04/13/2010

Corporate Finance Alert: The SEC Staff Provides Guidance to Certain Companies Wishing to "Go Dark"

The SEC issued a new Staff Legal Bulletin providing guidance to companies that wish to "go dark" in certain situations and that have registration statements on file with the SEC that have been updated or recently become effective. Prior to the issuance of the guidance, many public companies wishing to go dark, including public companies recently acquired by another company, were required to seek no-action relief from the SEC. The Staff Legal Bulletin is intended to streamline the process for these companies.

In the past, many issuers were required to seek no-action relief to suspend their reporting obligations under Section 15(d) of the Securities Exchange Act of 1934 (Exchange Act) pursuant to Rule 12h-3 under the Exchange Act.

In order to rely on Rule 12h-3, the issuer:

must be current in its Exchange Act reporting obligations;
must have (1) fewer than 300 record holders of the class of securities offered under the Securities Act of 1933 (Securities Act) registration statement; or (2) fewer than 500 record holders and its assets must not have exceeded $10 million on the last day of each of the issuer's three most recent fiscal years; and
must not have had a Securities Act registration statement relating to that class of securities become effective in the fiscal year for which the issuer seeks to suspend reporting, or have had a registration statement that was required to be updated by Section 10(a)(3) of the Securities Act during the fiscal year for which the issuer seeks to suspend reporting, and, if the issuer is relying on the fewer than 500 record holder and $10 million in assets threshold noted above, during the two preceding fiscal years.

It is this last requirement, contained in Rule 12h-3(c), that prompted issuers to seek no-action relief from the SEC. This is because many registration statements are shelf registration statements that are updated through Exchange Act filings, such as a Form S-8 or Form S-3, causing an issuer to be deemed to have a registration statement that became effective every year upon filing of its Form 10-K in that year.

In order to use the suspension provided by Rule 12h-3, the issuer must file a certification of termination on Form 15. If in the future the issuer no longer satisfies the requirements under which it was able to suspend reporting under Section 15(d), the suspension ends and the reporting obligation returns without any action by the issuer.

Because of the risk of having reporting obligations return many issuers requested no-action relief, and the SEC routinely granted relief, in two situations:

Abandoned Initial Public Offering: An issuer with no Exchange Act reporting obligations has a Securities Act registration statement become effective, but does not sell any securities pursuant to the registration statement. The issuer files an application to withdraw the registration statement pursuant to Securities Act Rule 477, and the staff consents to the withdrawal; or
Acquired Issuer: An issuer has been acquired by another entity, resulting in the class or classes of securities for which the issuer has a Section 15(d) reporting obligation being either: (1) extinguished; or (2) held or assumed by only one record holder, the acquiring entity.

Staff Legal Bulletin No. 18 (SLB 18) Identifies the Conditions That Must Be Satisfied in These Two Situations in Order for an Issuer to Avail Itself of the Reporting Suspension Provided by Rule 12h-3

SLB 18 allows an issuer to file a Form 15 to suspend its reporting obligation for a class of securities under Section 15(d), even though a Securities Act registration statement relating to that class became effective or was required to be updated by Section 10(a)(3) during the time period specified in Rule 12h-3(c).

The issuer must not have a class of securities registered under Section 12 of the Exchange Act. The issuer must file Forms 25 and 15 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.
The issuer must comply with the other requirements of Rule 12h-3. The issuer may not exceed the recordholder and asset thresholds described above. The issuer must file a Form 15 and be current in its Exchange Act reporting obligations as of the date of filing the Form 15.
The issuer must deregister any unsold securities from Securities Act registration statements and withdraw any registration statements if there were no sales. The issuer must have terminated all registered securities offerings and cannot have any unsold securities remaining on any Securities Act registration statement. The issuer must have filed post-effective amendments to deregister all unsold securities under Securities Act registration statements or, if there were no sales made pursuant to a registration statement, an application to withdraw the registration statement. These post-effective amendments or applications to withdraw must be effective or consented to before filing the Form 15. Also, the issuer may not have any pre-effective Securities Act registration statements on file with the SEC that have not been withdrawn.
The issuer can no longer file Exchange Act reports. During the suspension, the issuer may not submit, provide, file or furnish any Exchange Act reports for any reason.

For more information on this e-Alert, contact John Granda at 816.691.3188, Jim Swenson at 816.691.2768, or Jack Bowlingat 816.691.2314.