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AN ISSUER’S GUIDE TO ACCESSING THE PUBLIC MARKETS DURING A ONCE DORMANT PERIOD

12.31.10

Consider a problem that a number of public companies face each year: A public company needs to raise capital to finance an acquisition or meet some other financial obligation.  The company’s financial advisors have informed the company that the public markets are prime for an offering, and thus the company intends to issue its shares in a public offering to raise the capital.  Assuming the company meets the requisite qualifications, the common approach, which minimizes time and costs associated with the offering and results in a streamlined prospectus, is to register the offering using a shelf registration statement that incorporates its recently filed Form 10-K.  The Form 10-K requires Part III Information (including certain information about directors, officers and compensation), which the company (as well as many other registrants) incorporates by reference to its definitive proxy statement.  However, the definitive proxy statement is not filed and will not be filed until the due date, which is months away.

Issue:  Will the SEC will permit a company to register shares for an offering using a shelf registration statement after the company files its Form 10-K (without the Part III Information) and before the company files its definitive proxy statement with the Part III Information. 

The SEC’s Position and the History Thereof

Before the Securities Act reforms in SEC Release No. 33-8591 (the “Release”) (effective Dec. 1, 2005), the SEC’s position was that a registrant must either file its definitive proxy statement before the shelf registration statement becomes effective or include the Part III Information in its Form 10-K[1].  After the Release, the mechanics and automatic effectiveness of an automatic shelf registration statement (a “Form S-3ASR”) triggered questions from issuers on whether a well-known seasoned issuer (a “WKSI”) can file a Form S-3ASR after it files its Form 10-K (without Part III Information) and before it files its definitive proxy statement with the Part III Information.  The Office of the Chief Counsel of the SEC’s Division of Corporation Finance responded to this issue by stating that, during this period, WKSIs may file a Form S-3ASR (which will become automatically effective) but that the prospectus is not complete until the Part III Information is somehow included in either the Form 10-K or the definitive proxy statement, or by putting the information in a prospectus supplement.  The Staff subsequently changed its position and indicated that it will not object to such a filing or a takedown during the period in question.  However, the Staff went on to state that the parties must make their own decisions with counsel as to whether the registration statement and prospectus satisfy applicable requirements.  This current position of the SEC appears to be codified in the SEC’s Compliance and Disclosure Interpretations dated Jan. 26, 2009, which is set forth below.

Question 198.05

Question:  May an issuer file or use an automatic shelf registration statement on Form S-3 after the issuer has filed its Form 10-K but prior to filing the Part III Information that will be incorporated by reference into the Form 10-K?

Answer:  Yes.  However, issuers are responsible for ensuring that any prospectus used in connection with a registered offering contains the information required to be included therein by Securities Act Section 10(a) and Schedule A.  [Jan. 26, 2009]

Schedule A references director information, security ownership and director and officer compensation of the same spirit as that required in the Part III Information.

OUR TAKE:  In light of the SEC’s position on this issue, a company should analyze its position as summarized in the following chart:

 

Company is not a WKSI

 

Company is a WKSI

Company does Not have an Effective Shelf Registration Statement

  • The SEC will not declare a non-automatic shelf registration statement effective during this period.

 

  • The company may file a Form S-3ASR during this period.  However, issuers are responsible for ensuring that the prospectus contains the Part III Information, whether through incorporation by reference or otherwise.

Company has an Effective Shelf Registration Statement on File with the SEC

  • The SEC will not object to a takedown from an existing, effective shelf registration statement during this period.  However, issuers are responsible for ensuring that the prospectus contains the Part III Information, whether through incorporation by reference or otherwise. 
  • The SEC will not object to a takedown from a Form S-3ASR during this period.  However, issuers are responsible for ensuring that the prospectus contains the Part III Information, whether through incorporation by reference or otherwise.

 


[1]  See the Telephone Interpretations of the SEC’s Division of Corporation Finance.

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