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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: 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 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]

This is a work of the U.S. Government

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