Nicholas "Nick" Carraway, the GC of NYSE-listed West Egg Inc. is on the line. Jay Gatsby, Nick’s neighbor and lead banker at Gatsby & Co., is pitching Nick on the idea of a tender offer for its old-line rival East Egg Inc., and Nick tells you he wants to use West Egg’s shelf for a primary equity offering to finance the M&A deal.

You check the shelf, and discover that it will be three-years old next week. So you’ve got an issue – under Securities Act Rule 415(a)(5), shelf registration statements on Form S-3 for primary offerings and WKSI automatic shelves expire on the third anniversary of the original effective date. (Things are different for a secondary Form S-3 shelf, since they do not have a fixed expiration date.)

What should you do? Let’s assume West Egg is not a WKSI – if it were, it would simply file an immediately effective shelf registration statement on Form S-3 ASR before its old shelf expired.

The grace period

Rule 415(a)(5) provides that, if a non-WKSI issuer files a replacement shelf registration statement in respect of the same securities prior to the third anniversary of the date on which the existing shelf became effective, it can continue to sell securities under the existing shelf until the earlier of:

  • effectiveness of the new registration statement, or
  • 180 days after the expiration of the existing shelf.

So, if West Egg files a new Form S-3 by the end of this week, it will extend the life of its expiring shelf for much longer than the time the company should need to complete a new offering of securities and finance the acquisition of East Egg. The key here is to get the new shelf on file before the old shelf expires.

The Mechanics of Filing a Replacement Shelf Registration Statement

Nick calls a few hours later to let you that he has a new Form S-3 ready in draft form for your review, under which West Egg would register $600 million of common stock for sale on a delayed basis. He also asks a few questions:

The expiring shelf registered $400 million in securities. Given that the company has sold none of the securities covered by the expiring shelf over the last three years, can it save a few dollars by including its unsold securities on the replacement registration statement and offsetting some of the fees paid in 2010 against any fees payable in connection with the new S-3 filing?

Yes. Under Securities Act Rule 415(a)(6), West Egg Limited can roll over all its unsold securities covered by the expiring shelf to the new shelf without paying any filing fees in respect of the securities. The company will only pay filing fees in respect of the additional $200 million of securities being registered in the replacement shelf.

C&DI 212.24 lays out the road map:

  • the facing page of the replacement registration statement (or any pre-effective amendment) would identify the amount of the unsold securities being included on the replacement registration statement and any filing fee paid in connection with the unsold securities;
  • you should include the file number of the expiring registration statement as part of this disclosure;
  • as noted above, no additional fee is required with respect to securities included in reliance on Rule 415(a)(6). However, a filing fee would be required for any new securities registered on the replacement registration statement; you can only rely on Rule 415(a)(6) to include on the new replacement registration statement securities that remain unsold on an expiring registration statement. In other words, you could not include a new type of security without paying the filing fee;
  • when completing the EDGAR header tags for a replacement registration statement (or any pre-effective amendment) that is not an ASR, you must specify a “Proposed Maximum Aggregate Offering Price,” which should include only the newly registered securities for which a fee will be payable at the time of filing the replacement registration statement; and
  • with one exception, the amount of unsold securities that are being included on the replacement registration statement should not be included as part of the “Proposed Maximum Aggregate Offering Price” EDGAR header tag. However, if you opt not to register any new securities and the replacement registration statement will cover only securities included from the expiring registration statement, you should enter “$1” in the “Proposed Maximum Aggregate Offering Price” EDGAR header tag and “$0” as the fee paid. The EDGAR system will not accept a Securities Act registration statement (other than an WKSI ASR using the “pay as you go” fee provisions of Rule 456(b)) unless a “Proposed Maximum Aggregate Offering Price” is specified in the EDGAR header tag. The $1 amount will not result in a fee assessment by the EDGAR system and will allow the acceptance of the replacement registration statement without the filing being blocked.

West Egg plans to take advantage of the Rule 415(a)(5) “grace period” and sell $380 million of common stock to the public under the expiring shelf to finance the acquisition of East Egg. This, however, would reduce the unsold amount of securities being moved from the old shelf to the new shelf to a mere $20 million. Would the company have to pay additional filing fees to the SEC then?

West Egg will need to file an amendment to the new registration statement prior to it being declared effective by the SEC to reflect any sales of securities completed during the grace period. In connection with this pre-effective amendment to the newly filed Form S-3, the company would have to either (i) reduce the total amount of securities being registered under the new shelf to $220 million (i.e., by the amount of securities sold during the grace period), or (ii) pay filing fees at the current rate in respect of $380 million of additional securities registered under the new shelf and no longer carried over from the expiring shelf. Any filings (such as prospectus supplements or FWPs) related to offerings during the grace period should reflect the expiring registration statement file number. See C&DIs 212.25 and 212.26.

Is there anything else Nick should be thinking about in connection with the replacement shelf?

You should confirm that West Egg still meets the applicable registrant and transaction requirements of Form S-3. In addition, given that West Egg is considering a potentially significant acquisition in the near future, you should confirm that you have any needed historical financial statements of East Egg and pro forma financial information for the combined entity.