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SEC’s Division of Corporation Finance Issues Updated C&DI Regarding Equity Line Financings

On November 13, the Division of Corporation of Finance (Division) of the Securities and Exchange Commission updated Compliance and Disclosure Interpretation 139.13 (C&DI).

The C&DI addresses equity line financings, whereby a company will rely on the private placement exemption from registration to sell securities under an equity line and then seek to register the “resale” of those securities. In an equity line transaction, an investor will commit to buy equity securities from a company on a periodic basis, and the company will have the right to “put’ such securities to the investor on the terms set forth in the agreement. The Division views these registered re-sales as “indirect primary offerings” due to the company’s right to put shares to the investor in the future and the lack of market risk resulting from the formula price contained therein.

The at-the-market limitations contained in Rule 415 under the Securities Act of 1933 (the Securities Act) would generally prohibit the registration of these transactions for companies that are not eligible to use Form S-3 or Form F-3 for primary offerings. However, the C&DI provides, the Division will not object to companies registering the resale of the securities prior to the exercise of the equity line put, if the following conditions are satisfied:

  • the company and the investor have entered into a binding agreement with respect to the private equity line financing at the time the registration statement is filed;

  • the “resale” registration statement is on a form that the company is eligible to use for a primary offering;

  • there is an existing market for the securities, as evidenced by trading on a national securities exchange or alternative trading system; and

  • the equity line investor is identified in the prospectus as an underwriter, as well as a selling shareholder.

The revised C&DI removes the requirement that the company have “completed” the private transaction of all the securities it is registering prior to filing the registration statement.

In addition, the Division has indicated that they will not object to filing a registration statement for an equity line financing prior to the issuance of the securities, even when there are contingencies attached to the investor’s obligation to accept a put of shares, so long as the above conditions are satisfied and the following terms are agreed upon by the parties and disclosed by the company at the time the registration statement is filed:

  • the number of shares registered for resale;

  • the maximum principal amount available under the equity line agreement;

  • the term of the agreement; and

  • the full discounted price (or formula for determining it) at which the investor will receive the shares.

Also on November 13, the Division withdrew C&DIs 139.15, 139.16, 139.17, 139.18, 139.19 and 139.20, which mainly related to the now-removed requirement that the private transaction have been “completed” prior to the filing of the registration statement.

The updated C&DI is available here.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 325

About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

Shown below is a...

Brian Hecht Corporate Lawyer Katten

Brian Hecht is a Corporate partner in Katten's New York office. He offers broad transactional experience in capital markets transactions, mergers and acquisitions and corporate governance matters. Within capital markets, Brian's practice focuses on initial public offerings, high yield offerings, spin-offs, tender offers and investment grade debt offerings. Within mergers and acquisitions, he represents private equity funds and public companies in both public and private acquisitions and divestitures.

Prior to joining Katten, Brian was a...