Originally published January 30, 2009
Keywords: shelf registration statement, WKSI, sell securities, filing fees, pay-as-you-go, Securities Act, time of filing, stock prices, compliance, disclosure,
A registrant that qualifies as a "well-known seasoned issuer" (WKSI) is able to sell securities pursuant to an automatic shelf registration statement. Such a registration statement becomes effective upon filing and permits the registration of an unlimited amount of securities, with filing fees on a "pay-as you go" basis. One test for WKSI status, as defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities Act"), requires, among other things, that the issuer have a worldwide market value of its outstanding voting and non-voting common equity held by non-affiliates of $700 million or more, as of a date within 60 days of the determination date. The determination date under this definition is the latest of:
- The time of filing of the most recent shelf registration statement, or
- The time of the most recent amendment to a shelf registration statement for purposes of complying with section 10(a)(3) of the Securities Act (which is the date of the filing of an annual report on Form 10-K or Form 20-F).
As a result of the precipitous decline in stock prices over the last few months, many of the issuers that qualified as WKSIs at the time they filed their automatic shelf registration statements may lose their WKSI status when they file their annual reports or their new registration statements with the Securities and Exchange Commission.
The SEC's division of Corporation Finance recently updated its Compliance and Disclosure Interpretations on Securities Act Rules (http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm). Question 198.06 addresses the procedure to follow to permit uninterrupted access to the public capital markets following the loss of WKSI status. The necessary steps require action before the filing of the annual report (such as a Form 10-K). Therefore, it is very important that companies that have filed automatic shelf registration statements determine as soon as possible if they are at risk of losing their WKSI status. If they are, they should begin preparing the filings that will be necessary to maintain their shelf registration statements.
Question 198.06 asks whether an issuer that loses its WKSI status at the time of filing its Form 10-K may continue to offer and sell securities from its automatic shelf registration statement pending the effectiveness of the post-effective amendment that it would need to file in order to convert the registration statement from an automatic shelf registration statement on Form S-3 to a non-automatic shelf registration statement on Form S-3. The staff answered as follows:
Answer: Yes. In this situation, the issuer may continue to offer and sell securities using the automatic shelf registration statement, but only if, prior to filing the Form 10-K, the issuer amends the automatic shelf registration statement so that it conforms to the requirements that apply to a Form S-3 filed in reliance on General Instruction I.B.1 or I.B.2. Specifically, the following conditions must be satisfied:
- Prior to filing the Form 10-K, the issuer must file a post-effective amendment to the automatic shelf registration statement (on EDGAR submission type POSASR) to register a specific amount of securities and to pay the associated filing fee;
- The prospectus included in the post-effective amendment to the automatic shelf registration statement may not omit information in reliance on provisions of Rule 430B that are available only to automatic shelf registration statements and instead must contain all information required to be included in a Form S-3 filed in reliance on General Instruction I.B.1 or I.B.2; and
- The issuer must remain eligible to use Form S-3 in reliance on General Instruction I.B.1 or I.B.2 at the time of the filing of the Form 10-K.
At least promptly after the Form 10-K is filed, the issuer must file either a post-effective amendment using EDGAR submission type POS AM or a new Form S-3 registration statement using EDGAR submission type S-3 to convert the Form S-3 to the proper EDGAR submission type for a non-automatic shelf registration statement. Pending the effectiveness of the filing, the issuer may continue to offer and sell securities using the amended automatic shelf registration statement.
In summary, if a company has an automatic shelf registration statement on file and is at risk of losing its WKSI status, it should get ready to make two separate filings. First, it should draft a post-effective amendment that registers a specified amount of securities. The company will need to pay its registration fee for these securities at the time this post-effective amendment is filed. The base prospectus that must be included in this post-effective amendment needs to provide more extensive information than is required in a WKSI prospectus. This new base prospectus should:
- Disclose whether the securities are being offered by the issuer or by selling security holders,
- Include a plan of distribution,
- Contain a description of the offered securities that goes beyond the name or class of the securities, and
- Identify any other issuers.
This new base prospectus may also need to disclose the names of any selling security holders and the amounts registered on their behalf. The amendment, including the new base prospectus, must be filed prior to the filing of the Form 10-K. Most, if not all, of this information may already be provided in the automatic shelf registration statement.
A company in danger of losing WKSI status also must be prepared to file a post-effective amendment or a new Form S-3 promptly after it files its Form 10-K. This filing will need to be declared effective by the SEC. However, if the post-effective amendment described in the preceding paragraph was filed before the Form 10-K, then the company will be allowed to sell securities under its automatic shelf registration until the SEC declares this additional filing effective.
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