On May 16, the Securities and Exchange Commission’s Division of Corporation Finance issued 13 new and revised Compliance and Disclosure Interpretations (C&DIs) on a range of topics under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act), and the related rules, forms and disclosure provisions thereunder. The new and revised C&DIs included the following interpretive guidance:
C&DI 129.03 states that, if an affiliate of a company transfers, by bona fide gift, company stock acquired in the open market (i.e., the securities are not “restricted securities” in the affiliate’s hands) to a donee in a non-public transaction, the donee need not comply with any Rule 144 holding period requirement under the Securities Act for subsequent sales (notwithstanding the fact that the securities are “restricted securities” in the hands of the donee immediately following such gift) and may resell such securities pursuant to Rule 144 subject only to Rule 144’s current public information requirement.
C&DI 133.07 clarifies that an affiliate’s sales of securities back to the issuer in a non-public transaction (i.e., a transaction that is exempt from registration under Section 4 of the Securities Act) may be excluded when calculating the amount of securities that may be sold by the affiliate under Rule 144 under the Securities Act.
C&DI 210.03 states that an automatic shelf registration statement on Form S-3 (available for “well known seasoned issuers”) that registers the offer and sale of a specified number of securities of a specified class of securities may be post-effectively amended to add more securities of the same class already registered.
C&DI 228.04 clarifies that, while a registrant may omit “the identities of selling security holders and amounts of securities to be registered on their behalf” from the prospectus included in a non-automatic shelf registration statement until after effectiveness of the registration statement, the prospectus must disclose the aggregate number of shares being registered for resale before effectiveness.
C&DI 256.22 clarifies that, when an acquiror seeks consent from the target’s stockholders with respect to a business combination involving the issuance of securities in reliance on Rule 505 or 506 of Regulation D under the Securities Act, and the target’s stockholders include non-accredited investors, financial statements and other information required under Securities Act Rule 502(b)(2) must be provided to the target’s non-accredited investor stockholders a “reasonable amount of time” prior to obtaining any written consents from them. This interpretation is based on the Staff’s view that the delivery of the written consent in such context constitutes the “sale” for purposes of Rules 505 and 506 under the Securities Act.
C&DI 532.01 clarifies the Staff’s position that, where a pledgor who is an affiliate of an issuer defaults on a loan that is secured by a bona fide pledge of the issuer’s stock acquired by the affiliate in the open market, the pledgee may resell such securities under Rule 144 under the Securities Act without regard to any holding period requirement under the Securities Act, provided that the pledgee is not an affiliate of the issuer and that Rule 144’s current public information requirement is satisfied.
C&DI 116.24 clarifies the Staff’s position that, when calculating whether the size of an offering consisting of common stock and warrants sought to be registered on Form S-3 under General Instruction I.B.6 (limited primary offerings by certain registrants) exceeds the one-third cap in General Instruction I.B.6(a), the registrant must comply with Instruction 2 thereto (which provides a formula for calculating the aggregate market value of securities sold during any period of twelve calendar months) in calculating the market value of the warrants, even when the warrants are not exercisable for common stock within twelve months.
C&DI 125.12 states that, if a registrant “meets the requirements for use of Form S-3,” it may incorporate by reference into a Form S-4 (typically used for business combination transactions) risk factor disclosure included in the registrant’s most recent Form 10-K. Offering-specific risks, however, are required to be disclosed in the Form S-4 itself.
C&DI 119.03 clarifies how to disclose in an issuer’s summary compensation table, pursuant to Item 402 of Regulation S-K, non-cash compensation granted to a named executive officer in lieu of salary or bonus that the named executive officer has elected to forego, based on the value of the stock, equity-based or other form of noncash compensation as compared to the amount of salary or bonus foregone at the election of the named executive officer.
C&DI 118.09 clarifies that Instruction 5 to Item 402(b) of Regulation S-K, which provides that “[d]isclosure of target levels that are non-GAAP financial measures will not be subject to Regulation G and Item 10(e) of Regulation SK,” is also applicable to disclosure regarding the issuer’s actual results with respect to the non-GAAP measure that is used as a target, so long as such disclosure is made in the context of a discussion about the target levels and disclosure as to how the applicable target level is calculated from the registrant’s audited financial statements is provided.
C&DI 134.04 clarifies how wide the range of estimated offering prices may be for purposes of disclosure in a preliminary prospectus for an initial public offering of securities (other than debt securities). For initial public offerings, a price range in excess of $2 will not be considered bona fide, if the offering price is less than or equal to $10 per share, and (ii) a price range in excess of 20% of the high end of the range will not be considered bona fide, if the offering price exceeds $10 per share. If an auction clearing price will be used as the primary factor in establishing the final offering price, (i) a price range in excess of $4 will not be considered bona fide for offerings up to $20 per share, and (ii) a price range in excess of 20% of the high end of the range will not be considered bona fide for offerings over $20 per share.
C&DI 146.17 clarifies that the interactive data filing requirements apply to registration statements of reporting issuers that omit pricing information from a registration statement in reliance on Securities Act Rule 430A, notwithstanding the provisions of Item 601(b)(101)(i) of Regulation S-K, which provide that an interactive data file is “required for a registration statement under the Securities Act only if the registration statement contains a price or price range.” C&DI 146.17 explains that, in general, “disclosure that satisfies the requirements in Item 501(b)(3) of Regulation S-K to state the “offering price” will be considered a “price or price range” for purposes of the interactive data rules.” Accordingly, registration statements for shelf offerings, at-the-market offerings, exchange offers and secondary offerings must comply with the interactive data filing requirement even though they generally do not include a specific offering price at the time of effectiveness, unless the financial statements are incorporated by reference into the registration statement.
C&DI 110.01 provides that, for purposes of Item 2.06 (Material Impairments) of Form 8-K, if the impairment conclusion coincides with (but is not necessarily made “in connection with”) the preparation, review or audit of financial statements required to be included in the next periodic report due to be filed under the Exchange Act and the other conditions of the Instruction to Item 2.06 are satisfied, a filing would not be required under Item 2.06.