SEC

Free Writing Prospectus

I’m finding a lot of good segues recently – flowing from my discussion on the definition and implications of shell company status in a reverse merger (see HERE) is the topic of a free writing prospectus (“FWP”). In particular, what is a free writing prospectus, when and how is it used, and what companies are eligible for its use.

Communications during a registered offering are strictly regulated, including communications before the filing of a registration statement, after filing and before effectiveness, and after effectiveness – for more on communications during the offering process see HERE. An FWP is a written communication other than the prospectus filed with the SEC, used to make offers, or to market an offering.

An FWP is one of the few writings, beyond the prospectus itself, that may be used to market an offering. However, its use is limited to eligible companies, or in securities law parlance – those that are not ineligible. Accordingly,

July 23, 2024

F-3 Eligibility

The ability to utilize a shelf registration statement on Form F-3 or S-3 offers significant advantages to publicly traded companies. A Form F-3/S-3 allows for variably priced offerings – that is offerings made either at-the-market or at other than fixed prices. Only companies that are eligible for F-3/S-3 can complete primary (or indirect primary) offerings at prices other than a fixed price (for more on primary offerings see HERE).

I have previously written a detailed blog related to S-3 eligibility (see HERE) and although the requirements for an F-3 are substantially similar, there are some key differences due to the different regulatory framework applicable to foreign private issuers (“FPIs”) – i.e. “F Filers.” Like an S-3, F-3 eligibility is comprised of both registrant or company requirements and transaction requirements.

Moreover, like Form S-3, a Form F-3 specifies generally that the Form may not be used for an offering of asset-backed securities.

Registrant Requirements

Companies that meet the

July 16, 2024

Supreme Court Decides MD&A Case

It is not often that the U.S. Supreme Court weighs in on the specific disclosure requirements under the federal securities laws, but in the case of Macquarie Infrastructure Corp. v. Moab Partners, L.P., they had occasion to do so in the context of a Rule 10b-5 fraud claim.

Macquarie owned a subsidiary that operates terminals to store bulk liquid commodities including No. 6 fuel oil. In 2016 the United Nations’ International Maritime Organization formally adopted IMO 2020, a regulation capping the sulfur content of fuel oil used in shipping. In the ensuing years, Macquarie did not discuss IMO 2020 in its public offering documents or SEC periodic reports. In February 2018, however, Macquarie announced a drop in the amount of storage contracted for use by its subsidiary due in part to the decline in the No. 6 fuel oil market. Macquarie’s stock price fell 41%.

Plaintiff Moab Partners sued Macquarie and various officers alleging, among other things, that

July 2, 2024

SEC Updates Guidance On Confidential Treatment Requests

For the first time since December 2019, the SEC has updated its guidance on the process associated with submitting a confidential treatment request (“CTR”). The March 2019 guidance update was triggered by the passing of the Fixing America’s Surface Transportation Act (“FAST Act”) which allows companies to redact confidential information from most material agreement exhibits without filing a CTR, including omitting schedules and exhibits to exhibits. The FAST Act also allows a company to redact information in material agreements that is both (i) not material, and (ii) competitively harmful if disclosed without the need for a CTR. For a discussion on the December 2019 guidance see HERE. At the end of this blog, I include a refresher on the streamlined, self-executing rules for omitting confidential information from material contract exhibits to SEC filings.

The latest updated guidance flows through the process in general, so the below discussion includes all such updates.

Confidential Treatment Requests Under Rules 406

June 25, 2024

SEC Provides Guidance On Sell To Cover Exception In Rule 10b5-1

On December 14, 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”) to enhance disclosure requirements and investor protections against insider trading. The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5. For a review of the Rules see HERE and HERE.

Updated Rule 10b5-1 adds conditions to the affirmative defense to insider trading. The Rule now has cooling-off periods before trading can commence under a Rule 10b5-1 plan and adds a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan. The Rule also requires directors and officers to include representations in their plans certifying at the time of the adoption of a new or modified Rule 10b5-1 plan that: (i) they are not aware of any material nonpublic information about the issuer or its securities; and

June 18, 2024

SEC Publishes New C&DI On Filing Fee Table And Inline XBRL

Back in fourth quarter 2023, the SEC published several new compliance and disclosure interpretations on various topics including cyber incident disclosure, proxy and information statements, the inclusion of securities in the filing fee exhibit, and Inline XBRL. This blog is the last in a series of three covering the plethora of new C&DI.

Related to the filing fee table:

Question 239.02 and 240.17 – A well-known seasoned issuer registers securities on an automatic shelf registration statement and elects to defer payment of filing fees pursuant to Rule 456(b). The issuer subsequently files a prospectus supplement in connection with a pay-as-you-go deferred fee payment under Rules 456(b) and 457(r) that includes the required filing fee exhibit. Must the filing fee exhibit’s Table 1 list all the securities listed in the initial filing of the related registration statement or is Table 1 permitted to list only the securities being offered by the prospectus supplement as to which the fees are

June 4, 2024

SEC Publishes New C&DI On Proxy Rules

Back in fourth quarter 2023, the SEC published several new compliance and disclosure interpretations on various topics including cyber incident disclosure, proxy and information statements, the inclusion of securities in the filing fee exhibit, and Inline XBRL. As my blog topic list tends to be very long, I am finally getting to this and will cover the various new C&DI topics over the next few weeks.

Proxy Rules

The federal proxy rules can be found in Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules promulgated thereunder. The rules apply to any company which has securities registered under Section 12 of the Act. Section 14 of the Exchange Act and its rules govern the timing and content of information provided to shareholders in connection with annual and special meetings with a goal of providing shareholders meaningful information to make informed decisions, and a valuable method to allow them to participate in the shareholder voting

May 28, 2024

SEC Publishes New C&DI On Cybersecurity Rules

Back in fourth quarter 2023, the SEC published several new compliance and disclosure interpretations on various topics including cyber incident disclosure, proxy and information statements, the inclusion of securities in the filing fee exhibit, and Inline XBRL. As my blog topic list tends to be very long, I am finally getting to this and will cover the various new C&DI topics over the next few weeks.

Cybersecurity

In July, 2023 the SEC adopted final new rules requiring disclosures for both domestic and foreign companies related to cybersecurity incidents, risk management, strategy and governance (see HERE for a review of the new rules). The SEC has published three new C&DI directly related to the Form 8-K reporting requirements and ability to delay reports based on national security concerns.

The cybersecurity rules add new Item 1.05 to Form 8-K requiring disclosure of a material cybersecurity incident including the incident’s nature, scope, timing, and material impact or reasonably likely impact on the

May 21, 2024

SEC Adopts Changes To The Definition Of A “Dealer”

Two years after proposing rule changes (see HERE) the SEC has adopted final new rules amending the definition of a “dealer” under the Exchange Act. Although the rule change comes after years of a continuous stream of litigation against small-cap and penny stock convertible debt lenders, the new rules specifically fail to provide regulatory clarity to this sector of the marketplace.

The amendments are intended to require certain proprietary or principal traders and liquidity providers to register as either a dealer or government securities dealer as applicable. The rules amend Exchange Act Rules 5a5-4 and 3a44-2 to enhance the definition of “as part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Exchange Act. The enhancement, however, is as to large proprietary traders and government securities dealers, leaving small cap traders to continue with rule making through judicial precedence.

Background

Although the amended rules are not limited to participants in the U.S. Treasury markets,

May 14, 2024

Definition Of A Shell Company In A Reverse Merger

Ten weeks of blogs on the new SPAC and shell company rules provides the perfect segue to discuss exactly what is a “shell company” in the context of a reverse merger and its implications – including one heartburn inducing unintended consequence. As I have been discussing over the past weeks, the new rules specifically apply to any reverse merger with a shell company, not just a SPAC shell company.

New Rule 145a deems any business combination of a reporting shell company involving another entity that is not a shell company to entail a sale of securities to the reporting shell company’s shareholders. Nothing in Rule 145a would prevent or prohibit the use of a valid exemption, if available, for the deemed sale of securities; however, I know of no such available exemption and the SEC rule release not only does not suggest one but specifically clarifies that Section 3(a)(9) would not be available.

As a result, the SEC release suggests

May 7, 2024

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Free Writing Prospectus

F-3 Eligibility

Supreme Court Decides MD&A Case

SEC Updates Guidance On Confidential Treatment Requests

SEC Provides Guidance On Sell To Cover Exception In Rule 10b5-1

SEC Publishes New C&DI On Filing Fee Table And Inline XBRL

SEC Publishes New C&DI On Proxy Rules

SEC Publishes New C&DI On Cybersecurity Rules

SEC Adopts Changes To The Definition Of A “Dealer”

Definition Of A Shell Company In A Reverse Merger

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