or other persons control the purchaser through share ownership mean that the entity is automatically viewed as a bidder?

Answer: No. Bidder status is a question that is determined by the particular facts and circumstances of each transaction. Determining who the bidder is requires consideration of the parent's or control person's role in the tender offer, including the following non-exclusive factors:

Did the person play a significant role in initiating, structuring, and negotiating the tender offer?
Is the person acting together with the named bidder?
To what extent did or does the person control the terms of the offer?
Is the person providing financing for the tender offer, or playing a primary role in obtaining financing?
Does the person control the named bidder, directly or indirectly?
Did the person form the nominal bidder, or cause it to be formed?, and
Would the person beneficially own the securities purchased by the named bidder in the tender offer or the assets of the target company?

One or two of these factors may control the determination, depending on the circumstances.

If a named bidder is an established entity with substantive operations and assets apart from those related to the offer, the staff ordinarily will not go further up the chain of ownership to analyze whether that entity's control persons are bidders. However, it still would be possible for other parties involved with the offer to be co-bidders. The factors listed above would be used in the analysis. In addition, the staff would consider the degree to which the other party acted with the named bidder, and the extent to which the other party benefits from the transaction. [March 17, 2023]

Question 101.07

Question: Must a person who qualifies as a bidder under Rule 14d-1(c)(1) be included as a bidder on the Schedule TO even if the disclosure in the Schedule TO will not change as a result?

Answer: Yes. Instruction C elicits information about the control persons of the bidder. Merely disclosing the Instruction C information does not eliminate the requirement that the real bidder sign the Schedule TO and take direct responsibility for the disclosure. Where the real bidder does not sign the Schedule TO and does not provide the required disclosure, the parties run the risk of having to extend the offer to provide a full 20 business day period for shareholders to consider the new information. [March 17, 2023]

Question 101.08

Question: May an issuer making an exchange offer for the securities of another person use Form S-3 (or Form F-3 if the registrant is a foreign private issuer) to register the transaction?

Answer: No, as specifically noted in Release No. 33-6383, the Commission determined not to make Form S-3 available for registration of an exchange offer. [March 17, 2023]

Question 101.09

Question: The parent of an insurance company owns over 50 percent of the insurance company's outstanding common stock. The common stock of the insurance company was not registered pursuant to Exchange Act Section 12(g) because of the exemption provided by Section 12(g)(2)(G). The parent desires to make a tender offer for the common shares it does not own.

(1) Must the tender offer be made in compliance with Section 14(d) and Regulation 14D? (2) Do the going-private provisions of Rule 13e-3 also apply to the proposed tender offer given that the insurance company is exempt from registration under Section 12 pursuant to Section 12(g)(2)(G)?

Answer: (1) Yes, Exchange Act Section 14(d)(1) requires that tender offers for a class of securities exempt from registration under Section 12(g)(2)(G) be made in compliance with Section 14(d) and Regulation 14D, just as though the securities were registered under Section 12. (2) No, Rule 13e-3 would not apply to such tender offer unless the insurance company is required to file periodic reports with the Commission pursuant to Exchange Act Section 15(d). This interpretation is based on the absence in Section 13(e)(1) and Rule 13e-3(b) of language similar to that which appears in Section 14(d)(1), subjecting Section 12(g)(2)(G) companies to the tender offer provisions. [March 17, 2023]

Question 101.10

Question: An issuer's employee stock ownership plan (ESOP) intends to conduct a tender offer for a class of equity securities of the issuer which is registered pursuant to Exchange Act Section 12. Is the tender offer subject to Exchange Act Section 14(d) and Regulation 14D, or alternatively, to Rule 13e-4?

Answer: If, assuming the offer is fully subscribed, the ESOP will be the beneficial owner of more than 5 percent of the class, the tender offer will be subject to Section 14(d) and Regulation 14D and not Rule 13e-4, so long as the ESOP is not a wholly-owned subsidiary of the issuer. Refer to Rule 13e-4(h)(4), which exempts from Rule 13e-4 any tender offer which is subject to Section 14(d).

If, however, the ESOP is a 100 percent-owned subsidiary of the issuer, the offer will be subject to Rule 13e-4. See Release No. 34-14234 (December 8, 1977) (noting that the Commission has only extended the exemption from Section 14(d) provided by Section 14(d)(8)(B) to tender offers by 100 percent-owned subsidiaries of an issuer). In either case, such tender offer will be subject to Exchange Act Section 14(e) and Regulation 14E. [March 17, 2023]

Question 101.11

Question: In a "partial offer" for less than all outstanding securities of the subject class, Rule 13e-4(f)(3)(i) permits the issuer or an affiliate making an issuer tender offer to accept all shares tendered by persons who own an aggregate of not more than a specified number of shares, provided that the number is less than 100 shares of that security, before prorating securities tendered by others. Is this "odd-lot" preference available for tender offers governed by Regulation 14D?

Answer: No, as this preference, by its terms, is available only for issuer tender offers governed by Rule 13e-4. [March 17, 2023]

Question 101.12

Question: In a tender offer subject to Regulation 14D or Rule 13e-4, can a bidder or issuer exclude a security holder from participating in a tender offer because they hold restricted securities?

Answer: No. Such an exclusion would not be permitted under Rule 14d-10 or Rule 13e-4(f)(8)(i), which requires a tender offer to be open to all security holders of the class of the securities subject to the tender offer. [March 17, 2023]

Question 101.13

Question: Is a statutory merger subject to Regulations 14D and 14E?

Answer: No, a statutory merger is not in and of itself a tender offer and therefore not subject to Regulations 14D and 14E. [March 17, 2023]

Question 101.14

Question: Are exchange offers by newly formed investment companies, unitary trust funds, and other investment vehicles for the equity securities of a public company considered tender offers?

Answer: Yes. Unless an affirmative statement is made in the offering materials that the amount of equity securities to be acquired, when added to the securities already beneficially owned by the sponsor of the trust or investment company, will not exceed 5 percent of the outstanding securities in the class, the exchange offer must be made in compliance with Regulation 14D to the extent the subject class of equity securities is registered under Exchange Act Section 12. In all events, Section 14(e) and Regulation 14E will apply and the time periods set forth in Rule 14e-1 must be observed. [March 17, 2023]

Question 101.15

Question: Are the proration, withdrawal and other provisions set forth in subsections (1) through (8) of Exchange Act Section 14(d) only applicable to tender offers conducted pursuant to Regulation 14D, or do they also apply to tender offers governed solely by Regulation 14E?

Answer: The provisions set forth in subsections (1) through (8) of Section 14(d) are only applicable to tender offers conducted pursuant to Regulation 14D. They do not apply to tender offers governed solely by Regulation 14E. [March 17, 2023]

Question 101.16

Question: If a limited partnership's general partner makes a tender offer for a class of the limited partnership's units registered pursuant to Exchange Act Section 12, is the tender offer subject to Rule 13e-4 or Regulation 14D?

Answer: If, after consummation of the tender offer, the general partner will be, directly or indirectly, the beneficial owner of more than 5 percent of such class, such tender offer will be subject to Regulation 14D and the general partner will be required to file a Schedule TO. In addition, assuming the general partner speaks on behalf of the limited partnership, the general partner is obligated to comply with Rules 14e-2 and 14d-9(b). The general partner may do so by including a statement in the offering materials on behalf of the partnership and incorporating such statement by reference into the Schedule 14D-9 filed by the partnership. [March 17, 2023]

Question 101.17

Question: Must an all-cash tender offer always remain open for at least five business days after disclosure of a material change?

Answer: No. The Commission has stated that "as a general rule," the offer should remain open for a minimum of five business days from the date that the material change is first disclosed. See Release No. 34-24296 (April 3, 1987). The Commission, however, has also acknowledged that it is impracticable to delineate every possible material change or the requisite time period attendant to that change. Accordingly, a shorter time period may be adequate if disclosure and dissemination of the material change allows security holders sufficient time to consider such information and factor it into their decision whether to tender shares, withdraw shares already tendered, sell into the market, or hold their shares. See Release No. 34-24296 (April 3, 1987); see also footnote 70 in Release No. 34-23421 (July 11, 1986) ("The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of the terms or information"). [March 6, 2025]

Question 101.18

Question: An offeror commences an all-cash tender offer subject to Regulation 14D without sufficient funds or committed financing to purchase the maximum amount of securities sought in the offer (a "partly financed" or "unfinanced" tender offer). It discloses the lack of sufficient funds and committed financing in its offer to purchase. Would the subsequent securing of committed financing necessary to fund the purchase of all securities sought in the offer (a "fully financed" tender offer) constitute a material change to the previously disclosed information?

Answer: Yes. The staff views the securing of committed financing needed for the purchase of all securities sought in the tender offer as a material change. Accordingly, an offeror must:

promptly disclose the change from an unfinanced tender offer to a fully financed tender offer in accordance with Rule 14d-6(c);
promptly file an amendment to Schedule TO to report the material change in accordance with Rule 14d-3(b)(1); and
promptly disseminate disclosure of the change to security holders in a manner reasonably designed to inform security holders of the change in accordance with Rule 14d-4(d)(1).

Because the change from an unfinanced (or partly financed) tender offer to a fully financed tender offer is viewed as a material change, the offeror must ensure that disclosure of the material change is disseminated with sufficient time for security holders to consider such information and factor it into the decision whether to tender shares, withdraw shares already tendered, sell into the market, or hold their shares. Accordingly, if the change from an unfinanced tender offer to a fully financed tender offer occurs near or at the end of the tender offer, the offeror must ensure sufficient time remains in the offer to allow for adequate dissemination, including by extending the offer if necessary.

This position equally applies to issuer tender offers subject to Rule 13e-4 and its comparable requirements (i.e., Rules 13e-4(c)(3), 13e-4(d)(2) and 13e-4(e)(3)). [March 6, 2025]

Question 101.19

Question: Is a tender offer considered fully financed if the offeror has obtained a binding commitment letter from a lender to provide the funds necessary to purchase the maximum amount of securities sought in the offer?

Answer: Yes. A tender offer is considered fully financed if the offeror has obtained a binding commitment letter from a lender. A "highly confident" letter from a lender, however, is not viewed as the equivalent of a binding commitment letter. Accordingly, a tender offer is not considered fully financed if the offeror has only received a highly confident letter. [March 6, 2025]

Question 101.20

Question: An offeror commences a cash tender offer for all securities of the subject class. At the time of commencement, the offeror discloses in its offer to purchase that it has obtained a binding commitment letter from a lender to provide the funds necessary to purchase the maximum amount of securities sought in the offer. The offeror also discloses the possibility that it may purchase the securities using alternative funding sources. Prior to expiration of the tender offer, the offeror decides to purchase the securities sought in the offer by using an alternative source of funds, such as its available cash or through committed financing provided by a different lender. The alternative funding source is sufficient to fund the purchase of all securities of the subject class. Would this type of change in the source of the funds constitute a material change?

Answer: No. The substitution of a funding source, or the substitution of available cash, is not considered a material change. The offeror should consider, however, whether the tender offer materials should be updated to reflect the substitution of the funding source (or the substitution of cash) and the material terms of the new funding source. [March 6, 2025]

Question 101.21

Question: An offeror commences an all-cash tender offer subject to Regulation 14D. The offeror discloses in its offer to purchase that it has obtained a binding commitment letter from a lender to provide the funds necessary to purchase all securities sought in the offer. Notwithstanding this binding commitment, the offeror conditions its purchase of the tendered securities on the actual receipt of the funds from the lender (a "funding condition") by the offer's expiration. Does the satisfaction or waiver of this funding condition constitute a material change?

Answer: When the offeror has a binding commitment letter from a lender and receives the expected funds, no material change in the information given to security holders has occurred because the lender has simply satisfied the funding condition by fulfilling its contractual obligation.

If the lender does not fulfill its contractual obligation by providing the expected funds, but the offeror waives the funding condition because it is able to use an alternative source of funds to purchase all securities sought in the offer, then, consistent with Question 101.20, no material change has occurred.

If the lender does not fulfill its contractual obligation by providing the expected funds, but the offeror waives the funding condition despite having no alternative funding source to purchase all securities, then the waiver would constitute a material change, requiring the offeror to:

promptly disclose the material change in accordance with Rule 14d-6(c);
promptly file an amendment to Schedule TO to report the material change in accordance with Rule 14d-3(b)(1); and
promptly disseminate disclosure of the change to security holders in a manner reasonably designed to inform security holders of the change in accordance with Rule 14d-4(d)(1).

Further, the waiver of the funding condition and the lack of funding could implicate other tender offer provisions, such as the prompt payment requirement in Rule 14e-1(c) as well as the provisions of Section 14(e).

This position equally applies to issuer tender offers subject to Rule 13e-4 and its comparable requirements (i.e., Rules 13e-4(c)(3), 13e-4(d)(2) and 13e-4(e)(3)). [March 6, 2025]

Section 13(e) and Rule 13e-4

Section 103. Section 13(e)

Section 104. Rule 13e-4

Question 104.01

Question: Must issuer exchange offers that are conducted for compensatory purposes comply with Rules 13e-4(f)(8)(i) and (ii), the all holders and best price rules?

Answer: Pursuant to a 2001 exemptive order, such offers need not comply with Rules 13e-4(f)(8)(i) and (ii) so long as the following conditions are met:

the issuer is eligible to use Form S-8, the options subject to the exchange offer were issued under an employee benefit plan as defined in Rule 405 under the Securities Act, and the securities offered in the exchange offer will be issued under such an employee benefit plan;
the exchange offer is conducted for compensatory purposes;
the issuer discloses in the offer to purchase the essential features and significance of the exchange offer, including risks that option holders should consider in deciding whether to accept the offer; and
except as exempted in such order, the issuer complies with Rule 13e-4.

Issuers that are subject to Rule 13e-4 are reminded that the remaining provisions of Rule 13e-4, as well as Regulation 14E, apply to these exchange offers. A Schedule TO-I must be filed at the time the exchange offer commences, and the disclosure required by the schedule must be disseminated to option holders in accordance with Rule 13e-4. The disclosure items of the Schedule TO-I must be complied with in the offer to purchase only to the extent applicable. The disclosure should set forth clearly the essential features and significance of the exchange offer, including risks that option holders should consider in deciding whether to accept the offer. The disclosure also should include financial information about the issuer, which generally is material to the option holders' investment decisions. See Item 10 of Schedule TO. The financial information in the disclosure may be in summary form if the issuer incorporates its financial statements by reference into the schedule and offer to purchase. See Instruction 6 to Item 10 of Schedule TO. [March 17, 2023]

Question 104.02

Question: An issuer makes a tender offer for its debt securities that are convertible into the Section 12-registered common stock of another unaffiliated issuer. The common stock, amounting to less than 5 percent of the class, had been purchased and placed in escrow at the time the debt securities were issued. The issuer of the debt securities making the tender offer currently owns none of the common stock of the unaffiliated issuer. Is the tender offer subject to Rule 13e-4?

Answer: To the extent the offer is for an equity security, as defined in Rule 3a11-1, the equity security was issued by a company other than the issuer conducting the tender offer. The offer, therefore, is not subject to Rule 13e-4. Because consummation of the offer would not result in the bidder owning more than 5 percent of the subject class, Exchange Act Section 14(d) is inapplicable. The offer is, however, subject to Section 14(e) and the Regulation 14E rules. [March 17, 2023]

Section 14(d) and Regulation 14D

Section 130. Section 14(d)

Question 130.01

Question: A third-party bidder makes a tender offer for convertible debt securities. The class of such debt securities is not registered under Exchange Act Section 12. However, the debt securities are convertible into common stock, and the class of such common stock is registered under Section 12. Is the offer for debt securities subject to the requirements of Exchange Act Section 14(d) and Regulation 14D?

Answer: No, the tender offer is not subject to Section 14(d) and Regulation 14D. Although the conversion feature results in the debt securities being a class of "equity securities" within the meaning of Exchange Act Section 3(a)(11) and Rule 3a11-1, the tender offer is not subject to Section 14(d) and Regulation 14D because the class of debt securities itself is not registered under the Exchange Act. [March 17, 2023]

Question 130.02

Question: X and Y are conducting competing tender offers subject to Section 14(d) and Regulation 14D for the shares of common stock of Company Z. X decides to tender to Y the shares of Company Z it owns or expects to acquire pursuant to its tender offer. What disclosures should X provide?

Answer: Regulation 14D does not prohibit X from tendering its Z shares to Y. X's tender offer materials must be reviewed, however, to determine if there are any statements or conditions in X's Schedule TO-T (or Schedule 14D-9 if one has been filed by X pursuant to Rule 14d-9(b) relating to X's recommendations concerning whether the subject shareholders should tender to Y) which state that X will not tender to Y (or another party) or that set forth a condition that would be triggered by such a tender. In addition, X must (1) announce its decision to tender to Y as soon as possible after the decision; (2) amend its Schedule TO-T to reflect this material change and disseminate any other additional material changes in the information prompted by the need to comply with Section 14(e), including, but not limited to, changes relating to the merits of X's offer as promptly as possible in accordance with Rule 14d-4(d); and (3) make a determination whether an offer condition has been triggered, and, if so, whether or not X intends to waive or assert the offer condition. [March 17, 2023]

Question 130.03

Question: May a bidder in a tender offer subject to Exchange Act Section 14(d) and Regulation 14D accept and pay for tendered shares prior to the end of the withdrawal periods specified in Exchange Act Section 14(d)(5) and Rule 14d-7 if such purchase is also subject to the offeree's right of rescission?

Answer: No. The right of rescission is merely a contractual right under state law, whereas the right of withdrawal is a right created by federal statute and also governed by a rule promulgated under the Exchange Act. [March 17, 2023]

Section 131. Regulation 14D

Question 131.01

Question: An affiliate conducting a third-party tender offer subject to Rule 13e-3 will disseminate the tender offer materials and the disclosures required by Rule 13e-3 by mailing the disclosure document to security holders. Although Rule 14d-4(a)(2)(i) does not authorize a summary advertisement to be used to commence a tender offer subject to Rule 13e-3, can the bidder, several days after validly commencing the tender offer via other permissible means (see, e.g., Instruction to paragraph (a) of Rule 14d-4(a)), publish a summary advertisement complying with Rule 14d-6(b) and noting that the offer will result in the issuer "going private?"

Answer: Yes. [March 17, 2023]

Question 131.02

Question: A foreign bidder and U.S. target with a class of equity securities registered under Exchange Act Section 12 entered into a memorandum of understanding whereby the foreign bidder will buy shares from insiders and engage in a cash tender offer to acquire the rest of the shares. If the bidder and the target make a joint statement setting forth the identities of the parties, the consideration to be paid, and the amount and class of securities being sought, is such a statement considered a pre-commencement communication by each party subject to Regulation 14D?

Answer: Yes, such a statement is considered a pre-commencement communication and is subject to Rules 14d-2(b)-(c) and 14d-9(a). [March 17, 2023]

Question 131.03

Question: Three separate offers were contemporaneously made by a bidder for three different classes of the target's stock. The bidder conditioned its obligation to purchase securities on a separate minimum condition being met with respect to each class. Can the bidder waive the minimum condition with respect to one class without extending the offers for the other classes?

Answer: No. Minimum conditions are considered material conditions. In this case, changes in or waivers of the minimum condition for each offer would also be considered material changes or developments with respect to the other two offers. The bidder, therefore, should not waive the minimum condition with respect to one class without extending all three offers, to the extent necessary, so at least five business days remain prior to the time of expiration. [March 17, 2023]

Section 144. Rule 14d-5

Question 144.01

Question: A bidder, in making its written request for a security holder list in connection with the dissemination of its initial tender offer materials pursuant to Rule 14d-5, elects to disseminate amendments under Rule 14d-5(f)(1) rather than require the subject company to disseminate amendments to the materials (assuming that it otherwise could identify all holders). The subject company elects to mail the materials for the bidder under Rule 14d-5(a)(3), rather than furnish a stockholder list to the bidder. Prior to delivering the materials to the subject company for mailing, the bidder increases the tender offer price and the materials delivered to the subject company reflect this increased price. Since the subject company is not responsible for disseminating amendments, is the subject company required under Rule 14d-5 to mail the amended tender offer material?

Answer: Yes. Once having elected to mail the initial tender offer documents, the subject company is obligated to mail such materials because such information reflects only an amendment to the tender offer made prior to the bidder's original delivery of the initial offering material to the subject company. The bidder is obligated to disseminate the amendment under these circumstances, as the revised disclosure is viewed as part of the "tender offer materials" that the subject company remains obligated to disseminate under Rule 14d-5(b). [March 17, 20223]

Section 146. Rule 14d-7

Question 146.01

Question: Rule 14d-7 provides that any tendering security holder has the right to withdraw its tendered securities "during the period such offer request or invitation remains open." If a bidder extends an offer period, can it limit the availability of withdrawal rights during this extended offer period to a select group of the subject company's security holders (e.g., only those security holders who tendered prior to the extension of the offer period)?

Answer: No, the withdrawal rights required under Rule 14d-7 must be made available to all security holders during any extension of the offer period. [March 17, 2023]

Section 149. Rule 14d-10

Question 149.01

Question: Can a bidder conduct a tender offer that conditions the acceptance of shares from the controlling shareholder on the grant of representations and warranties by that security holder with respect to the accuracy of the issuer's books and records and financial statements?

Answer: Although the bidder could condition the entire offer on the grant of such warranties, it could not impose conditions upon the acceptance of one individual security holder's tender without violating the "all-holders" provision of Rule 14d-10. [March 17, 2023]

Section 158. Rule 14d-100 – Schedule TO

Question 158.01

Question: Item 10 of Schedule TO requires disclosure of financial information concerning a bidder when the bidder's financial condition is material to a decision by a security holder whether to sell, tender, or hold securities sought in a tender offer. Are there circumstances that require disclosure of financial information of a bidder who is a natural person?

Answer: Yes, as set forth in footnote 22 of Release No. 34-13787 (July 21, 1977) (adopting former Schedule 14D-1, predecessor to current Schedule TO), financial information concerning a bidder who is a natural person may be required in certain circumstances. For example, bidders who are natural persons may be required to disclose information concerning their net worth in accordance with Instruction 4 to Item 10 of Schedule TO. [March 17, 2023]

Section 159. Rule 14d-101 – Schedule 14D-9

Question 159.01

Question: Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A together require a summary of all material terms of employment, retainer or other arrangement for compensation regarding "all persons [ ] that are directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with" a transaction subject to the provision. Is a financial advisor engaged by an issuer's board or independent committee for the exclusive purpose of providing financial advice considered a person "directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations" within the meaning of Item 1009(a), even if its opinion expressly states that it is not making a solicitation or recommendation to any of the target company shareholders?

Answer: Yes. Notwithstanding the disclaimer that it is not making a solicitation or recommendation, a financial advisor engaged by the issuer's board or independent committee to provide advice with respect to the tender or exchange offer and whose analyses or conclusions are discussed in the issuer's Schedule 14D-9 is "indirectly employed, retained, or to be compensated" to assist the issuer to make its Schedule 14D-9 solicitation or recommendation. [November 18, 2016]

Question 159.02

Question: Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A together require a "summary of all material terms" of employment, retainer or other arrangement for compensation paid or to be paid to all persons directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with the transaction. Would disclosing that "customary compensation" will be paid to financial advisors engaged to assist the issuer in making its required response to a tender or exchange offer, without any further details, satisfy this requirement?

Answer: While such a determination ultimately depends on the relevant facts and circumstances, generic disclosure such as "customary compensation" will ordinarily be insufficient as it lacks the specificity needed to assist security holders in evaluating the merits of the solicitation or recommendation and the objectivity of the financial advisors' analyses or conclusions used to support such solicitation or recommendation. See generally Exchange Act Release No. 16384 (Nov. 29, 1979) (stating that the disclosure in Schedule 14D-9 is intended to "assist security holders in making their investment decision and in evaluating the merits of a solicitation/recommendation"). While quantifying the amount of compensation payable to the financial advisors may not necessarily be required in all instances, disclosure of the summary of the material terms of the financial advisors' compensatory arrangements would generally include:

the types of fees payable to the financial advisors (e.g., independence fees, sale transaction or "success" fees, periodic advisory fees, or discretionary fees);
if multiple types of fees are payable to the financial advisors and there is no quantification of these fees, then sufficiently-detailed narrative disclosure to allow security holders to identify the fees that will provide the primary financial incentives for the financial advisors;
any contingencies, milestones, or triggers relating to the payment of the financial advisors' compensation (e.g., the payment of a fee upon the consummation of a transaction, including with a bidder in an unsolicited tender or exchange offer); and
any other information about the compensatory arrangement that would be material to security holders' assessment of the financial advisors' analyses or conclusions, including any material incentives or conflicts that should be considered as part of this assessment. [November 18, 2016]

Section 14(e) and Regulation 14E

Section 160. Section 14(e)

Section 161. Regulation 14E

Question 161.01

Question: Does Regulation 14E apply to tender offers for securities of a non-reporting company?

Answer: Yes. Pursuant to Rule 14d-1(a), Regulation 14E applies to tender offers for any securities other than exempted securities, as defined by Exchange Act Section 3(a)(12). This includes issuer and third-party tender offers, (i) whether for debt or equity securities, (ii) whether or not such securities belong to a class registered pursuant to Exchange Act Section 12, and (iii) whether or not the subject company, as defined in Item 1000(f) of Regulation M-A, is required to file periodic reports pursuant to Exchange Act Section 15(d). [March 17, 2023]

Section 162. Rule 14e-1

Question 162.01

Question: The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) states that if the issuer is an Exchange Act reporting company, the issuer must furnish a press release announcing the abbreviated offer on a Form 8-K filed prior to 12:00 noon, Eastern time, on the first business day of the abbreviated offer. Can a foreign private issuer satisfy this condition by filing a Form 6-K?

Answer: Yes. [November 18, 2016]

Question 162.02

Question: The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) states that abbreviated offers must be made "for any and all" subject debt securities. Does this mean that abbreviated offers cannot have minimum tender conditions?

Answer: No. Abbreviated offers can have minimum tender conditions. [November 18, 2016]

Question 162.03

Question: Under the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015), abbreviated offers for cash consideration to all holders may be made for a fixed amount of cash or for an amount of cash calculated with reference to a fixed spread to a benchmark as of the last business day of the offer. The letter also provides that abbreviated offers for consideration consisting of Qualified Debt Securities, as defined in the letter, may be made to all persons who are QIBs and non-U.S. persons for a fixed amount of Qualified Debt Securities or for an amount of Qualified Debt Securities calculated with reference to a fixed spread to a benchmark, so long as a fixed amount of cash consideration is concurrently offered to persons other than QIBs and non-U.S. persons to approximate the value of the offered Qualified Debt Securities. In the latter case, can the amount of cash consideration offered to persons other than QIBs and non-U.S. persons instead be calculated with reference to a fixed spread to a benchmark?

Answer: Yes, the amount of cash consideration offered concurrently to persons other than QIBs and non-U.S. persons can be calculated with reference to a fixed spread to a benchmark, provided that the calculation is the same as the calculation used in determining the amount of Qualified Debt Securities. [November 18, 2016]

Question 162.04

Question: Can offerors issue Qualified Debt Securities under Securities Act Section 3(a)(9), rather than Securities Act Section 4(a)(2) or Securities Act Rule 144A, to Eligible Exchange Offer Participants, as defined in the letter, and still conduct an abbreviated offer in reliance on the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015)?

Answer: Yes. [November 18, 2016]

Question 162.05

Question: One of the conditions specified in the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) is that the abbreviated offer not be "commenced within ten business days after the first public announcement or the consummation of the purchase, sale or transfer by the issuer or any of its subsidiaries of a material business or amount of assets that would require the furnishing of pro forma financial information with respect to such transaction pursuant to Article 11 of Regulation S-X (whether or not the issuer is a registrant under the Exchange Act)." If the offeror announces one of these transactions, when can it announce the abbreviated offer?

Answer: Offerors may announce the abbreviated offer at any time, but should not commence the abbreviated offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a purchase, sale or transfer of a material business or amount of assets described in the letter. Note that, if the abbreviated offer is commenced after 5:01 p.m. on a particular business day, the first day of the five business day period would be the next business day. [November 18, 2016]

Question 162.06

Question: Two competing tender offers describe the bidders' intent to acquire any shares remaining after completion of their respective offers through second-step "squeeze-out" transactions. Where the type or the amount of the consideration to be paid in the second-step squeeze-out transaction changes from what was disclosed in the initial offer materials, is the bidder obligated to extend the first-step tender offer?

Answer: Although Rule 14e-1(b) is not directly implicated because the terms of the first-step tender offer are unchanged, the type or amount of consideration to be offered in the second-step "squeeze-out" transaction may nevertheless be material to shareholders' decision on whether or not to participate in the first-step tender offer. A material change to the consideration offered in the second-step transaction may therefore be comparable in significance to a material change in consideration offered in a tender offer subject to Rule 14e-1(b). See footnote 70 in Release No. 23421 (July 11, 1986).

Accordingly, the first-step tender offer must remain open for a minimum of ten business days from the date that a change in the type or amount of consideration offered in the second-step "squeeze-out" transaction is first published, sent or given to security holders, and the bidders must extend the offers if needed to ensure this minimum period of time. [March 17, 2023]

Question 162.07

Question: Rule 14e-1(c) requires that an offeror in a tender offer either pay the consideration offered or return the securities tendered "promptly" after the withdrawal or termination of the tender offer. Can the offeror delay payment because it must obtain regulatory approvals before completing the purchase?

Answer: Depending on the length of the delay resulting from the offeror awaiting regulatory approvals, the staff will not object to the delay, provided the tender offer materials fully disclose the possibility of such delay. [March 17, 2023]

Section 163. Rule 14e-2

Question 163.01

Question: In a third-party tender offer, may the target company satisfy its requirement to publish, send or give to security holders the statement required by Rule 14e-2 by attaching its solicitation/recommendation statement to materials sent by the bidder to security holders?

Answer: Yes. If the tender offer is subject to Regulation 14D, the target company must also comply with its obligations under Rule 14d-9. [March 17, 2023]

Section 164. Rule 14e-3

Question 164.01

Question: An issuer will conduct a tender offer in accordance with Rule 13e-4. Before the tender offer commences, however, the issuer proposes to purchase in the open market some of the securities that will be the subject of the tender offer. Would such purchases violate Rule 14e-3?

Answer: No. If an issuer has taken a substantial step to commence, or has commenced a tender offer, Rule 14e-3 places a "disclose or abstain from trading" burden on "any other person" in possession of material, nonpublic information relating to the tender offer and acquired from the issuer or any of its officers, directors, partners or employees or any other person acting on the issuer's behalf. As explained in footnote 34 in Release No. 34-17120 (September 4, 1980), "any other person" means "someone other than the offering person, or in the case of an issuer tender offer, the issuer." Note that, to the extent that the issuer had publicly announced its intention to commence a tender offer, the issuer would have to consider the application of Rule 14e-5 to its proposed open market purchases. [March 17, 2023]

Section 166. Rule 14e-5

Question 166.01

Question: A special purpose acquisition company (SPAC) publicly announces its intention to engage in a business combination transaction with another company. In connection with this business combination transaction, the SPAC will offer its security holders the right to redeem the SPAC securities in exchange for a pro rata portion of the funds held in the SPAC's trust account. The SPAC sponsor also plans to purchase the SPAC securities outside of this redemption offer. Does the Rule 14e-5 prohibition of purchases outside of a tender offer apply to the SPAC sponsor's purchases?

Answer: SPAC redemption provisions generally have indicia of being a tender offer, such as a limited period of time for SPAC security holders to request redemptions. To the extent that the SPAC redemption offer constitutes a tender offer, the Rule 14e-5 prohibition applies to the purchases of SPAC securities by the SPAC sponsor or its affiliates outside of the redemption offer.

For policy reasons, however, the staff will not object to purchases by the SPAC sponsor or its affiliates outside of the redemption offer as long as the following conditions are satisfied:

the Securities Act registration statement or proxy statement filed for the business combination transaction discloses the possibility that the SPAC sponsor or its affiliates will purchase the SPAC securities outside the redemption process, along with the purpose of such purchases;
the SPAC sponsor or its affiliates will purchase the SPAC securities at a price no higher than the price offered through the SPAC redemption process;
the Securities Act registration statement or proxy statement filed for the business combination transaction includes a representation that any SPAC securities purchased by the SPAC sponsor or its affiliates would not be voted in favor of approving the business combination transaction;
the SPAC sponsor and its affiliates do not possess any redemption rights with respect to the SPAC securities or, if they possess redemption rights, they waive such rights; and
the SPAC discloses in a Form 8-K, prior to the security holder meeting to approve the business combination transaction, the following:
- the amount of SPAC securities purchased outside of the redemption offer by the SPAC sponsor or its affiliates, along with the purchase price;
- the purpose of the purchases by the SPAC sponsor or its affiliates;
- the impact, if any, of the purchases by the SPAC sponsor or its affiliates on the likelihood that the business combination transaction will be approved;
- the identities of SPAC security holders who sold to the SPAC sponsor or its affiliates (if not purchased on the open market) or the nature of SPAC security holders (e.g., 5% security holders) who sold to the SPAC sponsor or its affiliates; and
- the number of SPAC securities for which the SPAC has received redemption requests pursuant to its redemption offer. [March 22, 2022]

Section 181. Rule 14f-1

Question 181.01

Question: Is an arrangement whereby directors of an acquired company become directors of the acquiring company without an election subject to Rule 14f-1?

Answer: No, Rule 14f-1 would apply only in the converse situation where there is an arrangement for the acquiring company to appoint directors of the acquired company without an election. [March 17, 2023]

Regulation FD

Last Update: June 4, 2010

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Regulation FD. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

Section 101. Rule 100: General Rule Regarding Selective Disclosure

Question 101.01

Question: Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule's public reporting requirements?

Answer: Yes. In assessing the materiality of an issuer's confirmation of its own forecast, the issuer should consider whether the confirmation conveys any information above and beyond the original forecast and whether that additional information is itself material. That may depend on, among other things, the amount of time that has elapsed between the original forecast and the confirmation (or the amount of time elapsed since the last public confirmation, if applicable). For example, a confirmation of expected quarterly earnings made near the end of a quarter might convey information about how the issuer actually performed. In that respect, the inference a reasonable investor may draw from such a confirmation may differ significantly from the inference he or she may have drawn from the original forecast early in the quarter. The materiality of a confirmation also may depend on, among other things, intervening events. For example, if it is clear that the issuer's forecast is highly dependent on a particular customer and the customer subsequently announces that it is ceasing operations, a confirmation by the issuer of a prior forecast may be material.

We note that a statement by an issuer that it has "not changed," or that it is "still comfortable with," a prior forecast is no different than a confirmation of a prior forecast. Moreover, under certain circumstances, an issuer's reference to a prior forecast may imply that the issuer is confirming the forecast. If, when asked about a prior forecast, the issuer does not want to confirm it, the issuer may simply wish to say "no comment." If an issuer wishes to refer back to the prior estimate without implicitly confirming it, the issuer should make clear that the prior estimate was as of the date it was given and is not being updated as of the time of the subsequent statement. [Aug. 14, 2009]

Question 101.02

Question: Does Regulation FD create a duty to update?

Answer: No. Regulation FD does not change existing law with respect to any duty to update. [Aug. 14, 2009]

Question 101.03

Question: Can an issuer ever review and comment on an analyst's model privately without triggering Regulation FD's disclosure requirements?

Answer: Yes. It depends on whether, in so doing, the issuer communicates material nonpublic information. For example, an issuer ordinarily would not be conveying material nonpublic information if it corrected historical facts that were a matter of public record. An issuer also would not be conveying such information if it shared seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material nonpublic information. It would not violate Regulation FD to reveal this type of data even if, when added to the analyst's own fund of knowledge, it is used to construct his or her ultimate judgments about the issuer. An issuer may not, however, use the discussion of an analyst's model as a vehicle for selectively communicating — either expressly or in code — material nonpublic information. [Aug. 14, 2009]

Question 101.04

Question: May an issuer provide material nonpublic information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public?

Answer: Yes. [Aug. 14, 2009]

Question 101.05

Question: If an issuer gets an agreement to maintain material nonpublic information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?

Answer: No. An express agreement to maintain the information in confidence is sufficient. If a recipient of material nonpublic information subject to such a confidentiality agreement trades or advises others to trade, he or she could face insider trading liability. [Aug. 14, 2009]

Question 101.06

Question: If an issuer wishes to rely on the confidentiality agreement exclusion of Regulation FD, is it sufficient to get an acknowledgment that the recipient of the material nonpublic information will not use the information in violation of the federal securities laws?

Answer: No. The recipient must expressly agree to keep the information confidential. [Aug. 14, 2009]

Question 101.07

Question: Must road show materials in connection with a registered public offering be disclosed under Regulation FD?

Answer: Any disclosure made "in connection with" a registered public offering of the type excluded from Regulation FD is not subject to Regulation FD. That includes road shows in those offerings. All other road shows are subject to Regulation FD in the absence of another applicable exclusion from Regulation FD. For example, a disclosure in a road show in an unregistered offering is subject to Regulation FD. Also, a disclosure in a road show made while the issuer is not in registration and is not otherwise engaged in a securities offering is subject to Regulation FD. If, however, those who receive road show information expressly agree to keep the material nonpublic information confidential, disclosure to them is not subject to Regulation FD. [Aug. 14, 2009]

Question 101.08

Question: A publicly traded company has decided to conduct a private placement of shares and then subsequently register the resale by those shareholders on a Form S-3 registration statement. The company and its investment bankers conduct mini-road shows over a three-day period during the private placement. Does the resale registration statement filed after completion of the private placement affect whether disclosure at the road shows is covered by Regulation FD?

Answer: No. The road shows are made in connection with an offering by the issuer that is not registered (i.e., the private placement), regardless of whether a registration statement is later filed for an offering by those who purchased in the private placement. [Aug. 14, 2009]

Question 101.09

Question: Can an issuer disclose material nonpublic information to its employees (who may also be shareholders) without making public disclosure of the information?

Answer: Yes. Rule 100(b)(1) states that Regulation FD applies to disclosures made to "any person outside the issuer." Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer's officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip. [Aug. 14, 2009]

Question 101.10

Question: If an issuer has a policy that limits which senior officials are authorized to speak to persons enumerated in Rule 100(b)(1)(i) – (b)(1)(iv), will disclosures by senior officials not authorized to speak under the policy be subject to Regulation FD?

Answer: No. Selective disclosures of material nonpublic information by senior officials not authorized to speak to enumerated persons are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may, however, trigger liability under existing insider trading law. [Aug. 14, 2009]

Question 101.11

Question: Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?

Answer: No. Regulation FD prohibits a company or a person acting on its behalf — such as directors, executive officers and investor relations personnel — from selectively disclosing material, non-public information to a shareholder under circumstances in which it is reasonably foreseeable that the shareholder will purchase or sell the company's securities on the basis of that information. If a company's directors are authorized to speak on behalf of the company and plan on speaking privately with a shareholder or group of shareholders, then the company should consider implementing policies and procedures intended to help avoid Regulation FD violations, such as pre-clearing discussion topics with the shareholder or having company counsel participate in the meeting. In addition, because Regulation FD does not apply to disclosures made to a person who expressly agrees to maintain the disclosed information in confidence, a private communication between an independent director and a shareholder would not present Regulation FD issues if the shareholder provided such an express agreement. [June 4, 2010]

Section 102. Rule 101: Definitions

Question 102.01

Question: If an issuer wants to make public disclosure of material nonpublic information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

Answer: An adequate advance notice under Regulation FD must include the date, time, subject matter and call-in information for the conference call. Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

Timing: Public notice should be provided a reasonable period of time ahead of the conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive.
Availability: If a transcript or re-play of the conference call will be available after it has occurred, for instance via the issuer's website, we encourage issuers to indicate in the notice how, and for how long, such a record will be available to the public. [Aug. 14, 2009]

Question 102.02

Question: Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Answer: Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piecemeal fashion throughout the filing. [Aug. 14, 2009]

Question 102.03

Question: For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information in a non-public meeting?

Answer: Prior to making disclosure of this information in a non-public meeting, the issuer need only confirm that the filing or furnished report has been accepted for filing on EDGAR and is publicly available on EDGAR. [Aug. 14, 2009]

Question 102.04

Question: During a nonpublic meeting with analysts, an issuer's CEO provides material nonpublic information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and nonpublic. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?

Answer: Yes. A disclosure is "intentional" under Rule 101(a) when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic. In this example, the CEO knew that the information was material and nonpublic, so the disclosure was intentional, even though she did not originally plan to make it. [Aug. 14, 2009]

Question 102.05

Question: Can an issuer satisfy Regulation FD's public disclosure requirement by disclosing material nonpublic information in a speech at a shareholder meeting open to the public? The meeting will not be covered by the press, or webcast or broadcast by any electronic means.

Answer: No. Under Rule 101(e), public disclosure of information required to be disclosed by Rule 100(a) can be made either by furnishing or filing with the Commission a Form 8-K disclosing that information, or by disseminating the information through another method or combination of methods of disclosure "that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public." A meeting that is open to the public but not otherwise webcast or broadcast by any electronic means is not a method of disclosure "reasonably designed to provide broad, non-exclusionary distribution of the information to the public." [Aug. 14, 2009]

Question 102.06

Question: Does the mere presence of the press at an otherwise non-public meeting attended by persons outside the issuer described in paragraph (b)(1) of Rule 100 under Regulation FD render the meeting public for purposes of Regulation FD?

Answer: No. [Aug. 14, 2009]

Question 102.07

Question: What are the circumstances under which information posted on a company web site (whether by or on behalf of such company) would be considered "public" for purposes of evaluating the (1) applicability of Regulation FD to subsequent private discussions or disclosure of the posted information and (2) satisfaction of Regulation FD's "public disclosure" requirement?

Answer: The Commission has provided guidance on both of these questions in its interpretive release, "Commission Guidance on the Use of Company Web Sites," Exchange Act Release No. 58288 (Aug. 1, 2008). [Aug. 14, 2009]

Section 103. Rule 102: No Effect on Antifraud Liability.

[Reserved]

Section 104. Rule 103: No Effect on Exchange Act Reporting Status

[Reserved]

Regulation S-K

Last Update: June 20, 2025

These Compliance & Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Regulation S-K. Some of these C&DIs were first published in prior Division publications and have been revised in some cases.

The bracketed date following each C&DI is the latest date of publication or revision. We have not changed the date of the C&DIs that reflect only non-substantive changes.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Regulation S-K -- General Guidance

None

Section 102. Item 10 — General

Question 102.01

Question: Could a company with a fiscal year ended December 31, 2018 be both a "smaller reporting company," as defined in Item 10(f), and an "accelerated filer," as defined in Rule 12b-2 under the Exchange Act, for filings due in 2019, if it was an accelerated filer with respect to filings due in 2018 and had a public float of $80 million on the last business day of its second fiscal quarter of 2018?

Answer: Yes. A company must look to the definitions of "smaller reporting company" and "accelerated filer" to determine if it qualifies as a smaller reporting company and non-accelerated filer for each year. This company will qualify as a smaller reporting company for filings due in 2019 because on the last business day of its second fiscal quarter of 2018 it had a public float below $250 million. However, because the company was an accelerated filer with respect to filings due in 2018, it is required to have less than $50 million in public float on the last business day of its second fiscal quarter in 2018 to exit accelerated filer status for filings due in 2019, as provided in paragraph (3)(ii) of the definition of "accelerated filer" in Rule 12b-2. This company had a public float of $80 million on the last business day of its second fiscal quarter of 2018, and therefore is unable to transition to non-accelerated filer status. As this example illustrates, a company can be both an accelerated filer and a smaller reporting company at the same time. Such a company may use the scaled disclosure rules for smaller reporting companies in its annual report on Form 10-K, but the report is due 75 days after the end of its fiscal year and must include the Sarbanes-Oxley Section 404 auditor attestation report described in Item 308(b) of Regulation S-K. [November 7, 2018]

Question 102.02

Question: Will a company that does not qualify as a smaller reporting company for filings due in a particular year be able to qualify as a smaller reporting company if its public float or annual revenues later decrease?

Answer: Once a reporting company determines that it does not qualify as a smaller reporting company, it will remain unqualified unless when making a subsequent annual determination either:

It determines that its public float is less than $200 million; or
It determines that:
- for any threshold that it previously exceeded, it is below the subsequent annual determination threshold (public float of less than $560 million and annual revenues of less than $80 million); and
- for any threshold that it previously met, it remains below the initial determination threshold (public float of less than $700 million or no public float and annual revenues of less than $100 million). See Amendments to the Smaller Reporting Company Definition - Compliance Guide for more information.

Example: A company has a December 31 fiscal year end. Its public float as of June 28, 2019 was $710 million and its annual revenues for the fiscal year ended December 31, 2018 were $90 million. It therefore does not qualify as a smaller reporting company. At the next determination date, June 30, 2020, it will remain unqualified unless it determines that its public float as of June 30, 2020 was less than $560 million and its annual revenues for the fiscal year ended December 31, 2019 remained less than $100 million. [November 7, 2018]

Question 102.03

Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, does the corporate parent of a majority-owned subsidiary have to satisfy the public float or revenue requirements of the definition in order for the majority-owned subsidiary to qualify as a smaller reporting company?

Answer: Yes, the definition of "smaller reporting company" excludes a majority-owned subsidiary if its corporate parent does not also meet the requirements of a smaller reporting company. [July 3, 2008]

Question 102.04

Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, must the corporate parent of a majority-owned subsidiary be required to file reports under Section 13(a) or Section 15(d) of the Exchange Act in order for the majority-owned subsidiary to qualify as a smaller reporting company?

Answer: No. [July 3, 2008]

Question 102.05

Question: A registrant discloses a financial measure or information that is not in accordance with GAAP or calculated exclusively from amounts presented in accordance with GAAP. In some circumstances, this financial information may have been prepared in accordance with guidance published by a government, governmental authority or self-regulatory organization that is applicable to the registrant, although the information is not required disclosure by the government, governmental authority or self-regulatory organization. Is this information considered to be a "non-GAAP financial measure" for purposes of Regulation G and Item 10 of Regulation S-K?

Answer: Yes. Unless this information is required to be disclosed by a system of regulation that is applicable to the registrant, it is considered to be a "non-GAAP financial measure" under Regulation G and Item 10 of Regulation S-K. Registrants that disclose such information must provide the disclosures required by Regulation G or Item 10 of Regulation S-K, if applicable, including the quantitative reconciliation from the non-GAAP financial measure to the most comparable measure calculated in accordance with GAAP. This reconciliation should be in sufficient detail to allow a reader to understand the nature of the reconciling items. [Apr. 24, 2009]

Section 103. Item 101 -- Description of Business

Question 103.01

Question: Does Item 101 require a discussion of the entry into a new segment after the close of the fiscal year for which the Form 10-K is being prepared?

Answer: No. [July 3, 2008]

Section 104. Item 102 -- Description of Property

None

Section 105. Item 103 -- Legal Proceedings

Question 105.01

Question: Are costs anticipated to be incurred under the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601) (otherwise known as the "Superfund" law), pursuant to a remedial agreement entered into in the normal course of negotiation with the EPA, generally considered "sanctions" within Item 103(c)(3)(iii)?

Answer: No. Footnote 30 of Release No. 33-6835 (May 18, 1989) and the letter to Thomas A. Cole (Jan. 17, 1989) clarify that, while there are many ways a Superfund "potential monetary sanction" may be triggered, including the stipulated penalty clause in a remedial agreement, the costs anticipated to be incurred under Superfund, pursuant to a remedial agreement entered into in the normal course of negotiation with the EPA, generally are not "sanctions" within Item 103(c)(3)(iii). [June 20, 2025] [Comparison to prior version]

Question 105.02

[Withdrawn June 20, 2025] [Comparison to prior version]

Question 105.03

Question: Should a proceeding against an officer of the registrant, which could require the registrant to indemnify the officer for damages, be considered a proceeding in which the officer has a material interest adverse to the registrant that should be disclosed pursuant to Item 103(c)(2)?

Answer: The mere possibility that a registrant may be required to indemnify an officer for a material claim would not trigger disclosure pursuant to Item 103(c)(2). Under state corporation law, indemnification is potentially available to any officer in any suit or proceeding in which the officer is named by reason of the fact that the person is an officer of the registrant. Whether or not an officer's material interest is "adverse" to the registrant depends on the facts and circumstances of each proceeding. [June 20, 2025] [Comparison to prior version]

Section 106. Item 201 — Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

Question 106.01

Question: Is the Item 201(d) disclosure required in Part II of Form 10-K, given that Item 5 of Form 10-K indicates that the registrant is required to furnish the information required under Item 201, or should the Item 201(d) disclosure be included (or incorporated by reference) in Part III of Form 10-K given that Item 12 indicates that the registrant is required to furnish the information required under Item 201(d)?

Answer: The Item 201(d) disclosure should be included in Part III, Item 12 of Form 10-K. An issuer may rely on General Instruction G.3 to Form 10-K to incorporate by reference the Item 201(d) disclosure from its proxy statement or information statement, even if the issuer did not submit a compensation plan for security holder action at its annual meeting of security holders. See American Bar Association (Jan. 30, 2004). [Mar. 13, 2007]

Question 106.02

Question: Is restricted stock that has been granted subject to forfeiture pursuant to an equity compensation plan reportable in the Item 201(d) Equity Compensation Plan Information table?

Answer: No. Once issued, the shares of restricted stock that have been granted subject to forfeiture are neither "to be issued upon exercise of outstanding options, warrants and rights" (column (a)) nor "available for future issuance" (column (c)). If the shares of restricted stock so granted are later forfeited, however, they would be reportable in column (c) until granted again. [Mar. 13, 2007]

Question 106.03

Question: Should shares that may be issued under performance share awards if specified targets are met and shares that are credited as phantom shares under a deferred compensation plan be reported in column (a) of the Equity Compensation Plan Information table as securities to be issued upon exercise of outstanding options, warrants and rights?

Answer: Yes. Shares that may be issued under performance share awards if specified targets are met (i.e., an award denominated in shares has been made, but no shares will be issued until the performance targets are met), and shares credited as phantom shares under a deferred compensation plan that will be issued as actual shares upon termination of employment, must be reported in column (a). A footnote to the table should describe the nature of the awards and explain that the weighted-average exercise price in column (b) does not take these awards into account. If the number of shares subject to these awards overstates expected dilution (such as where the award reflects the maximum number of shares to be awarded under best-case targets that are unlikely to be achieved), the footnote can address that situation. [Mar. 13, 2007]

Question 106.04

Question: A company maintains an employee stock purchase plan covered by Section 423 of the Internal Revenue Code, under which there are outstanding rights to purchase company common stock at a floating exercise price (85% of the lower of (i) market price at the start of the purchase period or (ii) market price at the future close of the purchase period). How should the company report the shares subject to these outstanding rights in the Equity Compensation Plan Information table?

Answer: Shares subject to these outstanding rights should be reported in column (c) of the Equity Compensation Plan Information table, together with other shares remaining issuable under the plan. A footnote should disclose the total number of shares remaining available, as well as the number of shares subject to purchase during any current purchase period. Shares subject to the outstanding rights should not be reported in column (a) as subject to outstanding options. [Mar. 13, 2007]

Question 106.05

Question: Column (a) of the Equity Compensation Plan Information table requires disclosure of the number of securities to be issued upon exercise of outstanding options, warrants and rights, and column (b) requires disclosure of the weighted-average exercise price of these outstanding instruments. If some of a company's outstanding rights can be exercised for no consideration, and therefore their inclusion substantially reduces the weighted-average exercise price, how does the company disclose this information in the table?

Answer: In this circumstance, the company should include footnote disclosure of this fact and the footnote should include the weighted-average exercise price of the outstanding instruments excluding those that can be exercised for no consideration. [Mar. 13, 2007]

Question 106.06

Question: May a registrant plot monthly or quarterly returns in the performance graph required by Item 201(e)?

Answer: A registrant may plot monthly or quarterly returns provided that each return is plotted at the same interval, and the annual changes in cumulative total return are reflected clearly. [Mar. 13, 2007]

Question 106.07

Question: How should a registrant that presents in the performance graph a self-constructed peer or market capitalization index weight the returns of the component entities of that index?

Answer: A registrant that presents a self-constructed peer or market capitalization index should weight the returns of the component entities of that index according to their market capitalization as of the beginning of each period for which a return is indicated. [Mar. 13, 2007]

Question 106.08

Question: May a registrant-constructed peer or market capitalization index exclude the registrant?

Answer: Yes. [Mar. 13, 2007]

Question 106.09

Question: May issuers choose between using the price shown in the registration statement for an initial public offering, the opening price on the first trading day, or the closing market price on the first trading day when preparing the performance graph?

Answer: No. The issuer should use the closing market price at the end of the first trading day. [Mar. 13, 2007]

Question 106.10

Question: Is the performance graph required to be included in Form 10-K, given that Item 5 of Form 10-K indicates that the registrant is required to furnish the information required under Item 201?

Answer: No. Instruction 7 to Item 201(e) specifies that the performance graph need not be provided in any filings other than an annual report to security holders required by Exchange Act Rule 14a-3 or Exchange Act Rule 14c-3 that precedes or accompanies a registrant's proxy statement or information statement relating to an annual meeting of security holders at which directors are to be elected (or a special meeting or written consents in lieu of such meeting). [Mar. 13, 2007]

Question 106.11

Question: If a company includes the performance graph in its Form 10-K, can the company omit the performance graph from its annual report to shareholders required under Exchange Act Rule 14a-3 or Rule 14c-3?

Answer: The performance graph is required to be in the annual report to shareholders pursuant to Exchange Act Rule 14a-3 or Rule 14c-3, so unless the company is using a "Form 10-K wrap" approach to satisfy the requirements of Rule 14a-3 or Rule 14c-3, the inclusion of the performance graph in the Form 10-K would not satisfy these requirements. [Mar. 13, 2007]

Question 106.12

Question: May a registrant include the performance graph in the proxy statement?

Answer: Yes, provided that the performance graph is also included in the annual report that accompanies or precedes the proxy statement and therefore complies with Exchange Act Rules 14a-3 or 14c-3. [Mar. 13, 2007]

Section 107. Item 202 — Description of Registrant's Securities

Question 107.01

Question: Items 202(a)(1)(x) and (xi) require disclosure of certain restrictions on ownership of the registrant's securities. Are the purchase and sale restrictions imposed by Section 16 of the Exchange Act the types of restrictions required to be disclosed under these items?

Answer: No. [July 3, 2008]

Section 108. Item 301 — Selected Financial Data

Question 108.01

Question: Item 301 of Regulation S-K requires a foreign private issuer to disclose the exchange rate into U.S. currency of the foreign currency in which the financial statements are denominated. For purposes of this requirement, Item 301 provides that the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The Federal Reserve Bank of New York has recently ceased publishing these exchange rates on its web site. What source of exchange rate information must be used for purposes of Item 301?

Answer: Although the Federal Reserve Bank of New York is no longer publishing the foreign exchange rates on its web site, it is still certifying them for customs purposes. The Board of Governors of the Federal Reserve Bank publishes these exchange rates on a weekly basis on its web site at http://www.federalreserve.gov/releases/h10/Update. You should use this source of exchange rate information for purposes of Item 301 of Regulation S-K. [Apr. 24, 2009]

Section 109. Item 302 — Supplementary Financial Information

None

Section 110. Item 303 — Management's Discussion and Analysis of Financial Condition and Results of Operations

Question 110.01

[Withdrawn, November 7, 2018]

Question 110.02

Question: A registrant providing financial statements covering three years in a filing relies on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years and includes the required statement that identifies the location of such discussion in a prior filing. Does the statement identifying the disclosure in a prior filing incorporate such disclosure by reference into the current filing?

Answer: No. A statement merely identifying the location in a prior filing where the omitted discussion can be found does not incorporate such disclosure into the filing unless the registrant expressly states that the information is incorporated by reference. See Securities Act Rule 411(e) and Exchange Act Rule 12b-23(e). [Jan. 24, 2020]

Question 110.03

Question: May a registrant rely on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary?

Answer: No. Item 303(a) requires that the registrant provide such information that it believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. A registrant must assess its information about the earliest of three years and, if it is required by Item 303(a), include it in the current disclosure or expressly incorporate by reference its discussion from a previous filing. [Jan. 24, 2020]

Question 110.04

Question: A registrant has an effective registration statement that incorporates by reference its Form 10-K for the fiscal year ended December 31, 2018. In its Form 10-K for the fiscal year ended December 31, 2019, the registrant will omit the discussion of its results for the fiscal year ended December 31, 2017 pursuant to Instruction 1 to Item 303(a) and include a statement identifying the location of the discussion presented in its Form 10-K for the fiscal year ended December 31, 2018. The filing of the Form 10-K for the fiscal year ended December 31, 2019 will operate as the Section 10(a)(3) update to the registration statement. After the company files the Form 10-K for the fiscal year ended December 31, 2019, will the company’s discussion of its results for the fiscal year ended December 31, 2017 be incorporated by reference in the registration statement?

Answer: No. The filing of the Form 10-K for the fiscal year ended December 31, 2019 establishes a new effective date for the registration statement. As of the new effective date, the registration statement incorporates by reference only the Form 10-K for the fiscal year ended December 31, 2019, which does not contain the company’s discussion of results for the fiscal year ended December 31, 2017 unless, as indicated in Question 110.02, the information is expressly incorporated by reference. [Jan. 24, 2020]

Section 111. Item 304 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Question 111.01

Question: If a registrant's principal accountant resigns, declines to stand for re-election or is dismissed, Items 304(a)(1)(iv) and (v) require the registrant to disclose any disagreements and reportable events during the registrant's two most recent fiscal years and any "subsequent interim period" preceding the resignation, declination or dismissal. For purposes of this requirement, what period of time does "subsequent interim period" cover?

Answer: The "subsequent interim period" is the period from the end of the registrant's most recent fiscal year through the date of the former principal accountant's resignation, declination to stand for re-election or dismissal. This period is not limited to the end of the most recent fiscal quarterly period. Similarly, the "subsequent interim period" referred to in Item 304(a)(2), which requires disclosure of the engagement of a new principal accountant, is the period from the end of the registrant's most recent fiscal year through the date on which the new principal accountant is engaged. [Jan. 14, 2011]

Question 111.02

Question: Item 304(a)(1)(iv) requires affirmative disclosure if there are no disagreements. If a registrant has no reportable events, is the registrant required to disclose that fact?

Answer: No. [Jan. 14, 2011]

Question 111.03

Question: During the two most recent fiscal years and subsequent interim period, the principal accountant advised the registrant that internal controls necessary to develop reliable financial statements did not exist, and the remediation of the internal control deficiency or deficiencies occurred before the end of the subsequent interim period. Is the registrant still required to disclose, pursuant to Item 304(a)(1)(v)(A), that the former principal accountant advised the registrant that the internal controls necessary for the registrant to develop reliable financial statements do not exist?

Answer: Yes. The fact that the remediation occurred before the end of the subsequent interim period does not relieve the registrant of its disclosure obligation pursuant to Item 304(a)(1)(v)(A). [Jan. 14, 2011]

Question 111.04

Question: Under Item 304(a)(1)(v)(A), is a registrant required to disclose whether, during the two most recent fiscal years and any subsequent interim period, the former principal accountant advised that there was a "material weakness" or "significant deficiency" in internal control over financial reporting, as those terms are defined in Rule 1-02(a)(4) of Regulation S-X?

Answer: A "material weakness" is defined as "a deficiency, or combination of deficiencies, in internal control over financial reporting…such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis." Advising the registrant that there is a material weakness in internal control over financial reporting is, for purposes of Item 304(a)(1)(v)(A), equivalent to advising the registrant that the "internal controls necessary for the registrant to develop reliable financial statements do not exist." Consequently, if the former principal accountant advised the registrant that there was a material weakness, then the registrant has a reportable event under Item 304(a)(1)(v)(A).

By contrast, if the former principal accountant advised the registrant that one or more significant deficiencies in internal control over financial reporting existed, but did not also advise that there was a material weakness, then that would not be a reportable event under Item 304(a)(1)(v)(A). However, the factors that led to a significant deficiency could result in the conclusion that there are other reportable events that require disclosure. For example, the former principal accountant may have determined that, because of the significant deficiency, there was a need to significantly expand the scope of the audit, which could, in appropriate circumstances, create a reportable event under Item 304(a)(1)(v)(C). [Jan. 14, 2011]

Question 111.05

Question: A registrant's principal accountant issued an audit report on the registrant's financial statements in the last two fiscal years containing an explanatory paragraph regarding a registrant's ability to continue as a going concern. Is this required to be disclosed under Item 304(a)(1)(ii)?

Answer: Yes. The explanatory paragraph represents a modification of the principal accountant's audit report for an uncertainty, thereby requiring disclosure under Item 304(a)(1)(ii). [Jan. 14, 2011]

Question 111.06

Question: A registrant's principal accountant issued a report on the registrant's internal control over financial reporting in the last two fiscal years containing an explanatory paragraph, adverse opinion or a disclaimer of opinion. Is this required to be disclosed under Item 304(a)(1)(ii)?

Answer: No. Item 304(a)(1)(ii) refers only to the principal accountant's "report on the financial statements." Registrants can voluntarily disclose information about reports on internal control over financial reporting; however, if such reports contain an adverse opinion with respect to the effectiveness of internal control over financial reporting, then that would be reportable pursuant to Item 304(a)(1)(v)(A). See Question 111.04. [Jan. 14, 2011]

Question 111.07

Section 112. Item 305 — Quantitative and Qualitative Disclosures about Market Risk

Question 112.01

Question: Is a registrant required to include Item 305 market risk disclosure in its Form 10-Q?

Answer: A registrant does not have to include Item 305 disclosure in its Form 10-Q unless there is a material change to the Item 305 information disclosed in its most recently filed Form 10-K. [July 3, 2008]

Section 113. Item 306 [Reserved]

None

Section 114. Item 307 — Disclosure Controls and Procedures

None

Section 115. Items 308 and 308T — Internal Control over Financial Reporting

Question 115.01

Question: Is a Form 11-K required to include internal control reports?

Answer: No. Item 308 does not apply to Form 11-K. [July 3, 2008]

Question 115.02

Section 116. Item 401 — Directors, Executive Officers, Promoters and Control Persons

Question 116.01

Question: Should the Item 401(b) information presented in the Form 10-K be furnished for current officers, rather than for those officers who held such positions during the last fiscal year?

Answer: Yes. [July 3, 2008]

Question 116.02

Question: Does Item 401(e) information with respect to executive officers need to be included in proxy statements if it is included separately in the Form 10-K?

Answer: No. Although Instruction 3 to Item 401(b) does not refer to Item 401(e), which requires disclosure about business experience, Item 401(e) information need not be included in the proxy statement if it is presented in the Form 10-K. [July 3, 2008]

Question 116.03

Question: Is Item 401(f) applicable to persons in the "significant employee" category of Item 401(c)?

Answer: Item 401(f) is not applicable to persons in the "significant employee" category of Item 401(c), unless such persons are de facto executive officers. [July 3, 2008]

Question 116.04

Question: Is Item 401(f)(1) disclosure required for legal proceedings in foreign countries?

Answer: Yes. Item 401(f)(1) requires disclosure regarding petitions filed under the "[f]ederal bankruptcy laws or any state insolvency law." This item should be interpreted to require disclosure regarding comparable events in foreign countries (except in the unusual situation where it is not material). For example, disclosure should be provided when a director of a U.S. public company is also the CEO of a non-U.S. company and a receiver is appointed for the non-U.S. company. [July 3, 2008]

Question 116.05

Question: For each director and nominee, Item 401(e)(1) requires disclosure of such person's "specific experience, qualifications, attributes or skills" that led the board to conclude that such person should serve as a director at the time that a filing containing the disclosure is made. May a company provide these disclosures on a group basis if the directors or nominees share similar characteristics, such as all of them are audit committee financial experts or all of them are current or former CEOs of major companies?

Answer: No. The disclosure of each director or nominee's experience, qualifications, attributes or skills must be provided on an individual basis. For each person, a company must disclose why the person's particular and specific experience, qualifications, attributes or skills led the board to conclude that such person should serve as a director of the company, in light of the company's business and structure, at the time that a filing containing the disclosure is made. For example, it would not be sufficient to disclose simply that a person should serve as a director because he or she is an audit committee financial expert. Instead, a company should describe the particular and specific experience, qualifications, attributes or skills that led the board to conclude that this particular person should serve as a director at the time that a filing containing the disclosure is made. [Jan. 20, 2010]

Question 116.06

Question: Under Item 401(e)(1), how should a company with a classified board disclose why a director's particular and specific experience, qualifications, attributes or skills led the board to conclude that the person should serve as a director at the time that a filing containing the disclosure is made, if the director is not up for re-election at the upcoming shareholders' meeting?

Answer: Because the composition of the entire board is important information for shareholder voting decisions, the purpose of this disclosure requirement is to elicit current information about all directors on the board, including on classified boards. For each director who is not up for re-election, the evaluation of the director's particular and specific experience, qualifications, attributes or skills and the conclusion as to why the director should continue serving on the board, should be as of the time that a filing containing the disclosure is made. For some boards of directors, particularly those that do not conduct annual self-evaluations, this may require implementing additional disclosure controls and procedures to ensure that such information about directors who are not up for re-election at the upcoming shareholders' meeting is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. [Jan. 20, 2010]

Question 116.07

Question: Instruction 3 to Item 401(a) provides that if the information called for by paragraph (a) is being presented in a proxy or information statement, no information need be given respecting any director whose term of office as a director will not continue after the meeting to which the statement relates. Is Item 401(e) disclosure required with respect to any director to whom this Instruction applies?

Answer: No. Item 401(e) disclosure is not required for any director for whom the company is not required to provide Item 401(a) disclosure. [Feb. 16, 2010]

Question 116.08

Withdrawn July 8, 2011

Question 116.09

Question: Is a company required to include Item 401(e) information about a director's business experience if the director is appointed by holders of a class of preferred stock?

Answer: Yes. In this situation, the company may either provide the same information about this director as it would directors nominated by the board or disclose that the preferred shareholder has advised the company that the shareholder has appointed this director because of [the Item 401(e) information provided to the company by the shareholder that the company would then include in its filing]. [Mar. 4, 2011]

Question 116.10

Question: Pursuant to Instruction 3 of Item 401(a), an issuer omits from its proxy statement Item 401(a) and Item 401(e) information with respect to directors whose terms will not continue after the annual shareholders' meeting. Is this information nevertheless required to be included in a Form 10-K that incorporates its Part III information by reference from the proxy statement?

Answer: No. If an issuer provides its Form 10-K, Part III information by incorporation by reference from the proxy statement and the issuer files its definitive proxy statement within 120 days of its fiscal year-end, then the issuer may rely on Instruction 3 to Item 401(a) to omit, from both the proxy statement and the Form 10-K, Item 401(a) and Item 401(e) information with respect to directors whose terms will not continue after the annual shareholders' meeting. If an issuer includes Item 401(a) and Item 401(e) information directly in Part III of Form 10-K, the issuer must provide such information about all current directors, including those directors whose terms will not continue after the annual shareholders' meeting. [July 8, 2011]

Question 116.11

Question: In connection with preparing Item 401 disclosure relating to director qualifications, certain board members or nominees have provided for inclusion in the company's disclosure certain self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background. What disclosure of self-identified diversity characteristics is required under Item 401 or, with respect to nominees, under Item 407?

Answer: Item 401(e) requires a brief discussion of the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Item 407(c)(2)(vi) requires a description of how a board implements any policies it follows with regard to the consideration of diversity in identifying director nominees. To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered the self-identified diversity characteristics referred to above (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company's disclosure of those characteristics, we would expect that the company's discussion required by Item 401 would include, but not necessarily be limited to, identifying those characteristics and how they were considered. Similarly, in these circumstances, we would expect any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics. [February 6, 2019]

Section 117. Item 402(a) — Executive Compensation; General

Question 117.01

Question: When a company that is in the process of restating its financial statements has not filed its Form 10-K for the fiscal year ended December 31, 2005, must the company comply with the 2006 Executive Compensation Rules when it ultimately files the Form 10-K for the fiscal year ended December 31, 2005?

Answer: The company is not required to comply with the 2006 Executive Compensation rules in the Form 10-K for the fiscal year ended December 31, 2005. [Jan. 24, 2007]

Question 117.02

Question: If a company files a preliminary proxy statement under Exchange Act Rule 14a-6 which omits the executive and director compensation disclosure required by Item 402 of Regulation S-K, would the staff request a revised preliminary proxy statement and deem that the 10-calendar day waiting period specified in Rule 14a-6 does not begin to run until the required information is filed?

Answer: Yes. However, given that the executive and director compensation rules were substantially revised in 2006, in a situation where a company that is complying with the 2006 rules for the first time files a preliminary proxy statement excluding the required executive and director compensation disclosure, the staff will not request a revised preliminary proxy statement nor deem the 10-calendar day waiting period specified in Rule 14a-6 to be tolled, so long as: (1) the omitted executive and director compensation disclosure is included in the definitive proxy statement; (2) the omitted disclosure does not relate to the matter or matters that caused the company to have to file preliminary proxy materials; and (3) the omitted disclosure is not otherwise made available to the public prior to the filing of the definitive proxy statement. [Feb. 12, 2007]

Question 117.03

Question: During 2009, a company recovers (or "claws-back") a portion of an executive officer's 2008 bonus. How does this affect the company's 2009 Item 402 disclosure for that executive officer?

Answer: The portion of the 2008 bonus recovered in 2009 should not be deducted from 2009 bonus or total compensation for purposes of determining, pursuant to Items 402(a)(3)(iii) and (iv), whether the executive is a named executive officer for 2009. If the executive is a named executive officer for 2009, the Summary Compensation Table should report for the 2008 year, in the Bonus column (column (d)) and Total column (column (j)), amounts that are adjusted to reflect the "claw-back," with footnote disclosure of the amount recovered. As the instruction to Item 402(b) provides, if "necessary to an understanding of the registrant's compensation policies and decisions regarding the named executive officers," the Compensation Discussion and Analysis should discuss the reasons for the "claw-back" and how the amount recovered was determined. [Aug. 14, 2009]

Question 117.04

Question: During 2009, a company grants an equity award to an executive officer. The same award is forfeited during 2009 because the executive officer leaves the company. Should the grant date fair value of this award be included for purposes of determining 2009 total compensation and identifying 2009 named executive officers?

Answer: Yes. [Jan. 20, 2010]

Question 117.05

Question: A registrant with a calendar fiscal year end has filed a Securities Act registration statement (or post-effective amendment) for which it seeks effectiveness after December 31, 2009 but before its 2009 Form 10-K is due. Must it include Item 402 disclosure for 2009 in the registration statement before it can be declared effective?

Answer: If the registration statement is on Form S-1, then it must include Item 402 disclosure for 2009 before it can be declared effective. This is because 2009 is the last completed fiscal year. Part I, Item 11(l) of Form S-1 specifically requires Item 402 information in the registration statement, which includes Summary Compensation Table disclosure for each of the registrant's last three completed fiscal years and other disclosures for the last completed fiscal year. General Instruction VII of Form S-1, which permits a registrant meeting certain requirements to incorporate by reference the Item 11 information, does not change this result because the registrant has not yet filed its Form 10-K for the most recently completed fiscal year.

On the other hand, Form S-3's information requirements are satisfied by incorporating by reference filed and subsequently filed Exchange Act documents; for example, there is no specific line item requirement in Form S-3 for Item 402 information. Accordingly, a non-automatic shelf registration statement on Form S-3 can be declared effective before the Form 10-K is due. Securities Act Forms C&DI 114.05 addresses the situation in which a company requests effectiveness for a non-automatic shelf registration statement on Form S-3 during the period between the filing of the Form 10-K and the definitive proxy statement. [March 20, 2025] [Comparison to prior version]

Question 117.06

Question: An individual who was the company's principal financial officer for part of the last completed fiscal year was serving the company as an executive officer in a different capacity at the end of that year, and was among the company's three most highly compensated executive officers. Does the company include this individual as a named executive officer pursuant to Item 402(a)(3)(iii), as one of its three most highly compensated executive officers other than the principal executive officer and principal financial officer who were serving as executive officers at the end of the last completed fiscal year?

Answer: No. The company includes this individual as a named executive officer pursuant to Item 402(a)(3)(ii), as an individual who served as principal financial officer during the fiscal year. The company identifies its three most highly compensated executive officers pursuant to Item 402(a)(3)(iii) from among individuals serving as executive officers at the end of the last completed fiscal year who did not serve as its principal executive officer or principal financial officer at any time during that year. [June 4, 2010]

Question 117.07

Question: Item 402(a)(6)(ii) provides that "registrants may omit information regarding group life, health, hospitalization, or medical reimbursement plans that do not discriminate in scope, terms or operation, in favor of executive officers or directors of the registrant and that are available generally to all salaried employees." Does this provision also apply to a disability plan that satisfies these nondiscrimination conditions?

Answer: Yes. To the extent that the disability plan provides benefits not related to termination of employment, a registrant may rely on Item 402(a)(6)(ii) to omit information regarding the disability plan. To the extent that the disability plan provides benefits related to termination of employment, a registrant may rely on Instruction 5 to Item 402(j) to omit information regarding the disability plan. [July 8, 2011]

Section 118. Item 402(b) — Executive Compensation; Compensation Discussion and Analysis

Question 118.01

Question: Is the guidance regarding Compensation Discussion and Analysis disclosure concerning option grants that is provided in Section II.A.2 of Securities Act Release No. 8732A applicable to other forms of equity compensation?

Answer: The same disclosure provisions governing required disclosure about option grants also govern disclosure about restricted stock and other non-option equity awards. This includes the example of potential material information identified in Item 402(b)(2)(iv) of Regulation S-K, which indicates that it may be appropriate to discuss how the determination is made as to when awards are granted, including awards of equity-based compensation such as options. [Jan. 24, 2007]

Question 118.02

Question: In presenting Compensation Discussion and Analysis disclosure about prior option grant programs, plans or practices, are companies required to provide disclosures about programs, plans or practices that occurred outside the scope of the information contained in the tables and otherwise disclosed pursuant to Item 402 (including periods before and after the information contained in the tables and otherwise disclosed pursuant to Item 402)?

Answer: Yes, in certain cases, depending on a company's particular circumstances, disclosure may be required as contemplated by Instruction 2 to Item 402(b) of Regulation S-K. [Jan. 24, 2007]

Question 118.03

Question: Are companies required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for their first fiscal year ending on or after December 15, 2006, or is this disclosure only required for future fiscal periods?

Answer: Companies are required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for fiscal years ending on or after December 15, 2006, as well as any other periods where necessary as contemplated by Instruction 2 to Item 402(b) of Regulation S-K. [Jan. 24, 2007]

Question 118.04

Question: How does a company determine if it may omit disclosure of performance target levels or other factors or criteria under Instruction 4 to Item 402(b)?

Answer: A company should begin its analysis of whether it is required to disclose performance targets by addressing the threshold question of materiality in the context of the company's executive compensation policies or decisions. If performance targets are not material in this context, the company is not required to disclose the performance targets. Whether performance targets are material is a facts and circumstances issue, which a company must evaluate in good faith.

A company may distinguish between qualitative/subjective individual performance goals (e.g., effective leadership and communication) and quantitative/objective performance goals (e.g., specific revenue or earnings targets). There is no requirement that a company provide quantitative targets for what are inherently subjective or qualitative assessments — for example, how effectively the CEO demonstrated leadership.

When performance targets are a material element of a company's executive compensation policies or decisions, a company may omit targets involving confidential trade secrets or confidential commercial or financial information only if their disclosure would result in competitive harm. A company should use the same standard for evaluating whether target levels (and other factors or criteria) may be omitted as it would use when making a confidential treatment request under Securities Act Rule 406 or Exchange Act Rule 24b-2; however, no confidential treatment request is required to be submitted in connection with the omission of a performance target level or other factors or criteria.

To reach a conclusion that disclosure would result in competitive harm, a company must undertake a competitive harm analysis taking into account its specific facts and circumstances and the nature of the performance targets. In the context of the company's industry and competitive environment, the company must analyze whether a competitor or contractual counterparty could extract from the targets information regarding the company's business or business strategy that the competitor or counterparty could use to the company's detriment. A company must have a reasoned basis for concluding, after consideration of its specific facts and circumstances, that the disclosure of the targets would cause it competitive harm. The company must make its determination based on the established standards for what constitutes confidential commercial or financial information, the disclosure of which would cause competitive harm. These standards have largely been addressed in case law, including National Parks and Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974); National Parks and Conservation Association v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976); and Critical Mass Energy Project v. NRC, 931 F.2d 939 (D.C. Cir. 1991), vacated & reh'g en banc granted, 942 F.2d 799 (D.C. Cir. 1991), grant of summary judgment to agency aff'd en banc, 975 F.2d 871 (D.C. Cir. 1992). To the extent that a performance target level or other factor or criteria otherwise has been disclosed publicly, a company cannot rely on Instruction 4 to withhold the information.

The competitive harm standard is the only basis for omitting performance targets if they are a material element of the registrant's executive compensation policies or decisions.

Because Compensation Discussion and Analysis will be subject to staff review, a company may be required to demonstrate that withholding target information meets the confidential treatment standard, and will be required to disclose the information if that standard is not met. Finally, a company that relies on Instruction 4 to omit performance targets is required by the instruction to discuss how difficult it will be for the executive or how likely it will be for the company to achieve the undisclosed target level or other factor or criteria. [July 3, 2008]

Question 118.05

Question: Item 402(b)(2)(xiv) provides, as an example of material information to be disclosed in the Compensation Discussion and Analysis, depending on the facts and circumstances, "[w]hether the registrant engaged in any benchmarking of total compensation, or any material element of compensation, identifying the benchmark and, if applicable, its components (including component companies)." What does "benchmarking" mean in this context?

Answer: In this context, benchmarking generally entails using compensation data about other companies as a reference point on which — either wholly or in part — to base, justify or provide a framework for a compensation decision. It would not include a situation in which a company reviews or considers a broad-based third-party survey for a more general purpose, such as to obtain a general understanding of current compensation practices. [July 3, 2008]

Question 118.06 [same as Question 133.08]

Question: Regarding the role of compensation consultants in determining or recommending the amount or form of executive and director compensation, on what basis should a company differentiate between the requirements of Item 407(e)(3)(iii) and Item 402(b)'s Compensation Discussion and Analysis disclosure?

Answer: The information regarding "any role of compensation consultants in determining or recommending the amount or form of executive and director compensation" required by Item 407(e)(3)(iii) is to be provided as part of the company's Item 407(e)(3) compensation committee disclosure. See Release 33-8732A at Section V.D, Corporate Governance Disclosure. If a compensation consultant plays a material role in the company's compensation-setting practices and decisions, then the company should discuss that role in the Compensation Discussion and Analysis section. [July 3, 2008]

Question 118.07

Question: In Compensation Discussion and Analysis (CD&A), is a company required to discuss executive compensation, including performance target levels, to be paid in the current year or in future years?

Answer: No. The CD&A covers only compensation "awarded to, earned by, or paid to the named executive officers." Although Instruction 2 to Item 402(b) provides that the CD&A should also cover actions regarding executive compensation that were taken after the registrant's last fiscal year's end, such disclosure requirement is limited to those actions or steps that could "affect a fair understanding of the named executive officer's compensation for the last fiscal year." [Mar. 4, 2011]

Question 118.08

Question: Instruction 5 to Item 402(b) provides that "[d]isclosure of target levels that are non-GAAP financial measures will not be subject to Regulation G and Item 10(e); however, disclosure must be provided as to how the number is calculated from the registrant's audited financial statements." Does this instruction extend to non-GAAP financial information that does not relate to the disclosure of target levels, but is nevertheless included in Compensation Discussion & Analysis ("CD&A") or other parts of the proxy statement - for example, to explain how pay is structured and implemented to reflect the registrant's or a named executive officer’s performance?

Answer: No. Instruction 5 to Item 402(b) is limited to CD&A disclosure of target levels that are non-GAAP financial measures. If non-GAAP financial measures are presented in CD&A or in any other part of the proxy statement for any other purpose, such as to explain how pay is structured or implemented to reflect the registrant's or a named executive officer’s performance or to justify certain levels or amounts of pay, then those non-GAAP financial measures are subject to the requirements of Regulation G and Item 10(e) of Regulation S-K (except with regards to the Company-Selected Measure or additional financial performance measures disclosed pursuant to Item 402(v)(2)(vi) of Regulation S-K).

In these pay-related circumstances only, the staff will not object if a registrant includes the required GAAP reconciliation and other information in an annex to the proxy statement, provided the registrant includes a prominent cross-reference to such annex. Or, if the non-GAAP financial measures are the same as those included in the Form 10-K that is incorporating by reference the proxy statement's Item 402 disclosure as part of its Part III information, the staff will not object if the registrant complies with Regulation G and Item 10(e) by providing a prominent cross-reference to the pages in the Form 10-K containing the required GAAP reconciliation and other information. [September 27, 2023]

Question 118.09

Question: Instruction 5 to Item 402(b) provides that "[d]isclosure of target levels that are non-GAAP financial measures will not be subject to Regulation G and Item 10(e) of Regulation S-K; however, disclosure must be provided as to how the number is calculated from the registrant's audited financial statements." Does this instruction extend to the disclosure of the actual results of the non-GAAP financial measure that is used as a target?

Answer: Yes, provided that this disclosure is made in the context of a discussion about target levels. [May 16, 2013]

Section 119. Item 402(c) — Executive Compensation; Summary Compensation Table

Question 119.01

Question: If a person that was not a named executive officer in fiscal years 1 and 2 became a named executive officer in fiscal year 3, must compensation information be disclosed in the Summary Compensation Table for that person for all three fiscal years?

Answer: No, the compensation information only for fiscal year 3 need be provided in the Summary Compensation Table. [Jan. 24, 2007]

Question 119.02

Question: Should a discretionary cash bonus that was not based on any performance criteria be reported in the Bonus column (column (d)) of the Summary Compensation Table pursuant to Item 402(c)(2)(iv) or in the Non-equity Incentive Plan Compensation column (column (g)) pursuant to Item 402(c)(2)(vii)?

Answer: The bonus should be reported in the Bonus column (column (d)). In order to be reported in the Non-equity Incentive Plan Compensation column (column (g)) pursuant to Item 402(c)(2)(vii), the bonus would have to be pursuant to a plan providing for compensation intended to serve as incentive for performance to occur over a specified period that does not fall within the scope of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment ("FAS 123R"). The outcome with respect to the relevant performance target must be substantially uncertain at the time the performance target is established and the target is communicated to the executives. The length of the performance period is not relevant to this analysis, so that a plan serving as an incentive for a period less than a year would be considered an incentive plan under Item 402(a)(6)(iii). Further, amounts earned under a plan that meets the definition of a non-equity incentive plan, but that permits the exercise of negative discretion in determining the amounts of bonuses, generally would still be reportable in the Non-equity Incentive Plan Compensation column (column (g)). The basis for the use of various targets and negative discretion may be material information to be disclosed in the Compensation Discussion and Analysis. If, in the exercise of discretion, an amount is paid over and above the amounts earned by meeting the performance measure in the non-equity incentive plan, that amount should be reported in the Bonus column (column (d)). [Jan. 24, 2007]

Question 119.03

Question: Instruction 2 to Item 402(c)(2)(iii) and (iv) provides that companies are to include in the Salary column (column (c)) or the Bonus column (column (d) any amount of salary or bonus forgone at the election of a named executive officer under which stock, equity-based, or other forms of non-cash compensation have been received instead by the named executive officer. In a situation where the value of the stock, equity-based or other form of non-cash compensation is the same as the amount of salary or bonus foregone at the election of the named executive officer, does this mean the amounts are only reported in the Salary or Bonus column and not in any other column of the Summary Compensation Table?

Answer: Yes, under Instruction 2 to Item 402(c)(2)(iii) and (iv) the amounts should be disclosed in the Salary or Bonus column, as applicable. The result would be different if the amount of salary or bonus foregone at the election of the named executive officer was less than the value of the equity-based compensation received instead of the salary or bonus, or if the agreement pursuant to which the named executive officer had the option to elect settlement in stock or equity-based compensation was within the scope of FAS123R (e.g., the right to stock settlement is embedded in the terms of the award). In the former case, the incremental value of an equity award would be reported in the Stock Awards or Option Awards columns, and in the latter case the award would be reported in the Stock Awards or Option Awards columns. In both of these special cases, the amounts reported in the Stock Awards and Option Awards columns would be the grant date fair value of the equity award, and footnote disclosure should be provided regarding the circumstances of the awards. Appropriate disclosure about equity-based compensation received instead of salary or bonus must be provided in the Grants of Plan-Based Awards Table, the Outstanding Equity Awards at Fiscal Year End Table and the Option Exercises and Stock Vested Table. [May 17, 2013]

Question 119.04

Withdrawn Mar. 1, 2010

Question 119.05

Withdrawn Mar. 1, 2010

Question 119.06

Question: Instruction 3 to Item 402(c)(2)(viii) provides that where the amount of the change in the actuarial present value of the accumulated pension benefit computed pursuant to Item 402(c)(2)(viii)(A) is negative, the amount should be disclosed by footnote but should not be reflected in the sum reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column (column (h)). When a company aggregates all of the decreases and increases in the value of a named executive officer's individual pension plans, should the company subtract negative values from positive values or should any individual plan decreases be treated as a zero?

Answer: In applying this instruction, a company may subtract negative values when aggregating the changes in the actuarial present values of the accumulated benefits under the plans, and apply the "no negative number" position of the instruction for the final number after aggregating all plans. Under this approach, if one plan had a $500 increase and another plan had a $200 decrease, then the net change in the actuarial present value of the accumulated pension benefits would be $300. [Jan. 24, 2007]

Question 119.07

Question: Item 402(c)(2)(ix)(A) and Instruction 4 to that item require a company to report as "All Other Compensation" perquisites and personal benefits if the total amount exceeds $10,000, and to identify each such item by type, regardless of the amount. If the $10,000 threshold is otherwise exceeded, must a company list by type those perquisites and personal benefits as to which there was no aggregate incremental cost to the company, or as to which the executive officer fully reimbursed the company for such cost?

Answer: If a perquisite or other personal benefit has no aggregate incremental cost, it must still be separately identified by type. Any item for which an executive officer has actually fully reimbursed the company should not be considered a perquisite or other personal benefit and therefore need not be separately identified by type. In this regard, for example, if a company pays for country club annual dues as well as for meals and incidentals and an executive officer reimburses the cost of meals and incidentals, then the company need not report meals and incidentals as perquisites, although it would continue to report the country club annual dues. If there was no such reimbursement, then the company would need to also report the meals and incidentals as perquisites. [July 3, 2008]

Question 119.08

Question: Item 402(c)(2)(ix)(C) indicates that stock purchased at a discount needs to be disclosed unless that discount is available generally to all security holders or to all salaried employees. The compensation cost, if any, is computed in accordance with FAS 123R. Footnote 221 to Securities Act Release No. 8732A seems to indicate that sometimes under FAS 123R there is no compensation cost. Does the footnote indicate that 423 plans must be disclosed?

Answer: No. Typically 423 plans need to be broad based and non-discriminatory to qualify for preferential tax treatment, which would be within the exception, even if they require some minimum of work hours — such as 10 hours a week — in order to be in the plan or the discount is larger than the 5% example in the footnote. The footnote explains that even if there is some discount, there may not be compensation cost under the accounting standard. [Jan. 24, 2007]

Question 119.09

Question: Item 402(c)(2)(ix)(G) requires disclosure of the dollar value of any dividends when those amounts were not factored into the grant date fair value required to be reported in the Grants of Plan-Based Awards Table. With regard to the treatment of dividends, dividend equivalents or other earnings on equity awards, is disclosure required in the All Other Compensation column (column (i)) if disclosure was not previously provided in the Grants of Plan-Based Awards Table for that named executive officer?

Answer: The company should analyze whether the dividends, dividend equivalents or other earnings would have been factored into the grant date fair value in accordance with FAS 123R. In this regard, the disclosure turns on how the rights to the dividends are structured and whether or not that brings them within the scope of FAS 123R for the purpose of the grant date fair value calculation. [Jan. 24, 2007]

Question 119.10

Question: Are deferred compensation payouts, lump sum distributions under Section 401(k) plans and earnings on 401(k) plans required to be disclosed in the Summary Compensation Table?

Answer: Non-qualified deferred compensation payouts are not disclosed in the Summary Compensation Table, but are rather disclosed in the Aggregate Withdrawals/ Distributions column (column (e)) of the Nonqualified Deferred Compensation Table. Lump sum distributions from 401(k) plans are not disclosed in the Summary Compensation Table, because the compensation that was deferred into the 401(k) plan was already disclosed in the Summary Compensation Table, as would be any company matching contributions. Earnings on 401(k) plans are not disclosed in the Summary Compensation Table because the disclosure requirement only extends to above-market or preferential earnings on non-qualified deferred compensation. [Jan. 24, 2007]

Question 119.11

Withdrawn Mar. 1, 2010

Question 119.12

Withdrawn Mar. 1, 2010

Question 119.13

Question: Item 402(c)(2)(ix)(D) requires disclosure in the "All Other Compensation" column of the amount paid or accrued to any named executive officer pursuant to any plan or arrangement in connection with any termination of such executive officer's employment with the company or its subsidiaries, or a change in control of the company. For this purpose, what standard applies for determining whether such an amount is reportable because it is accrued?

Answer: Instruction 5 to Item 402(c)(2)(ix) states that for purposes of Item 402(c)(2)(ix)(D) an accrued amount is an amount for which payment has become due. If the named executive officer's performance necessary to earn an amount is complete, it is an amount that should be disclosed. For example, if the named executive officer has completed all performance to earn an amount, but payment is subject to a six-month deferral in order to comply with Internal Revenue Code Section 409A, the amount would be an accrued amount subject to Item 402(c)(2)(ix)(D) disclosure. In contrast, if an amount will be payable two years after a termination event if the named executive officer cooperates with (or complies with a covenant not to compete with) the company during that period, the amount is not reportable under Item 402(c)(2)(ix)(D) because the executive officer's performance is still necessary for the payment to become due. As noted in Footnote 217 to Securities Act Release No. 8732A, such amounts that are payable in the future, as well as amounts reportable under Item 402(c)(2)(ix)(D), are reportable under Item 402(j). [Aug. 8, 2007]

Question 119.14

Question: Where the instructions to the Summary Compensation Table requiring footnote disclosure do not specifically limit the footnote disclosure to compensation for the company's last fiscal year, as do Instructions 3 and 4 to Item 402(c)(2)(ix), must the footnote disclosure cover the other years reported in the Summary Compensation Table?

Answer: If the instruction does not specifically limit footnote disclosure to compensation for the company's last fiscal year, footnote disclosure for the other years reported in the Summary Compensation Table would be required only if it is material to an investor's understanding of the compensation reported in the Summary Compensation Table for the company's last fiscal year. [July 3, 2008]

Question 119.15

Withdrawn Mar. 1, 2010

Question 119.16

Question: May a company provide the assumption information required by Instruction 1 to Item 402(c)(2)(v) and (vi) for equity awards granted in the company's most recent fiscal year by reference to the Grants of Plan-Based Awards Table if the company chooses to report that assumption information in that table?

Answer: Yes. [Mar. 1, 2010]

Question 119.17

Question: In 2008, a company enters into a retention agreement in which it agrees to pay the CEO a cash retention bonus, conditioned on the CEO remaining employed by the company through December 31, 2010. The cash retention bonus is not a non-equity incentive plan award, as defined in Item 402(a)(6)(iii). When is the cash retention bonus reportable in the company's Summary Compensation Table? When should it be discussed in Compensation Discussion and Analysis?

Answer: The cash retention bonus is reportable in the Summary Compensation Table for the year in which the performance condition has been satisfied. The same analysis applies to any interest the company is obligated to pay on the cash retention bonus, assuming the interest is not payable unless and until the performance condition has been satisfied. Before the performance condition has been satisfied, Instruction 4 to Item 402(c) would not require it to be reported in the Summary Compensation Table as a bonus that has been earned but deferred, and the bonus would not be reportable in the Nonqualified Deferred Compensation Table. However, the company should discuss the cash retention bonus in its Compensation Discussion and Analysis for 2008 and subsequent years through completion of the performance necessary to earn it. [July 3, 2008]

Question 119.18

Question: A person who was a named executive officer in year 1, but not in year 2, will again be a named executive officer in year 3. Must compensation information for this person be disclosed in the Summary Compensation Table for all three fiscal years?

Answer: Yes. [May 29, 2009]

Question 119.19

Question: A person who is a named executive officer for year 1 is entitled to a gross-up payment in respect of taxes on perquisites or other compensation provided during the year. The tax gross-up payment is not payable by the company until year 2. Is the tax gross-up payment reportable in the Summary Compensation Table in year 1?

Answer: Yes. To provide investors with a clearer view of all costs to the company associated with providing the perquisites or other compensation for which tax gross-up payments are being made, Item 402(c)(2)(ix)(B) disclosure of the tax gross-up payment should be included in the Summary Compensation Table for the same year as the related perquisites or other compensation. [May 29, 2009]

Question 119.20

Question: Instruction 3 to the Stock Awards and Option Awards columns specifies that the value reported for awards subject to performance conditions excludes the effect of estimated forfeitures. Does the grant date fair value reported for awards subject to time-based vesting also exclude the effect of estimated forfeitures?

Answer: Yes. The amount to be reported is the grant date fair value. FASB ASC Paragraph 718-10-30-27 provides, in relevant part, that "service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right." [Jan. 20, 2010]

Question 119.21

Question: In April 2010, a company grants an equity award to an executive officer, and the terms of the award do not provide for acceleration of vesting if the executive officer leaves the company. The grant date fair value of the award is $1,000. In November 2010, the executive officer will leave the company, and the company modifies the officer's same equity award to provide for acceleration of vesting upon departure. The fair value of the modified award, computed under FASB ASC Topic 718, is $800, reflecting a decline in the company's stock price. What dollar amount is included in 2010 total compensation for purposes of identifying 2010 named executive officers and reported in the executive officer's 2010 stock column with respect to this award if he will be a named executive officer? How would the company report the equity award if the award modification and executive's departure occur in 2011?

Answer: Consistent with Instruction 2 to Item 402(c)(2)(v) and (vi), the incremental fair value of the modified award, computed as of the modification date in accordance with FASB ASC Topic 718, as well as the grant date fair value of the original award must be reported in the 2010 stock column. Applying the guidance in paragraph 55-116 of FASB ASC Section 718-20-55, incremental fair value is computed as follows: the fair value of the modified award at the date of modification minus the fair value of the original award at the date of modification equals the incremental fair value of the modified award. In this fact pattern, the fair value of the original award at the date of modification is zero, because the executive officer left the company in November and the original award would not have vested. Therefore, the incremental fair value of the modified award is $800. As a result, the total amount reported is $1,800, which reflects the two compensation decisions the company made for this award in 2010. The same amount is included in 2010 total compensation for purposes of identifying the company's 2010 named executive officers pursuant to Items 402(a)(3)(iii) and (iv).

If the award modification and executive's departure occur in 2011, the company would report $1,000 in the 2010 stock column for the grant date fair value of the original award. In the 2011 stock column, the company would report $800 for the incremental fair value of the modified award. [Feb. 16, 2010]

Question 119.22

Question: During 2010, a company grants an annual incentive plan award to a named executive officer. Because no right to stock settlement is embedded in the terms of the award, the award is not within the scope of FASB ASC Topic 718. Therefore, it is a non-equity incentive plan award as defined in Rule 402(a)(6)(iii). The named executive officer elects to receive the award in stock. Instruction 2 to Item 402(c)(2)(iii) and (iv) does not apply because the award is an incentive plan award rather than a bonus. Should the company report the award in the stock awards column (column (e)) or in the non-equity incentive plan award column (column (g)) in its 2010 Summary Compensation Table? How should the award be reported in the Grants of Plan-Based Awards Table?

Answer: The company should report the award in the non-equity incentive plan award column (column (g)) of the Summary Compensation Table, reflecting the compensation the company awarded, with footnote disclosure of the stock settlement. Similarly, in the Grants of Plan-Based Awards Table, the company should report the award in the estimated future payouts under non-equity incentive plan awards columns (columns (c)-(e)). The stock received upon settlement should not also be reported in the Grants of Plan-Based Awards Table because that would double count the award. [Feb. 16, 2010]

Question 119.23

Question: During 2010, a company grants annual incentive plan awards to its named executive officers. The awards permit the named executive officers to elect payment of the award for 2010 performance in company stock rather than cash, with the election to be made during the first 90 days of 2010. Such company stock will have a grant date fair value equal to 110% of the award that would be paid in cash. One named executive officer elects stock payment, and the others do not. How is the award reported for the named executive officer who elects stock payment? How is the award reported for the named executive officers who receive cash payment?

Answer: For the named executive officer who elects stock payment, the award is reported in the 2010 Summary Compensation Table and Grants of Plan-Based Awards Table as an equity incentive award. This is the case even if the amount of the award is not determined until early 2011 because all company decisions necessary to determine the value of the award are made in 2010. For the named executive officers who receive cash payment, the award is reported in the 2010 Summary Compensation Table and Grants of Plan-Based Awards Table as a non-equity incentive plan award. [Feb. 16, 2010]

Question 119.24

Question: In 2010, a company grants an executive officer an equity incentive plan award with a three-year performance period that begins in 2010. The equity incentive plan allows the compensation committee to exercise its discretion to reduce the amount earned pursuant to the award, consistent with Section 162(m) of the Internal Revenue Code. Under FASB ASC Topic 718, the fact that the compensation committee has the right to exercise "negative" discretion may cause, in certain circumstances, the grant date of the award to be deferred until the end of the three-year performance period, after the compensation committee has determined whether to exercise its negative discretion. If so, when and how should this award be reported in the Summary Compensation Table and Grants of Plan-Based Awards Table? In what year should this award be included in total compensation for purposes of determining if the executive officer is a named executive officer?

Answer: Use of grant date fair value reporting in Item 402 generally assumes that, as stated in FASB ASC Topic 718, "[t]he service inception date usually is the grant date." The service inception date may precede the grant date, however, if the equity incentive plan award is authorized but service begins before a mutual understanding of the key terms and conditions is reached. In a situation in which the compensation committee's right to exercise "negative" discretion may preclude, in certain circumstances, a grant date for the award during the year in which the compensation committee communicated the terms of the award and performance targets to the executive officer and in which the service inception date begins, the award should be reported in the Summary Compensation Table and Grants of Plan-Based Awards Table as compensation for the year in which the service inception date begins. Notwithstanding the accounting treatment for the award, reporting the award in this manner better reflects the compensation committee's decisions with respect to the award. The amount reported in both tables should be the fair value of the award at the service inception date, based upon the then-probable outcome of the performance conditions. This same amount should be included in total compensation for purposes of determining whether the executive officer is a named executive officer for the year in which the service inception date occurs. [Mar. 1, 2010]

Question 119.25

Question: A company grants annual non-equity incentive plan awards to its executive officers in January 2010. The awards' performance criteria are communicated to the executives at that time and are based on the company's financial performance for the year. Executives will not know the total amount earned pursuant to the award until the end of the year, when the compensation committee can determine whether or to what extent the performance criteria have been satisfied.

After the end of the year, the amounts earned pursuant to the awards are determined and communicated to the executive officers. One executive decides not to receive any payment of earnings pursuant to the award. For that executive, should the award be included in total compensation for purposes of determining if the executive is a named executive officer for 2010? Should the award be reported in the Grants of Plan-Based Awards Table and the Summary Compensation Table for 2010?

Answer: Yes. The executive officer's decision not to accept payment of the award does not change the fact that award was granted in and earned for services performed during 2010. Accordingly, the grant of the award should be included in the Grants of Plan-Based Awards Table, which will reflect the compensation committee's decision to grant the award in 2010. The earnings pursuant to the award, even though declined, should be included in total compensation for purposes of determining if the executive is a named executive officer for 2010 and reported in the Summary Compensation Table. The company should disclose the executive's decision not to accept payment of the award, which it can do either by adding a column to the Summary Compensation Table next to column (g), "Nonequity Incentive Plan Compensation," reporting the amount of nonequity incentive plan compensation declined, or by providing footnote disclosure to the Summary Compensation Table. Moreover, in Compensation Discussion and Analysis, the company should consider discussing the effect, if any, of the executive's decision on how the company structures and implements compensation to reflect performance. [Mar. 12, 2010]

Question 119.26

Question: A company has a practice of granting discretionary bonuses to its executive officers. Before the board of directors takes action to grant such bonuses for 2010, an executive officer advises the board that she will not accept a bonus for 2010. Should the company report in column (d) of the Summary Compensation Table the bonus award it would have granted her and include that amount in total compensation for purposes of determining if she is a named executive officer for 2010?

Answer: No, because the executive declined the bonus before it was granted, and therefore, no bonus was granted. [Mar. 12, 2010]

Question 119.27

Question: In 2010, Company A acquires Company B and, as part of the merger consideration, agrees to assume all outstanding Company B options. The Company B options have not been modified other than to adjust the exercise price to reflect the merger exchange ratio. For Company B executives who are now Company A executives: Should the Company B options that were granted in 2010 be included in total compensation for purposes of determining if an executive is a named executive officer of Company A for 2010 and reported in the Summary Compensation Table and Grants of Plan-Based Awards Table for 2010? Should Company A report the Company B options in its Outstanding Equity Awards at Fiscal Year-End Table and Options Exercised and Stock Vested Table, as applicable, for 2010 and in subsequent years?

Answer: Because the assumed Company B options are part of the merger consideration, they do not reflect any 2010 executive compensation decisions by Company A. Therefore, Company A should not include Company B options granted in 2010 in total compensation for purposes of determining its 2010 named executive officers, and should not report the Company B options in its 2010 Summary Compensation Table and Grants of Plan-Based Awards Table. Because the Company B options are now Company A options, Company A should report them in its Outstanding Equity Awards at Fiscal Year-End Table and Options Exercised and Stock Vested Table, as applicable, for 2010 and subsequent years, with footnote disclosure describing the assumption of Company B options. [June 4, 2010]

Question 119.28

Question: At the beginning of Year 1, the compensation committee sets the threshold, target and maximum levels for the number of shares that may be earned for Year 1 under the company's performance-based equity incentive plan. Incentive awards are paid in the form of restricted shares, which are issued early in Year 2 after the compensation committee has certified the company's Year 1 performance results. Can the amount reported in the Stock Awards column reflect the grant date fair value of the number of restricted shares actually issued for Year 1, rather than the amount that reflects the probable outcome of the performance conditions as of the grant date, as prescribed by Instruction 3 to Item 402(c)(2)(v) and (vi)?

Answer: No. The grant date fair value for stock and option awards subject to performance conditions must be reported based on the probable outcome of the performance conditions as of the grant date, even if the actual outcome of the performance conditions - and therefore, the number of restricted shares actually awarded for Year 1 - is known by the time of the filing of the proxy statement. [July 8, 2011]

Section 120. Item 402(d) — Executive Compensation; Grants of Plan-Based Awards Table

Question 120.01

Question: If an equity incentive plan award is denominated in dollars, but payable in stock, how is it disclosed in the Grants of Plan-Based Awards Table since the headings for equity-based awards (columns (f), (g) and (h)) only refer to numbers and not dollars?

Answer: The award should be disclosed in the Grants of Plan-Based Awards Table by including the dollar value and a footnote to explain that it will be paid out in stock in the form of whatever number of shares that amount translates into at the time of the payout. In this limited circumstance, and if all the awards in this column are structured in this manner, it is acceptable to change the captions for columns (f) through (h) to show "($)" instead of "(#)." [Aug. 8, 2007]

Question 120.02

Question: If all of the non-equity incentive plan awards were made for annual plans, where the awards have already been earned, may the company change the heading over columns (c), (d) and (e) of the Grants of Plan-Based Awards Table that refers to "Estimated future payouts under non-equity incentive plan awards?"

Answer: Yes, if the awards were made in the same year they were earned and the earned amounts are therefore disclosed in the Summary Compensation Table, the heading over columns (c), (d) and (e) may be changed to "Estimated possible payouts under non-equity incentive plan awards." [Jan. 24, 2007]

Question 120.03

Renumbered as Question 122.04

Question 120.04

Renumbered as Question 122.05

Question 120.05

Withdrawn Mar. 1, 2010

Question 120.06

Question: Under a long-term incentive plan, a named executive officer receives an award for a target number of shares at the start of a three-year period, with one-third of this amount allocated to each of three single-year performance periods. How is grant date fair value determined for purposes of the disclosure required in column (l) of the table?

Answer: The grant date and grant date fair value are determined as provided in FAS 123R. Under paragraph A. 67 of FAS 123R, if all of the annual performance targets are set at the start of the three-year period, that is the grant date for the entire award. The grant date fair value for all three tranches of the award would be measured at that time, and would be reported in column (l). If each annual performance target is set at the start of each respective single-year performance period, however, paragraph A.68 of FAS 123R provides that each of those dates is a separate grant date for purposes of measuring the grant date fair value of the respective tranche. In this circumstance, only the grant date fair value for the first year's performance period would be measured and reported in column (l). [May 29, 2009]

Question 120.07

Question: During the fiscal year, an outstanding equity incentive plan award held by a named executive officer is amended or otherwise modified, resulting in incremental fair value under FAS 123R. Must the incremental fair value be reported in column (l) of the table?

Answer: Yes. This is required by Item 402(d)(2)(viii) and Instruction 7 to Item 402(d). [May 29, 2009]

Section 121. Item 402(e) — Executive Compensation; Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

None

Section 122. Item 402(f) — Executive Compensation; Outstanding Equity Awards at Fiscal Year-End Table

Question 122.01

Question: A company has an equity incentive plan pursuant to which it grants awards that will vest, if at all, based on total shareholder return over a 3-year period. Awards were granted in 2005 ("2005 Awards") and will vest based on the company's total shareholder return from 1/1/05 through 12/31/07. 2006 was the second year of the 3-year performance period. Performance during 2005 was well above the maximum level. Performance during 2006 was below the threshold level. The combined performance for 2005 and 2006 would result in a payout at target if the performance period had ended on 12/31/06. Is it permissible to base disclosure on the actual multi-year performance to date (through the end of the last completed fiscal year)?

Answer: Yes. The number of shares or units reported in columns (d) or (i), and the payout value reported in column (j), should be based on achieving threshold performance goals, except that if performance during the last completed fiscal year (or, if the payout is based on performance to occur over more than one year, the last completed fiscal years over which performance is measured) has exceeded the threshold, the disclosure shall be based on the next higher performance measure (target or maximum) that exceeds the last completed fiscal year's performance (or, if the payout is based on performance to occur over more than one year, the last completed fiscal years over which performance is measured). [Aug. 8, 2007]

Question 122.02

Question: Instruction 2 to Item 402(f)(2) requires footnote disclosure of the vesting dates of the awards reported in the Outstanding Equity Awards at Fiscal Year-End Table. Can a company comply with this instruction by including a column in this table showing the grant date of each award reported and including a statement of the standard vesting schedule that applies to the reported awards?

Answer: Yes, provided, however, that if there is any different vesting schedule applicable to any of the awards, then the table would also need to include disclosure about any such vesting schedule. [July 3, 2008]

Question 122.03

Question: A company's performance-based restricted stock unit ("RSU") plan measures performance over a three-year period. After the end of the three-year performance period (2007-2009), the compensation committee will evaluate performance to determine the number of RSUs earned by the named executive officers. The named executive officers must remain employed by the company for a subsequent two-year service-based vesting period (2010-2011). Upon completion of service-based vesting, the company will pay the named executive officers the shares underlying the RSUs. In the Outstanding Equity Awards at Fiscal Year-End Table for fiscal year 2009, how should information about the shares underlying the RSUs be reported?

Answer: The number of shares reported should be based on the actual number of shares underlying the RSUs that were earned at the end of the three-year performance period. This is the case even if this number will be determined after the 2009 fiscal year end. The shares should not be reported in columns (i) and (j) because they are no longer subject to performance-based conditions. Instead, the shares should be reported in columns (g) and (h) because they are subject to service-based vesting. [May 29, 2009]

Question 122.04

Question: Should a company include in the Outstanding Equity Awards at Fiscal Year-End Table in-kind earnings on restricted stock awards that have earned share dividends or share dividend equivalents?

Answer: Yes. Outstanding in-kind earnings at the end of the fiscal year should be included in the table. However, in-kind earnings that vested during the fiscal year, or in-kind earnings that are already vested when the dividends are declared, instead should be reported in the Option Exercises and Stock Vested Table under Item 402(g) of Regulation S-K. [Jan. 24, 2007]

Question 122.05

Question: Instruction 3 to Item 402(f)(2) states that the issuer should report the market value of equity incentive plan awards using the closing market price at the end of the last completed fiscal year. The next sentence, however, states that the number of shares or units reported should be based on achieving threshold performance goals, "except that if the previous fiscal year's performance" has exceeded the threshold, disclosure is based on the next higher measure. Is the "previous fiscal year" the same year as the last completed fiscal year, or the year that preceded the last completed fiscal year?

Answer: For this purpose, the "previous fiscal year" means the same year as the "last completed fiscal year." [Aug. 8, 2007]

Section 123. Item 402(g) — Executive Compensation; Option Exercises and Stock Vested Table

Question 123.01

Question: When reporting on the exercise or settlement of a stock appreciation right in the Number of Shares Acquired on Exercise column (column (b)) of the Option Exercises and Stock Vested Table, should a company report the net number of shares received upon exercise, or the gross number of shares underlying the exercised stock appreciation right?

Answer: As would be the case with the cashless exercise of options, the total number of shares underlying the exercised stock appreciation right should be reported in column (b), rather than just the amount representing the increase of the stock price since the grant of the award. A footnote or narrative accompanying the table could explain and quantify the net number of shares received. [Jan. 24, 2007]

Section 124. Item 402(h) — Executive Compensation; Pension Benefits

Question 124.01

Question: Instruction 2 to Item 402(h)(2) indicates that the company must use the same assumptions used for financial reporting purposes under generally accepted accounting principles, except for the retirement age assumption, when computing the actuarial present value of a named executive officer's accumulated benefit under each pension plan. May the company deviate from the assumptions used for accounting purposes given the individual circumstances of the named executive officer or the plan?

Answer: No. [Jan. 24, 2007]

Question 124.02

Question: Instruction 2 to Item 402(h)(2) specifies that in calculating the actuarial present value of a named executive officer's accumulated pension benefits, the assumed retirement age is to be the normal retirement age as defined in the plan, or, if not defined, the earliest time at which the named executive officer may retire without any benefit reduction. While many plans have a specifically defined retirement age, some plans also have a provision that allows participants to retire at an earlier age without any benefit reduction. In this case, which age should the company use in making its calculation?

Answer: When a plan has a stated "normal" retirement age and also a younger age at which retirement benefits may be received without any reduction in benefits, the younger age should be used for determining pension benefits. The older age may be included as an additional column. [Jan. 24, 2007]

Question 124.03

Question: How do you measure the actuarial present value of the accumulated benefit of a pension plan in the situation where a particular benefit is earned at a specified age? For instance, if a named executive officer at age 40 is granted an award if he stays with his company until age 60, how should the company measure this benefit when the executive is age 50 and the normal retirement age under the plan is age 65?

Answer: The computation should be based on the accumulated benefit as of the pension measurement date, assuming that the named executive continues to live and will work at the company until retirement and thus will reach age 60 and receive the award. [Jan. 24, 2007]

Question 124.04

Question: Should assumptions regarding pre-retirement decrements be factored into the calculation of the actuarial present value of a named executive officer's accumulated benefit under a pension plan?

Answer: For purposes of calculating the actuarial present value for the Pension Benefits Table, the registrant should assume that each named executive officer will live to and retire at the plan's normal retirement age (or the earlier retirement age if the named executive officer may retire with unreduced benefits) and ignore for the purposes of the calculations what actuaries refer to as pre-retirement decrements. Therefore, the assumptions used for financial statement reporting purposes that should be used for calculating the actuarial present value are the discount rate, the lump sum interest rate (if applicable), post-retirement mortality, and payment distribution assumptions. Any contingent benefits arising upon death, early retirement or other termination of employment events should be disclosed in the post-employment narrative disclosure required under Item 402(j) of Regulation S-K. [Jan. 24, 2007]

Question 124.05

Question: A cash balance pension plan is a defined benefit plan in which the retiree's benefits may be determined by the amount represented in a hypothetical "account" for that participant. The "accrued benefit" is the amount credited to a participant's cash balance account as of any date, which the participant has the right to receive as a lump sum upon termination of employment. Can a company report, as the present value of the accumulated benefit for a cash balance plan, the "accrued benefit"?

Answer: No. The same as for other defined benefit plans, the amount disclosable in the Pension Benefits Table as the present value of accumulated benefit for a cash balance plan is the actuarial present value of the named executive officer's accumulated benefit under the plan, computed as of the same plan measurement date used for purposes of the company's audited financial statements for the last completed fiscal year. [Aug. 8, 2007]

Section 125. Item 402(i) — Executive Compensation; Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

Question 125.01

Question: The instruction to Item 402(i)(2) of Regulation S-K requires footnote disclosure quantifying the extent to which amounts reported in the table were reported as compensation in the Summary Compensation Table in the last completed fiscal year and in previous fiscal years. What should be noted by footnote when amounts were not previously reported (either because of the transition guidance in Securities Act Release No. 8732A or when a named executive officer appears in the table for the first time)?

Answer: The purpose of the instruction is to facilitate an understanding that non-qualified deferred compensation is reported elsewhere within the executive compensation disclosure over time. Amounts only need to be disclosed by footnote if they were actually previously reported in the Summary Compensation Table. [Jan. 24, 2007]

Question 125.02

Question: Item 402(i)(2)(iv) requires disclosure of the dollar amount of aggregate interest or other earnings accrued during the registrant's last fiscal year. What items, other than interest, are "earnings" for this purpose?

Answer: "Earnings" include dividends, stock price appreciation (or depreciation), and other similar items. The purpose of the table is to show changes in the aggregate account balance at fiscal year end for each named executive officer. Thus, "earnings" should encompass any increase or decrease in the account balance during the last completed fiscal year that is not attributable to contributions, withdrawals or distributions during the year. [Aug. 8, 2007]

Question 125.03

Question: Item 402(i)(1) calls for the Nonqualified Deferred Compensation Plan Table to provide the specified information "with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified." Does this item mean that this information should be provided on a plan-by-plan basis?

Answer: Yes. [July 3, 2008]

Question 125.04

Question: Item 402(i)(2)(iii) calls for disclosure of aggregate company contributions to each nonqualified deferred compensation plan during the company's last fiscal year. For an excess plan related to a qualified plan, the contributions earned in 2008, which are reportable in the All Other Compensation column of the 2008 Summary Compensation Table, are not credited to the executive's account until January 2009. Are those contributions considered company contributions "during" 2008?

Answer: Yes. [July 3, 2008]

Question 125.05

Question: An equity award has vested, and the plan under which it was granted provides for the deferral of its receipt. Item 402(i)(1) calls for the Nonqualified Deferred Compensation Plan Table to provide the specified information "with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified." Does this item require the deferred receipt of the vested equity award to be included in the Nonqualified Deferred Compensation Plan Table?

Answer: Yes. This is the case whether the deferral is at the election of the named executive officer or pursuant to the terms of the equity award or plan. [Aug. 14, 2009]

Section 126. Item 402(j) — Executive Compensation; Potential Payments Upon Termination or Change-in-Control

Question 126.01

Question: In the event that options are accelerated upon a termination or change-in- control, for purposes of Item 402(j) disclosure should the value of the accelerated options be calculated using the "spread" between exercise and market price (as of fiscal year end) or the FAS 123R value recognized in connection with the acceleration?

Answer: For purposes of Item 402(j), the company should use the "spread" to calculate the value of the award. Since Item 402(j) requires quantification of what a named executive officer would have received assuming the event took place on the last business day of the registrant's last completed fiscal year, disclosure of the "spread" at that date is consistent with Instruction 1 to 402(j), which prescribes using the closing market price per share of the registrant's securities on last business day of the registrant's last completed fiscal year. [Aug. 8, 2007]

Question 126.02

Question: A company's employee stock option plan provides for full and immediate vesting of all outstanding unvested awards upon a change-in-control of the company and this provision is included in each option recipient's award agreement (whether the recipient is an executive officer or an employee). Instruction 5 to Item 402(j) provides that a company need not provide information with respect to contracts, agreements, plans, or arrangements to the extent they are available generally to all salaried employees and do not discriminate in scope, terms, or operation, in favor of executive officers of the company. Can the company rely on Instruction 5 to omit disclosure of these awards when quantifying the estimated payments and benefits that would be provided to named executive officers upon a change-in-control?

Answer: No. The Instruction 5 standard that the "scope" of arrangements not discriminate in favor of executive officers would not be satisfied where the option awards to executives are in amounts greater than those provided to all salaried employees. [Aug. 8, 2007]

Section 127. Item 402(k) — Executive Compensation; Compensation of Directors

Question 127.01

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director for part of the last completed fiscal year, even if the person was no longer a director at the end of the last completed fiscal year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [Jan. 24, 2007]

Question 127.02

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director during the last completed fiscal year but will not stand for re-election the next year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [Jan. 24, 2007]

Question 127.03

Question: Does the Instruction to Item 402(k)(2)(iii) and (iv) require footnote disclosure, for each director, of the grant date fair value of each equity award outstanding or only of the awards granted during the company's last completed fiscal year?

Answer: Like the corresponding disclosure for named executive officers in the Grants of Plan-Based Awards Table, this Director Compensation Table requirement applies only to stock and option awards granted during the company's last completed fiscal year. [Aug. 8, 2007]

Question 127.04

Question: Does the Instruction to Item 402(k)(2)(iii) and (iv) requirement to provide footnote disclosure, for each director, of the aggregate number of stock awards and the aggregate number of option awards outstanding at fiscal year end include exercised options or vested stock awards?

Answer: No. Like the corresponding disclosure for named executive officers in the Outstanding Equity Awards at Fiscal Year-End Table, this Director Compensation Table requirement applies only to unexercised option awards (whether or not exercisable) and unvested stock awards (including unvested stock units). [Aug. 8, 2007]

Question 127.05

Question: Can a charitable matching program that is available to all employees be excluded from the disclosure required of "director legacy or charitable awards programs" under Item 402(k)(2)(vii)(G) based on the exclusion for "information regarding group life, health, hospitalization, or medical reimbursement plans that do not discriminate in scope, terms or operation, in favor of executive officers or directors of the registrant and that are available generally to all salaried employees" in the Item 402(a)(6)(ii) definition of "plan"?

Answer: No. A charitable matching program available to all employees must be included in the Director Compensation Table. The Director Compensation Table disclosure applies to "the annual costs of payments and promises of payments pursuant to director legacy programs and similar charitable award programs." Any company-sponsored charitable award program in which a director can participate would be a "similar charitable award program." [Aug. 8, 2007]

Section 128. Items 402(l) to (r) — Executive Compensation; Smaller Reporting Companies

None

Section 128A - Item 402(s) Narrative disclosure of the registrant's compensation policies and practices as they relate to the registrant's risk management

Question 128A.01

Question: The requirement to provide narrative disclosure of the registrant's compensation policies and practices as they relate to the registrant's risk management is in Item 402(s), rather than included as part of Compensation Discussion and Analysis in Item 402(b). Where should a registrant present Item 402(s) disclosure in its filings?

Answer: The new rules do not specify where the disclosure should be presented. However, to ease investor understanding, the staff recommends that Item 402(s) disclosure be presented together with the registrant's other Item 402 disclosure. The staff would have concerns if the Item 402(s) disclosure is difficult to locate or is presented in a fashion that obscures it. [Jan. 20, 2010]

Section 128B — Item 402(t) Golden Parachute Compensation

Question 128B.01

Question: Instruction 1 to Item 402(t)(2) provides that Item 402(t) disclosure will be required for those executive officers who were included in the most recently filed Summary Compensation Table. If a company files its annual meeting proxy statement in March 2011 (including the 2010 Summary Compensation Table), hires a new principal executive officer in May 2011 and prepares a merger proxy in September 2011, may the company rely on this instruction to exclude the new principal executive officer from the merger proxy's say on golden parachute vote and Item 402(t) disclosure?

Answer: No. Instruction 1 to Item 402(t) specifies that Item 402(t) information must be provided for the individuals covered by Items 402(a)(3)(i), (ii) and (iii) of Regulation S-K. Instruction 1 to Item 402(t)(2) applies only to those executive officers who are included in the Summary Compensation Table under Item 402(a)(3)(iii), because they are the three most highly compensated executive officers other than the principal executive officer and the principal financial officer. Under Items 402(a)(3)(i) and (ii), the principal executive officer and the principal financial officer are, per se, named executive officers, regardless of compensation level. Consequently, Instruction 1 to Item 402(t)(2) is not instructive as to whether the principal executive officer or principal financial officer is a named executive officer. This position also applies to Instruction 2 to Item 1011(b), which is the corresponding instruction in Regulation M-A. [Feb. 11, 2011]

Section 128C — Item 402(u) Pay Ratio Disclosure

Question 128C.01

Question: If a registrant does not use annual total compensation calculated using Item 402(c)(2)(x) of Regulation S-K ("annual total compensation") to identify the median employee, how should a registrant select another consistently applied compensation measure ("CACM") to identify the median employee?

Answer: Item 402(u) requires registrants to identify the median employee using annual total compensation or another CACM, such as information derived from the registrant's tax and/or payroll records. Because of concerns about the expected compliance costs if registrants had been required to calculate annual total compensation for all employees, the Commission permitted registrants to use a CACM other than annual total compensation as a reasonable alternative to identifying the median employee. Any measure that reasonably reflects the annual compensation of employees could serve as a CACM. The appropriateness of any measure will depend on the registrant's particular facts and circumstances. As the Commission stated in the interpretive release, "a registrant may use internal records that reasonably reflect annual compensation to identify the median employee, even if those records do not include every element of compensation, such as equity awards widely distributed to employees." [October 18, 2016; updated September 21, 2017]

Question 128C.02

Question: May a registrant exclusively use hourly or annual rates of pay as its CACM?

Answer: No. Although an hourly or annual pay rate may be a component used to determine an employee's overall compensation, the use of the pay rate alone generally is not an appropriate CACM to identify the median employee. Using an hourly rate without taking into account the number of hours actually worked would be similar to making a full-time equivalent adjustment for part-time employees, which is not permitted. Similarly, using an annual rate only, without regard to whether the employees worked the entire year and were actually paid that amount during the year, would be similar to annualizing pay, which the rule only permits in limited circumstances. [October 18, 2016]

Question 128C.03

Question: When a registrant uses a CACM to identify the median employee, what time period may it use? Must the period include the date on which the employee population is determined? Must it always be for an annual period? May it use the prior fiscal year?

Answer: To calculate the required pay ratio, a registrant must first select a date, which must be within three months of the end of its fiscal year, to determine the population of its employees from which to identify the median. Once the employee population is determined, the registrant must then identify the median employee from that population using either annual total compensation or another CACM. In applying the CACM to identify the median employee, a registrant is not required to use a period that includes the date on which the employee population is determined nor is it required to use a full annual period. A CACM may also consist of annual total compensation from the registrant's prior fiscal year so long as there has not been a change in the registrant's employee population or employee compensation arrangements that would result in a significant change of its pay distribution to its workforce. [October 18, 2016]

Question 128C.04

Question: When someone is furloughed on the date that the registrant uses to determine the population of its employees from which it is required to identify the median, must the registrant include the furloughed person in the employee population used to identify the median employee, and, if included in the population, how should the furloughed employee's compensation be calculated?

Answer: Item 402(u) does not define or even address furloughed employees. Because a furlough could have different meanings for different employers, registrants will need to determine whether furloughed workers should be included as employees based on the facts and circumstances. If the furloughed worker is determined to be an employee of the registrant on the date the employee population is determined, his or her compensation should be determined by the same method as for a non-furloughed employee. Item 402(u)(3) of Regulation S-K identifies four classes of employees: full-time, part-time, temporary and seasonal. The registrant must determine in which class the employee belongs on that date and determine that individual's compensation using annual total compensation or another CACM in accordance with Instruction 5 of Item 402(u). That instruction states that a registrant may annualize the total compensation for all permanent employees (full-time or part-time) that were employed by the registrant for less than the full fiscal year or who were on an unpaid leave of absence during the period. In contrast, a registrant may not annualize the total compensation for employees in temporary or seasonal positions. A registrant may not make a full-time equivalent adjustment for any employee. [October 18, 2016]

Question 128C.05

[Withdrawn, September 21, 2017]

Question 128C.06

Question: Given the significant flexibility provided to registrants in Item 402(u) to identify the median employee, would the staff object if a registrant describes the pay ratio as an estimate?

Answer: No. As the Commission stated in the interpretive release, due to the use of estimates, assumptions, adjustments, and statistical sampling permitted by the rule, pay ratio disclosures may involve a degree of imprecision. Therefore, the staff would not object if a registrant states in any required disclosure that the pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u). [September 21, 2017]

Section 128D. Item 402(v) — Pay Versus Performance

Question 128D.01

Question: Is the information required pursuant to Item 402(v) of Regulation S-K required to be included in Form 10-K, given that Item 11 of Form 10-K indicates that the registrant is required to furnish the information required under Item 402 of Regulation S-K?

Answer: No. Item 402(v) of Regulation S-K provides that the information required thereunder must be provided in connection with any proxy or information statement for which the rules of the Commission require executive compensation disclosure pursuant to Item 402 of Regulation S-K, and Instruction 3 to Item 402(v) specifies that the information provided under Item 402(v) of Regulation S-K will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. [February 10, 2023]

Question 128D.02

Question: In calculating the equity award adjustments required by Item 402(v)(2)(iii)(C)(1), are equity awards granted to a first-time named executive officer (“NEO”) in a year prior to (and not otherwise related to) their appointment as a NEO required to be included? For example, if a non-NEO employee is granted a stock option in year 1, and subsequently appointed as a NEO in year 2, must that NEOs “compensation actually paid” in year 2 reflect the adjustments required by subparagraphs (ii), (iv) or (v) (relating to prior fiscal year awards) of Item 402(v)(2)(iii)(C)(1) with respect to the stock option granted in year 1?

Answer: Yes. Although such awards may not be reported in the Summary Compensation Table required by Item 402(c) (see Question 119.01), the change in value of such awards during the executive’s tenure as a NEO should be included in the calculation of compensation actually paid. [February 10, 2023]

Question 128D.03

Question: Item 402(v)(3) of Regulation S-K requires, for each amount disclosed in columns (c) and (e) of the Pay Versus Performance table, footnote disclosure of each of the amounts deducted and added pursuant to Item 402(v)(2)(iii). Is footnote disclosure required for each of the fiscal years presented in the table?

Answer: Item 402(v) footnote disclosure for years other than the most recent fiscal year included in the Pay Versus Performance table would be required only if it is material to an investor’s understanding of the information reported in the Pay Versus Performance table for the most recent fiscal year, or of the relationship disclosure provided under Item 402(v)(5). However, in the registrant’s first Pay Versus Performance table under the new rules, the registrant should provide footnote disclosure for each of the periods presented in the table. [February 10, 2023]

Question 128D.04

Question: Item 402(v)(3) of Regulation S-K requires, for each amount disclosed in columns (c) and (e) of the Pay Versus Performance table, footnote disclosure of each of the amounts deducted and added pursuant to Item 402(v)(2)(iii). May a registrant satisfy this requirement by providing the aggregate amount calculated for pension value adjustments under Item 402(v)(2)(iii)(B)(1) and equity award adjustments under Item 402(v)(2)(iii)(C)(1)?

Answer: No. The registrant should provide footnote disclosure of each of the amounts deducted and added pursuant to Items 402(v)(2)(iii)(B)(1)(i) – (ii) and Items 402(v)(2)(iii)(C)(1)(i) – (vi). [February 10, 2023]

Question 128D.05

Question: For purposes of calculating peer group total shareholder return under Item 402(v)(2)(iv) of Regulation S-K, may a registrant use any compensation peer group that is disclosed in its Compensation Discussion & Analysis (“CD&A”), or is the registrant limited only to a peer group used in the CD&A for purposes of disclosing the registrant’s compensation benchmarking practices under Item 402(b)(2)(xiv) of Regulation S-K?

Answer: The registrant may use a peer group that is disclosed in its CD&A as a peer group actually used by the registrant to help determine executive pay, even if such peer group is not used for “benchmarking” under Item 402(v)(2)(xiv) of Regulation S-K, as that term is explained in CDI 118.05. [February 10, 2023]

Question 128D.06

Question: What time period is a registrant required to present under Item 402(v) of Regulation S-K for its cumulative total shareholder return (“TSR”) and peer group TSR when the registrant went public during the earliest year included in the “Pay Versus Performance” table?

Answer: Consistent with the calculation of TSR under Item 201(e) of Regulation S-K, if the class of securities was registered under Section 12 of the Exchange Act during the earliest year included in the “Pay Versus Performance” table, the “measurement point” for purposes of calculating TSR and peer group TSR should begin on such registration date. [February 10, 2023]

Question 128D.07

Question: In each of 2020 and 2021, a registrant provided the same list of companies as a peer group in its Compensation Discussion & Analysis (“CD&A”) under Item 402(b) but provided a different list of companies in its CD&A for 2022. With respect to a registrant providing initial Pay versus Performance disclosure in its 2023 proxy statement for three years (as permitted by Instruction 1 to Item 402(v) of Regulation S-K), may the registrant present the peer group total shareholder return for each of the three years using the 2022 peer group?

Answer: No. In this situation, the registrant should present the peer group total shareholder return for each year in the table using the peer group disclosed in its CD&A for such year. In the 2024 proxy statement, if the registrant uses the same peer group for 2023 as it used for 2022, the registrant should present its peer group total shareholder return for each of the years in the table using the 2023 peer group. If it changes the peer group in subsequent years, it must provide disclosure of the change in accordance with Regulation S-K Item 402(v)(2)(iv). [November 21, 2023]

Question 128D.08

Question: Item 402(v)(2)(v) requires “net income” to be included in column (h) of the Pay Versus Performance table required by Item 402(v)(1). May a registrant use other net income amounts presented in the audited financial statements? For example, may a registrant that consolidates subsidiaries that are not wholly-owned use net income attributable to the controlling interest or registrant to satisfy this requirement? May a registrant with material discontinued operations during the fiscal year use income or loss from continuing operations to satisfy this requirement?

Answer: No. The registrant is required to provide in column (h) its net income or loss as required by Regulation S-X to be disclosed in the registrant’s audited GAAP financial statements. [February 10, 2023]

Question 128D.09

Question: Under Item 402(v)(2)(vi), a registrant’s Company-Selected Measure must be a financial performance measure that is not otherwise required to be disclosed in the Pay Versus Performance table required by Item 402(v)(1). The required financial performance measures include net income and the cumulative total shareholder return of the registrant. May a registrant provide a Company-Selected Measure that is derived from, a component of, or similar to these required measures, such as earnings per share, gross profit, income or loss from continuing operations, or relative total shareholder return?

Answer: Yes, the Company-Selected Measure can be any financial performance measure that differs from the financial performance measures otherwise required to be disclosed in the table that meets the definition of Company-Selected Measure in Item 402(v)(2)(vi) including a measure that is derived from, a component of, or similar to those required measures. Any such measures could also be included as financial performance measures in the Tabular List required by Item 402(v)(6) of Regulation S-K. [February 10, 2023]

Question 128D.10

Question: Would it be appropriate for a registrant to disclose its stock price as its Company-Selected Measure under Item 402(v)(2)(vi) if the registrant does not use any financial measures to otherwise link pay and financial performance, but the “compensation actually paid” reported in the Pay Versus Performance table required by Item 402(v)(1) includes the fair value of time-vested share-based awards, which value is largely tied to stock price?

Answer: No. While stock price is considered a “financial performance measure” for purposes of Item 402(v)(2)(vi), it should not be disclosed as the registrant’s Company-Selected Measure if the registrant does not use it to link compensation actually paid to its named executive officers to company performance, even if it has a significant impact on the amounts reported in the Pay Versus Performance table. That is, if the only impact of stock price on a named executive officer’s compensation is through changes in the value of share-based awards (which would be evident from the registrant’s Summary Compensation Table disclosure), the registrant could not include its stock price as the Company-Selected measure. However, if, for example, the registrant’s stock price is a market condition applicable to an incentive plan award, or is used to determine the size of a bonus pool, it may be included as a registrant’s Company-Selected Measure. [February 10, 2023]

Question 128D.11

Question: Can the Company-Selected Measure included in the Pay Versus Performance table required by Item 402(v)(1) be measured over a multi-year period that includes the applicable fiscal year as the final year, similar to the use of multi-year measurement periods for calculating total shareholder return under Item 402(v)(2)(iv), as long as such performance period is used consistently for all years in the table?

Answer: No. Under Item 402(v)(2)(vi), the Company-Selected Measure is the measure which in the registrant's assessment represents the most important financial performance measure (that is not otherwise required to be disclosed in the table) used by the registrant to link compensation actually paid to the registrant's named executive officers, for the most recently completed fiscal year, to company performance. [February 10, 2023]

Question 128D.12

Question: A registrant uses a “pool plan” to determine its annual bonus awards. Under the plan, a bonus pool is available for payout only upon achievement of a financial performance measure or the size of the pool is determined based upon the extent such measure is achieved. Once that financial performance measure is achieved, the compensation committee may allocate bonus payouts to participants in its discretion, based on criteria independent of the achievement of any financial performance measure(s). If the registrant’s executive compensation does not use any other financial performance measures, may the registrant omit the Tabular List required under Item 402(v)(6) of Regulation S-K and the Company-Selected Measure required under Item 402(v)(2)(vi) of Regulation S-K and the related relationship disclosure required under Item 402(v)(5)(iii) of Regulation S-K from its disclosure under Item 402(v)?

Answer: No. Because the size of the bonuses paid from the “bonus pool” is determined based wholly or in part on satisfying the financial performance measure, the registrant is using the financial performance measure to link the executive compensation actually paid to company performance within the meaning of Item 402(v)(2)(vi) and Item 402(v)(6). [February 10, 2023]

Question 128D.13

Question: If a registrant has multiple principal executive officers (“PEOs”) in a fiscal year, Item 402(v) requires the registrant to provide separate columns for each PEO in the Pay Versus Performance table required by Item 402(v)(1). May the registrant aggregate (i.e., use the total sum of) the compensation of such PEOs in a given year for purposes of the narrative, graphical, or combined comparison between compensation actually paid and total shareholder return (“TSR”), net income, and the Company-Selected Measure provided under Item 402(v)(5)?

Answer: To the extent the presentation will not be misleading to investors, the staff will not object if a registrant aggregates the PEOs’ compensation for purposes of the narrative, graphical, or combined comparison between compensation actually paid and TSR, net income, and the Company-Selected Measure. [February 10, 2023]

Question 128D.14

Question: Should awards granted in fiscal years prior to an equity restructuring, such as a spin-off, that are retained by the holder be included in the calculation of executive compensation actually paid?

Answer: Yes. All stock awards and option awards that are outstanding and unvested at the beginning of the covered fiscal year or are granted to the principal executive officer and the remaining named executive officers during the covered fiscal year, including those awards modified in connection with an equity restructuring or retained following such a transaction, and for which compensation cost will be recognized under FASB ASC Topic 718 should be included in the table required by Item 402(v)(1) of Regulation S-K. [September 27, 2023]

Question 128D.15

Question: In periods prior to pursuing an initial public offering, a private company may grant stock awards or option awards. Once that company is required to provide Item 402(v) disclosures, should the change in fair value of awards granted prior to the date of a registrant’s initial public offering be based on the fair value of those awards as of the end of the prior fiscal year for purposes of determining executive compensation actually paid?

Answer: Yes. For outstanding stock awards and option awards, the calculations required by Item 402(v)(2)(iii)(C)(1) of Regulation S-K should be determined based on the change in fair value from the end of the prior fiscal year. The fair value of these awards should not be determined based on other dates, such as the date of the registrant’s initial public offering. [September 27, 2023]

Question 128D.16

Question: Market conditions under U.S. GAAP are certain conditions related to the price of the issuer’s shares that affect the exercise price, exercisability, or other pertinent factors used in determining the fair value of the award. Market conditions are not considered vesting conditions under U.S. GAAP even though the executive is not entitled to the compensation until the market condition is satisfied. How should awards with a market condition consider that condition in determining whether the applicable vesting conditions have been met in performing the calculation required by Item 402(v)(2)(iii)(C)(1) of Regulation S-K?

Answer: In accordance with FASB ASC Topic 718, the effect of a market condition should be reflected in the fair value of share-based awards with such a condition. In addition, for purposes of the table required by Item 402(v)(1) of Regulation S-K, market conditions should also be considered in determining whether the vesting conditions of share-based awards have been met. That is, until the market condition is satisfied, registrants must include in executive compensation actually paid any change in fair value of any awards subject to market conditions. Similarly, registrants must deduct the amount of the fair value at the end of the prior fiscal year for awards that fail to meet the market condition during the covered fiscal year if it results in forfeiture of the award. [September 27, 2023]

Question 128D.17

Question: An award did not meet vesting conditions during the year because the performance or market conditions were not met. However, there is still potential for the award to vest in the future. Should the award fair value be subtracted under Item 402(v)(2)(iii)(C)(1)(v) of Regulation S-K because it failed to vest in the current year?

Answer: No. Item 402(v)(2)(iii)(C)(1)(v) is referring to awards that were forfeited and the cumulative reported value of that award is $0. Awards that remain outstanding and have not yet vested, because, for example, performance or market conditions were not met in an eligible year, are not considered to have failed to meet the applicable vesting conditions for the purpose of Item 402(v). [September 27, 2023]

Question 128D.18

Question: Some stock and option awards allow for accelerated vesting if the holder of such awards becomes retirement eligible. If retirement eligibility was the sole vesting condition, would this condition be considered satisfied for purposes of the Item 402(v) of Regulation S-K disclosures and calculation of executive compensation actually paid in the year that the holder becomes retirement eligible?

Answer: Yes. However, if retirement eligibility is not the sole vesting condition, other substantive conditions must also be considered in determining when an award has vested. Such conditions would include, but not be limited to, a market condition as described in Question 128D.16 or a condition that results in vesting upon the earlier of the holder’s actual retirement or the satisfaction of the requisite service period. [November 21, 2023]

Question 128D.19

Question: Some stock and option awards with a performance condition require certification by others, such as the compensation committee, that the level of performance was attained. If the performance condition was met by fiscal year-end, however, the certification occurs after year-end, would the award be considered vested for purposes of the Item 402(v) of Regulation S-K disclosures at the end of the fiscal year-end?

Answer: If certification is an additional substantive vesting condition, then the award would not be considered vested. A performance-based vesting condition is considered satisfied when the applicable condition is achieved. However, a provision which requires the compensation committee to certify the level of performance attained should be analyzed to determine if it creates an additional substantive vesting condition, such as an employee does not vest in the award unless and until they remain employed through the date such certification occurs. [September 27, 2023]

Question 128D.20

Question: Item 402(v)(2)(iii)(C)(3) of Regulation S-K requires the fair value of all stock awards, and all option awards, with or without tandem stock appreciation rights (“SARs”) to be computed in a manner consistent with the methodology used to account for share-based payments under GAAP. May a registrant satisfy this requirement by using a valuation technique that differs from the one used to determine the grant date fair value of option or other equity-based awards that are classified as equity in the financial statements?

Answer: Yes, as long as the valuation technique would be permitted under FASB ASC Topic 718, including that it meets the criteria for a valuation technique and the fair value measurement objective. For example, if another valuation technique provides a better estimate of fair value subsequent to the grant date, which would meet the measurement objective in U.S. GAAP, then a registrant may use it to calculate executive compensation actually paid under Item 402(v) instead of the technique used to determine the grant-date fair value of share-based payments in the registrant's GAAP financial statements. Item 402(v)(4) of Regulation S-K requires disclosure about the assumptions made in the valuation that differ materially from those disclosed as of the grant date of such equity awards. A change in valuation technique from the technique used at the grant date of such equity awards in the registrant’s financial statements would require disclosure of the change if such technique differs materially. We would expect a registrant to disclose under Item 402(v)(4) both the change in valuation technique from the grant date and the reason for the change. [September 27, 2023]

Question 128D.21

Question: To comply with Item 402(v)(2)(iii)(C)(3) of Regulation S-K, the methodology used to compute the fair value amounts of all stock awards, and all option awards, with or without tandem SARs, must be consistent with the methodology used to account for share-based payments in the financial statements under GAAP. Is it ever acceptable to value these awards as of the end of a covered fiscal year based on methods not prescribed by GAAP?

Answer: No. The fair value of stock awards and option awards must be computed using a methodology and assumptions consistent with FASB ASC Topic 718. For example, the expected term assumption to value options should not be determined using a method that is not acceptable under GAAP, such as a “shortcut approach” that simply subtracts the elapsed actual life from the expected term assumption at the grant date. This approach would not be acceptable because it does not consider whether there were changes in the factors that a registrant considers in determining the expected term assumption at grant date, such as volatility and/or exercise behavior. U.S. GAAP fair value measurement objectives require that assumptions and measurement techniques be consistent with those that marketplace participants would likely use in determining an exchange price for the share options. Similarly, the expected term for options referred to as "plain vanilla" in Staff Accounting Bulletin 14.D.2 should not be determined using the “simplified” method described in that Staff Accounting Bulletin if those options do not meet the “plain vanilla” criteria at the re-measurement date, such as when the option is now out-of-the-money. [September 27, 2023]

Question 128D.22

Question: Instruction 4 to Item 402(b) of Regulation S-K provides that “registrants are not required to disclose target levels with respect to specific quantitative or qualitative performance-related factors considered by the compensation committee or the board of directors, or any other factors or criteria involving confidential trade secrets or confidential commercial or financial information, the disclosure of which would result in competitive harm for the registrant.” Item 402(v)(2)(iii)(C)(3) of Regulation S-K provides that “for any awards that are subject to performance conditions, calculate the change in fair value as of the end of the covered fiscal year based upon the probable outcome of such conditions as of the last day of the fiscal year.” In addition, Item 402(v)(4) of Regulation S-K provides that “for the value of equity awards added pursuant to paragraph (v)(2)(iii)(C) of this section, disclose in a footnote to the table required by paragraph (v)(1) of this section any assumption made in the valuation that differs materially from those disclosed as of the grant date of such equity awards.” If the disclosure required by Item 402(v)(4) would involve confidential trade secrets or confidential commercial or financial information, the disclosure of which would result in competitive harm for the registrant, may the registrant omit such information?

Answer: Yes. A registrant is not required to disclose detailed quantitative or qualitative performance condition for its awards under Item 402(v)(4) to the extent such information would be subject to the confidentiality protections of Instruction 4 to Item 402(b) of Regulation S-K. However, the registrant must provide as much information responsive to the Item 402(v)(4) requirement as possible without disclosing the confidential information, such as a range of outcomes or a discussion of how a performance condition impacted the fair value. In addition, consistent with Instruction 4 to Item 402(b), the registrant should also discuss how the material difference in the assumption affects how difficult it will be for the executive or how likely it will be for the registrant to achieve undisclosed target levels or other factors. [September 27, 2023]

Question 128D.23

Question: Some stock awards entitle the holder to receive dividends or dividend equivalents paid on the underlying shares prior to the vesting date. If the dollar value of dividends or dividend equivalents paid are not reflected in the fair value of such awards, should they be included in the calculation of executive compensation actually paid?

Answer: Yes. Item 402(v)(2)(iii)(C)(1)(vi) of Regulation S-K requires the calculation of executive compensation actually paid to include dividends or dividend equivalents paid that are not already reflected in the fair value of stock awards or included in another component of total compensation. [November 21, 2023]

Question 128D.24

Question: When identifying a total shareholder return peer group under Regulation S-K Item 402(v)(2)(iv), the registrant must use either the same index or issuers used by it to comply with Item 201(e)(1)(ii) or the companies it uses as a peer group under Regulation S-K Item 402(b). If a registrant uses more than one “published industry or line-of-business” index for purposes of Item 201(e)(1)(ii), may a registrant choose which index it uses for purposes of its pay versus performance disclosure?

Answer: Yes. In order to provide clarity to investors, the registrant should include a footnote disclosing the index chosen. If the registrant chooses to use a different published industry or line-of-business index from that used by it for the immediately preceding fiscal year, it is required under Item 402(v)(2)(iv) to explain, in a footnote, the reason(s) for this change and compare the registrant's cumulative total return with that of both the newly selected peer group and the peer group used in the immediately preceding fiscal year. [November 21, 2023]

Question 128D.25

Question: For purposes of determining the total shareholder return of a registrant’s peer group under Regulation S-K Item 402(v)(2)(iv), the registrant must use the same index or issuers used by it for purposes of Item 201(e)(1)(ii) or the companies it uses as a peer group for purposes of its disclosures under Item 402(b). If registrant discloses in its Compensation Discussion & Analysis that it determines the vesting of performance-based equity awards based on relative TSR compared to a broad-based equity index, can the registrant use that broad-based index as its peer group for purposes of Item 402(v)(2)(iv)?

Answer: No. Item 402(v)(2)(iv) does not contemplate the use of a broad-based equity index as a peer group for purposes of the pay versus performance disclosure. [November 21, 2023]

Question 128D.26

Question: Pursuant to Regulation S-K Item 402(v)(2)(iv), if the registrant’s peer group is not a published industry or line-of-business index, the identity of the issuers composing the group must be disclosed in a footnote. The returns of each component issuer of the group must be weighted according to the respective issuers' stock market capitalization at the beginning of each period for which a return is indicated. In what circumstances is such market capitalization-based weighting required?

Answer: For purposes of Item 402(v)(2)(iv), the weighting requirement is applicable only if the registrant is not using a published industry or line-of-business index pursuant to Item 201(e)(1)(ii). [November 21, 2023]

Question 128D.27

Question: If a registrant that uses a peer group other than a published industry or line-of-business index as its peer group under Regulation S-K Item 402(v)(2)(iv) adds or removes any of the companies in the peer group, is it required to footnote the change(s) and compare its cumulative total shareholder return with that of both the updated peer group and the peer group used in the immediately preceding fiscal year?

Answer: Yes. However, consistent with Regulation S-K Compliance and Disclosure Interpretations Question 206.05, comparison of the registrant's cumulative total return with that of both the newly selected peer group and the peer group used in the immediately preceding fiscal year is not required if (1) an entity is omitted solely because it is no longer in the line of business or industry, or (2) the changes in the composition of the index/peer group are the result of the application of pre-established objective criteria. In these two cases, a specific description of, and the bases for, the change must be disclosed, including the names of the companies deleted from the new index/peer group. [November 21, 2023]

Question 128D.28

Question: A smaller reporting company (SRC) with a December 31 fiscal year end provided scaled pay versus performance disclosure covering fiscal years 2021 and 2022 in its proxy statement filed in April 2023. It subsequently loses its SRC status based on its public float as of June 30, 2023. The registrant proposes to rely on General Instruction G(3) of Form 10-K to incorporate by reference executive compensation and other disclosure required by Part III of Form 10-K into its 2023 Form 10-K from its definitive proxy or information statement to be filed not later than 120 days after its 2023 fiscal year end. What pay versus performance information is the registrant required to include in such proxy or information statement?

Answer: The staff will not object if a registrant that loses SRC status as of January 1, 2024, continues to include scaled disclosure under Regulation S-K Item 402(v)(8) in its definitive proxy or information statement filed not later than 120 days after its 2023 fiscal year end from which the registrant’s Form 10-K will forward incorporate the disclosure required by Part III of Form 10-K. The pay versus performance disclosure in such filing must cover fiscal years 2021, 2022, and 2023.

Unless the registrant regains SRC status in subsequent years, any other proxy or information statement in which Item 402(v) disclosure is required and that is filed after January 1, 2024, must include non-scaled pay versus performance disclosure. For example, in the registrant’s annual meeting proxy statement filed in 2025, it must include non-scaled pay versus performance disclosure for fiscal year 2024. A non-SRC is required to provide Item 402(v) disclosure covering five years; however, the staff will not object if the registrant does not add disclosure for a year prior to the years included in the first filing in which it provided Item 402(v) disclosure. The registrant generally is not required to revise the disclosure for prior years (in this example, 2021, 2022, and 2023) to conform to non-SRC status in such filings. However, because peer group TSR is calculated on a cumulative basis, the registrant should include peer group TSR for each year included in the pay versus performance table, measured from the market close on the last trading day before the registrant’s earliest fiscal year in the table. In addition, the registrant should include its numerically quantifiable performance under the Company-Selected Measure for each fiscal year in the table. The entirety of the Item 402(v) disclosure provided for all fiscal years must be XBRL tagged in accordance with Item 402(v)(7). [November 21, 2023]

Question 128D.29

Question: A registrant that previously qualified as an emerging growth company loses that status as of December 31, 2024. Is it required to provide pay versus performance disclosure in its proxy statement filed in 2025? How many years are required in the table?

Answer: The registrant is required to provide pay versus performance disclosure in any proxy or information statement filed after it loses its EGC status. It may apply the transitional relief in Instruction 1 to Item 402(v). [November 21, 2023]

Question 128D.30

Question: Two (or more) individuals served as a registrant’s principal financial officer (PFO) during a single covered fiscal year included the pay versus performance table and related disclosure under Regulation S-K Item 402(v). Each such individual is included in the Summary Compensation table as a named executive officer (NEO) pursuant to Item 402(a)(3)(ii). For purposes of the calculation of average compensation amounts for the NEOs other than the principal executive officer reported pursuant to Items 402(v)(2)(ii) and (iii), may the registrant treat the PFOs as the equivalent of one NEO?

Answer: No. Each NEO must be included individually in the calculation of average compensation amounts. In such cases, the registrant should consider including additional disclosure on the impact of the inclusion of such individuals on the calculation in order to provide clarity to investors. [November 21, 2023]

Section 129. Item 403 — Security Ownership of Certain Beneficial Owners and Management

Question 129.01

Question: If a director's term will not continue beyond the annual meeting, must that director's equity security holdings be disclosed pursuant to Item 403(b)?

Answer: Item 403(b), by its terms, requires the disclosure of shareholdings of all directors named in the registrant's proxy statement, including directors' qualifying shares, even if the terms of some directors will not continue beyond the annual meeting. [Mar. 13, 2007]

Question 129.02

Question: Are phantom stock units held in a nonqualified deferred compensation plan reportable in the table required by Item 403(b)?

Answer: If the units could be settled in stock at the holder's election, so that if the holder were terminated currently he or she would get the underlying stock without the need to satisfy any additional vesting requirements, the registrant should report the total number of shares and percent of class beneficially owned, including the shares and percent of class beneficially owned due to the potential exercise of rights acquired under the phantom stock units. This is because the holder would have the right to acquire the underlying stock within 60 days (see Exchange Act Rule 13d-3). In addition to including the shares underlying the units in the total number of shares and percent of class beneficially owned, the phantom stock units also should be presented in a manner that distinguishes them from stock owned outright - e.g., pursuant to a clear and succinct footnote explanation. In contrast, if the phantom stock units can be settled in stock only at the company's discretion, they should not be reported in the total number of shares and percent of class beneficially owned, because the holder does not have a right to acquire the underlying stock within 60 days. Similarly, if the phantom stock units can be settled solely in cash, they should not be reported because the holder has no right to acquire the underlying stock. [Mar. 13, 2007]

Question 129.03

Question: If a named executive officer died since the beginning of the registrant's last fiscal year, must the deceased named executive officer be included in the Item 403(b) ownership table?

Answer: No. Although Item 403(b) requires disclosure for each of the named executive officers, as defined in Item 402(a)(3), a named executive officer who died since the beginning of the registrant's last fiscal year would not need to be included in the Item 403(b) ownership table. [Mar. 13, 2007]

Question 129.04

Question: Does the Item 403(b) requirement to indicate, by footnote or otherwise, the amount of shares that are pledged as security apply to a "negative pledge" of the company's stock by a director, nominee or named executive officer? (A "negative pledge" is a covenant granted by a borrower to a lender in which a promise is made not to convey the shares to a third party or to otherwise encumber them. Assuming a default by the borrower, the "negative pledge" would not transfer title by operation of law, but would instead require a foreclosure.)

Answer: Yes, because shares subject to a "negative pledge" may be subject to material risk or contingencies that do not apply to other shares beneficially owned by these persons, and such shares are pledged as security by operation of the negative pledge covenant. [Mar. 13, 2007]

Question 129.05

Question: Does the requirement in Item 403(c) to disclose "any arrangement . . . including any pledge . . . which may at a subsequent date result in a change in control of the registrant" apply to a "negative pledge" of the company's stock by a principal shareholder, as described in Question 129.04 above?

Answer: In the ordinary course, such an arrangement would not be disclosable under Item 403(c). However, the registrant should consider whether any circumstances, such as insolvency of the borrower or takeover activity with respect to the registrant, would render a change in control arising from such an arrangement foreseeable and, hence, disclosable under Item 403(c). [Mar. 13, 2007]

Section 130. Item 404 — Transactions with Related Persons, Promoters and Certain Control Persons

Question 130.01

Question: If a company with a class of securities registered under the Exchange Act that is current in its Exchange Act reports files a Form S-1 that does not incorporate information by reference, must Item 404(a) disclosure be provided for fiscal years ending before December 15, 2006 if the company already provided Item 404 disclosure for these years under the pre-2006 Item 404 requirements in a Commission filing?

Answer: No. Companies do not have to "restate" Item 404(a) disclosure under the 2006 Item 404 requirements if it was previously reported under the pre-2006 requirements. [Mar. 13, 2007]

Question 130.02

Question: If a company files a registration statement for an initial public offering on Form S-1, or files a Form 10 to register a class of securities under the Exchange Act, must the company provide Item 404(a) disclosure pursuant to the 2006 Item 404 requirements for fiscal years ending before December 15, 2006?

Answer: Yes. Disclosure must be provided in these filings pursuant to the 2006 Item 404 requirements for the period specified in Instruction 1 to Item 404. [Mar. 13, 2007]

Question 130.03

Question: Item 404(a) requires, in pertinent part, disclosure of any transaction since the beginning of the registrant's last fiscal year between the registrant and any 5 percent shareholder where the amount involved exceeds $120,000 and the 5 percent shareholder has a direct or indirect material interest in the transaction. Is disclosure required of such a transaction that occurred since the beginning of the registrant's last fiscal year, but prior to the date the person became a 5 percent shareholder?

Answer: Disclosure is required if the transaction: (a) was continuing (such as through the ongoing receipt of payments) after the date the person became a 5 percent shareholder; or (b) resulted in the person becoming a 5 percent shareholder. If the transaction concluded before the person became a 5 percent shareholder, disclosure would not be required. [Mar. 13, 2007]

Question 130.04

Question: How does a company value unexercised, in-the-money stock options for purposes of determining whether the $120,000 threshold of Item 404(a) has been met?

Answer: The value of unexercised, in-the-money options should be determined for Item 404(a) purposes by determining the difference between the fair market value of the securities underlying the options and the exercise or base price of the options. Use of the Black-Scholes or binomial option pricing method also would be appropriate, provided that such use and the underlying assumptions are clearly disclosed and the value thus calculated is greater than zero and is otherwise reasonably related to the unrealized gain. [Mar. 13, 2007]

Question 130.05

Question: Is the condition that loans be made on substantially the same terms as for "comparable loans with persons not related to the lender" in Instruction 4.c.ii. to Item 404(a) satisfied if a bank makes loans available on the same terms to all of its employees, the vast majority of whom are not "related persons" as defined in Item 404, but the same terms are not offered to non-employees?

Answer: No. The term "persons not related to the lender" means persons with no relationship at all with the lender other than the lending relationship, such as regular customers. Employees are considered related to the lender by virtue of their employment relationship. [Mar. 13, 2007]

Question 130.06

Question: Must a company include disclosure regarding policies for the review, approval or ratification of related person transactions under Item 404(b)(1) even when the company does not have to report any transactions under Item 404(a)?

Answer: Yes. Item 404(b)(1) requires disclosure regarding policies for the review, approval or ratification of the types of related person transactions that would be disclosed under Item 404(a). [Mar. 13, 2007]

Question 130.07

Question: Is a smaller reporting company required to describe its policies and procedures for review, approval or ratification of transactions with related persons as specified by Item 404(b) of Regulation S-K if a schedule or form being used for a filing requires the company to furnish the information required by Item 404(b)?

Answer: No. Smaller reporting companies are not required to furnish Item 404(b) disclosure in these circumstances. Smaller reporting companies comply with the requirements of Item 404 by furnishing the information called for by Item 404(d) of Regulation S-K, the paragraph of Item 404 labeled "Smaller reporting companies," which does not require Item 404(b) disclosure. [July 3, 2008]

Section 131. Item 405 — Compliance with Section 16(a) of the Exchange Act

None

Section 132. Item 406 — Code of Ethics

None

Section 133. Item 407 — Corporate Governance

Question 133.01

Question: If a non-listed issuer has independence definitions that are more stringent than those of a national securities exchange, may that issuer provide disclosure based on its own independence definitions in accordance with Item 407(a)(1)(i), rather than provide the disclosure required by Item 407(a)(1)(ii)?

Answer: The non-listed issuer must provide the disclosure required by Item 407(a)(1)(ii). If the non-listed issuer believes that its own independence definitions are more stringent than those of the exchange identified in the required Item 407(a)(1)(ii) disclosure, it may, in addition, disclose that belief and provide the disclosures called for by Item 407(a)(1)(i) based on its own definitions, provided that it also complies with Item 407(a)(2) regarding disclosure of its own definitions of independence. [Mar. 13, 2007]

Question 133.02

Question: May a company indicate that the nominating committee's processes, policies, or minimum director nominee qualifications are included in the company's governance policies posted on the company's website, rather than including descriptions of the nominating committee's processes, policies, or minimum nominee qualifications in the proxy statement?

Answer: No. Item 407(c)(2) requires that the descriptions of the processes, policies, and nominee qualifications be included in the proxy statement, and no mechanism for reference to website posting of this information is provided for with respect to the Item 407(c)(2) disclosure. [Mar. 13, 2007]

Question 133.03

Question: Item 407(c)(2)(vii) requires the identification of the category of persons or entities that recommended each nominee for director, other than executive officers or nominees that are directors who are standing for re-election. If a director who did not stand for election by shareholders last year (but rather had been named as a director by the board during the year) is to be nominated for election by shareholders for the first time, is disclosure under Item 407(c)(2)(vii) required for that nominee?

Answer: Yes. The nominee for director would not be considered as standing for "re-election"; therefore, disclosure of the category of persons or entities that recommended the nominee is required by Item 407(c)(2)(vii). [Mar. 13, 2007]

Question 133.04

Question: Does Item 407(d)(3)(i)(D) require the audit committee to state whether it recommended inclusion of the audited financial statements in the Form 10-K for periods prior to the last completed fiscal year?

Answer: No. Item 407(d)(3)(i)(D) requires the audit committee to state whether it recommended inclusion of the audited financial statements in the Form 10-K. This statement need not cover financial statements for periods prior to the last completed fiscal year. [Mar. 13, 2007]

Question 133.05

Question: Should all compensation consultants engaged by the company that played a role in determining or recommending the amount or form of executive or director compensation be disclosed, or only those that consulted with the board of directors or the compensation committee?

Answer: All compensation consultants with any role in determining or recommending the amount or form of executive or director compensation must be disclosed under Item 407(e)(3)(iii). [Mar. 13, 2007]

Question 133.06

Question: Is the consent of a compensation consultant required under Securities Act Rule 436 if a compensation consultant is identified in accordance with Item 407(e)(3)(iii) in a filing that is incorporated by reference into a Securities Act registration statement?

Answer: No. Item 407(e)(3) requires a "narrative description of the registrant's processes and procedures for the consideration and determination of executive and director compensation including … (iii) [a]ny role of compensation consultants in determining or recommending the amount or form of executive and director compensation." Identifying a compensation consultant and the role that the compensation consultant had in determining or recommending the amount or form of executive and director compensation does not result in the compensation consultant being deemed an "expert" for the purposes of the Securities Act, or mean that the compensation consultant has expertized any portion of the disclosure regarding executive and director compensation or compensation committee processes. Therefore, a consent would not be required. [Mar. 13, 2007]

Question 133.07

Question: Which names of directors must be included below the disclosure required in the Compensation Committee Report by Item 407(e)(5)?

Answer: Item 407(e)(5)(ii) requires that the name of each member of the compensation committee (or other board committee performing equivalent functions, or in the absence of any such committee, the entire board of directors) must appear below the required disclosure in the Compensation Committee Report. The members of the compensation committee (or the full board) who participated in the review, discussions and recommendation with respect to the Compensation Discussion and Analysis must be identified. New members who did not participate in such activities and departed members who are no longer directors need not be included. Members who resigned from the compensation committee during the course of the year, but remain directors of the issuer, may need to be named under the disclosure in the Compensation Committee Report pursuant to Item 407(e)(5)(ii). [Mar. 13, 2007]

Question 133.08 [same as Question 118.06]

Question 133.09

[Withdrawn, November 7, 2018]

Question 133.10

Question: Are the "additional services" provided by executive compensation consultants that are subject to the disclosure requirements of Items 407(e)(3)(iii)(A) and (B) limited to services for non-executives?

Answer: No. [Jan. 20, 2010]

Question 133.11

Question: If a compensation consultant's role is limited to consulting on broad-based plans that do not discriminate in favor of executive officers or directors and to providing information that either is not customized for a particular registrant or is customized based on parameters that are not developed by the compensation consultant, and about which the consultant does not provide advice, then such services do not need to be disclosed under Item 407(e)(3)(iii), so long as these are the only services provided by the consultant. If the consultant's role extends beyond these two types of services, then disclosure of all of the consultant's services, including consulting on broad-based plans and providing non-customized information, will be required under Item 407(e)(3)(iii), subject to the disclosure threshold in this item. Are the fees for these two types of services considered to be for "determining or recommending the amount or form of executive and director compensation" or are such fees considered to be for "additional services"?

Answer: The answer depends on the facts and circumstances of each service. Fees for consulting on broad-based, non-discriminatory plans in which executive officers or directors participate and for providing information relating to executive and director compensation, such as survey data (in each case, that would otherwise qualify for the exclusion from disclosure if they are the only services provided), are considered to be fees for "determining or recommending the amount or form of executive and director compensation" for purposes of reporting fees under the rule. However, "consulting" on broad-based non-discriminatory plans does not also include any related services, such as benefits administration, human resources services, actuarial services and merger integration services, all of which are "additional services" subject to the disclosure requirements of Items 407(e)(3)(iii)(A) and (B). In addition, if the non-customized information relates to matters other than executive and director compensation, then the fees for such information would be for "additional services." [Jan. 20, 2010]

Question 133.12

Question: Under Item 407(e)(3)(iii)(A)-(B), compensation consultant fees are required to be disclosed if the consultant provides advice on executive and director compensation and also provides "additional services" in an amount in excess of $120,000 during the last completed fiscal year. Is there any limitation on the types of services that are included as "additional services"? If, in addition to services, the consultant also sells products to the company, do the revenues generated from such sales also have to be disclosed?

Answer: There is no limitation on the types of services that are included in "additional services." If the consultant also sells products to the company, then the revenues generated from such sales should be included in "aggregate fees for any additional services provided by the compensation consultant or its affiliates." [Mar. 12, 2010]

Question 133.13

Section 133A. Item 408 ― Insider Trading Arrangements and Policies

Question 133A.01

Question: Under Item 408(a)(1) of Regulation S-K, does the requirement to disclose plan terminations require disclosure of a plan that ends due to its expiration or completion (e.g., the plan ends by its terms and without any action by an individual)?

Answer: Disclosure regarding termination of a plan is not required for a plan that ends due to its expiration or completion. [August 25, 2023]

Question 133A.02

Question: Item 408(a) of Regulation S-K requires disclosure of whether “any director or officer (as defined in § 240.16a–1(f) of this chapter)” adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter. Does this disclosure requirement apply to any such trading arrangement covering securities in which a director or officer has a pecuniary interest?

Answer: Item 408(a) applies to any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement covering securities in which an officer or director has a direct or indirect pecuniary interest that is reportable under Section 16 that the officer or director has made the decision to adopt or terminate. [August 25, 2023]

Section 134. Item 501 — Forepart of Registration Statement and Outside Front Cover Page of Prospectus

Question 134.01

Question: Is Item 501(b)(8)(iii)'s requirement to disclose the presence or absence of arrangements to place funds in escrow applicable only when the best-efforts offering is conditioned on a minimum number of securities being sold?

Answer: Yes. [July 3, 2008]

Question 134.02

Question: When should the legend specified in Item 501(b)(10) be included on a prospectus?

Answer: The legend specified in Item 501(b)(10) should be printed on all preliminary prospectuses used before the effective date of the registration statement and, in accordance with Item 501(b)(11), in any prospectus contained in an effective registration statement omitting Rule 430A information that is used after effectiveness and prior to the pricing. [July 3, 2008]

Question 134.03

Question: How should the prospectus date and "Subject to Completion" legend required by Items 501(b)(9) and (10) of Regulation S-K be placed on the cover page of the prospectus?

Answer: The placement of the prospectus date and "Subject to Completion" legend on the prospectus cover page should be such that the information is presented in a clear, concise, and understandable manner. [July 3, 2008]

Question 134.04

Question: Instruction 1 to Item 501(b)(3) requires a preliminary prospectus for an initial public offering of securities, other than debt securities, to include a bona fide estimate of the range of the maximum offering price. Are there constraints on how wide the disclosed price range may be?

Answer: Yes. For initial public offerings, a price range in excess of $2, for offerings up to $10 per share, or in excess of 20% of the high end of the range, for offerings over $10 per share, will not be considered bona fide. For example, if the high end of the range is $20, then the price range may be as wide as $16 to $20. If an auction clearing price will be used as the primary factor in establishing the final offering price, a price range in excess of $4, for offerings up to $20 per share, or in excess of 20% of the high end of the range, for offerings over $20 per share, will not be considered bona fide. [May 16, 2013]

Section 135. Item 502 — Inside Front and Outside Back Cover Pages of Prospectus

None

Section 136. Item 503 — Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges

Question 136.01

Question: When is the ratio of earnings to fixed charges required in registration statements?

Answer: The ratio of earnings to fixed charges required by Item 503(d) is required for registration statements relating to both short and long term debt. However, if the ratio already is contained in a Form 10-K filed by the issuer, it can be incorporated by reference into the registration statement, provided the registration form permits such incorporation and the issuer is eligible to incorporate the information by reference. [July 3, 2008]

Section 137. Item 504 — Use of Proceeds

None

Section 138. Item 505 — Determination of Offering Price

None

Section 139. Item 506 — Dilution

None

Section 140. Item 507 — Selling Security Holders

Question 140.01

Question: Does the term "security holders" in Item 507 refer to beneficial holders?

Answer: Yes. The term "security holders," as used in Item 507, means beneficial holders, not nominee holders or other such holders of record. [July 3, 2008]

Question 140.02

Question: If a selling security holder is not a natural person, how does a registrant satisfy the obligation in Item 507 of Regulation S-K to disclose the nature of any position, office, or other material relationship that the selling security holder has had within the past three years with the registrant or any of its predecessors or affiliates?

Answer: In addition to disclosing any material relationships between the registrant and the selling security holder entity, the registrant must disclose the Item 507 information about any persons (entities or natural persons) who have control over the selling entity and who have had a material relationship with the registrant or any of its predecessors or affiliates within the past three years. In such case, the registrant must identify each such person and describe the nature of any relationships. [July 26, 2016]

Question 140.03

If the company is not eligible to rely on Rule 430B when the registration statement is initially filed, it must file a post-effective amendment to add selling shareholders to a registration statement related to a specific transaction that was completed prior to the filing of the resale registration statement. A Rule 424(b) prospectus supplement may be used to post-effectively update the selling shareholder table to reflect a transfer from a previously identified selling shareholder. The new investor's shares must have been acquired or received from a selling shareholder previously named in the resale registration statement and the aggregate number of securities or dollar amount registered cannot change. [Apr. 24, 2009]

Section 141. Item 508 — Plan of Distribution

Question 141.01

Question: Does Item 508(a) of Regulation S-K, which calls for disclosure of the identity of "principal underwriters" and their material relationships with the registrant, require disclosure as to each member of the selling group?

Answer: No. The disclosure is limited to those underwriters who are in privity of contract with the issuer with respect to the offering. [July 3, 2008]

Section 142. Item 509 — Interests of Named Experts and Counsel

None

Section 143. Item 510 — Disclosure of Commission Position on Indemnification for Securities Act Liabilities

None

Section 144. Item 511 — Other Expenses of Issuance and Distribution

None

Section 145. Item 512 — Undertakings

Question 145.01

Answer: Yes. However, the Form S-8 does not have to include the undertakings contained in Items 512(a)(5)(i), 512(a)(5)(ii), and 512(a)(6). [July 3, 2008]

Question 145.02

Question: Should a Form S-3 for an automatic shelf registration statement include the Item 512(h) undertaking or the indemnification disclosure required by Item 510 of Regulation S-K?

Answer: A Form S-3 for an automatic shelf registration statement, other than for a dividend reinvestment plan, should include the Item 512(h) undertaking rather than the indemnification disclosure required by Item 510, even though the registrant will not request acceleration of effectiveness. For automatic shelf registration statements relating to dividend reinvestment plans, the Item 510 disclosure should be included in lieu of the Item 512(h) undertaking. [July 3, 2008]

Question 145.03

Question: Item 512(a) of Regulation S-K, which is applicable to Rule 415 offerings, sets forth three circumstances requiring a post-effective amendment: Section 10(a)(3) updating, fundamental changes and material changes to the plan of distribution. Can a Rule 424(b) supplement be used for these purposes if the offering is registered on Form S-3 or Form F-3?

Answer: Yes. In a Form S-3 or Form F-3, issuers may satisfy the Item 512(a) undertaking by incorporating by reference from Exchange Act reports containing the required information or by filing a Rule 424(b) prospectus. [July 3, 2008]

Section 146. Item 601 — Exhibits

Question 146.01

Question: Instruction 1 to Item 601(a) of Regulation S-K provides that when filing amendments to registration statements, a registrant need not include copies of exhibits which have been modified only to correct minor typographical errors or to put in pricing terms. May the incomplete exhibits already on file that do not reflect the pricing or typographical modifications noted above be incorporated by reference in any subsequent filing?

Answer: No. Instruction 1 also states that incomplete exhibits already on file that do not reflect these modifications may not be incorporated by reference in any subsequent filing. [July 3, 2008]

Question 146.02

Question: Under Item 601(a)(2), must the exhibit index for each year's Form 10-K list each of the exhibits required in the Form 10-K, even if some of the exhibits have previously been filed?

Answer: Yes. Of course, the previously filed exhibits may be incorporated by reference from the prior year's Form 10-K or another appropriate document. [July 3, 2008]

Question 146.03

Question: Must a Form 10-Q include the full exhibit index specified by Item 601(a)(2)?

Answer: No. The exhibit index in a Form 10-Q can be limited to those exhibits actually filed as part of, or incorporated by reference into, the Form 10-Q. [July 3, 2008]

Question 146.04

Question: If a registrant is party to an oral contract that would be required to be filed as an exhibit pursuant to Item 601(b)(10) if it were written, should the registrant provide a written description of the contract similar to that required for oral contracts or arrangements pursuant to Item 601(b)(10)(iii)?

Answer: Yes. [July 3, 2008]

Question 146.05

Question: If a company enters into a new material contract, when should the contract be filed as an exhibit to a Form 10-Q or Form 10-K?

Answer: Instruction 2 to Item 601(b)(10) indicates that Exhibit 10 material contracts need to be filed with the periodic report covering the period during which the contract is executed or becomes effective. [July 3, 2008]

Question 146.06

Question: A company entered into a material agreement. However, the agreement was no longer material to the company by the end of the reporting period during which the contract was entered into. Must the agreement be filed as an exhibit to the periodic report?

Answer: Yes. Item 601(a)(4) provides that if a material contract "is executed or becomes effective during the reporting period," then it shall be filed as an exhibit. [July 3, 2008]

Question 146.07

Question: When may consents that are filed with an Exchange Act document be incorporated by reference into a Securities Act registration statement?

Answer: Item 601(b)(23)(ii) of Regulation S-K and Securities Act Rule 439(a) permit the incorporation by reference of consents filed with Exchange Act reports only into an already effective Securities Act registration statement. Consents may not be incorporated by reference into a registration statement that becomes effective after the filing of the consent with an Exchange Act document. [July 3, 2008]

Question 146.08

Question: An issuer is filing a special financial report on Form 10-K. Must the issuer file with the report the certification required by Item 601(b)(31)?

Answer: Yes. However, the issuer may omit paragraphs 4 and 5 of the certification because the report will contain only audited financial statements and not Item 307 or Item 308 of Regulation S-K disclosures. [July 3, 2008]

Question 146.09

Question: How should a smaller reporting company that relies on Item 402(m)(2) of Regulation S-K rather than Item 402(a)(3) to determine its "named executive officers" comply with Item 601(b)(10)(iii)(A) of Regulation S-K, which describes management contracts and compensatory plans, contracts and arrangements in which named executive officers participate that must be filed as exhibits to registration statements and reports?

Answer: Although Item 601(b)(10)(iii)(A) refers only to the Item 402(a)(2) definition of "named executive officer," if a smaller reporting company applied Item 402(m)(2) to determine the named executive officers in its registration statement or report and provides the disclosure permitted under Items 402(m) through 402(r) instead of the disclosure required under Items 402(a) through 402(k), the smaller reporting company need only file as exhibits those plans, contracts and arrangements in which named executive officers as determined under Item 402(m)(2) participate. [July 3, 2008]

Question 146.10

Question: Should a copy of the employee benefit plan under which the registered securities will be issued be filed as an exhibit to the registration statement on Form S-8?

Answer: Yes. [July 3, 2008]

Question 146.11

Question: Does a written arrangement whereby officers are provided company cars and other perquisites have to be filed as a "material contract"?

Answer: If the perquisite is separately identified and quantified in the proxy statement, then the written arrangement pursuant to which the officer receives the perquisite need not be filed as a "material contract." [July 3, 2008]

Question 146.12

Question: Even though interactive data exhibits are not required for initial public offerings, can a filer voluntarily submit an interactive data exhibit for an IPO on Form S-1?

Answer: Yes. If the filer chooses to submit an interactive data exhibit with an IPO on Form S-1, however, it must include the exhibit as soon as the registration statement contains a price or price range and subsequent amendments also must include the interactive data exhibit if the financial statements are changed. [May 29, 2009]

Question 146.13

Answer: Yes, if the filer otherwise complies with Item 601(b)(101)(ii) of Regulation S-K and Paragraph 6(b) of General Instruction C of Form 6-K, as applicable. [Sep. 14, 2009]

Question 146.14

Question: How does a filer determine when it is required to submit interactive data and to "detail tag" the financial statement footnotes and schedules in its interactive data?

Answer: A filer first assesses its filing status at the end of each fiscal year (by looking to its public float as of the end of the most recently completed second quarter) and then follows the phase-in provisions for that status in the filings it makes during the immediately following fiscal year.

For example, as of December 31, 2009, a calendar-year domestic filer is a large accelerated filer with a public float under $5 billion on the last business day of its second quarter ended June 30, 2009. For purposes of its 2010 filings, the filer will follow the submission requirements of Item 601(b)(101)(i)(B) of Regulation S-K and the detail tagging requirements of Rule 405(f)(2) of Regulation S-T. Accordingly, the filer is required to submit interactive data with its Forms 10-Q for the quarters ended June 30 and September 30, 2010 but need not detail tag the financial statement footnotes and schedules until its Form 10-Q for the quarter ended June 30, 2011, assuming that, as of December 31, 2010, it is a large accelerated filer with a public float under $5 billion on the last business day of its second quarter ended June 30, 2010.

If the filer, as of December 31, 2010, is no longer a large accelerated filer, for purposes of its 2011 filings, it will follow the submission requirements of Item 601(b)(101)(i)(C) of Regulation S-K and the detail tagging requirements of Rule 405(f)(3) of Regulation S-T. Accordingly, the filer would not be required to submit interactive data with its Form 10-K for the year ended December 31, 2010 or Form 10-Q for the quarter ended March 31, 2011, but it would be required to submit interactive data with its Forms 10-Q for the quarters ended June 30 and September 30, 2011. The filer would not be required to detail tag the financial statement footnotes and schedules until its Form 10-Q for the quarter ended June 30, 2012.

Conversely, if the filer, as of December 31, 2010, is a large accelerated filer with a public float over $5 billion on the last business day of its second quarter ended June 30, 2010, it will follow the submission requirements of Item 601(b)(101)(i)(A) of Regulation S-K and the detail tagging requirements of Rule 405(f)(1) of Regulation S-T. Accordingly, the filer would be required to submit interactive data with its Form 10-K for the year ended December 31, 2010 and Forms 10-Q for the quarters ended March 31, June 30 and September 30, 2011 and to detail tag the financial statement footnotes and schedules in the interactive data it submits with all of these forms, even though the filer is in its first year of interactive data reporting. A filer that is required to begin detail tagging within its first year of interactive data reporting may apply for a continuing hardship exemption pursuant to Rule 202 of Regulation S-T if it cannot detail tag without undue burden or expense. Such applications will be considered on a case-by-case basis. [Sept. 17, 2010]

Question 146.15

Question: In detail tagging financial statement footnotes and schedules in its interactive data file, a filer must, among other things, "block-text" tag "[e]ach significant accounting policy within the significant accounting policies footnote" under Rule 405(d)(2) of Regulation S-T. Must the filer also block-text tag significant accounting policies that are described in footnotes outside of a significant accounting policies footnote, either because the significant accounting policies footnote is not the only footnote that describes significant accounting policies or because there is no significant accounting policies footnote?

Answer: Yes. [Sept. 17, 2010]

Question 146.16

Question: In detail tagging financial statement footnotes and schedules in its interactive data file, a filer must also, among other things, tag separately "[e]ach amount (i.e., monetary value, percentage, and number)" within each footnote and financial statement schedule under Rules 405(d)(4)(i) and 405(e)(2)(i), respectively, of Regulation S-T. Are there any monetary values, percentages or numbers in footnotes and financial statement schedules that do not need to be tagged separately?

Answer: Yes. Examples of the types of monetary values, percentages and numbers that the staff has agreed are not within the purpose of the current interactive data requirements and, as a result, need not be tagged separately to comply with Rules 405(d)(4)(i) and 405(e)(2)(i) include:

attributed increased sales to the $1.99 pancake special (the increased sales figure itself would need to be tagged);
sales of 1% fat milk (the sales figure itself would need to be tagged);
docket number 34-4589;
22nd district court;
FASB Accounting Standards Codification Section 605-40-15;
altitude of 27,000 feet;
drilling 700 feet;
open new stores no less than 2 miles from existing stores;
founded a new subsidiary in 2009;
each restaurant now offers at least 20 entrees under 500 calories; and
number of the footnote itself. [Sept. 17, 2010]

Question 146.17

Question: A reporting issuer plans to rely on Securities Act Rule 430A to omit pricing information from its prospectus until after effectiveness of the registration statement. Unlike a non-reporting issuer, it is not required to disclose, pursuant to Item 501(b)(3) of Regulation S-K, a bona fide estimate of the range of the maximum offering price. As Item 601(b)(101)(i) provides that an interactive data file is "required for a registration statement under the Securities Act only if the registration statement contains a price or price range," must the issuer provide an interactive data file as an exhibit to the registration statement?

Answer: Yes. Item 601(b)(101)(i) does not provide an exemption from the interactive data requirements for reporting issuers that plan to rely on Rule 430A. In general, disclosure that satisfies the requirements in Item 501(b)(3) of Regulation S-K to state the "offering price" will be considered a "price or price range" for purposes of the interactive data rules, and thus trigger the requirement to submit interactive data. Accordingly, registration statements for shelf offerings, at-the-market offerings, exchange offers and secondary offerings must comply with the interactive data filing requirement even though they generally do not include a specific offering price at the time of effectiveness, unless the financial statements are incorporated by reference into the registration statement. [May 16, 2013]

Question 146.18

Question: Item 601(a)(2) of Regulation S-K provides that an exhibit index does not need to include a hyperlink to an exhibit that is filed in XBRL. Does this exception apply to exhibits that are filed in Inline XBRL?

Answer: No. Item 601(a)(2)’s reference to exhibits filed in XBRL refers to exhibits that are filed in unconverted code, which is only machine-readable. See Release No. 33-10322 (Mar. 1, 2017). An exhibit that is tagged in Inline XBRL is not filed in unconverted code. [Nov. 20, 2023]

Section 147. Item 701 — Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Question 147.01

Question: Does Item 701(f) require a registrant to report how it anticipates using the proceeds of an offering?

Answer: No. The reporting of use of proceeds requires the reporting of actual expenditures of the funds. Merely earmarking funds for future use should not be reported. [July 3, 2008]

Section 148. Item 702 — Indemnification of Directors and Officers

None

Section 149. Item 703 — Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Question 149.01

Question: Item 703 requires tabular disclosure regarding any purchase made by or on behalf of the issuer or any affiliated purchaser of shares or other units of any class of the issuer's equity securities that are registered by the issuer under Exchange Act Section 12. In connection with an employee benefit plan, an employee exercises an option using a process known as "net" option exercise. Is this transaction a repurchase by the issuer that the issuer must disclose under Item 703?

Answer: No. If, however, any shares are withheld in addition to the shares necessary to pay taxes or satisfy the exercise price, the company must disclose the repurchase of the additional shares under Item 703. Similarly, if the option exercise price is paid with company stock that the option holder otherwise owns, the company must report the repurchase of the stock under Item 703. [July 3, 2008]

Question 149.02

Question: Is disclosure required by Item 703 of Regulation S-K if a holder of restricted stock subject to vesting conditions forfeits the stock upon failure to satisfy vesting condition if he or she was granted them for no consideration?

Answer: No. [July 3, 2008]

Section 150. Items 801 and 802 — Industry Guides

None

Section 151. Items 901 through 915 — Roll-up Transactions

Question 151.01

Question: Are the roll-up rules in the Item 900 Series of Regulation S-K applicable to transactions exempt from registration under the Securities Act?

Answer: Pursuant to Item 901(c)(2)(ii), a "roll-up transaction" does not include transactions in which the securities to be issued or exchanged are not required to be, and are not, registered under the Securities Act. The roll-up rules are not applicable except from an anti-fraud perspective. See Release No. 33-6922 (Oct. 30, 1991). [July 3, 2008]

Section 152. Items 1000-1016 – Regulation M-A

None

Section 153. Items 1100-1123 – Regulation AB

None

Section 154. Items 1201-1208 — Disclosure by Registrants Engaged in Oil and Gas Producing Activities

Question 154.01

Question: For a recently drilled well, where there is only a limited amount of production data and the production rate is expected to decline in a hyperbolic manner but the evidence to date indicates only an exponential decline, can you assume that the production rate will eventually begin to decline in a hyperbolic manner and claim that as proved reserves?

Answer: Yes, but only at such time when additional production data, such as from offset wells, exists demonstrating that there will be a change in the manner of decline from exponential to hyperbolic. [Oct. 26, 2009]

Question 154.02

Question: Should reserve quantities attributable to equity method investees be combined with reserve quantities attributable to consolidated entities for purposes of identifying countries containing 15% or more of the registrant's reserves under Item 1202 of Regulation S-K.

Answer: Yes. [Oct. 26, 2009]

Question 154.03

Question: If an issuer engages a third party to prepare or audit its reserve estimates, or to conduct a process review, of a limited amount of its reserves, does it need to file the third party's report under Item 1202(a)(8) of Regulation S-K?

Answer: If the issuer discloses in its filing that it engaged a third party to prepare or audit its reserve estimates, or to conduct a process review, of a limited amount of its reserves, then the issuer must file the third party's report. [Oct. 26, 2009]

Section 155. Subpart 1300 (Items 1300-1305) — Disclosure by Registrants Engaged in Mining Operations

Question 155.01

Question: For purposes of filing an Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?

Answer: A registrant engaged in mining operations must comply with Subpart 1300’s disclosure rules beginning with its Exchange Act annual report for the first fiscal year beginning on or after January 1, 2021. Until then, staff will not object if the company relies on the guidance provided in Guide 7 and by the Division of Corporation Finance staff for the purpose of filing an Exchange Act annual report. [April 29, 2020]

Question 155.02

Question: For purposes of filing a Securities Act registration statement, may the registrant satisfy its obligation to include mining property disclosure pursuant to Subpart 1300 of Regulation S-K by incorporating such disclosure by reference to its Exchange Act annual report for the appropriate period, even if such annual report was not required to comply with the new mining property disclosure rules in Subpart 1300 of Regulation S-K?

Answer: Yes. Until annual financial statements for the first fiscal year beginning on or after January 1, 2021 are required to be included in the registration statement, the staff will not object if a Securities Act registration statement incorporates by reference disclosure prepared in accordance with Guide 7 from an Exchange Act annual report for the appropriate period filed by a registrant engaged in mining operations if otherwise permitted to do so by the Commission’s rules on incorporation by reference. See, e.g., Securities Act Rule 411 (17 CFR 230.411), which provides that information must not be incorporated by reference in any case where such incorporation would render the disclosure incomplete, unclear, or confusing. [April 29, 2020]

Question 155.03

Question: For purposes of filing an Exchange Act or Securities Act registration statement that does not incorporate by reference mining property disclosure from a registrant’s Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?

Answer: An Exchange Act or Securities Act registration statement that does not incorporate by reference mining property disclosure from an Exchange Act annual report filed by a registrant engaged in mining operations must comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K on or after the first day of the first fiscal year beginning on or after January 1, 2021. For example, a calendar year-end company would be required to comply with the new mining property disclosure rules when filing an Exchange Act registration statement or a Securities Act registration statement that does not incorporate by reference disclosure from a registrant’s Exchange Act annual report on or after January 1, 2021, while a registrant with a June 30^th fiscal year-end would be required to comply with the new mining property disclosure rules when filing an Exchange Act registration statement or a Securities Act registration statement that does not incorporate by reference disclosure from a registrant’s Exchange Act annual report on or after July 1, 2021. [April 29, 2020]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Regulation S-K — General Guidance

None

Section 202. Item 10 — General

202.01 In calculating an issuer's annual revenues to determine whether the issuer qualifies as a "smaller reporting company" as defined in Item 10(f)(1)(ii) of Regulation S-K, the issuer should include all annual revenues on a consolidated basis. As such, a holding company with no public float as of the last business day of its second fiscal quarter would qualify as a smaller reporting company only if it had less than $100 million in consolidated annual revenues in the most recently completed fiscal year for which audited financial statements are available (i.e., as of the fiscal year end preceding that second fiscal quarter). [November 7, 2018]

Section 203. Item 101 — Description of Business

203.01 In the narrative description of business, a registrant is required to specify "the number of persons employed by the registrant." In industries where registrants' general practice is to hire independent contractors (sometimes called "contract employees" or "freelancers") rather than "employees" to perform the work of the company, this disclosure should indicate the number of persons retained as independent contractors, as well as the number of regular employees. [July 3, 2008]

Section 204. Item 102 — Description of Property

None

Section 205. Item 103 — Legal Proceedings

205.01 The bank subsidiary of a one bank holding company initiates a lawsuit to collect a debt that exceeds 10% of the current assets of the bank and its holding company parent. Due to the unusual size of the debt, Item 103 requires disclosure of the lawsuit, even though the collection of debts is a normal incident of the bank's business. [July 3, 2008]

205.02 Contrary to Release No. 33-5170 (July 19, 1971), it is no longer the practice of the Division to require registrants automatically to furnish, as supplemental information, either a description of civil rights litigation omitted from a newly-filed disclosure document or the reasons for the omission. [July 3, 2008]

Section 206. Item 201 — Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

206.01 An equity compensation plan has received Bankruptcy Court approval, but not shareholder approval. Such a plan should be reported in the "not approved by security holders" category for the purposes of the Equity Compensation Plan Information table. A footnote may be added to disclose the Bankruptcy Court approval. [Mar. 13, 2007]

206.02 A compensation plan that permits awards to be settled in either cash or stock must be disclosed under Item 201(d). A plan that permits awards to be settled only in cash need not be disclosed under Item 201(d), because the purpose of Item 201(d) is to show dilution and cash-only plans are not dilutive. However, pursuant to Item 10 of Schedule 14A, if a company is seeking shareholder approval of any plan pursuant to which cash (or non-cash) compensation may be paid or distributed, the company is required to include in its proxy statement Item 201(d) disclosure with respect to its plans under which company equity securities are authorized for issuance. [Mar. 13, 2007]

206.03 Instruction 1 to Item 201(d) provides that no disclosure is required with respect to any employee benefit plan that is intended to meet the qualification requirements of Internal Revenue Code Section 401(a). The same treatment would apply to a foreign employee benefit plan that is similar in substance to a Section 401(a) qualified plan in terms of being broad-based, compensatory and non-discriminatory. The same analysis applies for purposes of determining whether a plan must be filed as an exhibit pursuant to Item 601(b)(10)(iii)(B) of Regulation S-K, based on the exclusion provided by Item 601(b)(10)(iii)(C)(4) of Regulation S-K. [Mar. 13, 2007] [same as C&DI 246.11]

206.04 A company has stock appreciation rights that are exercisable for an amount of its common stock with a value equal to the increase in the fair market value of the common stock from the date the stock appreciation rights were granted. For these instruments, the company may use the fair market value of its common stock at fiscal year end for the purposes of reporting the number of shares to be issued upon exercise of the stock appreciation rights pursuant to Item 201(d)(2)(i). The company should also describe this assumption in a footnote to the Equity Compensation Plan Information table. [Mar. 13, 2007]

206.05 As a general rule, when a registrant changes the entities comprising a self-constructed index from the index used in the prior year, the reasons for the change must be explained and the total return must be compared with that of both the newly constructed index and the prior index. See Item 201(e)(4) and Release No. 34-32723 (Aug. 6, 1993) at IV.B.1. Two limited exceptions are set forth in Release No. 34-32723. Presentation on the old basis is not required: (i) if an entity is omitted solely because it is no longer in the line of business or industry; or (ii) the changes in the composition of the index are the result of application of pre-established objective criteria. In these two cases, a specific description of, and the bases for, the change must be disclosed, including the names of the companies deleted from the new index. [Mar. 13, 2007]

206.06 If a company becomes listed on an exchange that is different from the exchange it was listed on in the prior year, the change needs to be reflected in the performance graph if the company also changes its broad market indices as a result. For example, if a company that had been listed on the American Stock Exchange becomes listed on a different exchange and now plans to use the S&P 500 as its broad market index rather than the American Stock Exchange Composite Index, the company must provide a narrative explanation of the change in indices and compare returns based upon the old and new index on the graph. [Mar. 13, 2007]

206.07 In lieu of data for the last trading day prior to the end of a given fiscal year, a registrant may use data for the last day in that year made available by a third-party index provider. [Mar. 13, 2007]

206.08 A registrant created by a spin-off may begin its Performance Graph presentation on the effective date of the registration of its common stock under Section 12 of the Exchange Act. [Mar. 13, 2007]

206.09 A registrant that spins off a portion of its business should treat that transaction as a special dividend, make the appropriate adjustments to its shareholder return data, and disclose the occurrence of the transaction and resultant adjustments in its performance graph. [Mar. 13, 2007]

206.10 A merger or other acquisition involving the registrant, where the registrant remains in existence and its common stock remains outstanding, does not change the presentation of the registrant's performance graph. [Mar. 13, 2007]

206.11 A registrant with several distinct lines of business may construct a composite peer group index composed of entities from different industry groups, representing each of the registrant's lines of business (with the lines of business weighted by revenues or assets). The basis and amount of the weighting should be disclosed. Alternatively, the registrant may plot a separate peer index line for each of its lines of business. [Mar. 13, 2007]

206.12 If a company selects its own peer group and subsequently changes the group, an additional line showing the newly selected index should be added to the performance graph. [Mar. 13, 2007]

206.13 Companies that have a short fiscal year (for example, following an initial public offering, as the result of a spin-off, or after emerging from bankruptcy) must do a stock performance graph for the short year unless the short year is 30 days or less. [Mar. 13, 2007]

206.14 A company is preparing its first proxy statement following its emergence from bankruptcy. The new class of stock that was issued under the bankruptcy plan started trading in Mar. 2006. The measurement period for the graph is from Mar. 2006 through December 2006. However, the company may plot the graph on a monthly basis and can continue the graph beyond December 2006 as long as the December 2006 plotting point is clearly shown. The same principle applies to initial public offerings and spin-off situations with a short fiscal year. [Mar. 13, 2007]

206.15 A "published industry or line-of-business index" is one that is "accessible to the registrant's security holders" and, if prepared by the registrant or an affiliate, is also "widely recognized and used." Certain guidance concerning the use of trade group indices and of composite indices composed of more than one published index is given in Release No. 34-32723 (Aug. 6, 1993) at Section IV.B.2. Self-constructed indices (which term includes those prepared by a third party for the registrant and which are not "published") are not prohibited or discouraged by Item 201(e), they just must be weighted by market capitalization (as are most published indices) and include identification of the component issuers. See Instruction 5 to Item 201(e). [Mar. 13, 2007]

Section 207. Item 202 — Description of Registrant's Securities

None

Section 208. Item 301 — Selected Financial Data

None

Section 209. Item 302 — Supplementary Financial Information

None

Section 210. Item 303 — Management's Discussion and Analysis of Financial Condition and Results of Operations

None

Section 211. Item 304 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

211.01 Item 304(a)(1)(iv) uses the phrase "the registrant's two most recent fiscal years and any subsequent interim period preceding such resignation, declination or dismissal," whereas Item 304(a)(1) uses the phrase, "the registrant's two most recent fiscal years or any subsequent interim period." The Division staff has been asked whether the period referenced in Item 304(a)(1)(iv) is coterminous with the period referenced in Item 304(a)(1), or instead refers to a period of such duration preceding the accountant's resignation or dismissal, as the language would literally suggest. The Division staff takes the position that Item 304(a)(1)(iv) refers to the time period preceding the resignation or dismissal. [July 3, 2008]

Section 212. Item 305 — Quantitative and Qualitative Disclosures About Market Risk

None

Section 213. Item 306 [Reserved]

None

Section 214. Item 307 — Disclosure Controls and Procedures

214.01 As discussed in Question and Answer 3 (FAQ 3) of "Management's Report on Internal Control over Financial Reporting and Certification of Disclosure Controls in Exchange Act Periodic Reports — Frequently Asked Questions (revised Sept. 24, 2007)," issued by the Office of the Chief Accountant and the Division of Corporation Finance, under limited and specified circumstances, the staff will not object to management excluding an acquired business from management's assessment of the registrant's internal control over financial reporting. FAQ 3 relates only to omitting an assessment of an acquired business's internal control over financial reporting from the assessment of the registrant's internal control over financial reporting. By its terms, it does not address management's evaluation of disclosure controls and procedures. In light of the overlap between a company's disclosure controls and procedures and its internal control over financial reporting, in those situations in which a registrant may properly rely on FAQ 3, management's evaluation of disclosure controls and procedures may exclude an assessment of those disclosure controls and procedures of the acquired entity that are subsumed by internal control over financial reporting. In addition, consistent with FAQ 3, we would expect the registrant to indicate the significance of the acquired business to the registrant's consolidated financial statements. [July 3, 2008]

214.02 A royalty trust attempted to limit its conclusion regarding the effectiveness of its disclosure controls and procedures by stating that it relied on the working interest owners for disclosure in the document. Although a royalty trust can explain its reliance on working interest owners, it cannot thereby limit the scope of its conclusion. [July 3, 2008]

Section 215. Items 308 and 308T — Internal Control over Financial Reporting

215.01 Notwithstanding the introductory note to Item 308T, which states that it applies only to annual reports, any Form 10-Q that is required to include Item 308T disclosure pursuant to Item 4T of Form 10-Q must include the disclosure required by Item 308T(b). Quarterly reports need not include Item 308T(a) disclosure. [July 3, 2008]

215.02 The guidance provided in Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, Frequently Asked Questions No. 3 does not relate to reverse acquisitions between an issuer and a private operating company, and the surviving issuer in a reverse acquisition is not a "newly public company" as that term is used in Exchange Act Release No. 54942 (Dec. 15, 2006). However, the staff acknowledges that it might not always be possible to conduct an assessment of the private operating company or accounting acquirer's internal control over financial reporting in the period between the consummation date of a reverse acquisition and the date of management's assessment of internal control over financial reporting required by Item 308(a) of Regulation S-K. We also recognize that in many of these transactions, such as those in which the legal acquirer is a non-operating public shell company, the internal controls of the legal acquirer may no longer exist as of the assessment date or the assets, liabilities, and operations may be insignificant when compared to the consolidated entity. In the instances described above, the staff would not object if the surviving issuer were to exclude management's assessment of internal control over financial reporting in the Form 10-K covering the fiscal year in which the transaction was consummated. However, when the transaction is consummated shortly after year-end and surviving issuer is required to file an amended Form 8-K to update its financial statements for its most recent year-end, that filing is equivalent to the first annual report subsequent to the consummation of the transaction and future annual reports should not exclude management's report on internal control over financial reporting. Similar conclusions may also be reached in transactions involving special-purpose acquisition companies.

In lieu of management's report, the issuer should disclose why management's assessment has not been included in the report, specifically addressing the effect of the transaction on management's ability to conduct an assessment and the scope of the assessment if one were to be conducted.

In addition, the staff notes that a reverse acquisition between two operating companies may often present facts that would preclude an issuer from concluding that management's assessment may be excluded from the issuer's Form 10-K. Consequently, issuers in this situation are encouraged to discuss with the staff whether it is appropriate to exclude management's report on internal control over financial reporting.

Notwithstanding management's exclusion of its report, the issuer must include the internal control over financial reporting language in the introductory portion of paragraph 4 of the Section 302 certification, as well as paragraph 4(b), because the issuer is subject to Section 404(a) of the Sarbanes-Oxley Act. [Apr. 24, 2009]

Section 216. Item 401 — Directors, Executive Officers, Promoters and Control Persons

216.01 Item 401(d) requires disclosure where a director's wife is the first cousin of an executive officer of the same company since the director and executive officer are related by marriage "not more remote than first cousin." [July 3, 2008]

216.02 A director of a public company is the general partner (and 50% owner) of limited partnership A which, in turn, is the general partner of limited partnership B, now in bankruptcy. Disclosure of the bankruptcy is required in the public company's filings under Item 401(f)(l), because the director's general partnership in, and percentage ownership of, A are evidence of control of A, the general partner of B. [July 3, 2008]

216.03 The president of a company about to go public is convicted within the past year of misdemeanor criminal offenses, involving two small checks of $30 and $50, respectively. Counsel argues that disclosure is not required under Item 401(f) because of the exclusion of Item 401(f)(2) for "traffic violations and other minor offenses." The Division staff disagrees, taking the position that such disclosure is "material to an evaluation of the ability or integrity of any . . . executive officer of the registrant" (emphasis added). [July 3, 2008]

216.04 Item 401(f) would require the disclosure by an issuer of an order temporarily restraining another corporation from pursuing a tender offer where a director of the issuer, who is the president of the other corporation, has been specifically named in the order. [July 3, 2008]

Section 217. Item 402(a) — Executive Compensation; General

217.01 Whether a spin-off is treated like the IPO of a new "spun-off" registrant for purposes of Item 402 disclosure depends on the particular facts and circumstances. When determining whether disclosure of compensation before the spin-off is necessary, the "spun-off" registrant should consider whether it was a reporting company or a separate division before the spin-off, as well as its continuity of management. For example, if a parent company spun off a subsidiary which conducted one line of the parent company's business, and before and after the spin-off the executive officers of the subsidiary: (1) were the same; (2) provided the same type of services to the subsidiary; and (3) provided no services to the parent, historical compensation disclosure likely would be required. In contrast, if a parent company spun off a newly formed subsidiary consisting of portions of several different parts of the parent's business and having new management, it is more likely that the spin-off could be treated as the IPO of a new "spun-off" registrant. [Jan. 24, 2007]

217.02 Following a merger among operating companies, there is no concept of "successor" compensation. Therefore, the surviving company in the merger need not report on compensation paid by predecessor corporations that disappeared in the merger. Similarly, a parent corporation would not pick up compensation paid to an employee of its subsidiary prior to the time the subsidiary became a subsidiary (i.e., when it was a target). Moreover, income paid by such predecessor companies need not be counted in computing whether an individual is a named executive officer of the surviving corporation. A different result may apply, however, in situations involving an amalgamation or combination of companies. A different result also applies where an operating company combines with a shell company, as defined in Securities Act Rule 405, as provided in Interpretive Response 217.12, below. [Aug. 8, 2007]

217.03 A subsidiary of a public company is going public. The officers of the subsidiary previously were officers of the parent, and in some cases all of the work that they did for the parent related to the subsidiary. The registration statement of the subsidiary would not be required to include compensation previously awarded by the parent corporation. The subsidiary would start reporting as of the IPO date. [Jan. 24, 2007]

217.04 Instruction 1 to Item 402(a)(3) states that the generally required compensation disclosure regarding highly compensated executive officers need not be set forth for an executive officer (other than the principal executive officer or principal financial officer) whose total compensation for the last fiscal year, reduced by the amount required to be disclosed by Item 402(c)(2)(viii), did not exceed $100,000. A reporting company that recently changed its fiscal year end from December 31st to June 30th is preparing its transition report for the 6-month period ended June 30th, having filed its Form 10-K for the fiscal year ended 6 months earlier on December 31st. The reporting company generally has a group of executive officers that earn in excess of $100,000 each year. In addition, during the 6-month period, the company made an acquisition that resulted in new executive officers that, on an annual basis, will earn more than $100,000. During the 6-month period, however, none of these existing or new officers earned more than $100,000 in total compensation. The company asked whether disclosure under Item 402 regarding these officers therefore would not be required in the report being prepared for the 6-month period. The Division staff advised that no disclosure need be provided with respect to executive officers that started employment with the company during the 6-month period and did not, during that period of employment, earn more than $100,000. With respect to executive officers that were employed by the company both during and before the 6-month period, however, Item 402 disclosure would have to be provided for those who earned in excess of $100,000 during the one-year period ending June 30th (the same ending date as the six-month period, but extending back over 6 months of the preceding fiscal year). [Jan. 24, 2007]

217.05 If a company changes its fiscal year, report compensation for the "stub period," and do not annualize or restate compensation. In addition, report compensation for the last three full fiscal years, in accordance with Item 402 of Regulation S-K. For example, in late 1997 a company changed its fiscal year end from June 30 to December 31. In the Summary Compensation Table, provide disclosure for each of the following four periods: July 1, 1997 to December 31, 1997; July 1, 1996 to June 30, 1997; July 1, 1995 to June 30, 1996; and July 1, 1994 to June 30, 1995. Continue providing such disclosure for four periods (three full fiscal years and the stub period) until there is disclosure for three full fiscal years after the stub period (December 31, 2000 in the example). If the company was not a reporting company and was to do an IPO in February 1998, it would furnish disclosure for both of the following periods in the Summary Compensation Table: July 1, 1997 to December 31, 1997; and July 1, 1996 to June 30, 1997. [Jan. 24, 2007]

217.06 Compensation of both incoming and departing executives should not be annualized. [Jan. 24, 2007]

217.07 A caller asked whether an executive officer, other than the principal executive officer or principal financial officer, could be considered a "named executive officer" if the executive officer became a non-executive employee during the last completed fiscal year and did not depart from the registrant. If an executive officer becomes a non-executive employee of a registrant during the preceding fiscal year, consider the compensation the person received during the entire fiscal year for purposes of determining whether the person is a named executive officer for that fiscal year. If the person thus would qualify as a named executive officer, disclose all of the person's compensation for the full fiscal year, i.e. compensation for when the person was an executive officer and for when the person was a non-executive employee. [Jan. 24, 2007]

217.08 A parent and its subsidiary are both Exchange Act reporting companies. Some of the executive officers of the parent may receive a portion of their compensation from the subsidiary corporation. The Division staff advised that if an executive spends 100% (or near 100%) of the executive's time for the subsidiary but is paid by the parent, then the compensation paid by the parent has to be reported in the executive compensation table of the subsidiary. However, if an allocation of the monies paid by the parent would be necessary because the executive officer splits time between the parent and the subsidiary, the payments allocable to services to the parent need not be included in the subsidiary's executive compensation table. In addition, in the event that the subsidiary pays a management fee to the parent for use of the executives, disclosure of the structure of the management agreement and fees would have to be reported under Item 404. Compensation paid by the subsidiary to executives of the parent company must be included in the parent's executive compensation table if such payments are paid directly by the subsidiary. If the payments are part of a management contract, disclosure of the structure of the management agreement and fees would have to be reported under Item 404. [July 3, 2008] [same as C&DI 230.11]

217.09 Parent and its consolidated subsidiary are public companies. X was CEO of parent for all of 2007, and was CEO of subsidiary for part of 2007. Y was an executive officer of the parent for 2007, and was CFO of the subsidiary for 2007. Even though parent made all salary and bonus payments to X and to Y, pursuant to intercompany accounting: 60% of X's 2007 salary and bonus was allocated to the subsidiary; and 85% of Y's 2007 salary and bonus was allocated to the subsidiary. If 100% of Y's salary and bonus are included, Y would be one of parent's three most highly compensated executive officers for 2007, but if the 85% allocable to subsidiary is excluded, Y would not be a parent NEO.

On these facts, the staff takes the view that 100% of the salary and bonus of each of X and Y should be counted in determining the parent's three most highly compensated executive officers and disclosed in the parent's Summary Compensation Table. Parent's NEO determinations and compensation disclosures should not be affected by whether its subsidiary is public or private. The staff also takes the view that subsidiary's Summary Compensation Table should report the respective percentages (60% for X and 85% for Y) of salary and bonus allocated to the subsidiary's books. Each Summary Compensation Table should include footnote disclosure noting the extent to which the same compensation is reported in both tables. [July 3, 2008]

217.10 A company's reimbursement to an officer of legal expenses with respect to a lawsuit in which the officer was named as a defendant, in her capacity as an officer, is not disclosable pursuant to Item 402 of Regulation S-K. [Jan. 24, 2007]

217.11 A caller inquired whether a filing that is made on January 2 must include compensation for the previous year ended December 31 when compensation information may not be incorporated by reference into the filing. The Division staff's position is that compensation must be included for such year because registrants should have those numbers available. However, if bonus or other amounts for the prior year have not yet been determined, this should be noted in a footnote together with disclosure regarding the date the bonus will be determined, any formula or criteria that will be used and any other pertinent information. When determined, the bonus or other amount must be disclosed in a filing under Item 5.02(f) of Form 8-K. Further, where the compensation disclosure depends upon assumptions used in the financial statements and those financial statements have not yet been audited, it is permissible for the company to note this fact in the compensation disclosure. [Jan. 24, 2007]

217.12 Shareholders of a shell company, as defined in Securities Act Rule 405, will vote on combining the shell company with an operating company. The combination will have the effect of making the operating company subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. The disclosure document soliciting shareholder approval of the combination (whether a proxy statement, Form S-4, or Form F-4) needs to disclose: (1) Item 402 disclosure for the shell company before the combination; (2) Item 402 disclosure regarding the operating company that the operating company would be required to make if filing a 1934 Act registration statement, including Compensation Discussion and Analysis disclosure; and (3) Item 402 disclosure regarding each person who will serve as a director or an executive officer of the surviving company required by Item 18(a)(7)(ii) or 19(a)(7)(ii) of Form S-4, including Compensation Discussion and Analysis disclosure that may emphasize new plans or policies (as provided in the Release 33-8732A text at n. 97). The Form 10-K of the combined entity for the fiscal year in which the combination occurs would provide Item 402 disclosure for the named executive officers and directors of the combined entity, complying with Item 402(a)(4) of Regulation S-K and Instruction 1 to Item 402(c) of Regulation S-K. [Aug. 8, 2007]

217.13 Options or other rights to purchase securities of the parent or a subsidiary of the registrant should be reported in the same manner as compensatory options to purchase registrant securities. [Jan. 24, 2007]

217.14 Item 402(c)(2)(ix)(G) requires Summary Compensation Table disclosure of the dollar value of any insurance premiums paid by, or on behalf of, the registrant during the covered fiscal year with respect to life insurance for the benefit of a named executive officer. Item 402(j) requires description and quantification of the estimated payments and benefits that would be provided in each covered termination circumstance, including the proceeds of such life insurance payable upon a named executive officer's death. However, if an executive officer dies during the last completed fiscal year, the proceeds of a life insurance policy funded by the registrant and paid to the deceased executive officer's estate need not be taken into consideration in determining the compensation to be reported in the Summary Compensation Table, or in determining whether the executive is among the registrant's up to two additional individuals for whom disclosure would be required under Item 402(a)(3)(iv). [May 29, 2009]

Section 218. Item 402(b) — Executive Compensation; Compensation Discussion and Analysis

None

Section 219. Item 402(c) — Executive Compensation; Summary Compensation Table

219.01 A registrant need not report earnings on compensation that is deferred on a basis that is not tax qualified as above-market or preferential earnings within the meaning of Item 402(c)(2)(viii)(B) where the return on such earnings is calculated in the same manner and at the same rate as earnings on externally managed investments to employees participating in a tax-qualified plan providing for broad-based employee participation. See n. 43 to Release No. 34-31327 (Oct. 16, 1992); American Society of Corporate Secretaries (Jan. 6, 1993). For example, many issuers provide for deferral of salary or bonus amounts not covered by tax-qualified plans where the return on such amounts is the same as the return paid on amounts invested in an externally managed investment fund, such as an equity mutual fund, available to all employees participating in a non-discriminatory, tax-qualified plan (e.g., 401(k) plan). Although this position generally will be available for so-called "excess benefit plans" (as defined for Rule 16b-3(b)(2) purposes), it may not be appropriately applied in the case of a pure "top-hat" plan or SERP (Supplemental Employee Retirement Plan) that bears no relationship to a tax-qualified plan of the issuer. When in doubt, consult the staff. For a deferred compensation plan with a cash-based, interest-only return, earnings would not be reportable as "above-market" unless the rate of interest exceeded 120% of the applicable federal long-term rate, as stated in Instruction 2 to Item 402(c)(2)(viii). Non-qualified deferred compensation plan earnings that are "above-market or preferential" are reportable even if the deferred compensation plan is unfunded and thus subject to risk of loss of principal. [Jan. 24, 2007]

219.02 Item 402(c)(2)(ix)(G) requires disclosure in the "All Other Compensation" column of the dollar value of any dividends or other earnings paid on stock or option awards, when those amounts were not factored into the grant date fair value required to be reported for the stock or option award. If a company credits stock dividends on unvested restricted stock units, but does not actually pay them out until the restricted stock units vest, those dividends should be reported in the year credited, rather than the year vested (and actually paid). [Aug. 8, 2007]

219.03 Item 402(c)(2)(viii) of Regulation S-K and Item 402(h)(2)(iii) and (iv) of Regulation S-K require amounts that are computed as of the same pension plan measurement date used for financial reporting purposes with respect to the company's audited financial statements for the last completed fiscal year. The rules reference the same pension plan measurement date as is used for financial statement reporting purposes so that the company would not have to use different assumptions when computing the present value for executive compensation disclosure and financial reporting purposes. The pension plan measurement date for most pension plans is September 30, which, in the case of calendar-year companies, does not correspond with the company's fiscal year. This means that the pension benefit information will be presented for a period that differs from the fiscal year period covered by the disclosure. Under recent changes in pension accounting standards, the pension measurement date will be changed to be the same as the end of the company's fiscal year. In the year in which companies change their pension measurement date, they may use an annualized approach for the disclosure of the change in the value of the accumulated pension benefits in the Summary Compensation Table (thereby adjusting the 15 month period to a 12 month period) when the transition in pension plan measurement date occurs, so long as the company includes disclosure explaining it has followed this approach. The actuarial present value computed on the new measurement date should be reported in the Pension Benefits Table. [Jan. 24, 2007]

219.04 If the actuarial present value of the accumulated pension benefit for a named executive officer on the pension measurement date of the prior fiscal year was $1,000,000, and the present value of the accumulated pension benefit on the pension measurement date of the most recently completed fiscal year is $1,000,000, but during the most recently completed fiscal year the named executive officer earned and received an in-service distribution of $200,000, then $200,000 should be reported as the increase in pension value in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column (column (h)) of the Summary Compensation Table. [Jan. 24, 2007]

219.05 In reporting compensation for periods affected by COVID-19, questions may arise whether benefits provided to executive officers because of the COVID-19 pandemic constitute perquisites or personal benefits for purposes of the disclosure required by Item 402(c)(2)(ix)(A) and determining which executive officers are “named executive officers” under Item 402(a)(3)(iii) and (iv). The two-step analysis articulated by the Commission in Release 33-8732A continues to apply when determining whether an item provided because of the COVID-19 pandemic constitutes a perquisite or personal benefit.

An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties.
Otherwise, an item that confers a direct or indirect benefit and that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, is a perquisite or personal benefit unless it is generally available on a non-discriminatory basis to all employees.

Whether an item is “integrally and directly related to the performance of the executive’s duties” depends on the particular facts. In some cases, an item considered a perquisite or personal benefit when provided in the past may not be considered as such when provided as a result of COVID-19. For example, enhanced technology needed to make the NEO’s home his or her primary workplace upon imposition of local stay-at-home orders would generally not be a perquisite or personal benefit because of the integral and direct relationship to the performance of the executive’s duties. On the other hand, items such as new health-related or personal transportation benefits provided to address new risks arising because of COVID-19, if they are not integrally and directly related to the performance of the executive’s duties, may be perquisites or personal benefits even if the company would not have provided the benefit but for the COVID-19 pandemic, unless they are generally available to all employees. [Sep. 21, 2020]

Section 220. Item 402(d) — Executive Compensation; Grants of Plan-Based Awards Table

220.01 Where a named executive officer exercises "reload" options and receives additional options upon such exercise, the registrant is required to report the additional options as an option grant in the Grants of Plan-Based Awards Table. In the Summary Compensation Table, the registrant would include the grant date fair value of the additional options in the aggregate amount reported. [Mar. 1, 2010]

220.02 If plans do not include thresholds or maximums (or equivalent items), the registrant need not include arbitrary sample threshold and maximum amounts. For example, for a non-equity incentive plan that does not specify threshold or maximum payout amounts (for example, a plan in which each unit entitles the executive to $1.00 of payment for each $.01 increase in earnings per share during the performance period), threshold and maximum levels need not be shown as "0" and "N/A" because the payouts theoretically may range from nothing to infinity. Rather, an appropriate footnote should state that there are no thresholds or maximums (or equivalent items). [Jan. 24, 2007]

Section 221. Item 402(e) — Executive Compensation; Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

None

Section 222. Item 402(f) — Executive Compensation; Outstanding Equity Awards at Fiscal Year-End Table

222.01 A company grants stock options that provide for immediate exercise in full as of the grant date, subject to the company's right to repurchase (at the exercise price) if the executive terminates employment with the company before a specified date. If the executive officer exercises the option before the repurchase restriction lapses, he or she effectively receives restricted stock subject to forfeiture until the repurchase restriction lapses. In this circumstance, the Outstanding Equity Awards table should show the shares received as stock awards that have not vested (columns (g) and (h)) until the repurchase restriction lapses, and the exercise should not be reported in the Option Exercises and Stock Vested Table. Instead, as the shares acquired by the executive officer cease to be subject to the repurchase provision, those shares should be reported as stock awards (columns (d) and (e)) in the Option Exercises and Stock Vested Table. If the executive officer exercises the option after the repurchase restriction lapses, it is reported in the same manner as a regular stock option. [Aug. 8, 2007]

Section 223. Item 402(g) — Executive Compensation; Option Exercises and Stock Vested Table

None

Section 224. Item 402(h) — Executive Compensation; Pension Benefits

None

Section 225. Item 402(i) — Executive Compensation; Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

None

Section 226. Item 402(j) — Executive Compensation; Potential Payments Upon Termination or Change-in-Control

226.01 Item 402(j) requires quantitative disclosure of estimated payments and benefits, applying the assumptions that the triggering event took place on the last business day of the company's last completed fiscal year and the price per share of the company's securities is the closing market price as of that date. The date used for Item 402(j) quantification disclosure can affect the quantification of tax gross-ups with respect to the Internal Revenue Code Section 280G excise tax on excess parachute payments, such as by suggesting that benefits would be accelerated or by changing the five-year "base period" for computing the average annual taxable amount to which the parachute payment is compared. Where the last business day of the last completed fiscal year for a calendar year company is not December 31, the company may calculate the excise tax and related gross-up on the assumption that the change-in-control occurred on December 31, rather than the last business day of its last completed fiscal year, using the company stock price as of the last business day of its last completed fiscal year. The company may not substitute January 1 of the current year for the last business day of the company's last completed fiscal year, which would change the five-year "base period" to include the company's last completed fiscal year. [Aug. 8, 2007]

226.02 Following the end of the last completed fiscal year (2006), but before the proxy statement is filed, a named executive officer leaves the company (in early 2007). A Form 8-K disclosing this termination is filed, as required by Item 5.02(b) of Form 8-K. This named executive officer is not the principal executive officer or the principal financial officer and will not be a named executive officer for the current fiscal year (2007) based on Item 402(a)(3)(iv). The severance package that applied to the named executive officer's termination is not newly negotiated but instead has the same terms that otherwise would apply. In these limited circumstances, it is permissible to provide Item 402(j) disclosure for the named executive officer only for the triggering event that actually occurred (even though beyond the scope of Instruction 4 to Item 402(j) because it took place after the end of the last completed fiscal year), rather than providing the disclosure for several additional scenarios that no longer can occur. [Aug. 8, 2007]

226.03 A company will file a proxy statement for its regular annual meeting that also will solicit shareholder approval of a transaction in which the company would be acquired. The company has post-termination compensation arrangements that apply generally. Assuming that the acquisition is approved, however, all the named executive officers will be covered by termination agreements that that will be specific to the acquisition. The company cannot satisfy Item 402(j) by disclosing only the termination agreements that are specific to the pending acquisition for the following reasons: If the company's shareholders and/or any applicable regulatory authority do not approve the acquisition, the company's generally applicable post-termination arrangements will continue to apply. In addition, comparison of the acquisition-specific agreements with the generally applicable post-termination arrangements may be material. [Aug. 8, 2007]

Section 227. Item 402(k) — Executive Compensation; Compensation of Directors

227.01 Consulting arrangements between the registrant and a director are disclosable as director compensation under Item 402(k)(2)(vii), even where such arrangements cover services provided by the director to the issuer other than as director (e.g., as an economist). [Jan. 24, 2007]

227.02 A company has an executive officer (who is not a named executive officer) who is also a director. This executive officer does not receive any additional compensation for services provided as a director, and the conditions in Instruction 5.a.ii to Item 404(a) of Regulation S-K are satisfied. The compensation that this director receives for services as an executive officer does not need to be reported in the Director Compensation Table under Item 402(k) of Regulation S-K. The director may be omitted from the table, provided that footnote or narrative disclosure explains that the director is an executive officer, other than a named executive officer, who does not receive any additional compensation for services provided as a director. [Aug. 8, 2007]

227.03 A company has a director who also is an employee (but not an executive officer). Item 404(a) requires disclosure of the transaction pursuant to which the director is compensated for services provided as an employee. (Instruction 5 to Item 404(a) does not apply because the person is not an executive officer or does not have compensation reported for services as a director in the Director Compensation Table required by Item 402(k).) However, disclosure of this employee compensation transaction in the Director Compensation Table typically would result in a clearer, more concise presentation of the information. In this situation, if the employee compensation transaction is reported in the Director Compensation Table, it need not be repeated with the other Item 404(a) disclosure. Footnote or narrative disclosure to the Director Compensation Table should explain the allocation to services provided as an employee. [Aug. 8, 2007]

227.04 A current director previously was an employee of the company and receives a pension that was earned for services rendered as a company employee. If payment of the pension is not conditioned on his or her service as a director, the pension benefits do not need to be disclosed in the Director Compensation Table, whether or not the director receives compensation for services provided as a director. If service as a director generates new accruals to the pension, disclosure would be required in column (f) of the Director Compensation Table. [Aug. 8, 2007]

Section 228. Items 402(l) to (r) — Executive Compensation; Smaller Reporting Companies

None

Section 228A Item 402(s) — Narrative disclosure of the registrant's compensation policies and practices as they relate to the registrant's risk management

None

Section 228B Item 402(t) — Golden Parachute Compensation

None

Section 228C Item 402(u) — Pay Ratio Disclosure

None

Section 228D Item 402(v) — Pay Versus Performance

228D.01 If a company changes its fiscal year during the time period covered by the Item 402(v) Pay Versus Performance table, provide the disclosure required by Item 402(v) for the "stub period," and do not annualize or restate compensation. For example, in late 2022, a company that is not a Smaller Reporting Company changed its fiscal year end from June 30 to December 31. In the registrant’s first Pay Versus Performance table, provide disclosure for each of the following four periods: July 1, 2022 to December 31, 2022; July 1, 2021 to June 30, 2022; July 1, 2020 to June 30, 2021; and July 1, 2019 to June 30, 2020. Continue providing such disclosure including the stub period until there is disclosure for five full fiscal years after the stub period. This is consistent with the approach applicable to Summary Compensation Table disclosure for changes in fiscal year end. See Question 217.05. [February 10, 2023]

228D.02 A registrant emerged from bankruptcy, and a new class of stock that was issued under the bankruptcy plan started trading in September 2020. Registrant is preparing its first Pay Versus Performance disclosure for inclusion in its 2023 proxy statement. Consistent with Question 206.14, registrant will be presenting less than five full years of data in its stock performance graph under Item 201(e) using a measurement period for the graph from September 2020 through December 2022. For purposes of the requirement in Item 402(v)(2)(iv), the registrant may provide its cumulative total shareholder return and peer group cumulative total shareholder return in the same manner. The registrant should provide footnote disclosure to explain the approach and its effect on the Pay Versus Performance table. [February 10, 2023]

Section 229. Item 403 — Security Ownership of Certain Beneficial Owners and Management

229.01 A limited partnership holds restricted voting securities in a company that plans to make a public offering of its securities. The limited partnership agreement requires the limited partnership to distribute the restricted securities to its general and limited partners within 60 days following such public offering. In light of the beneficial ownership provisions of Section 13(d), the beneficial ownership of shares to be held by the general and limited partners whose holdings will be in excess of 5 percent (or if such persons are directors or named executive officers) following such distribution should be included in the beneficial ownership table contained in the company's prospectus. [Mar. 13, 2007]

229.02 When asked whether an issuer would be required to consider Form 13-F reports of "investment discretion" in determining the identity of 5 percent beneficial owners under Item 403(a), the Division staff advised that the concept of "investment discretion" was not the same as "beneficial ownership," noting that investment managers subject to Form 13-F reporting would also have to file Schedule 13D or Schedule 13G if their interest in the securities constituted beneficial ownership. The Division staff emphasized the statement in Item 403 that the issuer could rely on Schedules 13D and 13G, but that such reliance could not be exclusive if it had knowledge (or has reason to believe that such information is not complete or accurate or that a statement or amendment that should have been filed was not) of any 5 percent beneficial owners who had not filed such reports. [Mar. 13, 2007]

229.03 The tax consequences under Section 409A of the Internal Revenue Code that apply if a "key employee" receives a stock distribution within six months after leaving the company do not affect the analysis as to whether the person has a right to acquire the stock within 60 days under Rule 13d-3(d)(1). This is because Section 409A results in a negative economic consequence rather than a prohibition upon receipt of the shares. [Mar. 13, 2007]

Section 230. Item 404 — Transactions with Related Persons, Promoters and Certain Control Persons

230.01 The term "any immediate family member," as used in Item 404, is defined to include, among others, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and stepchildren and stepparents. For purposes of this item, such relatives are deemed to be: (1) only those persons who are currently related to the primary reporting person (e.g., a person who is divorced from a director's daughter would no longer be a son-in-law whose transactions must be reported); and (2) only those persons who are related by blood or step relationship to the primary reporting person or his spouse (e.g., the sister of a director's spouse is considered a sister-in-law for purposes of this item; the sister's husband, however, is not considered a brother-in-law for purposes of this item). [Mar. 13, 2007]

230.02 A is an officer and director of Y corporation, a wholly-owned subsidiary of registrant X. A is not an officer or director of X and holds only a nominal amount of X's shares. Y does business in an amount in excess of $120,000 with B, A's brother. That relationship need not be disclosed in X's reports under Item 404(a), since A is not a person described in Instruction 1 to Item 404(a). [Mar. 13, 2007]

230.03 A corporation enters into a lease in an amount substantially in excess of $120,000 with a lessor completely unaffiliated with the corporation. The lease, however, is negotiated through a related person specified in Instruction 1 to Item 404(a), who is paid a commission that is less than $120,000 by the lessor for those services. Since the amount of that person's commission is dependent upon the value of the lease, that person is considered to have an interest in the lease transaction, and the transaction, together with the commission, should be reported if the interest is determined to be a direct or indirect material interest. [Mar. 13, 2007]

230.04 Y, the President and a director of Z Corporation, a supplier of the registrant, is a member of the registrant's board of directors. The registrant solicited bids from Z and various other companies on a supply contract involving an amount in excess of the $120,000 threshold of Item 404(a). The registrant plans to award the contract to Z, even though this supplier did not submit the lowest bid in what purportedly was a competitive bidding contest. Under these circumstances, the registrant cannot avail itself of the exclusion in Instruction 7.a. to Item 404(a) for transactions where the rates or charges involved are determined by competitive bids. [Mar. 13, 2007]

230.05 Instruction 7.a. to Item 404(a) of Regulation S-K does not permit non-disclosure of an equipment lease transaction between a company owned by a director of a reporting company and the reporting company, simply because the reporting company solicited proposals from other unrelated persons and selected the director's company only after an internal analysis of the available terms. The procedure used was not deemed to be a competitive bid because it did not involve the formal procedures normally associated with competitive bidding situations. There were no specifications established for the lease being bid upon and there was no indication of the basis upon which a bid was accepted. [Mar. 13, 2007]

230.06 A contract between a reporting company and the fund manager of the company's pension plan, who is also a more than 5 percent beneficial owner under Rule 13d-3, should be disclosed under Item 404(a) where the amount involved in the contract exceeds $120,000. [Mar. 13, 2007]

230.07 X is a director of the registrant. X's child is employed by the registrant and receives yearly compensation exceeding $120,000. The child's compensation is not reported under Item 402 since the child is not one of the registrant's named executive officers, nor is the child an officer or director. The child's compensation is required to be disclosed under Item 404(a) because the child is a related person and has a material interest in his or her yearly compensation. [Aug. 14, 2009]

230.08 An agreement by a company with a related person to repurchase company shares from the related person's estate upon death with the proceeds of a life insurance policy paid for by the company should be disclosed pursuant to Item 404(a). [Mar. 13, 2007]

230.09 In connection with a move of company headquarters, a company purchased and resold the homes owned by all affected employees. The price paid was determined by an independent appraiser. The company was advised that the Division staff will raise no objection if the company discloses under Item 404(a) only the general features of the program (including how the price was determined) and the total amount spent by the company on the program. [Mar. 13, 2007]

230.10 Item 404(a) requires disclosure of nonaccrual, past due, restructured and potential problem loans from banks, savings and loan associations or broker-dealers extending credit under Federal Reserve Regulation T. Instruction 4.c. of Item 404(a) refers to Industry Guide 3, Statistical Disclosure by Bank Holding Companies, for determining if loans are nonaccrual, past due, restructured or potential problem loans. Guide 3 requires disclosure of loans in these categories the end of each "reported period." In a proxy statement, therefore, where the reported period is the last fiscal year, only those loans which were in these categories at the end of the last fiscal year are required to be reported. [Mar. 13, 2007]

230.11 A parent and its subsidiary are both Exchange Act reporting companies. Some of the executive officers of the parent may receive a portion of their compensation from the subsidiary corporation. The Division staff advised that if an executive spends 100% (or near 100%) of the executive's time for the subsidiary but is paid by the parent, then the compensation paid by the parent has to be reported in the executive compensation table of the subsidiary. However, if an allocation of the monies paid by the parent would be necessary because the executive officer splits time between the parent and the subsidiary, the payments allocable to services to the parent need not be included in the subsidiary's executive compensation table. In addition, in the event that the subsidiary pays a management fee to the parent for use of the executives, disclosure of the structure of the management agreement and fees would have to be reported under Item 404. Compensation paid by the subsidiary to executives of the parent company must be included in the parent's executive compensation table if such payments are paid directly by the subsidiary. If the payments are part of a management contract, disclosure of the structure of the management agreement and fees would have to be reported under Item 404. [July 3, 2008] [same as C&DI 217.08]

230.12 When the transaction under consideration is an employment arrangement, "the amount involved in the transaction" includes all compensation, not just the salary of the employee. [Aug. 8, 2007]

230.13 The compensation of an executive officer who is not a named executive officer is approved by the Board's compensation committee, and the executive officer's compensation is not disclosed under Item 404(a) pursuant to Instruction 5.a to Item 404(a). An immediate family member of this executive officer also is employed by the company. The immediate family member's compensation is disclosed under Item 404(a). In this regard, Instruction 5.a to Item 404(a) does not apply to the immediate family member because she was not an executive officer. [Aug. 8, 2007]

Section 231. Item 405 — Compliance with Section 16(a) of the Exchange Act

231.01 Item 405 requires the company to disclose delinquent filings required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior years. An insider's Form 5 with respect to 2007, due in February 2008, was filed late. If this late Form 5 is disclosed in the company's Form 10-K for the year ended December 31, 2007 and the proxy statement for the 2008 annual meeting, this Item 405 disclosure need not be repeated in the company's Form 10-K for the year ended December 31, 2008 and the proxy statement for the 2009 annual meeting. [July 3, 2008]

Section 232. Item 406 — Code of Ethics

None

Section 233. Item 407 — Corporate Governance

233.01 The "total number of meetings of the board of directors" specified as the basis for calculation of director's attendance in Item 407(b)(1) does not include board action by written consent. [Mar. 13, 2007]

233.02 If the only disclosure that a registrant is required to provide pursuant to Item 407(e)(4) is the identity of the members of the compensation committee, because the registrant has no transactions or relationships that trigger a disclosure obligation, the registrant may omit the Item 407(e)(4) caption ("Compensation Committee Interlocks and Insider Participation"). [Mar. 13, 2007]

233.03 The Compensation Committee Report must be separately captioned to identify it clearly as specified in Item 407(e)(5). Where there are multiple committees on the board with responsibility for different components of compensation (e.g., a stock option committee) and those committees review and discuss the Compensation Discussion and Analysis with management and, based on that review and discussion, recommend the inclusion of the Compensation Discussion and Analysis in the registrant's filings, each of these committees has a disclosure obligation under Item 407(e)(5). [Mar. 13, 2007]

Section 234. Item 501 — Forepart of Registration Statement and Outside Front Cover Page of Prospectus

234.01 Counsel for a company named Geo-Search was informed that if the company registered under the Exchange Act, the Division staff would not suggest a name change solely because there is an existing registrant named Geosearch. [July 3, 2008]

234.02 The cover page of a prospectus relating to a secondary equity offering, registered for the shelf pursuant to Rule 415, need not contain the tabular or other presentation required by Item 501(b)(3) where the offering will not be underwritten, the securities will be offered at the market, and brokerage commissions will be negotiated at the time of the offering. The reason is that no meaningful figures as to "price to the public" and "underwriter's discounts" would be available. [July 3, 2008]

Section 235. Item 502 — Inside Front and Outside Back Cover Pages of Prospectus

None

Section 236. Item 503 — Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges

None

Section 237. Item 504 — Use of Proceeds

None

Section 238. Item 505 — Determination of Offering Price

None

Section 239. Item 506 — Dilution

None

Section 240. Item 507 — Selling Security Holders

240.01 Item 507 of Regulation S-K requires certain disclosure concerning each selling shareholder for whose account the securities being registered are to be offered. The Division staff has permitted this disclosure to be made on a group basis, as opposed to an individual basis, where the aggregate holding of the group is less than 1% of the class prior to the offering. Where the aggregate holding of the group is less than 1% of the class but for a few major shareholders, the disclosure for the members of the group other than the major shareholders also may be made on a group basis. [July 3, 2008]

240.02 Revised and moved to Question 140.03 [Aug. 14, 2009]

240.03 An investment advisor manages security holder accounts in the advisor's exclusive discretion. Although the account agreements give the advisor complete discretionary authority to vote and sell securities held in the managed accounts, the account holders may revoke this authority within 60 days. Both the investment advisor and the individual account holders must be identified under Item 507 of Regulation S-K because both are viewed as security holders given their shared power to vote and sell the securities held in the managed accounts. [July 3, 2008]

240.04

[Withdrawn, July 26, 2016]

Section 241. Item 508 — Plan of Distribution

241.01 Stabilizing transactions begun on the day a registration statement became effective, but prior to the time of effectiveness (e.g., stabilizing began at 10:00 A.M. and the registration statement was declared effective at 2:00 P.M.), are not deemed to be "before the effective date of the registration statement" for purposes of Item 508(l)(2). Accordingly, the disclosure set forth in Item 508(l)(2) need not be made for such transactions. [July 3, 2008]

Section 242. Item 509 — Interests of Named Experts and Counsel

242.01 A legal fee incurred in the preparation of a registration statement, even if in excess of $50,000, is not the kind of "substantial interest" in the registrant requiring disclosure under Item 509. Such fees, of course, are normally disclosed in Part II of the registration statement. [July 3, 2008]

242.02 Where a registrant's attorney has a 10% limited partnership interest in a limited partnership in which the registrant has a 50% limited partnership interest, the registrant's relationship to the partnership is sufficiently analogous to a parent-subsidiary relationship to warrant furnishing the disclosure required by Item 509 of Regulation S-K. [July 3, 2008]

242.03 A law firm is charging a flat fee to a registrant for services performed in connection with preparation of the registrant's Securities Act registration statement. However, as the company will declare bankruptcy if the offering is unsuccessful, the law firm is not certain it will be paid unless the offering is successful. The Division staff has taken the position that this is not a form of "contingent interest" the disclosure of which was contemplated by Item 509. [July 3, 2008]

Section 243. Item 510 — Disclosure of Commission Position on Indemnification for Securities Act Liabilities

None

Section 244. Item 511 — Other Expenses of Issuance and Distribution

None

Section 245. Item 512 — Undertakings

245.01 A Rule 415 offering provides that purchasers within the first 60 days will receive a security with a higher yield than that to be received by subsequent purchasers. The registrant wished to extend the preferential purchase period for an additional 30 days. The Division staff has taken the position that such an extension is a material change in the plan of distribution, which according to the Item 512(a)(iii) undertaking would require a post-effective amendment (or, for registration statements on Form S-3 or F-3, compliance with one of the methods in Item 512(a)(1)(B)). [July 3, 2008]

245.02 In an offering of limited partnership interests registered under the Securities Act, the undertaking required by Item 512(f) that the issuer provide certificates to the underwriter need not be included in the registration statement where no certificates will be used. [July 3, 2008]

Section 246. Item 601 — Exhibits

246.01 Item 601(b)(3) requires that the entire amended text of the articles or by-laws be filed, along with the text of the new amendments. This could be accomplished by filing the entire amended text, redlined to show the new amendments. [July 3, 2008]

246.02 The exhibits to be filed with a Form 10-Q need only include instruments defining the rights of security holders with respect to long-term debt that was issued during the quarter covered by the form. Thus, documents defining the rights of commercial paper holders are not required to be filed as exhibits since commercial paper is not long-term indebtedness. [July 3, 2008]

246.03 Item 601 of Regulation S-K provides that a Form 10-Q must include, among other things, the exhibits required by Item 601(b)(4) (viz., instruments defining the rights of security holders, including indentures). However, an indenture need be filed with a Form 10-Q only in those situations where the Form 10-Q discloses a new debt issue in the quarter for which the report is filed. See Item 601(b)(4)(v). If the indenture has already been filed as part of a Securities Act registration statement, it can be incorporated by reference into the Form 10-Q pursuant to Exchange Act Rules 12b-23 and 12b-32. [July 3, 2008]

246.04 A registrant adopts a resolution providing confidential proxy voting rights for shareholders and asks whether the resolution should be filed as an "instrument defining the rights of security holders" pursuant to Regulation S-K Item 601(b)(4). The Division staff has advised that it should be so filed. [July 3, 2008]

246.05 Subparagraph (ii) of Item 601(b)(4) requires filing as an exhibit instruments defining the rights of holders of long-term debt. Subparagraph (iii)(A) excludes from this requirement such instruments where the amount of indebtedness authorized thereunder does not exceed 10% of the total assets of the company and there is filed an agreement to furnish a copy of the instrument to the Commission upon request. The confidential treatment procedures set forth in Rule 83(c) would apply to such documents furnished upon request. [July 3, 2008]

246.06 A company issues a series of notes, amounting to 5% of its total assets, in a private placement and pursuant to an indenture. Since the amount involved is less than 10 percent of its total assets, the indenture is not required to be filed pursuant to Item 601(b)(4) as an exhibit to the Form 10-K and, although not made in the ordinary course of business, the indenture would not be required to be filed as a material contract pursuant to Item 601(b)(10). [July 3, 2008]

246.07 In connection with a rights offering, a foreign company registering: (1) warrants evidencing the rights to purchase American depositary shares representing ordinary shares; (2) provisional allotment letters ("PALs") evidencing rights to purchase ordinary shares; and (3) ordinary shares underlying the warrants and PALs, must provide an opinion of counsel as to the legal issuance of the warrants and PALs and the fact that they are valid and binding obligations of the company, in addition to the opinion regarding the valid issuance and fully-paid and non-assessable nature of the ordinary shares. [July 3, 2008]

246.08 Two companies propose a joint Form S-4 registration statement for a stock-for-assets acquisition. Although the company to be acquired is not the registrant, it should file as exhibits any contracts or other documents that would be material to the new entity. [July 3, 2008]

246.09 Item 601(b)(10) requires the filing of material contracts. Pursuant to Item 601(b)(10)(ii)(C), a contract for the acquisition of real estate must be filed if consideration in excess of 15% of the fixed assets of the company is paid for the real estate. When computing the consideration paid for the real estate, an issuer should include the cash purchase price plus the amount of any indebtedness assumed as a result of the purchase. [July 3, 2008]

246.10 For purposes of Form 10-K, Item 601(b)(10)(iii) of Regulation S-K requiring disclosure of remunerative contracts would apply to a deferred compensation plan entered into during the fiscal year, even though the officer/director retired during that fiscal year and no longer was an officer/director. [July 3, 2008]

246.11 Instruction 1 to Item 201(d) provides that no disclosure is required with respect to any employee benefit plan that is intended to meet the qualification requirements of Internal Revenue Code Section 401(a). The same treatment would apply to a foreign employee benefit plan that is similar in substance to a Section 401(a) qualified plan in terms of being broad-based, compensatory and non-discriminatory. The same analysis applies for purposes of determining whether a plan must be filed as an exhibit pursuant to Item 601(b)(10)(iii)(B) of Regulation S-K, based on the exclusion provided by Item 601(b)(10)(iii)(C)(4) of Regulation S-K. [Mar. 13, 2007] [same as C&DI 206.03]

246.12 A remuneration plan applicable to 300 key executives in a company with 18,000 employees would not be considered a plan available to employees generally. Therefore, it would not fall within the exemption provided by Item 601(b)(10)(iii)(C)(4) and would have to be filed as an exhibit. In this regard, if a compensatory plan, contract or arrangement is available generally to all officers and directors but is not available to all employees of the company, the plan, contract or arrangement does not fall within this exemption. [July 3, 2008]

246.13 A company files its first Form 10-K containing management's report on internal control over financial reporting. The company inadvertently omits the internal control over financial reporting language from the introductory portion of paragraph 4 of the Section 302 certification, as well as paragraph 4(b). Because companies were permitted to omit these portions of the certification during the transition period to Section 404(a) compliance, if this error occurs in the company's first Form 10-K containing management's report, the staff will permit the company to file a Form 10-K/A that contains only the cover page, explanatory note, signature page and paragraphs 1, 2, 4 and 5 of the Section 302 certification. However, if the same company were to make this mistake in the following year, it would be required to file a Form 10-K/A containing full Item 9A disclosure as well as the company's financial statements. [July 3, 2008]

246.14 The following errors in a certification required by Item 601(b)(31) are examples of errors that will require the company to file a corrected certification that is accompanied by the entire periodic report: (1) the company identifies the wrong periodic report in paragraph 1 of the certification; (2) the certification omits a conformed signature above the signature line at the end of the certification; (3) the certification fails to include a date; and (4) the individuals who sign the certification are neither the company's principal executive officer nor the principal financial officer, or persons performing equivalent functions. [July 3, 2008]

246.15 Consistent with the requirements of Item 601(b)(10)(iii), a company files its nonqualified deferred compensation plan as an exhibit. The company subsequently establishes a rabbi trust under the nonqualified deferred compensation plan. Establishment of the rabbi trust would trigger filing under Item 601(b)(10)(iii) only if it materially modifies participants' rights under the previously filed nonqualified deferred compensation plan. [May 29, 2009]

Section 247. Item 701 — Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

247.01 If the only warrants in an offering were issued to underwriters as compensation, and if the proceeds from the exercise of the warrants will be de minimis with respect to the overall proceeds, the Division staff may deem the obligation to report use of proceeds from an initial offering to be completed. Ordinarily, however, when purchase warrants remain outstanding, an offering is ongoing for purposes of reporting use of proceeds. [July 3, 2008]

247.02 Use of proceeds disclosure is required in the issuer's first periodic report filed following the effective date of its first registration statement filed under the Securities Act, even if the registration statement covered a best-efforts offering that has not closed on the due date of that periodic report. [July 3, 2008]

247.03 If a registrant's first filing under the Securities Act is a secondary offering, no disclosure need be provided in response to Item 701(f) since there is no use of proceeds. However, such a secondary offering would not constitute "the first registration statement filed under the Act by an issuer" for purposes of Rule 463. Accordingly, the first primary Securities Act offering by that registrant would necessitate disclosure under Item 701(f). [July 3, 2008]

247.04 On the same registration statement, in its initial public offering, a company registered X shares for sale to the public and Y shares for issuance pursuant to employee benefit plans. The Division staff agreed with the company's analysis that it need report the use of proceeds as required by Rule 463 and Item 701(f) of Regulation S-K only for the shares sold to the public, and could omit the information relating to the employee benefit plan shares in reliance on Rule 463(d)(3). The Division staff's response is premised on the representation that the employee benefit plan shares were originally registered for that purpose; had it been a matter of converting shares originally registered for sale to the public that remained unsold to the employee benefit purpose, this position would not apply. [July 3, 2008]

>Section 248. Item 702 — Indemnification of Directors and Officers

None

Section 249. Item 703 — Purchases of Equity Securities by the Issuer and Affiliated Purchasers

249.01 If a company receives its shares back from a vendor in settlement of litigation, these shares must be disclosed under Item 703 of Regulation S-K. [July 3, 2008]

249.02 An investor purchased stock from an issuer in a private placement. The investor paid the consideration with a promissory note, which was secured by the stock. When it became apparent that the investor could not repay the note, the parties agreed that the investor would forfeit the stock in exchange for cancellation of the note. The forfeiture of the pledged stock to the issuer is an issuer repurchase that requires Item 703 of Regulation S-K disclosure. [July 3, 2008]

Section 250. Items 801 and 802 — Industry Guides

None

Section 251. Items 901 through 915 — Roll-up Transactions

None

Regulation S-T

Last Update: January 23, 2015

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Regulation S-T. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Sections 101 to 117. Rules 10 to 303 [Reserved]

Section 118. Rule 304 — Graphic, Image, Audio and Video Material

Question 118.01

Question: May a Commission filing contain graphics (such as .gif or .jpeg image files) that include information that is not text-searchable?

Answer: Rule 304(e) of Regulation S-T specifies that “filers may not present in a graphic or image file information such as text or tables that users must be able to search and/or download into spreadsheet form (e.g., financial statements); filers must present such material as text in an ASCII document or as text or an HTML table in an HTML document.” In our view, “information such as text or tables that users must be able to search and/or download” consists of all information that the filer is required to include in the particular filing, such as disclosures in response to applicable form and Regulation S-K items and any additional information required to be included under Securities Act Rule 408 or Exchange Act Rule 12b-20.

We recognize that registrants may present information in Commission filings in formats such as bar graphs or other graphics that are not text-searchable but that they believe may be more useful to readers than tables or paragraphs that present the same information in searchable form. We welcome the use of graphic and image files to make information more accessible for users, provided that the filing complies with applicable EDGAR size and formatting requirements and the filer’s use of graphics does not interfere with a user’s ability to search required information. Therefore, with regard to required disclosures, a filer may present required information using graphics that are not text-searchable and still comply with Rule 304(e) if the filer also presents the same information as searchable text or in a searchable table within the filing. The searchable information could be included, for example, together with the related graphic in the filing or in an appendix to the filing. Any additional information that the filer chooses to include in the filing and that is not required to be disclosed may be presented graphically without a separate text-searchable presentation. This interpretation also applies to material electronically furnished or submitted to the Commission through EDGAR. [January 23, 2015]

Sections 119 to 129. Rules 305 to 402 [Reserved]

Section 130. Rule 405

Question 130.01

Question: Under Rule 405(a)(2) of Regulation S-T, a filer may submit its first Interactive Data File (or first Interactive Data File containing or required to contain, whichever first occurs, detail-tagged footnotes or schedules) within a 30-day grace period by amending the form to which the interactive data relates — for example, by filing a Form 10-Q amendment. Assuming the sole purpose of such amendment is to include the Interactive Data File as exhibit 101, what should the filer include in the amendment?

Answer: In the case of an amendment to a periodic report, the filer should include the cover page, an explanatory note, the signature page, an exhibit index, and exhibit 101. [May 29, 2009]

Question 130.02

Question: A filer submits its first Interactive Data File on a voluntary basis — that is, before it is required to do so pursuant to the phase-in schedule — and uses the 30-day grace period applicable to initial submissions under Rule 405(a)(2) of Regulation S-T. When the filer becomes required to submit Interactive Data Files pursuant to the phase-in schedule, may it avail itself of an initial submission 30-day grace period again for its first required Interactive Data File?

Answer: No. Each filer has only one initial submission 30-day grace period irrespective of whether that initial submission is made voluntarily (i.e., in advance of its scheduled phase-in) or as required (i.e., at its scheduled phase-in). Similarly, each filer has only one 30-day grace period for its initial detail-tagged footnote and schedule submission, whether submitted voluntarily or as required. [May 29, 2009]

Question 130.03

Question: If a filer submits its initial interactive data in advance of the phase-in schedule, can it wait to begin submitting its detail-tagged footnotes and schedules until it is required to do so under its scheduled phase-in?

Answer: Yes. Filers can also cease voluntary submissions of Interactive Data Files at any time until they are required to submit them pursuant to the phase-in schedule. [May 29, 2009]

Question 130.04

Question: Rule 405(d)(4)(i) of Regulation S-T states that each amount (i.e., monetary value, percentage and number) within each footnote must be tagged separately. Is an amount expressed as text (e.g., seven percent) required to be tagged under this provision?

Answer: Yes. Each amount, whether expressed numerically or textually, must be tagged separately under Rule 405(d)(4)(i). This guidance also applies to tagging each amount within the financial statement schedules under Rule 405(e)(2)(i) of Regulation S-T. Each tagged amount must be mapped to the applicable monetary, decimal, percent, integer or shares data type element. [May 29, 2009]

Question 130.05

Question: A filer's footnote states, "The assumed discount rate at December 31, 2008 is 7%." Can this fact be tagged as a string of text in satisfaction of Rule 405(d)(4)(i) of Regulation S-T?

Answer: No. Rule 405(d)(4)(i) of Regulation S-T requires that each amount be separately tagged. Each tagged amount must be mapped to the applicable monetary, decimal, percent, integer or shares data type element. Guidance on how to associate a specific date with an amount is provided under Chapter 6 of Volume II of the EDGAR Filer Manual. [May 29, 2009]

Question 130.06

Question: Rule 405(d)(4)(i) of Regulation S-T states that each amount (i.e., monetary value, percentage, and number) within each footnote must be tagged separately. How does this requirement apply when the numbers relate to periods or years, such as used in the following example? "Annual maturities of debt are: Year 1 (or 2010) is $1,000, Year 2 (or 2011) is $2,000, Year 3 (or 2012) is $3,000, Year 4 (or 2013) is $4,000, and Year 5 (or 2014) is $5,000."

Answer: In this example, the only amounts that should be tagged are the dollar amounts. The "year" references (i.e., Year 1, 2010, etc.) merely provide context to the dollar amounts. Examples of other disclosures in which this format may be common are future minimum lease payments and unconditional purchase obligations. The filer should carefully review the elements in the standard taxonomy because in some cases, the taxonomy will include separate elements for each specific period, and in other cases, the filer would use the same element from the taxonomy and distinguish each period by creating contextual information (see Section 6.5 of the EDGAR Filer Manual for guidance on defining contexts). [May 29, 2009]

Question 130.07

Question: Will the filer be permitted to include in interactive data format the auditor's report on the financial statements, or an assurance report on the interactive data voluntarily obtained from a third party, in its Interactive Data File submitted to the Commission?

Question 130.08

Question: Must an Interactive Data File that complies with the requirements of Rule 405 of Regulation S-T appear identical to the traditional format financial statements when displayed by a viewer on the Commission's website?

Answer: No. There is no such requirement. [May 29, 2009]

Question 130.09

Question: A filer is required to post an interactive data file on the filer's web site, if it has one. The filer cannot comply with this requirement by providing a hyperlink on its web site to the Commission's web site. See Securities Act Release No. 9002 (Jan. 30, 2009). May the filer comply with this requirement by providing a hyperlink on its web site directly to the interactive data file, which is itself on a non-Commission third-party web site?

Answer: Yes, if the hyperlink goes directly to the interactive data file, the interactive data file is made available in the required time frame, and access to the interactive data file is free of charge to the user. [Sep. 14, 2009]

Question 130.10

Question: How does a filer determine when it is required to submit interactive data and to "detail tag" the financial statement footnotes and schedules in its interactive data?

Conversely, if the filer, as of December 31, 2010, is a large accelerated filer with a public float over $5 billion on the last business day of its second quarter ended June 30, 2010, it will follow the submission requirements of Item 601(b)(101)(i)(A) of Regulation S-K and the detail tagging requirements of Rule 405(f)(1) of Regulation S-T. Accordingly, the filer would be required to submit interactive data with its Form 10-K for the year ended December 31, 2010 and Forms 10-Q for the quarters ended March 31, June 30 and September 30, 2011 and to detail tag the financial statement footnotes and schedules in the interactive data it submits with all of these forms, even though the filer is in its first year of interactive data reporting. A filer that is required to begin detail tagging within its first year of interactive data reporting may apply for a continuing hardship exemption pursuant to Rule 202 of Regulation S-T if it cannot detail tag without undue burden or expense. Such applications will be considered on a case-by-case basis. [Sept. 17, 2010]

Section 131. Rule 406T

Question 131.01

Question: If a filer voluntarily submits an interactive data file before it "first was required to submit" such file for purposes of Rule 406T(d) of Regulation S-T, does that voluntary submission start the rule's 24-month modified liability period?

Answer: No. [Sept. 17, 2010]

Section 132. Rule 501

None

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Sections 201 to 232. Rules 10 to 501 [Reserved]

Trust Indenture Act of 1939

Last Update: April 24, 2015

These interpretations replace the Trust Indenture Act of 1939 interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations and the November 2000 Current Issues and Rulemaking Projects Outline. Some of the interpretations included herein were originally included in the Manual of Publicly Available Telephone Interpretations (as supplemented), and have been revised in some cases. The bracketed date following each interpretation is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. 1939 Act — General Guidance

Question 101.01

Question: May an obligor qualify an indenture to issue debt securities that are subject to the Trust Indenture Act even though another obligor has issued securities under the same indenture that are exempt from the Trust Indenture Act?

Answer: An obligor may qualify an indenture under which it issues securities subject to the Trust Indenture Act even though another obligor issues securities under the same indenture that are exempt from the Trust Indenture Act. [March 30, 2007]

Question 101.02

Question: Does changing the interest rate on outstanding convertible debt securities constitute the offering of new securities for purposes of the Securities Act and the Trust Indenture Act?

Answer: If the only change to outstanding convertible debt securities is an increase in the interest rate to discourage conversions, there is not deemed to be an offering of new securities requiring any Securities or Trust Indenture Act filing. Any additional changes to the debt securities may raise questions under the Securities or Trust Indenture Act. [March 30, 2007]

Question 101.03

Question: When must a supplemental indenture providing for the substitution of a new obligor be qualified under the Trust Indenture Act?

Answer: A supplemental indenture providing for the substitution of a new obligor need not be qualified under the Trust Indenture Act if the substitution takes place pursuant to a provision of the old indenture and is not subject to the approval or consent of security holders. If approval by debt holders must be solicited, the sale of a new security is deemed to occur and therefore, a Securities Act registration statement should be filed and the indenture under which the new security is to be issued must be qualified. [March 30, 2007]

Question 101.04

Question: Does the Trust Indenture Act apply to preferred stock?

Answer: The Trust Indenture Act does not apply to traditional preferred stock, as such stock is not considered to be a debt security for purposes of that Act. The Act generally would apply, however, to preferred securities issued by a trust that represent an interest in debt issued by a single obligor. [March 30, 2007]

Question 101.05

Question: Can an issuer offering of debt securities in a Chapter 11 bankruptcy proceeding file the application for qualification on Form T-3 after approval of the plan of reorganization by both creditors and other claimants and the bankruptcy court?

Answer: No. The Division's view is that the offering event in bankruptcy is the solicitation of plan approval from creditors and other claimants. Accordingly, the application for qualification on Form T-3 in these cases should be filed before such approval is sought. Offerings exempt from registration under Sections 3(a)(9) and 3(a)(10) of the Securities Act and Section 1145(a) of the Bankruptcy Code are not exempt from qualification under the Trust Indenture Act. Like Section 5 of the Securities Act, Section 306 of the Trust Indenture Act works transactionally. Unless the indenture for a debt security is qualified under Section 305 of the Trust Indenture Act, which covers registered offerings, or exempt from qualification under Section 304, the sale of the debt security violates Section 306 of the statute. Section 306(c) forbids any offer of the debt security until an application for qualification of the related indenture has been filed with the Commission. [March 30, 2007]

Section 102. Section 305

Question 102.01

Question: Do supplemental indentures that modify the terms of outstanding debt securities under previously qualified indentures need to be qualified under the Trust Indenture Act?

Answer: Supplemental indentures modifying terms of securities outstanding under previously qualified indentures need not be qualified unless the changes are so significant that they are deemed to involve the offering of a new security and, therefore, the obligor either registers the transaction under the Securities Act or relies upon a Securities Act exemption for which there is no corresponding Trust Indenture Act exemption. If the modifications do not result in the offering of a new security, and the offering is ongoing, the supplemental indenture may be filed as an exhibit to an 8-K if the offering is on S-3 (in the same manner as specified for underwriting agreements), or in an automatically effective, exhibits only post-effective amendment filed pursuant to Rule 462(d). For automatic shelf registration statements, the post-effective amendment would be filed pursuant to Rule 462(e). If the offering has terminated, the amended indenture should be filed as Exhibit 4 to the company’s next Exchange Act report. [March 30, 2007]

Section 103. Section 305(b)(2); Form T-1

Question 103.01

Question: When must the trustee be named and qualified under the Trust Indenture Act if the registrant files an automatic shelf registration statement to register the offer and sale of debt securities or a post-effective amendment to an automatic shelf registration statement to add debt?

Answer: If an automatic shelf registration statement is filed to register the offer and sale of debt securities or the registrant subsequently adds debt to an automatic shelf registration statement by post-effective amendment, the determination of when the trustee must be named and qualified under the Trust Indenture Act depends on whether the offering is made on a delayed basis in accordance with Securities Act Rule 415(a)(1)(x). If the offering is made on such a delayed basis, Section 305(b)(2) of the Trust Indenture Act permits the trustee to be designated on a delayed basis as well. In that instance, the Form T-1 would become effective ten calendar days after filing unless effectiveness is accelerated by the Commission. If the offering is not made on a delayed basis, the Form T-1 must be filed as an exhibit to the automatic shelf registration statement or post-effective amendment to the automatic shelf registration statement filed to register the debt securities, and qualification would occur upon effectiveness of those filings. [March 30, 2007]

Section 104. Section 306(a)

Question 104.01

Question: Does Section 306(a) nullify the exemptions contained in Section 304?

Answer: No. Section 306(a) of the Trust Indenture Act, which requires indenture qualification, states that it applies “in the case of any security which is not registered under the Securities Act of 1933 and to which this subsection is applicable notwithstanding the provisions of Section 304 [of the Trust Indenture Act] . . . .” The use of the word “notwithstanding” should not be read as meaning that Section 306(a) effectively repeals the exemptions contained in Section 304. Rather, this language merely serves the purpose of alerting the reader to consider Section 304. [March 30, 2007]

Section 105. Section 310(a)

Question 105.01

Question: May a U.S. subsidiary of a foreign trustee serve as the trustee of an indenture qualified under the Trust Indenture Act?

Answer: Section 310(a) of the Trust Indenture Act requires the use of an institutional trustee that is organized and doing business under the laws of the U.S. or any state (absent a Commission rule or order to allow a foreign trustee). However, a U.S. subsidiary of a foreign company may serve as trustee, if it is organized and doing business under the laws of the U.S. or any state. [March 30, 2007]

Section 106. Section 310(b); Form T-1

Question 106.01

Question: May a subsidiary use the same trustee used by its parent for an offering of debt securities?

Answer: As long as the parent has not guaranteed any debt of its subsidiary and the subsidiary has not guaranteed any debt of its parent, a subsidiary may use the same trustee used by its parent for an offering of debt securities without giving rise to a conflict of interest upon the occurrence of a default, since the parent and the subsidiary are deemed to be different obligors. Moreover, if a default has occurred, Item 4 of the Form T-1 filed by the subsidiary’s trustee need not disclose the parent’s indenture. [March 30, 2007]

Section 107. Sections 314(a)(1)-(a)(3)

Question 107.01

Question: Is an obligor that is not required to file Exchange Act reports with the Commission nonetheless required to file with the trustee the information, documents, and reports required by Section 13(a) of the Exchange Act?

Answer: No. Sections 314(a)(1)-(a)(3) of the Trust Indenture Act do not require an obligor that is not required to file reports with the Commission under Section 13 or Section 15(d) of the Exchange Act to file information with the trustee, Commission or holders because the Rules described in such Sections have never been adopted. [March 30, 2007]

Section 108. Form T-1

Question 108.01

Question: Under what circumstances must a successor trustee file a Form T-1?

Answer: Whether a successor trustee is required to file a Form T-1 depends on whether there is an “offer”, “offer to sell”, “offer for sale”, or “sale” of securities in connection with the succession that triggers the registration requirements under the Securities Act or the qualification requirements under the Trust Indenture Act. If there is an “offer”, “offer to sell”, “offer for sale” or “sale” and the obligor either registers the transaction under the Securities Act or relies upon a Securities Act exemption for which there is no corresponding Trust Indenture Act exemption (for example, Section 3(a)(9)), the indenture would need to be qualified under the Trust Indenture Act and the successor trustee would have to be qualified. [March 30, 2007]

Question 108.02

Question: May a Form T-1 be incorporated by reference?

Answer: No. A Form T-1 may not be incorporated by reference from a previous filing because the Form T-1 requires recent information. [March 30, 2007]

Section 109. Form T-1; Section 305(b)(2)

Question 109.01

Section 110. Form T-1; Section 310(b)

Question 110.01

Question: May a subsidiary use the same trustee used by its parent for an offering of debt securities?

Answer: As long as the parent has not guaranteed any debt of its subsidiary and the subsidiary and the subsidiary has not guaranteed any debt of its parent, a subsidiary may use the same trustee used by its parent for an offering of debt securities without giving rise to a conflict of interest upon the occurrence of a default, since the parent and the subsidiary are deemed to be different obligors. Moreover, if a default has occurred, Item 4 of the Form T-1 filed by the subsidiary’s trustee need not disclose the parent’s indenture. [March 30, 2007]

Section 111. Form T-3

Question 111.01

Question: May an obligor file a post-effective amendment to a Form T-3?

Answer: No. Post-effective amendments to Form T-3 are neither required nor permitted by the Trust Indenture Act. [March 30, 2007]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. 1939 Act — General Guidance

201.01 A foreign corporation doing business in the United States proposed to sell bonds abroad to persons other than citizens of the United States in reliance on Regulation S. Under these circumstances, the Division staff confirmed that sales may be made without qualification of an indenture under the Trust Indenture Act as stated by the Commission in Release No. 33-6863 (adopting Regulation S). [March 30, 2007]

201.02 The indenture covering securities to be issued in a registration statement must be qualified at the time the registration statement relating to those securities becomes effective. The indenture may not be qualified by post-effective amendment. Under the shelf registration process adopted in Securities Act Release No. 8591, however, a well-known seasoned issuer is permitted to add securities to a shelf registration statement by means of a post-effective amendment. Because the effectiveness of an automatic shelf registration statement is deemed the time “when registration becomes effective as to such security(ies),” as that term is used in Section 309(a)(1) of the Trust Indenture Act, the issuer will satisfy Section 309(a)(1) if the indenture is included as an exhibit to the registration statement at the time that post-effective amendment becomes effective. See footnote 527 to Securities Act Release No. 8591. [March 30, 2007]

201.03 A guarantor is an “obligor” under the Trust Indenture Act. See Section 303(12) of the Act. As such, if an application on Form T-3 is filed to qualify an indenture for guaranteed debt, the primary obligor and each guarantor must file an application on Form T-3 and each entity must provide the information required by that Form. [March 30, 2007]

201.04 The following approach has been taken with respect to shelf registration statements that contemplate a series of debt offerings under Rule 415 requiring an indenture to be qualified under the Trust Indenture Act.

1. The indenture that is filed with, and qualified upon the effectiveness of, the registration statement may be “open-ended” (i.e., it may provide a generic, non-specific description of the securities, such as “unsecured debentures, notes or other evidences of indebtedness” which are to be issued in series). For automatic shelf registration statements, the “open-ended” indenture must be filed as an exhibit to the registration statement or as an exhibit to a post-effective amendment to the registration statement that registers the securities to be issued under the indenture.

2. The details of the securities to be offered in each series under the indenture (i.e., type of securities [notes, debentures, or other], interest rates, and maturities) must be disclosed both in a prospectus supplement and in a supplemental indenture at the time such series is to be offered. The supplemental indenture may be filed as an exhibit to a Form 8-K (in the same manner as specified for underwriting agreements), or in an automatically effective, exhibits-only, post-effective amendment filed pursuant to Rule 462(d). For automatic shelf registration statements, the post-effective amendment would be filed pursuant to Rule 462(e). [March 30, 2007]

201.05 A proxy solicitation will be made respecting amendments to an indenture covering bonds registered under Section 12(b) of the Exchange Act. Inasmuch as the proposed changes affect the collateral securing the bonds and accelerate the due date, a new security may be created, thus triggering the registration requirements of the Securities Act and the qualification requirements of the Trust Indenture Act. If the offering to exchange the new “changed” bonds for the old bonds is exempt from registration under the Securities Act pursuant to Section 3(a)(9), qualification of the new indenture may be accomplished by filing a Form T-3 pursuant to Section 306 of the Trust Indenture Act. Because the offering materials are required to be filed as an exhibit to the Form T-3, they may be filed in definitive form when acceleration of the Form T-3 is requested. [March 30, 2007]

Sections 202 to 203. [Reserved]

202.01

[withdrawn, April 24, 2015]

203.01

[withdrawn, April 24, 2015]

Section 204. Section 304(a)(8); Rule 4a-1

204.01 When a debt security is issued with an equity security in a unit, the determination as to whether the exemption from qualification provided by Section 304(a)(8) of the Trust Indenture Act is available is based solely on the aggregate principal amount of the debt security and not the dollar amount of the equity security. If the aggregate amount of the debt security is less than $5 million, the offering is exempt from the Trust Indenture Act. See Rule 4a-1 under the Trust Indenture Act. [March 30, 2007]

Section 205. Section 304(a)(9); Rule 4a-3

205.01 Section 304(a)(9) and Rule 4a-3 under the Trust Indenture Act provide an exemption from the qualification provisions of the Act for debt securities issued under an indenture that limits the aggregate principal amount outstanding at any one time to $10 million or less during a 36-month period. The 36-month period is a “rolling period,” commencing with the initial offering under the indenture. [March 30, 2007]

205.02 The limit on the amount of securities to be issued under an indenture may not exceed $10 million under Section 304(a)(9) and Rule 4a-3, and the aggregate amount under all indentures for which this exemption is claimed may not exceed $10 million during a 36-month period. Thus, only one $10 million indenture could be used in a 36-month period if the exemption is claimed – even if the securities had been redeemed and the indenture terminated. Another indenture relating to a different offering of securities could not claim the same exemption during the same 36-month period if the first indenture was for $10 million. [March 30, 2007]

Section 206. Section 305(b)(2); Form T-1

206.01 When debt securities registered under the Securities Act are eligible to be offered or sold on a delayed basis by or on behalf of the registrant pursuant to Securities Act Rule 415(a)(1)(x), Section 305(b)(2) of the Trust Indenture Act permits the trustee to be designated on a delayed basis. Companies that rely on Section 305(b)(2) to designate the trustee on a delayed basis must separately file the Form T-1 under the electronic form type “305B2.” In this situation, companies should not file the Form T-1 in a post-effective amendment to the registration statement or in a Form 8-K that is incorporated by reference into the registration statement. See Release No. 33-7122 (Dec. 19, 1994). [March 30, 2007]

Section 207. Section 306

207.01 Section 306 of the Trust Indenture Act does not apply to exchange offers that are exempt from Securities Act registration pursuant to Section 3(a)(9) where the offering does not exceed $5 million and Section 304(a)(8) and Rule 4a-1 under the Trust Indenture Act otherwise are available. [March 30, 2007]

Section 208. Section 310(b)

208.01 A trustee possessing a security interest in the indenture securities arising from a loan by the trustee to the owner of the securities would not be disqualified as trustee under Section 310(b) of the Trust Indenture Act unless the indenture securities were in default, there was a default on the loan, and the trustee acquired the securities through foreclosure in amounts exceeding those specified in Sections 310(b)(6), (7), and (8) of the Act. [March 30, 2007]

208.02 If there is a default on the indenture securities, Section 310(b)(1) of the Trust Indenture Act prohibits, with certain exceptions, the trustee from serving as trustee under more than one indenture of the same obligor. Applications filed under Section 310(b)(1)(ii) of the Trust Indenture Act for a Commission order that a proposed trusteeship would not involve a conflict of interest should be filed in the manner specified in Rule 7a-3 under the Trust Indenture Act for Form T-3 filings because there are no procedures set forth in the rules specifically applicable to these types of Section 310(b)(1)(ii) applications. [March 30, 2007]

208.03 Except in the case of a default in the payment of the principal of or interest on any indenture security, or in the payment of any sinking or purchase fund installment, Section 310(b) permits the trustee to apply to the Commission for a stay of the duty to resign. This subsection operates to prevent unnecessary resignations of the indenture trustee for curable technical defaults. The filing of this type of application automatically stays the duty to resign until the Commission orders otherwise. [March 30, 2007]

Section 209. Section 310(b)(1)(ii)

209.01 In general, Section 310(b)(1) provides that a trustee shall be deemed to have an impermissible, conflicting interest if (1) the indenture securities are in default and (2) the trustee serves as trustee under more than one indenture of the obligor. Section 310(b)(1)(i) provides a self-executing exclusion from the conflict of interest provisions if the securities under the indentures at issue are wholly unsecured and rank equally, and the indenture to be qualified either specifically describes the previous indentures or is qualified at some later date. The staff is of the view that if Section 310(b)(1)(i) is otherwise satisfied, the technical omission of references to earlier indentures does not prevent reliance on this self-executing exclusion from the conflict of interest provision of the Trust Indenture Act. Therefore, in those situations in which the securities under the indentures at issue are wholly unsecured and rank equally, the trustee may serve as trustee under the multiple indentures without an order from the Commission declaring that no conflict exists. In those situations in which the securities are not wholly unsecured and do not rank equally, and the trustee is unable to avail itself of the other exclusions contained in Section 310(b)(1), the staff will continue to consider applications for exemptive relief under section 310(b)(1)(ii). [March 30, 2007]

Section 210. Section 310(b)(6); Section 310(b)(9)

210.01 A trustee for the profit sharing plan of an obligor is not disqualified from serving as trustee under an indenture in the event of default simply because it holds more than 5% of the obligor’s voting stock as trustee, assuming it does not have the power to vote the shares. Ownership in a representative capacity, i.e., as executor, trustee, or in a similar capacity, is given separate and more liberal treatment in paragraph (9) than paragraph (6) of Section 310(b), on the theory that such ownership does not involve as direct a conflict as beneficial ownership. [March 30, 2007]

Section 211. Section 310(b)(7)

211.01 An obligor upon indenture securities issued debentures convertible, at the option of the holder upon the occurrence of certain events, into the common stock of a subsidiary of the obligor. Pursuant to the indenture, sufficient shares of the subsidiary’s stock to satisfy any conversion obligation were pledged to the indenture trustee. While the obligor and subsidiary had a common board of directors, the trustee would still not be disqualified under Section 310(b)(7), ab initio or upon a default upon the indenture securities. Even if the subsidiary’s shares constituted “collateral security” the trustee is deemed not to be the “holder” of a security held as collateral security under the indenture, irrespective of any default. This provision is contained in the definitional subsection of Section 310(b). [March 30, 2007]

Section 212. Section 310(b)(9); Section 310(b)(6)

212.01 A trustee for the profit sharing plan of an obligor is not disqualified from serving as trustee under an indenture in the event of default simply because it holds more than 5% of the obligor’s voting stock as trustee, assuming it does not have the power to vote the shares. Ownership in a representative capacity, i.e., as executor, trustee, or in a similar capacity, is given separate and more liberal treatment in paragraph (9) than paragraph (6) of Section 310(b), on the theory that such ownership does not involve as direct a conflict as beneficial ownership. [March 30, 2007]

Section 213. Section 311(a)

213.01 Section 311(a) of the Trust Indenture Act requires a trustee who is also a creditor of the issuer to set aside for the benefit of the security holders any payments or property received in its capacity as creditor within 3 months of the issuer’s bankruptcy. This provision is intended to reach preferential transfers occurring after the start of the 3-month period and continue until the funds have been allocated by a court. [March 30, 2007]

Section 214. Section 314(a)

214.01 A parent guaranteeing indebtedness of a subsidiary is deemed an “obligor” under the indenture and therefore must file with the trustee the reports required of obligors by Section 314(a) of the Trust Indenture Act. [March 30, 2007]

Section 215. Section 315(d)(3); Section 316(a)

215.01 The Trust Indenture Act provides a required procedure for calculating votes for proposals permitted by Section 315(d)(3) and Section 316(a). Securities owned by the obligor or an affiliate of the obligor must be disregarded for purposes of calculating the vote required to approve such proposals. If the vote concerns actions outside of Section 315(d)(3) or Section 316(a), such as a vote to permit the substitution of collateral, the mandatory calculation procedure would not apply. [March 30, 2007]

Section 216. Section 316(a); Section 315(d)(3)

216.01 The Trust Indenture Act provides a required procedure for calculating votes for proposals permitted by Section 315(d)(3) and Section 316(a). Securities owned by the obligor or an affiliate of the obligor must be disregarded for purposes of calculating the vote required to approve such proposals. If the vote concerns actions outside of Section 315(d)(3) or Section 316(a), such as a vote to permit the substitution of collateral, the mandatory calculation procedure would not apply. [March 30, 2007]

Section 217. Rule 4a-1; Section 304(a)(8)

217.01 When a debt security is issued with an equity security in a unit, the determination as to whether the exemption from qualification provided by Section 304(a)(8) of the Trust Indenture Act is available is based solely on the aggregate principal amount of the debt security and not the dollar amount of the equity security. If the aggregate amount of the debt security is less than $5 million, the offering is exempt from the Trust Indenture Act. See Rule 4a-1 under the Trust Indenture Act. [March 30, 2007]

Section 218. Rule 4a-3; Section 304(a)(9)

218.01 Section 304(a)(9) and Rule 4a-3 under the Trust Indenture Act provide an exemption from the qualification provisions of the Act for debt securities issued under an indenture that limits the aggregate principal amount outstanding at any one time to $10 million or less during a 36-month period. The 36-month period is a “rolling period,” commencing with the initial offering under the indenture. [March 30, 2007]

218.02 The limit on the amount of securities to be issued under an indenture may not exceed $10 million under Section 304(a)(9) and Rule 4a-3, and the aggregate amount under all indentures for which this exemption is claimed may not exceed $10 million during a 36-month period. Thus, only one $10 million indenture could be used in a 36-month period if the exemption is claimed – even if the securities had been redeemed and the indenture terminated. Another indenture relating to a different offering of securities could not claim the same exemption during the same 36-month period if the first indenture was for $10 million. [March 30, 2007]

Section 219. Form T-1

219.01 Where a single trustee is serving as trustee under two indentures, and both indentures are being qualified with the same registration statement, only one Form T-1 need be filed. But reference should be made in appropriate places, (e.g., the cover page of the Form T-1) to the fact that there are two indentures. [March 30, 2007]

219.02 Form T-1 requires a copy of the latest report of financial condition of the trustee published pursuant to law or requirements of the supervising authority to be filed as an exhibit. Where publication of such report is not required by law or the supervising authority, the trustee is not disqualified from serving, but the unpublished report filed with the supervising authority should be filed as an exhibit to the Form T-1. [March 30, 2007]

219.03 Form T-1, the statement of an indenture trustee’s eligibility and qualification under the Trust Indenture Act, should be filed electronically as an exhibit to the related registration statement as required by Item 101(a)(1)(ii) of Regulation S-T, unless the issuer obtains a hardship exemption. Item 601(b)(25)(ii) of Regulation S-K provides that the requirement to bind separately the Form T-1 from other exhibits (1939 Act Rule 5a-3(d)) does not apply to electronic filings. [March 30, 2007]

Section 220. Form T-1; Section 305(b)(2)

220.01 When debt securities registered under the Securities Act of 1933 are eligible to be issued, offered or sold on a delayed basis by or on behalf of the registrant pursuant to Securities Act Rule 415(a)(1)(x), Section 305(b)(2) of the Trust Indenture Act permits the trustee to be designated on a delayed basis. Companies that rely on Section 305(b)(2) to designate the trustee on a delayed basis must separately file the Form T-1 under the electronic form type “305B2.” In this situation, companies should not file the Form T-1 in a post-effective amendment to the registration statement or in a Form 8-K that is incorporated by reference into the registration statement. See Release No. 33-7122 (Dec. 19, 1994). [March 30, 2007]

Oil and Gas Rules

Last Update: May 16, 2013

These Compliance and Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of the Oil and Gas Rules in Regulation S-X and Regulation S-K. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Regulation S-X

Sections 101-104. Rules 4-10(a)(1) to 4-10(a)(4) [Reserved]

Section 105. Rule 4-10(a)(5) Definitions — Deterministic Estimate

Question 105.01

Question: In a deterministic reserve evaluation, when you have determined specific, individual estimates for proved, probable and possible reserves, is it acceptable to sum up these separate reserve categories into one total reserve estimate?

Answer: No. Because the categories of proved, probable and possible reserves have different levels of certainty, it is not appropriate to sum up the individual deterministic estimates for these reserves into one total reserve estimate. The individual estimates for each category should be disclosed as separate estimates, with the difference in certainty for each estimate fully explained. [Oct. 26, 2009]

Section 106. Rule 4-10(a)(6) Definitions — Developed Oil and Gas Reserves

Question 106.01

Background: Prior to the revision of the oil and gas rules in 2008, reserves obtained from applying improved recovery techniques (such as fluid injection) to increase the ultimate recovery of hydrocarbons could be classified as “proved developed reserves” (as defined in prior Rule 4-10(a)(3) of Regulation S-X) only under limited circumstances. Specifically, the rule expressly required that a registrant could classify such reserves as proved developed only after the improved recovery technique had caused a production response, such as a measurable change in reservoir pressure or production performance, confirming that the registrant would achieve the recovery of such reserves.

Unlike the prior rules, the new rules adopted in 2008 do not expressly define the term “proved developed reserves.” Rather, the new rules separate the concepts of “proved reserves” from “developed reserves,” separately defining “proved reserves” in Rule 4-10(a)(22) of Regulation S-X and “developed reserves” in Rule 4-10(a)(6) of Regulation S-X. The revised definition for developed reserves applies to developed reserves of all categories, including proved, probable and possible reserves. In addition, the revised definition of developed oil and gas reserves no longer expressly requires a production response from the improved recovery technique to classify such reserves as developed.

Question: Under the new rules, if a registrant has expended all of the money required to install and implement the improved recovery technique but has not yet achieved a production response from it, may it classify the reserves as proved developed?

Answer: Yes, so long as the reserves otherwise meet all of the criteria for proved reserves set forth in Rule 4-10(a)(22) and developed reserves set forth in Rule 4-10(a)(6). [May 16, 2013]

Section 107. Rule 4-10(a)(7) Definitions — Development Costs

None

Section 108. Rule 4-10(a)(8) Definitions — Development Project

Question 108.01

Question: For an issuer that intends to develop a large field involving the drilling of numerous wells in multiple stages, what constitutes a development project?

Answer: A development project is typically a single engineering activity with a distinct beginning and end, which, when completed, results in the production, processing or transportation of crude oil or natural gas. A project typically has a definite cost estimate, time schedule and investment decision; is approved for funding by management; may include all classifications of reserves; and will be fully operational after the completion of the initial construction or development. The scope and scale of a project are such that, if a project were terminated before completion, for whatever reason, a significant portion of the previously invested capital would be lost.

If an investment decision has been made to develop only a portion of the primary, secondary or tertiary reserves, the remainder of the reserves would not be considered to be proved reserves until such time as management has made an investment decision to develop those additional reserves, the requisite level of certainty has been demonstrated from the initial portion of the development or by other means, and the additional development is within five years of being initiated. [Oct. 26, 2009]

Section 109-116. Rules 4-10(a)(9) to 4-10(a)(16) [Reserved]

Section 117: Rules 4-10(a)(17) and 4-10(a)(18) Definitions — Possible Reserves; Probable Reserves

Question 117.01

Question: Is it acceptable to assign probable or possible reserves below the Lowest Known Hydrocarbon (LKH) limit penetrated in a well bore under the new definition of the term "probable reserves"?

Answer: It may be acceptable to assign unproved reserves below the LKH if that volume of reserves meets the test for either probable or possible reserves. If there is no data below LKH, no reserves should be assigned. [Oct. 26, 2009]

Question 117.02

Question: Can an issuer assign probable or possible reserves in an area in which it does not, or cannot, assign proved reserves?

Answer: Yes. However, disclosure of unproved reserves without associated proved reserves should be done only in exceptional cases, such as for (1) development projects where engineering, geological, marketing, financing and technical tasks have been completed, but final regulatory approval is lacking or (2) improved recovery projects, at or near primary depletion, that await production response. Reserves should not be assigned without well penetration of the subject reservoir (rock volume) in the contiguous area that yields technical information sufficient to support the attributed reserve category. Volumes that are not economically producible are not reserves of any classification and should not be disclosed. [Oct. 26, 2009]

Question 117.03

Question: The definition of the term "probable reserves" does not include instructions regarding reserves below LKH. Does this mean that probable reserves cannot be assigned below proved areas, such as below LKH limit, and can be no higher classification than possible reserves?

Answer: No. Probable reserves may be assigned if reliable technology and data exist that, in the judgment of the evaluator, support characterizing those reserves as probable reserves. If no data exists below LKH, no unproved reserves can be assigned. [Oct. 26, 2009]

Question 117.04

Question: Can an issuer assign probable or possible reserves to an un-penetrated fault block?

Answer: No. Un-penetrated, pressure-separated fault blocks should not be considered to contain reserves of any category until penetrated by a well. [Oct. 26, 2009]

Sections 119-121. Rules 4-10(a)(19) to 4-10(a)(21) [Reserved]

Section 122. Rule 4-10(a)(22) Definitions — Proved Oil and Gas Reserves

Question 122.01

Question: What oil and gas prices should be used to estimate probable and possible reserves?

Answer: Unproved reserves should be evaluated using the same price as used for the evaluation of proved reserves. [Oct. 26, 2009]

Question 122.02

Question: Does the new definition of "proved oil and gas reserves" require issuers to change their existing procedures for determining costs?

Answer: No. [Oct. 26, 2009]

Sections 123-124. Rules 4-10(a)(23) to 4-10(a)(24) [Reserved]

Section 125. Rule 4-10(a)(25) Definitions — Reliable Technology

Question 125.01

Question: Does the staff intend to publish a list of reliable technologies that the SEC will accept for the determination of proved reserves?

Answer: No. An issuer has the burden of establishing and documenting the technology (or set of technologies) that provides reliable results, consistent with the criteria set forth in Rule 4-10(a)(25) of Regulation S-X. This information should be made available to the Commission's staff upon request in support of any reserves estimates that the staff may be reviewing. [Oct. 26, 2009]

Section 126. Rule 4-10(a)(26) Definitions — Reserves

Question 126.01

Question: Can a company claim proved reserves under a production sharing contract prior to obtaining approval from the host country?

Answer: No. Since production sharing contracts are entered into in countries where the government claims ownership of the mineral rights, all government approvals must be obtained prior to claiming proved reserves. [Oct. 26, 2009]

Question 126.02

Question: In the case of reserves above a highest known oil (HKO) limit, if it is equally likely that oil or gas is present above HKO, should the lower value product be assigned above HKO?

Answer: Yes, but only if the well or field is in a location where a market for that product exists. In particular, if there is no market for gas, or no way to transport gas to a market, then any assumed gas cap volume that may or does exist above a HKO cannot be classified as reserves. [Oct. 26, 2009]

Sections 127-130. Rules 4-10(a)(27) to 4-10(a)(30) [Reserved]

Section 131. Rule 4-10(a)(31) Definitions — Undeveloped Oil and Gas Reserves

Question 131.01

Question: Can an issuer assign proved undeveloped reserves to horizontal locations offsetting the toe of an existing horizontal producing well if the location is moving in the direction of other successful, analogous producing horizontal wells?

Answer: Yes, if the technical evidence supports this assignment with reasonable certainty. [Oct. 26, 2009]

Question 131.02

Question: Does the standard, "reasonable certainty of economic producibility," in the definition of "undeveloped oil and gas reserves" mean that a registrant cannot assign probable or possible undeveloped reserves beyond areas containing proved undeveloped reserves?

Answer: No. Reliable technology can be used to establish (1) that probable reserves in undeveloped locations are as likely as not and (2) that possible reserves in undeveloped locations are possible but not likely. [Oct. 26, 2009]

Question 131.03

Question: In the definition of "undeveloped oil and gas reserves," what "specific circumstances" would justify a time period longer than five years to begin development of those reserves?

Answer: Although several types of projects — such as constructing offshore platforms and development in urban areas, remote locations or environmentally sensitive locations — by their nature customarily take a longer time to develop and therefore often do justify longer time periods, this determination must always take into consideration all of the facts and circumstances. No particular type of project per se justifies a longer time period, and any extension beyond five years should be the exception, and not the rule.

Factors that a company should consider in determining whether or not circumstances justify recognizing reserves even though development may extend past five years include, but are not limited to, the following:

The company's level of ongoing significant development activities in the area to be developed (for example, drilling only the minimum number of wells necessary to maintain the lease generally would not constitute significant development activities);
The company's historical record at completing development of comparable long-term projects;
The amount of time in which the company has maintained the leases, or booked the reserves, without significant development activities;
The extent to which the company has followed a previously adopted development plan (for example, if a company has changed its development plan several times without taking significant steps to implement any of those plans, recognizing proved undeveloped reserves typically would not be appropriate); and
The extent to which delays in development are caused by external factors related to the physical operating environment (for example, restrictions on development on Federal lands, but not obtaining government permits), rather than by internal factors (for example, shifting resources to develop properties with higher priority). [Oct. 26, 2009]

Question 131.04

Question: The definition of "undeveloped oil and gas reserves" requires that the company have adopted a development plan with respect to the reserves. What constitutes adoption of a development plan?

Answer: The mere intent to develop, without more, does not constitute "adoption" of a development plan and therefore would not, in and of itself, justify recognition of reserves. Rather, adoption requires a final investment decision. [Oct. 26, 2009]

Question 131.05

Question: Would a company's decision to slowly develop a field in order to extend its economic life justify recognizing proved undeveloped reserves in the field beyond five years?

Answer: No. The company should not recognize undeveloped areas as proved undeveloped reserves if it does not anticipate initiating development in those areas within five years. [Oct. 26, 2009]

Question 131.06

Question: Rule 4-10(a)(31)(ii) states that "[u]ndrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years." (emphasis added). In comparison, the Petroleum Reserves Management System of the Society of Petroleum Engineers and World Petroleum Council states that "[a] reasonable time frame for the initiation of development depends on the specific circumstances …" (emphasis added). Is there a difference between the terms "scheduled to be drilled" and "initiation of development"?

Answer: No. [Oct. 26, 2009]

Regulation S-K

Section 154. Items 1201-1208 — Disclosure by Registrants Engaged in Oil and Gas Producing Activities

Question 154.01

Question 154.02

Answer: Yes. [Oct. 26, 2009]

Question 154.03

Asset-Backed Securities

Last Update: May 16, 2025

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of the rules and forms adopted under Regulation AB, the Securities Act, and the Exchange Act with respect to asset-backed securities. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.

Section 100. Securities Act Rules

Section 101. Securities Act Rule 190 [Reserved]

Section 102. Securities Act Rule 191 [Reserved]

Section 103. Securities Act Rule 192

103.01 Securitization Participant – Information publicly available on EDGAR

Question: An affiliate or subsidiary (each as defined in Securities Act Rule 405) of a person described in paragraph (i) of the “securitization participant” definition in Securities Act Rule 192(c) has access to or receives information that is publicly available on EDGAR about the relevant asset-backed security or the asset pool underlying or referenced by the relevant asset-backed security prior to the first closing of the sale of the relevant asset-backed security. Does access to, or receipt of, information that is publicly available on EDGAR, by itself, result in the affiliate or subsidiary being a securitization participant under paragraph (ii)(B) of the “securitization participant” definition in Rule 192(c)?

Answer: No. [Jul. 31, 2024]

Section 104-Section 109 [Reserved]

Section 110. Securities Act Forms [Reserved]

Section 111. Form SF-3

111.01 Form SF-3 Eligibility Requirements, Timely Transaction Documents

Question: In order to use Form SF-3 for an offering of asset-backed securities, a registrant must meet the eligibility requirements in General Instruction I. A. of the form. General Instruction I.A.1. requires, in part, that specified documents and transaction agreements must have been filed on a timely basis. When must the required documents and agreements be filed to be considered timely for purposes of Form SF-3 eligibility?

Answer: Item 1100(f) of Regulation AB specifies that final agreements must be filed and made part of the registration statement no later than the date the final prospectus is required to be filed under Rule 424. Instruction to Paragraph (b) of Rule 424, which applies only to asset-backed securities offerings, specifies that a prospectus filed pursuant to Rule 424(b)(2) or Rule 424(b)(5) must be filed no later than the second business day following the date it is first used. For purposes of this instruction only, “first use” of the final prospectus in asset-backed securities offerings would include its use at time of sale to satisfy an issuer’s obligations under Securities Act Section 5(b) to provide a Section 10(a) prospectus at or prior to the time of sale. Accordingly, the required documents and agreements would be considered timely if filed no later than the second business day following first use of the final prospectus.

For example, if the date of sale of a tranche of securities in an asset-backed securities offering under Rule 415(a)(vii) or (xii) is Tuesday, May 2, then the requirements of Rule 424(b)(2) or Rule 424(b)(5), and the conditions of Securities Act Rule 172, would be met if the registrant filed the final prospectus no later than Thursday, May 4. Therefore, the required documents and agreements must also be filed no later than Thursday, May 4, to be deemed timely under General Instruction I.A.1 of Form SF-3. [Aug. 30, 2023]

Section 112. Form SF-1

112.01 Form Eligibility for Public Utility Securitizations

Question: What is the appropriate Securities Act form to register an offering of securities that are backed by securitization property which includes the right to assess and collect certain special charges on customers’ public utility bills (“public utility securitizations”)? What are the appropriate forms for periodic and current reporting under the Exchange Act for public utility securitizations?

Answer: Public utility securitizations that are structured as stand-alone trusts meet the definition of “asset-backed security” (“ABS”) in Item 1101(c) of Regulation AB (“Regulation AB ABS”) (see, e.g., Asset-Backed Securities, Release No. 33-9117 (Apr. 7, 2010) (75 FR 23328, 23360 [May 3, 2010]) and Asset-Backed Securities Disclosures and Registration, Release No. 33-9638 (Sept. 4, 2014) (79 FR 57184, 57196 [Sept. 24, 2014]) (excluding “stranded cost ABS” [i.e., public utility securitizations] from the requirement to provide asset-level data). Therefore, these securitizations must be registered on Form SF-1.

Other public utility securitizations are structured as so-called “series trusts” where multiple series of unrelated securities are issued by a single issuing entity. Such series trust securitization issuances, as well as issuances by the stand-alone trusts referred to above, meet the broader definition of “asset-backed security” in Exchange Act Section 3(a)(79) (“Exchange Act ABS”) (see, e.g., 17 CFR 246.19(b)(8) and Credit Risk Retention, Release No. 34-73407 (Oct. 21, 2014) (79 FR 77602, 87672 [Dec. 24, 2014]) (exempting from the credit risk retention requirements “any securitization transaction where the asset-back securities issued in the transaction are secured by the intangible property right to collect charges for the recovery of specified costs” [i.e., public utility securitizations]). Consistent with this Commission precedent, the staff has advised issuers in public utility securitizations that are structured as series trusts to register offers and sales of securities on Form SF-1.

Similarly, the appropriate forms for periodic reporting for issuers of both Regulation AB ABS and registered Exchange Act ABS, including public utility securitizations that are structured as series trusts, are Form 10-K for annual reports (following General Instruction J of such form), Form 8-K for current reports (following General Instruction G of such form), and Form 10-D for distribution reports, filed in compliance with the applicable provisions of Regulation AB.

Lastly, since public utility securitizations structured as series trusts are Exchange Act ABS, such series trust issuers should refrain from making statements in their filings that they are not asset-backed issuers or that their securities are not asset-backed securities, as such statements would not be accurate. [May 16, 2025] [Comparison to prior version]

112.02 Public Utility Securitizations, Updating Guidance

Question: Does the MP Environmental Funding LLC, PE Environmental Funding LLC no-action letter (Sept. 19, 2007) (“the MPE Letter”) stand for the proposition that public utility securitizations structured as series trusts are not “asset-backed securities”?

Answer: No. The MPE Letter stated that public utility securitizations structured as series trusts are not “asset-backed securities” as defined in Item 1101 of Regulation AB (i.e., are not Regulation AB ABS), but permitted issuers to file Exchange Act reports on Forms 10-K, 8-K, and 10-D as if such securitizations were Regulation AB ABS. At the time the MPE Letter was issued, both corporate and ABS issuers filed registration statements on Forms S-1 or S-3. As such, the letter did not need to address whether these were the proper Securities Act registration forms for public utility securitizations.

Two developments since the MPE Letter was published in 2007 have affected the position taken in the letter. First, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 added the Exchange Act ABS definition, which is broader than the Regulation AB ABS definition because, in relevant part, it does not exclude securitizations structured as series trusts. Additionally, in 2014, the Commission created Forms SF-1 and SF-3 specifically for registering offers and sales of ABS.

Consistent with the MPE Letter and Commission precedent cited in Question 112.01, the staff has advised issuers of public utility securitizations structured as series trusts to file registration statements on Form SF-1 since the form was implemented. As stated in Question 112.01, staff has also continued to advise such issuers that their Exchange Act reports should be filed on Forms 10-K, 8-K, and 10-D as if such securitizations were Regulation AB ABS.

Question 112.01, therefore, supersedes the MPE Letter by clarifying the staff’s position in light of developments following the publication of the MPE Letter in 2007. [May 16, 2025]

Section 113-Section 120 [Reserved]

Section 200. Exchange Act Rules

200.01 Rule 12b-25

Rule 12b-25(d) prohibits a registrant from using a Securities Act registration statement the use of which is predicated on timely filed reports until the subject report is actually filed pursuant to Rule 12b-25(b)(3). A depositor as defined in Item 1101(e) may create a new issuing entity and conduct a takedown off an effective Form SF-3 between the filing of a 12b-25 notice and the 12b-25 extended due date of the periodic report. [Dec. 9, 2014]

200.02 Rules 13a-18 and 15d-18, Servicing Function Participant

If an asset-backed issuer has a trustee or bond administrator that calculates the waterfall, that party is participating in the servicing function and therefore pursuant to Rules 15d-18 and 13a-18 the issuer’s Form 10-K must include a Report on Assessment of Compliance with Servicing Criteria from the trustee or bond administrator along with the related attestation report. If the trustee or bond administrator does not calculate the waterfall but only receives allocations or distributions from a servicer and makes allocations and distributions to holders of the asset-backed securities out of the calculated amounts, and does not otherwise perform the functions of a servicer, the Form 10-K would not need to include a Report on Assessment of Compliance with Servicing Criteria from the trustee or bond administrator nor an attestation report. [Dec. 30, 2005]

200.03 Rules 13a-18 and 15d-18, Servicer’s Assessment of Compliance

Pursuant to Rule 13a-18 and Rule 15d-18, a Form 10-K must include from each party participating in the servicing function (even parties participating for only a portion of the year) a report regarding its assessment of compliance with the servicing criteria specified in Item 1122(d) of Regulation AB as of and for the period ending the end of each fiscal year. A report must be included for every person participating in the servicing function except that the notes to Rules 13a-18 and 15d-18 provide a de minimis exception. If a servicer’s activities relate to only 5% or less of the pool assets no report is required. Since the report is for the fiscal year, the measurement for this de minimis threshold must take into account the servicing function for the entire period covered by the Form 10-K and not a particular point in time. For example, assets are transferred to an issuing entity with a calendar year end in a closing on March 1st, so that the trust has a reporting obligation for 10 months of the year. The trust has three servicers. Servicer A serviced 50% of the assets for the entire 10 months, Servicer B serviced 40% of the assets for the same length of time and Servicer C serviced 10% of the assets for the first two months. On May 1st Servicer C is replaced by Servicer D. Servicer C serviced only 10% of the pool for only one fifth of the year. As such, Servicer C serviced 2% of the assets for the period and falls below the de minimis requirements in Item 1122 and no report is required. Servicer D serviced 8% of the assets for the period and Servicer’s D report must be included in the Form 10-K. [Dec. 9, 2014]

200.04 Rules 13a-18 and 15d-18, Scope of Item 1122 Platform

Pursuant to Rules 13a-18 and 15d-18, an annual report on Form 10-K must include a report from each party participating in the servicing function regarding its assessment of compliance with servicing criteria specified in Item 1122 of Regulation AB. For the purposes of this assessment, a servicer’s platform may, but is not required to, include transactions registered before compliance with Regulation AB was required or that involved an offer and sale of asset-backed securities that were not required to be registered. Absent changes in circumstances, such as a merger between servicers, it is expected that the grouping of transactions included in a platform should remain constant from period to period. Suspension of Exchange Act reporting obligations for a transaction that was subject to Regulation AB does not result in the exclusion of that transaction from the platform. The servicer must use the criteria contained in Item 1122(d) of Regulation AB to assess the servicing of any transaction in the platform. [Dec. 9, 2014]

200.06 Vendors Engaged by Servicers

A vendor engaged by a servicer to perform specific and limited activities or to perform activities prescribed by the servicer would not be viewed as a party participating in the servicing function separate and apart from the servicer engaging such vendor, and would not need to submit separate assessment and attestation reports for inclusion in the related asset-backed issuer’s Form 10-K report if:

The vendor is not a “servicer” as defined in Item 1101(j) of Regulation AB;
The servicer engaging and monitoring the vendor elects to take responsibility for assessing compliance with the servicing criteria applicable to that vendor in the servicer’s report regarding assessment of compliance with servicing criteria;
The servicer engaging the vendor has policies and procedures in place designed to provide reasonable assurance that the vendor’s activities comply in all material respects with the servicing criteria applicable to the vendor; and
The servicer’s report on assessment of compliance discloses:
- the servicing criteria or portion of servicing criteria applicable to the vendor’s activities for which the servicer is assuming responsibility;
- any material instance of noncompliance by the vendor that the servicer identifies or of which it is aware; and
- any material deficiency that is identified in the servicer’s policies and procedures to monitor the vendor’s compliance.

In this situation, consistent with Item 1122(d)(1)(ii) of Regulation AB and Instruction 2 to Item 1122 of Regulation AB, the requirement to assess compliance with the servicing criteria applicable to a vendor’s activities is satisfied if the servicer has instituted policies and procedures to monitor whether such vendor’s activities comply in all material respects with such criteria. Compliance with the applicable servicing criteria is achieved if those policies and procedures are designed to provide reasonable assurance that such vendor’s activities comply with such criteria and those policies and procedures are operating effectively. [Dec. 9, 2014]

200.07 Rule 15Ga-1

For purposes of Rule 15Ga-1, an “originator” is, as defined in Section 15G(a)(4) of the Exchange Act, the person who, through the extension of credit or otherwise, creates a financial asset that collateralizes an asset-backed security, and sells an asset directly or indirectly to a securitizer. [Dec. 9, 2014]

Section 201-Section 209 [Reserved]

Section 210. Exchange Act Forms

Section 211. Form 10-K

211.01 Form 10-K

The Form 10-K must be signed either by the depositor or by the servicer on behalf of the issuing entity. If the servicer is signing and multiple servicers are involved in servicing the assets, the master servicer must sign. A trustee that is a servicer may not sign an Exchange Act report for the depositor unless it is the master servicer. [Dec. 9, 2014]

Section 212. Form 10-D

212.01 Form 10-D, Items 6 and 7

Item 7 of Form 10-D refers to Items 1114 and 1115 of Regulation AB and requires updated information regarding a provider of a credit enhancement or derivative instrument supplier. Therefore, if at the end of the period for which the Form 10-D is filed either provider meets the thresholds of those items, disclosure is required, even if the provider did not previously meet such threshold. Item 6 of Form 10-D refers to Item 1112 of Regulation AB and requires updated information regarding significant obligors. Instruction 4 to the definition of significant obligor in Item 1101(k) of Regulation AB specifically notes that, if an obligor falls below 10% subsequent to the cut-off date, the obligor would no longer be considered a significant obligor. This would be the case even if the obligor subsequently moves back above the 10%. There is no similar provision related to the Item 7 requirements, so the determination as to whether or not the disclosure is required must be made at the end of the period, even if the provider or source has previously fallen below the threshold. See also Item 6.03 of Form 8-K. [Dec. 30, 2005]

Section 213-Section 220 [Reserved]

Section 300. Item 1100 of Regulation AB

300.01 Item 1100(b)

Item 1100(b) provides requirements for presentation of historical delinquency and loss information that is called for by provisions in Regulation AB. For this information the delinquency experience must be presented in 30 or 31 day increments, as applicable, through the point that assets are written off or charged off as uncollectible. For instance, Item 1111(c) of Regulation AB requires disclosure of delinquency and loss information for the asset pool being securitized. This delinquency or loss information required by Item 1111(c) regarding the pool being securitized must be disclosed in the increments outlined in Item 1100(b) through the point that the assets are written-off or charged-off as uncollectible. Many issuers choose to include information not required by 1111(c), such as historical delinquency information for an asset group other than the asset pool (such as a managed or total portfolio, servicer portfolio, etc.). Where such additional information is not called for by a specific Item requirement of Regulation AB, the information may be disclosed in a manner other than that provided in Item 1100(b). [Dec. 9, 2014]

Section 301. Item 1101 of Regulation AB

301.01 Item 1101(j)

The definition of servicer in Regulation AB is a principles-based definition that looks to the functions that the entity performs. See SEC Release No. 33-8518 Section V.D. An entity falls within the definition of servicer if it is responsible for the management or collection of the pool assets or making allocations or distributions to holders, regardless of the entity’s title (vendor, trustee, etc.). [Dec. 9, 2014]

301.02 Item 1101(l)

Whether a party is considered a “sponsor” involves a facts and circumstances analysis of whether its actions bring it within the definition in Item 1101(l) of Regulation AB. There are circumstances where more than one originator acts as a “sponsor,” such as in the case of a “rent-a-shelf” where more than one originator offers to sell the underlying assets to back the asset-backed securities. [Dec. 30, 2005]

301.03 Item 1101(c) – Funding Agreement-Backed Notes

Question: An insurance company creates a special purpose vehicle to issue a single series of notes. The insurance company enters into a funding agreement with the special purpose vehicle. Principal and interest payments on the notes consist exclusively of cash flows from the funding agreement. The transaction has the following characteristics:

The funding agreement is an insurance product and the direct liability of the insurance company. Payments on the funding agreement are backed by the general account of the insurance company.
The terms of the notes exactly match the terms of the underlying funding agreement. There are no other credit enhancements for the notes, and only a nominal residual interest in the special purpose vehicle is created for purposes of complying with formation requirements of local law.
Only one series of notes is created with the backing of a particular funding agreement. While the special purpose vehicle may issue multiple series of notes, each series will be backed by one distinct funding agreement.
Amounts paid by the insurance company to the special purpose vehicle under the funding agreement are used solely for making payments due under the notes. Any fees and expenses payable by the special purpose vehicle are reimbursed through a separate agreement with the insurance company.

Would such funding agreement-backed notes be an "asset-backed security" as defined under either Item 1101(c) of Regulation AB or Section 3(a)(79) of the Exchange Act?

Answer: No. The definition of "asset-backed security" under Item 1101(c) of Regulation AB requires, in relevant part, that a security meeting the definition be serviced by the cash flows of a discrete pool of receivables or other financial assets. Similarly, the definition of "asset-backed security" under Section 3(a)(79) of the Exchange Act requires, in relevant part, that a security meeting that definition be collateralized by a self-liquidating financial asset.

Under these facts, we would not consider the funding agreement to be a separate financial asset servicing payments on the notes. Rather, an assessment of the cash flows servicing the payments on the notes requires looking through the funding agreement to the general account of the insurance company for the following reasons:

The structure of the funding agreement-backed notes is meant to replicate payments made by the insurance company under the funding agreement;
The funding agreement is a direct liability of the insurance company; and
Payments on the funding agreement-backed notes are based solely on the ability of the insurance company to make payments on the funding agreement.

Therefore, we would not consider the funding agreement-backed notes to be asset-backed securities under either Item 1101(c) of Regulation AB or Section 3(a)(79) of the Exchange Act. [Sep. 6, 2016]

301.04 Item 1101(c) – Single Asset Securitizations

Question: Does a security that is supported by the cash flow of a single asset satisfy the requirement in Item 1101(c)(1) of Regulation AB that an asset-backed security be primarily serviced by the cash flows of a discrete “pool” of receivables or other financial assets?

Answer: Yes. The word “pool” in Item 1101(c)(1) of Regulation AB does not require that the ABS be serviced by cash flows from more than one asset. Rather, it is part of the phrase “discrete pool” in the definition, which refers to the general absence of active pool management (i.e., subject to certain exceptions, asset(s) are not added/removed/substituted after the establishment date of the pool). [Jul. 31, 2024]

Section 302. Item 1102 of Regulation AB [Reserved]

Section 303. Item 1103 of Regulation AB [Reserved]

Section 304. Item 1104 of Regulation AB [Reserved]

Section 305. Item 1105 of Regulation AB [Reserved]

Section 306. Item 1106 of Regulation AB [Reserved]

Section 307. Item 1107 of Regulation AB [Reserved]

Section 308. Item 1108 of Regulation AB

308.01 Item 1108 General Guidance

Under Item 1108, an issuer must include disclosure regarding any party, including third-party vendors, that meets the definition of a servicer (i.e., is involved in the management or collection of the pool assets or is making allocations or distributions to holders of the asset-backed securities) and meets the 20% threshold test. The disclosure required, however, only extends to information material to the servicing function the party performs for the pool assets. For example, some of the disclosure requirements for a primary servicer, such as experience in servicing payments for a particular asset type, may not be material for a third-party vendor that solely provides the lockbox function for payments received on 100% of the assets located in the asset pool. Thus, disclosure under each category of information for each servicer may not be required. [Dec. 9, 2014]

308.02 Item 1108 General Guidance

The disclosure of a servicer’s procedures under Item 1108 should be limited to that which a reasonable investor would find material in considering an investment in the asset-backed securities and the servicing and administration of the pool assets and the asset-backed securities. The description of servicers’ operating procedures should not include immaterial or technical data that obscures the material disclosure. [Dec. 9, 2014]

308.03 Item 1108(a)

Item 1108(a) of Regulation AB requires disclosure of certain information if an unaffiliated servicer services 10% or 20% or more of the pool assets. The disclosure required by this item must be included in the registration statement. The calculation of the 10% and 20% thresholds in Item 1108(a) should be made as of the designated cut-off date for the transaction. [Dec. 30, 2005]

308.04 Item 1108(a)(2)

A change in the servicer for a particular servicing function from the entity that was disclosed in the initial registration statement must be disclosed if the new servicer meets the criteria of Item 1108(a)(2). The issuer must disclose the change and related disclosure regarding the new servicer on a current report on Form 8-K within the time period allowed by that Form, or under Item 8 of Form 10-D, as appropriate. If there is a material change in the servicer’s procedures from the disclosure provided in the prospectus, there is no requirement that the revised servicing procedures be disclosed in the Exchange Act periodic or current reports unless the information relates to the distribution and pool performance information that Form 10-D requires or if the disclosure is of a material fact necessary to make the rest of the disclosure not misleading. [Dec. 9, 2014]

308.05 Item 1108(b)(4)

Item 1108(b)(4) requires disclosure of information regarding the servicer’s financial condition to the extent that there is a material risk that the effect on one or more aspects of servicing resulting from such financial condition could have a material impact on pool performance or performance of the asset-backed securities. Where disclosure is required, the type and extent of information regarding the servicer’s financial condition would depend upon the particular facts. Information does not have to include the financial statements of the servicer, unless the financial statements are necessary for investor understanding of the servicer’s condition. [Dec. 30, 2005]

Section 309. Item 1109 of Regulation AB [Reserved]

Section 310. Item 1110 of Regulation AB [Reserved]

Section 311. Item 1111 of Regulation AB

311.01 Item 1111(c)

Historical delinquency information for the subject asset pool is always required under this item. If an issuer determines that historical delinquency information for another asset group (such as the managed or serviced portfolio, or all prior securitized pools) is necessary to make the information not misleading, then that information should also be included. General principles of materiality and not Item 1100(b) govern the disclosure of such additional information. See Rule 12b-20 and the interpretation above regarding Item 1100(b). [Dec. 30, 2005]

311.02 Item 1111(h) Asset-Level Disclosure Compliance Date

The amendments to Regulation AB, among other things, require asset-level disclosure for offerings of asset-backed securities backed by residential mortgages, commercial mortgages, auto loans, auto leases and debt securitizations (including resecuritizations). The asset-level data requirements are applicable only to securitizations in which the initial bona fide offer occurs on or after November 23, 2016. A registrant that makes an initial bona fide offer on or after November 23, 2016 must provide asset-level disclosure in accordance with the requirements of Regulation AB in the prospectus at the time of the offering and then on an ongoing basis with each Form 10-D filing. Securitizations for which offers are made prior to November 23, 2016 are not required to provide asset-level disclosures in the prospectus or on an ongoing basis with each Form 10-D. [Sep. 16, 2015]

Section 312. Item 1112 of Regulation AB [Reserved]

Section 313. Item 1113 of Regulation AB [Reserved]

Section 314. Item 1114 of Regulation AB

314.01 Item 1114 General Guidance

Credit enhancements, to the extent material, must be described pursuant to Item 1114 of Regulation AB. The underlying obligor’s arrangements in connection with the original extension of loan level mortgage insurance, hazard insurance, or homeowner’s insurance would not be considered credit enhancement. [Dec. 30, 2005]

Section 315. Item 1115 of Regulation AB [Reserved]

Section 316. Item 1116 of Regulation AB [Reserved]

Section 317. Item 1117 of Regulation AB [Reserved]

Section 318. Item 1118 of Regulation AB [Reserved]

Section 319. Item 1119 of Regulation AB [Reserved]

Section 320. Item 1120 of Regulation AB [Reserved]

Section 321. Item 1121 of Regulation AB [Reserved]

Section 322. Item 1122 of Regulation AB

322.01 Item 1122(d)

In preparing their reports required under Items 1122(a) and 1122(b), servicers must assess compliance with the servicing criteria exactly as set forth in Item 1122(d). If a servicer’s process differs from one or more criteria in Item 1122(d), the servicer must disclose that it is not in compliance with those particular criteria. The servicer may disclose why the servicer’s process is different from the servicing criteria in the report. [Dec. 9, 2014]

322.02 Item 1122(d)(3)(i)

Withdrawn and codified as Item 1122(d)(1)(v) of Regulation AB.

322.03 Item 1122(d)(4)(i)

The servicing criterion in Item 1122(d)(4)(i) requires an assessment of whether the mortgage and related documents, rather than the physical properties underlying the mortgages, are maintained as required by the transaction agreements or related pool asset documents. Moreover, an auditor attesting to an assertion regarding the Item 1122(d)(4)(i) criterion is only required to verify that the mechanics of performing the loan perfection or loan defeasance prescribed in the transaction agreements or related pool asset documents have been performed. The auditor is not required for this or any other criterion to make a legal determination, such as whether the loan perfection and loan defeasance were successfully performed. [Aug. 8, 2006]

Section 323. Item 1123

323.01 Item 1123 General Guidance

A trustee calculating the distribution amounts paid to investors is a party participating in the servicing function for purposes of Rules 13d-18 and 15d-18 and Item 1122 of Regulation AB. However, the Instruction to Item 1123 of Regulation AB clarifies that if multiple servicers are involved, a servicer compliance statement is required only of each servicer that meets the criteria in Item 1108(a)(2)(i) through (iii) of Regulation AB. A trustee that only calculates the distribution amounts paid to investors and performs no other servicing function falls within Item 1108(a)(iv) and therefore is not required to provide an Item 1123 servicer compliance statement. [Dec. 30, 2005]

323.02 Item 1123

Reports on assessment of compliance with servicing criteria under Item 1122 of Regulation AB do not have to include instances of noncompliance with the servicing criteria if the instances of noncompliance are not material to the servicing platform. However, a servicer may need to disclose in the Item 1123 servicer compliance statement an instance of noncompliance with servicing criteria that is material to the servicing of the specific asset pool covered by the report on Form 10-K, even if the instance of noncompliance is not disclosed in the Item 1122 report. Further, if known to the filing party, the instance of noncompliance may need to be disclosed in the issuer’s Exchange Act reports. [Aug. 8, 2006]

Section 324. Item 1124 of Regulation AB [Reserved]

Section 325. Item 1125 of Regulation AB [Reserved]

Cross-Border Exemptions

Last Update: October 17, 2018

These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division’s interpretations of the cross-border exemptions. They replace the interpretations published in Section II of the July 2001 Interim Supplement to Publicly Available Telephone Interpretations (the “Telephone Interpretations”). In particular, C&DIs 101.03, 103.01, 104.02, 104.03, and 104.05 reflect substantive changes to the Telephone Interpretations. C&DIs 100.04 and 101.01 reflect technical revisions to the Telephone Interpretations. C&DIs 100.01, 101.09, 104.04, and 105.01 reflect only non-substantive changes to the Telephone Interpretations. The remaining C&DIs reflect newly published interpretations. The bracketed date following each C&DI is the latest date of publication or revision.

Section 100. General

Question 100.01

Question: Are Securities Act Rules 801 and 802 available when there are no U.S. security holders of the issuer (in a rights offering) or subject company (in an exchange offer or business combination), or the offer is not extended to U.S. security holders?

Answer: No. See General Note 2 to Rules 800, 801 and 802. These exemptions are intended to create an incentive to include U.S. security holders in the offering, not to provide an exemption for offerings made only to foreign security holders. [October 17, 2018]

Question 100.02

Question: A foreign private issuer seeks to do a “warrant flush” whereby it will reduce the exercise price of its outstanding warrants for a set period of time in an effort to induce warrant holders to exercise. Under U.S. rules, this may be considered an issuer tender offer; under the laws of the subject company’s home jurisdiction, it is not subject to tender offer regulation, although other provisions of the home jurisdiction’s securities laws apply. Can the issuer rely on the Tier I exemption in Exchange Act Rule 13e-4(h)(8) where the transaction is not subject to tender offer regulation in the home jurisdiction?

Answer: Yes. The cross-border exemptions are not premised on the applicability of specific rules in the home jurisdiction that are directly comparable to U.S. rules, but on the presence of an applicable foreign regulatory regime in the home jurisdiction that provides a regulatory framework for the offer. In this case, while the warrant flush is not regulated as a tender offer in the home jurisdiction, other provisions of the home jurisdiction’s securities laws do apply to the transaction and provide protection to subject security holders. [October 17, 2018]

Question 100.03

Question: Securities Act Rule 802(a)(1) states that in a business combination in which the securities are to be issued by a “successor registrant,” U.S. holders may hold no more than 10 percent of the class of securities of the successor registrant immediately after the completion of the business combination. Does the reference to “successor registrant” mean that the acquiror must be an Exchange Act reporting company after the completion of the business combination?

Answer: No. The term is used generically to refer to the surviving entity, whether or not it is an Exchange Act reporting company after the completion of the business combination, and is unrelated to the concept of being a successor registrant for purposes of Exchange Act Rule 12g-3. [October 17, 2018]

Question 100.04

Question: May a bidder exclude U.S. security holders from an exchange offer made in a foreign jurisdiction at a time when U.S. ownership exceeds 10 percent and then later extend the same offer to U.S. security holders when U.S. ownership falls to 10 percent or below and qualifies for the Tier I exemption?

Answer: This scenario would raise concerns if the facts and circumstances indicate that the bidder excluded U.S. security holders from the exchange offer either with the purpose or intent of causing a migration of securities from the United States to the foreign jurisdiction so that an exemption from Securities Act registration would then become available. An offer conducted with this purpose or intent could be viewed to be a part of a plan or scheme to evade Securities Act registration, thereby rendering the cross-border exemptions unavailable. See General Note 2 to Securities Act Rules 800, 801 and 802. See also Release No. 33-8957 (September 19, 2008), Section II.G.2 (discussing the exclusion of U.S. target security holders in a cross-border tender offer). [October 17, 2018]

Section 101. Calculation of U.S. Ownership

Question 101.01

Question: Are the securities held by the acquiror excluded from the calculation of U.S. ownership for purposes of determining eligibility under the cross-border exemptions?

Answer: Yes. See, e.g., Securities Act Rule 800(h)(2); Instruction 2.ii to paragraphs (c) and (d) of Exchange Act Rule 14d-1. The amendments adopted by the Commission in 2008 eliminated the requirement to exclude greater than 10 percent target holders from the calculation of U.S. ownership. The requirement to exclude target securities held by the acquiror remains unchanged, however. [October 17, 2018]

Question 101.02

Question: A bidder is making a tender offer for the securities of the subject company, which is a foreign private issuer. One of the subject company’s shareholders, Shareholder A, is an entity incorporated outside the United States. The bidder, however, is aware that investment and dispositive authority over the shares held in the name of Shareholder A rests with a parent company located in the United States. Should Shareholder A’s shares be deemed to be held by a U.S. holder for purposes of calculating eligibility to rely on the cross-border exemptions?

Answer: Yes. Where the bidder knows or has reason to know that investment and dispositive power, within the meaning of Exchange Act Rule 13d-3, over the securities held in the name of a foreign entity are exercised by a U.S. holder, those securities should be counted as part of the U.S. ownership base. [October 17, 2018]

Question 101.03

Question: A business combination frequently involves multiple steps (e.g., a tender offer followed by a clean-up or “back end” merger to acquire any remaining target company securities not tendered in the offer). If an offeror relies on the tender offer exemptions under Tier I or Tier II or the Securities Act exemption under Rule 802 for the first step, must the offeror, for purposes of determining its eligibility under the exemptions, recalculate the U.S. ownership in the target company for the subsequent step in the transaction?

Answer: No. The initial calculation of U.S. ownership made for the first step of the transaction is sufficient to determine eligibility for the use of the exemption in the subsequent step of the transaction, so long as: (1) the disclosure document for the first step discloses the offeror’s intent to conduct the subsequent step and the terms of the subsequent transaction; and (2) the subsequent step is consummated within a reasonable time following the first step.

The offeror, however, has the option of recalculating the U.S. ownership for the subsequent step transaction so it can rely on an exemption for the subsequent step transaction that was not available for the first step. In doing so, the offeror must recalculate the U.S. ownership as of the time periods specified in the applicable exemption and it should state in the offering materials for the first step transaction that it may recalculate U.S. ownership for the subsequent step transaction. Recalculation would not be appropriate for what is in effect a continuation of the first step transaction, such as an extended subsequent offering period following a tender offer that is common in some foreign jurisdictions. [October 17, 2018]

Question 101.04

Question: The cross-border exemptions specify the manner in which an acquiror or an issuer must calculate U.S. ownership for purposes of determining eligibility to rely on the exemptions. See, e.g., Instructions to Exchange Act Rules 14d-1(c) and (d) and Securities Act Rule 800(h). Pursuant to these instructions and rules, an acquiror or issuer must query certain record holders, nominees and financial intermediaries holding subject securities as to the number of securities held by customers resident in the United States. When an acquiror or issuer is unable to conduct this “look through” analysis of U.S. ownership, an alternate test based in part on average daily trading volume of the subject securities and other factors may be used. See, e.g., Instruction 3 to Rules 14d-1(c) and (d), and Rule 800(h)(7). Where record holders such as brokers or other intermediaries in a given jurisdiction are under no obligation, and in fact do not customarily respond to inquiries about the number of securities held for the benefit of customers in the U.S., may an issuer or acquiror eliminate the required “look through” analysis and use the alternate test based in part on trading volume to determine U.S. ownership?

Answer: No. “Reasonable inquiry” for purposes of these instructions and rules dictates that a good faith inquiry, including queries to nominees, must be made even where responses are not likely to be forthcoming or may be incomplete. The instructions and rules address situations where nominees do not respond to “look through” inquiries. They specify what assumptions can be made regarding customer accounts, depending on the location of the nominee record holder. For example, if after reasonable inquiry, an acquiror or issuer is unable to obtain information about the amount of securities represented by accounts of customers resident in the United States, it may assume that customers are resident in the jurisdiction in which the nominee has its principal place of business. See, e.g., Instruction 2.iv to Rules 14d-1(c) and (d), and Rule 800(h)(4). [October 17, 2018]

Question 101.05

Question: In calculating U.S. ownership of the subject securities in a tender offer or rights offering, the bidder or issuer may generally calculate as of a date no more than 60 days before or 30 days after public announcement of the transaction. See Instruction 2.i to Exchange Act Rules 13e-4(h)(8) and (i), Instruction 2.i to Exchange Act Rules 14d-1(c) and (d), and Securities Act Rule 800(h)(1). Can the calculation be done as of a date after commencement of the transaction if the commencement occurs less than 30 days after announcement?

Answer: Bidders or issuers should calculate U.S. ownership and thereby have a basis to know which U.S. rules apply to a cross-border transaction before commencing the transaction. While the cross-border exemptions were revised in 2008 to provide a range of dates for calculating U.S. ownership and to key the calculation on public announcement of the transaction, it did not change the staff’s longstanding view that the calculation of U.S. ownership should be conducted before commencement of the transaction. [October 17, 2018]

Question 101.06

Question: Securities of an acquiror are excluded in the calculation of U.S. ownership for determining eligibility for the cross-border exemptions. See, e.g., Instruction 2.ii to Exchange Act Rules 14d-1(c) and (d) and Securities Act Rule 800(h)(2). In a form of business combination common in certain countries, Company A and Company B would form a new holding company, HoldCo. HoldCo would then issue its shares to the shareholders of Company A and Company B in exchange for their existing shares. In this type of amalgamation, U.S. ownership would be calculated based on the “pro forma” shareholder base of HoldCo assuming the business combination transaction has already taken place. If Company A is considered the acquiror for accounting purposes, can the HoldCo shares to be held by former Company A shareholders be excluded from the calculation of U.S. ownership in the above scenario?

Answer: No. In requiring the exclusion of securities held by the acquiror from the U.S. ownership calculation, the Commission explained that such exclusion would be appropriate because the acquiror would not be participating in the transaction in the same manner as the security holders of the target company. See Release No. 33-8957 (September 19, 2008). This would not be true for the shareholders of Company A because HoldCo will, in fact, issue its shares to Company A shareholders as a result of the amalgamation. Therefore, exclusion of the HoldCo shares to be held by former Company A shareholders from the U.S. ownership calculation is not appropriate even though Company A is considered the accounting acquiror. [October 17, 2018]

Question 101.07

Question: Assume the same factual scenario as described in C&DI 101.06 above but with applicable foreign law requiring the transaction to be announced at a time when the ratio for the share exchange of Company A and Company B shares is not known. The exchange ratio will not be known until about four months after announcement, well beyond the range of permissible dates for calculating U.S. ownership for purposes of Securities Act Rule 800(h)(1). Since the exchange ratio will determine the “pro forma” ownership of HoldCo after the amalgamation transaction and thus the level of U.S. ownership of HoldCo, how can a “pro forma” U.S. ownership be calculated under these facts?

Answer: Where the parties do not know the exchange ratio in an amalgamation at announcement and therefore cannot determine the “pro forma” U.S. ownership for the new holding company within the time frames set forth in Rule 800(h)(1), the staff will not object if the comparative market capitalizations of the parties to the transaction are used instead when calculating U.S. ownership. In this case, the respective U.S. ownership levels of Company A and Company B and their respective market capitalization figures would determine the “pro forma” U.S. ownership for HoldCo after completion of the amalgamation. The market capitalization figures used should be determined as of the date range provided in Rule 800(h)(1). Where the parties have a good faith estimate of the exchange ratio within the permissible date range, the staff will not object if such estimate is used. [October 17, 2018]

Question 101.08

Question: A bidder in a potential cross-border tender offer knows from market intelligence that U.S. ownership of the subject company exceeds 40 percent and that the offer will therefore not qualify for the prompt payment relief set forth in Exchange Act Rule 14d-1(d)(2)(iv). Because payment practice in the subject company’s home jurisdiction does not comport with U.S. standards in a tender offer, the bidder will seek relief from the staff. Although the bidder is not seeking to rely on the Tier I or Tier II cross-border exemptions, should it still conduct the U.S. ownership inquiry in the manner specified for those exemptions in connection with approaching the staff for relief?

Answer: Yes. A party seeking relief should provide the staff with information about the U.S. ownership of the subject securities, calculated in accordance with the requirements of the cross-border exemptions, so that the staff can consider the level of U.S. regulatory interest in the cross-border transaction in its determination of whether to grant relief. [October 17, 2018]

Question 101.09

Question: If an offeror is unable to calculate the U.S. ownership in the subject company in an exchange offer, can the offeror first file a Securities Act registration statement to avoid violating Securities Act Section 5 and then later withdraw the registration statement and rely on Rule 802 if it determines that U.S. ownership is no more than 10 percent and that it qualifies for the Tier I exemption?

Answer: Yes. Securities Act Rule 477 describes the procedures for withdrawing a registration statement. [October 17, 2018]

Section 102. Determination of the Subject Class

Question 102.01

Question: A foreign private issuer has ordinary shares that are registered under Exchange Act Section 12. The ordinary shares trade on a U.S. national securities exchange in the form of American Depositary Receipts, or ADRs. The issuer also has an outstanding class of convertible debentures that convert into the ordinary shares. The debentures, which are not registered under Exchange Act Section 12, and the ordinary shares trade as separate securities on an exchange in the home jurisdiction. The issuer will make an issuer tender offer to repurchase the ordinary shares, but not the debentures. However, holders of debentures can convert their securities into ordinary shares which may then be tendered into the offer. In calculating U.S. ownership of the relevant class for purposes of determining eligibility to rely on the cross-border exemptions in Rule 13e-4(h)(8) or 13e-4(i), should the issuer look to the U.S. ownership of the shares on an “as converted” basis, whereby it assumes conversion of the debentures into shares? Or should it determine U.S. ownership based on the holders of the ordinary shares only?

Answer: Rules 13e-4(h)(8)(i) and 13e-4(i)(1)(ii) state that in determining eligibility for these exemptions, the issuer must identify the percentage of securities “sought in the offer” that are held by U.S. holders. Under this fact pattern, the subject class is the ordinary shares because only the ordinary shares may be tendered into the offer. U.S. ownership for purposes of the cross-border exemptions should therefore be calculated based on the current holders of the ordinary shares, including ordinary shares held in the form of ADRs, without regard to the convertible debentures. [October 17, 2018]

Question 102.02

Question: A target company is a foreign private issuer with two classes of securities outstanding: preference and ordinary shares. Neither class is registered under Exchange Act Section 12. The target company entered into a merger agreement with a foreign acquiror pursuant to which the foreign acquiror will exchange its shares for both classes of target company securities, subject to a vote of the target company’s security holders. For purposes of the vote on the merger with acquiror, the preference and ordinary shares vote as a single class with the same voting rights. However, the two classes of securities vote separately on most other matters. The preference shares and ordinary shares also differ in liquidation preferences, tax treatment and trading liquidity (the ordinary shares trade on an exchange in the target company’s home jurisdiction while the preference shares do not). For purposes of the merger, the exchange ratio for the preference and ordinary shares will be different, reflecting the different rights associated with each class.

For purposes of calculating U.S. ownership for eligibility to rely on Securities Act Rule 802, should the preference and ordinary shares be considered a single class simply because they vote together on the transaction for which the exemption is sought?

Answer: No. The fact that holders of both the ordinary shares and preference shares have the same voting rights for the transaction and will vote together is not dispositive as to whether securities are a single class for purposes of calculating U.S. ownership. Other relevant factors that should be considered in determining whether the ordinary and preference shares should be viewed as separate classes for the U.S. ownership test include: the fact that the shares are priced differently in the business combination; one class is publicly traded and the other is not; and the two classes of securities vote separately on matters other than the transaction in question. [October 17, 2018]

Question 102.03

Question: Securities Act Rule 801 exempts a rights offering from Securities Act registration as long as, among other conditions, U.S. holders hold no more than 10 percent of the outstanding class of securities that is the subject of the rights offering. Rule 801(a)(5) requires that, in order to be eligible for the Rule 801 exemption, the securities offered in the rights offering must be equity securities of the same class as the securities held by the U.S. offerees either directly or through American Depositary Receipts, or ADRs. A foreign private issuer meets the conditions of Rule 801 except that its U.S. holders hold equity securities through Global Depositary Receipts, or GDRs, rather than ADRs. May this issuer extend the rights offering to its U.S. holders without registering the offering in reliance on Rule 801?

Answer: Yes. The requirement in Rule 801(a)(5) that the securities offered in the rights offering be equity securities of the same class as those held by the U.S. offerees is intended to limit the offering to those who have already made the decision to invest in that class. See Release No. 33-7759 (October 22, 1999). Although GDRs are not specifically mentioned in Rule 801(a)(5), they serve the same purpose as ADRs in evidencing ownership of the underlying equity securities. [October 17, 2018]

Section 103. Equal Treatment

Question 103.01

Question: A bidder commences a tender offer for the securities of a foreign private issuer. The bidder initially excludes U.S. subject security holders. While this foreign offer is ongoing, the bidder chooses to extend the offer into the United States and include U.S. subject security holders. How long must the U.S. offer remain open?

Answer: The equal treatment requirement in the Tier I and Tier II exemptions means that the U.S. offer generally must be open for at least as many days as the minimum period required by the laws of the jurisdiction governing the foreign offer. In addition, offers conducted under the Tier II exemption must satisfy the minimum twenty U.S. business day requirement in Exchange Act Rule 14e-1(a). Where either of these requirements could cause the bidder to violate the foreign jurisdiction’s laws, such as a limit on the maximum allowable length of the offering period, the staff will consider requests for relief on a case-by-case basis. This position also applies to an issuer tender offer. [October 17, 2018]

Question 103.02

Question: The subject company is a foreign private issuer with ordinary shares listed on a foreign exchange and American Depositary Shares, or ADSs, listed on a U.S. national securities exchange. U.S. shareholders hold 25 percent of the subject company’s ordinary shares. The bidder will make a cash tender offer for shares of the subject company in reliance on the Tier II cross-border exemptions and will rely on the exemption in Exchange Act Rule 14d-1(d)(2)(ii) to conduct separate U.S. and foreign offers. The U.S. offer will be open to all U.S. holders of shares in direct share form and all holders of ADSs. The foreign offer will be open to all other subject company shareholders. Holders tendering into the U.S. offer will receive U.S. dollars for their subject company shares. Holders tendering into the foreign offer will be permitted to choose between U.S. dollars and the currency of the subject company’s foreign home jurisdiction. Does this satisfy the equal treatment requirement in Rule 14d-1(d)(2)(ii)?

Answer: No. To conduct a dual offer in reliance on Rule 14d-1(d)(2)(ii), the U.S. offer must be made on terms at least as favorable as the terms offered to all other holders of the subject securities. Providing tendering shareholders in the foreign offer with a choice between the two different types of currencies, but not extending the same opportunity to tendering shareholders in the U.S. offer, is inconsistent with this purpose of the equal treatment requirement. [October 17, 2018]

Question 103.03

Question: In a cross-border tender offer not subject to Regulation 14D, where U.S. ownership in the subject company is above 10 percent as calculated in accordance with Instructions 2 and 3 to Exchange Act Rules 14d-1(c) and (d), can the bidder offer cash to U.S. holders of the subject company and shares to all other holders of the subject company?
Answer: Given that the offer is not subject to Regulation 14D and its “all holders” and “best price” requirements, this structure would be permissible, assuming it is acceptable under the laws of the home jurisdiction. [October 17, 2018]

Question 103.04

Question: A bidder conducts a cross-border tender offer for a class of securities registered under Exchange Act Section 12 and intends to rely on the Tier I exemption. In the subject company’s home jurisdiction, the offer includes a cash/stock election feature, whereby tendering holders can elect to receive either cash or stock, with no ceiling or cap on either the cash or stock consideration. The bidder would like to rely on Exchange Act Rule 14d-1(c)(2)(iii) to offer cash-only consideration to U.S. holders while offering the cash/stock election feature to holders in the subject company’s home jurisdiction. Can it do so? If yes, what should be the amount of the cash consideration offered to U.S. holders?

Answer: Yes, a bidder can rely on Rule 14d-1(c)(2)(iii) to offer cash to U.S. holders while offering a choice between cash and stock consideration to non-U.S. holders. Rule 14d-1(c)(2)(iii) requires the bidder to have a reasonable basis to believe that the cash consideration offered to U.S. holders is “substantially equivalent” to the value of the consideration offered to non-U.S. holders so that U.S. holders are treated at least as favorably as their foreign counterparts. This requirement is satisfied where the cash consideration offered under the election feature is equal to or greater than the value of the stock consideration offered under the feature and the bidder offers the same amount of cash to U.S. holders. Accordingly, if the cash consideration offered under the election feature is valued at a premium to the stock consideration, U.S. holders should be offered at least the same amount of cash as non-U.S. holders.

The “substantially equivalent” requirement would not be satisfied, however, where the value of the cash consideration offered under the election feature is less than the value of the stock consideration offered under the feature. In that case, the amount of cash that the bidder must offer to U.S. holders should be at least equivalent to the value of the stock consideration offered to the holders in the subject company’s home jurisdiction. The value of the cash consideration and the stock consideration is determined at commencement of the offer and is not re-evaluated during the term of the offer. See fn. 26 in Release No. 33-7759 (October 22, 1999). Where the bidder increases the value of the stock consideration of the offer after commencement so that the stock consideration is greater than the cash consideration offered under the feature, the amount of the cash offered to U.S. holders would need to be increased as well in order to satisfy the “substantially equivalent” requirement of the rule. [October 17, 2018]

Section 104. Filing, Publication, and Dissemination of Offer Materials

Question 104.01

Question: A foreign private issuer plans to conduct a rights offering without Securities Act registration in reliance on Securities Act Rule 801. The issuer, however, must file a registration statement for this offering with the regulator in its home jurisdiction via an electronic document retrieval system similar to the EDGAR system in the United States. The registration statement is also posted on the issuer’s website.

Pursuant to the home jurisdiction’s rules, the registration statement will incorporate by reference certain disclosure documents, such as annual and quarterly reports, previously filed by the issuer with the regulator in the home jurisdiction through its electronic data gathering system and similarly posted on the issuer’s website. Do these incorporated documents need to be translated into English and furnished to the Commission under cover of Form CB?

Answer: Yes. Part I, Item 1(a) of Form CB requires a filer to attach an English translation of the entire disclosure document delivered to security holders. While the Item allows exclusion of documents incorporated by reference, it allows exclusion only where those incorporated documents are “not published or distributed to holders of securities.” Where documents are required to be incorporated by reference into a registration statement pursuant to the rules of the home jurisdiction, and those documents have been filed electronically via the home jurisdiction regulator’s website or posted on an issuer’s website and are therefore publicly available, an English translation is necessary to ensure that U.S. holders have the same access to information as their foreign counterparts. [October 17, 2018]

Question 104.02

Question: The ability to rely on the exemption in Securities Act Rule 802 is conditioned on including the legend required by Rule 802(b), which, among other things, advises security holders of the difficulties with enforcing claims that may arise under the federal securities laws because the issuer is located in a foreign country and some or all of its officers and directors may be residents of a foreign country. If the offeror is located in the United States, with officers and directors also resident in the United States, must the Rule 802(b) legend still be included in its entirety, even though this part of the legend is technically not applicable?

Answer: No. Rule 802(b) specifically provides that the legend must be included only “to the extent applicable.” Offerors relying on Rule 802 should tailor the legend as needed so that it is not confusing or misleading for security holders. [October 17, 2018]

Question 104.03

Question: Under the laws of a foreign jurisdiction, an offeror commencing by publication must publish a detailed advertisement that includes an extensive discussion of all terms in a merger agreement. Securities Act Rule 802(a)(3)(iii) states that if an offeror disseminates by publication in its home jurisdiction, it must publish the information in the United States in a manner reasonably calculated to inform U.S. holders of the offer. Would publication of a less detailed summary advertisement in a publication with national circulation in the United States that specifies the means (such as an email address, website, or a toll-free telephone number) through which U.S. holders can get a complete copy of the offering materials translated into English satisfy this requirement?

Answer: Yes. [October 17, 2018]

Question 104.04

Question: Websites accessible in the United States must not be used to entice U.S. investors to participate in an offshore offering. Section II.G.2 of Release No. 33-7759 (October 22, 1999) states that “reliance on Regulation S to allow participation by U.S. persons offshore would not be appropriate with respect to tender or exchange offers posted on an unrestricted web site.” The release then states that business combinations present different issues from tender or exchange offers because participation by U.S. security holders is not voluntary in business combinations. (Note: “business combinations” as defined in this release refers to mergers and other transactions requiring shareholder approval, as distinct from tender or exchange offers.) The release also states that “[n]o special precautions should be taken to prevent U.S. holders from receiving the merger consideration in a business combination involving a foreign company merely because the proxy statement/prospectus was posted on a web site available in the United States.” Since this statement implies that the website does not have to be restricted in the United States in a business combination where U.S. security holders are excluded, can the disclosure document then be sent to U.S. security holders?

Answer: No. The discussion does not contemplate sending the proxy statement/prospectus to those U.S. security holders. The release merely points out that there should be no precautions taken to prevent U.S. security holders from receiving the merger consideration even when they are excluded from the business combination, since participation in a business combination that is approved by shareholders is not voluntary for the U.S. security holders. Accordingly, a company using Regulation S to allow participation in a business combination offshore (but not a tender or exchange offer) may put the proxy statement/prospectus on a website that makes clear that the offer is directed only to shareholders in countries other than the United States. This will not be viewed as “directed selling efforts” in the United States. However, the company should not engage in any further activities such as sending the material to U.S. security holders. [October 17, 2018]

Question 104.05

Question: If a foreign private issuer conducts a third party tender offer that excludes U.S. security holders, can it voluntarily furnish the tender offer materials under cover of Form 6-K without becoming subject to the U.S. tender offer rules? Similarly, can a foreign private issuer that is exempt from Exchange Act Section 12 pursuant to Exchange Act Rule 12g3-2(b) post the tender offer materials on its website or send the materials through an electronic information delivery system? Would such steps be viewed as a public announcement in the United States and an inducement for U.S. security holders to tender?

Answer: The tender offer materials may be voluntarily furnished to the Commission, posted on the website of a foreign private issuer relying on the Rule 12g3-2(b) exemption, or sent through an electronic information delivery system, without triggering the applicability of the U.S. tender offer rules so long as the bidder takes steps to ensure that the information is not used as a means to induce indirect participation by U.S. security holders. For example, the materials must not include a transmittal letter or other means of tendering the securities. The materials also must prominently disclose that the offer is not available to U.S. persons or is being made only in countries other than the United States. Further, the issuer must take precautionary measures that are reasonably designed to ensure that the offer is not targeted to U.S. persons. See Release No. 33-8957 (September 19, 2008); Release No. 33-7759 (October 22, 1999). [October 17, 2018]

Section 105. Withdrawal Rights

Question 105.01

Question: In Release No. 33-7759 (October 22, 1999), the Commission stated that it “will not object if bidders meeting the requirements for the Tier II exemption reduce or waive the minimum acceptance condition without extending withdrawal rights during the remainder of the offer” if certain identified conditions are met. May a bidder terminate withdrawal rights during the offer even though the offer has not been declared wholly unconditional?

Answer: No. In order to terminate withdrawal rights, all conditions must be satisfied or waived and the bidder must declare the offer wholly unconditional. In adopting the Tier II exemption, the Commission intended to codify previous staff interpretations regarding waivers or reductions of minimum conditions in cross-border transactions. In prior no-action letters and exemptive orders the Commission and the staff have typically permitted, with five days’ advance notice to security holders, a reduction in the minimum condition and termination of withdrawal rights once all other conditions to the offer are satisfied. The reference in the release to “the remainder of the offer” refers to a subsequent offering period. Pursuant to Exchange Act Rules 14d-7(a)(2) and 14d-11, the bidder may include a subsequent offering period during which withdrawal rights are not provided. [October 17, 2018]

Question 105.02

Question: Can a bidder rely on the Commission’s position allowing for termination of withdrawal rights immediately after waiving or reducing a minimum tender condition during the time that the tender offer must remain open, e.g., after a material change under Exchange Act Rule 14e-1(b)?

Answer: No. The Commission’s position is unavailable under such circumstances. See, e.g., fn. 229 in Release No. 33-8957 (September 19, 2008) (“Our position on reduction or waiver was never intended to allow a bidder to terminate withdrawal rights required under a mandatory extension of the offer period, i.e., an extension required under Rule 14e-1.”). [October 17, 2018]

Interactive Data

Last Update: November 20, 2023

These Compliance and Disclosure Interpretations ("C&DIs") comprise the staff's interpretations of the interactive data rules. The bracketed date following each C&DI is the latest date of publication or revision.

Each C&DI other than those relating to Inline XBRL has been published in, and numbered in accordance with, the C&DIs for the section, rule or form for which it provides an interpretation. We have compiled all of the interactive data-related C&DIs in this document for your convenience.

Inline XBRL

Question 101.01

Question: How should registrants subject to Inline XBRL requirements identify the Interactive Data Files in the exhibit index of an applicable filing?

Answer: Registrants subject to Inline XBRL requirements should identify any Interactive Data File required under Rule 405 of Regulation S-T as exhibit 101 in the exhibit index and any Cover Page Interactive Data File required under Rule 406 of Regulation S-T as exhibit 104 in the exhibit index. Additionally, when an interactive data file is submitted using Inline XBRL, Instruction 1 to paragraphs (b)(101)(i) and (ii) of Regulation S-K Item 601 requires that the exhibit index include the word “Inline” within the title description for any such exhibit.

As described in Volume II, Chapter 6.3.2 of the EDGAR Filer Manual, registrants should satisfy the requirement to submit a Cover Page Interactive Data File using an Inline XBRL Document Set with EX-101.* attachments other than EX-101.INS. Accordingly, in the case of a Cover Page Interactive Data File identified as exhibit 104 in the exhibit index, the exhibit index should cross-reference to the Interactive Data Files submitted under EX-101. For submissions made with Form 8-K, see Question 101.04. [Aug. 20, 2019]

Question 101.02

Question: If an issuer voluntarily submits Interactive Data Files in Inline XBRL format prior to its applicable phase-in date, must the issuer comply with the cover page data tagging requirements with those submissions?

Answer: No. Cover page data tagging requirements apply to issuers that are “required to submit Interactive Data Files in Inline XBRL format.” See Rule 406 of Regulation S-T. Issuers that voluntarily submit Interactive Data Files in Inline XBRL format prior to their applicable phase-in date are not “required to submit Interactive Data Files in Inline XBRL format” and, therefore, such issuers are not subject to the cover page data tagging requirements. [Aug. 20, 2019]

Question 101.03

Answer: Yes. All Forms 8‑K, not only those that contain financial statements for which XBRL data is required, are subject to this requirement. [Aug. 20, 2019]

Question 101.04

Question: Item 601(b)(104) of Regulation S-K requires a Cover Page Interactive Data File to be filed as an exhibit to the respective forms listed in the exhibit table. Are registrants subject to Inline XBRL requirements required to identify the Cover Page Interactive Data File as exhibit 104 under Item 9.01 of Form 8-K?

Answer: As discussed in Question 101.01 above, Cover Page Interactive Data Files required under Rule 406 of Regulation S-T should be identified as exhibit 104 in the exhibit index of an applicable filing. If, however, the exhibit index of a Form 8-K would include only a Cover Page Interactive Data File as exhibit 104, and would not include any other exhibit, the staff will not object if the registrant does not add an exhibit index to the Form 8-K solely for the purpose of identifying the Cover Page Interactive Data File as an exhibit under Item 9.01 of Form 8-K. [Aug. 20, 2019]

Question 101.05

Question: Registrants subject to Inline XBRL requirements are required to tag all of the information on the cover page of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F using Inline XBRL, including the company name. How should registrants comply with the cover page tagging requirements where the company name, as it appears on the cover page of the applicable form, differs from the company name, as conformed to EDGAR naming conventions in the company’s EDGAR file?

Answer: Where a company’s name, as it appears on the cover page of a form, differs from its conformed name in EDGAR, it is permissible for the Inline XBRL tagged company name shown on the cover page to vary from the EDGAR conformed name in various ways. Most such variations will not prevent the filing from being accepted and disseminated. In rarer instances, a variation may result in a notice of suspension. In those instances, the filer should contact EDGAR Filer Technical Support. Registrants whose company name does not match their EDGAR conformed company name may wish to consider updating their conformed company name in EDGAR. See Volume I, Chapter 5.4 of the EDGAR Filer Manual for instructions on how to edit your company information. [Aug. 20, 2019]

Question 101.06

Question: If an issuer elects to voluntarily submit Interactive Data Files in Inline XBRL format prior to its applicable phase-in date, can the issuer cease such voluntary submissions prior to its applicable phase-in date?

Answer: Yes. Issuers can cease such voluntary submissions until they are required to submit Interactive Data Files in Inline XBRL format pursuant to the phase-in schedule. [Aug. 20, 2019]

Question 101.07

Question: Form 10-Q filers are required to comply with Inline XBRL beginning with their first Form 10-Q for a fiscal period ending on or after the applicable compliance date, as opposed to the first filing for a fiscal period ending on or after that date. Where a registrant files a Form 8-K earlier on the same day as its first Form 10-Q for a fiscal period ending on or after the applicable compliance date, must the Form 8-K comply with Inline XBRL cover page tagging requirements?

Answer: No. Because the Form 8-K was filed before the first Form 10-Q was due for a fiscal period ending on or after the applicable compliance date, the Form 8-K need not comply with Inline XBRL cover page tagging requirements. [Aug. 20, 2019]

Question 101.08

Question: What is the applicable phase-in period for compliance with the Inline XBRL requirements for foreign private issuers?

Answer: Foreign private issuers will be required to comply with the Inline XBRL requirements based on their filer status and basis of accounting. For a foreign private issuer that prepares its financial statements in accordance with U.S. GAAP, the phase-in of the Inline XBRL requirements is determined based on its filer status. Large accelerated filers, including foreign private issuers, that prepare their financial statements in accordance with U.S. GAAP will be required to comply with Inline XBRL for financial statements for fiscal periods ending on or after June 15, 2019. Accelerated filers, including foreign private issuers, that prepare their financial statements in accordance with U.S. GAAP will be required to comply with Inline XBRL for financial statements for fiscal periods ending on or after June 15, 2020. All other filers, including foreign private issuers that prepare their financial statements in accordance with IFRS, will be required to comply with Inline XBRL for financial statements for fiscal periods ending on or after June 15, 2021. [Aug. 20, 2019]

Question 101.09

Question: Form 10-Q filers are required to comply with Inline XBRL beginning with their first Form 10-Q for a fiscal period ending on or after the applicable compliance date. How does this provision apply to Form 20-F and 40-F filers?

Answer: Form 20-F and 40-F filers do not have quarterly report filing obligations. Therefore, these filers will be required to comply with Inline XBRL beginning with the first filing on a form for which Inline XBRL is required for a fiscal period ending on or after the applicable compliance date, as determined in accordance with Rule 405(f)(1)(i) of Regulation S-T. [Aug. 20, 2019]

Question 101.10

Exchange Act Sections

Question 153.05

Exchange Act Rules

Question 135.11

Question: Can a filer rely on Exchange Act Rule 12b-25 to extend the due date of an Interactive Data File?

Question 162.01

Question: The interactive data adopting release provides that controls and procedures with respect to interactive data fall within the scope of "disclosure controls and procedures." See Securities Act Release No. 9002(Jan. 30, 2009). Exchange Act Rules 13a-15 and 15d-15 require certain officers to evaluate the effectiveness of the filer's disclosure controls and procedures, and Item 307 of Regulation S-K requires the filer to disclose the officers' conclusions regarding the effectiveness of those disclosure controls and procedures. However, the adopting release also adopts amendments to Exchange Act Rules 13a-14 and 15d-14 that exclude interactive data from officer certifications, which, among other things, describe the officers' responsibility for establishing and maintaining disclosure controls and procedures and require statements regarding their design and evaluation. Is a filer that submits interactive data in an exhibit to a Form 10-K or 10-Q required to consider controls and procedures with respect to interactive data in complying with Exchange Act Rules 13a-15 and 15d-15 and Item 307?

Question 182.02 [repeat of Question 162.01]

Question: The interactive data adopting release provides that controls and procedures with respect to interactive data fall within the scope of "disclosure controls and procedures." See Securities Act Release No. 9002(Jan. 30, 2009). Exchange Act Rules 13a-15 and 15d-15 require certain officers to evaluate the effectiveness of the filer's disclosure controls and procedures, and Item 307 of Regulation S-K requires the filer to disclose the officers' conclusions regarding the effectiveness of those disclosure controls and procedures. However, the adopting release also adopts amendments to Exchange Act Rules 13a-14 and 15d-14 that exclude interactive data from officer certifications, which, among other things, describe the officers' responsibility for establishing and maintaining disclosure controls and procedures and require statements regarding their design and evaluation. Is a filer that submits interactive data in an exhibit to a Form 10-K or 10-Q required to consider controls and procedures with respect to interactive data in complying with Exchange Act Rules 13a-15 and 15d-15 and Item 307?

Exchange Act Forms

Question 104.14

Question 104.15

Question 104.16

Question 105.04

Question 105.05

[Withdrawn, Sept. 17, 2010]

Question 105.06

[Withdrawn, Sept. 17, 2010]

Question 105.07

Question 105.08

Exchange Act Form 8-K

Question 101.04

Answer: Yes, if the filer otherwise complies with Item 601(b)(101)(ii) of Regulation S-K and Paragraph 6(b) of General Instruction C of Form 6-K, as applicable. [Sep. 14, 2009]

Question 101.05

Answer: No. If a filer does not submit an interactive data file with a form as required, the filer must amend the form to include the interactive data file. [Sep. 14, 2009]

Question 115.03

Answer: No. Item 4.02(a) requires a Form 8-K only when the filer determines that previously issued financial statements should no longer be relied upon because of an error in those financial statements. If a filer wants to voluntarily provide non-reliance disclosure similar to Item 4.02(a) that pertains only to the interactive data, it can do so under either Item 7.01 or Item 8.01 of Form 8 K. In any event, if a filer finds a material error in its Interactive Data File, it must file an amendment to correct the error. In addition, once a filer becomes aware of the error in its Interactive Data File, it must correct the error promptly in order for the Interactive Data File to be eligible for the modified treatment under the federal securities laws provided by Rule 406T of Regulation S-T. [May 29, 2009]

Regulation S-K

Question 146.12

Question: Even though interactive data exhibits are not required for initial public offerings, can a filer voluntarily submit an interactive data exhibit for an IPO on Form S-1?

Question 146.13

Answer: Yes, if the filer otherwise complies with Item 601(b)(101)(ii) of Regulation S-K and Paragraph 6(b) of General Instruction C of Form 6-K, as applicable. [Sep. 14, 2009] [repeat of Question 101.04]

Question 146.14

Question: How does a filer determine when it is required to submit interactive data and to "detail tag" the financial statement footnotes and schedules in its interactive data?

Question 146.15

Answer: Yes. [Sept. 17, 2010]

Question 146.16

attributed increased sales to the $1.99 pancake special (the increased sales figure itself would need to be tagged);
sales of 1% fat milk (the sales figure itself would need to be tagged);
docket number 34-4589;
22nd district court;
FASB Accounting Standards Codification Section 605-40-15;
altitude of 27,000 feet;
drilling 700 feet;
open new stores no less than 2 miles from existing stores;
founded a new subsidiary in 2009;
each restaurant now offers at least 20 entrees under 500 calories; and
number of the footnote itself. [Sept. 17, 2010]

Question 146.17

Question: A reporting issuer plans to rely on Securities Act Rule 430A to omit pricing information from its prospectus until after effectiveness of the registration statement. Unlike a non-reporting issuer, it is not required to disclose, pursuant to Item 501(b)(3) of Regulation S-K, a bona fide estimate of the range of the maximum offering price. As Item 601(b)(101)(i) provides that an interactive data file is “required for a registration statement under the Securities Act only if the registration statement contains a price or price range,” must the issuer provide an interactive data file as an exhibit to the registration statement?

Answer: Yes. Item 601(b)(101)(i) does not provide an exemption from the interactive data requirements for reporting issuers that plan to rely on Rule 430A. In general, disclosure that satisfies the requirements in Item 501(b)(3) of Regulation S-K to state the “offering price” will be considered a “price or price range” for purposes of the interactive data rules, and thus trigger the requirement to submit interactive data. Accordingly, registration statements for shelf offerings, at-the-market offerings, exchange offers and secondary offerings must comply with the interactive data filing requirement even though they generally do not include a specific offering price at the time of effectiveness, unless the financial statements are incorporated by reference into the registration statement. [May 16, 2013]

Question 146.18

Regulation S-T

Question 130.01

Answer: In the case of an amendment to a periodic report, the filer should include the cover page, an explanatory note, the signature page, an exhibit index, and exhibit 101. [May 29, 2009]

Question 130.02

Answer: No. Each filer has only one initial submission 30-day grace period irrespective of whether that initial submission is made voluntarily (i.e., in advance of its scheduled phase-in) or as required (i.e., at its scheduled phase-in). Similarly, each filer has only one 30-day grace period for its initial detail-tagged footnote and schedule submission, whether submitted voluntarily or as required. [May 29, 2009]

Question 130.03

Answer: Yes. Filers can also cease voluntary submissions of Interactive Data Files at any time until they are required to submit them pursuant to the phase-in schedule. [May 29, 2009]

Question 130.04

Question: Rule 405(d)(4)(i) of Regulation S-T states that each amount (i.e., monetary value, percentage and number) within each footnote must be tagged separately. Is an amount expressed as text (e.g., seven percent) required to be tagged under this provision?

Question 130.05

Question: A filer's footnote states, "The assumed discount rate at December 31, 2008 is 7%." Can this fact be tagged as a string of text in satisfaction of Rule 405(d)(4)(i) of Regulation S-T?

Question 130.06

Question: Rule 405(d)(4)(i) of Regulation S-T states that each amount (i.e., monetary value, percentage, and number) within each footnote must be tagged separately. How does this requirement apply when the numbers relate to periods or years, such as used in the following example? "Annual maturities of debt are: Year 1 (or 2010) is $1,000, Year 2 (or 2011) is $2,000, Year 3 (or 2012) is $3,000, Year 4 (or 2013) is $4,000, and Year 5 (or 2014) is $5,000."

Answer: In this example, the only amounts that should be tagged are the dollar amounts. The "year" references (i.e., Year 1, 2010, etc.) merely provide context to the dollar amounts. Examples of other disclosures in which this format may be common are future minimum lease payments and unconditional purchase obligations. The filer should carefully review the elements in the standard taxonomy because in some cases, the taxonomy will include separate elements for each specific period, and in other cases, the filer would use the same element from the taxonomy and distinguish each period by creating contextual information (see Section 6.5 of the EDGAR Filer Manual for guidance on defining contexts). [May 29, 2009]

Question 130.07

Question 130.08

Answer: No. There is no such requirement. [May 29, 2009]

Question 130.09

Question: A filer is required to post an interactive data file on the filer's web site, if it has one. The filer cannot comply with this requirement by providing a hyperlink on its web site to the Commission's web site. SeeSecurities Act Release No. 9002 (Jan. 30, 2009). May the filer comply with this requirement by providing a hyperlink on its web site directly to the interactive data file, which is itself on a non-Commission third-party web site?

Question 130.10

Question: How does a filer determine when it is required to submit interactive data and to "detail tag" the financial statement footnotes and schedules in its interactive data?

Section 131. Rule 406T

Question 131.01

Answer: No. [Sept. 17, 2010]

Non-GAAP Financial Measures

Last Update: December 13, 2022

These Compliance & Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of the rules and regulations on the use of non-GAAP financial measures. The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 100. General

Question 100.01

Question: Can certain adjustments, although not explicitly prohibited, result in a non-GAAP measure that is misleading?

Answer: Yes. Certain adjustments may violate Rule 100(b) of Regulation G because they cause the presentation of the non-GAAP measure to be misleading. Whether or not an adjustment results in a misleading non-GAAP measure depends on a company’s individual facts and circumstances.

Presenting a non-GAAP performance measure that excludes normal, recurring, cash operating expenses necessary to operate a registrant’s business is one example of a measure that could be misleading.

When evaluating what is a normal, operating expense, the staff considers the nature and effect of the non-GAAP adjustment and how it relates to the company’s operations, revenue generating activities, business strategy, industry and regulatory environment.

The staff would view an operating expense that occurs repeatedly or occasionally, including at irregular intervals, as recurring. [December 13, 2022]

Question 100.02

Question: Can a non-GAAP measure be misleading if it is presented inconsistently between periods?

Answer: Yes. For example, a non-GAAP measure that adjusts a particular charge or gain in the current period and for which other, similar charges or gains were not also adjusted in prior periods could violate Rule 100(b) of Regulation G unless the change between periods is disclosed and the reasons for it explained. In addition, depending on the significance of the change, it may be necessary to recast prior measures to conform to the current presentation and place the disclosure in the appropriate context. [May 17, 2016]

Question 100.03

Question: Can a non-GAAP measure be misleading if the measure excludes charges, but does not exclude any gains?

Answer: Yes. For example, a non-GAAP measure that is adjusted only for non-recurring charges when there were non-recurring gains that occurred during the same period could violate Rule 100(b) of Regulation G. [May 17, 2016]

Question 100.04

Question: Can a non-GAAP measure violate Rule 100(b) of Regulation G if the recognition and measurement principles used to calculate the measure are inconsistent with GAAP?

Answer: Yes. By definition, a non-GAAP measure excludes or includes amounts from the most directly comparable GAAP measure. However, non-GAAP adjustments that have the effect of changing the recognition and measurement principles required to be applied in accordance with GAAP would be considered individually tailored and may cause the presentation of a non-GAAP measure to be misleading. Examples the staff may consider to be misleading include, but are not limited to:

changing the pattern of recognition, such as including an adjustment in a non-GAAP performance measure to accelerate revenue recognized ratably over time in accordance with GAAP as though revenue was earned when customers were billed;
presenting a non-GAAP measure of revenue that deducts transaction costs as if the company acted as an agent in the transaction, when gross presentation as a principal is required by GAAP, or the inverse, presenting a measure of revenue on a gross basis when net presentation is required by GAAP; and
changing the basis of accounting for revenue or expenses in a non-GAAP performance measure from an accrual basis in accordance with GAAP to a cash basis. [December 13, 2022]

Question 100.05

Question: Can a non-GAAP measure be misleading if it, and/or any adjustment made to the GAAP measure, is not appropriately labeled and clearly described?

Answer: Yes. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies. Without an appropriate label and clear description, a non-GAAP measure and/or any adjustment made to arrive at that measure could be misleading to investors. The following examples would violate Rule 100(b) of Regulation G:

Failure to identify and describe a measure as non-GAAP.
Presenting a non-GAAP measure with a label that does not reflect the nature of the non-GAAP measure, such as:
- a contribution margin that is calculated as GAAP revenue less certain expenses, labeled “net revenue”;
- non-GAAP measure labeled the same as a GAAP line item or subtotal even though it is calculated differently than the similarly labeled GAAP measure, such as “Gross Profit” or “Sales”; and
- a non-GAAP measure labeled “pro forma” that is not calculated in a manner consistent with the pro forma requirements in Article 11 of Regulation S-X. [December 13, 2022]

Question 100.06

Question: Can a non-GAAP measure be misleading, and violate Rule 100(b) of Regulation G, even if it is accompanied by disclosure about the nature and effect of each adjustment made to the most directly comparable GAAP measure?

Answer: Yes. It is the staff’s view that a non-GAAP measure could mislead investors to such a degree that even extensive, detailed disclosure about the nature and effect of each adjustment would not prevent the non-GAAP measure from being materially misleading. [December 13, 2022]

Section 101. Business Combination Transactions

Question 101.01

Question: Are financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction non-GAAP financial measures?

Answer: No, if the conditions described below are met.

Item 10(e)(5) of Regulation S-K and Rule 101(a)(3) of Regulation G provide that a non-GAAP financial measure does not include financial measures required to be disclosed by GAAP, Commission rules, or a system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the registrant. Accordingly, financial measures provided to a financial advisor would be excluded from the definition of non-GAAP financial measures, and therefore not subject to Item 10(e) of Regulation S-K and Regulation G, if and to the extent:

the financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and
the forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work. [Oct. 17, 2017]

Question 101.02

Question: Can the registrant rely on the Answer to Question 101.01 if the same forecasts provided to its financial advisor are also provided to its board of directors or board committee?

Answer: Yes. [April 4, 2018]

Question 101.03

Question: A registrant provides forecasts to bidders in a business combination transaction. To avoid anti-fraud concerns under the federal securities laws or ensure that the other disclosures in the document are not misleading, it determines that such forecasts should be disclosed. Are the financial measures contained in forecasts disclosed for this purpose considered non-GAAP financial measures?

Answer: If a registrant determines that forecasts exchanged between the parties in a business combination transaction are material and that disclosure of such forecasts is required to comply with the anti-fraud and other liability provisions of the federal securities laws, the financial measures included in such forecasts would be excluded from the definition of non-GAAP financial measures and therefore not subject to Item 10(e) of Regulation S-K and Regulation G. [April 4, 2018]

Question 101.04

Question: Does the exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications relating to a business combination transaction extend to the same non-GAAP financial measures disclosed in registration statements, proxy statements and tender offer statements?

Answer: No. There is an exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications subject to Securities Act Rule 425 and Exchange Act Rules 14a-12 and 14d-2(b)(2); it is also intended to apply to communications subject to Exchange Act Rule 14d-9(a)(2). This exemption does not extend beyond such communications. Consequently, if the same non-GAAP financial measure that was included in a communication filed under one of those rules is also disclosed in a Securities Act registration statement, proxy statement, or tender offer statement, this exemption from Regulation G and Item 10(e) of Regulation S-K would not be available for that non-GAAP financial measure. [Oct. 17, 2017]

Question 101.05

Question: If reconciliation of a non-GAAP financial measure is required and the most directly comparable measure is a “pro forma” measure prepared and presented in accordance with Article 11 of Regulation S-X, may companies use that measure for reconciliation purposes, in lieu of a GAAP financial measure?

Answer: Yes. [Jan. 11, 2010]

Section 102. Item 10(e) of Regulation S-K

Question 102.01

Question: What measure was contemplated by "funds from operations" in footnote 50 to Exchange Act Release No. 47226, Conditions for Use of Non-GAAP Financial Measures, which indicates that companies may use "funds from operations per share" in earnings releases and materials that are filed or furnished to the Commission, subject to the requirements of Regulation G and Item 10(e) of Regulation S-K?

Answer: The reference to "funds from operations" in footnote 50, or “FFO,” refers to the measure defined as of January 1, 2000, by the National Association of Real Estate Investment Trusts (NAREIT). NAREIT has revised and clarified the definition since 2000. The staff accepts NAREIT’s definition of FFO in effect as of May 17, 2016 as a performance measure and does not object to its presentation on a per share basis. [May 17, 2016]

Question 102.02

Question: May a registrant present FFO on a basis other than as defined by NAREIT as of May 17, 2016?

Answer: Yes, provided that any adjustments made to FFO comply with Item 10(e) of Regulation S-K and the measure does not violate Rule 100(b) of Regulation G. Any adjustments made to FFO must comply with the requirements of Item 10(e) of Regulation S-K for a performance measure or a liquidity measure, depending on the nature of the adjustments, some of which may trigger the prohibition on presenting this measure on a per share basis. See Section 100 and Question 102.05. [May 17, 2016]

Question 102.03

Question: Item 10(e) of Regulation S-K prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Is this prohibition based on the description of the charge or gain, or is it based on the nature of the charge or gain?

Answer: The prohibition is based on the description of the charge or gain that is being adjusted. It would not be appropriate to state that a charge or gain is non-recurring, infrequent or unusual unless it meets the specified criteria. The fact that a registrant cannot describe a charge or gain as non-recurring, infrequent or unusual, however, does not mean that the registrant cannot adjust for that charge or gain. Registrants can make adjustments they believe are appropriate, subject to Regulation G and the other requirements of Item 10(e) of Regulation S-K. See Question 100.01. [May 17, 2016]

Question 102.04

Question: Is the registrant required to use the non-GAAP measure in managing its business or for other purposes in order to be able to disclose it?

Answer: No. Item 10(e)(1)(i)(D) of Regulation S-K states only that, "[t]o the extent material," there should be a statement disclosing the additional purposes, "if any," for which the registrant's management uses the non-GAAP financial measure. There is no prohibition against disclosing a non-GAAP financial measure that is not used by management in managing its business. [Jan. 11, 2010]

Question 102.05

Question: While Item 10(e)(1)(ii) of Regulation S-K does not prohibit the use of per share non-GAAP financial measures, the adopting release for Item 10(e), Exchange Act Release No. 47226, states that "per share measures that are prohibited specifically under GAAP or Commission rules continue to be prohibited in materials filed with or furnished to the Commission." In light of Commission guidance, specifically Accounting Series Release No. 142, Reporting Cash Flow and Other Related Data, and Accounting Standards Codification 230, are non-GAAP earnings per share numbers prohibited in documents filed or furnished with the Commission?

Answer: No. Item 10(e) recognizes that certain non-GAAP per share performance measures may be meaningful from an operating standpoint. Non-GAAP per share performance measures should be reconciled to GAAP earnings per share. On the other hand, non-GAAP liquidity measures that measure cash generated must not be presented on a per share basis in documents filed or furnished with the Commission, consistent with Accounting Series Release No. 142. Whether per share data is prohibited depends on whether the non-GAAP measure can be used as a liquidity measure, even if management presents it solely as a performance measure. When analyzing these questions, the staff will focus on the substance of the non-GAAP measure and not management’s characterization of the measure. [May 17, 2016]

Question 102.06

Question: Is Item 10(e)(1)(i) of Regulation S-K, which requires the prominent presentation of, and reconciliation to, the most directly comparable GAAP financial measure or measures, intended to change the staff's practice of requiring the prominent presentation of amounts for the three major categories of the statement of cash flows when a non-GAAP liquidity measure is presented?

Answer: No. The requirements in Item 10(e)(1)(i) are consistent with the staff's practice. The three major categories of the statement of cash flows should be presented when a non-GAAP liquidity measure is presented. [Jan. 11, 2010]

Question 102.07

Question: Some companies present a measure of "free cash flow," which is typically calculated as cash flows from operating activities as presented in the statement of cash flows under GAAP, less capital expenditures. Does Item 10(e)(1)(ii) of Regulation S-K prohibit this measure in documents filed with the Commission?

Answer: No. The deduction of capital expenditures from the GAAP financial measure of cash flows from operating activities would not violate the prohibitions in Item 10(e)(1)(ii). However, companies should be aware that this measure does not have a uniform definition and its title does not describe how it is calculated. Accordingly, a clear description of how this measure is calculated, as well as the necessary reconciliation, should accompany the measure where it is used. Companies should also avoid inappropriate or potentially misleading inferences about its usefulness. For example, "free cash flow" should not be used in a manner that inappropriately implies that the measure represents the residual cash flow available for discretionary expenditures, since many companies have mandatory debt service requirements or other non-discretionary expenditures that are not deducted from the measure. Also, free cash flow is a liquidity measure that must not be presented on a per share basis. See Question 102.05. [May 17, 2016]

Question 102.08

Question: Does Item 10(e) of Regulation S-K apply to filed free writing prospectuses?

Answer: Regulation S-K applies to registration statements filed under the Securities Act, as well as registration statements, periodic and current reports and other documents filed under the Exchange Act. A free writing prospectus is not filed as part of the issuer's registration statement, unless the issuer files it on Form 8-K or otherwise includes it or incorporates it by reference into the registration statement. Therefore, Item 10(e) of Regulation S-K does not apply to a filed free writing prospectus unless the free writing prospectus is included in or incorporated by reference into the issuer's registration statement or included in an Exchange Act filing. [Jan. 11, 2010]

Question 102.09

Question: Item 10(e)(1)(ii)(A) of Regulation S-K prohibits "excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures, other than the measures earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA)." A company's credit agreement contains a material covenant regarding the non-GAAP financial measure "Adjusted EBITDA." If disclosed in a filing, the non-GAAP financial measure "Adjusted EBITDA" would violate Item 10(e), as it excludes charges that are required to be cash settled. May a company nonetheless disclose this non-GAAP financial measure?

Answer: Yes. The prohibition in Item 10(e) notwithstanding, because MD&A requires disclosure of material items affecting liquidity, if management believes that the credit agreement is a material agreement, that the covenant is a material term of the credit agreement and that information about the covenant is material to an investor's understanding of the company's financial condition and/or liquidity, then the company may be required to disclose the measure as calculated by the debt covenant as part of its MD&A. In disclosing the non-GAAP financial measure in this situation, a company should consider also disclosing the following:

the material terms of the credit agreement including the covenant;
the amount or limit required for compliance with the covenant; and
the actual or reasonably likely effects of compliance or non-compliance with the covenant on the company's financial condition and liquidity. [Jan. 11, 2010]

Question 102.10

Question 102.10(a): Item 10(e)(1)(i)(A) of Regulation S-K requires that when a registrant presents a non-GAAP measure it must present the most directly comparable GAAP measure with equal or greater prominence. This requirement applies to non-GAAP measures presented in documents filed with the Commission and also earnings releases furnished under Item 2.02 of Form 8-K. Are there examples of disclosures that would cause a non-GAAP measure to be more prominent?

Answer: Yes. This requirement applies to the presentation of, and any related discussion and analysis of, a non-GAAP measure. Whether a non-GAAP measure is more prominent than the comparable GAAP measure generally depends on the facts and circumstances in which the disclosure is made. The staff would consider the following to be examples of non-GAAP measures that are more prominent than the comparable GAAP measures:

Presenting an income statement of non-GAAP measures. See Question 102.10(c).
Presenting a non-GAAP measure before the most directly comparable GAAP measure or omitting the comparable GAAP measure altogether, including in an earnings release headline or caption that includes a non-GAAP measure.
Presenting a ratio where a non-GAAP financial measure is the numerator and/or denominator without also presenting the ratio calculated using the most directly comparable GAAP measure(s) with equal or greater prominence.
Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font, etc.) that emphasizes the non-GAAP measure over the comparable GAAP measure.
Describing a non-GAAP measure as, for example, “record performance” or “exceptional” without at least an equally prominent descriptive characterization of the comparable GAAP measure.
Presenting charts, tables or graphs of a non-GAAP financial measures without presenting charts, tables or graphs of the comparable GAAP measures with equal or greater prominence, or omitting the comparable GAAP measures altogether.
Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. [December 13, 2022]

Question 102.10(b)

Question: Are there examples of disclosures that would cause the non-GAAP reconciliation required by Item 10(e)(1)(i)(B) of Regulation S-K to give undue prominence to a non-GAAP measure?

Answer: Yes. The staff would consider the following examples of disclosure of non-GAAP measures as more prominent than the comparable GAAP measures:

Starting the reconciliation with a non-GAAP measure.
Presenting a non-GAAP income statement when reconciling non-GAAP measures to the most directly comparable GAAP measures. See Question 102.10(c).
When presenting a forward-looking non-GAAP measure, a registrant may exclude the quantitative reconciliation if it is relying on the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K. A measure would be considered more prominent than the comparable GAAP measure if it is presented without disclosing reliance upon the exception, identifying the information that is unavailable, and its probable significance in a location of equal or greater prominence. [December 13, 2022]

Question 102.10(c)

Question: The staff considers the presentation of a non-GAAP income statement, alone or as part of the required non-GAAP reconciliation, as giving undue prominence to non-GAAP measures. What is considered to be a non-GAAP income statement?

Answer: The staff considers a non-GAAP income statement to be one that is comprised of non-GAAP measures and includes all or most of the line items and subtotals found in a GAAP income statement. [December 13, 2022]

Question 102.11

Question: How should income tax effects related to adjustments to arrive at a non-GAAP measure be calculated and presented?

Answer: A registrant should provide income tax effects on its non-GAAP measures depending on the nature of the measures. If a measure is a liquidity measure that includes income taxes, it might be acceptable to adjust GAAP taxes to show taxes paid in cash. If a measure is a performance measure, the registrant should include current and deferred income tax expense commensurate with the non-GAAP measure of profitability. In addition, adjustments to arrive at a non-GAAP measure should not be presented “net of tax.” Rather, income taxes should be shown as a separate adjustment and clearly explained. [May 17, 2016]

Question 102.12

Section 103. EBIT and EBITDA

Question 103.01

Question: Exchange Act Release No. 47226 describes EBIT as "earnings before interest and taxes" and EBITDA as "earnings before interest, taxes, depreciation and amortization." What GAAP measure is intended by the term "earnings"? May measures other than those described in the release be characterized as "EBIT" or "EBITDA"? Does the exception for EBIT and EBITDA from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S-K apply to these other measures?

Answer: "Earnings" means net income as presented in the statement of operations under GAAP. Measures that are calculated differently than those described as EBIT and EBITDA in Exchange Act Release No. 47226 should not be characterized as "EBIT" or "EBITDA" and their titles should be distinguished from "EBIT" or "EBITDA," such as "Adjusted EBITDA." These measures are not exempt from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S-K, with the exception of measures addressed in Question 102.09. [Jan. 11, 2010]

Question 103.02

Question: If EBIT or EBITDA is presented as a performance measure, to which GAAP financial measure should it be reconciled?

Answer: If a company presents EBIT or EBITDA as a performance measure, such measures should be reconciled to net income as presented in the statement of operations under GAAP. Operating income would not be considered the most directly comparable GAAP financial measure because EBIT and EBITDA make adjustments for items that are not included in operating income. In addition, these measures must not be presented on a per share basis. See Question 102.05. [May 17, 2016]

Section 104. Segment Information

Question 104.01

Question: Is segment information that is presented in conformity with Accounting Standards Codification 280, pursuant to which a company may determine segment profitability on a basis that differs from the amounts in the consolidated financial statements determined in accordance with GAAP, considered to be a non-GAAP financial measure under Regulation G and Item 10(e) of Regulation S-K?

Answer: No. Non-GAAP financial measures do not include financial measures that are required to be disclosed by GAAP. Exchange Act Release No. 47226 lists "measures of profit or loss and total assets for each segment required to be disclosed in accordance with GAAP" as examples of such measures. The measure of segment profit or loss and segment total assets under Accounting Standards Codification 280 is the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance.

The list of examples in Exchange Act Release No. 47226 is not exclusive. As an additional example, because Accounting Standards Codification 280 requires or expressly permits the footnotes to the company's consolidated financial statements to include specific additional financial information for each segment, that information also would be excluded from the definition of non-GAAP financial measures. [Jan. 11, 2010]

Question 104.02

Question: Does Item 10(e)(1)(ii) of Regulation S-K prohibit the discussion in MD&A of segment information determined in conformity with Accounting Standards Codification 280?

Answer: No. Where a company includes in its MD&A a discussion of segment profitability determined consistent with Accounting Standards Codification 280, which also requires that a footnote to the company's consolidated financial statements provide a reconciliation, the company also should include in the segment discussion in the MD&A a complete discussion of the reconciling items that apply to the particular segment being discussed. In this regard, see Financial Reporting Codification Section 501.06.a, footnote 28. [Jan. 11, 2010]

Question 104.03

Question: Is a measure of segment profit/loss or liquidity that is not in conformity with Accounting Standards Codification 280 a non-GAAP financial measure under Regulation G and Item 10(e) of Regulation S-K?

Answer: Yes. Segment measures that are adjusted to include amounts excluded from, or to exclude amounts included in, the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance do not comply with Accounting Standards Codification 280. Such measures are, therefore, non-GAAP financial measures and subject to all of the provisions of Regulation G and Item 10(e) of Regulation S-K. [Jan. 11, 2010]

Question 104.04

Question: In the footnote that reconciles the segment measures to the consolidated financial statements, a company may total the profit or loss for the individual segments as part of the Accounting Standards Codification 280 required reconciliation. Would the presentation of the total segment profit or loss measure in any context other than the Accounting Standards Codification 280 required reconciliation in the footnote be the presentation of a non-GAAP financial measure?

Answer: Yes. The presentation of the total segment profit or loss measure in any context other than the Accounting Standards Codification 280 required reconciliation in the footnote would be the presentation of a non-GAAP financial measure because it has no authoritative meaning outside of the Accounting Standards Codification 280 required reconciliation in the footnotes to the company's consolidated financial statements. [Jan. 11, 2010]

Question 104.05

Question: Company X presents a table illustrating a breakdown of revenues by certain products, but does not sum this to the revenue amount presented on Company X's financial statements. Is the information in the table considered a non-GAAP financial measure under Regulation G and Item 10(e) of Regulation S-K?

Answer: No, assuming the product revenue amounts are calculated in accordance with GAAP. The presentation would be considered a non-GAAP financial measure, however, if the revenue amounts are adjusted in any manner. [Jan. 11, 2010]

Question 104.06

Question: Company X has operations in various foreign countries where the local currency is used to prepare the financial statements which are translated into the reporting currency under the applicable accounting standards. In preparing its MD&A, Company X will explain the reasons for changes in various financial statement captions. A portion of these changes will be attributable to changes in exchange rates between periods used for translation. Company X wants to isolate the effect of exchange rate differences and will present financial information in a constant currency — e.g., assume a constant exchange rate between periods for translation. Would such a presentation be considered a non-GAAP measure under Regulation G and Item 10(e) of Regulation S-K?

Answer: Yes. Company X may comply with the reconciliation requirements of Regulation G and Item 10(e) by presenting the historical amounts and the amounts in constant currency and describing the process for calculating the constant currency amounts and the basis of presentation. [Jan. 11, 2010]

Section 105. Item 2.02 of Form 8-K

Question 105.01

Question 105.02

Question: Item 2.02 of Form 8-K contains a conditional exemption from its requirement to furnish a Form 8-K where earnings information is presented orally, telephonically, by webcast, by broadcast or by similar means. Among other conditions, the company must provide on its web site any material financial and other statistical information not previously disclosed and contained in the presentation, together with any information that would be required by Regulation G. When must all of this information appear on the company's web site?

Question 105.03

Question: Does a company's failure to furnish to the Commission the Form 8-K required by Item 2.02 in a timely manner affect the company's eligibility to use Form S-3?

Question 105.04 [withdrawn]

Question 105.05

Answer: Yes. Company X's filing of the earnings release as an exhibit to its Form 10-Q, rather than in an Item 2.02 Form 8-K, before the conference call takes place, would not preclude reliance on the exemption for the conference call. [Jan. 11, 2010]

Question 105.06

Question 105.07

Section 106. Foreign Private Issuers

Question 106.01

Question: The Note to Item 10(e) of Regulation S-K permits a foreign private issuer to include in its filings a non-GAAP financial measure that otherwise would be prohibited by Item 10(e)(1)(ii) if, among other things, the non-GAAP financial measure is required or expressly permitted by the standard setter that is responsible for establishing the GAAP used in the company's primary financial statements included in its filing with the Commission. What does "expressly permitted" mean?

Answer: A measure is "expressly permitted" if the particular measure is clearly and specifically identified as an acceptable measure by the standard setter that is responsible for establishing the GAAP used in the company's primary financial statements included in its filing with the Commission.

The concept of "expressly permitted" can be also be demonstrated with explicit acceptance of a presentation by the primary securities regulator in the foreign private issuer's home country jurisdiction or market. Explicit acceptance by the regulator would include (1) published views of the regulator or members of the regulator's staff or (2) a letter from the regulator or its staff to the foreign private issuer indicating the acceptance of the presentation — which would be provided to the Commission's staff upon request. [Jan. 11, 2010]

Question 106.02

Question: A foreign private issuer furnishes a press release on Form 6-K that includes a section with non-GAAP financial measures. Can a foreign private issuer incorporate by reference into a Securities Act registration statement only those portions of the furnished press release that do not include the non-GAAP financial measures?

Answer: Yes. Reports on Form 6-K are not incorporated by reference automatically into Securities Act registration statements. In order to incorporate a Form 6-K into a Securities Act registration statement, a foreign private issuer must specifically provide for such incorporation by reference in the registration statement and in any subsequently submitted Form 6-K. See Item 6(c) of Form F-3. Where a foreign private issuer wishes to incorporate by reference a portion or portions of the press release provided on a Form 6-K, the foreign private issuer should either: (1) specify in the Form 6-K those portions of the press release to be incorporated by reference, or (2) furnish two Form 6-K reports, one that contains the full press release and another that contains the portions that would be incorporated by reference (and specifies that the second Form 6-K is so incorporated). Using a separate report on Form 6-K containing the portions that would be incorporated by reference may provide more clarity for investors in most circumstances. A company must also consider whether its disclosure is rendered misleading if it incorporates only a portion (or portions) of a press release. [Jan. 11, 2010]

Question 106.03

Question: A foreign private issuer publishes a non-GAAP financial measure that does not comply with Regulation G, in reliance on Rule 100(c), and then furnishes the information in a report on Form 6-K. Must the foreign private issuer comply with Item 10(e) of Regulation S-K with respect to that information if the company chooses to incorporate that Form 6-K report into a filed Securities Act registration statement (other than an MJDS registration statement)?

Answer: Yes, the company must comply with all of the provisions of Item 10(e) of Regulation S-K. [Jan. 11, 2010]

Question 106.04

Question: If a Canadian company includes a non-GAAP financial measure in an annual report on Form 40-F, does the company need to comply with Regulation G or Item 10(e) of Regulation S-K with respect to that information if the company files a non-MJDS Securities Act registration statement that incorporates by reference the Form 40-F?

Answer: No. Information included in a Form 40-F is not subject to Regulation G or Item 10(e) of Regulation S-K. [Jan. 11, 2010]

Section 107. Voluntary Filers

Question 107.01

Question: Section 15(d) of the Exchange Act suspends automatically its application to any company that would be subject to the filing requirements of that section where, if other conditions are met, on the first day of the company's fiscal year it has fewer than 300 holders of record of the class of securities that created the Section 15(d) obligation. This suspension, which relates to the fiscal year in which the fewer than 300 record holders determination is made on the first day thereof, is automatic and does not require any filing with the Commission. The Commission adopted Rule 15d-6 under the Exchange Act to require the filing of a Form 15 as a notice of the suspension of a company's reporting obligation under Section 15(d). Such a filing, however, is not a condition to the suspension. A number of companies whose Section 15(d) reporting obligation is suspended automatically by the statute choose not to file the notice required by Rule 15d-6 and continue to file Exchange Act reports as though they continue to be required. Must a company whose reporting obligation is suspended automatically by Section 15(d) but continues to file periodic reports as though it were required to file periodic reports comply with Regulation G and the requirements of Item 10(e) of Regulation S-K?

Answer: Yes. Regulation S-K relates to filings with the Commission. Accordingly, a company that is making filings as described in this question must comply with Regulation S-K or Form 20-F, as applicable, in its filings.

As to other public communications, any company "that has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, or is required to file reports under Section 15(d) of the Securities Exchange Act of 1934" must comply with Regulation G. The application of this standard to those companies that no longer are "required" to report under Section 15(d) but choose to continue to report presents a difficult dilemma, as those companies technically are not subject to Regulation G but their continued filing is intended to and does give the appearance that they are a public company whose disclosure is subject to the Commission's regulations. It is reasonable that this appearance would cause shareholders and other market participants to expect and rely on a company's required compliance with the requirements of the federal securities laws applicable to companies reporting under Section 15(d). Accordingly, while Regulation G technically does not apply to a company such as the one described in this question, the failure of such a company to comply with all requirements (including Regulation G) applicable to a Section 15(d)-reporting company can raise significant issues regarding that company's compliance with the anti-fraud provisions of the federal securities laws. [Jan. 11, 2010]

Section 108. Compensation Discussion and Analysis/Proxy Statement

Question 108.01

Fixing America's Surface Transportation (FAST) Act

Updated: August 17, 2017

These Compliance and Disclosure Interpretations relate to the FAST Act, which affected various provisions of the federal securities laws. The bracketed date following each C&DI is the latest date of publication or revision. See also Division Announcement: Recently Enacted Transportation Law Includes a Number of Changes to the Federal Securities Laws (Dec. 10, 2015).

The Frequently Asked Questions of General Applicability on Title I of the JOBS Act and Frequently Asked Questions on Confidential Submission Process for Emerging Growth Companies have been updated to reflect enactment of the FAST Act.

Question 1

Question: What financial information may an Emerging Growth Company omit from its draft and publicly filed registration statements?

Question 2

Question: May an EGC issuer omit financial statements of other entities from its filing or submission if it reasonably believes that those financial statements will not be required at the time of the offering?

Answer: Yes.

Section 71003 of the FAST Act is not by its terms limited to financial statements of the issuer. Thus, the issuer could omit financial statements of, for example, an acquired business required by Rule 3-05 of Regulation S-X if the issuer reasonably believes those financial statements will not be required at the time of the offering. This situation could occur when an issuer updates its registration statement to include its 2015 annual financial statements prior to the offering and, after that update, the acquired business has been part of the issuer's financial statements for a sufficient amount of time to obviate the need for separate financial statements. See Section 2030.4 of the Division of Corporation Finance's Financial Reporting Manual. [Dec. 10, 2015]

Question 3

Question: How did the FAST Act affect Section 12(g) and Section 15(d) of the Exchange Act?

Answer: Section 85001 of the FAST Act amended Section 12(g) and Section 15(d) of the Exchange Act so that savings and loan holding companies are treated in a similar manner to bank holding companies for the purposes of registration, termination of registration or suspension of their Exchange Act reporting obligation. In particular, the FAST Act amends Section 12(g) and Section 15(d) of the Exchange Act as follows:

Savings and loan holding companies, as such term is defined in Section 10 of the Home Owners' Loan Act, will have a Section 12(g) registration obligation as of any fiscal year-end after December 4, 2015 with respect to a class of equity security held of record by 2,000 or more persons.
The holders of record threshold for Section 12(g) deregistration for savings and loan holding companies has been increased from 300 to 1,200 persons.
The holders of record threshold for the suspension of reporting under Section 15(d) for savings and loan holding companies has been increased from 300 to 1,200 persons. [Dec. 21, 2015]

Question 4

Question: How do the amendments to Section 12(g)(1)(B) affect the obligations of savings and loan holding companies to register a class of equity security under Section 12(g) where such obligations were triggered as of a fiscal year-end on or before December 4, 2015?

Answer: Under Section 12(g)(1)(B), a savings and loan holding company will have a Section 12(g) registration obligation if, as of any fiscal year-end after December 4, 2015, it has total assets of more than $10 million and a class of equity security held of record by 2,000 or more persons. We consider that the effect of this provision is to eliminate, for savings and loan holding companies, any Section 12(g) registration obligation with respect to a class of equity security as of a fiscal year-end on or before December 4, 2015. Therefore, if a savings and loan holding company has filed an Exchange Act registration statement and the registration statement is not yet effective, then it may withdraw the registration statement. If a savings and loan holding company has registered a class of equity security under Section 12(g), it would need to continue that registration unless it is eligible to deregister under Section 12(g) or current rules. [Dec. 21, 2015]

Question 5

Question: On or after December 4, 2015, how can a savings and loan holding company terminate the registration of a class of equity security under Section 12(g)?

Answer: If the class of equity security is held of record by less than 1,200 persons, the savings and loan holding company may file a Form 15 to terminate the Section 12(g) registration of that class. Until rule amendments are made to reflect the change to Section 12(g)(4), the savings and loan holding company should include an explanatory note in its Form 15 indicating that it is relying on Exchange Act Section 12(g)(4) to terminate its duty to file reports with respect to that class of equity security.

Pursuant to Section 12(g)(4), the Section 12(g) registration will be terminated 90 days after the savings and loan holding company files a Form 15. Until that date of termination, the savings and loan holding company is required to file all reports required by Exchange Act Sections 13(a), 14 and 16.

Alternatively, a savings and loan holding company could rely on Exchange Act Rule 12g-4, which permits the immediate suspension of Section 13(a) reporting obligations upon filing a Form 15, if it meets the requirements of that rule. Note that Rule 12g-4 has not yet been amended to incorporate the new 1,200 holder deregistration threshold. [Dec. 21, 2015]

Question 6

Question: On or after December 4, 2015, how can a savings and loan holding company suspend its reporting obligations under Section 15(d)?

Answer: In general, the Section 15(d) reporting obligation is suspended if, and for so long as, the issuer has a class of security registered under Section 12. When an issuer terminates Section 12 registration, it must address any Section 15(d) obligation that would apply once the Section 15(d) suspension is lifted.

For the current fiscal year, a savings and loan holding company can suspend its obligation to file reports under Section 15(d) with respect to a class of security that was sold pursuant to a Securities Act registration statement and that was held of record by less than 1,200 persons as of the first day of the current fiscal year. Such suspension would be deemed to have occurred as of the beginning of the fiscal year in accordance with Section 15(d) (as amended by the FAST Act). If, during the current fiscal year, a savings and loan holding company has a registration statement that becomes effective or is updated pursuant to Securities Act Section 10(a)(3), then it will have a Section 15(d) reporting obligation for the current fiscal year.

If a savings and loan holding company with a class of security held of record by less than 1,200 persons as of the first day of the current fiscal year has a registration statement that was updated during the current fiscal year pursuant to Securities Act Section 10(a)(3), but under which no sales have been made during the current fiscal year, the savings and loan holding company may suspend its Section 15(d) reporting obligation consistent with the guidance in Staff Legal Bulletin No. 18 (March 20, 2010) and GlenRose Instruments Inc. (July 16, 2012). [Dec. 21, 2015]

Last Reviewed or Updated: Aug. 27, 2025

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