SEC Provides Form S-3 Coronavirus Relief – Securities Lawyer 101

The SEC’s Division of Corporate Finance recently provided new COVID-19 related guidance in the form of Frequently Asked questions for issuers using Form S-3 registration statements.  The SEC previously provided relief to issuers impacted by coronavirus which  are unable to file timely because of “circumstances related to COVID-19 ( the “COVID-19 SEC Order”).

The SEC’s relief included conditional 45-day extensions to submit certain SEC reports and filings that had original deadlines between March 1 and July 1, 2020.  The new SEC guidance provides relief to issuers relying on Form S-3 registration statements to register securities. For issuers who qualify, Form S-3 is the most cost- and time-efficient registration statement to prepare because it allows issuers to incorporate certain disclosures previously filed with the SEC. 

Form S-3 Registration Statement Eligibility

Only certain SEC reporting issuers can register securities on Form S-3.  For an issuer to register securities on Form S-3, the issuer must:

  • Have a class of securities registered under Section 12, or have been subject to Section 15(d), of the Exchange Act for the past 12 months;
  • Have timely filed all Exchange Act reports required to be filed during the past 12 months, other than any Form 8-K reports required solely under Items 1.01, 1.02, 1.04, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e);
  • Not have defaulted on any material debt or long-term lease since the end of the most recent fiscal year;
  • Not have failed to pay any dividend or sinking fund installment on preferred stock since the end of the most recent fiscal year; and
  • Have filed with the SEC and posted on its corporate website all interactive data files (XBRL information) required to have been filed during the past 12 months (and any portion of the month in which the issuer intends to file the registration statement).
Form S-3 Registration Statement Transaction Requirements

If an issuer satisfies the issuer requirements above, it can use Form S-3 for offerings that comply with certain transaction requirements.  If the issuer has a public float of $75 million or more, it can register any offering of debt or equity for cash on a Form S-3 registration statement.

If an issuer has a public float of less than $75 million, it can register the following securities offerings on a Form S-3 registration statement:

  • secondary offerings of securities that are of a class listed on a national securities exchange;
  • primary offerings of non-convertible securities if the issuer:
  • has issued at least $1 billion in aggregate principal amount of non-convertible securities (other than common equity) in registered primary offerings for cash in the past three years;
  • has at least $750 million in aggregate principal amount of non-convertible securities (other than common equity) outstanding, which were issued in registered primary offerings for cash;
  • is a wholly-owned subsidiary of a well known seasoned issuer;
  • is a majority-owned operating partnership of a Real Estate Investment Trust that is a well known seasoned issuer; or
  • securities to be offered upon the exercise of outstanding convertible securities or rights under a dividend or interest reinvestment plan.

Any primary offering if the issuer meets all of the following additional requirements:

  • is not and has not been a shell issuer at least the past 12 months;
  • has a class of common stock listed on a national securities exchange;
  • has not sold securities under the rule (including the securities proposed to be sold in the follow-on offering) in an amount exceeding one-third of its public float during the past 12 months.
COVID-19 Extensions for Certain SEC Reporting Requirements

To rely on the COVID-19 SEC Order in connection with Form S-3, the issuer must be impacted by the coronavirus pandemic and file a Current Report on  Form 8-K or Form 6-K, if applicable. The Form 8-K or 6-K must include the following:

  • a statement the issuer is relying on the COVID-19 SEC Order;
  • a brief description of the reasons why the issuer was not able to submit delayed report, schedule or form on a timely basis;
  • the estimated date by which the issuer expects the report, schedule or form to be filed; and
  • issuer specific factors explaining any material impact of COVID-19 SEC on the issuer.

If the issuer cannot provide the report, schedule or form because any person, other than the issuer, is unable to furnish a required opinion, report or certification, the issuer must provide a statement signed by the person indicating the specific reasons why he or she is unable to furnish the required opinion, report or certification on or before the original due date of the report. The statement must be filed as an exhibit to the Form 8-K or Form 6-K, as applicable. The issuer must also disclose that it is relying on the COVID-19 SEC Order and explain why it could not timely submit the report, schedule or form.

Form S-3 Registration Statement Takedowns

An Issuer relying on the COVID-19 SEC Order for an extension of the due date for Form 10-K, may continue to conduct takedowns under an effective Form S-3, even if it has relied on the COVID-19 SEC Order so long as the prospectus complies with Section 10(a) of the Securities Act.

Issuers should consider that Section 10(a)(3) of the Securities Act requires that, when a prospectus is used more than nine months after the SEC effective date of the registration statement, the information in the registration statement must be as of a date not more than 16 months prior to such use, if the information is known to the issuer or can be furnished without unreasonable effort or expense. In addition, Rule 415 shelf offerings require an undertaking in the prospectus to reflect any facts or events arising after the effective date of the registration statement which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. The SEC has cautioned that, if the information is older than 16 months, issuers will need to determine when it is appropriate to update the prospectus. Issuers will remain responsible for the truthfulness and completeness of their disclosures.

Form S-3 Registration Statement Eligibility

When an issuer with an effective registration statement on Form S-3 files its Form 10-K, it is a Section 10(a)(3) update to the Form S-3. At that time, the issuer is required to determine Form S-3 registration statement eligibility.

Pursuant to Rule 401(b), when an issuer files a 10(a)(3) amendment, the form and contents must conform to the applicable SEC rules and form requirements as of the 10(a)(3) amendment filing date.  When an issuer relies on the COVID-19 SEC Order, the due date for the Form 10-K deadline is extended.  At the time that the issuer files the Form 10-K, it must reassess its eligibility for Form 3.

An extension on Form 12b-25 does not extend the original due date of the Form 10-K.  As such, when the issuer files the Form 10-K, it must meet all of the requirements of Form S-3, including the requirement that the company has made all filings required under Section 13, 14 or 15(d) for at least 12 calendar months immediately preceding the Section 10(a)(3) update. Assuming that the issuer complies with the conditions of the COVID-19 SEC Order, and the 10-K is filed by its extended deadline, the filing, it will be timely.

Filing a new Form S-3.

An issuer intending to use Form S-3 that is relying on the COVID-19 SEC Order may still do so even if it has not yet filed its required periodic report under the extended due date. Between the original due date of a required filing and the extended due date, the SEC will consider the company to be current and timely in its SEC reporting requirements so long as it properly files the Form 8-K disclosing all of the information required by the SEC.

If the company does not file the required SEC report by the extended due date, it will lose S-3 eligibility because it will no longer be current and timely in its SEC reporting requirements. Issuers should note that the SEC will be unlikely to accelerate the effective date of a Form S-3 until the issuer has filed all information required to be included in the Form S-3 is filed.

The SEC’s temporary rules are intended to provide assistance to companies directly or indirectly affected by COVID-19 that are seeking to comply with Form S-3 disclosure obligations and SEC reporting requirements.

Securities offerings under Rule 504 of Regulation D of the Securities Act may prove useful to founders of startup and small companies.

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes. For more information about going public with Form S-1, Form F-1 and Regulation A Securities Offerings, Rule 506 and Regulation CF crowdfunding,  sponsoring market makers and Form 211,  dual listings and foreign issuer listings and public company SEC reporting requirements, please contact Hamilton & Associates Law Group.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
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