After a company goes public, it 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 a company initially going public. Follow-on offerings of securities by the company itself, 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 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 company and a shareholder holding a large number of shares choose an underwritten public secondary offering as an orderly and efficient means of liquidating all or part of the shareholder’s position.

On occasion, registered offerings involve both primary and secondary offerings.

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 typically registers a variety of equity and debt 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 (or other securities). 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.) The primary advantage of a universal shelf registration statement is that, once effective, a company may offer and sell registered securities (often referred to as a “takedown off the shelf”) without the delay that might result from a review by the SEC staff.

A universal shelf registration statement includes a base prospectus, which often consists of only a section listing the 1934 Act reports and other relevant SEC filings 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 1934 Act reports and other relevant SEC filings incorporated by reference usually satisfy many of the disclosure requirements that apply to this registration statement (including requirements relating to a description of the company’s business, relevant financial statements and MD&A, management, legal proceedings and other matters). A universal shelf registration on Form S-3 also allows a company to forward incorporate future 1934 Act filings to facilitate automatic updating of information required to be included in the base prospectus. In addition to the base prospectus, the registration statement includes other information such as estimated offering expenses (although not required in automatic shelf registrations for WKSIs) and required exhibits (many of which can be incorporated by reference from other filings with the SEC).

The base prospectus does not contain pricing information or other details regarding any particular transaction. This additional information is included in a prospectus supplement, which is filed with the SEC when there is an offering of securities, and delivered with the base prospectus to investors. 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 debt securities (including the rate at which interest will accrue, interest payment dates and the maturity date), and more detailed descriptions of the intended use of proceeds and the plan of distribution. The prospectus supplement often includes a description of the risk factors and tax consequences related to the specific offering.

In many cases, underwriters will use a preliminary prospectus supplement (together with the base prospectus) 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 type of free writing prospectus – typically a one-page pricing term sheet – is usually prepared and filed with the SEC. The underwriters then use this pricing term sheet to confirm sales. The pricing term sheet typically provides only the pricing information previously omitted from the preliminary prospectus supplement, including the public offering price of the securities, underwriting discounts and commissions, and, in the case of debt or preferred securities, items such as interest or dividend rates and, if relevant, conversion prices, redemption prices and the like. An issuer then prepares and files with the SEC a final prospectus supplement (together with the base prospectus) that includes the pricing information from the pricing term sheet 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, from time to time, of securities held by an affiliate of the issuer or securities that were issued in a private placement. The prospectus included in a resale shelf registration statement on Form S-3 tends to be very short (particularly when the securities registered are shares of common stock). It usually includes a section listing the company’s 1934 Act reports and other relevant SEC filings incorporated 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 describing the manner in which the securities are expected to be distributed. Typically, the plan of distribution is drafted to provide significant flexibility relating to the types of transactions in which the registered securities may be sold. Many of the details relating to selling shareholders (including their identities and the number or amount of securities they may sell) may be omitted from an automatically effective resale shelf registration statement filed by a WKSI and, under certain circumstances, from a standard resale shelf filed by a non-WKSI issuer. The initially omitted details are later added to the registration statement by means of a prospectus supplement, post-effective amendment or 1934 Act report, depending on the circumstances.

If a company is not eligible to use Form S-3, the company could file a resale shelf registration statement on 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. Unlike with Form S-3, Form S-1 does not allow forward incorporation by reference to 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.

Agreements to file resale shelf registration statements can form an important part of a venture or private equity fund’s exit strategy. When a fund invests in a privately held company, the company often agrees at the time of the investment to file for the fund one or more shelf registration statements after the company has completed its IPO. This arrangement provides a way for the fund to eventually obtain liquidity for its investment.

Sometimes 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 its shares to the shareholders of the target company in an unregistered transaction pursuant to an exemption from registration such as Rule 506 or Section 4(a)(2). Often, the shareholders of the target company will require the acquirer to register the shares received in the acquisition by filing a resale shelf registration statement on Form S-3 soon after the closing of the acquisition. This allows the shareholders to start selling the shares they received in the transaction sooner than they otherwise would under Rule 144 under the 1933 Act (which we discuss in Chapter 6) and, in the case of target company shareholders who become affiliates of the acquiring company, in amounts exceeding the volume limits under that rule.

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 or convertible preferred stock (and sometimes warrants) to institutional and other accredited investors in a private placement, usually at a discount to the market price, with an agreement to file a resale shelf registration statement on Form S-1 or S-3 shortly after closing. The benefit to the company of a PIPE transaction is that the company is able to obtain the proceeds from the sale much faster than if it were to instead launch a registered public offering, which would be 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 prescribed period of time, usually until the time at which shares become freely transferable under Rule 144. This allows holders of restricted securities to have some control over the timing of their resales. To deregister, a company would file an amendment to the resale registration statement deregistering 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.)

Companies often use Form S-3 registration statements for shelf registrations, as we described 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, a 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 most types of offerings for three years. After the three years, a company can roll over any SEC fees related to unsold securities to a new shelf registration statement.

Eligibility Restrictions on Use of Form S-3

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 calendar months since the effectiveness of its first registration statement under the 1933 Act (e.g., Form S-1) or 1934 Act (e.g., Form 10). For a company that went public through a merger with a SPAC, the SEC staff generally interprets this period to commence when the de-SPAC transaction occurred, meaning that the company resulting from a merger with a SPAC cannot rely on the SPAC’s pre-combination reporting history for Form S-3 eligibility purposes. Additionally, the company must have timely filed all required 1934 Act reports and information during the previous 12 months and any portion of the month in which the Form S-3 is actually filed. Finally, 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 experienced any default on debt or a long-term lease that is material to the company’s financial position.

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.

Offerings by Issuers with a Minimum Public Float. A qualified registrant that has a public float of at least $75 million 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 registrant. It is determined by reference to the closing price (or average of the bid and asked price) of the registrant’s common equity on its principal trading market as of any date selected by the registrant within the 60-day period preceding the filing of the Form S-3. 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 prior to 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 (other than a shell company) listed on a national securities exchange, so long as the aggregate value of securities sold by the registrant during any 12-month period (including the potential offering) does not exceed one-third of the company’s public float.

See below for more information about these offerings.

Unique Flexibility for WKSIs

The 1933 Act provides companies with varying degrees of 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 companies that do not qualify as WKSIs.

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, either have at least $700 million of public float outstanding or have issued in aggregate $1 billion of nonconvertible securities, other than common equity, in registered primary offerings for cash, during the previous three years;
• Not be an ineligible issuer – generally, companies that are not current in filing 1934 Act reports, blank check companies, shell companies (including SPACs), 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; and

• Not be a registered investment company or an asset- backed issuer.

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 generally determined at the time 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. Consequently, it is possible for a company that qualified as a WKSI at the time of its initial filing of an automatic registration statement to lose its WKSI status before the end of the customary three-year period for the automatic shelf registration statement (if, for example, the company did not meet the public float requirement at any time within the 60-day period of a later-filed Form 10-K). In that event, the company may still, however, be able to use the shelf registration statement after it no longer qualifies as a WKSI, if it can take specific steps outlined by the SEC regarding those registration situations.

Use of Form S-3 by Small Public Companies

Many public companies that do not meet the $75 million public float test 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 during any 12-month period using Form S-3 may not exceed one-third of the company’s public float. To determine whether an offering is permissible under this limitation, the amount of the proposed offering together with the amount of securities sold within the last 12 months in other offerings registered on Form S-3 pursuant to the one-third public float rule must not exceed one-third of the company’s 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 (such as NYSE or Nasdaq) 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 various 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 is unique in that it is a single document that satisfies both the 1933 Act registration requirements and, where shareholders of either the registrant or the target company are required to vote on the transaction, 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 (which we discuss 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.

Information about the company filing the Form S-4 and information about any 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 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 the 1933 Act’s 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 6.) Additionally, if the acquiring company is a SPAC, the business combination rules may impose certain limits on resales by affiliates of the target company.

Acquisition Shelf

One motivation for a rapidly expanding private business to become a public company is to be able to use its stock as currency for private acquisitions. The Form S-4 acquisition shelf registration statement is a flexible and potentially speedy corporate finance vehicle designed for a series of stock-for-stock acquisitions of privately held target companies by a public company expected to take place over the ensuing few years.

The two 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 for a business combination transaction (as described in more detail above); and
• An acquisition shelf on Form S-4, which registers shares for issuance in connection with future business acquisitions.

(A third alternative can sometimes achieve essentially the same goal in a business acquisition or combination setting. A company may potentially issue the shares pursuant to a private placement exemption, such as Rule 506, and then file a resale shelf registration on Form S-3 that allows target company shareholders to resell shares without having to comply with Rule 144.)

To use an acquisition shelf registration statement, a company should fit the following profile:

• It is eligible to incorporate by reference 1934 Act reports into the Form S-4;
• It is considering the acquisition of one or more private companies (including subsidiaries or assets of a public company) in the next two years; and
• It is likely to use stock as a significant portion of acquisition consideration.

The acquisition shelf 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 number 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 (including potentially extensive financial statement information), although companies that are eligible to use Form S-3 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.

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.

Registrant Requirements

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 reflecting 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.

Transaction Requirements

A company that meets Form S-8’s 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 employee for purposes of Form S-8 later in this chapter.)

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. 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 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.

Transferable Options

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. Some points to consider when amending a plan covered by an effective Form S-8 include the following:

• 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.