During the next two months, calendar year issuers will be preparing and filing with the Securities and Exchange Commission (SEC) their annual reports on Form 10-K. The filing of a Form 10-K, which is incorporated by reference into any Form S-3 registration statement of an issuer, constitutes an amendment to the registration statement for purposes of complying with Section 10(a)(3) of the Securities Act of 1933, as amended. As such, the filing date of the Form 10-K is a “determination date” on which an issuer must evaluate whether it qualifies as a well-known seasoned issuer (WKSI) eligible to register offerings on an automatic shelf registration statement (ASR) on Form S-3. As with any other “determination date” (i.e., the filing date of a new registration statement or an amendment to a registration statement), an issuer must determine its eligibility as of any date within the 60 calendar days preceding the applicable determination date. An issuer may qualify as a WKSI if it has a public float of at least $700 million, it has issued at least $1 billion in non-convertible securities, other than common equity, for cash in the last three years, or is a majority owned subsidiary of a WKSI and is registering either investment grade securities or other securities guaranteed by the parent WKSI.
In light of the unprecedented volatility in the capital markets, many current WKSIs may no longer be eligible to use an ASR following its Form 10-K determination date this year. The consequence of an issuer that qualified as a WKSI at the time it filed a previous ASR losing its WKSI status when it files its Form 10-K is that the previously filed ASR would no longer be available to the issuer. If an issuer loses its WKSI status in this manner, in order to maintain a shelf registration statement with respect to its securities, it would be required to post-effectively amend its ASR on a regular Form S-3 or file a new Form S-3, which in either case would be subject to SEC staff review and would not be available until declared effective. As a result, an issuer that loses its WKSI status as a result of filing its Form 10-K would be unable to access the public capital markets during the period of time between when the issuer filed its Form 10-K and when its replacement registration statement or post-effective amendment on Form S-3 was declared effective by the SEC staff.
Under amendments to Rule 415(a)(5) that were adopted as part of the securities offering reform rules that became effective December 1, 2005, any primary offering of securities covered by a shelf registration statement automatically terminates on the third anniversary of the effective date of the registration statement. In order to provide issuers with continuous access to the capital markets, Rule 415(a)(5) includes a grace period for an expiring registration statement whereby if a new registration statement is filed prior to the date on which the expiring registration statement will terminate, the issuer may continue to conduct offers off of the expiring shelf registration statement until the earlier to occur of 180 days from said expiration date or the date that the new registration statement is declared effective.
The Form S-3 rules do not currently provide for a similar grace period in circumstances where an issuer loses its WKSI status and its ability to use an existing ASR. However, in telephonic guidance, the SEC staff has advised that it will grant a similar grace period to an issuer that will lose its WKSI status on its Form 10-K determination date but otherwise will remain a seasoned issuer (i.e., one that has timely filed all periodic reports in the previous 12 months, has a class of equity securities listed on a national securities exchange and is otherwise eligible to register securities on Form S-3). To be eligible to continue to sell securities off an expiring ASR, an issuer must either (i) file a post-effective amendment to the previous ASR prior to filing its Form 10-K, which amendment must be on Form S-3 and not an ASR (i.e., it will be subject to SEC staff review before being declared effective), or (ii) promptly after the filing of its Form 10-K, file a new registration statement on Form S-3 or a post-effective amendment on Form S-3, in either case that is not an ASR, (i.e., it will be subject to SEC staff to review before being declared effective). Such replacement registration statement or post-effective amendment would have to comply with all of the form and content requirements of Form S-3. In addition, an issuer could avail itself of Rules 416 and 457 to carry forward unsold securities and the related registration fees from the expiring ASR.
If an issuer files such a new registration statement or post-effective amendment, then the SEC staff will permit the issuer to continue to offer and sell securities covered by its ASR, even though the issuer has lost its WKSI status, until the effective date of its replacement registration statement or post-effective amendment, as applicable. It is expected that the SEC staff will formally issue this guidance in the form of FAQs, an interpretative release or an update to its manual of telephone interpretations in the coming weeks.
A WKSI is not the only type of issuer that must be mindful of its public float in connection with the filing of its Form 10-K. Under General Instruction I.B.6. of Form S-3, the amount of securities that an issuer may sell in registered offerings under Form S-3 in any 12 month period if the issuer has a public float less than $75 million as of its most recent determination date will be limited to 1/3 of the issuer’s public float. As with issuer’s determining their WKSI status, the filing date of a Form 10-K is a determination date for purposes General Instruction I.B.6., and an issuer must have a public float of more than $75 million on a date within 60 days preceding the filing date of the Form 10-K.
Issuers that have an effective registration statement on Form S-3 that are or become subject to the 1/3 public float limitation on offerings are required to include in each prospectus filed with the SEC an updated calculation of their public float and the amount of securities sold under that Form S-3 in the preceding 12 calendar months. As the issuer’s Form 10-K constitutes a 10(a)(3) prospectus to the Form S-3, the Form 10-K of an issuer that will become subject to the 1/3 public float limitation with respect to its effective Form S-3 for the first time when it files its Form 10-K this year must include this disclosure in the Form 10-K. Unlike the grace period that is available to an issuer that loses it WKSI status, no such grace period exists under SEC rules or SEC staff guidance for an issuer whose public float falls below $75 million to continue to offer or sell securities above the 1/3 public float limit imposed by General Instruction I.B.6. of Form S-3.