30 June 2022 - Events
Days (or weeks) without sleep, long conference calls, endless redlines, issues lists and Board presentations are part and parcel of every M&A lawyer's existence. Representing a public company target in an acquisition adds layers of complexity and considerations that counsel must consider as early as possible in the process in order to avoid falling into traps for the unwary. The rules for acquired public companies deregistering their securities (or “going dark”) with the U.S. Securities and Exchange Commission are complex, and often require that such companies continue filing periodic reports for months after public reporting would serve the purposes of the U.S. securities laws; and innocent missteps can extend that burden.
Delisting and Deregistration Process
Public companies are required to file reports pursuant to §§12(b) (securities listed on national stock exchanges), 12(g) (companies with more than 2,000 record holders (or 500 non-accredited record holders) and $10 million of assets), and 15(d) (companies with effective registration statements under the Securities Act of 1933) of the Securities Exchange Act of 1934. For purposes of this article, we are focused on U.S. public companies and not foreign entities. To effectively terminate its Exchange Act reporting obligations, a company must delist its securities, then deregister the securities first under Exchange Act §12(b) and second under §12(g), then finally file notice of the suspension of its periodic reporting requirements under Exchange Act §15(d). Until all of its equity is deregistered, the company will need to comply with all Exchange Act rules applicable to registered equity securities (including the proxy rules, §13(d) and §16 rules, §14(d) tender offer rules and going-private rules). Until all securities (including debt securities) are deregistered and reporting obligations are suspended under §15(d), a company must still comply with its Exchange Act periodic reporting requirements.
Delisting and Deregistration
During closing preparations, the company should advise each relevant exchange of a possible delisting. Upon closing, the company must formally request that the exchange delist the securities, and deregister them under Exchange Act §12(b). The exchange usually can complete this request on a same-day basis and will file a Form 25 (Notification of Removal from Listing and/or Registration under §12(b)).1 The delisting is subject to a 10-day effectiveness period, and the §12(b) deregistration is subject to a 90-day effectiveness period.
The company would then file a Form 15 to terminate the securities' registration under §12(g) as provided by Rule 12g-4, and may file the Form 15 as soon as the 10-day delisting period ends. The §12(g) deregistration is subject to a 90-day effectiveness period that (assuming the Form 15 is filed promptly) will overlap with any §12(b) deregistration effectiveness period. Prior to or substantially concurrently with the Form 15 filing, the company should terminate all offerings of securities by filing post-effective amendments to deregister all unsold securities under its existing registration statements (e.g., Forms S-3 or S-8 registration statements). While the SEC may reject a Form 15 during the 90-day effectiveness period, this would be highly unusual.
Suspension of §15(d) Periodic Filing Obligations
In order to fully deregister the securities and “go dark,” a company must file a Form 15 relating to the suspension of its §15(d) reporting obligations, which allows it to stop making periodic filings immediately (since there is no 90-day effectiveness period); but the rules as to when the Form 15 may be filed can be complex.
A company is eligible to file a §15(d)-based Form 15 on the first day of the first fiscal year (other than a year in which the registration statement became effective) after which it has fewer than 300 record holders of such class of securities (usually the beginning of the fiscal year after the acquisition). While the statutory suspension is automatic and not contingent on the Form 15 filing, guidance encourages the Form 15 filing.2
For a company to go dark prior to the beginning of the next fiscal year, it must meet the conditions of Rule 12h-3, as further subject to guidance set forth in a 2010 SEC Staff Legal Bulletin (SLB). A company entitled to use Rule 12h-3 to go dark may be able to file one Form 15 covering both §12(g) and 15(d); but if it is not entitled to use Rule 12h-3, it should expect to file a second Form 15 once it qualifies under §15(d).
Under Rule 12h-3, a company may suspend its §15(d) reporting obligations anytime during a fiscal year (and stop filing SEC periodic reports) if it (1) is current in its Exchange Act reporting obligations; (2) has fewer than 300 record holders of the class of securities offered under the Securities Act of 1933 (the Securities Act) registration statement3; and (3) has not had a Securities Act registration statement relating to that class of securities declared effective (or updated) pursuant to Securities Act §10(a)(3) during the fiscal year for which the company seeks to suspend reporting.4 Rule 12h-3 is unavailable for use after the Form 10-K filing for a fiscal year if the company has outstanding registration statements (e.g., Forms S-3 or S-8) that incorporate by reference to later filings, since updating occurs automatically by incorporating by reference of an annual report on Form 10-K into a company registration statement prior to filing the Form 15.
In SLB No. 18 (March 2010),5 the SEC clarified that a company may use Rule 12h-3 to suspend its §15(d) reporting obligations (and cease public filing) during a fiscal year in which it was acquired, even though a Securities Act registration statement as to the class of securities became effective or was required to be updated by §10(a)(3) during the Rule 12h-3© time period, on the theory that requiring such a company to keep filing SEC periodic reports no longer serves the purposes underlying §15(d) and Rule 12h-3 (because there are either no public shareholders or no longer any public shareholders of the class of securities for which there is a 15(d) reporting obligation, thereby making the benefits of periodic reporting not commensurate with the burdens imposed). The conditions for use of the SLB guidance are four-fold:
- No Class of Registered Securities. The company may not rely on Rule 12h-3 if it has a class of securities registered (or required to be registered) under §12 (i.e., it may not use Form 15 to suspend filing obligations as to one class of securities if another class remains for which filing obligations exist);
- Rule 12h-3 Compliance. It must comply with the other Rule 12h-3 requirements (including filing a Form 15 and being current in its reporting obligations);
- Deregister Unsold Securities. It must have filed post-effective amendments to deregister any unsold securities from Securities Act registration statements and withdraw any registration statements if there were no sales (and cannot have unsold securities remaining on any such registration statement), and the amendments or withdrawal applications must be effective or consented to before filing the Form 15; and
- Suspend Exchange Act Filings. It must not otherwise file Exchange Act reports (e.g., pursuant to an indenture covenant) during the period in which it seeks to use Rule 12h-3 for suspension (since otherwise, suspending the §15(d) filing obligation would have no practical effect on SEC report preparation).
A company that is acquired after filing its Form 10-K for a fiscal year may rely on SLB No. 18 to file a Form 15 in that same fiscal year, if it terminates all registration statements and has no other obligations (e.g., contractual or statutory obligations) to keep filing SEC reports (and assuming it otherwise meets the SLB conditions), but otherwise would have to wait until the next fiscal year.A company acquired after filing its Form 10-K for a fiscal year, with contract-based reporting obligations, must wait until the following fiscal year for its statutory §15(d) suspension, to become a voluntary filer post-acquisition.
Debt-Only Issuers and Voluntary Filers
Acquired companies may continue to have outstanding registered indebtedness that subjects them to Exchange Act reporting requirements. Even indentures for private, unregistered, debt securities often require companies to file SEC periodic reports (even if not then subject to reporting requirements), and to provide the trustee and noteholders with such reports by website posting or EDGAR filing.
A company with registered debt, who is a “debt-only” registrant (which would include an acquired company with public debt that remains outstanding postacquisition) but not a “voluntary filer” (discussed below), must comply with SEC periodic reporting obligations (including filing Forms 8-K), but only a company with 12-registered equity securities must comply with §16 (requiring directors, officers and certain beneficial owners to file Forms 3, 4 and 5 and face possible liability for short-swing profits) or §§13D and 13G (requiring filing of beneficial ownership reports). Debt-only issuers also need not comply with the proxy rules (but must include in their annual reports certain disclosure that ordinarily would have been incorporated by reference from the proxy statement into the annual report) or exchange-mandated governance requirements (such as majority Board independence or independent board committees).
If the acquired company has no publiclyheld securities post-closing, it may qualify as a “voluntary filer” (i.e., a company with no Exchange Act-registered securities or an obligation to file periodic reports, but that files periodic reports due to a contractual or other obligation to do so). Similar to a debt-only issuer, a voluntary filer is not subject to §16, proxy or other rules listed above. It also need not comply with certain requirements set forth in rules implemented under the Sarbanes-Oxley Act of 2002 (SOX),6 such as the §402 prohibition on personal loans to directors and executive officers, the §304 clawback of CEO/CFO compensation for restatements due to misconduct, or the §404(b) requirement that an auditor attest to the management's internal control report.7 A voluntary filer must still comply with certain rules such as Regulation S-K8 and the conflict mineral rules.9 It also must comply with certain SOX requirements,10 such as the SOX §§302 and 906 CEO/CFO certification requirements,11 the §404(a) management internal control report requirement12 and the requirement to disclose results of management's evaluation of controls.13 A voluntary filer also should comply with Regulation G relating to disclosures on non-GAAP financial measures.14
Since companies with registered equity have additional obligations (for example, procuring an auditor attestation can be costly), many post-acquisition companies (particularly those in which no public equity remains) would prefer to deregister their equity quickly and, if nonetheless contractually required to provide periodic reports, achieve voluntary filer status as soon as possible. As to the timing of filing reports, notwithstanding a change to voluntary filer status, a pre-acquisition “accelerated filer” may remain an accelerated filer (particularly if the acquisition closed during the second half of the company's fiscal year) until its next “public float” determination in the middle of the following year. Since the accelerated filer determination is based on public float as of the end of the second fiscal quarter, this means that a company that is acquired in the second half of its fiscal year will remain an accelerated filer the following fiscal year, until it can exit as an accelerated filer based on lack of public float (as determined at year end based on the public float at the end of the second fiscal quarter). Thus, an acquired accelerated filer will need to file the auditor attestation report for that fiscal year's Form 10-K, notwithstanding that there remains no public equity outstanding, and will need to file its next year's periodic reports sooner after quarter-end and year-end than once it becomes both a voluntary filer and a nonaccelerated filer.
What is the takeaway here? Companies in the acquisition process will do well to map out in advance their plans to deregister unsold securities and terminate their registration statements as soon as possible so as to avoid unintentionally extending their reporting obligations. Acquired companies with both public debt and equity should be aware of potential pitfalls of having public debt in the going-dark context. And accelerated filers should be aware that the mid-year public float determination could extend certain of their obligations for an additional year post-acquisition.
1. In an acquisition, the relevant provision is usually Rule 12d2-2(a)(3), when the entire class of securities has come to represent the right to receive cash payment therefor (other than for dissenting shares).
2. SEC Compliance and Disclosure Interpretations (C&DI) No. 153.01. In addition, Exchange Act Rule 15d-6 provides that if an issuer's duty to file reports pursuant to §15(d) as to any fiscal year is suspended as provided in §15(d), such issuer shall (within 30 days after open of the first fiscal year) file a Form 15 informing the SEC of such suspension unless a Form 15 has already been filed pursuant to Rule 12h-3.
3. Another option is to have fewer than 500 record holders and assets not having exceeded $10 million on the last day of each of the three most recent fiscal years.
4. See Rule 12h-3( c ).
5. See www.sec.gov/interps/legal/cfslb18.htm.
6. The year that it files an exchange offer registration statement as to the debt securities (and the year that registration statement goes effective, i.e., prior to completion of the distribution) are exceptions, when a debt-only issuer becomes an “issuer” by having an outstanding registration statement for SOX purposes.
7. Notably, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 added §404( c ) to SOX, which exempts non-accelerated filers from SOX §404(b). Since the determination as to accelerated filer status is triggered based on public equity, this means that neither a debt-only issuer nor a voluntary filer could be an accelerated filer that would need to file an auditor attestation report.
8. See C&DI 107.01, dated Jan. 11, 2010, at www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm.
9. Question 1, Dodd-Frank Frequently Asked Questions (FAQs) issued May 30, 2013, at www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm.
10. See SOX FAQs at www.sec.gov/divisions/corpfin/faqs/soxact2002.htm and SEC Exchange Act Rules CD&Is 181.01 and 182.01, dated September 30, 2008, at www.sec.gov/divisions/corpfin/guidance/exchangeactrules-interps.htm.
11. Embodied in Rule 15d-14.
12. Embodied in Rule 15d-15.
13. Embodied in Regulation S-K Items 307 and 308.
14. Voluntary filers are also ineligible to use certain securities forms (e.g., Form S-8 for grants of employee equity (Securities Act Forms C&DI 126.01, dated Feb. 27, 2009, at www.sec.gov/divisions/corpfin/guidance/safinterp.htm) or Form 8-A for equity registration under the Exchange Act (Exchange Act Forms C&DI 102.03, dated Sept. 30, 2008, at www.sec.gov/divisions/corpfin/guidance/exchangeactforms-interps.htm).