In the wake of regulations implemented by the Securities and Exchange Commission under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and, before that, the Sarbanes-Oxley Act of 2002, US public companies and foreign private issuers continue to face substantial disclosure requirements in SEC periodic reports and accelerated filing deadlines for those reports, as well as increased scrutiny from regulators. In addition, there are a number of events that trigger current reporting (four business days) with the SEC on Form 8-K. As a result, the likelihood of missing an SEC filing deadline remains at a heightened level. The impact of a missed filing will vary depending on the nature of the missed report, the reasons underlying the delinquency and the company’s anticipated timetable for ultimately making the required filing. If you are in the legal or finance department of a public company that finds itself missing an SEC filing deadline, these are some of the important issues that you need to be thinking about.
Notification to SEC of Inability to File on Time
If an annual report on Form 10-K or Form 20-F or a quarterly report on Form 10-Q is not filed within the required time period, the issuer must file with the SEC within one business day of the due date for the report a Form 12b-25 (designated as an "NT 10-K", "NT 20-F" or "NT 10-Q" in the EDGAR filing system) disclosing its inability to file the report timely and the reason for the delay. If a Form 10-K, Form 20-F or Form 10-Q cannot be filed timely "without unreasonable effort or expense", the report will be deemed to be filed on the original filing due date if the company files timely a Form 12b-25, and then files the report not later than the 15th calendar day (for a Form 10-K or 20-F) or fifth calendar day (for a Form 10-Q) following the due date for the missed report. However, if a company fails to file the missing report within the extended time period, no further extensions will be available and the SEC will consider the company to be delinquent as of the original due date of such report and is less likely to provide relief for the missed filing. For instance, if a company misses the extended deadline for a 10-K by a day, the SEC will consider the company to be delinquent for 16 days, not just one day.
Note that Rule 12b-25 filing extensions are not available for Form 8-K filings.
Violation of the Securities Exchange Act of 1934; SEC Enforcement
The failure to file a required SEC report on time constitutes a violation of Section 13(a) of the Exchange Act and the SEC could institute an administrative proceeding against the late filer, among other things, seeking revocation of the company’s registration under the Exchange Act. These proceedings by the SEC are uncommon and are typically aimed at recurring and egregious violations.
Disclosure Issues; Insider Trading Concerns
Companies listed on the NYSE or NASDAQ are required to issue a press release announcing the failure to file timely a periodic report. Late filers typically file a Form 8-K under Item 8.01 (Other Events) reporting the late filing by attaching a copy of the press release. In addition, companies that receive a notice of delisting or failure to satisfy a continued listing rule or standard must report the notice on Form 8-K under Item 3.01. As discussed below, the NYSE also strongly encourages companies to provide ongoing disclosure on the status of a delinquent annual filing to the market through press releases.
Companies that have previously relied on Form S-3 or Form F-3 for shelf registrations and that have become ineligible to utilize Form S-3 or Form F-3 or to takedown from an existing effective Form S-3 or Form F-3 should consider whether disclosure of this change in S-3 or F-3 eligibility and ability to use an existing shelf registration should be included in future reports (e.g., in the Liquidity and Capital Resources section of Management’s Discussion & Analysis).
Of course, material information concerning the underlying reasons for a delinquent periodic report may raise disclosure issues under Rule 10b-5, the SEC rule that is interpreted to prohibit a person in possession of material nonpublic information about a company (including the company itself) from purchasing or selling that company’s securities. If material nonpublic information concerning the reasons for a late SEC report is in the possession of the company or its officers and directors, company share repurchases and insider trading should be halted.
Senior management and investor relations departments are likely to face ongoing questions regarding the issues underlying a delinquent periodic report as well as the timing of addressing those issues. It would be worth reminding those responding to such questions of the company’s obligations under Regulation FD, which prohibits selective disclosure of material nonpublic information.
NYSE and NASDAQ Listing Requirements
Companies listed on the NYSE or NASDAQ face possible delisting if they become delinquent in their SEC filings.
NYSE. Applicable NYSE rules require companies to file annual reports on Form 10-K or Form 20-F with the SEC in a timely manner or face possible delisting. Under the NYSE’s procedures for companies that fail to file timely their annual reports, the NYSE will notify a late filer of its delinquent status, and within five days of receiving the notice, the company must contact the NYSE to discuss the status of the annual report filing and issue a press release disclosing the status of the filing. If the company does not issue a press release, the NYSE itself will do so. The NYSE will also attach an ".LF" indicator to the company’s ticker symbol.
During the six-month period after the missed filing due date, the NYSE will monitor the company and the status of the filing, including through contact with the company, until the annual report is filed. If the company fails to file the annual report within six months after the filing due date, the NYSE may, in its sole discretion, allow the company’s securities to be traded for up to an additional six-month period depending on the company’s specific circumstances. If the NYSE determines that an additional trading period of up to six months is not appropriate, it will commence suspension and delisting procedures.
In determining whether an additional trading period of up to six months is appropriate, the NYSE will consider the likelihood that the overdue filing can be made during the additional period, as well as the company’s general financial status, based on information from a variety of sources, including the company, its audit committee, its outside auditors, the staff of the SEC and any other relevant regulatory body. The NYSE strongly encourages companies to provide ongoing disclosure to the market on the status of the annual report filing through press releases, and will also take the frequency and detail of such information into account in determining whether an additional six-month trading period is appropriate.
NYSE rules also provide that the failure of a company to make timely, adequate and accurate disclosures of information, including failure to file timely quarterly reports on Form 10-Q, may also result in similar delisting procedures. Note also that trading in any security can be suspended immediately, and application can be made to the SEC to delist the security, if the NYSE deems it necessary or appropriate in the public interest or for the protection of investors.
NASDAQ. Under applicable NASDAQ rules, listed companies must comply with SEC filing requirements. NASDAQ-listed companies face delisting for missed quarterly Form 10-Q filings as well as for missed annual Form 10-K and Form 20-F filings. Under NASDAQ rules, a foreign private issuer must also file a Form 6-K, which contains its interim balance sheet and income statement as of the end of its second quarter in English, no later than six months following the end of its second quarter, and will face delisting if it misses this filing.
NASDAQ’s policy is to send a notification of deficiency and grant a delinquent filer the opportunity to submit a plan of compliance within 60 calendar days. NASDAQ staff may defer commencing delisting procedures for up to 180 calendar days from the due date of the periodic report for the company to evidence compliance. If the company fails to regain compliance by filing the missing report prior to the expiration of the grace period or if NASDAQ refuses to accept the plan of compliance, then NASDAQ will issue a staff determination letter that indicates that the company is subject to delisting. The delinquent filer may then request a hearing before a NASDAQ Hearings Panel within seven calendar days of receipt of the staff determination letter. If a company requests a hearing before the NASDAQ Hearings Panel, the delisting action will be automatically stayed for 15 calendar days starting from the end of the seven calendar day period. To obtain a longer stay period, the company must make a specific request to the NASDAQ Hearings Panel for the extension and explain why such a stay would be appropriate in the company’s request for a hearing. The NASDAQ Hearings Panel may permit the company to remain listed for up to 360 calendar days from the due date of the company’s first late filing.
Companies that receive a notification of deficiency from NASDAQ are required to issue a press release announcing the receipt of NASDAQ’s notification of deficiency and the basis therefor. Failure to issue the press release within four business days of receipt of NASDAQ’s notification of deficiency will result in the implementation of a trading halt.
NASDAQ will also append an additional character, "E", to the company’s trading symbol until the company has fulfilled its filing obligations.
Companies facing delisting as a result of delinquent SEC filings are generally expected to provide to the NASDAQ Hearings Panel an estimated date by which they will become current in all SEC filing obligations, together with a schedule of actions to be completed by the company and its auditors. The company should describe any expected adjustments or restatements relating to the financial statements contained in prior filings. The company should also provide copies of all public disclosures pertinent to the filing delinquency or forthcoming restatements.
Form S-3, Form F-3 and "WKSI" Eligibility
Form S-3 and Form F-3 are short-form registration statements that permit issuers to incorporate by reference to Exchange Act reports much of the information that would otherwise be required to be set forth in a long-form registration statement on Form S-1 or Form F-1. Form S-3 and Form F-3 are commonly used by seasoned issuers to put in place debt, equity or universal "shelf registrations" under which future securities offerings can be accomplished through "takedowns" from the shelf with relative speed. Among other eligibility requirements, in order to utilize Form S-3 or Form F-3, issuers must have timely filed all required reports (including annual reports on Forms 10-K and 20-F, quarterly reports on Form 10-Q and certain current reports on Form 8-K) under the Exchange Act during the twelve calendar months and any portion of a month immediately before the filing of the registration statement.
Thus, a Form S-3 or Form F-3 cannot be filed during the Rule 12b-25 grace period and if a company has missed a filing date for a Form 10-K, Form 20-F or Form 10-Q (and has not filed the report within the permitted Rule 12b-25 grace period), absent a waiver from the SEC, it will not be eligible to file a Form S-3 or Form F-3 registration statement for at least twelve full calendar months from the original filing due date and issuers that qualified as Well Known Seasoned Issuers (WKSIs) would lose WKSI status. For example, if a company missed its filing that was due on January 15 but filed all subsequent periodic reports on time, it will be eligible to use a Form S-3 or Form F-3 starting from February 1 because of the requirement to have timely filed all reports for the twelve calendar months and any portion of a month preceding the use of Form S-3 or Form F-3. Note that the original date when the filing was due rather than the date in which the filing was actually filed is used for calculating the return to S-3 or F-3 eligibility even if the company never filed the missing report. However, it is recommended that companies file all reports even if significantly late in order to stay current on their periodic reporting obligations as this affects their Form S-8 eligibility and mitigates their violation of Section 13(a) of the Exchange Act.
Recognizing the hardship that could result from S-3 ineligibility caused by a missed Form 8-K filing, the SEC provided in Form S-3 that failure to file timely certain Form 8-K reports will not result in losing S-3 eligibility. These are:
- Item 1.01 (entry into a material definitive agreement);
- Item 1.02 (termination of a material definitive agreement);
- Item 1.04 (mine safety – reporting of shutdowns and patterns of violations);
- Item 2.03 (creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of a registrant);
- Item 2.04 (triggering events that accelerate or increase a direct financial obligation under an off-balance sheet arrangement);
- Item 2.05 (costs associated with exit or disposal activities);
- Item 2.06 (material impairments);
- Item 4.02(a) (non-reliance on previously issued financial statements or a restated audit report or completed interim review); and
- Item 5.02(e) (adoption or commencement of material compensatory plan, contract or arrangement for principal executive officer, principal financial officer, or a named executive officer).
All other Form 8-K reporting items are not covered by exceptions and the failure to file timely under any of the remaining items will result in a loss of S-3 eligibility. Moreover, a company must be current in all of its Form 8-K filings, including those excepted from the timely filing requirement, at the actual time of a Form S-3 filing. Thus, a company must have provided the disclosure required by any of the excepted Form 8-K items on or before the date that it files a Form S-3 registration statement.
Note that because Forms 6-K are furnished and not filed, a foreign private issuer’s failure to file timely a Form 6-K does not affect its Form F-3 eligibility.
Waiver of Form S-3 or Form F-3 Eligibility Requirements
If an issuer misses a filing deadline for a Form 10-K, Form 20-F, Form 10-Q or Form 8-K (including any extended deadline under Rule 12b-25) for reasons other than technical difficulties beyond the issuer’s control (for which there is a separate filing date adjustment procedure), it may preserve its ability to use Form S-3 or Form F-3 by seeking a waiver of the Form S-3 or Form F-3 eligibility requirements from the SEC. The waiver request must be in writing and addressed to the SEC’s Office of the Chief Counsel and should generally include the following information:
- Description of the issuer, including whether it has an existing Form S-3 or Form F-3 or is planning to file one;
- Reasons for the waiver request;
- Description of the late filing and an explanation as to why the issuer failed to file on a timely basis;
- Whether the issuer otherwise meets the requirements to use a Form S-3 or Form F-3;
- Why the SEC should approve the waiver request;
- Whether the issuer has previously failed to timely file any required Exchange Act filing; and
- Description of the processes and procedures being implemented by the issuer to ensure future compliance.
The waiver request is submitted directly to the Office of the Chief Counsel and not through the SEC’s EDGAR filing system. Issuers will be notified of the SEC’s determination regarding the waiver by phone and neither the issuer’s request nor the SEC’s response will be posted on the EDGAR filing system.
Note that the SEC has indicated that Form S-3 or Form F-3 eligibility waivers are granted only under very limited circumstances. A waiver request will be more difficult to obtain if an issuer has a history of delinquent filings or failed to meet the extended deadlines granted under Rule 12b-25.
Options During Form S-3 or Form F-3 Ineligibility
A public company that is late in filing an SEC report may already have an effective Form S-3 or Form F-3 shelf registration statement on file with the SEC. Such delinquent issuer faced with a year of S-3 or F-3 ineligibility has four different options with respect to an existing shelf registration statement.
A. Utilizing an Existing Form S-3 or Form F-3 Shelf Registration
The SEC staff has indicated that an issuer that becomes ineligible to use Form S-3 or Form F-3 may continue to use an existing effective Form S-3 or Form F-3 so long as there is no need to update the shelf registration statement.
Under applicable SEC rules, issuers are required to update an effective Form S-3 or Form F-3, among other things, for purposes of Section 10(a)(3) of the Securities Act of 1933 (which requires periodic updating of information in a prospectus) or for "fundamental changes". Section 10(a)(3) generally provides that the information in a prospectus forming part of a registration statement that is used more than nine months after the effective date of the registration statement cannot be more than 16 months old. The prospectus and registration statement is considered to be "stale" after such period. Updating for Section 10(a)(3) purposes is usually done through the filing of the most recent annual report on Form 10-K or Form 20-F, which is incorporated by reference into the Form S-3 or Form F-3.
For purposes of determining whether an existing shelf registration on Form S-3 or Form F-3 can be used by a delinquent Exchange Act filer prior to the Section 10(a)(3) deadline, a key question is whether information in a missed SEC report constitutes a "fundamental change". Missing information that would have been contained in a delinquent Form 10-K or Form 20-F (including audited financials for the latest fiscal year) would clearly seem to constitute a "fundamental change", and information that would have been included in a missed Form 10-Q filing may well constitute a "fundamental change". Thus if the missing information is indeed a "fundamental change", such as an annual report on Form 10-K or Form 20-F, then a delinquent filer would not be able to use the existing shelf registration on Form S-3 or Form F-3.
For S-3 or F-3 eligible issuers, updating for these purposes may be accomplished by post-effective amendment, incorporation by reference to the issuer’s Exchange Act reports, or by means of a prospectus supplement. For issuers that are delinquent in their Exchange Act filings, they would no longer be eligible to use the existing Form S-3 or Form F-3 at the time updating for purposes of Section 10(a)(3) or for a fundamental change is required.
The SEC staff has recognized the possibility that Form 10-Q information may not amount to a "fundamental change" by noting in its guidance that the quarterly results set forth in Form 10-Q could be included in the registration statement by sticker rather than post-effective amendment, so long as such information does not constitute a fundamental change in the information set forth or included in the registration statement. Thus, an issuer that has been late in filing a Form 10-Q could take the position that it may continue to use an existing effective Form S-3 shelf registration statement on the grounds that information in the late Form 10-Q did not constitute a "fundamental change". However, even if an issuer concludes that information in the Form 10-Q does not constitute a "fundamental change", underwriters in a shelf takedown may be uncomfortable with that conclusion and resist proceeding with an offering until the delinquent report is filed and the issuer again becomes S-3 eligible (or utilizes Form S-1).
In addition, issuers that are eligible and elect to continue to use their existing Form S-3 or Form F-3 must determine whether the prospectus included in the existing Form S-3 or Form F-3 is a valid Section 10(a) prospectus and whether there are no Section 12(a)(2) or Rule 10b-5 anti-fraud concerns.
B. Conversion to Form S-1 or Form F-1
An issuer that intends to conduct registered shelf offerings during Form S-3 or Form F-3 ineligibility and is not comfortable with continuing to use the prospectus included in an existing shelf registration statement on Form S-3 or Form F-3 because of concerns regarding disclosures of "fundamental changes" could file a post-effective amendment to convert the Form S-3 or Form F-3 shelf registration to Form S-1 or
Form F-1 and include the "fundamental change" information, provided that it is current in its other Exchange Act reports. However, Form S-1 or Form F-1 shelf registrations are limited by the fact that such forms cannot incorporate by reference future Exchange Act reports filed after the Form S-1 or Form F-1 is declared effective and therefore require the additional time and effort (including the obtaining of auditor’s consents) to prepare post-effective amendments.
C. Leaving Dormant and Reviving When S-3 or F-3 Eligible Again
An issuer that decides to wait until it recovers its S-3 or F-3 eligibility could allow the effective Form S-3 or Form F-3 to remain dormant until it is once again eligible to use them and resume its use by filing a post-effective amendment. There would be no duty to update the dormant S-3 or F-3 so long as it is not being used. However, once the issuer regains S-3 or F-3 eligibility, the post-effective amendment would need to incorporate by reference the Exchange Act reports containing the issuer’s updated information (including any necessary auditor consents) and, unless the issuer is a WKSI, will be subject to the SEC’s review and approval. In addition, unless the issuer is increasing the amount of registered securities, there would be no need to pay an additional filing fee.
D. Withdraw and Re-file
In the alternative, an issuer could decide to withdraw the existing Form S-3 or Form F-3 and file a new Form S-3 or Form F-3 once it regains eligibility, especially if the amount of securities remaining unsold as of the date the issuer lost eligibility is relatively small or if the issuer expects to regain WKSI status. Under such circumstances, the issuer will be credited with any unused registration fees under the previous Form S-3 or Form F-3, which could be used to pay the fee for the new registration statement pursuant to Rule 457(p) of the Securities Act.
Form S-8 is the short-form registration statement used by public companies to register securities offered to employees under company employee benefit plans. In order to use Form S-8, an issuer must have filed all reports with the SEC required to be filed during the preceding 12 months. Unlike Form S-3 and Form F-3, there is no requirement that reports have been timely filed for the prior 12 months. Thus, if a company has missed a Form 10-K, Form 20-F, Form 10-Q or Form 8-K filing deadline, the company may not register securities to be issued under a benefit plan on a Form S-8 until the missed report is filed. Once the missed report is filed, the company will once again be eligible to use Form S-8.
As is the case with Form S-3 and Form F-3, applicable SEC rules require companies to update an effective Form S-8 for Section 10(a)(3) purposes and for "fundamental changes". Any updating for these purposes is accomplished by incorporation by reference to the issuer’s Exchange Act reports. If a Form 10-K, Form 20-F or Form 10-Q filing is missed, and the incorporation by reference of the missed report would have otherwise satisfied a requirement to update the Form S-8 for Section 10(a)(3) purposes or for a "fundamental change", use of the existing Form S-8 should be suspended until the missed SEC report is filed.
Form S-4 is the form used by issuers to register securities issued in an exchange offer or as consideration in an acquisition. Form S-4 permits information with respect to the issuer to be incorporated by reference to the issuer’s Exchange Act reports if the issuer meets the eligibility requirements for use of Form S-3. Otherwise, the required information regarding the issuer must be set out in the prospectus included in the Form S-4 registration statement.
If a late SEC filing results in S-3 ineligibility, another consequence will be the inability to incorporate Exchange Act reports into a Form S-4 registration statement until the issuer is again S-3 eligible.
Resales of Restricted or Control Securities Under Rule 144 Safe Harbor
Rule 144 under the Securities Act provides a means for directors and officers of public companies and others to make unregistered public sales of restricted or control securities of the company without being deemed underwriters. Rule 144 eligibility is conditioned on satisfying several requirements including the availability of current public information about the company. Specifically, the company must have filed all reports required to be filed during the twelve months prior to the sale, other than Form 8-K reports.
A failure to file a required Form 10-K, Form 20-F or Form 10-Q will result in the failure to satisfy the "current public information" requirement of Rule 144 and the inability of directors, officers and others to rely on the Rule 144 safe harbor until the late filing is actually made (at which time Rule 144 will become available immediately).
Indenture and Credit Agreement Covenants
Public company indentures and credit agreements often include an affirmative covenant to file timely SEC reports and/or to deliver copies of those reports to security holders and lenders or to an agent or trustee on their behalf. Although the likelihood of a noteholder or lender delivering a notice of default solely as a result of a breach of a covenant to deliver SEC reports, absent a financial or other material covenant default, might seem small, it can happen. For example, in August 2006, a group of hedge funds that owned 25 percent of senior notes issued by UnitedHealth Group Inc., sent the company a notice of default claiming that by delaying the filing of its Form 10-Q, it breached the provision of the indenture that obligates the company to file required Exchange Act reports with the SEC, though a US district court ultimately ruled that the indenture provision was not explicit enough to cover delayed filings.
Delinquent filers should review outstanding indentures and credit agreements to evaluate potential defaults. With regard to outstanding public debt, it may be useful to seek to determine if a substantial portion of the securities are held by a hedge fund or similar institution that might be more likely to call a technical default in an attempt to recover repayment at a premium over the price paid for the debt in the public marketplace. In addition, to the extent issuers are negotiating new indentures or credit agreements or amending existing ones, they may want to consider a modified version of the affirmative covenant which requires delivery of copies of SEC reports to security holders, lenders, agents or trustees only when actually filed with the SEC, whether or not timely.