Notice to readers: Links are included throughout the text to direct participants to relevant websites. If these websites do not appear when typed into a web browser, copy the links into a search engine to be redirected to the proper web page.
When a company first undertakes the decision to become a registrant or when a registrant decides to raise additional funds through an equity or debt offering, the company and its legal counsel must first decide which form to use. Depending on which type of form is chosen, varying types and amounts of information will be required to be disclosed. Much of the required information is similar to that required in the Annual Report or Form 10-K. There are also, however, further disclosure requirements that are applicable only to registration statements.
Extensive examples of registration statements can be located on the SEC’s website. Facebook, Inc.’s Form S-1 can be found at: www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm
The company should consult with its attorney about which registration form to use. The accountant should also be involved in the discussion in order to be prepared to submit the financial statements required by the particular form selected.
The following are the most commonly used forms for registration under the 1933 Act:
Note: Blank registration forms and regulations are available on the SEC’s website; however, these forms merely provide a basic framework.
Regulations S-X and S-K provide guidance on the majority of the information that is required to be disclosed in a registration statement, but there are certain requirements that apply only to registration statements that may involve different or more extensive information.
Furnish the information required by Item 503 of Regulation S-K.
This section requires a discussion of the most significant factors that could make the offering speculative or risky. The company should address risks that are specific to the company, its industry, and the particular offering; it should not supply boilerplate disclosures that could apply to any company or any offering. Although risk factors are included in certain periodic reports, the factors related to the offering are unique to a registration statement.
For each risk factor, the company should provide a caption that adequately describes the risk, then explain concisely and clearly how the risk affects the company or the securities being offered. Such factors could include the following:
A company is required to disclose the purpose for which the estimated amount of proceeds received from the offering of the securities are intended to be used. This disclosure should include the following:
Capitalization tables present in tabular form the total debt and equity components of a company. They are typically included in the registration statement at the request of the underwriters, except for foreign private issuers who are required by Item 3B of Form 20-F to include the table in their registration statements. The tables disclose the company’s capitalization on an actual basis and, if applicable, as adjusted to reflect the sale of the securities being issued and the intended use of the net proceeds received. The SEC will expect any pro forma amounts to be presented in accordance with Article 11 of Regulation S-X.
Companies are required to provide certain information when dilution occurs as a result of an IPO or when common equity securities are being registered by a company that has had losses in each of the last three fiscal years and there is a material dilution of the purchasers’ equity interests. Dilution occurs when the offering price exceeds the tangible net book value of the company.
The following information is required to be disclosed:
Although the securities offering process has not significantly changed over time, in 2005, the SEC modernized the securities offering process under the Securities Act of 1933. The primary focus of the 2005 rules is on three aspects of the offering process: (1) communications about registered offerings, (2) the registration process, and (3) the delivery of information to investors. Certain additional disclosures in annual reports on Form 10-K and other Exchange Act reports were adopted as well. The rules do not apply to securities offerings involving business combinations.
The Securities Offering Reform Act of 2005 established a category of issuers called “well-known seasoned issuers” (WKSIs). A WKSI is (1) eligible to register a primary offering of its securities on Form S-3 or Form F-3, and (2) has either a worldwide market value of outstanding voting and nonvoting common equity held by non-affiliates of $700 million or more or during the past three years issued at least $1 billion aggregate principal amount of non-equity, non-convertible securities in primary offerings for cash (not counting securities issued in registered exchange offerings). Eligibility determination, other than determination of the public float, is made as of the later of the time of filing of the issuer’s most recent shelf registration statement or the time of its most recent Section 10(a)(3) amendment (requiring updates to a prospectus that is used more than nine months after the effective date of the registration statement). If no shelf registration statement has been filed, the determination date is made at the time of filing of the issuer’s most recent annual report on Form 10-K or 20-F. The public float criteria must be met within 60 days of the determination date.
In addition to WKSIs, the rules created four other categories of issuers:
Ineligible issuers will not be permitted to avail themselves of WKSI status or other benefits of the amendments. In addition, investment companies and business development companies, as well as merger and acquisition transactions, are not covered by many of the amendments, as they are subject to separate regulatory frameworks.
Section 5(c) of the Securities Act prohibits all “offers,” in whatever form, prior to the filing of a registration statement. The term “offer” is interpreted broadly. As a result, prior to the filing of a registration statement, an issuer may only (1) continue to advertise products and issue press releases regarding factual business information and financial developments in accordance with past practice and (2) release a limited notice regarding a proposed registered offering under Securities Act Rule 135.
Between the filing of a registration statement and the date the registration statement goes effective, Securities Act Section 5(b) (1) requires that any prospectus used in connection with a securities offering be limited to one that meets the definition of a statutory prospectus. Accordingly, before Securities Offering Reform, the only written information that was permitted in connection with a registered securities offering between the time the registration statement is filed and its effective date was (1) a preliminary statutory prospectus that meets the requirements of Section 10 of the Securities Act, (2) product advertisements and press releases regarding factual business information and financial developments as described, and (3) limited public notices permitted in accordance with Rule 134 (otherwise known as “tombstone” ads).
Offers in violation of these restrictions are often referred to as gun-jumping. See the chapter “Going Public: An Overview” for further discussion on gun-jumping.
The amended Securities Act rules relaxed the gun-jumping and quiet period provisions previously described related to registered offerings. The degrees to which these provisions have been relaxed vary depending on the type of issuer:
Issuers and underwriters are permitted to make written offers by way of a free writing prospectus. A free writing prospectus is any written communication offer outside of the statutory prospectus. The term written communication includes any written or printed communication, any radio or TV broadcast (regardless of how transmitted), or any graphic communication. It does not include communications that, at the time of the communication, originate live, in real-time, to a live audience.
As noted, WKSIs can use free writing prospectuses even before filing a registration statement. Non- reporting and unseasoned issuers (including voluntary filers) and other offering participants may use a free writing prospectus after a statutory prospectus — including a price range in the case of an IPO — is on file with the SEC. In addition, the statutory prospectus must accompany or precede the free writing prospectus.
A free writing prospectus may include information “the substance of which is not included in the registration statement.” But this information must not conflict with the information contained in the registration statement or, in the case of a reporting issuer, with any information in the issuer’s Exchange Act reports that are incorporated by reference to the registration statement.
The free writing prospectus must also contain a prescribed legend. In addition, disclaimers of responsibility or liability that are impermissible in a statutory prospectus are also impermissible in a free writing prospectus. Inclusion of information in a free writing prospectus that conflicts with information in the registration statement or inclusion of a prohibited disclaimer would be considered a prohibited offer in violation of Section 5 of the Securities Act.
With certain limited exceptions, an issuer or offering participant must file a free writing prospectus with the SEC no later than the day the free writing prospectus is first used.
A free writing prospectus will not be considered part of a registration statement. As a result, it will not be subject to liability under Section 11 of the Securities Act. But every free writing prospectus, regardless of whether it is filed, will be subject to liability under Section 12(a) (2) of the Securities Act (and other anti- fraud provisions of the federal securities laws).
Most of the changes in the registration process were aimed at streamlining the shelf registration process. Shelf registration is a process by which an issuer can register an offering of securities that will be made on a delayed or continuous basis (in contrast to an offering that will commence immediately and be completed within a short period of time). After the SEC staff declares a registration statement effective, the securities can generally be taken “off the shelf” and offered without further clearance by the SEC staff. The rules streamlined the shelf registration process in the following ways:
As a result of these rules, issuers can incorporate previously filed Exchange Act reports by reference into Forms S-1 and F-1, as long as the reports are available on the issuers’ websites and the prospectus identifies all reports and materials incorporated by reference.
The rules codify the SEC’s view that, for purposes of evaluating whether adequate information was delivered to an investor to avoid liability under Section 12(a)(2) of the Securities Act (that is, whether the information includes a material misstatement or omission), the assessment of the information delivered is made at the time an investment decision is made — not later, when a revised prospectus or prospectus supplement is filed. The rules also extend the date to which issuers are subject to Section 11 liability to make it consistent with the date to which underwriters are subject to such liability. A prospectus supplement creates a new effective date and extends Section 11 liability for issuers (but not for officers and directors or experts, such as independent auditors).
The rules modernized the final prospectus delivery process by creating an “access equals delivery” model. Under the model, the filing of a final prospectus with the SEC and complying with other conditions satisfies the final prospectus delivery requirements. Issuers are not required to print and deliver final prospectuses.
To preserve an investor’s ability to trace securities to a registered offering, the new rules include a separate requirement to notify investors that they purchased securities in a registered offering.
The securities offering rules were amended to allow smaller reporting companies to use Forms S-3 and F-3 to register primary offerings of securities. Using these forms is desirable because offerings registered on these forms can be conducted on a delayed basis. In addition, they incorporate by reference periodic reports filed after the effective date, thereby eliminating the need for post-effective amendments to address developments after the effective date. These features provide issuers with the flexibility to take securities “off the shelf” and offer them when they choose to. To be eligible to use these forms, a registrant must meet the periodic reporting requirements under the Securities Exchange Act of 1934 and must have timely filed all required periodic reports for a period of at least one year immediately preceding the filing of the registration statement.
Prior to the amendments, a registrant was also required to have a public equity float of over $75 million to use Form S-3 or F-3 to register a primary offering of equity or unrated debt securities. The amendments extended delayed primary shelf offerings to smaller companies by allowing companies that do not have $75 million of public equity float to register primary offerings using these forms, if they have a class of common equity securities listed and registered on a national exchange such as NYSE or NASDAQ (Pink Sheet and Over-the-Counter Bulletin Board companies do not qualify); do not sell more than one-third of their public equity float in primary offerings in any 12-month period; are not shell companies or have not been one for the past 12 months; and meet the other registrant eligibility conditions. The SEC has released small business guides, which are available on the SEC’s website at www.sec.gov/info/smallbus/secg.shtml.
Refer to the “Emerging Growth Companies” chapter for registration requirements, scaled disclosure provisions, and interpretive guidance issued by the SEC for companies qualifying as emerging growth companies.
Many offerings of securities are exempt from the 1933 Act’s registration requirement. Determining whether an offering is exempt is a legal matter. Offerings may be exempt from registration because of the nature of the entity, the nature of the offering, the type of security, or the amount of the offering. Entities such as U.S. government bodies, banks, nonprofits, and certain employee benefit plans are exempt from registration under the 1933 Act.
Certain offerings are exempt from the 1933 Act registration based on the following rules and regulations:
Different levels of disclosures to investors are required by Regulation D, based on the size of the offering and the nature of the purchasers, as follows:
Form D serves as the official notice of an offering of securities made without registration under the Securities Act in reliance on an exemption provided by Regulation D. Form D also applies to Section 4(6) offerings. Form D is required to be filed electronically. The information can be filed through an online filing system that is accessible from any computer with internet access. The system captures and tags data items and makes the filed information available on the SEC’s website in a format that can be viewed in an easy-to-read format.
The information requirements of Form D are as follows:
The holding periods that must be met before restricted securities can be resold under Securities Act Rule 144 is six months for non-affiliated investors in reporting companies and 12 months for non- affiliated investors in non-reporting companies.
Rule 144 imposes restrictions on public resale of securities initially issued by a shell company. A shell company is a company with nominal or no operations and nominal or no assets (or assets consisting solely of cash and cash equivalents). The Rule 144 shell company restrictions apply to both reporting and non-reporting shell companies. Any securities (that is, both restricted and unrestricted securities) that were initially issued by a reporting or non-reporting shell company cannot be resold into the public markets in reliance on Rule 144 unless the issuer
In addition, a selling security-holder (whether an affiliate or a non-affiliate) cannot use Rule 144 for resale of securities initially issued by shell companies until one year has elapsed from the date that the issuer filed the “Form 10 information” (that is, the same information it would be required to file to register a class of securities on Exchange Act Form 10 with the SEC, generally filed on Form 8-K) and has filed current Form 10 information.
The SEC adopted two exemptions from the registration requirements of the Securities Exchange Act of 1934 for compensatory stock options issued under employee stock options plans for private non- reporting issuers and for public issuers. The exemptions apply only to an issuer’s compensatory employee stock options and do not extend to the class of securities underlying those options.
Prior to these exemptions becoming effective, private companies with a large group of option holders faced the possibility of having to register under Section 12(g) of the Exchange Act as a result of having more than the maximum option holders and over $10 million in assets.1 After having provided relief from this requirement on a case-by-case basis through no-action letters, the SEC adopted rules that exempt all companies from registration under Section 12(g) of the Exchange Act for compensatory employee stock options. Public companies also benefited from these new exemptions, because they will no longer need to register their stock options after they have registered the underlying class of equity securities.
The release is available on the SEC’s website at www.sec.gov/rules/final/2007/34-56887.pdf.
18.118.142.166