Each offering of securities to the public requires the issuer to register those securities with a 1933 Act registration statement unless an exemption from registration is available. Shelf registrations can ease the burden associated with the registration process by allowing one registration statement to register a variety of securities in advance of one or more transactions.
The SEC has adopted a variety of 1933 Act registration forms that require differing levels of disclosure depending on the type of transaction to be registered and the 1934 Act reporting history of the registrant. The most commonly used forms are:
- Form S-1 – long form typically used for IPOs and sometimes for other sales of securities.
- Form S-3 – short form typically used for follow-on financing transactions and public resales of a company’s securities by selling shareholders, and available only if Form S-3’s eligibility requirements are met.
- Form S-4 – used to register securities to be issued in merger and acquisition transactions that involve an offer and sale of securities to shareholders of a target company and for exchange offers.
- Form S-8 – used to register securities to be issued to employees, directors and certain types of consultants under employee benefit plans, including stock option plans.
We discuss each of these forms in more detail in this chapter.
Sales under a registration statement may be made only after the registration statement becomes effective. Appropriately checked registration statements on Form S-3 filed by Well-Known Seasoned Issuers (WKSIs) and all registration statements on Form S-8 become automatically effective when they are filed. (We discuss WKSIs later in this chapter.) In most other cases, the SEC has the opportunity to review and comment on a registration statement before effectiveness. In these cases, the SEC takes administrative action, upon a company’s written request, to declare a registration statement effective. This usually happens after the SEC Staff is satisfied that the registration statement, as may be amended, adequately addresses the SEC Staff’s comments (if any). The SEC will post a notice of effectiveness on the company’s EDGAR filings index page that indicates the date and time of the declaration of effectiveness.
Primary Offerings and Secondary Offerings – What Is the Difference?
A company typically first gains access to the public capital markets through the IPO process. Following its IPO, a company may continue to raise capital through additional public offerings of debt or equity securities. These additional public offerings are sometimes referred to as follow-on offerings, as they follow the IPO. Follow-on offerings made directly by a company, as well as IPOs, are referred to as primary offerings to distinguish them from registered offerings of securities on behalf of selling shareholders, which are referred to as secondary offerings.
In a secondary offering, selling shareholders, not the company, receive the proceeds from the offering. These offerings provide immediate liquidity to the selling shareholders. For example, shareholders may hold restricted shares purchased from the company in a private financing transaction that cannot be easily or quickly resold except through a registered public offering. In connection with a private financing transaction, a company may agree to register securities for resale and enter into a registration rights agreement for the benefit of the security holders. Another example of a secondary offering is when a shareholder holding a large number of shares chooses an underwritten public secondary offering as an orderly and efficient means of liquidating its position.
Follow-On Offerings and Shelf Registrations
A shelf registration allows a company to register the offer and sale of securities on a delayed basis (for future use) or on a continuous basis. Often public companies register securities for offer and sale to the public at an undetermined future date to be able to take advantage of favorable market conditions when they occur. Public companies may also use shelf registrations to permit security holders to sell otherwise restricted securities (e.g., securities issued in a private placement) in the public market over a period of time.
Common Types of Shelf Registrations
Three common types of shelf registrations are the universal shelf, the resale shelf and the acquisition shelf.
Universal Shelf. A universal shelf is a registration statement on Form S-3 that registers a variety of securities that a company may wish to sell in the future. Form S-1 is not available for this kind of registration. A universal shelf registration statement will typically include some combination of common stock, preferred stock, convertible and nonconvertible debt securities and warrants to purchase stock. In this type of registration statement, a company specifies the aggregate dollar amount of all the securities it intends to offer, rather than specifying the dollar amount of each type of debt security or the number of each type of equity security it is registering. (As we discuss later in this chapter, a WKSI may register securities by specific types or classes on Form S-3 without indicating any dollar amount or number of securities.)
A universal shelf registration statement includes a base prospectus, which often includes only a section listing the documents incorporated by reference, a brief overview of the company, an outline of the plan of distribution, a short description of the intended use of the proceeds from a sale of the securities and, generally, a high-level description of each type of security that is being registered. The base prospectus does not contain pricing information regarding any particular transaction. This additional information is included in a prospectus supplement, which is filed with the SEC when there is a sale of securities (a takedown). For instance, a prospectus supplement filed in connection with a takedown of debt securities will disclose the aggregate principal amount offered, the public offering price, any discounts and commissions, a detailed description of the terms of the securities (including the rate at which interest will accrue, interest payment dates and the maturity date) and a more detailed description of the plan of distribution.
In many cases, underwriters will use a preliminary prospectus supplement that does not include pricing information, but does include more specificity about a particular transaction for marketing an offering to potential investors. Once an offering is priced, a free writing prospectus – typically a one-page document providing only the previously omitted pricing information – is usually prepared and filed with the SEC. The underwriters then use this free writing prospectus to confirm sales. An issuer then prepares and files a final prospectus supplement that includes the pricing information provided in the free writing prospectus and any other final changes to the prospectus supplement.
Resale Shelf. Companies typically use a resale shelf registration statement on Form S-3 to register the resale to the public of securities held by an affiliate of the issuer or securities that were issued in a private placement. The prospectus of a resale shelf registration statement on Form S-3 tends to be very short. It usually includes a section listing the company’s SEC filings and incorporating them by reference, a section on risk factors, a list of the selling shareholders (including the name, address and number of securities each holder plans to sell) and descriptions of their related transactions with the company and a section outlining the manner in which the securities are to be distributed.
If a company is not eligible to use Form S-3, the company could file a resale shelf registration statement using Form S-1. Keeping a resale shelf registration statement on Form S-1 updated is, however, much more time-consuming and expensive than with Form S-3. This is because Form S-1 does not allow forward incorporation by reference of a company’s 1934 Act reports. As a result, a company would have to continually update a resale registration statement on Form S-1 by filing prospectus supplements and post-effective amendments to reflect material developments and updated financial information.
Your Company Has Heightened Disclosure Obligations When Using a Resale Shelf
Whenever your company has an effective resale shelf registration statement, you have an obligation to disclose material information and to regularly update the information disclosed in prior filings. Because sales are being made pursuant to the resale shelf over an extended period of time, your company (and your officers and directors) may be liable to purchasers of the shares under Rule 10b-5 under the 1934 Act if the information contained in the resale shelf prospectus contains disclosure that is inaccurate or misleading, or omits material information. Accordingly, during the period in which the resale shelf registration statement is effective, ensure that the right person at the company is continually monitoring and updating the information included or incorporated in the prospectus to keep it accurate and complete. Because a prospectus related to a shelf registration on Form S-3 is automatically updated through incorporation by reference of subsequently filed 1934 Act reports, officers should maintain a heightened awareness of any nonpublic developments and, where material, disclose the developments on a Form 8-K.
Agreements to file resale shelf registration statements can form an important part of a venture fund’s exit strategy. When a venture fund invests in a privately held company, the company often agrees at the time of the investment to file for the venture fund one or more shelf registration statements on Form S-3 after the company has completed its IPO. This arrangement provides liquidity for the venture fund’s investment.
Companies also use resale shelf registrations after issuing securities in an acquisition transaction. For instance, when acquiring a privately held company, a public company may issue restricted shares to the shareholders of the target company. Often, the shareholders of the target company will require the acquirer to register the shares they received in the acquisition by filing a resale shelf registration statement on Form S-3 soon after the closing of the acquisition.
Companies may also file resale shelf registration statements in connection with PIPE (Private Investment in Public Equity) transactions. In a PIPE transaction, a public company typically agrees to sell shares of its common stock to institutional and other accredited investors in a private placement, usually at a significant discount to the market price, with a resale shelf registration statement on Form S-1 or S-3 to be filed shortly after closing. The benefit to the company of a PIPE transaction is that the company is able to obtain the proceeds of the sale much faster than it otherwise would if it were to first launch a registered public offering subject to the SEC review and comment process.
Companies typically agree to keep their resale shelf registration statements effective (meaning that the prospectus will be kept up to date and shareholders will be allowed to sell under the registration statement) for a certain period of time, usually until the time at which shares become freely transferable under Rule 144 under the 1933 Act. (We discuss Rule 144 in Chapter 4.) This allows holders of restricted securities to have some control over the timing of their resales. A company would then file an amendment to the registration statement to deregister any remaining unsold securities, which terminates the effectiveness of that registration statement.
Acquisition Shelf. An acquisition shelf provides for the issuance of equity securities as consideration in future acquisitions. An acquisition shelf registration statement is usually filed on Form S-4 and cannot be filed on Form S-3. (We discuss acquisition shelf registration statements in greater detail later in this chapter.)
Registration Statements on Form S-1
A company usually uses Form S-1 just once – for its IPO. Companies that are not eligible to use Form S-3, as described below, also use Form S-1 to register follow-on or secondary offerings. For example, a company that conducts an offering less than a year after its IPO will use Form S-1, due to its limited 1934 Act reporting history.
Form S-1 is the most comprehensive of the registration statements. The Form S-1 prospectus requires complete information regarding the company and the transaction. If the company has filed all required 1934 Act reports and has filed at least one annual report on Form 10-K, it may be eligible to incorporate the previously filed 1934 Act reports by reference. Form S-1 does not, however, permit forward-looking incorporation by reference of 1934 Act reports filed after the effective date of the registration statement.
Registration Statements on Form S-3
Form S-3 is more cost-effective and efficient than Form S-1 for registering follow-on and secondary offerings. Form S-3 allows a company to update disclosure through incorporation by reference into the prospectus and registration statement of the company’s subsequently filed 1934 Act reports. This “evergreen” feature means that a company generally will not need to file any post-effective amendments to the registration statement. Post-effective amendments for public companies other than WKSIs are potentially subject to SEC review – a time-consuming and possibly expensive proposition.
Companies often use Form S-3 registration statements for shelf registrations, as we describe in more detail earlier in this chapter. A key advantage of a shelf registration is that once the Form S-3 registration statement becomes effective, any takedown from the shelf typically does not require SEC approval. This expedites issuance of securities and reduces overall costs. A company can use its shelf registration statement on Form S-3 for follow-on offerings for three years. After the three years, a company can roll over the SEC fees related to any unsold securities to a new shelf registration statement.
Eligibility Restrictions on Use of Form S-3
In order to be eligible to use the very convenient Form S-3 registration statement, companies must meet both registrant and transaction eligibility requirements.
Registrant Requirements. To qualify for use of Form S-3, a company must have been required to file 1934 Act reports for at least 12 months. Additionally, the company must have timely filed all required 1934 Act reports and information during the 12 months and any portion of a month preceding the filing of the registration statement. Also, since the end of the fiscal year covered by its most recent annual report on Form 10-K, the company must not have failed to pay any dividend or sinking fund installment on preferred stock or defaulted on any material debt or long-term lease.
Transaction Requirements. Companies that meet the registrant requirements may use Form S-3 only to register offerings that fall within one or more of Form S-3’s permitted transaction categories.
Follow-on Offerings by Issuers With a Minimum Public Float. A qualified registrant that has a public float of at least $75 million as of a date within 60 days of the Form S-3 filing date may use Form S-3 to register any primary or secondary offering of debt or equity securities for cash. The term public float refers to the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the company. This permitted transaction category is significant because it allows a registrant to conduct a primary offering of common stock without limitation on the amount offered.
Transactions That Do Not Require a Minimum Public Float. A qualified registrant that does not have a public float of at least $75 million may nonetheless use Form S-3 to register certain qualified transactions, including the following:
- Secondary offerings, provided the class of securities to be offered is listed on a national securities exchange (such as the NYSE or Nasdaq);
- Primary offerings of nonconvertible securities, other than common equity, if the company is a wholly owned subsidiary of a WKSI or if the company as of a date within 60 days of filing the registration statement has:
- Issued at least $1 billion in aggregate principal amount of nonconvertible securities (other than common equity) in registered primary offerings for cash in the past three years; or
- Outstanding at least $750 million in aggregate principal amount of nonconvertible securities (other than common equity) that were issued in registered primary offerings for cash;
- Securities to be offered upon the exercise of outstanding rights under a dividend or interest reinvestment plan or upon the conversion or exercise of outstanding convertible securities, including options and warrants; and
- Primary offerings of securities for cash by a company (not a shell company) listed on a national securities exchange, so long as the aggregate value sold during any 12-month period (including the potential offering) does not exceed one-third of the company’s public float.
Unique Flexibility for WKSIs
In 2005, the registration, communications and offering processes under the 1933 Act were significantly modified, providing companies with varying degrees of increased flexibility in conducting securities offerings. This flexibility depends on membership in one of four issuer categories based on a company’s reporting history under the 1934 Act and its equity market capitalization or fixed income issuance history. One of these four issuer categories is the WKSI category. Companies meeting the WKSI criteria can access the markets more quickly and with less expense than non-qualifying peers.
To qualify as a WKSI, a company (including an emerging growth company) generally must:
- Meet the registrant eligibility requirements of Form S-3, including having timely filed all required 1934 Act reports and information during the previous 12 months;
- Within 60 days of the WKSI determination date, have at least either $700 million of public float outstanding or issued in aggregate $1 billion of nonconvertible securities, other than common equity, in registered primary offerings for cash, during the previous three years; and
- Not be an ineligible issuer – generally, companies that are not current in filing 1934 Act reports, blank check companies, shell companies, penny stock issuers, some limited partnerships, and companies that have filed for bankruptcy, have been the subject of refusal or stop orders, or have violated the antifraud provisions of the federal securities laws during the previous three years.
WKSIs have additional flexibility in using shelf registration statements. WKSIs may file shelf registration statements on Form S-3 that are automatically effective upon filing. These shelf registration statements are not subject to review and comment by the SEC prior to their use. This means that an offering under one of these registration statements can begin immediately after it (along with an appropriate prospectus supplement) is filed with the SEC. In contrast to other Form S-3 filers, a WKSI does not have to include any of the following information in a shelf registration statement on Form S-3:
- Amount of securities to be offered;
- Allocation of the registered securities between primary and secondary securities;
- Description of the securities (other than the name or class of securities); or
- Outline of the plan of distribution.
A WKSI can essentially make unlimited sales off its shelf registration statement and provide the required information omitted from the prospectus filed on Form S-3 in a prospectus supplement used at the time of the offering. If the WKSI chooses, it can file the required disclosure at the time of the offering in a 1934 Act report, such as a current report on Form 8-K, which would be automatically incorporated by reference into the registration statement. A WKSI can also pay SEC registration fees on a “pay-as-you-go” basis, rather than at the time of initial filing.
A WKSI’s ability to use Form S-3 as an automatically effective shelf registration statement depends on how the company qualifies as a WKSI:
- $700 Million Public Float. A company that qualifies as a WKSI based on public float ($700 million or more) is eligible to conduct an offering for any kind of security on an automatically effective shelf registration statement using Form S-3.
- $1 Billion of Nonconvertible Securities. A company that qualifies as a WKSI based on the aggregate value of issuances of its nonconvertible securities (other than common equity) in registered offerings for cash during the three previous years ($1 billion or more) may use Form S-3 as an automatically effective shelf registration statement only to register nonconvertible securities (other than common equity). If, however, the value of the company’s common equity held by nonaffiliates is at least $75 million, it may also register any other securities using Form S-3 as an automatically effective shelf registration statement.
A company’s status as a WKSI is determined at the date of the initial filing of the registration statement and at the time of the filing of any amendment to the registration statement, as well as annually at the time of its Form 10-K filing.
Use of Form S-3 by Small Public Companies
In 2008, the SEC relaxed its Form S-3 eligibility requirements for public companies whose public float is less than $75 million in an effort to facilitate faster and easier capital market access. These amendments permit use of Form S-3 for offerings by qualifying smaller public companies previously ineligible for Form S-3 use due to public float requirements.
Now, a smaller public company may offer and sell a limited amount of securities pursuant to Form S-3 in primary offerings for cash. Specifically, the amount of securities offered using Form S-3 may not exceed one-third of the company’s public float during any 12-month period. To determine whether an offering is permissible under Form S-3’s one-third public float limitation, a company must calculate the one-third limit based on the value of its public float as of a date within 60 days of the intended sale. A small public company discloses in each Form S-3 prospectus an updated calculation of its public float and the amount of securities offered, including those in the intended sale, in the 12-month period ending on the date of the prospectus.
Only small public companies that have a class of common equity securities listed on a national securities exchange may take advantage of these relaxed Form S-3 eligibility requirements. Small companies whose equity securities are traded only over the counter (e.g., on the U.S. OTC Markets) are not eligible. Any company that is a shell company at the time of the offering, or that was a shell company at any time in the previous 12 months, is not eligible to benefit from these relaxed Form S-3 eligibility requirements. The term shell company means a company, other than an asset-backed issuer, that has no or nominal operations and any one of the following applies:
- The company has no or nominal assets;
- The company’s assets consist solely of cash and cash equivalents; or
- The company’s assets consist of any amount of cash and cash equivalents and nominal other assets.
Form S-4: The M&A Registration Statement
Companies can use Form S-4 to register securities to be issued in merger and acquisition transactions that involve an offer and sale of securities to the shareholders of the target company. Generally, an offer and sale of securities is deemed to be involved when the target company’s shareholders are asked to vote on, or consent to, a plan or agreement for a reclassification, merger, consolidation or transfer of assets. Companies can also register securities on Form S-4 that they plan to issue in exchange for their outstanding securities or outstanding securities of another entity.
Form S-4 is unique in that it is a single document that satisfies both the 1933 Act registration requirements and the 1934 Act proxy solicitation and information requirements. The core disclosure document in a Form S-4 serves as the proxy or information statement of the target company for purposes of soliciting shareholder approval of the transaction. It also serves as the prospectus of the acquiring company for purposes of offering its securities in connection with the transaction. Once the acquiring company’s Form S-4 is declared effective by the SEC, the target company can file the same document as its proxy materials in definitive form as a Schedule 14A.
Unless a company uses Form S-4 as an acquisition shelf (we discuss this later in this chapter), this registration statement requires extensive disclosure of the terms of the transaction, including discussion of the background and reasons for the transaction and any fairness opinions provided by financial advisors, as well as a comparison of the rights of shareholders of the two companies.
The “Background of Merger” section is the heart of the disclosure of any merger proposal a company submits to its shareholders. During your negotiations, designate a team member to keep a brief but accurate timeline of critical dates of meetings, due diligence requests, draft documents, telephone calls and other interactions between the target company and the potential acquirer. This timeline usually provides the outline for the “Background of Merger” section.
Information about the company filing the Form S-4 and information about any acquisition target company may be incorporated by reference in certain cases, depending on whether (and on what basis) the companies are eligible to use Form S-3. A Form S-4 that incorporates information by reference must be sent to shareholders at least 20 business days prior to the date of the shareholders’ meeting or, if no shareholder vote is required, at least 20 business days prior to the date of the closing.
Shareholders of the acquired target company who receive securities in a transaction registered on a Form S-4 can generally resell their securities immediately after the closing of the transaction. Usually, affiliates of the target company in a business combination transaction will not have resale limitations on their shares under business combination rules. However, significant target company shareholders who become affiliates of the acquiring company will have to sell their acquiring company securities under Rule 144. (We discuss Rule 144 in Chapter 4.)
One of the major motivations for a rapidly expanding private business to become a public company is to be able to use its stock as currency for acquisitions. The Form S-4 acquisition shelf registration statement is a flexible corporate finance vehicle designed for a series of stock-for-stock acquisitions of privately held target companies by a public company. An acquisition shelf is particularly useful at times when the IPO window is closed to private companies. At those times, stock-for-stock acquisitions by public purchasers represent an attractive exit to shareholders of private target companies who have discovered that going public will not provide them an attractive near-term liquidity opportunity.
The closer a purchaser’s shares are to cash equivalents (e.g., freely tradable shares of a public company that has a large public float and a high trading volume), the higher the value the target company’s shareholders will typically attribute to the shares. By contrast, shares that an acquiring company issues in a private placement without registration rights may be valued at a significant discount to the acquiring company’s normal public trading price. The three methods to place freely transferable shares into the hands of a private target company’s shareholders are:
- A stand-alone registration on Form S-4;
- A private placement, followed by a resale shelf on Form S-3 that registers the sale of shares by selling shareholders; and
- An acquisition shelf.
The SEC first recognized the acquisition shelf in a series of no-action letters (Service Corp. (1985) and later letters). In these, the SEC authorized the use of Form S-4 to register stock-for-stock acquisitions of private companies that could otherwise be effected under a private placement exemption from registration. Under this SEC authorization, where an acquisition could have been effected pursuant to an exemption from registration, the acquiring company does not need to file a transaction-specific post-effective amendment (or prospectus supplement) to the shelf registration statement on Form S-4 in order to effect the acquisition, even where the acquisition is “material” to the acquiring company.
Prior to initiating discussions with a potential target company’s shareholders, the acquiring company files a Form S-4 shelf registration statement with the SEC. The registration statement will not describe a particular transaction, but will be available for any of a broad range of private company acquisitions. These acquisitions may be effected by merger, consolidation, acquisition of assets or stock-for-stock exchange. The amount of shares that may be registered on an acquisition shelf may not exceed the amount that the company reasonably expects to use for acquisition transactions in the two years following the filing of the registration statement.
If an acquisition is material to the acquiring company, the Form S-4 will need to be updated after the acquisition before the acquiring company can use the Form S-4 for a subsequent acquisition. This may require the filing of a post-effective amendment. Companies that are eligible to use Form S-3, however, should be able to rely on incorporation by reference of 1934 Act reports into the acquisition shelf (including a Form 8-K disclosing a material acquisition) for this purpose.
An Acquisition Shelf Checklist
To use an acquisition shelf, confirm that your company fits the following profile:
Deliver the acquisition shelf prospectus (which need not describe the acquisition itself) to the target company’s shareholders as follows:
Some acquiring companies, to ensure delivery of all material information, also deliver to the target company’s shareholders copies of all the documents incorporated by reference into the acquisition shelf prospectus. The target company usually simultaneously delivers to its shareholders an information statement that describes the terms of the transaction and relevant information.
Benefits of an Acquisition Shelf. An acquisition shelf has a number of benefits, including the following:
- Because shares issued under an acquisition shelf Form S-4 are registered, those shares generally are freely transferable by shareholders of the target company;
- Companies can use an acquisition shelf at any time after the registration statement is declared effective, allowing an acquiring company to close a private company acquisition quickly; and
- In many cases, companies can keep their shelf registration statement current through incorporation by reference of their 1934 Act reports.
Downsides of the Acquisition Shelf. Some companies will view as downsides, the fact that:
- Any acquisition shelf filing will signal the company’s acquisition appetite to competitors and the market; and
- Analysts and shareholders may view the registered shares negatively as “overhang.”
Registration Statements on Form S-8
Form S-8 is available for 1934 Act reporting companies to register securities offered to employees, directors and certain consultants under an employee benefit plan, such as an equity incentive plan. The requirements for the use of Form S-8 are much simpler than those for other registration forms. Additionally, a registration statement on Form S-8 is not reviewed by the SEC before it becomes effective – it is effective immediately upon filing. Like Form S-3, Form S-8 allows a company to incorporate by reference all current and future 1934 Act reports filed by the company. In the IPO context, the company’s prospectus included in its Form S-1 is typically incorporated by reference into the Form S-8. An IPO company usually will file a Form S-8 immediately after the effectiveness of its registration statement on Form S‑1.
File Your Form S-8 Immediately After Your IPO, and Limit Option Exercise Until Then!
The securities law mechanics for granting equity awards to your employees change after your IPO. Private companies typically grant stock options or other compensation-related equity to employees pursuant to the exemption from registration under Rule 701 under the 1933 Act, while public companies register the shares to be issued under an equity incentive plan with the SEC on a Form S-8. Stock acquired by an employee under Rule 701 (by exercise of a stock option, for example) may generally be sold 90 days after your IPO.
However, if your company registers outstanding pre-IPO awards on a Form S-8 immediately after the IPO, employees can resell shares acquired under those awards without the 90-day waiting period. To take advantage of that benefit, file your Form S-8 immediately after your IPO, registering both outstanding pre-IPO awards and the shares available for future grant under your company’s plan. Shares that an employee purchases under Rule 701 before the Form S-8 is filed cannot be registered on a Form S-8, so you should ask your employees not to exercise any stock options until the Form S-8 is filed to avoid the 90-day waiting period. (Bottom line: Go ahead and grant options – just hold off on exercises until the Form S-8 is on file.)
Unlike Form S-3, however, Form S-8 does not require the company to file a prospectus with the SEC, but merely to provide employees with a prospectus containing specified information, including a description of the material terms and tax consequences of the equity incentive plan.
To be eligible to use Form S-8, a company must:
- Be subject to the 1934 Act reporting requirements immediately prior to filing the Form S-8;
- Have filed all 1934 Act reports required to be filed during the preceding 12-month period (or for such shorter period that the company has been subject to 1934 Act reporting requirements);
- Not be a shell company and not have been a shell company for at least 60 days before filing the Form S-8; and
- If the company was at any earlier time a shell company, have filed current Form 10 information with the SEC, which filing reflected that the company is no longer a shell company, at least 60 days before filing the Form S-8. A business combination-related shell company may, however, use Form S-8 as soon as it ceases to be a shell company and files its current Form 10 information with the SEC.
A company that meets Form S-8’s registrant requirements can use Form S-8 to register securities offered to employees under any written option, purchase, savings, bonus, appreciation, profit-sharing, thrift, incentive, pension or similar employee benefit plan, or a written compensation contract. (We discuss the special meaning of the term employees for purposes of Form S-8 later in this chapter.)
Stock issued for options exercised under an equity incentive plan before an IPO cannot be registered on a Form S-8 even though outstanding options under that plan are registrable on Form S-8 at the time of the IPO. Employees considering whether to exercise any options immediately prior to an IPO should be advised of this.
Beware of Restricted Stock
A company may register shares underlying stock options at any time before the options are exercised, either before or after the options are granted. However, for restricted stock (i.e., stock subject to forfeiture restrictions that lapse over time), the Form S-8 must be effective before the company grants and issues the restricted stock.
Definition of Employee
In general, Form S-8 is available only to register securities offered to employees. The term employee for Form S-8 purposes includes any employee, director, general partner or officer of the company. (It also includes trustees in the case of a business trust.) Former employees (as well as any executors authorized by law to administer the estates or assets of former employees) are also employees, but only for the following purposes:
- Exercising stock options and subsequent sales of securities to the extent permitted by the relevant plan; and
- Acquiring securities pursuant to intraplan transfers among plan funds to the extent permitted by the relevant plan.
Employees can also include consultants and advisors who are natural persons and who provide bona fide services to the company. Their services cannot, however, be in connection with an offer or sale of securities in a capital-raising transaction or for promoting or maintaining a market for the company’s securities.
Form S-8 registration permits the exercise of employee stock options by any family member who has acquired the options from an employee through a gift or a domestic relations order. Form S-8 is not available for the exercise of stock options that have been transferred for value.
Filings Relating to Employee Benefit Plan Amendments
From time to time, a company may choose to amend an employee benefit plan for which it has filed a registration statement on Form S-8. The question then is how to amend the Form S-8 relating to offerings under the plan. This is especially an issue when an amendment has the effect of changing the number of shares available for issuance under the plan.
- If a plan amendment increases the number of shares available for issuance under the plan, the company may register the additional shares using an abbreviated Form S-8 filing. (This would be a new registration statement, not a post-effective amendment to the Form S-8 originally registering the plan.) The abbreviated Form S-8’s exhibits would include a new legal opinion and accountant’s consent.
- If a plan amendment decreases the number of shares available for issuance under the plan, the company should file a post-effective amendment deregistering that number of shares. The company would not need to file a new legal opinion or accountant’s consent for this filing.
- If a plan amendment changes the terms of the plan without changing the number of shares available for issuance under the plan, a post-effective amendment would generally not be necessary. Instead, the Form S-8 would self-update by incorporating by reference a 1934 Act report (e.g., a Form 8-K or 10-Q) that describes the amendment or files the amendment as an exhibit.