alerts & publications
New SEC Guidance Regarding the Suspension of Exchange Act Reporting
January 1, 0001
On March 15, 2010, the Division of Corporation Finance (the “Division”) of the Securities Exchange Commission (the “SEC”) issued guidance making it easier for an acquired issuer whose registered securities do not survive a merger to suspend its reporting obligations under the Securities Exchange Act of 1934 (the “Exchange Act”).
Specifically, in Staff Legal Bulletin No. 18 (CF) (“SLB 18”), the Division expressed its view regarding the circumstances under which certain issuers may rely upon Exchange Act Rule 12h-3 to suspend their reporting obligations under Exchange Act Section 15(d). To be eligible, the issuer must have an effective registration statement under the Securities Act of 1933 (the “Securities Act”) but:
- not sell any securities under that registration statement; or
- be acquired by another entity, with the issuer’s securities that are subject to Exchange Act Section 15(d) reporting obligations being either extinguished or assumed by the acquiring entity.
How Does the Section 15(d) Reporting Requirement Operate?
As SLB 18 states, “[w]hen an issuer’s registration statement under the Securities Act of 1933 becomes effective, Section 15(d) requires the issuer to file the reports required by Section 13(a) of the Exchange Act with respect to each class of securities covered by the registration statement.” Section 13(a) of the Exchange Act requires issuers to file annual, quarterly, and current reports with the SEC. This reporting obligation applies for each class of securities covered by the registration statement until it is suspended in any of the following three situations:- the class of securities subject to the Section 15(d) reporting obligation is registered under Section 12 of the Exchange Act;
- on the first day of any fiscal year other than the fiscal year in which a Securities Act registration statement became effective, the issuer has fewer than 300 record holders of the class of securities offered under the Securities Act registration statement; or
- the issuer meets the conditions of Rule 12h-3 at any time during the issuer’s fiscal year.
When May an Issuer Rely Upon Rule 12h-3 To Suspend Its Section 15(d) Reporting Obligations?
An issuer may suspend its filing obligations under Rule 12h-3 by filing a certification of termination on Form 15 if it meets the following requirements at the time it files the Form 15:- current in its Exchange Act reporting obligations;
- no Securities Act registration statement relating to the registered class of securities has become effective in the fiscal year for which the issuer seeks to suspend its Section 15(d) reporting obligations; and
- no Securities Act registration statement was required to be updated by Section 10(a)(3) of the Securities Act in the fiscal year for which the issuer seeks to suspend its Section 15(d) reporting obligations;[1] and
- there are either:
- fewer than 300 record holders of the registered class of securities (the “Recordholder Only Test”); or
- fewer than 500 record holders and assets less than US$10 million on the last day of the issuer’s three most recent fiscal years (the “Recordholder and Asset Test”).[2]
When Does the Division Provide No-Action Relief Regarding the Rule 12h-3 Conditions?
Rule 12h-3 is intended to relieve issuers of their Section 15(d) reporting obligations when there is no longer a need for “a stream of current information about an issuer for the benefit of purchasers in the registered offering, and for the public.”[3] Consequently, many issuers request that the Division provide them comfort that they may file a Form 15 and cease their Section 15(d) reporting obligations when they no longer have public shareholders holding the registered class of securities — even though they do not meet the conditions of Rule 12h-3 because they had a registration statement that became effective or was required to be updated during the time period specified by Rule 12h-3. This situation typically arises either when an issuer:- has a Securities Act registration statement become effective but does not sell any securities pursuant to that registration statement; or
- is acquired by another entity and the issuer’s securities that are subject to Section 15(d) reporting obligations are either extinguished or assumed by the acquiring entity.
When Is a Rule 12h-3 No-Action Request No Longer Necessary?
Given the frequent and similar requests by issuers and the consistent granting of relief by the Division in both of the two situations described above, the Division stated in SLB 18 that it is now permissible for an issuer in either of those situations to file a Form 15 to suspend its Section 15(d) reporting obligation in reliance on Rule 12h-3 without requesting a no-action letter from the Division. In taking this position, the Division stated that such an issuer also must satisfy the following three conditions:
1. The issuer may not have a class of securities registered or required to be registered under Section 12 of the Exchange Act. An issuer must have filed any Forms 15 or 25 to terminate Section 12 registration for any class of securities registered under Section 12 before suspension of a Section 15(d) reporting obligation may be effected pursuant to Rule 12h-3.[5]
2. Compliance with the other requirements of Rule 12h-3. An issuer must (a) satisfy the Recordholder Only Test or the Recordholder and Asset Test and (b) be current in its Exchange Act reporting obligations as of the date it files the Form 15.
3. No on-going registered securities offerings or unsold securities remaining on any Securities Act registration statement. An issuer (a) may not have any pre-effective Securities Act registration statements on file with the SEC that have not been withdrawn, (b) must have filed post-effective amendments to any effective Securities Act registration statements to deregister all unsold securities under those registration statements, and (c) if there were no sales pursuant to a Securities Act registration statement, must have filed an application to withdraw the registration statement.
4. No continued Exchange Act reports. An issuer may not submit, provide, furnish or file Exchange Act reports, for any reason, during the time period in which it avails itself of the suspension provided by Rule 12h-3. Accordingly, an issuer may not provide, furnish, or file any reports under the Exchange Act, for any reason, during the period in which it seeks to rely on a Rule 12h-3 suspension.
What Should an Issuer Do If It Wishes To Rely On Rule 12h-3 In Situations That Are Not Specified In SLB 18?
In SLB 18, the Division states that it “will continue to entertain questions regarding the availability of Rule 12h-3 for situations that fall outside of the facts and circumstances discussed in this legal bulletin.” Accordingly, an issuer should continue to seek no-action relief from the Division if it does not fall within the situations described in SLB 18, even if:- it meets the Recordholder Only Test or the Recordholder and Asset Test of Rule 12h-3; and
- it has not had any sales of securities pursuant to Securities Act registration statements during the fiscal year with respect to which it seeks to suspend Section 15(d) reporting in reliance on Rule 12h-3.
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If you have any questions regarding this Client Alert, please contact the authors or your O’Melveny & Myers adviser.
[1] When a prospectus is used more than nine months after the effective date of a Securities Act registration statement, Section 10(a)(3) requires that the information contained in the registration statement not be older than sixteen months. In this regard, the automatic incorporation by reference of an issuer’s annual report on Form 10-K into a Form S-3 or Form S-8 serves as the Section 10(a)(3) update for those registration statements and would jeopardize the availability of Rule 12h-3 to suspend reporting.
[2] If an issuer relies on the Recordholder and Asset Test, the condition that no Securities Act registration statement was required to be updated by Section 10(a)(3) of the Securities Act in the fiscal year for which the issuer seeks to suspend its Section 15(d) reporting obligations would be extended to the issuer’s prior two fiscal years.
[3] Exchange Act Release No. 20263 (Oct. 5, 1983).
[4] Excluding requests for no-action letters under Exchange Act Rule 14a-8, the shareholder proposal rule, 74% (32 of 43 total) of all interpretive, no-action and exemptive requests acted on by the Division’s Office of Chief Counsel during fiscal year 2009 involved the application of Rule 12h-3. In fiscal year 2010 to date, 66% (8 of 12 total) of all such requests acted on by the Office have involved Rule 12h-3.
[5] In practice, if suspension under Section 12(g) is also needed, the same Form 15 filing may be used to suspend reporting under Section 12(g) and Section 15(d) (pursuant to Rule 12h-3) by checking the applicable 12g-4(a) box and the applicable 12h-3 box on the cover page.