By George Wilson
Solving the Mystery of New Form 10-K Exhibit (4)(vi) – Description of registrant’s securities
In the SEC’s March 2019 Disclosure Modernization and Simplification Final Rule there was a bit of confusion about a new exhibit added to S-K Item 601 for Form 10-K. This post reviews the requirements for this exhibit and provides links to two examples.
Part of the confusion emanated from the omission of the following change to the S-K Item 601 Exhibit Table from the originally published Final Rule:
The later version of the rule that was corrected and conformed to the Federal Register version included this change, but the confusion was already started. The first line in the table above was not changed by the March 2019 rule. The section labeled “(vi) Description of registrant’s securities” is the new exhibit added by this rule. And while the headings do not appear in this table from the final rule, the column on the far right with an X for the new exhibit is the 10-K column.
So, for 10-K’s that are being filed after the May 2, 2019 effective date for the rule, this exhibit will be new information.
The requirements in S-K Item 601 for this new exhibit 4(vi) are reasonably straightforward. Note Instruction 1 states that the new exhibit is required only in Form 10-K:
(4) * * *
(vi) For each class of securities that is registered under Section 12 of the Exchange Act, provide the information required by Item 202(a) through (d) and (f) of Regulation S-K
(§ 229.202 of this chapter).
Instruction 1 to paragraph (b)(4)(vi). A registrant is only required to provide the information called for by Item 601(b)(4)(vi) if it is filing an annual report under Exchange Act Section 13(a) or 15(d).
Instruction 2 to paragraph (b)(4)(vi). For purposes of Item 601(b)(4)(vi), all references in Item 202 to securities to be or being registered, offered, or sold will mean securities that are registered as of the end of the period covered by the report with which the exhibit is filed. In addition, for purposes of this Item, the disclosure will be required for classes of securities that have not been retired by the end of the period covered by the report.
Instruction 3 to paragraph (b)(4)(vi). The registrant may incorporate by reference to an exhibit previously filed in satisfaction of Item 601(b)(4)(vi) of Regulation S-K, as applicable, so long as there has not been any change to the information called for by Item 202 (§ 229.202 of this chapter) since the filing date of the linked filing. Such hyperlink will be deemed to satisfy the requirements of Item 601(b)(4)(vi) for the current filing.
Lastly, to close the loop, here is the relevant section of S-K Item 202 that enumerates the required information. In this excerpt we have deleted the sections not required for this exhibit. The list is fairly long and detailed, and in case it will help we have included links to two examples after the S-K 202 excerpts.
229.202 (Item 202) Description of registrant's securities.
(a) Capital stock. If capital stock is to be registered, state the title of the class and describe such of the matters listed in paragraphs (a) (1) through (5) as are relevant. A complete legal description of the securities need not be given.
(1) Outline briefly: (i) dividend rights; (ii) terms of conversion; (iii) sinking fund provisions; (iv) redemption provisions; (v) voting rights, including any provisions specifying the vote required by security holders to take action; (vi) any classification of the Board of Directors, and the impact of such classification where cumulative voting is permitted or required; (vii) liquidation rights; (viii) preemption rights; and (ix) liability to further calls or to assessment by the registrant and for liabilities of the registrant imposed on its stockholders under state statutes (e.g., to laborers, servants or employees of the registrant), unless such disclosure would be immaterial because the financial resources of the registrant or other factors make it improbable that liability under such state statutes would be imposed; (x) any restriction on alienability of the securities to be registered; and (xi) any provision discriminating against any existing or prospective holder of such securities as a result of such security holder owning a substantial amount of securities.
(2) If the rights of holders of such stock may be modified otherwise than by a vote of a majority or more of the shares outstanding, voting as a class, so state and explain briefly.
(3) If preferred stock is to be registered, describe briefly any restriction on the repurchase or redemption of shares by the registrant while there is any arrearage in the payment of dividends or sinking fund installments. If there is no such restriction, so state.
(4) If the rights evidenced by, or amounts payable with respect to, the shares to be registered are, or may be, materially limited or qualified by the rights of any other authorized class of securities, include the information regarding such other securities as will enable investors to understand such limitations or qualifications. No information need be given, however, as to any class of securities all of which will be retired, provided appropriate steps to ensure such retirement will be completed prior to or upon delivery by the registrant of the shares.
(5) Describe briefly or cross-reference to a description in another part of the document, any provision of the registrant's charter or by-laws that would have an effect of delaying, deferring or preventing a change in control of the registrant and that would operate only with respect to an extraordinary corporate transaction involving the registrant (or any of its subsidiaries), such as a merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation. Provisions and arrangements required by law or imposed by governmental or judicial authority need not be described or discussed pursuant to this paragraph (a)(5). Provisions or arrangements adopted by the registrant to effect, or further, compliance with laws or governmental or judicial mandate are not subject to the immediately preceding sentence where such compliance did not require the specific provisions or arrangements adopted.
(b) Debt securities. If debt securities are to be registered, state the title of such securities, the principal amount being offered, and, if a series, the total amount authorized and the total amount outstanding as of the most recent practicable date; and describe such of the matter listed in paragraphs (b) (1) through (10) as are relevant. A complete legal description of the securities need not be given. For purposes solely of this Item, debt securities that differ from one another only as to the interest rate or maturity shall be regarded as securities of the same class. Outline briefly:
(1) Provisions with respect to maturity, interest, conversion, redemption, amortization, sinking fund, or retirement;
(2) Provisions with respect to the kind and priority of any lien securing the securities, together with a brief identification of the principal properties subject to such lien;
(3) Provisions with respect to the subordination of the rights of holders of the securities to other security holders or creditors of the registrant; where debt securities are designated as subordinated in accordance with Instruction 1 to this Item, set forth the aggregate amount of outstanding indebtedness as of the most recent practicable date that by the terms of such debt securities would be senior to such subordinated debt and describe briefly any limitation on the issuance of such additional senior indebtedness or state that there is no such limitation;
(4) Provisions restricting the declaration of dividends or requiring the maintenance of any asset ratio or the creation or maintenance of reserves;
(5) Provisions restricting the incurrence of additional debt or the issuance of additional securities; in the case of secured debt, whether the securities being registered are to be issued on the basis of unbonded bondable property, the deposit of cash or otherwise; as of the most recent practicable date, the approximate amount of unbonded bondable property available as a basis for the issuance of bonds; provisions permitting the withdrawal of cash deposited as a basis for the issuance of bonds; and provisions permitting the release or substitution of assets securing the issue; Provided, however, That provisions permitting the release of assets upon the deposit of equivalent funds or the pledge of equivalent property, the release of property no longer required in the business, obsolete property, or property taken by eminent domain or the application of insurance moneys, and other similar provisions need not be described;
(6) The general type of event that constitutes a default and whether or not any periodic evidence is required to be furnished as to the absence of default or as to compliance with the terms of the indenture;
(7) Provisions relating to modification of the terms of the security or the rights of security holders;
(8) If the rights evidenced by the securities to be registered are, or may be, materially limited or qualified by the rights of any other authorized class of securities, the information regarding such other securities as will enable investors to understand the rights evidenced by the securities; to the extent not otherwise disclosed pursuant to this Item; no information need be given, however, as to any class of securities all of which will be retired, provided appropriate steps to ensure such retirement will be completed prior to or upon delivery by the registrant of the securities;
(9) If debt securities are to be offered at a price such that they will be deemed to be offered at an “original issue discount” as defined in paragraph (a) of section 1273 of the Internal Revenue Code (26 U.S.C. 1273), or if a debt security is sold in a package with another security and the allocation of the offering price between the two securities may have the effect of offering the debt security at such an original issue discount, the tax effects thereof pursuant to sections 1271-1278;
(10) The name of the trustee(s) and the nature of any material relationship with the registrant or with any of its affiliates; the percentage of securities of the class necessary to require the trustee to take action; and what indemnification the trustee may require before proceeding to enforce the lien.
(c) Warrants and rights. If the securities described are to be offered pursuant to warrants or rights state:
(1) The amount of securities called for by such warrants or rights;
(2) The period during which and the price at which the warrants or rights are exercisable;
(3) The amount of warrants or rights outstanding;
(4) Provisions for changes to or adjustments in the exercise price; and
(5) Any other material terms of such rights on warrants.
(d) Other securities. If securities other than capital stock, debt, warrants or rights are to be registered, include a brief description (comparable to that required in paragraphs (a), (b) and (c) of Item 202) of the rights evidenced thereby.
(f) American Depositary Receipts. If Depositary Shares represented by American Depositary Receipts are being registered, furnish the following information:
(1) The name of the depositary and the address of its principal executive office.
(2) State the title of the American Depositary Receipts and identify the deposited security. Describe briefly the terms of deposit, including the provisions, if any, with respect to:
(i) The amount of deposited securities represented by one unit of American Depositary Receipts;
(ii) The procedure for voting, if any, the deposited securities;
(iii) The collection and distribution of dividends;
(iv) The transmission of notices, reports and proxy soliciting material;
(v) The sale or exercise of rights;
(vi) The deposit or sale of securities resulting from dividends, splits or plans of reorganization;
(vii) Amendment, extension or termination of the deposit;
(viii) Rights of holders of receipts to inspect the transfer books of the depositary and the list of holders of receipts;
(ix) Restrictions upon the right to deposit or withdraw the underlying securities;
(x) Limitation upon the liability of the depositary.
(3) Describe all fees and charges which may be imposed directly or indirectly against the holder of the American Depositary Receipts, indicating the type of service, the amount of fee or charges and to whom paid.
Note: The Instructions to Item 202 are omitted for the sake of brevity. Be sure to read them as you work on the exhibit.
If you would like to see examples of this new exhibit here are two you can review:
First, Microsoft included this exhibit in their June 30, 2019 Form 10-K. The exhibit includes their common stock and various notes.
Second, P&G, which has stock and bonds registered, included this exhibit in their June 30, 2019 10-K for their common stock. You can find example of the disclosures for registered debt in their 10-K
This information was generally required before in registration statements, so having this information filed with Form 10-K means that the registration process can be a bit more streamlined.
To summarize and hopefully eliminate confusion about this new exhibit as we approach year-end and to help make sure it is included properly in your Form 10-K, here is a summary of the change.
- The SEC’s March 2019 Disclosure Modernization and Simplification final rule added new exhibit 4(vi) to S-K Item 601.
- The Exhibit Table requires this new exhibit in Form 10-K, but not in any other filings.
- The content of the exhibit is from S-K Item 202.
- This information was not previously required in Form 10-K
As always, your thoughts and comments are welcome!