On August 14, the Securities and Exchange Commission’s Division of Corporation Finance issued new and updated Compliance and Disclosure Interpretations (C&DIs) of sections, rules, regulations and forms under the Securities Act and the Exchange Act.

The updated C&DIs include guidance and provide clarification in the following areas:

  • Warrants and Other Convertible or Exchangeable Securities Offerings—The SEC clarified that a registered offering of convertible securities or warrants that are convertible or exercisable within one year requires registration of the underlying security as well.
  • Exchange of Securities Between an Issuer and Its Stockholders—The C&DIs clarified that the exemption from registration under Section 3(a)(9) of the Securities Act is not available for issuer exchanges of its securities with the security holders of a subsidiary where the ownership of securities in the subsidiary represents an ownership interest in the subsidiary that is not directly shared by security holders of the parent.
  • Resale Registration of PIPE Securities—The SEC indicated that securities sold in a private placement completed in accordance with the guidance provided in Securities Act Release No. 8828 (August 10, 2007) may be included in a resale registration statement filed to register for resale securities sold in a prior private placement, where the registration statement has not yet been declared effective. As a result, an issuer can expedite the registration of PIPE securities sold in a placement that closes while the issuer is in registration.
  • Suspension of Offers and Sales During the Waiting Period for PostEffective Amendments—If the financial statements in a registration statement are stale, no offers and sales may be made pursuant to the registration statement until a post-effective amendment containing updated financial statements has been declared effective. However, only sales (not offers) must be suspended during the pendency of a posteffective amendment filed for purposes of complying with the issuer’s undertakings pursuant to Item 512(a)(1) of Regulation S-K.
  • Legal Opinions in Shelf Offerings—For purposes of shelf takedowns under Rule 415, an unqualified legal opinion regarding the legality of securities being offered must be filed on a Form 8-K no later than the closing of the takedown.
  • At-the-Market Offerings—The C&DIs clarified that broker-dealer prospectus delivery and notice requirements to purchasers in primary offerings under Rules 172 and 173 apply to at-the-market offerings.
  • Changes in Accounting Principles Do Not Require Update of Form S8, Unlike Form S3—  If a registrant has  a change in its accounting principles which will cause the financial presentation in its subsequent Form 10- Qs to differ from the presentation in its most recent Form 10-K, it would not be permitted to continue use of an effective Form S-3 until the audited financial statements in the registrant’s 10-K had been restated. In contrast, under the same circumstances, a registrant could continue to use an effective Form S-8 without restating the financial statements included in the registrant’s most recent 10K.
  • Date of First Sale Must Be Updated in Amendments to Form D—Although the instructions to Item 7 of Form D indicate that an issuer must specify the date of the first sale of securities in the offering if the issuer is filing a “new notice”, an issuer filing an amendment to Form D must provide current information in response to all requirements of Form D. If, for example, the original Form D indicated that the first sale had “yet to occur”, the issuer would be required to disclose the actual date of first sale in a subsequent amendment of the form filed after the date of first sale is known to the issuer.
  • Summary Compensation Table – Clawbacks—The C&DIs provide that the amount of any compensation clawback should not be deducted from an executive's total compensation for the year in which the clawback occurs for purposes of determining if the executive is a named executive officer, but rather reduce the prior year compensation reported in the summary compensation table for the year to which the clawback relates. The clawback should be described in a footnote.
  • Nonqualified Deferred Compensation Plan Table—The SEC clarified that deferred receipt of vested equity awards must be disclosed in an issuer’s Nonqualified Deferred Compensation Plan Table, regardless of whether the deferral is at the election of the named executive officer.
  • Reverse Stock Splits; Disposition of Fractional Shares—The mandatory disposition of fractional shares for cash incidental to a reverse stock split is exempt from Section 16.
  • Regulation FD—The SEC reordered its Regulation FD telephone interpretations into C&DIs and clarified that information must be publicly available on EDGAR (not just filed) before an issuer may disclose such information in a non-public meeting. The SEC also provided guidance that just allowing a shareholder meeting to be open to the public without webcasting or broadcasting by electronic means would not satisfy the Regulation FD requirement that material non-public information be disclosed by a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public”. The SEC also referenced on its company website Release 34-58288 for guidance on compliance with Regulation FD.

In addition to the interpretations summarized above, the SEC provided technical interpretations of rules applicable to the requirement that issuers “promptly” file a new registration statement or post-effective amendment once the staff objects to the issuer’s use of an automatic shelf registration statement and eligibility requirements for Form S-3.

For August 14 updates to the C&DIs, click here.