Jonathan Ingram Discusses New Staff Legal Bulletin Easing the Post-Merger De-Registration Process for Public Company Targets
At the Society of Corporate Secretaries and Governance Professional's 2010 SEC Hot Topics in Seattle on May 19, Jonathan Ingram, Deputy Chief Counsel of the SEC's Division of Corporation Finance, discussed the Staff's new Staff Legal Bulletin No. 18 issued in March 2010. See www.governanceprofessionals.org/society/chappn.asp
Jonathan walked through the Division's March 15, 2010 SLB 18. The Staff's goal in issuing SLB 18 is to clarify that acquired public companies – which no longer have public shareholders following a sale – may rely on Exchange Act Rule 12h-3 to suspend reporting obligations under Section 15(d) of the Exchange Act. In a textbook "plain English" explication, Jonathan described the ways that a registrant can terminate or suspend its public reporting obligations. Noting that reporting obligations for acquired public companies with a class of securities registered under Section 12(b) or 12(g) of the Exchange Act arise under Section 13, he explained how these companies deregister their Exchange Act registrations and thereby terminate Section 13 reporting obligations following a sale:
- For a 12(b) exchange-listed company, filing a Form 25; and
- For a 12(g) company with under 300 record holders (or 500 and under $10MM in assets), using Form 15.
Jonathan went on to explain that the vast majority of public companies also have reporting obligations under Section 15(d) of the Exchange Act because they have offered securities pursuant to an effective Securities Act registration statement at some point in their history. For 12(b) and 12(g) companies, the reporting obligations under Section 15(d) technically spring into effect when an issuer has deregistered its securities under the Exchange Act. So, in addition to deregistering securities by filing a Form 25 or Form 15, acquired public companies also need to suspend their Section 15(d) reporting obligations in order to avoid having to file periodic and current reports under the Exchange Act after a sale. Although Section 15(d) itself contains language addressing the conditions under which such reporting obligations may be suspended, Exchange Act Rule 12h-3 is essentially a "safe harbor" rule that allows companies to suspend their 15(d) reporting obligations if certain conditions are met (including the filing of a Form 15).
SLB 18 itself describes the requirements for Rule 12h-3, specifically, that a registrant must:
- Be current in its Exchange Act reporting obligations;
- Have under 300 record holders (or under 500, and under $10MM in assets); and
- Not have had a Securities Act registration statement declared effective or updated under Securities Act Section 10(a)(3) in the fiscal year for which suspension is requested.
It is this last requirement, particularly the Section 10(a)(3) "gotcha", that has raised questions about whether an acquired public company could rely on Rule 12h-3 to suspend its Section 15(d) reporting obligations: most public companies have shelf registration statements (e.g., S-8s and S-3s) that may have become effective in years past but are automatically updated pursuant to Section 10(a)(3) by the filing of their annual reports on Form 10-K each year. On its face, Rule 12h-3 was unavailable to most acquired public companies because they had shelf registration statements that were automatically updated during the fiscal year in which the sale occurred. Because of this "trap for the unwary", the Staff regularly received requests for, and granted, no-action letters permitting acquired public companies to rely on Rule 12h-3 to suspend their Section 15(d) reporting obligations. In an effort to stem the flow of incoming no action letter requests, the Staff promulgated SLB 18.
Now, SLB 18 makes clear that an issuer may use Form 15 to suspend its Section 15(d) reporting obligations under Rule 12h-3 if the registrant:
- Does not have a class of securities registered or required to be registered under Section 12 of the Exchange Act (accordingly, a registrant may need to first file a Form 15 or 25);
- Satisfies the 300 (or 500) record holder tests and otherwise satisfies Rule 12h-3;
- Has deregistered any unsold securities registered on Securities Act registration statements; and
- Has filed all Exchange Act reports required to be filed prior to the filing of the Form 15.
See the SLB at www.sec.gov/interps/legal/cfslb18.htm
