Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies, 42234-42249 [05-14311]
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Federal Register / Vol. 70, No. 139 / Thursday, July 21, 2005 / Rules and Regulations
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 239, 240 and 249
[Release Nos. 33–8587; 34–52038;
International Series Release No. 1293; File
No. S7–19–04]
RIN 3235–AH88
Use of Form S–8, Form 8–K, and Form
20–F by Shell Companies
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
SUMMARY: The Securities and Exchange
Commission is adopting rules and rule
amendments relating to filings by
reporting shell companies. We are
defining a ‘‘shell company’’ as a
registrant with no or nominal operations
and either no or nominal assets, assets
consisting solely of cash and cash
equivalents, or assets consisting of any
amount of cash and cash equivalents
and nominal other assets. The rules and
rule amendments prohibit the use of
Form S–8 under the Securities Act of
1933 by shell companies. In addition,
they require a shell company that is
reporting an event that causes it to cease
being a shell company to disclose the
same type of information that it would
be required to provide in registering a
class of securities under the Securities
Exchange Act of 1934. These provisions
are intended to protect investors by
deterring fraud and abuse in our
securities markets through the use of
reporting shell companies.
DATES: Effective August 22, 2005, except
Item 5.06 of Exchange Act Form 8–K
(referenced in § 249.308) will take effect
on November 7, 2005.
FOR FURTHER INFORMATION CONTACT:
Kevin M. O’Neill, Special Counsel,
Office of Small Business Policy,
Division of Corporation Finance,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549, at (202) 551–3260.
SUPPLEMENTARY INFORMATION: We are
adopting rules and rule amendments
designed to protect investors by
deterring fraud and abuse in our
securities markets through the use of
reporting shell companies.1 We are
amending Form S–8 2 under the
Securities Act of 1933 3 to prohibit use
1 In this release, we use the term reporting shell
companies to refer to shell companies that have an
obligation to file reports under Section 13 (15
U.S.C. 78m) or Section 15(d) (15 U.S.C. 78o(d)) of
the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.).
2 17 CFR 239.16b.
3 15 U.S.C. 77a et seq.
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of the form by shell companies. We also
are amending the requirements of Form
8–K 4 under the Securities Exchange Act
of 1934 as they apply to shell
companies. In addition, we are
amending Rule 405 5 under the
Securities Act and Rule 12b–2 6 under
the Exchange Act to define the terms
‘‘business combination related shell
company’’ and ‘‘shell company,’’ and
amending Rule 12b–2 under the
Exchange Act to revise the definition of
the term ‘‘succession.’’ Further, we are
amending Rule 13a–14 7 and Rule 15d–
14 8 under the Exchange Act, adding
new Rule 13a–19 9 and new Rule 15d–
19 10 under the Exchange Act, and
amending Form 20–F 11 under the
Exchange Act to address the reporting
obligations of foreign private issuers
that are shell companies. Finally, we are
amending Form 10–Q,12 Form 10–
QSB,13 Form 10–K,14 Form 10–KSB,15
and Form 20–F under the Exchange Act
to require companies to indicate on the
cover page of those forms whether they
fall within the definition of ‘‘shell
company.’’
The rules and rule amendments we
are adopting today do not address the
relative merits of shell companies. We
recognize that companies and their
professional advisors often use shell
companies for many legitimate
corporate structuring purposes.
Similarly, our definition and use of the
term ‘‘shell company’’ is not intended to
imply that shell companies are
inherently fraudulent. Rather, these
rules target regulatory problems that we
have identified where shell companies
have been used as vehicles to commit
fraud and abuse our regulatory
processes.
I. Introduction
On April 15, 2004, we proposed rules
and rule amendments related to filings
by reporting shell companies.16 We
proposed to define the term ‘‘shell
company.’’ We also proposed to prohibit
the use of Form S–8 under the
Securities Act by shell companies.
Additionally, we proposed to amend
CFR 249.308.
CFR 230.405.
6 17 CFR 240.12b–2.
7 17 CFR 240.13a–14.
8 17 CFR 240.15d–14.
9 17 CFR 240.13a–19.
10 17 CR 240.15d–19.
11 17 CFR 249.220f.
12 17 CFR 249.308a.
13 17 CFR 249.308b.
14 17 CFR 249.310.
15 17 CFR 249.310b.
16 Release No. 33–8407, Use of Form S–8 and
Form 8–K by Shell Companies (Apr. 15, 2004) [69
FR 21650].
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5 17
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Form 8–K under the Exchange Act to
require a shell company, when reporting
an event that causes it to cease being a
shell company, to file with the
Commission the same type of
information that it would be required to
file in registering a class of securities
under the Exchange Act.
In response to these proposals, we
received approximately 30 comment
letters from various interested parties,
including investors, issuers,
accountants, lawyers, and organizations.
We have considered all of the comment
letters and have incorporated certain of
the suggestions in those letters in the
final rules.
The provisions we adopt today
address the inappropriate use of Form
S–8 registration statements by reporting
shell companies to circumvent the
registration and prospectus delivery
requirements of the Securities Act.
Because shell companies do not operate
businesses and, hence, rarely have
employees, we see little legitimate basis
for shell companies to use Form S–8.
For this reason, and because of the
history of abuse of Form S–8 by
reporting shell companies, we are
prohibiting shell companies from using
Form S–8 until 60 days after they cease
being shell companies and file required
information. We have, however,
included limited exceptions to this
prohibition for shell companies that are
used in certain change of domicile or
business combination transactions.
The provisions we adopt today also
address the use of Form 8–K to report
‘‘reverse merger’’ and other transactions
in which a reporting shell company
ceases being a shell company, generally
by combining with a formerly private
operating business. Through such a
transaction, the private operating
business, in effect, becomes a reporting
company. These transactions generally
take one of two forms:
• In the most common type of
transaction, a ‘‘reverse merger,’’ the
private business merges into the shell
company, with the shell company
surviving and the former shareholders
of the private business controlling the
surviving entity.
• In another common type of
transaction, a ‘‘back door registration,’’
the shell company merges into the
formerly private company, with the
formerly private company surviving and
the shareholders of the shell company
becoming shareholders of the surviving
entity.17
17 This was the type of transaction involved in the
Lisa Roberts, Director of NASDAQ Listing
Qualifications interpretive letter, which is
discussed in footnote 36, below.
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Federal Register / Vol. 70, No. 139 / Thursday, July 21, 2005 / Rules and Regulations
In these transactions, the reporting
company has an obligation to file
current reports on Form 8–K to report
both the entry into a material nonordinary course agreement providing for
the transaction and the completion of
the transaction. Specifically, in both
types of transactions, the entry into the
agreement would require a report under
Item 1.01 of Form 8–K (Entry Into a
Material Definitive Agreement) by the
shell company. The completion of the
transaction would be reportable under
either or both of Item 2.01 of Form 8–
K (Completion of Acquisition or
Disposition of Assets) and Item 5.01 of
Form 8–K (Changes in Control of
Registrant) by the surviving entity.18
Audited financial statements and pro
forma financial information would be
required to be filed under Item 9.01 of
Form 8–K (Financial Statements and
Exhibits) for transactions reportable
under Item 2.01.19
II. Adopted Rules and Rule
Amendments
We are adopting the rules and rule
amendments substantially as proposed.
The substantive changes to the
proposals, as discussed below, are:
• We have revised the definition of
‘‘shell company’’ to specify the manner
in which assets are to be determined
and to exclude asset-backed issuers; 20
• We have added a definition of the
term ‘‘business combination related
shell company’’ to specify those shell
companies that are used to effect certain
change in domicile and business
combination transactions;
• We have provided limited
exceptions to the amendments to Form
18 In a back door registration transaction where
time elapses between the entry into the agreement
and the completion of the transaction, the shell
company would incur the obligation to file the Item
1.01 Form 8–K at the time of entry into the
agreement and either the shell company or the
issuer that succeeds to the reporting obligation of
the shell company by operation of either Rule 12g–
3 (17 CFR 240.12g–3) or Rule 15d–5 (17 CFR
240.15d–5) under the Exchange Act would be
obligated to file the Item 2.01 or Item 5.01 (or both)
Form 8–K at the time of completion of the
transaction. In a back door registration transaction
that is simultaneously entered into and completed,
or where the shell company has not yet satisfied its
Item 1.01 obligation at the time of completion of the
transaction, either the shell company or the issuer
that succeeds to the reporting obligation of the shell
company by operation of either Rule 12g–3 or Rule
15d–5 under the Exchange Act would be required
to satisfy the shell company’s obligation to file a
Form 8–K under Item 1.01, as well as any other
reporting obligations of the shell company
(including obligations to file reports on Form 8–K
pursuant to other Items of that Form).
19 Other than new Item 5.06 of Form 8–K, the rule
and form amendments adopted today are not
intended to impose any new event filing
requirements under Form 8–K.
20 ‘‘Asset-backed issuer’’ is defined in Item
1101(b) of Regulation AB [17 CFR 229.1101(b)].
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S–8, Form 8–K, and Form 20–F for
business combination related shell
companies;
• We have added new Item 5.06 to
Form 8–K to require shell companies
(other than business combination
related shell companies) to report
transactions that cause them to cease
being shell companies;
• We have added a check box to Form
10–Q, Form 10–QSB, Form 10–K, Form
10–KSB, and Form 20–F to identify
shell companies filing those forms; and
• We have adopted rules and rule
amendments requiring a foreign private
issuer shell company to file a ‘‘shell
company report’’ on Form 20–F to
report a transaction that causes it to
cease being a shell company.21
We are adopting the definition of the
term ‘‘shell company’’ substantially as
proposed. The adopted definition
includes minor modifications,
including:
• An exclusion for asset-backed
issuers that might inadvertently fall
within the definition;
• A clarification that a company
would still be a shell company if its
assets consist of any amount of cash and
cash equivalents, as well as nominal
other assets; and
• A clarification that the
determination of the company’s assets
(including cash and cash equivalents)
for purposes of the definition must be
limited to the amount of assets that
would be reflected on the company’s
balance sheet prepared in accordance
with U.S. generally accepted accounting
principles on the date of that
determination.
We have defined the term ‘‘business
combination related shell company.’’
We have adopted this definition to
identify the subset of shell companies
for which certain of the amendments to
Form S–8, Form 8–K, and Form 20–F
will not apply. We also have revised the
definition of ‘‘succession’’ under the
Exchange Act, as proposed, to capture
certain transactions involving shell
companies.
We are adopting amendments to Form
S–8 that prohibit shell companies from
using that form to register offerings of
securities. A former shell company will
become eligible to use Form S–8 to
register offerings of securities 60
21 The term ‘‘foreign private issuer’’ is defined in
Exchange Act Rule 3b–4(c) [17 CFR 240.3b–4(c)]. A
foreign private issuer is a non-government foreign
issuer, except for a company that (1) has more than
50% of its outstanding voting securities directly or
indirectly held of record by U.S. residents and (2)
has either a majority of its executive officers or
directors residing in or being citizens of the United
States, more than 50% of its assets located in the
United States, or its business principally
administered in the United States.
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calendar days after it ceases being a
shell company and files information
equivalent to what it would be required
to file if it were registering a class of
securities on Form 10,22 Form 10–SB,23
or Form 20–F under the Exchange Act.
We are adopting a limited exception to
the Form S–8 prohibition that permits a
former business combination related
shell company to use Form S–8
immediately after it ceases being a shell
company and files the required
information.
The amendments to Form 8–K that we
are adopting today apply to reporting
shell companies, other than those that
are foreign private issuers. The
amendments require such a company,
when reporting on Form 8–K an event
that causes it to cease being a shell
company, to include in that report the
information that it would be required to
file to register a class of securities under
Section 12 of the Exchange Act 24 using
Form 10 or Form 10–SB. The report is
required to be filed within the same
filing period as generally is required for
other Form 8–K reports, which is within
four business days after completion of
the transaction. Further, the extension
of time that otherwise may be permitted
to file financial statements and pro
forma financial information reflecting
the new financial profile of the
company following completion of a
significant acquisition would be
eliminated for shell companies. We are
adopting similar reporting requirements
for foreign private issuers on Form 20–
F.
Finally, we are adding a check box to
Form 10–Q, Form 10–QSB, Form 10–K,
Form 10–KSB, and Form 20–F to allow
market participants and regulators to
identify shell companies more easily.
A. Definition of ‘‘Shell Company’’
1. Discussion of the Proposal
We proposed to define the term ‘‘shell
company’’ as a company with no or
nominal operations, and with no or
nominal assets or assets consisting
solely of cash and cash equivalents.25
We proposed that this definition be
added to Rule 405 under the Securities
Act and Rule 12b–2 under the Exchange
Act. We indicated in the proposing
release that we intentionally were not
proposing to use the term ‘‘blank check
22 17
CFR 249.210.
CFR 249.210b.
24 15 U.S.C. 78l.
25 As discussed in the proposing release, we
intended that a shell company formed solely for the
purpose of changing a company’s domicile or
completing a business combination transaction with
another company would fall within the definition
of shell company.
23 17
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Federal Register / Vol. 70, No. 139 / Thursday, July 21, 2005 / Rules and Regulations
company’’ used in Rule 419 26 under the
Securities Act because we believe the
term ‘‘shell company’’ and our proposed
definition of the term better describe the
type of company involved in the
schemes that we are attempting to
address, use criteria that are more
specific, and would be easier to apply.
2. Comments on the Proposal
Approximately ten commenters
expressed their views regarding the
proposed definition of ‘‘shell company.’’
Three commenters asked that the terms
‘‘nominal operations’’ and ‘‘nominal
assets’’ be defined.27 These commenters
sought more guidance as to the meaning
of these terms and quantitative
thresholds for the term ‘‘nominal.’’ One
of these commenters requested an
objective test, such as specific
quantitative thresholds tied to specific
dollar amounts.28
Another commenter suggested that
the proposed definition be modified to
clarify that nominal assets appearing on
a balance sheet prepared other than in
accordance with generally accepted
accounting principles do not qualify as
assets for purposes of avoiding
classification as a shell company.29 Two
commenters expressed support for a
definition based on the term ‘‘blank
check company’’ in Securities Act Rule
419 to describe the types of entities that
should be subject to the Form S–8 and
Form 8–K proposals.30
3. Final Rules
As adopted, Securities Act Rule 405
and Exchange Act Rule 12b–2 define a
‘‘shell company’’ as a company, other
than an asset-backed issuer, with:
• No or nominal operations; and
• Either:
—No or nominal assets;
—Assets consisting solely of cash and
cash equivalents; or
—Assets consisting of any amount of
cash and cash equivalents and
nominal other assets.
For purposes of this definition, the
determination of a company’s assets
(including cash and cash equivalents)
must be based on the amounts that
would be reflected on the company’s
balance sheet prepared in accordance
with U.S. generally accepted accounting
principles on the date of that
determination. We have added the
26 17
CFR 230.419.
letters from L. Stephen Albright, North
American Securities Administrators Association,
Inc., and Stoecklein Law Group.
28 See letter from North American Securities
Administrators Association, Inc.
29 See letter from Simon M. Lorne.
30 See letters from David N. Feldman and Conrad
C. Lysiak.
27 See
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language ‘‘or assets consisting of any
amount of cash and cash equivalents
and nominal other assets’’ to further
clarify the definition. This clarification
is consistent with the intended meaning
of the proposed definition.
After considering the comments on
our proposed definition of shell
company, we continue to believe that
the proposed definition best describes
the types of companies involved in the
schemes we are attempting to address
and can be applied with certainty.31 We
do not believe that the suggestions in
the comment letters would result in a
significantly improved definition of
shell company. Further, we believe that
the definition reflects the traditional
understanding of the term ‘‘shell
company’’ in the area of corporate
finance.
We are not defining the term
‘‘nominal,’’ as we believe that this term
embodies the principle that we seek to
apply and is not inappropriately vague
or ambiguous.32 We have considered the
comment that a quantitative threshold
would improve the definition of shell
company; however, we believe that
quantitative thresholds would, in this
context, present a serious potential
problem, as they would be more easily
circumvented. We believe further
specification of the meaning of
‘‘nominal’’ in the definition of ‘‘shell
company’’ is unnecessary and would
make circumventing the intent of our
regulations and the fraudulent misuse of
shell companies easier.
31 One commenter discussed the application of
the proposals to ‘‘living dead’’ companies. See letter
from Mike Liles, Jr. As described in this comment
letter, a ‘‘living dead’’ company is a former
operating company with minimal or limited
operations. We believe that a former operating
company that meets the assets and operations
standards in the definition of shell company would
be subject to the rules and rule amendments that
we are adopting today.
32 We have become aware of a practice in which
a promoter of a company and/or affiliates of the
promoter appear to place assets or operations
within an entity with the intent of causing that
entity to fall outside of the definition of ‘‘blank
check company’’ in Securities Act Rule 419. The
promoter will then seek a business combination
transaction for the company, with the assets or
operations being returned to the promoter or
affiliate upon the completion of that business
combination transaction. It is likely that similar
schemes will be undertaken with the intention of
evading the definition of shell company that we are
adopting today. In our view, where promoters (or
their affiliates) of a company that would otherwise
be a shell company place assets or operations in
that company and those assets or operations are
returned to the promoter or its affiliates (or an
agreement is made to return those assets or
operations to the promoter or its affiliates) before,
upon completion of, or shortly after a business
combination transaction by that company, those
assets or operations would be considered
‘‘nominal’’ for purposes of the definition of shell
company.
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4. Definition of ‘‘Business Combination
Related Shell Company’’
The definition of ‘‘shell company’’
includes a shell company that is used to
change an entity’s domicile and a shell
company that is formed to effect a
business combination transaction. As
proposed, a shell company formed
solely for the purpose of changing the
domicile of a non-shell entity would
have been permitted to use Form S–8
immediately after it ceased being a shell
company and filed required
information. In this regard, we received
comment expressing the view that
public companies formed to effect
mergers, acquisitions, and public spinoff transactions also should be
permitted to use Form S–8 within that
timeframe.33
We believe that there is a subset of
shell companies for which the delay in
the use of Form S–8, as well as certain
of the reporting requirements under
Form 8–K and Form 20–F, as discussed
below, are not necessary. Accordingly,
we have defined the term ‘‘business
combination related shell company’’ to
identify those entities that we believe
fall within this subset of shell
companies. As adopted today, a
‘‘business combination related shell
company’’ is:
• A shell company formed by an
entity that is not a shell company solely
for the purpose of changing that entity’s
domicile solely within the United
States; 34 or
• A shell company formed by an
entity that is not a shell company solely
for the purpose of completing a business
combination transaction among one or
more entities other than the shell
company, none of which is a shell
company.35
B. Definition of ‘‘Succession’’
We are adopting as proposed the
amendment to the definition of the term
‘‘succession’’ in Exchange Act Rule
12b–2 to include a change in control of
a shell company that is required to be
reported on Form 8–K pursuant to Item
33 See letter from Association of the Bar of the
City of New York.
34 The language in this definition referring to a
shell company formed ‘‘solely for the purpose of
changing that entity’s domicile solely within the
United States’’ is intended to have the same
meaning as the language ‘‘the sole purpose of the
transaction is to change an issuer’s domicile solely
within the United States’’ in Securities Act Rule
145(a)(2) [17 CFR 230.145(a)(2)].
35 For purposes of this definition, the term
‘‘business combination transaction’’ will have the
same meaning as in Securities Act Rule 165(f)(1) [17
CFR 230.165(f)(1)], which defines a ‘‘business
combination transaction’’ as any transaction
specified in Securities Act Rule 145(a) [17 CFR
230.145(a)] or exchange offer.
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5.01 of that Form or on Form 20–F
pursuant to new Exchange Act Rule
13a–19 or 15d–19. This amendment
will, in most cases, require a non-public
acquiring company to succeed to the
reporting obligations of a shell company
and become a reporting company.36 For
a shell company with securities
registered under Section 12 of the
Exchange Act, this will occur because
Exchange Act Rule 12g–3 will, with
limited exceptions, impose Section 12
registration on the securities of the
acquiror without the necessity of filing
an Exchange Act registration statement.
Similarly, for a shell company with a
reporting obligation under Section 15(d)
of the Exchange Act, the acquiror may
be deemed to have assumed the
reporting obligation of the shell
company by operation of Exchange Act
Rule 15d–5. Because of the interaction
of the revised definition of ‘‘succession’’
and Exchange Act Rules 12g–3 and 15d–
5, a private entity that acquires a
reporting shell company generally will
report the transaction on Form 8–K,
which in this case calls for Exchange
Act registration-level disclosure, in
accordance with the requirements of
Form 8–K rather than filing an Exchange
Act registration statement.37 We believe
this Form 8-K reporting requirement
provides the appropriate timing,
method, and level of disclosure to
investors.
C. Amendments to Securities Act Form
S–8
1. Discussion of the Proposal
We proposed amendments to prohibit
the use of Form S–8 by any shell
36 This definition, along with today’s
amendments to Form 8–K, supersedes the Lisa
Roberts, Director of NASDAQ Listing Qualifications
interpretive letter (Apr. 7, 2000). As explained in
this interpretive letter, the procedure sometimes
called ‘‘back door registration’’ under the Exchange
Act did not, in the Commission staff’s view at the
time, constitute a ‘‘succession’’ of the surviving
entity to the rights and obligations of the reporting
shell company because the definition of
‘‘succession’’ in Exchange Act Rule 12b–2 requires
that the acquiring company acquire a ‘‘going
business’’ and a shell company was not considered
a ‘‘going business.’’ Nevertheless, the staff
permitted non-reporting acquiring companies to file
Form 8–K reports and enter our reporting system,
so long as specified information was included,
rather than requiring these companies to file
registration statements under Section 12 of the Act
on Form 10 or Form 10–SB to become reporting
companies.
37 Foreign private issuers that do not report on
domestic issuer forms, such as Form 10–K and
Form 10–Q, are not subject to this requirement to
report the transaction on Form 8–K. Rather, foreign
private issuers will report the transaction on Form
20–F. See the discussion in Section II.E., below,
with regard to the Exchange Act reporting
requirements for a foreign private issuer that is a
shell company and completes a transaction that
causes it to cease being a shell company.
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company. As proposed, a company that
ceased being a shell company would
become eligible to use Form S–8 to
register offerings of securities 60
calendar days after it filed information
equivalent to what it would be required
to file if it were registering a class of
securities under Section 12 of the
Exchange Act through the use of Form
10, Form 10–SB, or Form 20–F, as
applicable to that company.38 On most
occasions, this would occur upon the
completion of a reverse merger or back
door registration transaction, and the
information would be filed in a current
report on Form 8–K reporting the
transaction that causes the company to
cease being a shell company. In some
circumstances the information could be
filed in a Form 10, Form 10–SB, or Form
20–F, or in a Securities Act registration
statement covering the transaction.
A registration statement on Form 10,
Form 10–SB, or Form 20–F provides
investors with important information
about the company in which they are
considering investing. The 60-day delay
between the filing of that information
and the use of Form S–8 was intended
to give employees and the markets
sufficient time to absorb the information
provided by the company in its Form 8–
K or other filing. The 60-day period is
consistent with the 60-day period
between the filing and effectiveness of
a company’s registration of a class of
securities on Form 10, Form 10–SB, or
Form 20–F under Section 12(g) of the
Exchange Act.39
2. Comments on the Proposal
Most commenters expressed support
for our initiative, through the Form S–
8 proposal, to deter fraud and abuse in
our securities markets by the use of
shell companies. Eight commenters
expressed the view that shell companies
should, at least under certain
circumstances, continue to be eligible to
use Form S–8 for offering securities to
officers, directors, and employees.40
Three commenters proposed permitting
a shell company to use Form S–8 to
register offerings up to a percentage of
its outstanding public float.41 Three
commenters agreed that the proposed
60-day waiting period should not be
38 The amendments to Form S–8 that we are
adopting today will apply to foreign private issuers.
For a further discussion of the application of the
Form S–8 amendments to foreign private issuers,
see the discussion in Section II.E., below.
39 15 U.S.C. 78l(g).
40 See letters from L. Stephen Albright, American
Society of Corporate Secretaries, David N. Feldman,
Conrad C. Lysiak, James B. Parsons, John L.
Petersen, Jay Sanet, and Michael T. Williams.
41 See letters from James B. Parson, John L.
Petersen, and Michael T. Williams.
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shortened.42 Another commenter
expressed the view that we should
exclude public companies formed to
effect mergers, acquisitions, and public
spin-off transactions, as it is critical that
such companies be able to use Form S–
8 to register offerings of securities under
employee benefit plans immediately
after the closing of such transactions.43
This same commenter stated that the 60day waiting period in the Form S–8
proposal would be an unnecessary
restriction on such a successor
company’s ability to sell shares in
registered offerings pursuant to
employee benefit plans.44 The
commenter proposed that shell
companies be permitted to use Form S–
8 immediately after their conversion to
an operating company, particularly
where another filing has been made that
meets the disclosure requirements.
3. Final Rule
A registration statement on Form S–
8 becomes effective upon filing with the
Commission and does not require a
prospectus to be filed as part of the
registration statement.45 Some shell
companies seeking to distribute their
securities and raise capital
inappropriately use Form S–8. As we
discussed in the proposing release, we
continue to see the misuse of Form S–
8 to register the sale of shares to
purported employees or other nominees,
who often are designated as
‘‘consultants’’ but who often do not
provide services for which the company
may offer securities in a transaction
registered on Form S–8.46 These
schemes lead to unregistered resales of
securities into the public market by
these purported ‘‘employees’’ or
‘‘consultants,’’ denying the protections
of the Securities Act to the real public
purchasers of the company’s
securities.47
We are adopting the amendments to
Form S–8 essentially as proposed, as we
continue to believe that prohibiting the
use of Form S–8 by shell companies
42 See letters from L. Stephen Albright, Jay Sanet,
and Stoecklein Law Group.
43 See letter from Association of the Bar of the
City of New York.
44 See id.
45 See Securities Act Rules 462(a) and 428 [17
CFR 230.462(a) and 230.428].
46 General Instruction A.1.(a)(1) to Form S–8
states that the form may be used to register
securities to be offered and sold to consultants only
if they are natural persons who provide bona fide
services to the registrant that ‘‘are not in connection
with the offer or sale of securities in a capital
raising transaction, and do not directly or indirectly
promote or maintain a market for the registrant’s
securities.’’
47 See Release No. 33–7646, Registration of
Securities on Form S–8 (Feb. 26, 1999) [64 FR
11103].
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justifies the burdens or costs that might
be incurred. Accordingly, an entity may
use Form S–8 to register offerings of
securities pursuant to employee benefit
plans only if:
• Immediately before the time of
filing the registration statement, the
entity is subject to the requirement to
file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act;
• The entity has filed all reports and
other materials required to be filed by
Section 13 or Section 15(d) of the
Exchange Act during the preceding 12
months (or for such shorter period that
the registrant was required to file such
reports and materials);
• The entity is not a shell company
and has not been a shell company for at
least 60 days before filing the
registration statement; and
• If the entity has been a shell
company at any time, it has filed current
‘‘Form 10 information’’ with the
Commission at least 60 days previously
reflecting its status as an entity that is
not a shell company.48
We have included exceptions to the
Form S–8 prohibition to permit its use
by certain shell companies that appear
to present less potential for abuse. We
proposed to permit certain shell
companies that were used to change
corporate domicile to use Form S–8
immediately after they cease being shell
companies and file ‘‘Form 10
information.’’ We are maintaining this
provision. In response to comments, we
also are permitting certain shell
companies that were formed solely to
effect business combination transactions
to use Form S–8 immediately after they
cease being shell companies and file
‘‘Form 10 information.’’ We have taken
two steps to accomplish these
exceptions. First, we have defined
‘‘business combination related shell
company,’’ as discussed previously, to
identify the subset of shell companies
that qualify for the exception. Second,
we are providing in Form S–8 that a
business combination related shell
company may use Form S–8
immediately upon ceasing to be a shell
company and filing ‘‘Form 10
information.’’ 49
We believe the amendments we are
adopting today are appropriate, as we
continue to see misuse of Form S–8 by
shell companies and believe that
prohibiting the use of Form S–8 by shell
48 For purposes of Form S–8, we define the term
‘‘Form 10 information’’ to mean the information
that is required by Form 10, Form 10–SB, or Form
20–F, as applicable to the registrant, to register
under the Exchange Act each class of securities
being registered on the Form S–8.
49 See new General Instruction A.1.(a)(7) to Form
S–8.
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companies will help to deter fraud and
abuse. Further, the commenters that
indicated that shell companies should
be eligible to use Form S–8 for offering
securities to officers, directors, and
employees provided only limited
explanation as to why this practice
should continue for all shell companies.
The prohibitions on the use of Form
S–8 that we are adopting today will not
prevent a shell company from
registering offers and sales of securities
pursuant to employee benefit plans
under the Securities Act; rather, they
will require the shell company to
register those transactions on a
registration statement form other than
Form S–8. In addition, the shell
company may be able to offer and sell
those securities without registration
pursuant to an available exemption
under the Securities Act. We are aware
that a different registration statement
form may not provide the same ease of
registration as Form S–8 and that the
resale of securities originally sold in a
transaction that is exempt from
Securities Act registration likely would
be treated differently under Securities
Act Rule 144 50 than securities sold to
employees in a registered transaction.
We believe that the benefits of this
amendment in preventing misuse of
Form S–8, deterring fraud, and
protecting investors substantially justify
the potential disadvantages for shell
companies.
D. Exchange Act Form 8–K
1. Discussion of the Proposal
We proposed amendments to Form 8–
K to require a shell company (other than
a foreign private issuer) to make a more
prompt and detailed filing upon
completion of a transaction otherwise
required to be reported on that form that
causes it to cease being a shell company.
Specifically, the shell company would
have been required to file a current
report on Form 8–K containing the
information that would be required in a
registration statement on Form 10 or
Form 10–SB to register a class of
securities under Section 12 of the
Exchange Act. We proposed that a
company be required to file this report
on Form 8–K within four business days
after completion of the transaction,
consistent with the timeframe for most
Form 8–K filings.
We proposed elimination of the
additional 71-day ‘‘window’’ for filing
required financial information in a Form
8–K report filed pursuant to Item 2.01
of that form.51 This window is the
PO 00000
50 17
CFR 230.144.
Item 9.01 of Form 8–K.
51 See
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period of time between the date the
registrant files its initial Form 8–K
reporting the event and the date when
the registrant is required to file financial
information about the transaction. We
believed that the elimination of the 71day window would provide investors in
operating businesses newly merged with
shell companies with a level of
information that is equivalent to the
information provided to investors in
reporting companies that did not
originate as shell companies. The
purpose for requiring this financial
information at the time of the initial
filing of the Form 8–K report was to
decrease opportunities to engage in
fraudulent and manipulative activity
during the 71-day window period.
2. Comments on the Proposal
The comments responding to the
Form 8–K proposal were varied. Four
commenters expressed concern with the
difficulty of preparing the required
information and completing the filing of
the required disclosure on Form 8–K
within four days.52 Three commenters
also expressed concern over the amount
of disclosure that was proposed to be
included in the Form 8–K.53 Each of
those commenters believed that less
information than the information
equivalent to that required in a Form 10
or Form 10–SB would be adequate. Two
of the commenters suggested that a level
of information similar to that required
under Exchange Act Schedule 14A 54
would be adequate,55 with the other
commenter expressing the view that it
would be appropriate to require only
certain of the Form 10 or Form 10–SB
information.56 Two commenters
suggested that the shell company be
permitted to delay filing its required
disclosure if there was no trading in its
securities.57 One of these commenters
suggested retaining the 71-day window,
but limiting the trading in the shell
company’s securities by specified
persons during that window.58
Eight commenters supported the
adoption of the Form 8–K proposal to
provide information to investors and
deter fraud and abuse by shell
companies.59 The commenters
52 See letters from L. Stephen Albright, David N.
Feldman, Mike Liles, Jr., and James B. Parsons.
53 See letters from L. Stephen Albright, David N.
Feldman, and James M. Schneider.
54 17 CFR 240.14a–101.
55 See letters from L. Stephen Albright and James
M. Schneider.
56 See letter from David N. Feldman.
57 See letters from David N. Feldman and Mike
Liles, Jr.
58 See letter from Mike Liles, Jr.
59 See letters from L. Stephen Albright, Nathan
Garnett, Simon M. Lorne, North American
Securities Administrators Association, Inc., James
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supported the proposed rulemaking as
an opportunity for the Commission to
provide a disincentive for shell
company abuse. Four commenters
supported closing the 71-day window,
on the grounds that this would deter
fraud and abuse.60 Two of these
commenters suggested that the
Commission consider a compromise of
between 15 and 45 days.61 One of these
commenters stated that the financial
statements are ‘‘vital to an
understanding’’ of the transaction and
that the closing of the merger
transaction should be delayed until
such time as the financial statements are
properly prepared.62
3. Final Rule
We are adopting the Form 8–K
amendments substantially as proposed.
The amendments to Form 8–K will
require the surviving entity 63 in a
transaction where a shell company
ceases being a shell company to make a
more specific and detailed filing upon
completion of such a transaction that is
required to be reported on that form.64
B. Parsons, John Peterson, Stoecklein Law Group,
and Michael T. Williams.
60 See letters from L. Stephen Albright, James B.
Parsons, North American Securities Administrators
Association, Inc., and Stoecklein Law Group.
61 See letters from L. Stephen Albright and James
B. Parsons.
62 See letter from Stoecklein Law Group.
63 If a class of securities of an issuer succeeds, by
operation of Exchange Act Rule 12g–3, to the
registration under Exchange Act Section 12 of a
class of the shell company’s securities, thus causing
that successor issuer to succeed to the registrant’s
reporting obligation under Exchange Act Section
13, or if an issuer succeeds, by operation of
Exchange Act Rule 15d–5, to the shell company’s
reporting obligation under Exchange Act Section
15(d), the successor issuer will then succeed to the
shell company’s obligation to file the required
information in a report on Form 8–K. If neither of
the events described in the previous sentence occur,
the shell company will be obligated to file the
required information in a report on Form 8–K. For
ease of discussion in this section, we refer to the
entity that is obligated to file the required
information in a report on Form 8–K as the
‘‘surviving entity.’’ In the back door registration
context, the surviving entity’s securities must meet
all of the conditions of Exchange Act Rule 12g–3
for those securities to be deemed registered under
the same paragraph of Exchange Act Section 12
under which the shell company’s securities were
registered. For example, if the number of record
holders of the surviving entity’s securities is less
than 300, the securities of the surviving entity will
not succeed automatically by operation of Exchange
Act Rule 12g–3 to the reporting status of the shell
company’s securities. Instead, the surviving entity
would be required to file a Form 10 or 10–SB if it
wishes to register the securities under Exchange Act
Section 12. Similarly, under Exchange Act Rule
15d–5, the surviving entity will be considered the
successor issuer by operation of Exchange Act Rule
15d–5 unless the surviving entity is exempt from
filing reports or the duty to file reports is suspended
under Section 15(d) of the Exchange Act.
64 In most cases, this will occur when the shell
company acquires or is acquired by an operating
business. Under the definition of ‘‘shell company’’
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These transactions will fall within the
requirements of either or both of Item
2.01 and Item 5.01 of Form 8–K.65 Upon
completion of this type of transaction,
the surviving entity will be required to
file a current report on Form 8–K
containing the information, including
financial information, that would be
required in a registration statement on
Form 10 or Form 10–SB to register a
class of securities under Section 12 of
the Exchange Act, with that information
reflecting the surviving entity and its
securities upon consummation of the
transaction.66
We are requiring that the surviving
entity file its report on Form 8–K within
four business days after completion of
the transaction that it is required to
report. While we understand the
concerns of commenters regarding this
timeframe, we believe the timeframe is
appropriate because shell companies
and their counsel control the pace and
timing of these transactions. Given the
concerns unique to shell company
transactions, we believe shell
companies should complete a
transaction that is required to be
reported only when they can timely
provide investors with adequate
information to make informed
investment decisions.67 Moreover,
we are adopting today, it also could occur when the
shell company acquires more than nominal assets
(other than cash or cash equivalents). Requiring
prompt and detailed disclosure in a Form 8–K filing
will provide investors in operating businesses
newly merged with shell companies with a level of
information that is equivalent to the information
provided to investors in reporting companies that
did not originate as shell companies.
65 Where an operating company acquires a shell
company and the operating company survives the
transaction, the operating company will have
acquired control of the shell for purposes of the
definition of ‘‘succession’’ under amended
Exchange Act Rule 12b–2. The operating company,
as the surviving entity, will be required to file a
Form 8–K under Item 5.01. The transaction will
constitute a change in control of the shell company
whether or not shareholders of the operating
company before the transaction control the
surviving entity following the transaction.
66 That Form 8–K need not, however, contain
registration-level information if that information
previously has been included in an effective
registration statement under the Securities Act. In
that instance, the Form 8–K could merely reference
the Securities Act registration statement that
contains the required information. This same
principle will apply to information that previously
was included in a filing under the Exchange Act.
We have amended Form 8–K to make this clear.
67 As suggested by commenters, we considered
imposing a trading ban on the securities of shell
companies that have ceased being shell companies
and have not filed the required financial statements,
with the trading ban imposed until the converted
shell company files its audited financial statements.
We have not included such a provision in the final
rule, as we believe that the information required in
the Form 8–K will have the same effect of informing
the market before trading and will not present the
practical implementation issues that would be
presented by a trading ban.
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42239
obtaining audited financial statements
for the operating business in such a
transaction should not present the
difficulties that caused us to provide the
extended filing window for business
combinations involving reporting
companies with operations.68
We believe that prompt and proper
disclosure of Exchange Act registrationlevel information at the time of shell
company transactions will deter abuse
and provide investors with information
necessary for their investment
decisions. Accordingly, we believe it is
appropriate to require Form 10 or Form
10–SB information, as applicable, in the
Form 8–K. This level of disclosure will
provide investors in operating
businesses newly merged with shell
companies with prompt and detailed
disclosure that is equivalent to the
information provided to investors in
reporting companies that register under
the Exchange Act rather than reaching
the same result through a transaction
with a reporting shell company.
We are adding new Item 5.06 to Form
8–K.69 New Item 5.06 will require a
shell company that completes a
transaction in which it ceases being a
shell company to file a report under that
Item reporting the material terms of the
transaction. If the shell company is not
the surviving entity in the transaction in
which it ceases to be a shell company,
the surviving entity would succeed to
the shell company’s obligation to
comply with Item 5.06.70 New Item 5.06
will allow market participants and
regulators to more easily identify Form
8–K filings regarding shell company
transactions and to more completely
understand the terms of those
transactions.
Business combination related shell
companies will not be subject to the
requirements of Item 5.06. We believe
this will enhance the use of Item 5.06
as a means by which market
participants and regulators may identify
filings on Form 8–K relating to shell
company transactions that are not
change in domicile transactions or
68 See Release No. 33–6578, Business
Combination Transactions; Adoption of
Registration Form (Apr. 23, 1985) [50 FR 18990].
69 Foreign private issuers generally are not
required to file reports on Form 8–K. See Exchange
Act Rule 13a–11(b) [17 CFR 240.13a–11(b)] and
Exchange Act Rule 15d–11(b) [17 CFR 240.15d–
11(b)]. Accordingly, we have not extended the
requirements of Item 5.06 to foreign private issuers.
For a discussion of the reporting requirements of
foreign private issuers, see Section II.E., below.
70 The surviving entity in a transaction where a
shell company ceases being a shell company most
likely will have to comply with other Items of Form
8–K, as discussed above, in addition to Item 5.06.
The registrant could file a single Form 8–K
responding to all applicable Items.
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business combination transactions
among non-shell companies.
We solicited comment as to whether
we should take steps to make shell
company transactions more easily
identifiable. One commenter responded
to this request.71 That commenter
supported improved identification of
shell company transactions and
expressed the view that it would be
beneficial to ‘‘establish a mechanism
that identifies those reporting
companies that fall into the definition of
shell company * * *’’ 72 Because
companies other than shell companies
may file reports on Form 8–K under
Item 2.01 or Item 5.01, we believe that
it is appropriate to add an Item
requirement to Form 8–K that is specific
to shell companies other than business
combination related shell companies.
E. Shell Companies That Are Foreign
Private Issuers
1. Form S–8
Some foreign private issuers that are
registered with the Commission may fall
within the definition of shell company
that we are adopting today. A shell
company that is a foreign private issuer
is subject to the new rules regarding the
use of Form S–8. We proposed that, as
with a domestic shell company, a
foreign private issuer shell company
would be ineligible to file a registration
statement on Form S–8 until 60 days
after ceasing to be a shell company and
filing the ‘‘Form 10 information’’ that
the issuer would file if that issuer were
registering a class of securities under the
Exchange Act. For a foreign private
issuer, the proposal defined ‘‘Form 10
information’’ to mean the information
required by Form 20–F to register the
class of securities under the Exchange
Act.
We did not receive comments on the
proposed amendments to Form S–8 as
they relate to foreign private issuers. For
purposes of Form S–8, we are adopting
the definition of ‘‘Form 10 information,’’
when applicable to foreign private
issuers, to mean information required by
Form 20–F.73
2. Exchange Act Reporting of
Transactions That Cause a Foreign
Private Issuer To Cease Being a Shell
Company
Unlike domestic issuers, foreign
private issuers that are subject to the
71 See
letter from North American Securities
Administrators Association, Inc.
72 See id.
73 As with domestic issuers, the amendment to
Form S–8 makes clear that this ‘‘Form 10
information’’ of the foreign private issuer may be
included in any filing with the Commission.
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periodic reporting requirements under
the Exchange Act generally are not
required to file current reports on Form
8–K.74 Instead, these issuers submit
material current information on Form 6–
K.75 In the proposing release, we
requested comment on alternative
approaches with respect to disclosure
requirements for foreign private issuer
shell companies, including the
appropriate form on which they should
disclose a transaction with an operating
business. We did not receive comments
in response to this request.
While we believe that foreign private
issuer shell companies should be
subject to the disclosure and timing
requirements of the rules relating to
shell companies, we believe those
issuers should report on Form 20–F
rather than Form 8–K. Accordingly, we
are adopting new Exchange Act Rules
13a–19 and 15d–19. Under these new
rules, a foreign private issuer that was
a shell company immediately before
entering into a transaction that causes it
to cease being a shell company must
report that transaction on a current basis
on Form 20–F.76 That report must
contain the same information that
would be required in a registration
statement on Form 20–F used to register
the classes of the foreign private issuer’s
securities that are subject to the
reporting requirements of Section 13 or
Section 15(d) of the Exchange Act, and
must be filed within four business days
of the completion of the transaction
being reported.77 Because we believe
that better identification of shell
company transactions is a key element
in deterring fraud, we are adding a
check box to the cover page of Form 20–
F that a foreign private issuer must mark
when filing a Form 20–F under
Exchange Act Rule 13a–19 or Rule 15d–
19.78 For the same reasons discussed
74 See Exchange Act Rules 13a–11(b) and 15d–
11(b). A foreign private issuer shell company that
engages in a transaction that causes it to lose its
status as a foreign private issuer at the same time
it ceases to be a shell company would have to
comply with the requirements of Form 8-K that are
applicable to domestic companies.
75 17 CFR 249.306. See Exchange Act Rule 13a–
16 [17 CFR 240.13a–16] and Exchange Act Rule
15d–16 [17 CFR 240.15d–16].
76 Foreign private issuers that have elected to
report on domestic issuer forms, such as Form 10–
K and Form 10–Q, should file the required
information on Form 8–K and not Form 20–F.
77 See the discussion in footnotes 18, 63, and 70
regarding the reporting obligation of successor
issuers.
78 As with the periodic report forms for shell
companies that are not foreign private issuers, we
also have included a check box on the cover of
Form 20–F that requires a foreign private issuer to
indicate, in any annual report on that form, that it
is a shell company. The new check box indicates
that it is required where the report on Form 20–F
is an ‘‘annual report.’’ This requirement would
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above regarding the application of Item
5.06 of Form 8–K, we are not extending
the requirements of Exchange Act Rule
13a–19 or Rule 15d–19 to foreign
private issuers that are business
combination related shell companies.
Exchange Act Rule 12b–25 permits a
foreign private issuer, subject to certain
conditions, to extend the due date of its
filing of an annual or transition report
on Form 20–F.79 Exchange Act Rule
12b–25 does not provide an extension of
the due date for filing a current report
on Form 8–K. As the reports on Form
20–F that are to be filed under Exchange
Act Rule 13a–19 or Rule 15d–19 are
neither annual reports nor transition
reports, Exchange Act Rule 12b–25 does
not provide an extension of the due date
for their filing. Because the reports on
Form 20–F that are to be filed under
Exchange Act Rule 13a–19 or Rule 15d–
19 are more in the nature of a current
report, we believe that the extension
permitted under Exchange Act Rule
12b–25 should not be available to those
Form 20–F reports and we have not
added language to Exchange Act Rule
12b–25 to provide such an extension.80
Exchange Act Rules 13a–14(a) and
15d–14(a) currently require, among
other things, that ‘‘each report’’ on Form
20–F must include, as an exhibit,
specified certifications of the foreign
private issuer’s principal executive and
principal financial officers. Form 20–F
is a multi-function form that may be
used as a registration statement or a
report. We believe that a Form 20–F
required to be filed under new Exchange
Act Rule 13a–19 or new Exchange Act
Rule 15d–19 is more similar to a
registration statement on that Form than
a report on that Form, and that the
information is being provided on a
current basis in a manner similar to that
required by Form 8–K. As such, we have
added language to Exchange Act Rules
13a–14(a) and 15d–14(a) excluding from
the requirements of those paragraphs
reports that are filed on Form 20–F
under either new Exchange Act Rule
13a–19 or new Exchange Act Rule 15d–
19.
F. Shell Company Check Box on
Exchange Act Reports
In the proposing release, we asked
specifically for comment on whether we
should make reports on Form 8–K
reporting shell company transactions
include any transition reports on that Form. In this
regard, see the discussion in Section II.F., below.
79 17 CFR 240.12b–25.
80 We have included language in Form 20–F to
make clear that Exchange Act Rule 12b–25 does not
apply to reports required to be filed on that form
under new Exchange Act Rule 13a–19 or new
Exchange Act Rule 15d–19.
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easier for market participants and
regulators to identify. In response to this
request, one commenter indicated that
rulemaking to accomplish this purpose
would be appropriate.81 That
commenter also expressed the view that
the cover page of periodic report forms
should include a means, such as a check
box, by which filers would be required
to identify themselves as shell
companies.82 We believe better
identification of shell companies and
shell company transactions is a key
element to deterring fraud. Accordingly,
we are adopting amendments to Form
10–Q, Form 10–QSB, Form 10–K, Form
10–KSB, and Form 20–F to add a box on
the cover page of those forms that the
registrant must mark to indicate
whether or not it is a ‘‘shell
company.’’ 83 The identification of shell
company or non-shell company status
on the cover page of these forms will
constitute required disclosure that is
subject to all applicable federal
securities laws.
III. Paperwork Reduction Act
The amendments affect Securities Act
Form S–8, Form SB–2, Form S–1, and
Form F–1 and Exchange Act Form 8–K,
Form 10–Q, Form 10–QSB, Form 10–K,
Form 10–KSB, and Form 20–F, which
contain ‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act of 1995.84 In
the proposing release, we requested
comments on the proposed changes to
these collection of information
requirements,85 and the Office of
Management and Budget (‘‘OMB’’) has
approved the changes. The titles of the
affected collections of information
requirements are: Form S–8 (OMB
Control No. 3235–0066), Form SB–2
(OMB Control No. 3235–0418), Form S–
1 (OMB Control No. 3235–0065), Form
F–1 (OMB Control No. 3235–0258),
Form 8–K (OMB Control No. 3235–
0060), Form 10–Q (OMB Control No.
3235–0070), Form 10–QSB (OMB
Control No. 3235–0416), Form 10–K
(OMB Control No. 3235–0063), Form
10–KSB (OMB Control No. 3235–0420),
and Form 20–F (OMB Control No. 3235–
0288). An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
81 See letter from North American Securities
Administrators Association, Inc.
82 See id.
83 Further, as discussed above, we have added
new Item 5.06 to Form 8–K to allow market
participants and regulators to identify transactions
by shell companies, other than business
combination related shell companies.
84 44 U.S.C. 3501 et seq.
85 Release No. 33–8407, Use of Form S–8 and
Form 8–K by Shell Companies (Apr. 15, 2004) [69
FR 21650].
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requirement unless it displays a
currently valid control number.
A. Summary of Amendments
We are adopting rules and rule
amendments relating to filings by
reporting shell companies. Under the
new rules, we define a ‘‘shell company’’
as a registrant (other than an assetbacked issuer) with no or nominal
operations and either no or nominal
assets, assets consisting solely of cash
and cash equivalents, or assets
consisting of any amount of cash and
cash equivalents and nominal other
assets. We also prohibit the use of Form
S–8 by shell companies. We are
amending Form 8–K to require a shell
company, when reporting an event that
causes it to cease being a shell company,
to file with the Commission the same
type of information that it would be
required to file to register a class of
securities under the Exchange Act. In
addition, we are amending Form 8–K to
add new Item 5.06. Item 5.06 will
require a registrant that is a shell
company (other than a business
combination related shell company) to
report under that Item when it ceases
being a shell company. We are adding
new Exchange Act Rules 13a–19 and
15d–19 to require disclosure on Form
20–F when a foreign private issuer that
is a shell company (other than a
business combination related shell
company) completes a transaction that
causes it to cease to be a shell
company.86 Finally, we are adding
check boxes to the cover pages of Form
10–Q, Form 10–QSB, Form 10–K, Form
10–KSB, and Form 20–F for the
registrant to identify itself as a shell
company.
These amendments are intended to
protect investors by deterring fraud and
abuse in our public securities markets
through the use of shell companies.
Compliance with the amended
disclosure requirements is mandatory.
There is no mandatory retention period
for the information disclosed and
responses to the disclosure
requirements will not be kept
confidential.
B. Summary of Comment Letters and
Revisions to Proposals
We requested comment on the PRA
analysis contained in the proposing
release. Two commenters stated their
belief that the proposed amendments
would increase costs to shell
believe that a foreign private issuer shell
company merging with a domestic operating
business rarely will be able to keep its foreign
private issuer status. We do not expect the number
of these transactions to have any quantifiable effect
on the estimates included in this section.
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86 We
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42241
companies,87 but a third commenter
stated that the proposed amendments to
Form 8–K would not increase costs.88
One of these commenters indicated
that the acceleration of work by legal
and accounting professionals would
substantially increase costs, but did not
clearly explain why acceleration of the
work would have this effect.89 Another
commenter expressed the view that the
Form 8–K cost burden estimate was too
low.90 This commenter stated that, in its
experience, outside counsel performs
75% of the work to complete a Form 8–
K report, not the 25% estimate in the
proposing release.91 This commenter
estimated that the Form 8–K cost
burden would triple but did not believe
that the higher cost burden would create
an unnecessary obstacle to legitimate
transactions.92 This commenter did not
provide evidence to suggest that its
estimates would apply to all shell
companies. Our estimates of the average
number of hours each entity spends
completing the affected forms,
allocation of burden between outside
counsel and internal personnel, and the
average hourly rate for outside securities
counsel were obtained by contacting a
number of law firms and other persons
regularly involved in completing the
forms. Therefore, we are not modifying
the proposed cost burden estimate for
Form 8–K.
C. Form S–8
The amendment prohibiting shell
companies from using Securities Act
Form S–8 will require these companies
to use a less streamlined form, such as
Form SB–2, Form S–1, or Form F–1 to
register offerings that they otherwise
might have registered on Form S–8. A
company that ceases to be a shell
company will be eligible to file a Form
S–8 registration statement 60 days after
it ceases to be a shell company and files
information equivalent to the
information that it would be required to
file if the company were registering a
class of securities under the Exchange
Act. In the proposing release, we
estimated that this change would reduce
the number of Form S–8 registration
statements by approximately 5%, and
would increase the number of Form SB–
2 and Form S–1 registration statements
filed by a corresponding amount. We
received no comments on these
estimates. With respect to Form S–8, we
estimate that 50% of the burden of
87 See letters from L. Stephen Albright and
Stoecklein Law Group.
88 See letter from Nathan Garnett.
89 See letter from L. Stephen Albright.
90 See letter from Stoecklein Law Group.
91 See id.
92 See id.
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preparing the form is borne by the
company’s internal staff and that the
other 50% represents work performed
by outside securities counsel retained
by the company at an average rate of
$300 per hour. With respect to Form
SB–2, Form S–1, and Form F–1, we
estimate that 25% of the burden of
preparing the form is borne by the
company’s internal staff and that 75% of
the burden represents work performed
by outside securities counsel at the rate
of $300 per hour.
We do not expect that shell
companies that are prohibited from
using Form S–8 are likely to register
securities that they otherwise would
have registered on Form S–8 on a
registration form that does not become
effective automatically and requires the
filing of substantially more complete
information. However, shell companies
that wish to register offerings of their
securities under the Securities Act
could instead file on Form SB–2, Form
S–1, or Form F–1. We estimate that a
maximum of 5% of the number of Form
S–8 registration statements filed in our
fiscal year 2004 (4,000 × .05 = 200
filings) will be filed on Form SB–2,
Form S–1, or Form F–1 instead. We also
expect 95% of these 200 filings by shell
companies that choose to file another
registration statement in lieu of Form S–
8 will use Form SB–2, thereby
increasing the number of Form SB–2
filings by 190 (200 filings × .95). We
further estimate that the number of
Form S–1 registration statements will
increase by 8 (200 filings × .04). We
estimate that the number of Form F–1
registration statements will increase by
2 (200 filings × .01). As a result, we
estimate that the Form S–8 reporting
burden will decrease by 2,400 hours
(200 filings × 24 hours per filing × .50)
and the annual cost will decrease by
$720,000 (200 filings × 24 hours per
filing × $300 per hour × .50). The Form
SB–2 reporting burden will increase by
28,168 hours (190 filings × 593 hours
per filing × .25), with an annual cost
increase of $25,350,750 (190 filings ×
593 hours per filing × $300 per hour ×
.75). We estimate that the Form S–1
reporting burden will increase by 2,204
hours (8 filings × 1,102 hours per filing
× .25) with an annual cost increase of
$1,983,600 (8 filings × 1,102 hours per
filing × $300 per hour × .75). Finally, we
estimate that the Form F–1 reporting
burden will increase by 905 hours (2
filings × 1,809 hours per filing × .25)
with an annual cost increase of
$814,050 (2 filings × 1,809 hours per
filing × $300 per hour × .75).
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D. Form 8–K
Form 8–K prescribes information
about important corporate events that a
company must disclose on a current
basis. Form 8–K also may be used, at a
company’s option, to report any event
that the company deems to be of
importance to its shareholders.
We currently estimate that Form 8–K
results in a total annual compliance
burden of 311,565 hours and an annual
cost of $31,156,500. We estimate the
number of Form 8–K filers to be
approximately 12,000, based on the
actual number of Form 10–K and Form
10–KSB filers during the Commission’s
2004 fiscal year. For purposes of this
analysis, we estimate that the number of
reports on Form 8–K filed annually is
83,084. We estimate that each entity
currently spends, on average,
approximately five hours to complete
Form 8–K. We estimate that 75% of the
burden is borne by the company and
that 25% of the burden is borne by
outside securities counsel retained by
the company at an average cost of $300
per hour.
We are amending Form 8–K to add
Item 5.06, which will require a
registrant that is a shell company (other
than a business combination related
shell company) that engages in a
transaction that changes its status as a
shell company to file a report on Form
8–K. As noted below, we estimate that
94 of these transactions occurred in
fiscal year 2004. All of these 94
transactions would be required to be
reported pursuant to Item 5.06 of Form
8–K. Because each of these transactions
already would have been required to be
reported on Form 8–K pursuant to Item
2.01 or Item 5.01 of that Form, we do
not believe that Item 5.06 will add
additional burdens or costs.
Under the revisions to Item 2.01 and
Item 5.01 of Form 8–K that we are
adopting today, a shell company will be
required to make a more specific and
detailed filing on Form 8–K when it
reports a transaction that causes it to
cease being a shell company.
Specifically, the shell company will
need to file a Form 8–K that contains
the information that would be required
in an initial registration statement on
Form 10 or Form 10–SB to register a
class of securities under Section 12 of
the Exchange Act. The company will be
required to file the Form 8–K within
four business days after the closing of
the transaction. This amendment will
eliminate the 71-day window during
which financial information required to
be included in the report can be filed by
a shell company currently.
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The amendments to Item 2.01 and
Item 5.01 will increase the amount of
information that a former shell company
must include in the form, but not the
number of filings. In our fiscal year
2004, companies that categorized
themselves as ‘‘blank check companies’’
using the relevant SEC Standard
Industrial Classification (SIC) Code
disclosed 31 transactions under Item
2.01 of Form 8–K. We also have
identified 63 back door registration
filings during fiscal year 2004 that
would be required to be filed on an
expanded Form 8–K under the new
requirements. We believe the combined
total of 94 of these filings is a proper
estimate of the total number of Item 2.01
and Item 5.01 filings and have used that
number of filings for purposes of this
analysis.
We believe that the additional
information we are requiring shell
companies to include in a Form 8–K
filed under Item 2.01 or Item 5.01 of
Form 8–K is analogous to information
required by Form 10–SB because the
substantial majority of shell companies
will be small business issuers.
Currently, we estimate that it takes 133
hours to complete a Form 10–SB.
Therefore, we estimate that it will take
a shell company 133 hours to prepare
the information that we are requiring
the company to provide in a Form 8–K
report when it reports a transaction that
causes it to cease being a shell company.
We estimate that the company will bear
75% of the burden and that 25% of the
burden will be borne by outside
securities counsel retained by the
company at an average rate of $300 per
hour. We estimate that the burden in
this type of Form 8–K filing will
increase by 12,502 hours (133 hours per
filing × 94 required filings). Therefore,
the annual Form 8–K reporting burden
will increase by 9,377 hours (12,502
total hours × .75) and the annual cost
burden will increase by approximately
$937,650 (12,502 total hours × $300 per
hour × .25).
We are adopting several modifications
to our proposals, but none of these
affects our burden estimates associated
with the amendments. One modification
is that a registrant will be required to
check a box on its Form 10–Q, Form 10–
QSB, Form 10–K, Form 10–KSB, or
Form 20–F indicating whether or not it
is a shell company as defined in Rule
12b–2 under the Exchange Act. We
believe that this and other changes that
we have made to the proposals do not
affect the total amount of burden hours
or costs imposed by the forms.
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E. Form 20–F
A. Form S–8
The amendments to Form 20–F
require a foreign private issuer that is a
shell company to file a report on Form
20–F after completion of a transaction
that causes it to cease being a shell
company. The Form 20–F is a multifunction form used by foreign private
issuers.
We estimate that there were 1,240
foreign private issuers that were
registered and reporting with the
Commission as of December 31, 2004.93
We estimate that each entity currently
spends, on average, approximately 2,615
hours to complete Form 20–F (3,242,600
total hours / 1,240 filings = 2,615 hours
per filing). We estimate that 25% of the
burden is borne by the company and
that 75% of the burden is borne by
outside securities counsel retained by
the company at an average cost of $300
per hour.
We estimate that Form 20–F results in
a total annual compliance burden of
810,650 hours (2,615 hours per filing ×
1,240 filings × .25) and an annual cost
of $729,585,000 (2,615 hours × 1,240
filings × $300 × .75%). As we discuss
above, we have estimated that there will
be 94 shell company transactions
reported annually on Form 8–K. As
approximately 10% of reporting
companies are foreign private issuers,
we estimate that foreign private issuer
shell companies will file 10 reports on
Form 20–F (94 filings × .10). As a result,
we estimate that the Form 20–F
reporting burden will increase by 6,538
hours (10 filings × 2,615 hours per filing
× .25), with an annual cost increase of
$5,883,750 (10 filings × 2,615 hours per
filing × $300 per hour × .75).94
1. Costs of Form S–8 Amendments
A shell company no longer will be
eligible to use Form S–8 to register
offerings of securities in connection
with employee benefit plans. We believe
it generally is inconsistent with shell
company status to have a legitimate use
for employee benefit plans. However,
where such a plan exists, a shell
company will continue to be eligible to
use Form SB–2, Form S–1, or
Form F–1 to offer securities in
connection with an employee benefit
plan. A shell company also may be
entitled to rely on certain exemptions
from the registration requirements of the
Securities Act. Thus, shell companies
will continue to be able to offer
securities under employee benefit plans.
They cannot, however, take advantage
of Form S–8, which is a streamlined
registration statement form with
automatic effectiveness. Moreover, the
securities that are offered and sold in
reliance on an exemption from
Securities Act registration may be
subject to restrictions on resale. This
may impose costs on shell companies
that are difficult to quantify.
We estimate that the cost of shell
companies no longer being eligible to
use Form S–8 in connection with
employee benefit plans is the difference
between the cost of 200 Form S–8 filings
and the cost of filing those 200
registration statements on Form SB–2,
Form S–1, or Form F–1. Based on the
estimates presented above, these
amounts are:
• Cost of increasing the number of
Form SB–2 filings by 190 =
$30,280,063; 95 plus
• Cost of increasing the number of
Form S–1 filings by 8 = $2,369,300 96
plus
• Cost of increasing the number of
Form F–1 filings by 2 = $972,338 97
minus
IV. Costs and Benefits
Today’s amendments are intended to
protect investors by deterring fraud and
abuse in our securities markets through
the use of reporting shell companies.
However, we are sensitive to the costs
and benefits that result from our rules.
In this section, we examine the costs
and benefits of the amendments.
93 See
SEC Web site at https://www.sec.gov/
divisions/corpfin/internatl/companies.shtml.
94 The estimate of 2,615 hours per filing for Form
20–F reflects the fact that the form is used by
foreign private issuers, regardless of the size of the
issuer. In estimating the increased annual burden
and cost, we have continued to use this estimate of
2,615 hours per filing, even though it is likely an
overstatement of the time necessary for a shell
company to complete the form, because we do not
have a better estimate of the amount of time a
smaller, less complex foreign private issuer would
require to complete the form.
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have estimated the company’s internal
costs at $175 per hour. Accordingly, we have
calculated the cost of the increased burden that is
borne by the registrant by multiplying the total
number of hours for the 190 filings (190 filings ×
593 hours per filing × $175 per hour × .25 =
$4,929,313). We have then added this amount to the
$25,350,750 cost to the company (190 filings × 593
hours per filing × $300 × .75).
96 We have estimated the company’s internal
costs at $175 per hour. Accordingly, we have
calculated the cost of the increased burden that is
borne by the registrant by multiplying the total
number of hours for the 8 filings (8 filings × 1,102
hours per filing × $175 per hour × .25 = $385,700).
We have then added this amount to the $1,983,600
cost to the company (8 filings × 1,102 hours per
filing × $300 × .75).
97 We have estimated the company’s internal
costs at $175 per hour. Accordingly, we have
calculated the cost of the increased burden that is
borne by the registrant by multiplying the total
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42243
• Decreased cost from decreasing the
number of Form S–8 filings by 200 =
$1,140,000 98 equals
• Total cost of amendments to Form
S–8 = $32,481,701
2. Benefits of Form S–8 Amendments
Shell companies often have used
offerings registered on Form S–8 for
fraudulent and manipulative purposes.
These amendments disqualify shell
companies from using Form S–8. The
amendments also require a shell
company (other than a business
combination related shell company) that
ceases to be a shell company to wait 60
days after it ceases to be a shell
company and files information that is
equivalent to the information contained
in an Exchange Act registration
statement before it becomes eligible to
use Form S–8. This amendment will
make it more difficult for shell
companies to use Form S–8 for
fraudulent purposes, and is consistent
with the full disclosure purpose of the
federal securities laws.
B. Form 8–K
1. Costs of Form 8–K Amendments
a. New Item 5.06 of Form 8–K
We are amending Form 8–K to add
Item 5.06, which will require a
registrant that is a shell company (other
than a business combination related
shell company) that engages in a
transaction that changes its status as a
shell company to file a report on Form
8–K. As noted above, we estimate that
94 of these transactions occurred in
fiscal year 2004. All of these 94
transactions would be required to be
reported pursuant to Item 5.06 of Form
8–K. Because each of these transactions
already would have been required to be
reported on Form 8–K pursuant to Item
2.01 or Item 5.01 of that Form, we do
not believe that Item 5.06 will add
measurable additional costs.
b. Revised Items 2.01 and 5.01 of Form
8–K
We are revising Item 2.01 and Item
5.01 of Form 8–K. Under these
revisions, a shell company will be
required to make a more specific and
number of hours for the 2 filings (2 filings × 1,809
hours per filing × $175 per hour × .25 = $158,288).
We have then added this amount to the $814,050
cost to the company (2 filings × 1,809 hours per
filing × $300 × .75).
98 We have estimated the company’s internal
costs at $175 per hour. Accordingly, we have
calculated the cost of the decreased burden that is
borne by the registrant by multiplying the total
number of hours for the 200 filings (200 filings ×
24 hours per filing × $175 per hour × .50 =
$420,000). We have then added this amount to the
$720,000 decreased cost to the company (200 filings
× 24 hours per filing × $300 × .50).
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detailed filing on Form 8–K when it
reports a transaction that causes it to
cease being a shell company.
Specifically, the shell company will
need to file a Form 8–K that contains
the information that would be required
in an initial registration statement on
Form 10 or Form 10–SB to register a
class of securities under Section 12 of
the Exchange Act. The company will be
required to file the Form 8–K within
four business days after the closing of
the transaction. This amendment also
will eliminate the current 71-day
window during which the financial
information can be filed by a shell
company that is filing a report on Form
8–K pursuant to Item 2.01.99
The amendments to Item 2.01 and
Item 5.01 will increase the amount of
information that a former shell company
must include in the form but not the
number of filings. As discussed above,
we have estimated that there will be 94
filings subject to these new
requirements.
We believe that the additional
information we are requiring shell
companies to include in a Form 8–K
filed under Item 2.01 or Item 5.01 of
Form 8–K is analogous to information
required by Form 10–SB. Currently, we
estimate that it takes 133 hours to
complete a Form 10–SB. Therefore, we
estimate that it will take a shell
company 133 hours to prepare the
information that we are requiring the
company to provide in a Form 8–K
report when it reports a transaction that
causes it to cease being a shell company.
We estimate that the company will bear
75% of the burden at an average rate of
$175 per hour and that 25% of the
burden will be borne by outside
securities counsel retained by the
company at an average rate of $300 per
hour. Therefore, the annual Form 8–K
reporting burden being borne by the
company will result in an increased
annual cost for Form 8–K of
$1,640,975.100 As estimated previously,
the revisions to Item 2.01 and Item 5.01
will result in an annual increased cost
for Form 8–K of $937,650 (12,502 total
hours × $300 per hour × .25). We have
99 Because this revision will affect only the timing
of filing and not the amount of financial
information required to be filed, we do not estimate
any additional costs as a result of the elimination
of the 71-day window.
100 We calculated this amount in the following
manner. First, we estimated that there would be a
total annual increase in the Form 8–K burden of
12,502 hours (133 hours per filing × 94 filings). We
estimated that 75% of this annual increase in the
Form 8–K burden would be borne by the company.
This portion of the increased burden equals 9,377
hours (12,502 total hours × .75). We multiplied this
amount by $175 per hour to arrive at the annual
increased cost of $1,640,975 (9,377 hours × $175
per hour).
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combined these amounts to determine
that the annual increased cost of the
requirements in revised Item 2.01 and
Item 5.01 will be $2,578,625 ($1,640,975
+ $937,650).
2. Benefits of Form 8–K Amendments
The benefit of the Form 8–K
amendments is more timely and
enhanced disclosure for the protection
of investors and increased integrity of
the securities markets, especially the
markets for securities of smaller
companies. The Form 8–K amendments
are based on the premise that federal
securities regulation should promote
full disclosure. The more timely and
enhanced disclosure in Form 8–K filings
is designed to provide investors in
operating businesses that are newly
merged with shell companies with a
level of information that is equivalent to
the information provided to investors in
reporting companies that register rather
than reaching a similar result through a
transaction with a shell company. The
filing of this Form 8–K report is
intended to decrease the opportunity to
engage in fraudulent and manipulative
activity.
C. Form 20–F
1. Costs of Form 20–F Amendment
We estimate that 1,240 foreign private
issuers were registered and filing reports
with the Commission as of December
31, 2004.101 The amendments to Form
20–F require a foreign private issuer that
is a shell company (other than a
business combination related shell
company) to file a report on Form 20–
F after completion of a business
combination with a formerly private
operating business. While we do not
believe it is likely that any foreign
private issuers that are shell companies
would file a Form 20–F to register
securities, it is possible. As discussed
above, we have estimated that there will
be 94 shell company transactions
reported on Form 8–K. As
approximately 10% of reporting
companies are foreign private issuers,
we estimate that foreign private issuer
shell companies will file 10 reports on
Form 20–F as a result of the new
requirements (94 filings × .10).
As discussed above, we estimate that
each entity currently spends, on
average, approximately 2,615 hours to
complete a Form 20–F.102 We estimate
101 See SEC web site at https://www.sec.gov/
divisions/corpfin/internatl/companies.shtml.
102 The estimate of 2,615 hours per filing for Form
20–F reflects the fact that the form is used by
foreign private issuers, regardless of the size of the
issuer. In estimating the increased annual burden
and cost, we have continued to use this estimate of
2,615 hours per filing, even though it is likely an
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that the company will bear 75% of the
burden at an average rate of $175 per
hour and that 25% of the burden will
be borne by outside securities counsel
retained by the company at an average
rate of $300 per hour. Therefore, the
annual Form 20–F reporting burden
being borne by the company will result
in an increased annual cost for Form
20–F of $1,144,150.103 As estimated
previously, the revisions to Form 20–F
will result in an annual increased cost
of $5,883,750 (2,615 hours per filing ×
10 filings × $300 per hour × .75). We
have combined these amounts to
determine that the annual increased cost
of the revisions to Form 20–F will be
$7,027,900 ($1,144,150 + $5,883,750).
2. Benefits of Form 20–F Amendments
Some foreign private issuers that are
registered with the Commission may fall
within the definition of ‘‘shell
company.’’ We have decided to subject
foreign private issuer shell companies to
essentially the same requirements as are
applied to domestic shell companies for
the same reasons discussed above. The
benefit of this amendment is more
timely and enhanced disclosure for the
protection of investors.
V. Consideration of Impact on the
Economy, Burden on Competition and
Promotion of Efficiency, Competition
and Capital Formation
Section 23(a)(2) of the Exchange
Act 104 requires us to consider the anticompetitive effects of any rules that we
adopt under the Exchange Act.
Exchange Act Section 23(a)(2) prohibits
us from adopting any rule that would
impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the Exchange Act.
Furthermore, Section 2(b) of the
Securities Act 105 and Section 3(f) of the
Exchange Act 106 require us, when we
are engaging in rulemaking that requires
us to consider or determine whether an
action is necessary or appropriate in the
public interest, to consider whether the
overstatement of the time necessary for a shell
company to complete the form, because we do not
have a better estimate of the amount of time a
smaller, less complex foreign private issuer would
require to complete the form.
103 We calculated this amount in the following
manner. First, we estimated that there would be a
total annual increase in the Form 20–F burden of
26,150 hours (2,615 filings × 10 filings). We
estimated that 25% of this annual increase in the
Form 20–F burden would be borne by the company.
This portion of the increased burden equals 6,538
hours (26,150 total hours × .25). We multiplied this
amount by $175 per hour to arrive at the annual
increased cost of $1,144,150 (6,538 hours × $175
per hour).
104 15 U.S.C. 78w(a)(2).
105 15 U.S.C 77b(b).
106 15 U.S.C. 78c(f).
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action will promote efficiency,
competition, and capital formation.
The purpose of these amendments is
to deter fraud and reduce abuse of Form
S–8 in shell company transactions and
to enhance our reporting requirements
on Form 8–K (and Form 20–F with
respect to foreign private issuers) with
respect to transactions involving shell
companies. We anticipate that these
amendments will improve the proper
functioning of the capital markets. We
believe the amendments will enhance
investor confidence in the securities
markets and promote efficiency and
capital formation. We do not expect the
amendments to have any anticompetitive effects.
We solicited comment on these
matters in the proposing release. We
received no comments on whether the
adoption of the proposals would have
an adverse effect on competition that is
neither necessary nor appropriate in
furtherance of the purposes of the
Securities Act or the Exchange Act. We
also did not receive any comments on
whether the proposed amendments, if
adopted, would promote efficiency,
competition, and capital formation.
VI. Final Regulatory Flexibility
Analysis
This Final Regulatory Flexibility
Analysis has been prepared in
accordance with the Regulatory
Flexibility Act.107 This FRFA involves
amendments to Form S–8 under the
Securities Act, Form 8–K, Form 10–Q,
Form 10–QSB, Form 10–K, Form 10–
KSB, and Form 20–F under the
Exchange Act, Rule 405 under the
Securities Act and Rule 12b–2, Rule
13a–14, and Rule 15d–14 under the
Exchange Act, as well as new Rule 13a–
19 and Rule 15d–19 under the Exchange
Act. The amendments will prohibit the
use of Form S–8 by shell companies and
require a shell company that is reporting
an event that causes it to cease being a
shell company to disclose the same type
of information that it would be required
to provide in registering a class of
securities under the Exchange Act. The
amendments also will define ‘‘shell
company.’’ An Initial Regulatory
Flexibility Analysis was prepared in
accordance with the Regulatory
Flexibility Act 108 in conjunction with
the proposing release. The proposing
release included the IRFA and solicited
comments on it.
107 5
108 5
A. Reasons for and Objectives of the
Amendments
The purpose of the amendments is to
protect investors in shell companies and
to deter fraud and abuse in our public
securities markets through the use of
shell companies.
B. Significant Issues Raised by Public
Comment
The IRFA appeared in the proposing
release. We requested comment on any
aspect of the IRFA, including the
number of small entities that would be
affected by the proposed amendments to
Form S–8 and Form 8–K, and whether
these amendments would increase the
reporting, record keeping and other
compliance requirements for small
businesses. We did not receive any
comments responding to this request.
C. Small Entities Subject to the
Amendments
The amendments will affect
companies that are small entities.
Exchange Act Rule 0–10(a) 109 defines
an issuer, other than an investment
company, to be a ‘‘small business’’ or
‘‘small organization’’ if it had total
assets of $5 million or less on the last
day of its most recent fiscal year. We
estimate that there are approximately
2,500 issuers, other than investment
companies, that would be considered
small entities as of the end of fiscal year
2004. The amendments will prohibit the
use of Securities Act Form S–8 by shell
companies and require shell companies
to have specific and detailed
information on file before being
permitted to use Form S–8 when they
become an operating business and cease
being a shell company. We believe that
only a small percentage of the 2,500
issuers that are small entities are shell
companies. The amendments will affect
only shell companies. Because a shell
company may have significant assets
consisting of cash and cash equivalents,
it is not certain that all shell companies
will be ‘‘small entities.’’
D. Reporting, Record Keeping, and
Other Compliance Requirements
The amendments impose additional
disclosure requirements on shell
companies by requiring them to provide
additional business disclosure on Form
8–K in addition to currently required
financial information. The amendments
also require a company to report on
Form 8–K when it becomes a shell
company or when it ceases being a shell
company (other than a business
combination related shell company).
Other than the additional disclosure
U.S.C. 604.
U.S.C. 603.
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CFR 240.0–10(a).
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42245
requirements, the primary impact of the
Form 8–K amendments relates to the
timing of the filing. The amendments
require foreign private issuers that are
shell companies (other than business
combination related shell companies) to
file reports on Form 20–F that are
substantially similar to the reports on
Form 8–K required by shell companies
that are not foreign private issuers. The
amendments also require shell
companies to mark check boxes on the
cover sheet on Form 10–Q, Form 10–
QSB, Form 10–K, Form 10–KSB, and
Form 20–F. No other new reporting,
record keeping or compliance
requirements are imposed. The
amendments prohibit shell companies
from using Form S–8.
E. Agency Action To Minimize Effect on
Small Entities
The Regulatory Flexibility Act directs
us to consider significant alternatives
that would accomplish the stated
objectives, while minimizing any
significant adverse impact on small
businesses. In connection with the
proposal, we considered the following
alternatives:
(1) Establishment of differing
compliance or reporting requirements or
timetables that take into account the
resources available to small entities;
(2) Clarification, consolidation, or
simplification of compliance and
reporting requirements for such small
entities;
(3) Use of performance rather than
design standards; and
(4) An exemption from coverage of the
amendments, or any part thereof, for
small entities.
With respect to Alternative (1), the
amendment to Form S–8 will prohibit
shell companies from using the form.
The amendments to Form 8–K will
shorten the time within which shell
companies must file their required
financial disclosures from 71 calendar
days after the initial Form 8–K filing to
four business days after completion of
the transaction that causes them to cease
being shell companies. It would be
inappropriate to establish a more liberal
compliance standard for small
businesses given that the current
standard applies to all public
companies; it is the current delay in the
filing of the required financial
statements that permits and facilitates
abuse by shell companies. The
amendments will increase costs only to
shell companies, not to all small
entities, by requiring former shell
companies, upon making a significant
acquisition, to file a Form 8–K
containing the information that would
be required in an initial registration
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statement on Form 10 or Form 10–SB to
register a class of its securities under
Section 12 of the Exchange Act.
Most shell companies also will have
to wait at least 60 days after ceasing to
be a shell company and filing required
information before using Form S–8 to
register securities. Form S–8 is a
registration statement used for employee
benefit plans, and shell companies
typically have few, if any, employees.
Accordingly, the amendment does not
impose any inappropriate burdens on
small entities.
With regard to Alternative (2), the
amendments are clear and concise.
Prohibiting the use of Form S–8 by shell
companies does not increase the
disclosure required unless a shell
company wants to offer employees
securities pursuant to an employee
benefit plan. If the shell company has
employees and wants to offer them
securities under an employee benefit
plan, it will have to comply with the
substantially increased disclosure
requirements of Form SB–2, Form S–1,
or Form F–1. We believe that most shell
companies, given the limitations in the
definition of shell company on
operations and assets, will not need to
offer securities to employees pursuant to
employee benefit plans. The
amendment to Form S–8 requires most
former shell companies to wait 60 days
after ceasing to be a shell company and
filing the required disclosure before
becoming eligible to use Form S–8.
During this 60-day period, the markets
can absorb disclosure that has been
provided by the newly merged operating
company. This disclosure is comparable
to that required of other reporting
companies, including ‘‘small entities.’’
The amendment to Form 8–K requiring
the filing of additional information
within four business days increases the
amount of disclosure required and
accelerates the deadline for filing
certain of this disclosure. We require
certain information, which was not
specifically required previously by
Form 8–K, to be included for shell
companies.
Alternatives (3) and (4) are not
appropriate because the purpose of the
amendments is to deter fraud. It would
be difficult under Alternative (3) to
design performance standards that
would fulfill the Commission’s statutory
mandate to ensure adequate disclosure
about shell companies and subsequent
business combinations in a prompt
manner. Alternative (4) is inappropriate
because it is likely that a substantial
percentage of shell companies will be
small entities. We note again that these
amendments apply only to shell
companies, which constitute only a
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small percentage of the total number of
small entities. An exemption for small
entities would not achieve the desired
result.
VII. Statutory Basis and Text
The amendments are being adopted
pursuant to Sections 6, 7, 8, 10, 19, and
28 of the Securities Act, Sections 3, 10,
12, 13, 15, and 23 of the Exchange Act,
and Sections 3(a) and 302 of the
Sarbanes-Oxley Act of 2002.
List of Subjects in 17 CFR Parts 230,
239, 240 and 249
Reporting and recordkeeping
requirements, Securities.
Text of Amendments
In accordance with the foregoing, Title
17, Chapter II of the Code of Federal
Regulations is amended as follows:
I
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
1. The authority citation for part 230
continues to read in part as follows:
I
Authority: 15 U.S.C. 77b, 77c, 77d, 77f,
77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d,
78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d),
78mm, 79t, 80a–8, 80a–24, 80a–28, 80a–29,
80a–30, and 80a–37, unless otherwise noted.
*
*
*
*
*
I 2. Amend § 230.405 by adding the
following definitions of Business
combination related shell company and
Shell company in alphabetical order to
read as follows:
§ 230.405
Definitions of terms.
*
*
*
*
*
Business combination related shell
company: The term business
combination related shell company
means a shell company (as defined in
§ 230.405) that is:
(1) Formed by an entity that is not a
shell company solely for the purpose of
changing the corporate domicile of that
entity solely within the United States; or
(2) Formed by an entity that is not a
shell company solely for the purpose of
completing a business combination
transaction (as defined in § 230.165(f))
among one or more entities other than
the shell company, none of which is a
shell company.
*
*
*
*
*
Shell company: The term shell
company means a registrant, other than
an asset-backed issuer as defined in
Item 1101(b) of Regulation AB
(§ 229.1101(b) of this chapter), that has:
(1) No or nominal operations; and
(2) Either:
(i) No or nominal assets;
(ii) Assets consisting solely of cash
and cash equivalents; or
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(iii) Assets consisting of any amount
of cash and cash equivalents and
nominal other assets.
Note: For purposes of this definition, the
determination of a registrant’s assets
(including cash and cash equivalents) is
based solely on the amount of assets that
would be reflected on the registrant’s balance
sheet prepared in accordance with generally
accepted accounting principles on the date of
that determination.
*
*
*
*
*
PART 239—FORMS PRESCRIBED
UNDER THE SECURITIES ACT OF 1933
3. The authority citation for part 239
continues to read in part as follows:
I
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s,
77z–2, 77sss, 78c, 78l, 78m, 78n, 78o(d),
78u–5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l,
79m, 79n, 79q, 79t, 80a–8, 80a–24, 80a–26,
80a–29, 80a–30, and 80a–37, unless
otherwise noted.
*
*
*
*
*
4. Amend § 239.16b by revising the
introductory text of paragraph (a) to read
as follows:
I
§ 239.16b Form S–8, for registration under
the Securities Act of 1933 of securities to
be offered to employees pursuant to
employee benefit plans.
(a) Any registrant that, immediately
prior to the time of filing a registration
statement on this form, is subject to the
requirement to file reports pursuant to
section 13 (15 U.S.C. 78m) or 15(d) (15
U.S.C. 78o(d)) of the Securities
Exchange Act of 1934; has filed all
reports and other materials required to
be filed by such requirements during the
preceding 12 months (or for such
shorter period that the registrant was
required to file such reports and
materials); is not a shell company (as
defined in § 230.405 of this chapter) and
has not been a shell company for at least
60 calendar days previously (subject to
Instruction A.1.(a)(7) to Form S–8); and
if it has been a shell company at any
time previously, has filed current Form
10 information (as defined in
Instruction A.1.(a)(6) to Form S–8) with
the Commission at least 60 calendar
days previously reflecting its status as
an entity that is not a shell company
(subject to Instruction A.1.(a)(7) to Form
S–8), may use this form for registration
under the Securities Act of 1933 (the
Act) (15 U.S.C. 77a et seq.) of the
following securities:
*
*
*
*
*
I 5. Amend Form S–8 (referenced in
§ 239.16b) by revising the introductory
text to General Instruction A.1. and
adding paragraphs (a)(6) and (a)(7) to
General Instruction A.1., to read as
follows:
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Note —The text of Form S–8 does not, and
this amendment will not, appear in the Code
of Federal Regulations.
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
FORM S–8
I
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
*
*
*
*
*
GENERAL INSTRUCTIONS
A. Rule as to Use of Form S–8
1. Any registrant that, immediately
prior to the time of filing a registration
statement on this Form, is subject to the
requirement to file reports pursuant to
Section 13 (15 U.S.C. 78m) or 15(d) (15
U.S.C. 78o(d)) of the Securities
Exchange Act of 1934 (‘‘Exchange Act’’);
has filed all reports and other materials
required to be filed by such
requirements during the preceding 12
months (or for such shorter period that
the registrant was required to file such
reports and materials); is not a shell
company (as defined in § 230.405 of this
chapter) and has not been a shell
company for at least 60 calendar days
previously (subject to the exception in
paragraph (a)(7) of this Instruction A.1.);
and if it has been a shell company at
any time previously, has filed current
Form 10 information with the
Commission at least 60 calendar days
previously reflecting its status as an
entity that is not a shell company
(subject to the exception in paragraph
(a)(7) of this Instruction A.1.), may use
this Form for registration under the
Securities Act of 1933 (‘‘Act’’) (15 U.S.C.
77a et seq.) of the following securities:
(a) * * *
(6) The term ‘‘Form 10 information’’
means the information that is required
by Form 10, Form 10–SB, or Form 20–
F (§ 249.210, § 249.210b, or § 249.220f of
this chapter), as applicable to the
registrant, to register under the
Securities Exchange Act of 1934 each
class of securities being registered using
this form. A registrant may provide the
Form 10 information in another
Commission filing with respect to the
registrant.
(7) Notwithstanding the last two
clauses of the first paragraph of this
Instruction A.1., a business combination
related shell company may use this form
immediately after it:
(i) Ceases to be a shell company; and
(ii) Files current Form 10 information
with the Commission reflecting its
status as an entity that is not a shell
company.
*
*
*
*
*
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6. The authority citation for part 240
continues to read in part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 79q,
79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3,
80b–4, 80b–11, and 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
*
42247
acquisition of control of a shell
company in a transaction required to be
reported on Form 8–K (§ 249.308 of this
chapter) in compliance with Item 5.01
of that Form or on Form 20–F
(§ 249.220f of this chapter) in
compliance with Rule 13a–19
(§ 240.13a–19) or Rule 15d–19
(§ 240.15d–19). Except for an
acquisition of control of a shell
company, the term does not include the
acquisition of control of a business
unless followed by the direct
acquisition of its assets. The terms
succeed and successor have meanings
correlative to the foregoing.
*
*
*
*
*
*
*
*
*
7. Amend § 240.12b–2 by adding the
following definitions of Business
combination related shell company and
Shell company in alphabetical order and § 240.13a–14 [Amended]
revising the definition of Succession to
I 8. Amend § 240.13a–14, paragraph (a),
read as follows:
to revise the text ‘‘§ 229.1101 of this
chapter), must include certifications’’ to
§ 240.12b–2 Definitions.
read ‘‘§ 229.1101 of this chapter) or a
*
*
*
*
*
report on Form 20–F filed under
Business combination related shell
§ 240.13a–19, must include
company: The term business
certifications’’.
combination related shell company
I 9. Add § 240.13a–19 to read as follows:
means a shell company (as defined in
§ 240.13a–19 Reports by shell companies
§ 240.12b–2) that is:
on Form 20–F.
(1) Formed by an entity that is not a
Every foreign private issuer that was
shell company solely for the purpose of
a shell company, other than a business
changing the corporate domicile of that
entity solely within the United States; or combination related shell company,
immediately before a transaction that
(2) Formed by an entity that is not a
causes it to cease to be a shell company
shell company solely for the purpose of
shall, within four business days of
completing a business combination
transaction (as defined in § 230.165(f) of completion of that transaction, file a
this chapter) among one or more entities report on Form 20–F (§ 249.220f of this
chapter) containing the information that
other than the shell company, none of
would be required if the issuer were
which is a shell company.
filing a form for registration of securities
*
*
*
*
*
on Form 20–F to register under the Act
Shell company: The term shell
all classes of the issuer’s securities
company means a registrant, other than
subject to the reporting requirements of
an asset-backed issuer as defined in
section 13 (15 U.S.C. 78m) or section
Item 1101(b) of Regulation AB
15(d) (15 U.S.C. 78o(d)) of the Act upon
(§ 229.1101(b) of this chapter), that has:
consummation of the transaction, with
(1) No or nominal operations; and
such information reflecting the
(2) Either:
registrant and its securities upon
(i) No or nominal assets;
consummation of the transaction.
(ii) Assets consisting solely of cash
and cash equivalents; or
§ 240.15d–14 [Amended]
(iii) Assets consisting of any amount
I 10. Amend § 240.15d–14, paragraph
of cash and cash equivalents and
(a), to revise the text ‘‘§ 229.1101 of this
nominal other assets.
chapter), must include certifications’’ to
Note: For purposes of this definition, the
read ‘‘§ 229.1101 of this chapter) or a
determination of a registrant’s assets
report on Form 20–F filed under
(including cash and cash equivalents) is
§ 240.15d–19, must include
based solely on the amount of assets that
certifications’’.
would be reflected on the registrant’s balance
I 11. Add § 240.15d–19 to read as
sheet prepared in accordance with generally
accepted accounting principles on the date of follows:
I
that determination.
*
*
*
*
*
Succession: The term succession
means the direct acquisition of the
assets comprising a going business,
whether by merger, consolidation,
purchase, or other direct transfer; or the
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§ 240.15d–19 Reports by shell companies
on Form 20–F.
Every foreign private issuer that was
a shell company, other than a business
combination related shell company,
immediately before a transaction that
causes it to cease to be a shell company
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shall, within four business days of
completion of that transaction, file a
report on Form 20–F (§ 249.220f of this
chapter) containing the information that
would be required if the issuer were
filing a form for registration of securities
on Form 20–F to register under the Act
all classes of the issuer’s securities
subject to the reporting requirements of
section 13 (15 U.S.C. 78m) or section
15(d) (15 U.S.C. 78o(d)) of the Act upon
consummation of the transaction, with
such information reflecting the
registrant and its securities upon
consummation of the transaction.
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
12. The authority citation for part 249
continues to read in part as follows:
I
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
Note: The text of Form 20–F does not, and
this amendment will not, appear in the Code
of Federal Regulations.
FORM 20–F
*
*
*
*
*
OR
b Shell Company Report Pursuant to
Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of event requiring this shell
company report
*
*
*
*
*
If this is an annual report, indicate by
check mark whether the registrant is a
shell company (as defined in Rule 12b–
2 of the Exchange Act). b Yes
b No
*
*
*
*
*
GENERAL INSTRUCTIONS
A. Who May Use Form 20–F and
When It Must be Filed.
*
*
*
*
*
(d) A foreign private issuer that was
a shell company, other than a business
combination related shell company, as
those terms are defined in Rule 12b–2
under the Exchange Act (17 CFR
240.12b–2), immediately before a
transaction that causes it to cease to be
a shell company must file a report on
this form in accordance with the
requirements set forth in Rule 13a–19 or
Rule 15d–19 under the Exchange Act
(17 CFR 240.13a–19 and 240.15d–19).
Issuers filing such reports shall provide
all information required in, and follow
all instructions of, Form 20–F relating to
an Exchange Act registration statement
of all classes of the registrant’s securities
§ 249.220f Form 20–F, registration of
subject to the reporting requirements of
securities of foreign private issuers
Section 13 (15 U.S.C. 78m) or Section
pursuant to section 12(b) or (g), annual and
15(d) (15 U.S.C. 78o(d)) of such Act
transition reports pursuant to sections 13
and 15(d), and shell company reports
upon consummation of the transaction,
required under Rule 13a–19 or 15d–19
with such information reflecting the
(§ 240.13a–19 or § 240.15d–19 of this
registrant and its securities upon
chapter).
consummation of the transaction. Rule
*
*
*
*
*
12b–25 under the Exchange Act (17 CFR
I 14. Amend Form 20–F (referenced in
240.12b–25) is not available to extend
§ 249.220f) by:
the due date of the report required
under this subparagraph (d).
I a. Adding a check box on the cover
page preceding the text ‘‘Commission file *
*
*
*
*
number’’;
Instructions to Item 4.A.4:
I b. Adding a check box on the cover
1. * * *
page preceding the text that begins
2. If you are filing a report under Rule
‘‘(APPLICABLE ONLY TO ISSUERS
13a–19 or Rule 15d–19 under the
INVOLVED IN BANKRUPTCY
Exchange Act (17 CFR 240.13a–19 or
PROCEEDINGS * * *’’);
240.15d–19), you must disclose the
I c. Adding paragraph (d) to General
material terms of the transaction as a
Instruction A.;
result of which you ceased to be a shell
company and you should file as an
I d. Designating the existing Instruction
exhibit under Item 4(a) of the Exhibits
to Item 4.A.4 as ‘‘1’’; and
to Form 20–F any contracts relating to
I e. Adding Instruction 2 to Item 4.A.4.
the transaction.
The additions and revision read as
*
*
*
*
*
follows:
*
*
*
*
*
I 13. Amend § 249.220f by:
I a. Revising the section heading; and
I b. Revising in paragraph (a) the text
‘‘(15 U.S.C. 77a et seq.) or as an annual
or transition report filed under section
13(a) or 15(d) of the Exchange Act (15
U.S.C. 78m(a) or 78o(d)).’’ to read ‘‘(15
U.S.C. 78a et seq.), as an annual or
transition report filed under section
13(a) or 15(d) of the Exchange Act (15
U.S.C. 78m(a) or 78o(d)), or as a shell
company report required under Rule
13a–19 or Rule 15d–19 under the
Exchange Act (§ 240.13a–19 or 240.15d–
19 of this chapter).’’
The revision reads as follows:
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15. Amend Form 8–K (referenced in
§ 249.308) under the caption
‘‘Information to Be Included in the
Report’’ by:
I a. Removing the word ‘‘and’’ at the end
of Item 2.01(d);
I b. Removing the period at the end of
Item 2.01(e)(2) and in its place adding ‘‘;
and’’;
I c. Adding paragraph (f) to Item 2.01;
I d. Removing the word ‘‘and’’ at the end
of Item 5.01(a)(6);
I e. Removing the period at the end of
Item 5.01(a)(7) and in its place adding ‘‘;
and’’;
I f. Adding paragraph (a)(8) to Item 5.01;
I g. Adding Item 5.06;
I h. Redesignating paragraph (c) of Item
9.01 as paragraph (d); and
I i. Adding new paragraph (c) to Item
9.01.
The additions read as follows:
I
Note: The text of Form 8–K does not, and
this amendment will not, appear in the Code
of Federal Regulations.
FORM 8–K CURRENT REPORT
*
*
*
*
*
INFORMATION TO BE INCLUDED IN
THE REPORT
*
*
*
*
*
Item 2.01 Completion of Acquisition
or Disposition of Assets
*
*
*
*
*
(f) If the registrant was a shell
company, other than a business
combination related shell company, as
those terms are defined in Rule 12b–2
under the Exchange Act (17 CFR
240.12b–2), immediately before the
transaction, the information that would
be required if the registrant were filing
a general form for registration of
securities on Form 10 or Form 10–SB
(17 CFR 249.210 or 17 CFR 249.210b),
as applicable, under the Exchange Act
reflecting all classes of the registrant’s
securities subject to the reporting
requirements of Section 13 (15 U.S.C.
78m) or Section 15(d) (15 U.S.C. 78o(d))
of such Act upon consummation of the
transaction, with such information
reflecting the registrant and its
securities upon consummation of the
transaction. Notwithstanding General
Instruction B.3. to Form 8–K, if any
disclosure required by this Item 2.01(f)
is previously reported, as that term is
defined in Rule 12b–2 under the
Exchange Act (17 CFR 240.12b–2), the
registrant may identify the filing in
which that disclosure is included
instead of including that disclosure in
this report.
*
*
*
*
*
E:\FR\FM\21JYR2.SGM
21JYR2
Federal Register / Vol. 70, No. 139 / Thursday, July 21, 2005 / Rules and Regulations
Item 5.01 Changes in Control of
Registrant
(a) * * *
(8) if the registrant was a shell
company, other than a business
combination related shell company, as
those terms are defined in Rule 12b–2
under the Exchange Act (17 CFR
240.12b–2), immediately before the
change in control, the information that
would be required if the registrant were
filing a general form for registration of
securities on Form 10 or Form 10–SB
(17 CFR 249.210 or 17 CFR 249.210b),
as applicable, under the Exchange Act
reflecting all classes of the registrant’s
securities subject to the reporting
requirements of Section 13 (15 U.S.C.
78m) or Section 15(d) (15 U.S.C. 78o(d))
of such Act upon consummation of the
change in control, with such
information reflecting the registrant and
its securities upon consummation of the
transaction. Notwithstanding General
Instruction B.3. to Form 8–K, if any
disclosure required by this Item
5.01(a)(8) is previously reported, as that
term is defined in Rule 12b–2 under the
Exchange Act (17 CFR 240.12b–2), the
registrant may identify the filing in
which that disclosure is included
instead of including that disclosure in
this report.
*
*
*
*
*
Item 5.06
Status
Change in Shell Company
If a registrant that was a shell
company, other than a business
combination related shell company, as
those terms are defined in Rule 12b–2
under the Exchange Act (17 CFR
240.12b–2), has completed a transaction
that has the effect of causing it to cease
being a shell company, as defined in
Rule 12b–2, disclose the material terms
of the transaction. Notwithstanding
General Instruction B.3. to Form 8–K, if
any disclosure required by this Item
5.06 is previously reported, as that term
is defined in Rule 12b–2 under the
Exchange Act (17 CFR 240.12b–2), the
registrant may identify the filing in
which that disclosure is included
instead of including that disclosure in
this report.
*
*
*
*
*
Item 9.01
Exhibits
Financial Statements and
*
*
*
VerDate jul<14>2003
*
*
20:30 Jul 20, 2005
Jkt 205001
42249
Note: The text of Form 10–QSB does not,
and this amendment will not, appear in the
Code of Federal Regulations.
(c) Shell company transactions. The
provisions of paragraph (a)(4) and (b)(2)
of this Item shall not apply to the
financial statements or pro forma
financial information required to be
filed under this Item with regard to any
transaction required to be described in
answer to Item 2.01 of this Form by a
registrant that was a shell company,
other than a business combination
related shell company, as those terms
are defined in Rule 12b–2 under the
Exchange Act (17 CFR 240.12b–2),
immediately before that transaction.
Accordingly, with regard to any
transaction required to be described in
answer to Item 2.01 of this Form by a
registrant that was a shell company,
other than a business combination
related shell company, immediately
before that transaction, the financial
statements and pro forma financial
information required by this Item must
be filed in the initial report.
Notwithstanding General Instruction
B.3. to Form 8–K, if any financial
statement or any financial information
required to be filed in the initial report
by this Item 9.01(c) is previously
reported, as that term is defined in Rule
12b–2 under the Exchange Act (17 CFR
240.12b–2), the registrant may identify
the filing in which that disclosure is
included instead of including that
disclosure in the initial report.
*
*
*
*
*
I 16. Amend Form 10–Q (referenced in
§ 249.308a) by adding a check box on the
cover page preceding the text that begins
‘‘APPLICABLE ONLY TO ISSUERS
INVOLVED IN BANKRUPTCY
PROCEEDINGS * * *,’’ to read as
follows:
*
*
*
*
Indicate by check mark whether the
registrant is a shell company (as defined
in Rule 12b–2 of the Exchange Act).
b Yes
b No
*
*
*
*
*
I 19. Amend Form 10–KSB (referenced
in § 249.310b) by:
I a. Adding a check box on the cover
page preceding the text ‘‘State issuer’s
revenues for its most recent fiscal year’’;
and
I b. Removing the text ‘‘is not’’ in the
sentence on the cover page that begins
‘‘Check if there is no disclosure of
delinquent filers in response to Item 405
of Regulation S–B * * *’’
The revision reads as follows:
Note: The text of Form 10–Q does not, and
this amendment will not, appear in the Code
of Federal Regulations.
Note: The text of Form 10–KSB does not,
and this amendment will not, appear in the
Code of Federal Regulations.
FORM 10–Q
FORM 10–KSB
*
*
*
*
*
*
Indicate by check mark whether the
registrant is a shell company (as defined
in Rule 12b–2 of the Exchange Act).
b Yes
b No
*
*
*
*
*
I 17. Amend Form 10–QSB (referenced
in § 249.308b) by adding a check box on
the cover page preceding the text that
begins APPLICABLE ONLY TO ISSUERS
INVOLVED IN BANKRUPTCY
PROCEEDINGS * * *,’’ to read as
follows:
PO 00000
Frm 00017
Fmt 4701
Sfmt 4700
FORM 10–QSB
*
*
*
*
*
Indicate by check mark whether the
registrant is a shell company (as defined
in Rule 12b–2 of the Exchange Act).
b Yes
b No
*
*
*
*
*
I 18. Amend Form 10–K (referenced in
§ 249.310) by adding a check box on the
cover page preceding the text that begins
‘‘State the aggregate market value of the
voting and non-voting common equity
held by non-affiliates * * *,’’ to read as
follows:
Note: The text of Form 10–K does not, and
this amendment will not, appear in the Code
of Federal Regulations.
FORM 10–K
*
*
*
*
*
Indicate by check mark whether the
registrant is a shell company (as defined
in Rule 12b–2 of the Exchange Act).
b Yes
b No
*
*
*
*
*
By the Commission.
Dated: July 15, 2005.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 05–14311 Filed 7–20–05; 8:45 am]
BILLING CODE 8010–01–P
E:\FR\FM\21JYR2.SGM
21JYR2
]]>Agencies
[Federal Register Volume 70, Number 139 (Thursday, July 21, 2005)]
[Rules and Regulations]
[Pages 42234-42249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-14311]
[[Page 42233]]
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Part III
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 230, 239, 240, and 249
Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies; Final Rule
Federal Register / Vol. 70, No. 139 / Thursday, July 21, 2005 / Rules
and Regulations
[[Page 42234]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 239, 240 and 249
[Release Nos. 33-8587; 34-52038; International Series Release No. 1293;
File No. S7-19-04]
RIN 3235-AH88
Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission is adopting rules and
rule amendments relating to filings by reporting shell companies. We
are defining a ``shell company'' as a registrant with no or nominal
operations and either no or nominal assets, assets consisting solely of
cash and cash equivalents, or assets consisting of any amount of cash
and cash equivalents and nominal other assets. The rules and rule
amendments prohibit the use of Form S-8 under the Securities Act of
1933 by shell companies. In addition, they require a shell company that
is reporting an event that causes it to cease being a shell company to
disclose the same type of information that it would be required to
provide in registering a class of securities under the Securities
Exchange Act of 1934. These provisions are intended to protect
investors by deterring fraud and abuse in our securities markets
through the use of reporting shell companies.
DATES: Effective August 22, 2005, except Item 5.06 of Exchange Act Form
8-K (referenced in Sec. 249.308) will take effect on November 7, 2005.
FOR FURTHER INFORMATION CONTACT: Kevin M. O'Neill, Special Counsel,
Office of Small Business Policy, Division of Corporation Finance,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549, at (202) 551-3260.
SUPPLEMENTARY INFORMATION: We are adopting rules and rule amendments
designed to protect investors by deterring fraud and abuse in our
securities markets through the use of reporting shell companies.\1\ We
are amending Form S-8 \2\ under the Securities Act of 1933 \3\ to
prohibit use of the form by shell companies. We also are amending the
requirements of Form 8-K \4\ under the Securities Exchange Act of 1934
as they apply to shell companies. In addition, we are amending Rule 405
\5\ under the Securities Act and Rule 12b-2 \6\ under the Exchange Act
to define the terms ``business combination related shell company'' and
``shell company,'' and amending Rule 12b-2 under the Exchange Act to
revise the definition of the term ``succession.'' Further, we are
amending Rule 13a-14 \7\ and Rule 15d-14 \8\ under the Exchange Act,
adding new Rule 13a-19 \9\ and new Rule 15d-19 \10\ under the Exchange
Act, and amending Form 20-F \11\ under the Exchange Act to address the
reporting obligations of foreign private issuers that are shell
companies. Finally, we are amending Form 10-Q,\12\ Form 10-QSB,\13\
Form 10-K,\14\ Form 10-KSB,\15\ and Form 20-F under the Exchange Act to
require companies to indicate on the cover page of those forms whether
they fall within the definition of ``shell company.''
---------------------------------------------------------------------------
\1\ In this release, we use the term reporting shell companies
to refer to shell companies that have an obligation to file reports
under Section 13 (15 U.S.C. 78m) or Section 15(d) (15 U.S.C. 78o(d))
of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
\2\ 17 CFR 239.16b.
\3\ 15 U.S.C. 77a et seq.
\4\ 17 CFR 249.308.
\5\ 17 CFR 230.405.
\6\ 17 CFR 240.12b-2.
\7\ 17 CFR 240.13a-14.
\8\ 17 CFR 240.15d-14.
\9\ 17 CFR 240.13a-19.
\10\ 17 CR 240.15d-19.
\11\ 17 CFR 249.220f.
\12\ 17 CFR 249.308a.
\13\ 17 CFR 249.308b.
\14\ 17 CFR 249.310.
\15\ 17 CFR 249.310b.
---------------------------------------------------------------------------
The rules and rule amendments we are adopting today do not address
the relative merits of shell companies. We recognize that companies and
their professional advisors often use shell companies for many
legitimate corporate structuring purposes. Similarly, our definition
and use of the term ``shell company'' is not intended to imply that
shell companies are inherently fraudulent. Rather, these rules target
regulatory problems that we have identified where shell companies have
been used as vehicles to commit fraud and abuse our regulatory
processes.
I. Introduction
On April 15, 2004, we proposed rules and rule amendments related to
filings by reporting shell companies.\16\ We proposed to define the
term ``shell company.'' We also proposed to prohibit the use of Form S-
8 under the Securities Act by shell companies. Additionally, we
proposed to amend Form 8-K under the Exchange Act to require a shell
company, when reporting an event that causes it to cease being a shell
company, to file with the Commission the same type of information that
it would be required to file in registering a class of securities under
the Exchange Act.
---------------------------------------------------------------------------
\16\ Release No. 33-8407, Use of Form S-8 and Form 8-K by Shell
Companies (Apr. 15, 2004) [69 FR 21650].
---------------------------------------------------------------------------
In response to these proposals, we received approximately 30
comment letters from various interested parties, including investors,
issuers, accountants, lawyers, and organizations. We have considered
all of the comment letters and have incorporated certain of the
suggestions in those letters in the final rules.
The provisions we adopt today address the inappropriate use of Form
S-8 registration statements by reporting shell companies to circumvent
the registration and prospectus delivery requirements of the Securities
Act. Because shell companies do not operate businesses and, hence,
rarely have employees, we see little legitimate basis for shell
companies to use Form S-8. For this reason, and because of the history
of abuse of Form S-8 by reporting shell companies, we are prohibiting
shell companies from using Form S-8 until 60 days after they cease
being shell companies and file required information. We have, however,
included limited exceptions to this prohibition for shell companies
that are used in certain change of domicile or business combination
transactions.
The provisions we adopt today also address the use of Form 8-K to
report ``reverse merger'' and other transactions in which a reporting
shell company ceases being a shell company, generally by combining with
a formerly private operating business. Through such a transaction, the
private operating business, in effect, becomes a reporting company.
These transactions generally take one of two forms:
In the most common type of transaction, a ``reverse
merger,'' the private business merges into the shell company, with the
shell company surviving and the former shareholders of the private
business controlling the surviving entity.
In another common type of transaction, a ``back door
registration,'' the shell company merges into the formerly private
company, with the formerly private company surviving and the
shareholders of the shell company becoming shareholders of the
surviving entity.\17\
---------------------------------------------------------------------------
\17\ This was the type of transaction involved in the Lisa
Roberts, Director of NASDAQ Listing Qualifications interpretive
letter, which is discussed in footnote 36, below.
---------------------------------------------------------------------------
[[Page 42235]]
In these transactions, the reporting company has an obligation to
file current reports on Form 8-K to report both the entry into a
material non-ordinary course agreement providing for the transaction
and the completion of the transaction. Specifically, in both types of
transactions, the entry into the agreement would require a report under
Item 1.01 of Form 8-K (Entry Into a Material Definitive Agreement) by
the shell company. The completion of the transaction would be
reportable under either or both of Item 2.01 of Form 8-K (Completion of
Acquisition or Disposition of Assets) and Item 5.01 of Form 8-K
(Changes in Control of Registrant) by the surviving entity.\18\ Audited
financial statements and pro forma financial information would be
required to be filed under Item 9.01 of Form 8-K (Financial Statements
and Exhibits) for transactions reportable under Item 2.01.\19\
---------------------------------------------------------------------------
\18\ In a back door registration transaction where time elapses
between the entry into the agreement and the completion of the
transaction, the shell company would incur the obligation to file
the Item 1.01 Form 8-K at the time of entry into the agreement and
either the shell company or the issuer that succeeds to the
reporting obligation of the shell company by operation of either
Rule 12g-3 (17 CFR 240.12g-3) or Rule 15d-5 (17 CFR 240.15d-5) under
the Exchange Act would be obligated to file the Item 2.01 or Item
5.01 (or both) Form 8-K at the time of completion of the
transaction. In a back door registration transaction that is
simultaneously entered into and completed, or where the shell
company has not yet satisfied its Item 1.01 obligation at the time
of completion of the transaction, either the shell company or the
issuer that succeeds to the reporting obligation of the shell
company by operation of either Rule 12g-3 or Rule 15d-5 under the
Exchange Act would be required to satisfy the shell company's
obligation to file a Form 8-K under Item 1.01, as well as any other
reporting obligations of the shell company (including obligations to
file reports on Form 8-K pursuant to other Items of that Form).
\19\ Other than new Item 5.06 of Form 8-K, the rule and form
amendments adopted today are not intended to impose any new event
filing requirements under Form 8-K.
---------------------------------------------------------------------------
II. Adopted Rules and Rule Amendments
We are adopting the rules and rule amendments substantially as
proposed. The substantive changes to the proposals, as discussed below,
are:
We have revised the definition of ``shell company'' to
specify the manner in which assets are to be determined and to exclude
asset-backed issuers; \20\
---------------------------------------------------------------------------
\20\ ``Asset-backed issuer'' is defined in Item 1101(b) of
Regulation AB [17 CFR 229.1101(b)].
---------------------------------------------------------------------------
We have added a definition of the term ``business
combination related shell company'' to specify those shell companies
that are used to effect certain change in domicile and business
combination transactions;
We have provided limited exceptions to the amendments to
Form S-8, Form 8-K, and Form 20-F for business combination related
shell companies;
We have added new Item 5.06 to Form 8-K to require shell
companies (other than business combination related shell companies) to
report transactions that cause them to cease being shell companies;
We have added a check box to Form 10-Q, Form 10-QSB, Form
10-K, Form 10-KSB, and Form 20-F to identify shell companies filing
those forms; and
We have adopted rules and rule amendments requiring a
foreign private issuer shell company to file a ``shell company report''
on Form 20-F to report a transaction that causes it to cease being a
shell company.\21\
---------------------------------------------------------------------------
\21\ The term ``foreign private issuer'' is defined in Exchange
Act Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A foreign private issuer is a
non-government foreign issuer, except for a company that (1) has
more than 50% of its outstanding voting securities directly or
indirectly held of record by U.S. residents and (2) has either a
majority of its executive officers or directors residing in or being
citizens of the United States, more than 50% of its assets located
in the United States, or its business principally administered in
the United States.
---------------------------------------------------------------------------
We are adopting the definition of the term ``shell company''
substantially as proposed. The adopted definition includes minor
modifications, including:
An exclusion for asset-backed issuers that might
inadvertently fall within the definition;
A clarification that a company would still be a shell
company if its assets consist of any amount of cash and cash
equivalents, as well as nominal other assets; and
A clarification that the determination of the company's
assets (including cash and cash equivalents) for purposes of the
definition must be limited to the amount of assets that would be
reflected on the company's balance sheet prepared in accordance with
U.S. generally accepted accounting principles on the date of that
determination.
We have defined the term ``business combination related shell
company.'' We have adopted this definition to identify the subset of
shell companies for which certain of the amendments to Form S-8, Form
8-K, and Form 20-F will not apply. We also have revised the definition
of ``succession'' under the Exchange Act, as proposed, to capture
certain transactions involving shell companies.
We are adopting amendments to Form S-8 that prohibit shell
companies from using that form to register offerings of securities. A
former shell company will become eligible to use Form S-8 to register
offerings of securities 60 calendar days after it ceases being a shell
company and files information equivalent to what it would be required
to file if it were registering a class of securities on Form 10,\22\
Form 10-SB,\23\ or Form 20-F under the Exchange Act. We are adopting a
limited exception to the Form S-8 prohibition that permits a former
business combination related shell company to use Form S-8 immediately
after it ceases being a shell company and files the required
information.
---------------------------------------------------------------------------
\22\ 17 CFR 249.210.
\23\ 17 CFR 249.210b.
---------------------------------------------------------------------------
The amendments to Form 8-K that we are adopting today apply to
reporting shell companies, other than those that are foreign private
issuers. The amendments require such a company, when reporting on Form
8-K an event that causes it to cease being a shell company, to include
in that report the information that it would be required to file to
register a class of securities under Section 12 of the Exchange Act
\24\ using Form 10 or Form 10-SB. The report is required to be filed
within the same filing period as generally is required for other Form
8-K reports, which is within four business days after completion of the
transaction. Further, the extension of time that otherwise may be
permitted to file financial statements and pro forma financial
information reflecting the new financial profile of the company
following completion of a significant acquisition would be eliminated
for shell companies. We are adopting similar reporting requirements for
foreign private issuers on Form 20-F.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78l.
---------------------------------------------------------------------------
Finally, we are adding a check box to Form 10-Q, Form 10-QSB, Form
10-K, Form 10-KSB, and Form 20-F to allow market participants and
regulators to identify shell companies more easily.
A. Definition of ``Shell Company''
1. Discussion of the Proposal
We proposed to define the term ``shell company'' as a company with
no or nominal operations, and with no or nominal assets or assets
consisting solely of cash and cash equivalents.\25\ We proposed that
this definition be added to Rule 405 under the Securities Act and Rule
12b-2 under the Exchange Act. We indicated in the proposing release
that we intentionally were not proposing to use the term ``blank check
[[Page 42236]]
company'' used in Rule 419 \26\ under the Securities Act because we
believe the term ``shell company'' and our proposed definition of the
term better describe the type of company involved in the schemes that
we are attempting to address, use criteria that are more specific, and
would be easier to apply.
---------------------------------------------------------------------------
\25\ As discussed in the proposing release, we intended that a
shell company formed solely for the purpose of changing a company's
domicile or completing a business combination transaction with
another company would fall within the definition of shell company.
\26\ 17 CFR 230.419.
---------------------------------------------------------------------------
2. Comments on the Proposal
Approximately ten commenters expressed their views regarding the
proposed definition of ``shell company.'' Three commenters asked that
the terms ``nominal operations'' and ``nominal assets'' be defined.\27\
These commenters sought more guidance as to the meaning of these terms
and quantitative thresholds for the term ``nominal.'' One of these
commenters requested an objective test, such as specific quantitative
thresholds tied to specific dollar amounts.\28\
---------------------------------------------------------------------------
\27\ See letters from L. Stephen Albright, North American
Securities Administrators Association, Inc., and Stoecklein Law
Group.
\28\ See letter from North American Securities Administrators
Association, Inc.
---------------------------------------------------------------------------
Another commenter suggested that the proposed definition be
modified to clarify that nominal assets appearing on a balance sheet
prepared other than in accordance with generally accepted accounting
principles do not qualify as assets for purposes of avoiding
classification as a shell company.\29\ Two commenters expressed support
for a definition based on the term ``blank check company'' in
Securities Act Rule 419 to describe the types of entities that should
be subject to the Form S-8 and Form 8-K proposals.\30\
---------------------------------------------------------------------------
\29\ See letter from Simon M. Lorne.
\30\ See letters from David N. Feldman and Conrad C. Lysiak.
---------------------------------------------------------------------------
3. Final Rules
As adopted, Securities Act Rule 405 and Exchange Act Rule 12b-2
define a ``shell company'' as a company, other than an asset-backed
issuer, with:
No or nominal operations; and
Either:
--No or nominal assets;
--Assets consisting solely of cash and cash equivalents; or
--Assets consisting of any amount of cash and cash equivalents and
nominal other assets.
For purposes of this definition, the determination of a company's
assets (including cash and cash equivalents) must be based on the
amounts that would be reflected on the company's balance sheet prepared
in accordance with U.S. generally accepted accounting principles on the
date of that determination. We have added the language ``or assets
consisting of any amount of cash and cash equivalents and nominal other
assets'' to further clarify the definition. This clarification is
consistent with the intended meaning of the proposed definition.
After considering the comments on our proposed definition of shell
company, we continue to believe that the proposed definition best
describes the types of companies involved in the schemes we are
attempting to address and can be applied with certainty.\31\ We do not
believe that the suggestions in the comment letters would result in a
significantly improved definition of shell company. Further, we believe
that the definition reflects the traditional understanding of the term
``shell company'' in the area of corporate finance.
---------------------------------------------------------------------------
\31\ One commenter discussed the application of the proposals to
``living dead'' companies. See letter from Mike Liles, Jr. As
described in this comment letter, a ``living dead'' company is a
former operating company with minimal or limited operations. We
believe that a former operating company that meets the assets and
operations standards in the definition of shell company would be
subject to the rules and rule amendments that we are adopting today.
---------------------------------------------------------------------------
We are not defining the term ``nominal,'' as we believe that this
term embodies the principle that we seek to apply and is not
inappropriately vague or ambiguous.\32\ We have considered the comment
that a quantitative threshold would improve the definition of shell
company; however, we believe that quantitative thresholds would, in
this context, present a serious potential problem, as they would be
more easily circumvented. We believe further specification of the
meaning of ``nominal'' in the definition of ``shell company'' is
unnecessary and would make circumventing the intent of our regulations
and the fraudulent misuse of shell companies easier.
---------------------------------------------------------------------------
\32\ We have become aware of a practice in which a promoter of a
company and/or affiliates of the promoter appear to place assets or
operations within an entity with the intent of causing that entity
to fall outside of the definition of ``blank check company'' in
Securities Act Rule 419. The promoter will then seek a business
combination transaction for the company, with the assets or
operations being returned to the promoter or affiliate upon the
completion of that business combination transaction. It is likely
that similar schemes will be undertaken with the intention of
evading the definition of shell company that we are adopting today.
In our view, where promoters (or their affiliates) of a company that
would otherwise be a shell company place assets or operations in
that company and those assets or operations are returned to the
promoter or its affiliates (or an agreement is made to return those
assets or operations to the promoter or its affiliates) before, upon
completion of, or shortly after a business combination transaction
by that company, those assets or operations would be considered
``nominal'' for purposes of the definition of shell company.
---------------------------------------------------------------------------
4. Definition of ``Business Combination Related Shell Company''
The definition of ``shell company'' includes a shell company that
is used to change an entity's domicile and a shell company that is
formed to effect a business combination transaction. As proposed, a
shell company formed solely for the purpose of changing the domicile of
a non-shell entity would have been permitted to use Form S-8
immediately after it ceased being a shell company and filed required
information. In this regard, we received comment expressing the view
that public companies formed to effect mergers, acquisitions, and
public spin-off transactions also should be permitted to use Form S-8
within that timeframe.\33\
---------------------------------------------------------------------------
\33\ See letter from Association of the Bar of the City of New
York.
---------------------------------------------------------------------------
We believe that there is a subset of shell companies for which the
delay in the use of Form S-8, as well as certain of the reporting
requirements under Form 8-K and Form 20-F, as discussed below, are not
necessary. Accordingly, we have defined the term ``business combination
related shell company'' to identify those entities that we believe fall
within this subset of shell companies. As adopted today, a ``business
combination related shell company'' is:
A shell company formed by an entity that is not a shell
company solely for the purpose of changing that entity's domicile
solely within the United States; \34\ or
---------------------------------------------------------------------------
\34\ The language in this definition referring to a shell
company formed ``solely for the purpose of changing that entity's
domicile solely within the United States'' is intended to have the
same meaning as the language ``the sole purpose of the transaction
is to change an issuer's domicile solely within the United States''
in Securities Act Rule 145(a)(2) [17 CFR 230.145(a)(2)].
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A shell company formed by an entity that is not a shell
company solely for the purpose of completing a business combination
transaction among one or more entities other than the shell company,
none of which is a shell company.\35\
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\35\ For purposes of this definition, the term ``business
combination transaction'' will have the same meaning as in
Securities Act Rule 165(f)(1) [17 CFR 230.165(f)(1)], which defines
a ``business combination transaction'' as any transaction specified
in Securities Act Rule 145(a) [17 CFR 230.145(a)] or exchange offer.
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B. Definition of ``Succession''
We are adopting as proposed the amendment to the definition of the
term ``succession'' in Exchange Act Rule 12b-2 to include a change in
control of a shell company that is required to be reported on Form 8-K
pursuant to Item
[[Page 42237]]
5.01 of that Form or on Form 20-F pursuant to new Exchange Act Rule
13a-19 or 15d-19. This amendment will, in most cases, require a non-
public acquiring company to succeed to the reporting obligations of a
shell company and become a reporting company.\36\ For a shell company
with securities registered under Section 12 of the Exchange Act, this
will occur because Exchange Act Rule 12g-3 will, with limited
exceptions, impose Section 12 registration on the securities of the
acquiror without the necessity of filing an Exchange Act registration
statement. Similarly, for a shell company with a reporting obligation
under Section 15(d) of the Exchange Act, the acquiror may be deemed to
have assumed the reporting obligation of the shell company by operation
of Exchange Act Rule 15d-5. Because of the interaction of the revised
definition of ``succession'' and Exchange Act Rules 12g-3 and 15d-5, a
private entity that acquires a reporting shell company generally will
report the transaction on Form 8-K, which in this case calls for
Exchange Act registration-level disclosure, in accordance with the
requirements of Form 8-K rather than filing an Exchange Act
registration statement.\37\ We believe this Form 8-K reporting
requirement provides the appropriate timing, method, and level of
disclosure to investors.
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\36\ This definition, along with today's amendments to Form 8-K,
supersedes the Lisa Roberts, Director of NASDAQ Listing
Qualifications interpretive letter (Apr. 7, 2000). As explained in
this interpretive letter, the procedure sometimes called ``back door
registration'' under the Exchange Act did not, in the Commission
staff's view at the time, constitute a ``succession'' of the
surviving entity to the rights and obligations of the reporting
shell company because the definition of ``succession'' in Exchange
Act Rule 12b-2 requires that the acquiring company acquire a ``going
business'' and a shell company was not considered a ``going
business.'' Nevertheless, the staff permitted non-reporting
acquiring companies to file Form 8-K reports and enter our reporting
system, so long as specified information was included, rather than
requiring these companies to file registration statements under
Section 12 of the Act on Form 10 or Form 10-SB to become reporting
companies.
\37\ Foreign private issuers that do not report on domestic
issuer forms, such as Form 10-K and Form 10-Q, are not subject to
this requirement to report the transaction on Form 8-K. Rather,
foreign private issuers will report the transaction on Form 20-F.
See the discussion in Section II.E., below, with regard to the
Exchange Act reporting requirements for a foreign private issuer
that is a shell company and completes a transaction that causes it
to cease being a shell company.
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C. Amendments to Securities Act Form S-8
1. Discussion of the Proposal
We proposed amendments to prohibit the use of Form S-8 by any shell
company. As proposed, a company that ceased being a shell company would
become eligible to use Form S-8 to register offerings of securities 60
calendar days after it filed information equivalent to what it would be
required to file if it were registering a class of securities under
Section 12 of the Exchange Act through the use of Form 10, Form 10-SB,
or Form 20-F, as applicable to that company.\38\ On most occasions,
this would occur upon the completion of a reverse merger or back door
registration transaction, and the information would be filed in a
current report on Form 8-K reporting the transaction that causes the
company to cease being a shell company. In some circumstances the
information could be filed in a Form 10, Form 10-SB, or Form 20-F, or
in a Securities Act registration statement covering the transaction.
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\38\ The amendments to Form S-8 that we are adopting today will
apply to foreign private issuers. For a further discussion of the
application of the Form S-8 amendments to foreign private issuers,
see the discussion in Section II.E., below.
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A registration statement on Form 10, Form 10-SB, or Form 20-F
provides investors with important information about the company in
which they are considering investing. The 60-day delay between the
filing of that information and the use of Form S-8 was intended to give
employees and the markets sufficient time to absorb the information
provided by the company in its Form 8-K or other filing. The 60-day
period is consistent with the 60-day period between the filing and
effectiveness of a company's registration of a class of securities on
Form 10, Form 10-SB, or Form 20-F under Section 12(g) of the Exchange
Act.\39\
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\39\ 15 U.S.C. 78l(g).
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2. Comments on the Proposal
Most commenters expressed support for our initiative, through the
Form S-8 proposal, to deter fraud and abuse in our securities markets
by the use of shell companies. Eight commenters expressed the view that
shell companies should, at least under certain circumstances, continue
to be eligible to use Form S-8 for offering securities to officers,
directors, and employees.\40\ Three commenters proposed permitting a
shell company to use Form S-8 to register offerings up to a percentage
of its outstanding public float.\41\ Three commenters agreed that the
proposed 60-day waiting period should not be shortened.\42\ Another
commenter expressed the view that we should exclude public companies
formed to effect mergers, acquisitions, and public spin-off
transactions, as it is critical that such companies be able to use Form
S-8 to register offerings of securities under employee benefit plans
immediately after the closing of such transactions.\43\ This same
commenter stated that the 60-day waiting period in the Form S-8
proposal would be an unnecessary restriction on such a successor
company's ability to sell shares in registered offerings pursuant to
employee benefit plans.\44\ The commenter proposed that shell companies
be permitted to use Form S-8 immediately after their conversion to an
operating company, particularly where another filing has been made that
meets the disclosure requirements.
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\40\ See letters from L. Stephen Albright, American Society of
Corporate Secretaries, David N. Feldman, Conrad C. Lysiak, James B.
Parsons, John L. Petersen, Jay Sanet, and Michael T. Williams.
\41\ See letters from James B. Parson, John L. Petersen, and
Michael T. Williams.
\42\ See letters from L. Stephen Albright, Jay Sanet, and
Stoecklein Law Group.
\43\ See letter from Association of the Bar of the City of New
York.
\44\ See id.
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3. Final Rule
A registration statement on Form S-8 becomes effective upon filing
with the Commission and does not require a prospectus to be filed as
part of the registration statement.\45\ Some shell companies seeking to
distribute their securities and raise capital inappropriately use Form
S-8. As we discussed in the proposing release, we continue to see the
misuse of Form S-8 to register the sale of shares to purported
employees or other nominees, who often are designated as
``consultants'' but who often do not provide services for which the
company may offer securities in a transaction registered on Form S-
8.\46\ These schemes lead to unregistered resales of securities into
the public market by these purported ``employees'' or ``consultants,''
denying the protections of the Securities Act to the real public
purchasers of the company's securities.\47\
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\45\ See Securities Act Rules 462(a) and 428 [17 CFR 230.462(a)
and 230.428].
\46\ General Instruction A.1.(a)(1) to Form S-8 states that the
form may be used to register securities to be offered and sold to
consultants only if they are natural persons who provide bona fide
services to the registrant that ``are not in connection with the
offer or sale of securities in a capital raising transaction, and do
not directly or indirectly promote or maintain a market for the
registrant's securities.''
\47\ See Release No. 33-7646, Registration of Securities on Form
S-8 (Feb. 26, 1999) [64 FR 11103].
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We are adopting the amendments to Form S-8 essentially as proposed,
as we continue to believe that prohibiting the use of Form S-8 by shell
companies
[[Page 42238]]
justifies the burdens or costs that might be incurred. Accordingly, an
entity may use Form S-8 to register offerings of securities pursuant to
employee benefit plans only if:
Immediately before the time of filing the registration
statement, the entity is subject to the requirement to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act;
The entity has filed all reports and other materials
required to be filed by Section 13 or Section 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports and materials);
The entity is not a shell company and has not been a shell
company for at least 60 days before filing the registration statement;
and
If the entity has been a shell company at any time, it has
filed current ``Form 10 information'' with the Commission at least 60
days previously reflecting its status as an entity that is not a shell
company.\48\
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\48\ For purposes of Form S-8, we define the term ``Form 10
information'' to mean the information that is required by Form 10,
Form 10-SB, or Form 20-F, as applicable to the registrant, to
register under the Exchange Act each class of securities being
registered on the Form S-8.
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We have included exceptions to the Form S-8 prohibition to permit
its use by certain shell companies that appear to present less
potential for abuse. We proposed to permit certain shell companies that
were used to change corporate domicile to use Form S-8 immediately
after they cease being shell companies and file ``Form 10
information.'' We are maintaining this provision. In response to
comments, we also are permitting certain shell companies that were
formed solely to effect business combination transactions to use Form
S-8 immediately after they cease being shell companies and file ``Form
10 information.'' We have taken two steps to accomplish these
exceptions. First, we have defined ``business combination related shell
company,'' as discussed previously, to identify the subset of shell
companies that qualify for the exception. Second, we are providing in
Form S-8 that a business combination related shell company may use Form
S-8 immediately upon ceasing to be a shell company and filing ``Form 10
information.'' \49\
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\49\ See new General Instruction A.1.(a)(7) to Form S-8.
---------------------------------------------------------------------------
We believe the amendments we are adopting today are appropriate, as
we continue to see misuse of Form S-8 by shell companies and believe
that prohibiting the use of Form S-8 by shell companies will help to
deter fraud and abuse. Further, the commenters that indicated that
shell companies should be eligible to use Form S-8 for offering
securities to officers, directors, and employees provided only limited
explanation as to why this practice should continue for all shell
companies.
The prohibitions on the use of Form S-8 that we are adopting today
will not prevent a shell company from registering offers and sales of
securities pursuant to employee benefit plans under the Securities Act;
rather, they will require the shell company to register those
transactions on a registration statement form other than Form S-8. In
addition, the shell company may be able to offer and sell those
securities without registration pursuant to an available exemption
under the Securities Act. We are aware that a different registration
statement form may not provide the same ease of registration as Form S-
8 and that the resale of securities originally sold in a transaction
that is exempt from Securities Act registration likely would be treated
differently under Securities Act Rule 144 \50\ than securities sold to
employees in a registered transaction. We believe that the benefits of
this amendment in preventing misuse of Form S-8, deterring fraud, and
protecting investors substantially justify the potential disadvantages
for shell companies.
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\50\ 17 CFR 230.144.
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D. Exchange Act Form 8-K
1. Discussion of the Proposal
We proposed amendments to Form 8-K to require a shell company
(other than a foreign private issuer) to make a more prompt and
detailed filing upon completion of a transaction otherwise required to
be reported on that form that causes it to cease being a shell company.
Specifically, the shell company would have been required to file a
current report on Form 8-K containing the information that would be
required in a registration statement on Form 10 or Form 10-SB to
register a class of securities under Section 12 of the Exchange Act. We
proposed that a company be required to file this report on Form 8-K
within four business days after completion of the transaction,
consistent with the timeframe for most Form 8-K filings.
We proposed elimination of the additional 71-day ``window'' for
filing required financial information in a Form 8-K report filed
pursuant to Item 2.01 of that form.\51\ This window is the period of
time between the date the registrant files its initial Form 8-K
reporting the event and the date when the registrant is required to
file financial information about the transaction. We believed that the
elimination of the 71-day window would provide investors in operating
businesses newly merged with shell companies with a level of
information that is equivalent to the information provided to investors
in reporting companies that did not originate as shell companies. The
purpose for requiring this financial information at the time of the
initial filing of the Form 8-K report was to decrease opportunities to
engage in fraudulent and manipulative activity during the 71-day window
period.
---------------------------------------------------------------------------
\51\ See Item 9.01 of Form 8-K.
---------------------------------------------------------------------------
2. Comments on the Proposal
The comments responding to the Form 8-K proposal were varied. Four
commenters expressed concern with the difficulty of preparing the
required information and completing the filing of the required
disclosure on Form 8-K within four days.\52\ Three commenters also
expressed concern over the amount of disclosure that was proposed to be
included in the Form 8-K.\53\ Each of those commenters believed that
less information than the information equivalent to that required in a
Form 10 or Form 10-SB would be adequate. Two of the commenters
suggested that a level of information similar to that required under
Exchange Act Schedule 14A \54\ would be adequate,\55\ with the other
commenter expressing the view that it would be appropriate to require
only certain of the Form 10 or Form 10-SB information.\56\ Two
commenters suggested that the shell company be permitted to delay
filing its required disclosure if there was no trading in its
securities.\57\ One of these commenters suggested retaining the 71-day
window, but limiting the trading in the shell company's securities by
specified persons during that window.\58\
Eight commenters supported the adoption of the Form 8-K proposal to
provide information to investors and deter fraud and abuse by shell
companies.\59\ The commenters
[[Page 42239]]
supported the proposed rulemaking as an opportunity for the Commission
to provide a disincentive for shell company abuse. Four commenters
supported closing the 71-day window, on the grounds that this would
deter fraud and abuse.\60\ Two of these commenters suggested that the
Commission consider a compromise of between 15 and 45 days.\61\ One of
these commenters stated that the financial statements are ``vital to an
understanding'' of the transaction and that the closing of the merger
transaction should be delayed until such time as the financial
statements are properly prepared.\62\
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\52\ See letters from L. Stephen Albright, David N. Feldman,
Mike Liles, Jr., and James B. Parsons.
\53\ See letters from L. Stephen Albright, David N. Feldman, and
James M. Schneider.
\54\ 17 CFR 240.14a-101.
\55\ See letters from L. Stephen Albright and James M.
Schneider.
\56\ See letter from David N. Feldman.
\57\ See letters from David N. Feldman and Mike Liles, Jr.
\58\ See letter from Mike Liles, Jr.
\59\ See letters from L. Stephen Albright, Nathan Garnett, Simon
M. Lorne, North American Securities Administrators Association,
Inc., James B. Parsons, John Peterson, Stoecklein Law Group, and
Michael T. Williams.
\60\ See letters from L. Stephen Albright, James B. Parsons,
North American Securities Administrators Association, Inc., and
Stoecklein Law Group.
\61\ See letters from L. Stephen Albright and James B. Parsons.
\62\ See letter from Stoecklein Law Group.
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3. Final Rule
We are adopting the Form 8-K amendments substantially as proposed.
The amendments to Form 8-K will require the surviving entity \63\ in a
transaction where a shell company ceases being a shell company to make
a more specific and detailed filing upon completion of such a
transaction that is required to be reported on that form.\64\ These
transactions will fall within the requirements of either or both of
Item 2.01 and Item 5.01 of Form 8-K.\65\ Upon completion of this type
of transaction, the surviving entity will be required to file a current
report on Form 8-K containing the information, including financial
information, that would be required in a registration statement on Form
10 or Form 10-SB to register a class of securities under Section 12 of
the Exchange Act, with that information reflecting the surviving entity
and its securities upon consummation of the transaction.\66\
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\63\ If a class of securities of an issuer succeeds, by
operation of Exchange Act Rule 12g-3, to the registration under
Exchange Act Section 12 of a class of the shell company's
securities, thus causing that successor issuer to succeed to the
registrant's reporting obligation under Exchange Act Section 13, or
if an issuer succeeds, by operation of Exchange Act Rule 15d-5, to
the shell company's reporting obligation under Exchange Act Section
15(d), the successor issuer will then succeed to the shell company's
obligation to file the required information in a report on Form 8-K.
If neither of the events described in the previous sentence occur,
the shell company will be obligated to file the required information
in a report on Form 8-K. For ease of discussion in this section, we
refer to the entity that is obligated to file the required
information in a report on Form 8-K as the ``surviving entity.'' In
the back door registration context, the surviving entity's
securities must meet all of the conditions of Exchange Act Rule 12g-
3 for those securities to be deemed registered under the same
paragraph of Exchange Act Section 12 under which the shell company's
securities were registered. For example, if the number of record
holders of the surviving entity's securities is less than 300, the
securities of the surviving entity will not succeed automatically by
operation of Exchange Act Rule 12g-3 to the reporting status of the
shell company's securities. Instead, the surviving entity would be
required to file a Form 10 or 10-SB if it wishes to register the
securities under Exchange Act Section 12. Similarly, under Exchange
Act Rule 15d-5, the surviving entity will be considered the
successor issuer by operation of Exchange Act Rule 15d-5 unless the
surviving entity is exempt from filing reports or the duty to file
reports is suspended under Section 15(d) of the Exchange Act.
\64\ In most cases, this will occur when the shell company
acquires or is acquired by an operating business. Under the
definition of ``shell company'' we are adopting today, it also could
occur when the shell company acquires more than nominal assets
(other than cash or cash equivalents). Requiring prompt and detailed
disclosure in a Form 8-K filing will provide investors in operating
businesses newly merged with shell companies with a level of
information that is equivalent to the information provided to
investors in reporting companies that did not originate as shell
companies.
\65\ Where an operating company acquires a shell company and the
operating company survives the transaction, the operating company
will have acquired control of the shell for purposes of the
definition of ``succession'' under amended Exchange Act Rule 12b-2.
The operating company, as the surviving entity, will be required to
file a Form 8-K under Item 5.01. The transaction will constitute a
change in control of the shell company whether or not shareholders
of the operating company before the transaction control the
surviving entity following the transaction.
\66\ That Form 8-K need not, however, contain registration-level
information if that information previously has been included in an
effective registration statement under the Securities Act. In that
instance, the Form 8-K could merely reference the Securities Act
registration statement that contains the required information. This
same principle will apply to information that previously was
included in a filing under the Exchange Act. We have amended Form 8-
K to make this clear.
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We are requiring that the surviving entity file its report on Form
8-K within four business days after completion of the transaction that
it is required to report. While we understand the concerns of
commenters regarding this timeframe, we believe the timeframe is
appropriate because shell companies and their counsel control the pace
and timing of these transactions. Given the concerns unique to shell
company transactions, we believe shell companies should complete a
transaction that is required to be reported only when they can timely
provide investors with adequate information to make informed investment
decisions.\67\ Moreover, obtaining audited financial statements for the
operating business in such a transaction should not present the
difficulties that caused us to provide the extended filing window for
business combinations involving reporting companies with
operations.\68\
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\67\ As suggested by commenters, we considered imposing a
trading ban on the securities of shell companies that have ceased
being shell companies and have not filed the required financial
statements, with the trading ban imposed until the converted shell
company files its audited financial statements. We have not included
such a provision in the final rule, as we believe that the
information required in the Form 8-K will have the same effect of
informing the market before trading and will not present the
practical implementation issues that would be presented by a trading
ban.
\68\ See Release No. 33-6578, Business Combination Transactions;
Adoption of Registration Form (Apr. 23, 1985) [50 FR 18990].
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We believe that prompt and proper disclosure of Exchange Act
registration-level information at the time of shell company
transactions will deter abuse and provide investors with information
necessary for their investment decisions. Accordingly, we believe it is
appropriate to require Form 10 or Form 10-SB information, as
applicable, in the Form 8-K. This level of disclosure will provide
investors in operating businesses newly merged with shell companies
with prompt and detailed disclosure that is equivalent to the
information provided to investors in reporting companies that register
under the Exchange Act rather than reaching the same result through a
transaction with a reporting shell company.
We are adding new Item 5.06 to Form 8-K.\69\ New Item 5.06 will
require a shell company that completes a transaction in which it ceases
being a shell company to file a report under that Item reporting the
material terms of the transaction. If the shell company is not the
surviving entity in the transaction in which it ceases to be a shell
company, the surviving entity would succeed to the shell company's
obligation to comply with Item 5.06.\70\ New Item 5.06 will allow
market participants and regulators to more easily identify Form 8-K
filings regarding shell company transactions and to more completely
understand the terms of those transactions.
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\69\ Foreign private issuers generally are not required to file
reports on Form 8-K. See Exchange Act Rule 13a-11(b) [17 CFR
240.13a-11(b)] and Exchange Act Rule 15d-11(b) [17 CFR 240.15d-
11(b)]. Accordingly, we have not extended the requirements of Item
5.06 to foreign private issuers. For a discussion of the reporting
requirements of foreign private issuers, see Section II.E., below.
\70\ The surviving entity in a transaction where a shell company
ceases being a shell company most likely will have to comply with
other Items of Form 8-K, as discussed above, in addition to Item
5.06. The registrant could file a single Form 8-K responding to all
applicable Items.
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Business combination related shell companies will not be subject to
the requirements of Item 5.06. We believe this will enhance the use of
Item 5.06 as a means by which market participants and regulators may
identify filings on Form 8-K relating to shell company transactions
that are not change in domicile transactions or
[[Page 42240]]
business combination transactions among non-shell companies.
We solicited comment as to whether we should take steps to make
shell company transactions more easily identifiable. One commenter
responded to this request.\71\ That commenter supported improved
identification of shell company transactions and expressed the view
that it would be beneficial to ``establish a mechanism that identifies
those reporting companies that fall into the definition of shell
company * * *'' \72\ Because companies other than shell companies may
file reports on Form 8-K under Item 2.01 or Item 5.01, we believe that
it is appropriate to add an Item requirement to Form 8-K that is
specific to shell companies other than business combination related
shell companies.
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\71\ See letter from North American Securities Administrators
Association, Inc.
\72\ See id.
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E. Shell Companies That Are Foreign Private Issuers
1. Form S-8
Some foreign private issuers that are registered with the
Commission may fall within the definition of shell company that we are
adopting today. A shell company that is a foreign private issuer is
subject to the new rules regarding the use of Form S-8. We proposed
that, as with a domestic shell company, a foreign private issuer shell
company would be ineligible to file a registration statement on Form S-
8 until 60 days after ceasing to be a shell company and filing the
``Form 10 information'' that the issuer would file if that issuer were
registering a class of securities under the Exchange Act. For a foreign
private issuer, the proposal defined ``Form 10 information'' to mean
the information required by Form 20-F to register the class of
securities under the Exchange Act.
We did not receive comments on the proposed amendments to Form S-8
as they relate to foreign private issuers. For purposes of Form S-8, we
are adopting the definition of ``Form 10 information,'' when applicable
to foreign private issuers, to mean information required by Form 20-
F.\73\
---------------------------------------------------------------------------
\73\ As with domestic issuers, the amendment to Form S-8 makes
clear that this ``Form 10 information'' of the foreign private
issuer may be included in any filing with the Commission.
---------------------------------------------------------------------------
2. Exchange Act Reporting of Transactions That Cause a Foreign Private
Issuer To Cease Being a Shell Company
Unlike domestic issuers, foreign private issuers that are subject
to the periodic reporting requirements under the Exchange Act generally
are not required to file current reports on Form 8-K.\74\ Instead,
these issuers submit material current information on Form 6-K.\75\ In
the proposing release, we requested comment on alternative approaches
with respect to disclosure requirements for foreign private issuer
shell companies, including the appropriate form on which they should
disclose a transaction with an operating business. We did not receive
comments in response to this request.
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\74\ See Exchange Act Rules 13a-11(b) and 15d-11(b). A foreign
private issuer shell company that engages in a transaction that
causes it to lose its status as a foreign private issuer at the same
time it ceases to be a shell company would have to comply with the
requirements of Form 8-K that are applicable to domestic companies.
\75\ 17 CFR 249.306. See Exchange Act Rule 13a-16 [17 CFR
240.13a-16] and Exchange Act Rule 15d-16 [17 CFR 240.15d-16].
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While we believe that foreign private issuer shell companies should
be subject to the disclosure and timing requirements of the rules
relating to shell companies, we believe those issuers should report on
Form 20-F rather than Form 8-K. Accordingly, we are adopting new
Exchange Act Rules 13a-19 and 15d-19. Under these new rules, a foreign
private issuer that was a shell company immediately before entering
into a transaction that causes it to cease being a shell company must
report that transaction on a current basis on Form 20-F.\76\ That
report must contain the same information that would be required in a
registration statement on Form 20-F used to register the classes of the
foreign private issuer's securities that are subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act, and
must be filed within four business days of the completion of the
transaction being reported.\77\ Because we believe that better
identification of shell company transactions is a key element in
deterring fraud, we are adding a check box to the cover page of Form
20-F that a foreign private issuer must mark when filing a Form 20-F
under Exchange Act Rule 13a-19 or Rule 15d-19.\78\ For the same reasons
discussed above regarding the application of Item 5.06 of Form 8-K, we
are not extending the requirements of Exchange Act Rule 13a-19 or Rule
15d-19 to foreign private issuers that are business combination related
shell companies.
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\76\ Foreign private issuers that have elected to report on
domestic issuer forms, such as Form 10-K and Form 10-Q, should file
the required information on Form 8-K and not Form 20-F.
\77\ See the discussion in footnotes 18, 63, and 70 regarding
the reporting obligation of successor issuers.
\78\ As with the periodic report forms for shell companies that
are not foreign private issuers, we also have included a check box
on the cover of Form 20-F that requires a foreign private issuer to
indicate, in any annual report on that form, that it is a shell
company. The new check box indicates that it is required where the
report on Form 20-F is an ``annual report.'' This requirement would
include any transition reports on that Form. In this regard, see the
discussion in Section II.F., below.
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Exchange Act Rule 12b-25 permits a foreign private issuer, subject
to certain conditions, to extend the due date of its filing of an
annual or transition report on Form 20-F.\79\ Exchange Act Rule 12b-25
does not provide an extension of the due date for filing a current
report on Form 8-K. As the reports on Form 20-F that are to be filed
under Exchange Act Rule 13a-19 or Rule 15d-19 are neither annual
reports nor transition reports, Exchange Act Rule 12b-25 does not
provide an extension of the due date for their filing. Because the
reports on Form 20-F that are to be filed under Exchange Act Rule 13a-
19 or Rule 15d-19 are more in the nature of a current report, we
believe that the extension permitted under Exchange Act Rule 12b-25
should not be available to those Form 20-F reports and we have not
added language to Exchange Act Rule 12b-25 to provide such an
extension.\80\
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\79\ 17 CFR 240.12b-25.
\80\ We have included language in Form 20-F to make clear that
Exchange Act Rule 12b-25 does not apply to reports required to be
filed on that form under new Exchange Act Rule 13a-19 or new
Exchange Act Rule 15d-19.
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Exchange Act Rules 13a-14(a) and 15d-14(a) currently require, among
other things, that ``each report'' on Form 20-F must include, as an
exhibit, specified certifications of the foreign private issuer's
principal executive and principal financial officers. Form 20-F is a
multi-function form that may be used as a registration statement or a
report. We believe that a Form 20-F required to be filed under new
Exchange Act Rule 13a-19 or new Exchange Act Rule 15d-19 is more
similar to a registration statement on that Form than a report on that
Form, and that the information is being provided on a current basis in
a manner similar to that required by Form 8-K. As such, we have added
language to Exchange Act Rules 13a-14(a) and 15d-14(a) excluding from
the requirements of those paragraphs reports that are filed on Form 20-
F under either new Exchange Act Rule 13a-19 or new Exchange Act Rule
15d-19.
F. Shell Company Check Box on Exchange Act Reports
In the proposing release, we asked specifically for comment on
whether we should make reports on Form 8-K reporting shell company
transactions
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easier for market participants and regulators to identify. In response
to this request, one commenter indicated that rulemaking to accomplish
this purpose would be appropriate.\81\ That commenter also expressed
the view that the cover page of periodic report forms should include a
means, such as a check box, by which filers would be required to
identify themselves as shell companies.\82\ We believe better
identification of shell companies and shell company transactions is a
key element to deterring fraud. Accordingly, we are adopting amendments
to Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB, and Form 20-F to add
a box on the cover page of those forms that the registrant must mark to
indicate whether or not it is a ``shell company.'' \83\ The
identification of shell company or non-shell company status on the
cover page of these forms will constitute required disclosure that is
subject to all applicable federal securities laws.
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\81\ See letter from North American Securities Administrators
Association, Inc.
\82\ See id.
\83\ Further, as discussed above, we have added new Item 5.06 to
Form 8-K to allow market participants and regulators to identify
transactions by shell companies, other than business combination
related shell companies.
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III. Paperwork Reduction Act
The amendments affect Securities Act Form S-8, Form SB-2, Form S-1,
and Form F-1 and Exchange Act Form 8-K, Form 10-Q, Form 10-QSB, Form
10-K, Form 10-KSB, and Form 20-F, which contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995.\84\ In the proposing release, we requested
comments on the proposed changes to these collection of information
requirements,\85\ and the Office of Management and Budget (``OMB'') has
approved the changes. The titles of the affected collections of
information requirements are: Form S-8 (OMB Control No. 3235-0066),
Form SB-2 (OMB Control No. 3235-0418), Form S-1 (OMB Control No. 3235-
0065), Form F-1 (OMB Control No. 3235-0258), Form 8-K (OMB Control
