Frequently Asked Questions About Shelf Offerings S 8 FAQShelf

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

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