Securities Act Release No. 4806

October 26, 1965

Adoption of Amendments to Rule 416 Under the Securities Act of 1933

On July 19, 1965, in Securities Act Release No. 4793, the Securities and Exchange Commission published for comment its proposal to amend Rule 416 under the Securities Act of 1933 with respect to the coverage by a registration statement of certain securities issued as a result of stock splits and stock dividends. After consideration of the comments received in response to the release, the Commission has determined to adopt the amendment with the modifications described below.

As adopted, Rule 416(a) incorporates without change the provisions of former Rule 416. This paragraph is applicable only if pursuant to the terms of warrants, options, convertible securities, or similar rights to purchase securities covered by a registration statement an additional number of securities are to be offered or issued to the rights holders upon exercise of his rights if necessary to prevent a dilution of his interest resulting from stock splits, stock dividends, issuances of additional securities at less than the option or conversion price, or similar issuance of securities. In these instances, Rule 416(a) provides that the additional securities offered or issued pursuant to such anti-dilution provisions are deemed covered by the registration statement unless the registration statement provides otherwise.

Rule 416(b) is intended to broaden the scope of the former Rule 416 by making it unnecessary to file a new registration statement to cover certain additional securities issued pursuant to splits or dividends where there are no applicable anti-dilution provisions. As adopted, Rule 416(b) extends the coverage of a registration statement to certain additional securities issued or issuable pursuant to a split of a class of securities which includes undistributed securities covered by the registration statement or pursuant to a dividend declared on and payable in securities of such class. The rule provides that in such instances the registration statement shall be deemed to cover those additional securities which result from the split of, or the stock dividend on, the registered securities unless the registration statement provides otherwise. The rule, in relating to shares theretofore issued, makes clear that the liabilities under Section 11 of the Act are preserved; it does not by any implication eliminate liabilities where the rule does not apply. The rule also provides that when all the securities of a class which includes undistributed registered securities are combined by a reverse split into a lesser number of shares, the amount of undistributed securities of such class covered by the registration statement shall be proportionately reduced. The rule requires that the registration statement be amended prior to the offering of such additional or lesser amount of securities. In order to make it clear that the rule does not require that a post-effective amendment be filed in connection with that type of transaction which fell within former Rule 416, additional language has been added to the last sentence of the rule as proposed; however, the disclosure requirements of Section 17(a) of the Act would nevertheless apply. The last sentence of the rule as proposed has been revised to provide that the amendment required by the rule should reflect the change in the amount of securities registered. Such amendment should also include such other disclosures as appropriate under the anti-fraud provisions of Section 17(a) of the Act. Paragraph (b) may be relied upon by issuers with securities covered by a registration statement which became effective prior to the date on which this amendment was adopted.

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The foregoing action, which is taken pursuant to the Securities Act of 1933, particularly Sections 6, 7, 10 and 19(a) thereof, shall become effective November 26, 1965.

By the Commission.