Frequently Asked Questions About Shelf Offerings S 8 FAQShelf
User Manual: S-8
Open the PDF directly: View PDF .
Page Count: 27
|Open PDF In Browser||View PDF|
FREQUENTLY ASKED QUESTIONS ABOUT SHELF OFFERINGS necessarily apply to registered investment companies Understanding Shelf Offerings and business development companies, which are regulated under the Investment Company Act of 1940, What is a shelf registration statement? A shelf registration statement is a filing with the SEC to register a public offering, usually where there is no present intention to immediately sell all the securities being registered. A shelf registration statement permits as amended. Source: Rule 415 of Regulation C of the Securities Act of 1933 provides the basis for shelf registration. What are the benefits of shelf registration statements? multiple offerings based on the same registration. A shelf registration can be used for sales of new securities by the issuer (“primary offerings”), resales of outstanding securities (“secondary offerings”) or a combination of both. An effective shelf registration statement enables an issuer to quickly access the capital markets when needed or when market conditions are optimal. The primary advantages of a shelf registration are timing and certainty. With an effective shelf registration statement, when the issuer wants to offer securities, it takes them “off the shelf.” Takedowns from an effective shelf registration can be made without SEC staff review or delay. See “What is a ‘takedown off the shelf’?” These “shelf takedowns” usually are offered with a base prospectus and a prospectus supplement. See “What is a ‘base’ or a ‘core’ prospectus?” and “What is a ‘prospectus supplement’?” When a specific offering is planned, a prospectus supplement that describes the terms of the offering normally must be filed with the SEC under Rule 424(b) within two days of the supplement’s first use or the In a shelf registration, securities usually are registered for sale either on a continuous or delayed basis, although a portion of the securities may be offered immediately. See “What is the difference between a determination of the offering price, whichever is earlier. In most cases, the prospectus supplement is filed after the takedown has already priced. See “What is a ‘prospectus supplement’?” ‘delayed’ and a ‘continuous’ shelf offering?” It should be noted that the rules described in these FAQs do not In the case of a shelf registration statement on Form S-3 or Form F-3, the registration statement incorporates by reference the issuer’s reports filed under the is a delayed primary offering typically conducted?” Securities Exchange Act of 1934 (the “Exchange Act”) Generally, only more “seasoned” issuers that are after the shelf’s effective date. This enables the issuer to “primarily eligible” to use Form S-3 or Form F-3 may use a registration statement that became effective before engage in delayed primary offerings. See “Can an issuer the occurrence of material developments in its business, use any registration statement form to conduct a shelf without the need to file a post-effective amendment. See offering?” and “What is ‘primarily eligible’?” “What is ‘incorporation by reference’?” Source: Rule 415(a)(1)(i) - (iv) lists the types of shelf The advantage of this type of structure is that, once an offerings that may be effected on a delayed basis. Rule issuer has an effective shelf, there is no delay in waiting 415(a)(1)(ix) contains the requirements for continuous for the SEC to possibly review the prospectus or the offerings by any issuer that will commence promptly terms and may continue for more than 30 days. of the offering. Unlike a post-effective Rule amendment, the prospectus supplement does not have 415(a)(1)(x) contains the requirements for an immediate, to be declared effective by the SEC staff. In addition, continuous, or delayed primary offering by seasoned the SEC staff historically has been less likely to review primarily eligible issuers. the initial filing of a shelf registration statement on How is a delayed primary offering typically conducted? Form S-3 or Form F-3 than other forms of registration Accordingly, it is usually more time- In a delayed primary offering, the issuer typically will efficient and cost-efficient to register securities using a file a “core” or “base” prospectus as part of the initial shelf registration statement. filing of the registration statement. See “What is a ‘base’ statements. or a ‘core’ prospectus?” The actual terms and specifics of What is a “takedown off the shelf”? an offering will be filed after effectiveness, in either a A “takedown” is an actual offering of securities from a prospectus supplement (this is the most common shelf registration statement that has already been method), declared effective. permitted, an Exchange Act report incorporated by a post-effective amendment or, where reference into the registration statement. See “What is What is the difference between a “delayed” and a ‘incorporation by reference’?” and “What is a ‘prospectus “continuous” shelf offering? supplement’?” Issuers may engage in sales immediately In a “continuous offering,” securities are offered after effectiveness if the offering-specific information is promptly after effectiveness (within two days) and will included as a part of the registration statement in the continue to be offered in the future. base prospectus or in a prospectus supplement filed The term “continuous” only applies to offers of the securities, not under Rule 424 after effectiveness. to sales of the securities; sales can be made sporadically What is a “base” or a “core” prospectus? over the duration of the offering. In a “delayed offering,” there is no present intention A “base” (also known as a “core”) prospectus is filed in to offer securities at the time of effectiveness. See “How order to comply with the applicable disclosure requirements to have a shelf registration statement 2 declared effective by the SEC staff, with more specific available to the issuer, as permitted by Rule 409. See information to follow after effectiveness in a prospectus What is ‘primarily eligible’?“ and “What is a ‘Well-Known supplement once the details about an offering are Seasoned Issuer,’ or WKSI?” In addition, all offerings known. See “What is a ‘prospectus supplement’?” (other than mortgage-related or business combination offerings) by WKSIs filing automatic shelf registrations The base prospectus typically contains general may, under Rule 430B, omit: information, such as: the types of securities to be offered; a brief summary of the issuer’s business; the use of proceeds; and a plan of distribution. information as to whether the offering is a primary offering or a secondary offering on behalf of selling security holders or a combination of the two; The base prospectus also may contain a description of the plan of distribution; a description of the securities registered, other the risk factors of the offering and, in the case of debt than the name or class of the securities (e.g., securities, may contain a ratio of earnings to fixed “debt,” “common stock” or “preferred stock”); charges. Although the base prospectus can incorporate and substantial amounts of information from the issuer’s Exchange Act reports, additional information about the majority-owned subsidiaries that may be issuer may be provided if it is expected that the base added later as issuers or guarantors). prospectus will be used for “marketing purposes.” In offerings by selling security holders of primarily The shelf registration statement also will include (in eligible issuers on Form S-3 or Form F-3, the identities the so-called “Part II pages”) the estimated expenses of of the selling security holders, all the information about the registration, required exhibits, the undertakings them required by Item 507 of Regulation S-K, and the required by the SEC rules, and the issuer’s signature amounts of securities to be registered on their behalf pages. Source: the identity of other issuers (e.g., certain may be added to the registration statement covering the General Instructions of Form S-3, General resale of these securities after effectiveness so long as: Instructions of Form F-3, and Rule 430B. What information can be omitted from the base the registration is an automatically effective shelf registration filed by a WKSI; or prospectus? A base prospectus for immediate, continuous or all of the following conditions are satisfied: the registration statement refers to the delayed offerings on Form S-3 or Form F-3 by unnamed selling security holders in a “primarily eligible” issuers (including “well-known generic manner by identifying the seasoned issuers,” or “WKSIs”) may omit the pricing initial offering transaction in which and other information specified in Rule 430A and all the securities were sold; other information that is unknown or not reasonably 3 the initial offering of the securities is completed; and the securities an Exchange Act report, including a current report on Form 8-K, incorporated by reference are issued into the registration statement. and outstanding prior to the initial filing If the information is included in an Exchange Act date of the registration statement. report, the issuer must file a prospectus supplement under Rule 424 disclosing the Exchange Act report or These rules acknowledge that privately placed reports containing such information. securities often are transferred after they are issued and before a resale registration statement is filed. In such a If the issuer includes the omitted information in a case, the issuer may be unaware of the identities of the prospectus supplement, under Rule 424(c), the base new beneficial owners and the amount of securities they prospectus need not be re-filed with the SEC with the own. Filing post-effective amendments to add new or prospectus supplement if the base prospectus has not previously unidentified security holders can impose changed since it was previously filed. However, many delays, which these rules alleviate. issuers choose to re-file the base prospectus together The flexibility to identify selling security holders after with the prospectus supplement to help ensure that effectiveness is not available for PIPE transactions investors have more convenient access to all of the where the securities have not been issued in the private relevant disclosure. offering at the time the resale registration statement is Source: Rule 430B, Rule 424, Form S-3 and Form F-3, filed. In this case, the issuer will know the expected and SEC Release No. 33-8591 (July 19, 2005), Section initial identity of, and initial amount of securities held V.B.1.b.i(C). by, the selling security holders. See “What is a ‘PIPE’ What is a “prospectus supplement”? transaction and how can shelf registration statements be used for such an offering?” In addition, issuers that are not A prospectus supplement is a document that is eligible to file a primary offering on Form S-3 or Form delivered F-3 are not permitted to identify selling security holders (Depending upon the circumstances, the delivery may after effectiveness, as the SEC believes that these issuers take place with a physical document, an electronic copy, are more prone to engage in transactions that involve or via “access equals delivery” under SEC Rule 172.) heightened disclosure and registration issues. The prospectus supplement typically contains the terms base prospectus to investors. prospectus. See “What is a ‘base’ or a ‘core’ prospectus?” may be subsequently included in the registration The prospectus supplement also may include a statement and the prospectus by: a of an offering that are not provided in the base In the case of a WKSI, all of the omitted information with description of the risk factors and tax consequences of a prospectus supplement; the specific offering, as well as a description of the a post-effective amendment; or specific distribution arrangements and any planned use of the proceeds that differs from the description in the base prospectus. 4 Prospectus supplements are filed under Rule 424(b) of Regulation C. satisfy the disclosure requirements of the Form. In However, under Rule 430B and Rule addition, the SEC’s 2005 securities offering reform 430C, prospectus supplements are deemed part of, and package amended Form S-1 and Form F-1 to permit included in, the registration statement containing the reporting companies that are current in their reporting base prospectus to which the prospectus supplement obligations to incorporate by reference into their Form relates. S-1 or Form F-1 information from their previously filed See “Does Section 11 liability attach to a ‘takedown’?” (but not future) Exchange Act reports. In December 2015, Congress enacted the “FAST Act”; the FAST Act Can an issuer amend a registration statement to contains provisions that require the SEC to revise Form convert a non-shelf offering to a shelf offering? S-1 to permit smaller reporting companies to Yes, if the conversion occurs before the registration incorporate by reference Exchange Act filings made statement is declared effective. As in the case of a non- after the effectiveness of the Form S-1. shelf registration statement, additional securities also There are a number of SEC rules and regulations that may be added to the registration statement by a preeffective amendment. restrict how incorporation by reference can be used. See “Can a shelf registration Source: statement be converted into an unallocated shelf registration regulations include Item 12(a) of Part I of Form S-3, Item statement?” Source: The SEC’s incorporation by reference 6(a) of Part I of Form F-3, Item 12(a) of Part I of Form SEC Compliance and Disclosure S-1, Item 5(a) of Part I of Form F-1, General Instruction Interpretations, Securities Act Rules, Questions 212.04 G(4) of Form 10-K, and Rule 12b-23(b). Section 84001 of (Jan. 26, 2009), available at the FAST Act. www.sec.gov/divisions/corpfin/guidance/securitiesactr ules-interps.htm. How can omitted information be included in the final prospectus? What is “incorporation by reference”? A base prospectus that omits information required by Incorporation by reference occurs when disclosure in Form S-3 or Form F-3 as permitted by Rule 430B is a one filed document is legally deemed to be included in permitted prospectus that satisfies the requirements of another document. Section 10 of the Securities Act for purposes of Section Incorporation by reference is central to the SEC’s “integrated disclosure” framework, was by the issuer and other offering participants to offer The logic is that securities registered under the shelf registration. disclosure that is available to investors doesn’t However, such a base prospectus is not a Section 10(a) necessarily need to be repeated in each disclosure final prospectus for purposes of Section 5(b)(2) of the document. As a result, a Form S-3 or Form F-3 allows a Securities Act (which relates to the delivery of a company to incorporate by reference the disclosure prospectus after a sale). To satisfy Section 10(a), the from its current and future Exchange Act reports to issuer must include the omitted information in: developed in the early 1980s. which 5(b)(1) of the Securities Act. As a result, it can be used 5 a prospectus supplement; a post-effective amendment; or where permitted, through its Exchange Act audited financial statements, cannot have failed to pay dividends or sinking fund installments on preferred stock or defaulted on reports that are incorporated by reference into installments on indebtedness for borrowed the registration statement and the prospectus money or on material leases. and identified in a prospectus supplement. Source: General Instructions of Form S-3 and General Primarily eligible issuers (including WKSIs) are Instructions of Form F-3. permitted to include all information about the issuer by incorporation by reference to its Exchange Act reports, What is “primarily eligible”? including Current Reports on Form 8-K. See “What is A company is “primarily eligible” to use Form S-3 or ‘primarily eligible’?” and “What is a ‘Well-Known Seasoned Form F-3 to offer securities on its own behalf for cash on Issuer,’ or ‘WKSI’?” an unlimited basis if the aggregate market value of its Source: Rule 430B, Form S-3 and Form F-3, and Rule 424(b). since the end of the last year covered by its voting and non-voting common equity held by non- See SEC Release No. 33-8591 (July 19, 2005), affiliates (its “public float”) is at least $75 million. Section V.B.1.b.i(B). Until the SEC revised its shelf eligibility rules in July 2011, an issuer would also be eligible to use Form S-3 or Form F-3 to register non-convertible investment grade Shelf Eligibility securities. These are securities that, at the time of sale, What are the eligibility requirements for filing a shelf were rated by at least one nationally recognized registration statement? statistical rating organization in one of its generic rating categories that signify investment grade. To be eligible to use Form S-3 or Form F-3, the issuer, Under the eligibility requirements adopted in July among other things: 2011, as an alternative to the $75 million public float must have a class of securities registered under requirement, issuers may satisfy any one of four criteria the Exchange Act (or must be required to file to use Forms S-3 or F-3 for offerings of non-convertible reports under Section 15(d) of the Exchange securities other than common equity: Act); must have been subject to the reporting the issuer has issued (as of a date within 60 days prior to the filing of the registration requirements of Section 12 or Section 15(d) of statement) at least $1 billion in non-convertible the Exchange Act for at least 12 calendar securities, other than common equity, in months immediately preceding the filing of the primary offerings for cash registered under the registration statement and have timely filed all Securities Act, over the prior three years; or required reports with the SEC during that period; and the issuer has outstanding (as of a date within 60 days prior to the filing of the registration 6 statement) at least $750 million of non- over-the-counter market or the “pink sheets”); convertible securities, other than common and equity, issued in primary offerings for cash the equivalent of one-third of its public float the issuer is a wholly-owned subsidiary of a (the “one-third cap”). WKSI (as discussed below); or does not sell in a 12-month period more than registered under the Securities Act; or In order to benefit from these amendments, former the issuer is a majority-owned operating shell companies must also have timely filed their partnership of a real estate investment trust periodic reports for at least 12 calendar months and (“REIT”) that qualifies as a WKSI. filed all of the detailed information that would be In addition, the SEC has permitted an issuer that has a required under the Exchange Act in a registration reasonable belief that it would have been qualified to statement on Form 10 or Form 20-F. See “How is the use Form S-3 or Form F-3 under the prior investment market value threshold of ‘primarily eligible’ issuers and grade rating criteria to continue to use these forms for a ‘well-known seasoned issuers’ calculated?” and “How is the period of three years from the effective date of the aggregate market value of all securities sold during any 12- amendments. month period calculated for purposes of the one-third cap?” An issuer taking advantage of this provision must file a final prospectus for any such Source: General Instruction I.B.6 of Form S-3 and General Instruction I.B.5 of Form F-3. offering on or prior to September 2, 2014. Source: General Instruction I.B of Form S-3 and What are the eligibility requirements for secondary- General Instruction I.A. of Form F-3; SEC Release No. only shelf registration statements? 33-9245 (July 27, 2011). If the issuer’s public float is below $75 million, the When can smaller public companies be primarily issuer still may use Form S-3 or Form F-3 to register eligible to register offerings of their securities on a shelf secondary offerings if it meets the other eligibility registration statement? requirements of the Form. Secondary offerings are not A company whose public float is less than $75 million subject to the one-third cap. may register primary offerings of its securities on Form eligible’?” for an explanation of the one-third cap.) S-3 or Form F-3 if it: However, in some instances, registration of a secondary offering may involve a significantly large percentage of meets the other eligibility requirements of the the issuer’s outstanding capital stock, causing the SEC relevant Form; to deem the offering a “disguised primary offering.” is not and has not been a “shell company” for See “What is a ‘disguised primary offering’?” at least 12 calendar months prior to the filing of Source: the Form; (See “What is ‘primarily General Instructions I.B.3 of Form S-3 and General Instruction I.B.3 of Form F-3. has a class of common equity securities listed on a national securities exchange (i.e., not the 7 What is a “Well-Known Seasoned Issuer,” or “WKSI”? common equity held by non-affiliates is at least $75 A “well-known seasoned issuer” is an issuer that is million), the subsidiary may register an offering of its required to file reports with the SEC under Section 13(a) common stock or other equity securities as a WKSI or Section 15(d) of the Exchange Act and satisfies the filing an automatic shelf registration statement. following requirements: What are the benefits of qualifying as a well-known it must meet the registrant requirements of seasoned issuer? Form S-3 or Form F-3 (i.e., it must be a Well-known seasoned issuers benefit from a more “primarily eligible” issuer); flexible automatic registration process. it must, as of a date within 60 days of filing its checks the applicable box on the cover of a registration shelf registration statement, either: statement (including a shelf registration statement) on have a worldwide market value of its Form S-3 or Form F-3 for either a primary or secondary outstanding voting and non-voting offering, or a combination of the two, the registration common stock held by non-affiliates statement will automatically be effective upon filing. of $700 million or more; or There will be no delay in effectiveness in order to have issued in the last three years at receive and respond to any SEC comments. least $1 billion aggregate principal Additional benefits include: amount of non-convertible securities in registered primary offerings for it must not be an “ineligible issuer.” and eligible majority-owned subsidiaries as additional registrants after WKSI in connection with: effectiveness by filing a post-effective its issuance of non-convertible investment amendment that also will be automatically grade effective upon filing; securities that are fully and unconditionally guaranteed by its parent; or the ability to register additional classes of securities A majority-owned subsidiary of a WKSI will itself be a the ability to register unspecified amounts of different types of securities; cash; and If a WKSI the ability to exclude additional information its issuance of guarantees of non-convertible from the base prospectus (see “What is a ‘base’ securities of its parent or of another majority- or a ‘core’ prospectus?”), including: owned subsidiary whose non-convertible securities are so guaranteed by the WKSI whether the offering is a primary or secondary offering; parent. a description of the securities, other If the majority-owned subsidiary is itself a WKSI by than the name or class of securities reason of its issuance of $1 billion or more of non- (i.e., “debt,” “common stock” and convertible securities and also meets the test of a “preferred stock”); primarily eligible issuer (i.e., the market value of 8 the names of selling security holders growth and the amounts of securities to be depending on when the fifth anniversary of its IPO offered by each; and occurs. disclosure regarding the plan of status earlier, emerging growth company that has $700 million in pay filing fees on a “pay-as-you-go” public float can enjoy WKSI status for several months, if it can time its offerings appropriately. For example, if and use that after the end of the relevant second quarter, an basis at the time of each takedown; lose does not apply until the beginning of the fiscal year the ability to: may However, because the “large accelerated filer” status distribution; and company “free writing an issuer with a December 31st fiscal year end becomes a prospectuses” WKSI on January 2nd, when its market capitalization relating to an offering before the first exceeds $700 million, and the issuer maintains that registration statement is filed. market capitalization through the end of its second Source: Rule 430B, Form S-3 and Form F-3, and Rule quarter, it will lose its emerging growth company status 163. on January 1st of the following year. Source: Section 2(a)(19) of the Securities Act of 1933 Can an emerging growth company be a WKSI? provides the definition of emerging growth company Under the 2012 Jumpstart Our Business Startups (JOBS) (and the circumstances under which a company ceases Act, an “emerging growth company” is defined as an to be an emerging growth company). issuer with total gross revenues of less than $1 billion during its most recently completed fiscal year. An Can any issuer use a shelf registration statement? emerging growth company will lose that status (among It depends on the type of offering that will be other circumstances): (a) following the fifth anniversary conducted. of its first registered offering of common equity Only issuers that are primarily eligible to use Form S-3 securities, (b) upon issuing more than $1 billion in non- or Form F-3 (including smaller issuers subject to the convertible debt securities within a three-year period one-third cap) may sell on a delayed basis or conduct an (whether in registered or unregistered offerings) or “at-the-market” offering. (c) upon becoming a “large accelerated filer” as defined (See “What is ‘primarily eligible’?” for an explanation of the one-third cap.) Any under Rule 12b-2. (As to (c), an issuer becomes a large issuer may engage in any other type of shelf offering. accelerated filer at the end of a fiscal year if its public See “Can an issuer use any registration statement form to float was at least $700 million as of the last business day conduct a shelf offering?” and “What is an ‘at-the-market’ of its most recently completed second fiscal quarter.) In offering?” other words, due to (b) and (c), an issuer will lose its Source: emerging growth company status as a result of Rule 415(a)(1)(x) generally requires that becoming a WKSI. (See “What is a ‘Well-Known Seasoned delayed primary offerings be conducted by issuers that Issuer,’ or ‘WKSI’?” above.) Due to (a), an emerging meet the eligibility requirements for primary offerings 9 on Form S-3 or Form F-3. See Rule 415(a)(1)(vii) and the eligibility requirements of Form S-3 and Form F-3, SEC’s Compliance and Disclosure Interpretations, including a continuous offering. See “What is ‘primarily Securities Act Rules regarding Rule 415. eligible’?” Source: Rule 415, General Instructions of Form S-3, Can an emerging growth company use a shelf and General Instructions of Form F-3 provide shelf registration statement? eligibility requirements. Yes, an emerging growth company may use a shelf registration statement. For a limited period of time, it How is the market value threshold of “primarily may be both an emerging growth company and a WKSI. eligible” issuers and “well-known seasoned issuers” Smaller emerging growth companies may use a shelf calculated? registration statement, subject to the one-third cap The described above. See “Can an emerging growth company outstanding public float is computed by use of: be a WKSI?” and “When can smaller public companies be aggregate primarily eligible to register offerings of their securities on a market value of the registrant’s the price at which the common equity was last sold; and shelf registration statement?” the average of the bid and asked prices of such Can an issuer use any registration statement form to common equity in the principal market for conduct a shelf offering? such common equity as of a particular date. This calculation excludes common equity held by No, issuers are restricted as to which form they may use officers, directors and shareholders of the registrant to conduct various shelf offerings. who are deemed affiliates. The $75 million threshold Only issuers that have timely filed their required and WKSI status must be satisfied on any date within 60 periodic reports for the last 12 months may use a Form days prior to the filing of the registration statement. S-3 or Form F-3 to register securities. In the case of Source: General Instructions I.B.1 and I.B.6 of Form primary offerings by or on behalf of the issuer, if the S-3, General Instructions I.B.I and I.B.5 of Form F-3. issuer does not have a public float of at least $75 million when it files the registration statement, the amount of How is the aggregate market value of all securities sold securities that may be sold in a 12-month period is during any 12-month period calculated for purposes of capped. See “What is ‘primarily eligible’?” the one-third cap? If an issuer has not been timely in its reporting for the Companies whose public float does not exceed the $75 last 12 months, it may only register securities for resale million market value threshold may use Form S-3 or and shares underlying options on a Form S-1 or Form Form F-3 to register primary offerings of their securities. F-1 registration statement. An issuer with a public float However, they may not sell more than the equivalent of of less than $75 million also may use a Form S-1 or Form one-third of their public float during any 12 consecutive F-1 to register a primary offering of securities in excess months. of the one-third cap imposed on these issuers by the 10 Under this test, the determination of the issuer’s Because the calculation of the one-third limitation public float will be made on any date in the 60 days depends on the issuer’s public float at any point in time, prior to the proposed sale. The aggregate market value an issuer’s ability to use its shelf registration statement of all securities sold during the 12-month period prior to may increase or decrease during the life of the shelf. the sale is calculated by using the price of all securities Increases to an issuer’s public float will increase its sold by the issuer under the applicable Form in the “shelf capacity”; decreases to its public float will previous 12 months, whether debt or equity, including decrease its “shelf capacity.” those to be sold in the proposed sale. The one-third cap will be removed if a company’s For securities convertible into or exercisable for equity public float increases to $75 million after the effective securities (“derivative securities”), issuers will calculate date of the shelf registration statement. However, if the the amount that they may sell in any 12-month period public float of the company falls below $75 million at by reference to the market value of the underlying the time that its next annual report on Form 10-K (or shares, as opposed to the market value of the derivative Form 20-F) is filed, the cap will be reimposed. securities. For example, if an issuer has nine million Issuers that use Form S-3 or Form F-3 in reliance upon shares outstanding, and its common stock trades at $10 these rules will need to set forth on the front cover of per share, it may not offer in any 12-month period the relevant prospectus supplement the amount of their preferred stock that is convertible into more than three public float and the amount of securities offered in million of its common shares if the conversion price is reliance on this rule. also $10 per share. The one-third cap will not impact a Although the one-third cap will limit actual sales, holder’s ability to convert or exercise derivative smaller reporting companies can register an amount of securities once a derivative security has been properly securities that exceeds this amount as of the filing date. issued under the test, even if the issuer’s public float Any unused amount may be “rolled over” into decreases. A derivative security’s market value will be subsequent shelf registration statements when the included for purposes of calculating the one-third cap, required filing fee of the new registration statement is even if that derivative security is not exercisable for calculated. more than one year. Source: General Instruction I.B.6 of Form S-3, General After all or any portion of the derivative securities are Instruction I.B.5 of Form F-3, and Rule 401, SEC exercised or converted, in order to determine the Compliance and Disclosure Interpretations, Securities amount of any securities that may be issued under the Act Rules, Questions 116.24 (May 16, 2013). one-third cap in addition to any of the derivative securities that remain unexercised, the value of the What is a “disguised primary offering”? exercised or converted portion will be calculated by When an issuer sells a disproportionately large (relative multiplying the number of underlying shares issued by to the issuer’s pre-transaction public float) amount of the market price on the date of conversion. securities in a secondary offering, the SEC takes the view that the offering could in fact be a primary 11 offering, with the selling security holders acting as What is an “ineligible issuer”? “underwriters” that are selling their securities on the An “ineligible issuer” will not qualify as a WKSI. See issuer’s behalf. The SEC has pointed to several factors “What is a ‘Well-Known Seasoned Issuer,’ or ‘WKSI’?” An that should be assessed in making a determination as to ineligible issuer is an issuer for which any of the whether an offering is a primary offering or a secondary following is true: offering, including: the issuer has not filed all reports required to the amount of securities involved; be filed during the preceding 12 months (or how long the securities have been held; any shorter period for which the issuer has whether the investors are at market risk from been required to file); the time they purchased the securities; the circumstances under which the securities was, a “blank check company” or a shell were acquired; company or offered penny stock; the relationship between the selling security scrutiny, although firm the issuer was the subject of a bankruptcy within the past three years the issuer (or any Exchange Act; securities in excess of 33% of the issuer’s pre-transaction closer a misdemeanor under Section 15(b)(4)(b) of the indicated that it will subject secondary offerings of to through subsidiary) was convicted of any felony or As a guidepost, and not a bright-line test, the SEC has float than proceeding within the past three years; whether it appears that a selling security holder is acting as a conduit for the issuer. public other commitment underwriting; whether a selling security holder is in the business of underwriting securities; and the issuer is a limited partnership offering securities holders and the issuer; the issuer is, or during the past three years each within the past three years the issuer (or any determination involves a case-by-case analysis of the subsidiary) was the subject of any judicial or facts and circumstances of each transaction. administrative decree or order arising out of a Source: SEC Compliance and governmental anti-fraud action; Disclosure Interpretations, Securities Act Rules, Question 612.09 the issuer filed a registration statement that is (Jan. 26, 2009), available at the subject of any pending proceeding or www.sec.gov/divisions/corpfin/guidance/securitiesactr examination under Section 8 of the Securities ules-interps.htm, in Act (which relates to misleading or incomplete determining whether a secondary offering is a disguised registration statements) or was the subject of primary offering. See also “When a Primary is not a any refusal order or stop order within the past Primary” by Anna Pinedo and James Tanenbaum, first three years; or sets forth several factors published in International Financial Law Review May 2007. 12 the issuer is the subject of any pending following factors, with no single factor being proceeding under Section 8A of the Securities dispositive: (1) who was responsible for the misconduct Act in connection with an offering. and the duration of the misconduct (including the level of the employees involved and whether there were any Source: Rule 405 of Regulation C. “red flags” that were disregarded); (2) what remedial Under what circumstances will the SEC grant a waiver steps were taken by the issuer (including improvements from ineligible issuer status? in internal controls); and (3) what the impact of a denial The SEC has the power under its rules to determine, of the waiver request would be (including effects that upon a showing of good cause, that it is not necessary the issuer’s loss of WKSI status could have for the under the circumstances for an issuer to be considered market as a whole). an ineligible issuer. This authority was designed in In April 2014, the SEC further clarified its guidance. large measure for the benefit of financial holding The April 2014 guidance indicates: company issuers. These issuers often have one or more • An issuer's burden to show good cause that a subsidiaries, that, by virtue of their activities in the waiver is justified would be significantly greater securities business, often are subject to litigation or SEC where there is a criminal conviction or a scienter- actions relating to violations of the federal securities based violation involving disclosure for which the laws, and which often lead to settlements of the type issuer or any of its subsidiaries was responsible. contemplated by the ineligible issuer definition. This • The SEC staff will consider the effects that the provision enables issuers entering into such settlements to negotiate a waiver of the ineligible issuer’s loss of WKSI status could have for the issuer markets as a whole and the investing public, in disqualifications at the time of the settlement. light of the issuer’s significance to the markets and In March 2014, the SEC’s Division of Corporate its connectedness to other market participants; Finance updated its prior guidance regarding requests however, this guidance removes the March 2014 for waivers by WKSIs that would otherwise become reference indicating that the SEC would consider ineligible issuers under Rule 405. The revised guidance “the issuer’s significance to the markets and its outlines a more detailed framework that the SEC connectedness to other market participants.” generally will follow in considering whether to grant a • Whether the issuer took appropriate remedial waiver of ineligible issuer status. measures According to this guidance, the SEC will consider the to prevent the misconduct from recurring. nature of the violation or conviction, whether it • Whether the misconduct was pervasive, and how involved disclosure for which the issuer or its recently subsidiaries was responsible or calls into question the it occurred. For example, older misconduct, for which a small number of non- ability of the issuer to produce reliable disclosures, and senior employees were responsible, would be more whether the conduct involved a criminal conviction or likely to result in a waiver. scienter-based violation. The SEC will also consider the 13 • The impact on the issuer if the waiver request is denied. The SEC will also look to whether the securities offered and sold under dividend reinvestment and employee benefit plans; impact on the issuer, and the resulting impairment of its ability to raise capital, could also have an securities underlying options, warrants, rights and convertible securities; adverse impact on the markets as a whole. Source: Rule 405 of Regulation C and SEC Release No. securities pledged as collateral; depositary shares evidenced by American 33-8591 (July 19, 2005), Section III.D.3.b.; and Division of Depositary Receipts; Corporate Finance, Revised Statement on Well-Known securities issued in business combinations; mortgage related and other investment grade Seasoned Issuer Waivers (April 2014), available at http://www.sec.gov/divisions/corpfin/guidance/wksi- asset-backed securities; and waivers-interp-031214.htm. offerings that commence promptly and are Where can one find the determinations of the SEC as to made on a continuous basis for more than 30 issuers that have been granted a waiver from ineligible days. issuer status? Can an issuer use a shelf registration statement for The SEC posts to its website the waiver requests that are acquisitions? granted, along with a copy of the initial request. See Division and Yes. All transactions registered on Form S-4 or Form Exemptive Letters, Rule 405 – Determination regarding F-4 are considered continuous offerings under Rule 415 ineligible issuer status, available at (even though there is no Rule 415 box to check on the of Corporation Finance No-Action, Interpretive cover of these Forms). http://www.sec.gov/divisions/corpfin/cf-noaction.shtml#405 However, an automatically effective shelf registration statement may not be used as an acquisition shelf. Common Uses for Shelf Registration Source: Form S-4’s adopting release (No. 33-6578, April 23, 1985), states that all business combinations are What types of offerings can be conducted on a shelf considered Rule 415 offerings. See also SEC Compliance registration statement? and Disclosure Interpretations, Securities Act Rules, Rule 415 lists eleven types of permitted shelf offerings, Question including: www.sec.gov/divisions/corpfin/guidance/securitiesactr resales by selling security holders; immediate, delayed and continuous offerings 203.13 (Jan. 26, 2009), available at ules-interps.htm. Can an issuer use a shelf registration statement for by an issuer on Form S-3 or Form F-3, future acquisitions? including “at-the-market” offerings by the Yes. An issuer can use a shelf registration statement for issuer (see “What is an ‘at-the-market’ offering?”); one or more acquisitions, even if the targets are unknown at the time of filing. 14 An issuer also may register securities for future issuance in connection with In addition, if the issuer would be required to file acquisitions on a delayed basis. These are known as financial statements for a target under Regulation S-X “acquisition shelves.” due to the size of the acquisition, the issuer will have to file a post-effective amendment to the Form S-4 or Form Registering shares for future issuance in connection F-4, rather than a prospectus supplement. with acquisitions also allows the issuer flexibility to complete numerous acquisitions that, individually, Source: For more details concerning shelf acquisition would not require registration, but may require procedures, see the no-action letter Service Corporation registration on a collective basis due to the SEC’s International (October 31, 1985). Form limitations for integration doctrine. shelf acquisitions are derived from General Instruction H to Form S-4, General Instruction III to Form S-1 and An acquisition shelf must be filed on Form S-4, Form General Instruction III to Form F-1. F-4, Form S-1 or Form F-1. Form S-3 and Form F-3, including the automatic shelf registration provisions for What is an “at-the-market” offering? WKSIs, are not available for registering securities to be An at-the-market offering is an offering of securities issued in business combination transactions because the into an existing trading market for outstanding shares securities must be offered for cash under those forms. of the same class at other than a fixed price on, or See “What is a ‘Well-Known Seasoned Issuer,’ or ‘WKSI’?” through the facilities of, a national securities exchange, Generally, an issuer would register a certain number or to or through a market maker otherwise than on an of securities for future issuance, and then use the base exchange. prospectus when negotiating the acquisition. See “What An example is an offering in which common stock is is a ‘base’ or a ‘core’ prospectus?” The base prospectus sold by an underwriter by means of ordinary brokerage does not have to contain information about the specific transactions (as opposed to a block transaction) on the acquisition or the companies being acquired. NYSE. If an acquisition normally would require registration Only primarily eligible issuers (i.e., issuers eligible to by itself (for example, because there are a large number of target stockholders that are not register a primary offering on Form S-3 or Form F-3, “accredited including issuers subject to the one-third cap) may investors”), the issuer must update the Form S-4 or register “at-the-market” offerings. Form F-4 by post-effective amendment to reflect the See “What is ‘primarily eligible’?” The SEC’s 2005 securities offering acquisition prior to soliciting offerees; the issuer cannot reform rule amendments (in Section V.B.1.b.iv(C)) use a prospectus supplement. See “What is a ‘prospectus eliminated restrictions in Rule 415 that required supplement’?” If a post-effective amendment is required, involvement of underwriters and limited the amount of no further acquisitions should be entered into based on securities that could be sold in “at-the-market” the registration statement before the post-effective offerings. For additional information relating to at-the- amendment is declared effective. See “When is a post- market-offerings, effective amendment (as opposed to a prospectus supplement) Questions required to be filed?” 15 please About see “Frequently At-the-Market Asked Offerings” (http://www.mofo.com/docs/pdf/FAQAtTheMarketOffe securities it is registering for “resale” prior to rings.pdf). the filing of the registration statement; What is a “PIPE” transaction and how can shelf that the company is eligible to use for a registration statements be used for such an offering? primary offering; and The acronym “PIPE” stands for “private investment, public equity.” A traditional PIPE transaction occurs shareholder(s). private transaction, and a condition to closing the If these conditions are not met, the SEC’s position is private transaction is the effectiveness of a shelf of the securities for resale. in the prospectus, the investor(s) must be identified as underwriter(s) as well as selling when a company issues securities to investors in a registration the registration statement must be on a form that the company may register the securities for resale if PIPE it is primarily eligible to use Form S-3 or Form F-3 and transactions are different from “equity-line” offerings, discloses in the prospectus issues relating to the described below. potential violation of Section 5 in connection with the What is an “equity-line” offering? private transaction. Under an equity line of credit, the company enters into Source: SEC Compliance and Disclosure an agency agreement with an investor, under which the Interpretations, Securities Act Rules, Question 139.13 company has the right, during the term of the equity and Question 139.14 (May 16, 2013 and November 26, line and subject to certain conditions, to put its 2008, respectively), available at securities to the investor. www.sec.gov/divisions/corpfin/guidance/securitiesactr ules-interps.htm. Some equity lines of credit are completed using a shelf registration statement and others are completed as What is an “unallocated” shelf registration statement? private placements with an obligation to register the An unallocated shelf registration statement registers resale of the securities sold under the equity line. In the only a dollar amount of various classes of securities in latter case, because of the delayed nature of the offering, an offering, without identifying the specific dollar and because the investor is not “at investment risk” for amount registered for each class of securities. This is the securities when the resale registration statement is also known as a “kitchen sink” or “universal” filed, the SEC considers this type of registration to be an registration statement. Only issuers and their affiliates indirect primary offering. In these situations, the SEC that are primarily eligible to use Form S-3 or Form F-3 will allow the company to register the “resale” of the may file an unallocated shelf registration statement. securities before exercising the “put” only if the In unallocated shelf registration statements, all that is transactions satisfy the following conditions: required to be disclosed is the types of securities that the company must have “completed” the may be sold. The specific type of security and amount private transaction with respect to all of the to be sold is disclosed at the time of a takedown in a prospectus supplement. 16 See “Can a shelf registration statement be converted into an unallocated shelf registration effective” as to such new securities, as that term is used statement?” in Trust Indenture Act Section 309(a)(1). In this case, Source: SEC Release No. 33-6964 (October 22, 1992) the indenture will be required to be filed as an exhibit to adopted the unallocated shelf procedure. See also SEC the registration statement at the time that the post- Release No. 33-8591 (July 19, 2005), Section V.B.2.b.ii(A). effective amendment becomes effective. Source: SEC Release No. 33-6964 (October 22, 1992). Can a shelf registration statement be converted into an See also SEC Release No. 33-8591 (July 19, 2005), footnote unallocated shelf registration statement? 527; and SEC Compliance and Disclosure Yes, a shelf registration statement that registers a Interpretations, Securities Act Rules, Questions 212.18 specific type of security or dollar amounts allocated and 19 (Jan. 26, 2009), available at among specific classes of securities generally may be www.sec.gov/divisions/corpfin/guidance/securitiesactr amended by post-effective amendment to become an ules-interps.htm; and SEC Compliance and Disclosure unallocated shelf registration statement as long as no Interpretations, Trust Indenture Act of 1939, Question new classes of securities are added. In addition, WKSIs 201.02 (March 30, 2007), available at may add new classes of securities by post-effective http://www.sec.gov/divisions/corpfin/guidance/tiainter amendment. p.htm. 1 See “What is an ‘unallocated’ shelf registration statement?” and “What are the benefits of May an issuer simultaneously engage in more than one qualifying as a well-known seasoned issuer?” “takedown” off an unallocated shelf registration The Trust Indenture Act of 1939 prevents issuers from statement? issuing debt securities under a shelf registration statement that were not included as one of the types of Yes. For example, an issuer could simultaneously offer securities described in the unallocated registration shares of common stock and a class of debt securities statement. Specifically, the Trust Indenture Act requires from the same shelf registration statement. In addition, the indenture covering those securities to be qualified if the issuer filed a shelf registration statement on Form when the registration statement becomes effective. S-1 or Form F-1 and the base prospectus indicated that Qualification cannot be accomplished via a post- the issuer could use the prospectus to engage in effective amendment. acquisitions new class amendment; of the debt However, a WKSI may add a securities automatic by of firm commitment underwritten offerings, the issuer may engage in both at the same post-effective effectiveness or time. See “Can an issuer use a shelf registration statement an for acquisitions?” amendment that adds securities to a shelf registration statement will be the time “when registration becomes Source: See, e.g., SEC Compliance and Disclosure Interpretations, Securities Act Rules, Question 212.02 1 Note that a post-effective amendment can be on any form then available to an issuer. Thus, an issuer with an allocated shelf on Form S-1 could file a post-effective amendment on Form S-3 to convert to an unallocated shelf registration statement and to take advantage of forward incorporation by reference. (Jan. 26, 2009), available at www.sec.gov/divisions/corpfin/guidance/securitiesactr ules-interps.htm. 17 When is a post-effective amendment (as opposed to a Filing Requirements for Shelf Registration prospectus supplement) required to be filed? Are there specific undertakings that an issuer must The three instances when a post-effective amendment is provide in connection with a shelf offering? required instead of a prospectus supplement are when: Yes. All issuers must include the undertakings set forth there is a “fundamental change” (a greater threshold than “material”) to the disclosure; in Item 512(a)(1) of Regulation S-K. These undertakings include the duty to update the prospectus under Section disclosure in the registration statement must 10(a)(3) of the Securities Act to reflect fundamental be updated for Securities Act Section 10(a)(3) changes and changes in the plan of distribution. Issuers purposes; and also must undertake to deregister any unsold securities at the end of the offering. there is a change to the plan of distribution (e.g., switching to an “at-the-market” offering from a firm commitment offering). The SEC amended Item 512(a) of Regulation S-K in 2005 to add new undertakings under which a registrant However, the undertaking to file a post-effective agrees that, consistent with new Rule 430B and Rule amendment for those three instances will not apply if 430C, information in prospectus supplements is deemed the registration statement is on Form S-3 or Form F-3, part of and included in the applicable registration and the required information is contained in an statement as of specified dates (generally the earlier of Exchange Act report (including a Current Report on the date the prospectus supplement is first used or the Form 8-K) that is incorporated by reference in the date of the first contract of sale for securities in the registration statement or is contained in a prospectus offering described in the prospectus supplement). The supplement filed under Rule 424(b). new undertakings also include an agreement that, for In a delayed primary shelf offering, the specific terms liability purposes of the registrant and any underwriter, of the offering (e.g., price, number of securities, etc.) that date will be deemed the new effective date of the usually are provided in a prospectus supplement filed registration statement relating to the securities to which under Rule 430A of Regulation C. Accordingly, a post- that prospectus supplement relates. effective amendment to the registration statement is not Source: SEC Release No. 33-8591 (July 19, 2005), needed. See “What is a ‘prospectus supplement’?” Section V.B.1.b.vii; and SEC Division of Corporation Finance Securities Offering Reform Source: See Item 512(a)(1) of Regulation S-K and SEC Transition Release No. 33-8591 (July 19, 2013), Section V.B.1.b.vii. Questions and Answers (September 13, 2005), Question 3, available at When must financial statements in a shelf registration http://www.sec.gov/divisions/corpfin/transitionfaq.htm. statement be updated? The “going stale” rules under Regulation S-X are applied as of the filing date of the shelf registration statement and/or the effective date of the registration 18 statement. In addition, after nine months have passed When must a shelf registration statement comply with from the effective date of the registration statement, the the financial statement requirements for subsidiary audited balance sheet can be no more than 16 months guarantors set forth in Rule 3-10 of Regulation S-X? old. Financial statements typically are updated through With respect to financial reporting requirements for incorporation by reference of the issuer’s annual and subsidiary guarantors, Rule 3-10 of Regulation S-X quarterly reports filed under the Exchange Act. relates to a variety of situations that involve a parent Source: Section 10(a)(3) of the Securities Act and Rule issuer/subsidiary 427. guarantor or a subsidiary issuer/parent guarantor. Although Rule 3-10 is silent as to its application in the case of a shelf registration When must subsidiary guarantors be named in a shelf statement, the SEC has provided informal guidance to registration statement? issuers and their auditors that a shelf registration The federal securities laws treat subsidiary guarantees statement must be in compliance with Rule 3-10 at the as securities separate from the related debt securities. time of effectiveness. The SEC’s position means that an However, under a shelf registration statement, a issuer contemplating the registration of guaranteed debt separate prospectus and registration statement need not would have several options: be prepared for the subsidiary guarantees, and no File Exchange Act reports with the footnote disclosure additional SEC filing fees will apply. required under Rule 3-10. This approach would require An SEC practice rule prohibits additional subsidiary the issuer to anticipate the likely subsidiary guarantors guarantors for debt securities registered on a shelf that would be named in an upcoming shelf registration registration statement from being added to the effective statement, and to prepare its footnote disclosure under shelf Rule 3-10 accordingly. registration statement, corporation is a WKSI. unless the parent See “What is a ‘Well-Known File amended financial statements together with the shelf Seasoned Issuer,’ or ‘WKSI’?” This means that, at the filing. This approach could involve the filing of a Form time of filing a shelf registration statement, the issuer 8-K that contained amended and restated financial must identify each of the subsidiaries that will statements that include the required footnote disclosure. potentially guarantee any debt securities. Each of these Parent companies with no independent assets or operations. subsidiary guarantors must sign the registration These companies could have the most flexibility. In lieu statement, and be bound by the “undertakings” set of financial statements with the required footnote forth in the so-called “Part II pages” of the form. disclosure, these companies could simply make the Source: General Instruction I.D of Form S-3, General following statement (if true) in the text of their Instruction I.C of Form S-3, and SEC Release No. “Description of Debt Securities”: “The parent company 33-8591 (July 19, 2005) at footnote 520 and related text. has no independent assets or operations, the guarantees will be full and unconditional and joint and several, and any subsidiaries of the parent company other than the subsidiary 19 guarantors named in the registration statement of which this prospectus forms a part are requirements after the filing of the shelf registration minor.” statement. See also Topic 9820 in the Division of Corporation Finance Financial Reporting Manual, If the situation changes at the time of a takedown (for example, an offering involves different subsidiary available at guarantors than those contemplated by the existing http://www.sec.gov/divisions/corpfin/cffinancialreporti financial statements, or a parent corporation that ngmanual.pdf. previously acted solely as a holding company acquires Must a well-known seasoned issuer re-evaluate its material assets or operations of its own), prior to status as such? effecting the offering, the issuer would need to file Yes. A well-known seasoned issuer that has filed an amended financials to be incorporated by reference in automatic shelf registration statement must re-evaluate the shelf registration statement, together with the its WKSI status when it files each subsequent Form 10-K required auditor’s consent letter filed as an exhibit. in order to effect its Securities Act Section 10(a)(3) Adding the amended information only to a prospectus update. If it determines that it no longer qualifies as a supplement would not be sufficient, as an issuer cannot WKSI at the time it files its Form 10-K (or on the due file an auditor’s consent as an exhibit to a prospectus date of that annual report, if earlier), the issuer should supplement. amend The financial reporting requirements described above its effective automatic shelf registration statement on the form that it is then eligible to use. do not necessarily end at the time the shelf registration statement is filed or a takedown completed. An issuer that has an effective automatic shelf This is registration statement, but learns after the effective date because each subsidiary guarantor becomes an SEC that it has lost its status as a WKSI, may continue to use registrant, required to file periodic reports for the first that registration statement until the time of its Securities year thereafter under Section 15(d) of the Exchange Act. Act Section 10(a)(3) update. As in the case of the Securities Act, separate reports are not required for each subsidiary guarantor. Source: Rather, The SEC’s Securities Offering Reform Rule 12h-5 under the Exchange Act provides that parent Questions and Answers (November 30, 2005), Questions company financials prepared in accordance with Rule 15 and 21, available at 3-10 of Regulation S-X will satisfy the requirement to http://www.sec.gov/divisions/corpfin/faqs/securities_off provide financial information as to the subsidiary ering_reform_qa.pdf. guarantors under the Exchange Act. Disclosure See also SEC Compliance and Interpretations, Securities Act Rules, Questions 198.03 and 198.06 (Jan. 26, 2009), available at Under the SEC’s staff informal guidance since October www.sec.gov/divisions/corpfin/guidance/securitiesactr 2007, this obligation would begin to apply following the ules-interps.htm. effectiveness of a shelf registration statement, even though no securities with subsidiary guarantees are actually outstanding. Accordingly, issuers registering guaranteed debt need to be sensitive to the Rule 3-10 20 Is a legality opinion required to be pre-effectively filed Frequent issuers using a medium-term note program for a shelf registration statement relating to a delayed registered on a shelf registration statement may find it offering? difficult or cumbersome to file an unqualified opinion Yes. A registration statement under Rule 415 cannot be by post-effective amendment or on a Form 8-K or 6-K made effective without a legality opinion, even if no for each shelf takedown. In 2011, the SEC issued Staff takedown is currently contemplated, and even if the Legal Bulletin No. 19, in which they provided for the specific terms of the securities to be offered are not filing of a “forward looking opinion” with the shelf known at the time of filing. registration statement for future takedowns, subject to the requirements of the bulletin. For more information, The issuer may file a signed opinion of counsel that see “Frequently Asked Questions About Medium-Term contains appropriate qualifications, subject to the Note Programs — Effecting an MTN Offering – How do understanding that an unqualified opinion will be filed issuers satisfy their obligations to file legal opinions for prior to the time any sales are made under the an MTN offering?” at registration statement. http://media.mofo.com/files/Uploads/Images/080818FA Examples of acceptable assumptions that may be QsMTN.pdf. made in the qualified opinion are: Source: the issuer’s board of directors will have taken Compliance and Disclosure Interpretations, Securities Act Rules, Question 212.05 all actions, and passed all resolutions necessary (Aug. 14, 2009), available at to authorize the issuance and sale of the www.sec.gov/divisions/corpfin/guidance/securitiesactr securities; and SEC ules-interps.htm. See also the SEC’s Securities Offering all regulatory approvals will have been Reform Questions and Answers (November 30, 2005), received. Question 20. Staff Legal Bulletin No. 19 may be found If a WKSI amends its effective automatic registration on the SEC’s website at: statement to add a new class of securities, a legality http://www.sec.gov/interps/legal/cfslb19.htm. opinion (which may contain appropriate qualifications) must be filed with the post-effective amendment. When is a shelf offering exempt from FINRA filing under the Corporate Financing Rule? Once a takedown is planned, an unqualified opinion must be filed either in a post-effective amendment (a Under post-effective amendment solely to add exhibits is (“FINRA”) Rule 5110, known as the Corporate automatically effective upon filing per Rule 462(d)) or Financing Rule, shelf offerings by an issuer that is through incorporation by reference into the registration eligible to use a Form S-3 or Form F-3 registration statement by filing under cover of Form 8-K or Form statement based on the eligibility requirements for those 6-K. See “What is ‘incorporation by reference’?” and “When Forms that were in effect prior to October 21, 1992, are should an indenture be qualified under the Trust Indenture generally exempt from FINRA filing. The pre-October Act in connection with a delayed offering of debt securities?” 21, 1992 eligibility requirements are (1) the issuer has a 21 Financial Industry Regulatory Authority public float of at least $150 million ($300 million for If the terms of future debt offerings are not known at issuers using Form F-3) and (2) the issuer has been a the time of filing, the indenture that is filed pre- reporting company under Section 13(a) or Section 15(d) effectively of the Exchange Act for at least 36 months. description of the securities. The details of a particular may contain a generic, non-specific series to be offered (i.e., interest rate, term, etc.) may be Shelf offerings also are generally exempt if the issuer non- provided in a supplemental indenture at the time such convertible debt with a term of issue of at least four series is offered. A prospectus supplement may be used years, preferred to reflect the specific terms of the series in the securities. A FINRA filing is required for each shelf prospectus, and the supplemental indenture may be takedown for an issuer that is unable to rely on these or filed as an exhibit to a Form 8-K in the same manner as another exemption under the Corporate Financing Rule. specified for underwriting agreements, or in an is registering or investment unsecured grade unsecured non-convertible automatically effective, exhibits-only, post-effective Please note that if the shelf registration statement amendment under Rule 462(d). involves an underwriter that is affiliated with the issuer, the shelf filing will be subject to filing with FINRA A WKSI that files an automatic shelf registration may under FINRA’s conflict of interest rules, unless FINRA’s determine after effectiveness to add a new class of debt exemption from such a filing applies, as set forth in securities or guarantees of debt securities. In addition FINRA Rule 5121(a)(1). This rule requires, among other to filing a post-effective amendment to register the new things, prominent disclosure of the conflict of interest. class of debt securities or guarantees, the issuer also needs to qualify all appropriate indentures under the Source: FINRA Rules 5110(b)(7) and 5121. Trust Indenture Act. Under the amended automatic When should an indenture be qualified under the Trust shelf registration procedure, the Trust Indenture Act Indenture Act in connection with a delayed offering of qualification requirement will be satisfied for those new debt securities? debt Under the Trust Indenture Act, the indenture must be indentures in the registration statement at the time the “qualified under the statute.” An indenture covering post-effective securities to be issued in a shelf registration statement automatically effective. must be filed with the registration statement prior to securities Source: or guarantees amendment SEC is by filed Compliance including and and the becomes Disclosure effectiveness because the Trust Indenture Act does not Interpretations, Securities Act Rules, Questions 212.18 provide for an indenture to be qualified by post- and 19 (Jan. 26, 2009), available at effective amendment. The shelf registration statement www.sec.gov/divisions/corpfin/guidance/securitiesactr must include a form, usually a Form T-1, and must ules-interps.htm; describe certain key provisions of the indenture. A Disclosure Interpretations, Trust Indenture Act of 1939, Form T-1 sets forth information enabling the SEC to Questions 103.01 and 109.01 (Mar. 30, 2007), available at determine whether the designated trustee is eligible to http://www.sec.gov/divisions/corpfin/guidance/tiainter act under the standards of the Trust Indenture Act. 22 see also SEC Compliance and p.htm and SEC Release No. 33-8591 (July 19, 2005), Limitations on Shelf Registration footnote 527. For how long can a shelf registration statement be When is the trustee designated if the identity of the used? trustee is not known at the time the registration Prior to the 2005 securities offering reform rule statement is filed? amendments, offerings under Rule 415(a)(i), (viii), (ix) At the time that an issuer files a shelf registration and (x) were unlimited in time. statement, it may not know who will serve as trustee. A shelf registration statement did not have an “expiration date.” However, Accordingly, Section 305(b)(2) of the Trust Indenture the amount of securities that could be registered was Act permits the trustee to be designated on a delayed limited to an amount that, at the time the registration basis. In that case, for an issuer that is not a WKSI, the statement became effective, was reasonably expected to Form T-1 would be filed with the SEC just prior to the be offered and sold within two years from the initial applicable takedown. effective date. If an issuer has completed its use of a shelf registration The 2005 amendments provide that offerings under statement, and securities remain unsold, what should Rule 415(a)(1)(x) and continuous offerings under Rule be done? 415(a)(1)(ix) that are registered on Form S-3 or Form F-3 If securities remain unsold, the issuer can do one of two are not subject to the two-year limitation on the amount things. First, the issuer could deregister the securities of securities that can be registered, but also provide that by filing a post-effective amendment with the SEC. The a shelf registration statement can only be used for three post-effective amendment is simple. It should consist years (subject to a limited extension) after its initial of: effective date. registration statements must be filed every three years, a registration statement cover page; and an additional page indicating that the offering with unsold securities and fees paid under an “expiring” registration statement rolled over to the new has been terminated and listing the number or registration statement where it relates to: amount of securities remaining unsold. In the alternative, if the remaining securities are not offerings by WKSIs on an automatic shelf registration; or deregistered, the issuer may “carry forward” these securities, and the related registration fee, to a later offerings described in Rule 415(a)(1)(vii), (ix) or (x). Securities Act filing. Source: Under the current rules, new shelf The three-year time limitation was adopted because Item 512(a)(3) of Regulation S-K and SEC The the SEC believes that the precise contents of shelf ability to “carry forward” shares to a later registration registration statements may become difficult to identify statement is based on Rule 429 of Regulation C. See also over time (since many different documents may be “For how long can a shelf offering be used?” incorporated by reference) and that markets will benefit Release 33-7943 (January 26, 2001), footnote 68. 23 from a periodic updating consolidation Prior to the effectiveness of the new shelf registration requirement. The two-year limitation on the amount of statement, the issuer can amend it to include any securities that may be registered continues to apply to securities remaining unsold from the old registration business statement. combination and transactions under Rule The SEC filing fees attributable to those 415(a)(i)(viii) and continuous offerings under Rule securities may be rolled over to the new registration 415(a)(i) and (ix) that are not registered on Form S-3 or statement. Form F-3. under the old registration statement prior to the end of the three-year period may continue on the old Some other types of shelf registration statements are registration statement until the effective date of the new not subject to the three-year limitation, including: registration statement if they are permitted to be made registration statements to be used only for under the new registration statement. secondary offerings by selling security holders; For WKSIs, as long as the issuer remains a WKSI, the and In addition, continuous offerings begun new shelf registration statement will be effective acquisition shelf registration statements. immediately upon filing. Source: Rule 415(a)(2) and (5) and SEC Release No. The issuer may elect to include on the new registration statement any unsold 33-8591 (July 19, 2005), Section V.B.1.b.iv. securities covered by the old registration statement and SEC filing fees paid attributable to those securities. When does the three-year period begin for shelf registration statements? Source: Rule 415(a)(5) and SEC Release No. 33-8591 (July 19, 2005), Section V.B.1.b.iv.A and Section The three-year period begins on the initial effective V.B.2.b.ii.G. date of the shelf registration statement. Source: Rule 415(a)(5). Is an issuer prevented from engaging in private transactions during the pendency of a shelf registration How can an issuer avoid a blackout period between because of the doctrine of integration? effective shelf registration statements? It depends. In the case of shelf registration statements other than automatic shelf registration statements filed by WKSIs, The answer is “generally no” for delayed offerings by as long as the new shelf registration statement is filed the issuer, unless the issuer is currently engaged in a within three years of the original effective date of the “takedown.” The answer is “maybe” if the issuer is old registration statement, the issuer may continue to engaged in a continuous offering. offer and sell securities from the old registration If, at the time of the private offering, the issuer is statement for up to 180 days thereafter until the new engaged in a “takedown” or offering securities in a registration statement is declared effective. The 180-day continuous offering, the five-factor integration test of extension does not apply to automatic shelf registration Rule 502(a) must be considered. statements, which are effective immediately upon filing. The acquisition shelf procedures are a means by which integration can be avoided when completing multiple 24 privately negotiated acquisitions. See “Can an issuer use Liability Issues for Shelf Registration a shelf registration statement for acquisitions?” Source: SEC Compliance and Disclosure Does Section 11 liability attach to a “takedown”? Interpretations, Securities Act Rules, Question 212.06 The SEC’s position has always been that Section 11 (Jan. 26, 2009), available at liability under the Securities Act attaches to the www.sec.gov/divisions/corpfin/guidance/securitiesactr prospectus supplement and incorporated Exchange Act ules-interps.htm and Securities Act Release No. 8828 reports, but some commentators disagreed. However, (August 3, 2007) confirm that the analysis of whether an Rule 430B and Rule 430C, adopted in 2005, codify the existing shelf offering precludes an issuer from SEC’s position (which was generally taken by the courts engaging in a concurrent private offering depends upon in the case of takedowns off a shelf) that the information the facts and circumstances. contained in a prospectus supplement required to be filed under Rule 424, whether in connection with a Is “free writing” permissible in connection with a takedown or otherwise, will be deemed part of and delayed offering? The SEC’s amendments 2005 securities enabled the offering use of reform “free included in the registration statement containing the rule base prospectus to which the prospectus supplement writing relates. See “What is a ‘prospectus supplement’?” prospectuses.” Generally, under Rule 433, free writing Source: SEC Release No. 33-6714 (May 27, 1987); SEC is permitted after a registration statement containing a statutory prospectus has been filed. Release No. 33-7606A (November 13, 1998), Section For shelf V.A.1.e.; Rule 430B; Rule 430C; and SEC Release 33-8591 registrations, the statutory prospectus contained in the (July 19, 2005), Section V.B.1.b.ii. For an example of case registration statement may be the base prospectus. See law supporting the application of Section 11 to “What is a ‘base’ or a ‘core’ prospectus?” Under Rule 163, prospectus supplements filed in connection with WKSIs also may use free writing prospectuses before a “takedowns,” see Shaw v. Digital Equipment Corp., 82 registration statement is filed. Source: F.3d 1194 (1st Cir. 1996). Rule 163, Rule 433, and SEC Release No. 33-8591 (July 19, 2005), Section III. D.3.b. Section 2(a)(10) As of what dates are prospectus supplements deemed of the Securities Act permits an issuer to issue written included in the related registration statement? As to materials relating to an offering that do not satisfy the misstatements in a registration statement, what is the requirements of Section 10(a) of the Securities Act, as new effective date of such registration statement for long as the non-conforming writings are accompanied takedowns? or preceded by a prospectus that meets the For prospectus supplements filed other than in requirements of Section 10(a). connection with a takedown of securities, all information contained therein will be deemed part of and included in the registration statement as of the date the prospectus supplement is first used. For prospectus 25 supplements in connection with takedowns, it is the pertains to resale transactions “solely on behalf” of earlier of the date the supplement is first used or the selling security holders). date and time of the first contract of sale for the For example, a registered underwritten offering that securities. includes shares issued by the issuer and selling security For Section 11 liability purposes only for the issuer holders is exempt from Regulation FD, but a registered and any underwriter in connection with a takedown, underwritten offering of only selling security holders’ Rule 430B establishes a new effective date for the shelf shares is subject to Regulation FD. Accordingly, in the registration statement, which will be the date the former case, an issuer free writing prospectus can be prospectus supplement filed in connection with the used without raising any Regulation FD concerns. takedown is deemed part of and included in the However, in the latter case, the use of an issuer free relevant registration statement as described above. This writing prospectus must be evaluated in the context of rule establishes a new starting date for the applicable Regulation FD. In adopting Regulation FD, the SEC statute of limitations in the Securities Act and also expressed eliminates what may have been an unwarranted statements involving only secondary sales are often disparate treatment of underwriters and issuers if an effective and used for a very long period, an issuer issuer’s liability was assessed as of the earlier initial could be effectively exempt from Regulation FD if the effective date of the registration statement. exclusion for registered offerings covered them. Source: Rule 430B, Rule 430C, and SEC Release No. its concern that, because registration Source: Regulation FD, Section 100(b)(2)(iv); SEC 33-8591 (July 19, 2005), Section V.B.1.b.iii. Release No. 33-8591 (July 19, 2005), Section XII, Item 61; and SEC Release No. 33-7881 (August 15, 2000), footnote Are shelf offerings subject to Regulation FD? In some cases. 80. Rule 100(b)(2)(iv) of Regulation FD exempts offerings registered under the Securities Act, Are underwriters expected to perform the same standard except offerings registered under Rule 415(a)(i)-(vi). In of due diligence for a shelf offering? the case of an offering under Rule 415(a)(i)-(vi), the Rule 176 under the Securities Act sets forth several issuance and delivery of the registration statement, the relevant prospectus and certain free writing prospectuses will conduct constitutes a reasonable investigation or not be deemed a violation of Regulation FD. reasonable grounds for belief under Section 11(c) of the circumstances for determining whether In general, ongoing and continuous offerings on Securities Act, which defines the circumstances in behalf of selling security holders will not be exempt which an underwriter’s due diligence defense is from Regulation FD. available. However, continuous and ongoing offerings on behalf of selling security holders These circumstances include: that also involve a registered offering, whether or not underwritten, by the issuer for capital formation purposes, will be exempt (because Rule 415(a)(i) 26 the type of issuer; reasonable reliance on officers, employees and others whose duties should have given them knowledge of particular facts; and with respect incorporated to by facts or reference, documents whether the particular person had any responsibility for the facts or documents at the time of the filing from which it was incorporated. A 2004 U.S. federal district court examined underwriters’ due diligence obligations with respect to shelf offerings and suggested that Section 11 requirements for underwriters have not been diluted even though there has been a significant decrease in the amount of time underwriters have to perform due diligence (largely because issuers can incorporate by reference prior disclosure), underwriters lack input into filings incorporated by reference, and the cast of underwriters often changes from one shelf offering to the next. The SEC’s historical commentary with respect to Rule 176 states that the implementation of the rule did not alter the fundamental nature of underwriters’ due diligence obligations and that competitive timing and pressures are not to be considered when evaluating the reasonableness of an underwriters’ investigation. Source: Rule 176. See also In re WorldCom, Inc. Securities Litigation, 346 F. Supp. 2d 628 (S.D.N.Y. 2004). _____________________ By Lloyd S. Harmetz, Partner, and Bradley Berman, Of Counsel, Morrison & Foerster LLP © Morrison & Foerster LLP, 2016 27
Source Exif Data:
File Type : PDF File Type Extension : pdf MIME Type : application/pdf PDF Version : 1.6 Linearized : Yes Create Date : 2016:02:05 11:39:02-05:00 Modify Date : 2016:02:05 11:30:40-08:00 Language : en-US Tagged PDF : Yes XMP Toolkit : Adobe XMP Core 5.4-c005 78.147326, 2012/08/23-13:03:03 Format : application/pdf Creator : Title : Frequently Asked Questions about Shelf Offerings Creator Tool : Microsoft® Word 2010 Metadata Date : 2016:02:05 11:30:40-08:00 Producer : Microsoft® Word 2010 Document ID : uuid:cbf234d5-4e32-43d6-9f02-3820376f6edf Instance ID : uuid:42aaee5e-6e14-4a75-b38a-94683c3dacc6 Page Count : 27EXIF Metadata provided by EXIF.tools