When you own 5% more of the company you have 10 days to file a...

When you own 5% more of the company you have 10 days to file a 13d,

"Schedule 13D must be filed within 10 days of crossing the 5% ownership threshold"


Question: If a security holder owns convertible preferred securities that are convertible into greater than five percent of a class of equity securities registered under Section 12 of the Exchange Act, is the security holder obligated to file a beneficial ownership report even though the conversion terms of the preferred securities expressly provide that the security holder may not convert the preferred securities if doing so would cause it to own more than five percent of the issuer's outstanding underlying equity securities?

Answer: Depending on the conversion terms, it is possible that the security holder would not be obligated to file a beneficial ownership report. Rule 13d-3(d)(1)(i) states that a security holder is deemed to beneficially own any underlying securities that the security holder has the right to acquire within sixty days, including the right to acquire through conversion. Conversion provisions that limit the ownership of a class of securities must be binding and valid (e.g., provisions that are non-waivable, enforceable, established in the issuer's governing instruments, applicable to affiliates and assigns, etc.) to effectively eliminate the right of the holder of the convertible securities to acquire the underlying shares and, thereby, relieve the holder of a beneficial ownership report filing obligation. [For a further discussion of the factors that may indicate that a conversion cap is binding and valid, see Brief of the Securities and Exchange Commission, Amicus Curiae in Levy v. Southbrook International Investments, Ltd.] [Sep. 14, 2009]