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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
us SEC - C&DI - Securities Act Rules
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]
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