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Question 139.01

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]

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: 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 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: 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 139.09

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]

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]

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Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Follow along as we demonstrate how to use the site

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