PART 14--Shelf-Offerings and Automatic Shelf Offerings
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Introduction

An issuer would choose (inanimate objects cannot choose, but their officers and directors can) to register once as a company, file their reports as required and give notice of an intent to raise money and file an appropriate prospectus referencing its filed reports and access the capital markets without further adieu. The Securities Acts, however, is plural—that is, it consists of the Securities Act of 1933, applicable to the registration of securities, and the Securities Exchange Act of 1934, among other things, applicable to continuous disclosure. A committee if the American Law Institute headed by the later Professor Louis Loss recommended in 1978 combining all the federal securities laws in a federal securities code that, among other things, would provide for the registration of the company rather than the offering or registration of securities. That would have required action by Congress; did not happen and is not going to happen. We know, however, that the Commission by integrating disclosure required under the Securities Act and the Exchange Act and permitting certain issuers to register on Form S-3, which allows  incorporation by reference of ’34 Act reports, took a step in that direction. SOR not only expands what can be incorporated by reference into a Form S-3 and introduces automatic shelf registration on Form S-3 for well-known seasoned issuers, but permits certain reporting companies to incorporate by reference in a Form S-1 registration statement ’34 Act reports.

With respect to reporting companies and their ability to incorporate by reference after SOR we can divide reporting companies into six categories (one that can use only Form S-1 and five that can use Form S-3 for at least one type of offering) going from those that have the least flexibility to those that have the most. Before spelling them out, we note certain requirements that all that are eligible to use Form S-3 for at least one type of category have in common. Registrant Requirements set forth in General Instruction I.A of Form S-3. General Instruction I.A of Form S-3 requires that the issuer filed reports pursuant to Section 13(a) or Section 15(d) under the Exchange Act for at least 12 months; be current in its Exchange Act reports and filed such reports timely during the preceding 12 calendar months, and is not in default on certain dividend payments and loan obligations.

Category 1. A reporting company that does not meet Form S-3 Registrant Requirements, but is a reporting company, has filed at least one annual report on Form 10-K, and has filed all reports that it was required to file during the last 12 months (or such shorter period that it has been a reporting company). Can use Form S-1 and incorporate by reference backward Item 3-11 of Form S-1 (all but 1, 2, and 11A) if info available from 34 Act periodic and current reports in a primary offering, a continuous, and a secondary (including shelf) offering by selling shareholders. Hereinafter an S-1 registrant eligible to incorporate by reference.

Category 2. A company that meets the Form S-3 registrant requirements and its securities are not listed on Nasdaq or a national securities exchange is eligible to use Form S-3 to make a primary offering of an investment grade non-convertible security.

Category 3. A company that meets the Form S-3 registrant requirements, it securities are listed on Nasdaq or a national securities Exchange and is eligible to use Form S-3 for a secondary offering of such securities pursuant to General Instruction I.B.3 of Form S-3 but not eligible to use Form S-3 for a primary offering because it has a public float in its equity securities of less than $75 million. Hereinafter a General Instruction I.B.3 Form S-3 registrant. Such company also would be eligible to use Form S-3 to make a primary offering of an investment grade non-convertible security.

Category 4. A company that meets the Form S-3 registrant requirements, has a public float in its voting and non-voting equity securities of $75 million or more is eligible to use Form S-3 for any primary or secondary offering of its securities pursuant to General Instruction I.B.1 including a delayed or unallocated shelf-offering pursuant to Rule 415(a)(1)(x). Hereinafter a General Instruction I.B.1 Form S-3 registrant.

Category 5. Recall that at PART 11 we discussed the newly created as of February 4, 2008 category of smaller reporting company--i.e. companies with a  public float of $75 million.. We also noted  smaller reporting companies meeting the Form S-3 registrant requirements now have limited access to Form S-3 for a  primary offering including from the shelf of common stock or  other securities notwithstanding have a public float of less than $75 million, This, heretofore, however, has been denied to issuers meeting the registrant requirements as to being a reporting company and filing ’34 Act reports if they did not have a public float of $75 million. The Commission on December 19, 2007 adopted  General Instruction I.B.6. to Form S-3 affording a smaller reporting company access to Form S-3 (and F-3 for foreign private issuers) for registering equity or debt securities for primary offerings on Form S-3 without meeting the $75 million public float requirement of General Instruction B.1. In addition to the registrant requirements, however, the smaller reporting company must have a common stock listed on a national securities exchange (e.g. Nasdaq, AMEX, Acra) and aggregate offerings on Form S-3 cannot exceed one third of its public float during any 12 consecutive months. This is complicated by the fact assuming a shelf-offering as the public float literally floats  in that it is measured as of a date within 60 days of each takedown and the takedown in itself increases the public float as do sales by affiliates in Rule 144 transactions. We pursue how this would work with respect to takedowns of common stock immediately below.

In attempting to provide some clarity for determining the public float for the purpose of takedowns of different securities from time to time we start at the beginning. For purposes of illustration we assume a delayed shelf covering an offering of common stock with the distribution terms described generically without naming any underwriters or the number of shares being offered. The shares trade on Nasdaq as Capital Market securities. We assume the company’s initial public offering (at which time there was no market for its stock) was for 5 million shares at an estimated offering price of $5 a share and that there were 2 million shares held by non affiliates at the time the calculation was made within 30 days of filing the IPO registration statement to initially determine whether the company was a smaller reporting company. The 5 million shares being offered plus the 2 million shares held by non-affiliates prior to the offering = 7 million times $5 for a public float of $35, and the company clearly was a smaller reporting company at the time of the IPO.[4] Fifteen months later, registrant having filed all of its ’34 Act reports timely, the issuer files a Form S-3 registration statement covering a delayed offering of common stock. At the time of filing the public float increased to 8 million share held by non-affiliates as a result of affiliates selling a million shares in reliance on Rule 144. The stock trades at $5.50  a share; The registration fee table in accordance with Rule 457(o)[5] sets forth only a maximum offering price ($40 million) and the related registration fee. The registration statement is declared effective 30 days after the filing of the registration statement. Six months later, the registrant enters into a letter of intent with the prospective lead underwriter. The stock is now trading at approximately $6. a share and a letter of intent covers a proposed offering of 2 million shares. A supplement to the prospectus is filed naming the lead underwriter and the offering of the shares at $5.50 a share, which is used by the underwriter as the basis of its selling effort.

For the purpose of computing the public float in determining the one-third limitation, General Instruction I.B.6 provides a special as of date to calculate the public float; to wit, “as of a date within 60 days prior to the date of sale.”[6] Based on our assumptions as of a date within 60 days of the expected offering date the number of shares held by non-affiliates was 8 million, the closing of the stock on Nasdaq on that date was $6 a share or a total public float of $48 million, allowing a public offering up to one third of that amount or $16 million. The offering is well received and the underwriter and the issuer execute an underwriting agreement covering the sale of 2 million shares at $5.50 a share or aggregate offering price $11 million. A Rule 424(b) supplemental prospectus is filed with the final pricing terms and the offering is completed within a matter of hours based on the earlier selling effort realizing aggregate proceeds of $11 million, well within the $16 million one-third limitation of General Instruction I.B.6. We do not pursue further takedowns each of which will involve a separate determination as of the new measuring date and must take into account the 12 month limitation. We also do not pursue offerings of convertible bonds and  securities convertible into common stock. We note only for the purpose of determining the amount of the public offering of convertible debt (or any other derivative security), instead of using the aggregate offering price of the bonds (derivative security) the number of shares into which the debt security is convertible is multiplied by the price of the underlying stock at the measuring date.Form S-3, General Instruction I.B.6, Instruction 2

Category 6. A company that is a well-known seasoned issuer (which requires it meet the S-3 registrant requirements) either because (1) it has a public float (worldwide market value of outstanding voting and non-voting common equity held by non-affiliates) of $700 million or more,[1] OR (2) during the last three years issued at least $1 billion in the aggregate of non-convertible securities, other than common equity, in primary offerings for cash registered under the Securities Act and meets the requirements of General Instruction I.B.1 of Form S-3 (i.e. has a public float in its common stock of at least $75 million). Such well-known seasoned issuers can use Form S-3  under General Instruction D for any type of primary or secondary offering including any type of shelf offering, other than mortgage related or business combination securities. including delayed and unallocated shelf and for the registration statement and any post-effective amendment to be effective on filing (automatic shelf registration).

There is one more category that we do not know precisely where to place. A well-known seasoned issuer that during the last three years issued at least $1 billion in the aggregate of non-convertible securities, other than common equity, in primary offerings for cash registered under the Securities Act that does not meet the requirements of General Instruction I.B.1 of Form S-3 (i.e. has a public float in its common stock of less $75 million). Such an issuer can use Form S-3 to register only non-convertible securities, other than common equity, in primary offerings for cash and the registration statement and any post-effective amendment will be effective on filing. Although such registrants have the benefit of ASR, they can offer only non-convertible securities. We will refer to such registrants as restricted well-known seasoned issuers and those we placed in category 5 above as unrestricted well-known seasoned issuer.

An issuer since it cannot register the company once and for all and merely keep its registration up to date, might choose, if it had that choice to file a Securities Ac registration statement even though it does not presently have an offering in mind, but when it is ready to make an offering rely on updating that registration statement and complete the whole process at that point in a matter of days. Since The Commission in 1982 took some steps that as they evolved took further strides toward that end. The new integration rules included “a temporary rule (Rule 415) governing the shelf registration of securities.” Rule 415, which subsequently with some modifications was made permanent, provided for the registration of “an offering to be made on a continuous or delayed basis in the future.” Rule 415(a)(1)(x) provided for the registration on a delayed basis of a primary offering made on Form S-3, permitting issuers that are eligible to use Form S-3 for a primary offering (General Instruction I.B.1) to file a registration statement including at the effective date what came to be described as a base prospectus. A delayed shelf permitted the registrant at some future date after the registration statement was effective to negotiate an underwriting arrangement covering a particular takedown of the securities from the shelf. In 1992, this was broadened to include a so-called unallocated shelf, permitting the registration statement at the effective date to cover several different types of securities and allowing the specific security or securities taken down from the shelf to be determined at a future date.[2]

Primary shelf-offerings on Form S-3

Rule 430B, which the Proposing Release noted (and although not noted in the Adopting Release remains correct) “is intended to be largely consistent with current requirements and practice for shelf registration statements for delayed offerings on Forms S-3 and F-3.”[3] Related amendments to Regulation S-K, Item 512(a) and Rule 424(b), provide the framework for determining the information that can be omitted from a delayed primary shelf prospectus when the registration statement becomes effective and the manner in which the omitted information is to be furnished when there are specific takedowns under the shelf registration. We need at the outset, however, to make clear the situations in which reliance can be placed on Rule 430B. We ignore for the moment  its availability for automatic shelf registration statements filed by well-known seasoned issuers. Rule 430B is applicable to a prospectus filed as part of a shelf registration statement filed in accordance with Rule 415(a)(1)(x) or (vii) (mortgage related securities).[4] We focus on Rule 415(a)(1)(x), which is available for securities registered on Form S-3 or F-3 for sale on a delayed, continuous, or immediate basis for the account of the registrant (a majority owned subsidiary or a parent of which registrant is a majority owned subsidiary). Our focus is the delayed unallocated shelf and we note that to be registered on Form S-3 and covering securities offered by the registrant. This limits the offering to a primary offering of any security by a registrant that under General Instruction I.B.1 has a public float of $75 million or more, and, if it does not have such float it can utilize Rule 430B for an offering of an investment grade non-convertible security pursuant to General Instruction I.B.2, provided, of course, it desires to offer such security and can obtain the necessary investment grade rating. If the registrant is eligible to use Form S-3 for a primary offering in accordance with General Instruction I.B.1 (i.e., has a public float of $75 million), it can also rely on Form 430B with respect to an offering made by selling shareholders.[5]

Rule 430B is modeled on the Rule 430A prospectus except the information omitted on which the registration statement can go effective instead of being limited to offering price related information “may omit from the information required by the form to be in the prospectus that is unknown or not reasonably available to the issuer pursuant to Rule 409.”[6] A Rule 430B prospectus is a Section 10 prospectus for the purpose of Section 5(b)(1);[7] hence, can be used as a preliminary prospectus after a registration statement is filed and the registration statement can go effective notwithstanding the omitted information. Of particular significance, Rule Rule 430B(d) provides that information omitted from such prospectus that is part of an effective registration statement can be included subsequently in the prospectus by a post-effective amendment, or a Rule 424 prospectus, and/or by incorporation by reference if the applicable form permits incorporation by reference.[8] Since under our assumption (Rule 415(a)(1)(x) shelf), the registration has to be on a Form S-3, incorporation by reference is going to be applicable. An amendment to Form S-3 adds an Item 12(d), which provides that any information required by Items 3 through 11 of Form S-3 can be included in the prospectus through documents filed pursuant to Section 13(a), 14 or 15(d) of the Exchange Act that are incorporated or deemed incorporated by reference. Registrants are already required to incorporate by reference the last annual report on Form 10-K (or 10-KSB) and all reports filed on Section 13(a) or 15(d) since the end of the fiscal year covered by the Form 10-K, as well as all reports filed after the effective date until termination of the offering on documents filed pursuant to Sections 13(a), 14, or 15(d) of the Exchange Act. Since Items 3 through 11 cover the entire prospectus not incorporated by Item 12 mandatory incorporated information except for the front cover page, inside front cover page, inside front and back cover page, and routine information required relating to the Commission’s position on indemnification,[9] which may or may not be required, substantially all of the information omitted from the registration statement when it became effective required to be included in a Section 10(a) final prospectus other than the front and back cover page can be furnished by subsequently filed reports under the Exchange Act including reports filed on Form 8-K.

At some point in connection with a takedown from the shelf or otherwise the issuer will be filing a Rule 424(b) supplemental prospectus if for no other reason than to include a new cover page with the number of shares offered, table with price (per share and total) and underwriting commissions (per share and total) and offering information required to be included on the cover page and back cover page. In view of the extensive information that can be furnished by incorporations by reference from ’34 Act reports and that will not appear in the supplemental prospectus, Rule 430B(h) provides that the Rule 424(b) supplemental prospectus, to the extent it omits information relating to “the terms of the offering, the securities, or the plan of distribution, or selling security holders” because such information has been incorporated by reference, shall identify the periodic or current reports that contain the omitted information. We should note that Item 12 requires disclosure of the specific documents that are required to be incorporated by reference and those going forward that are deemed incorporated by reference as well as disclosure as to how that information can be obtained.

We previously noted that all shelf registrations have to include the Regulation S-K. Item 512(a)(1) undertaking. The three areas requiring a post-effective amendment under the Item 512(a)(1) undertaking are—(1) to bring the prospectus within the aging limitations of Section 10(a)(3); (2) to reflect “any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement,” and (3) to reflect any material change in the plan of distribution. Item 512(a)(1) as amended includes a proviso to the effect that registrants eligible to use Form S-3 or F-3 (a prerequisite for an unallocated shelf) do not have to file a post-effective amendment to meet any of the three items if the company’s periodic or current reports filed under Sections 13 or 15(d) and incorporated by reference include the information required to update the prospectus, or if the information is contained in a Section 424(b) prospectus. This provision in conjunction with the above described provisions of Rule 430B and Form S-3 as amended to include incorporation by reference of information required by Items 3 through 11 as well as Item 12 assures that ordinarily omitted and changed information will be furnished by incorporation by reference from ’34 Act reports (including a Form 8-K) and/or a Rule 424(b) prospectus. If we assume that the issuer elects the alternative of furnishing omitted information to the extent allowed by incorporating by reference the information from its ’34 Act reports (including those filed on Form 8-K), the prospectus supplement would have to include only the cover page, the inside cover page and the inside and outside back cover page (including a table of contents), and the Item 12 Form S-3 required incorporation by reference of specific ’34 Act reports and those subsequently filed until the offering is terminated as well as the Item 12 disclosures relating to the registrant’s obligation to deliver copies of the incorporated reports at no cost upon request.[10] In that event and to the extent a filing of a report under the Exchange Act incorporated by reference is relied on to otherwise furnish the omitted information, Rule 430B(h) as to specific omitted information requires the appropriate Rule 424(b) prospectus to identify the report in which the incorporated information appears.

The Adopting Release advises that “Rule 430B is a shelf offering corollary to existing Rule 430A, in that it describes the type of information that primary shelf eligible and automatic shelf issuers may omit from a base prospectus in a Rule 415 offering and include instead in a prospectus supplement, Exchange Act report incorporated by reference, or a post-effective amendment.”[11] Rule 430A, however, is very explicit as to what can be omitted from the prospectus upon which the registration statement is allowed to go effective without offering price related information. Rule 430B on the other hand provides that shelf registration statement for a primary offering “may omit information that is unknown or not reasonably available to the issuer pursuant to Rule 409.” The title of Rule 409[12] is Information Unknown or Reasonably not Available and is not consistent with present practice or what Rule 430B apparently assumes. The unknown or not reasonably available information must be such under Rule 409 “either because the obtaining thereof could involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the registrant.” Further, it requires inclusion of a statement either showing obtaining it would involve unreasonable expense “or indicating the absence of any affiliation with the person within whose knowledge the information rests and stating the result of a request made to such person for the information.” Rule 409 was adopted in 1947 and amended in 1949 and there is no real relationship to the delayed offering shelf in which the information is unknown since at the particular point of time it has not been determined and has nothing to do with the expense or effort involved in obtaining the information or that the information is under control of an unaffiliated unforthcoming third party. The reference to Rule 409 is unfortunate since we are simply talking about information that is unknown because it is not to be determined until some future date.

We can get some idea of what cannot be omitted from what Rule 430B expressly provides can be omitted from an automatic shelf registration, to wit: “the plan of distribution for the securities, a description of the securities registered other than an identification of the name or class of such securities.” As a result, as has been the past practice, the prospectus covering an unallocated shelf that is not an automatic shelf describes in generic terms a plan of distribution that does not exist and each of the securities (e.g., common stock, preferred stock, bonds etc.) which except for the common stock do not exist and may or may not be created, including in the case of debt securities a trust indenture that does not exist.

The prospectus included in a Rule 430B registration statement that omits unknown information to the extent permitted by Rule 430B after filed is a Section 10 prospectus for purposes of Section 5(b)(1), which means that it can be circulated after the registration statement is filed.[13] Further, Rule 433(b)(1) provides that a free writing prospectus can be used by the issuer or any person participating in the offering if a registration statement has been filed that includes a Section 10 prospectus filed on Form S-3 covering a primary offering by an issuer, which would include a shelf offering registered pursuant to Rule 430B. Similarly, Rule 134 communications as revised by SOR can be used after a registration statement including a Section 10 prospectus has been filed, which would include a registration statement omitting information in accordance with the requirements of Rule 430B.[14] None of the above, however, is likely to come into play in the case of an unallocated shelf until the issuer has an understanding with an underwriter(s) covering a specific takedown.

So what we have is a prospectus with a generic description of the plan of distribution, a very general use of proceeds section, an extensive generic description of debt securities that may never be issued with a form of indenture covering those securities that may never come into effect filed as an exhibit, and often a description of warrants that may never be issued, all of which remains part of the final prospectus that is accompanied by a supplement describing the offering terms, pricing related information, risk factors, summary, and the underwriting arrangement. The base prospectus may or may not incorporate by reference risk factors from the Form 10-K, which as noted at Part 13 now has to include risk factors. The prospectus supplement as we noted may if the issuer elects incorporate by reference much of all of the above information from the registrant’s ’34 Act filings. See Telik shelf (use table of contents to go to description of debt securities and plan of distribution..

We assume that in most instances the omitted and revised information will be furnished primarily by a Rule 424(b) prospectus supplement, although much of it could be furnished by filing a Form 8-K. Rule 424(b)(2) is amended in a fashion that facilitates such a prospectus supplement. Rule 424(b)(2) as amended is designed to accommodate a Rule 415(a)(1)(x) shelf registration as it provides for a prospectus supplement “that discloses information previously omitted from the prospectus filed as part of an effective registration statement in reliance on Rule 430B.” The Section 10(a) final prospectus as is the present practice includes the prospectus being supplemented and the prospectus supplement. The investor and offering participants to sort it all out must review both the prospectus supplement and the prospectus being supplemented (as to which much of the information is no longer relevant) and the relevant filings under the Exchange Act The Rule 424(b) supplemental prospectus, to the extent it omits information relating to “the terms of the offering, the securities, or the plan of distribution, or selling security holders” because such information has been incorporated by reference, will have to identify the periodic or current reports that contain the omitted information.[15]

We have included a pre-SOR (but probably not that different from what will occur after SOR) takedown by Telik. The first stage of the takedown reflects that they now have an accounting arrangement and the prospectus supplement looks very much like a Rule 430A prospectus without the offering price related information. The second stage takedown supplement after market includes the pricing information. Use the table of contents in one or the other to note that in addition to the supplement it includes the prospectus being supplemented, which is the prospectus at the effective date that we included (Telik shelf) to illustrate a shelf prospectus for an unallocated shelf. Fortuitously, after SOR and Rule 172 they will not have to deliver the final prospectus to anyone unless it is specifically requested.

SOR also includes amendments to Rule 415(a)(1)(x) as it pertains to a shelf registration on a delayed or continuous basis of an offering by an issuer eligible to use Form S-3 or Form F-3. One amendment permits an immediate as well as a delayed offering. If nothing else, that eliminates a question that previously could arise as to whether what purports to be a delayed shelf is not such as the registrant may have some type of understanding with an investment banking firm. This also permits an unallocated shelf in connection with an offering as to which there is an intention to go forward as soon or shortly after the registration statement is effective, but a decision has not been made as to the security to be offered or where the decision to go forward with the offering depends on some future event. Rule 415 also is amended to provide that securities registered for the shelf under Rule 415(a)(1)(x) may be offered or sold only for three years after the initial effective date.[16] This supplants the previous provision that permitted securities to be registered for a delayed shelf only in an amount that “is reasonably expected to be offered and sold within two years from the initial effective date of the registration.”[17] A new shelf registration can be filed prior to the end of the three years covering securities included in the prior registration statement,[18] in which event securities can be offered or sold under the old shelf until the earlier of the new shelf or 180 days from the end of the three year period.[19] The new registration statement and prospectus must include all information required at that time in the prospectus relating to all offerings that it covers. To the extent it covers unsold securities under the prior registration statement, the bottom of the cover page of the new registration statement should set forth the amount of such unsold securities and the registration fee paid as to such securities will continue to apply to such unsold securities.[20] The offering under the old shelf is deemed terminated on effectiveness of the new registration statement.[21]

Automatic shelf registration

Automatic shelf registration (ASR) has much in common with delayed shelf registration to the extent it also relies in large part on Rule 430B, but it different in a number of significant respects that should permit a more streamlined prospectus; both preliminary and final. ASR is available only to well-known seasoned issuer. To be a well-known seasoned, the issuer must have a public float (worldwide market value of outstanding voting and non-voting common equity held by non-affiliates) of $700 million or more,[22] OR during the last three years issued at least $1 billion in the aggregate of non-convertible securities, other than common equity, in primary offerings for cash registered under the Securities Act and that will register only non-convertible securities, other than common equity.[23] The will register only non-convertible securities is subject to an important qualification in that it is not applicable to an issuer that is eligible to register a primary offering of its securities relying on General Instruction I.B.1 of Form S-3 or Form F-3 (i.e., has an a public market cap of voting and non-voting common equity of $75 million or more).[24] Assuming the issuer meets either of the above well-known seasoned issuer criteria, it also must meets all the registrant requirements of General Instruction I.A of Form S-3 or Form F-3.[25] An ineligible issuer is excluded from the definition of a well-known issuer.[26] Asset-backed issuers and registered investment companies also cannot be a well-known seasoned issuer.[27] An automatic shelf-registration becomes effective on filing as does any post-effective amendment.[28] Primary shelf offering by well-known seasoned issuers are required only to include information at date of initial effectiveness to the extent required by Rule 430B.[29]

A well-known seasoned issuer may use Form S-3 (See General Instruction D) and rely on Rule 430B for any shelf offering other than business combination or mortgage related securities if the registrant is a well-known seasoned issuer under either the public float or the $1 million debt prongs of the definition provided in the case of the latter the issuer has a public float of at least $75 million.[30] A well-known seasoned issuer under the debt prong can also use Form S-3 and rely on Rule 430B if it does not meet the $75 million public float requirement to offer non-convertible securities other than common equity.[31] We assume for exposition purposes, however, an automatic shelf registration involving a delayed unallocated shelf offering conforming with 415(a)(1)(x). We do so in order to compare with a similar shelf offering by a seasoned issuer and determine how an ASR may differ in terms of the information that can be omitted from the registration statement when it becomes effective and how the omitted information is to be furnished in order to have a final Section 10(a) prospectus. As in the case of a seasoned issuer that is not a well-known seasoned issuer, Rule 430B provides that a well-known seasoned issuer may omit information that is unknown in accordance with Rule 409. As we noted previously, for the most part the information that is unknown in addition to pricing information pertains to (1) the terms pursuant to which the offering will be made including the underwriter(s), and (2) if an unallocated shelf the security that may be offered and the specific incidents of all the securities that may be taken down from the shelf. What Rule 430B, provides as to a well-known seasoned issuer is that in addition to the information that can be omitted in an unallocated shelf by a seasoned issuer the base prospectus may omit “whether the offering is a primary offering or an offering on behalf of persons other than the issuer, or a combination thereof, the plan of distribution for the securities, a description of the securities registered other than an identification of the name or class of such securities, and the identification of other issuers.”[32] The Rule 430B registration statement of a well-known seasoned issuer when effective (i.e., on filing) may look very much like that of a seasoned issuer with respect to an unallocated shelf except it will not have to indicate whether the offering is being made by the issuer (or subsidiaries or parents) or by selling shareholders, and it will not have to include the generic description of the plan of distribution or of the various securities included that is required in the case of a seasoned but not well-known seasoned issuer.[33] An ASR may omit the identities of selling securities holders and the amount being offered on their behalf, whereas in the case of a seasoned issuer the same omissions re selling shareholders is subject to a number of conditions as discussed below..

The information omitted from the base prospectus as in the case of a seasoned issuer could be provided on takedown by incorporation by reference to ’34 Act reports (periodic and current), by prospectus supplement (which in the case of a well-known seasoned issuer could include a calculation of the registration fee on the cover page),[34] and/or by post-effective amendment.[35] The alternative of a post-effective amendment, however, unlike the situation as to a seasoned issuer, is a real one in that it will become effective on filing.[36] A well-known seasoned issuer, however, may choose another path as it will have considerable latitude as to the content of registration statement it files and that becomes automatically effective on filing. The Adopting Release makes clear that that the Commission expects in the case of well-known seasoned issuers that “issuers usually will have a registration state­ment on file that it can use for any of its registered offerings.”[37] The registration statement filed by a well-known seasoned issuer may defer the payment of the registration fee by electing the pay-as-you-go alternative.[38] In that event, the fee table on the facing page of the registration statement does not have to include the number of shares or units of securities or the maximum aggregate price of any securities until it actually takes down securities and pays a fee for that take down on a pay-as-you-go basis.[39] In effect, the registration statement covers an unlimited number of securities of undesignated classes until there is a takedown. The fee table on the cover page, however, must indicate the classes of securities being registered and that the registrant elects to rely on Rule 456(b) and 457(r) with respect to payment of fee.[40] Assuming the pay-as-you-go procedures are followed, the registration statement will be deemed filed as to the class or classes of securities identified in the registration statement.[41] When the registrant is prepared to offer the securities it will pay the registration fee based on the securities to be offered within the time required to file the appropriate Rule 424(b) supplement.[42] In that event, it has to update the calculation of registration fee either by a post-effective amendment that will become effective when filed, or on the cover page of a Rule 424(b) prospectus supplement, by setting forth the class of securities being offered, the aggregate amount offered, and amount of the registration fee which is paid.[43] Assuming the pay-as-you-go procedures are followed, when the registration fee is paid the securities sold, the securities sold will be deemed registered if the above procedures are followed.

Registrants have a lot of alternatives as to how to handle a takedown and we assume in most instances they will handle it as most unallocated shelf offerings by using a Rule 424(b) prospectus supplement setting forth the plan of distribution and offering terms and describing the securities being offered, assuming they omitted such description from the registration statement when filed as is permitted by Rule 430B. If they followed pay-as-you-go, they will include a calculation of the registration fee on the cover page of the prospectus supplement. Exhibits such as underwriting agreement and trust indentures may be filed with a Form 8‑K and will be deemed incorporated by reference. Registrants do have the alternative of doing some or all of this by a post-effective amendment that will become effective on filing.[44]

Registrant, however, if it chose could list only one class of security; presumably, in most instances common stock as it is difficult to imagine an otherwise well-known seasoned issuer that does not have a public float of $75 million in its common equity, and elect the pay-as-you-go alternative. Although not required to do so, the prospectus can describe the common stock as participants in the offering may desire to do so even if that information now can be incorporated by reference in the Form S-3. When the company is ready to do the offering, if offering a different or additional security, they can add that security and related information and exhibits by a post-effective amendment that will become effective on filing.[45] The same post-effective amendment can take care of the calculation of registration fee and include a prospectus that sets forth the distribution terms, includes risk factors even though such risk factors can now be incorporated by reference, material developments and other matters that registrants/underwriters choose to include even though it could be incorporated by reference if for no other reason to supersede incorporated information that may be stale.[46] The prospectus may be a subject to completion Rule 430A prospectus[47] used to put together the selling group and the like. The use of a post-effective amendment that became effective on filing would permit the issuer to use an integrated prospectus that covered the specific security being offered, the distribution terms relating to that offering and be complete in itself. This would eliminate the need for a prospectus supplement, the prospectus being supplemented, and excessive reliance on incorporation by reference from ’34 Act reports.

Securities covered by a delayed shelf must be offered and sold within three years from the initial effective date, which in the case of an ASR would be the date the registration statement would be filed.[48] If the registrant followed the pay-as-you-go procedure, it would have paid a registration fee only as it took down securities under the registration statement and there would be no paid registration fee to carry forward. If it wanted to continue to have a registration statement in effect, it would merely file a new registration statement that would become effective on filing. The issuer, however, would have to continue to meet the requirement of a well-known seasoned issuer at the time it filed the new registration statement.[49] An ASR, also would have to meet the well-known seasoned issuer qualification criteria within 60 days of each date at which Section 10(a)(3) requires the prospectus to be updated (generally at the time a Form 10-K is due).[50] In either event (i.e., at the end of three years or any time a Section 10(a)(3) update is due), if no longer qualified as a well-known seasoned issuer, assuming still qualified as a seasoned issuer to register securities on Form S-3, the issuer could register a delayed unallocated shelf, but the registration statement and post-effective amendments would not become effective on filing, Rule 163 for pre-filing communications would no longer be available and the registrant would lose the flexibility available to an ASR.

Notwithstanding the Commission’s assumption that most well-known issuers are likely always to have a delayed registration statements in effect, there may be another alternative. In view of the modification made in the final rules in defining the second prong of a well-known seasoned issuer, it appears that those qualifying under either prong with rare exception can rely on Rule 415(a)(1)(x) to make a primary shelf offering. Those qualifying under the second prong are not limited to offering non-convertible securities but can make a primary offering of any security if they have a public float of $75 million. The term automatic shelf registration statement (ASR) is defined as a registration statement filed on. Form S-3 (or F-3) by a well-known seasoned issuer pursuant to General Instruction I.D of Form S-3 (I.C of Form F-3).[51] Although an ASR under the relevant General Instruction may relate to other shelf offerings (except for business combinations and mortgage related securities), our reference is and has been to securities offered pursuant to Rule 415(a)(1)(x). Rule 415(a)(1)(x) as amended allows in addition to a continuous or delayed offering for the shelf on Form S-3 or F-2 an offering of securities “which are to be offered and sold on an immediate . . . basis by or on behalf of the registrant.” The amendment clearly allows an immediate take down without raising any question and appears to make the term shelf a misnomer in this context. We conclude on this basis that a well-known seasoned issuer can file an automatic shelf registration that becomes effective on filing covering an offering for which there is to be an immediate take down and as to which only the offering price related information is omitted in reliance on Rule 430A. That conclusion is supported by, among other things, an amendment to Rule 430A, which provides that Rule 430A also is applicable to an automatic shelf registration.[52] A contrary conclusion might have been supported by the fact that Form S-3, General Instruction I.D.1(a) as proposed referred to an automatic shelf registration as “any securities to be offered pursuant to Rule 415, Rule 430A, and Rule 430B,”[53] suggesting that to be applicable there has to be information beyond the pricing information that is not known at the time of filing of the registration statement. This provision was changed to read in the amended Form S-3 as adopted to “any securities to be offered pursuant to Rule 415, Rule 430A, or Rule 430B.”[54]

If, as we assume, the registration statement becomes effective on filing by a well-known seasoned issuer notwithstanding it contemplates an immediate take down, there is another alternative. The principal reason for filing a delayed shelf or delayed unallocated shelf registration statement is to have a registration statement in effect so that when an underwriter(s) is found there will be a minimal delay in completing the offering. If the registration statement will become effective on filing, there is little need to have a shelf registration in effect. Negotiations can be undertaken with prospective underwriters in reliance on Section 2(a)(3) of the Securities Act,[55] which provides that the term sale, sell, or offer to sell does not include preliminary negotiations and agreements between an issuer and underwriter or among underwriters that are or are to be in privity of contract with the issuer. The filing of a registration statement could be delayed until the issuer has found an underwriter and entered into a letter of intent concerning specific securities at which time a registration statement could be filed much as in a conventional underwritten offering that could be priced or more likely with the pricing related information omitted. In the latter event, the registration statement without the pricing information could be filed and would be effective immediately. The underwriters could then market the issue and file a prospectus supplement or post-effective amendment to file the pricing related information and to complete the offering. Beyond that Rule 163 could be used prior to filing the registration statement to alert prospective members of the selling group and prospective investors that a registered offering is forthcoming. Already having a shelf registration that went into effect with a Rule 430B prospectus is unlikely to save any significant time under these circumstances.

Secondary Shelf Offering

The Commission, having learned from the reaction to the ill-fated aircraft proposals, presented SOR as incremental rather than a drastic overhaul of the framework for registration of public offerings of securities. SOR, nonetheless, is pervasive in terms of its impact on the registration process except as to business combinations, an area that was the first to feature liberalized communications. SOR also has a significant impact on secondary shelf offerings by selling shareholders with respect to both seasoned reporting issuers and other issuers. The focus is on the extent to which and which prospectus supplement can be used to comply with the undertakings designed to assure the base prospectus reflects the plan of distribution and is otherwise current when it is used.

The selling shareholders in a secondary shelf offering do not fall into a single mold, but what they have in common is that the securities have to be covered by an effective registration statement. This includes affiliates who wish to sell shares in an amount in excess of what can be disposed of in reliance on Rule 144. The affiliate may be a venture capital fund that provided much of the seed capital before the company went public and is an affiliate because of the size of its holding and/or its representation on the company’s board of directors. The selling security holder(s) may have acquired the shares in a transaction pursuant to which the company acquired a specific asset (e.g., a software program) and as part of the transaction the company agreed at some point of time to file a registration statement covering the resale of shares. The securities may have been sold by a public company in a Rule 506 or Section 4(2) private placement with an agreement to register the shares for resale. So-called PIPE private placements (private investment, public equity) largely to institutional investors as discussed below have become common place and involve a commitment to register the securities for resale. The foregoing is illustrative rather than exhaustive.

Whether registered on Form S-1 or S-3, of course, makes a significant difference in the content of the base prospectus and the manner in which it is modified after the registration statement becomes effective. If registered on Form S-3, the registration statement has to incorporate by reference the Form 10-K (10-KSB) for the registrant’s latest fiscal year for which such report is due, all Form 10-Qs (10-QSB) and Form 8-Ks filed since the end of such fiscal year.[56] Further, and significantly, a Form S-3 registration statement also must incorporate into the prospectus all periodic and current reports and proxy rule filings under the Exchange Act filed subsequent to the effective date of the registration statement until termination of the offering.[57] This went a long way toward keeping the prospectus in a Form S-3 registration statement up to date as to material developments. This is particularly true in view of the significant expansion of the events that trigger the requirement that a Form 8-K be filed.[58] It was of no help, however, as to securities registered on Form S-1. Form S-1 previously could not incorporate by reference reports filed under the Exchange Act. As discussed previously, SOR amended Form S-1 to allow most reporting companies prior to the effective date to incorporate by reference Exchange Act reports relating to the information called for by Items 3 through 11, but neither require nor allow so-called forward incorporation by reference of reports filed after the effective date of the registration statement.[59] There accordingly remains considerable difference of the flexibility available to updating a secondary shelf depending upon whether filed on Form S-3 or Form S-1.

We assume that reporting companies able to take advantage of the ability to incorporate by reference from ’34 Act reports in a Form S-1 registration statement will do so primarily in connection with follow-on offerings of their own securities. To be eligible to use Form S-1 and incorporate by reference, registrant must be a reporting company, filed at least one annual report, and filed all reports and other materials required by Section 13(a) (or 15(d)) and Section 14 during the past 12 months, or such shorter period that it was required to file ’34 Act reports. If it has not filed reports for 12 months, as soon as it has it ordinarily will be eligible under General Instruction I.B.3 of Form S-3 to use Form S-3 for a secondary shelf offering provided its securities are listed on a national securities exchange or Nasdaq. We assume, if it is not already eligible, it will wait until it is eligible to use a Form S-3 for a secondary shelf. The most likely circumstance that it would use Form S-1 would be if it were ineligible to use Form S-3 under I.B.3 because not listed on an exchange or Nasdaq, or under General Instruction I.A.5 for being in default in any of the situations covered, or under General Instruction I.A.3 failed to file all required reports timely during the past 12 months. We focus on secondary shelf offerings by registrants eligible to use Form S-3 for a secondary shelf under General Instruction I.B.1 because they meet all the General Instruction I.A registrant requirements and have a public float of $75 million or more; registrants eligible to use Form S-3 for a secondary shelf as they meet all the General Instruction I.A registrant requirements and are eligible under General Instruction I.B.3 to use Form S-3 for a secondary offering even without a $75 million public float provided listed on an exchange or Nasdaq, and well-known seasoned issuers that are eligible to use Form S-3 pursuant to General Instruction D.

Form S-3 is widely available pursuant to General Instruction I.B.3 for secondary shelf offerings as the registrant has to meet the registrant reporting requirements of General Instruction I.A and the same class of security must be listed on a national securities exchange or the Nasdaq stock market, but registrant does not have to meet the $75 million public float requirement of General Instruction I.B.1 necessary in order to be eligible to use Form S-3 for a primary offering. The registrant requirements of General Instruction I.A to Form S-3, include (1) the registrant has been a ’34 Act reporting company and filed all required reports timely for at least 12 calendar months immediately preceding the filing, and (2) registrant has not failed to pay any dividend or sinking fund payment, defaulted on any debt installment payment or rental on a long term lease that in the aggregate were material since the end of the last fiscal year for which it was required to file certified financial statements. The registrant also must be organized under laws of the United States or a state or territory thereof and have its principal place of business in the United States. There is, however, a counterpart Form F-3 available for secondary shelf offerings of securities of a non-U.S. issuer that is a reporting company. A reporting company with the same class of security listed on a national securities exchange or the Nasdaq Stock Market if not eligible to use Form S-3 because of the registrant requirements usually can wait until they have filed the required reports for the required period of time before filing a Form S-3. Companies that contractually grant registration rights would be well advised to condition those rights on the company being eligible to use Form S-3 for a secondary shelf offering. Secondary shelf offerings nevertheless on occasion are registered on Form S-1[60] or Form SB-2,[61] and have to be if the security is traded on OTC Bulletin Board or the so-called pink sheets. Such trading markets include a number of companies that post Sarbanes-Oxley have been delisted from a national securities exchange and/or the Nasdaq Stock Market.[62]

An uncoordinated distribution for the shelf by selling shareholders should be distinguished from a firmly underwritten offering by selling shareholders. It is not uncommon for companies that go public to include as part of the underwritten offering a substantial number of shares being offered by insiders and by the venture capitalists that provided the initial capital for the company. On occasion companies doing a follow-on offering also include as part of the underwritten offering shares being offered by selling shareholders. Such offerings, however, are not shelf offerings and are marketed in the same manner as any other firmly underwritten offering. In some instances, however, a secondary shelf offering may be registered in conjunction with a delayed primary offering, including an unallocated shelf, on FormS-3 and how those shares are ultimately distributed depends on future developments.[63]

As we noted above, secondary shelf offerings do not fall into a single mold as to the selling shareholders or the need for a resale registration statement. PIPE, private investment, public equity, private placements, however, are a common source of secondary shelf offerings. There are no rules, releases, or no-action letters that provide for a PIPE; rather such transactions came to the fore with tacit approval of the SEC Division of Corporations. What makes a PIPE private placement attractive is that it allows the investors almost immediate access to the public market without the significant discount from the market price attached to restricted securities. The “rules” that govern a PIPE and permit a Form S-3 secondary shelf offering with respect to the securities of most reporting companies can be found in the Division of Corporation’s Manual of Publicly Available Interpretations (Telephone Manual) and include the following:[64]

1.         The company has completed a Section 4(2) private placement before the registration statement is filed.

2.         The investor is at market risk at the time the resale registration statement is filed, which requires—

    a.      The private placees are irrevocably bound to purchase a fixed number of securities.

    b.      The private placees are irrevocably bound to purchase the securities at a set price at the time of the filing of the registration statement.

3.         The price cannot be based on the market price or a fluctuating ratio, “either at the time of effectiveness of the resale registration statement or at any subsequent date.”

4.         There can be no conditions to closing within the investors’ control or that they could cause to occur. Examples of such prohibited conditions include—

    a.      the market price of the security and

    b.      completion of due diligence.

5.         The closing of the private placement must occur a short time after effectiveness of the registration statement.

If all of the foregoing conditions are met, the offering is deemed a secondary offering, which means as discussed above a registrant eligible under General Instruction I.B.3 (which requires that the same class of security is listed on a national securities exchange or Nasdaq stock market) can use Form S-3 for a secondary shelf offering without meeting the $75 million public float requirement needed in order to be eligible to use Form S-3 for a primary offering. If the issuer also meets the public float requirement that makes it eligible pursuant to General Instruction I.B.1 to use Form S-3 for a primary distribution it can, of course, use Form S-3 for a secondary shelf offering. We sometime distinguish the latter by referring to it as a Form S-3 secondary shelf involving a General Instruction I.B.1 issuer, and refer to other secondary shelf offering on Form S-3 as a S-3 secondary shelf involving a General Instruction I.B.3 issuer.

Secondary shelf offerings on Form S-3

We assume an uncoordinated secondary shelf offering, which may involve a PIPE or any of several other resale type registration statements filed on Form S-3. Rule 415(a)(i) authorizes a shelf offering by selling shareholders and 415(a)(iii) authorizes a shelf offering underlying options or warrants. A Rule 430B prospectus, however, with respect to a secondary shelf for an issuer other than a well-known seasoned issuer is available only to a Rule 415(a)(i) shelf by secondary shareholders and only if the issuer is eligible to use Form S-3 or F-3 for a primary offering pursuant to General Instruction I.B.1, which requires that the issuer have a public float of $75 million. Preparation of the Form S-3 registration statement under such circumstances is relatively straight-forward in that the registrant can incorporate Items 3 through 11 from ’34 Act filings and as required by Item 12 on any registration statement filed on Form S‑3 must incorporate by reference the Form 10-K for the last fiscal year, the quarterly reports filed on Form 10-Q and current reports on Form 8-K since the end of the fiscal year, and all reports filed subsequently under the Exchange Act until the offering is terminated. The registration will not differ from a primary offering on Form S-3 except the plan of distribution will be described in very generic terms to cover all the situations pursuant to which the selling shareholders may sell the securities into the market or otherwise, and Item 7 calls for information relating to selling shareholders as required by Item 507 of Regulation S-K. Item 507 calls for the following:

Name each such security holder, indicate the nature of any position, office, or other material relationship which the selling security holder has had within the past three years with the registrant or any of its predecessors or affiliates, and state the amount of securities of the class owned by such security holder prior to the offering, the amount to be offered for the security holder’s account, the amount and (if one percent or more) the percentage of the class to be owned by such security holder after completion of the offering.

Although preparation of the plan of distribution part of the registration statement in many respects is an art form, there is no need to omit any of the required information from the prospectus when the registration statement goes effective. See S-3 of Interchange (Use table of contents to go to Plan of Distribution and Selling Security Holders; also Incorporation of Certain Documents).The prospectus filed immediately after the effective date is typically filed under Rule 424(b)(3) and often does not differ from the prospectus on which the registration statement went effective except it has a new date and no longer has the subject to completion legend.[65] As in the case of all shelf registration statements, the registration statement includes the three Regulation S-K Item 512(a)(1) undertakings relating to the filing of post-effective amendments—(1) to bring the prospectus within the aging limitations of Section 10(a)(3); (2) to reflect “any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement,” and (3) to reflect any material change in the plan of distribution.[66]

We discuss below what is involved in this regard, but before doing so consider the furnishing of information relating to the selling shareholders, which appears to be the principal difference among the three secondary shelfs that we are considering. Depending to some degree on the amount of time that elapses between the private placement and the secondary shelf offering, there may be several changes in the ownership of the securities before the filing of the registration statement, and, in other instances, after the registration statement is filed. The purchasers in the private placement if institutional investors may have resold the shares to other institutional investors. Some of the original purchasers may have made gifts of the securities. Investors in the private placement may be partnerships or other entities that distributed the shares to the partners or to those owning an interest in the entity. A Form S-3 secondary shelf offering filed by a General Instruction I.B.1 issuer (i.e., has a public float of $75 million or more) pursuant to Rule 430B(b)(2) can be filed and become effective without including the names of the selling security holders under the following circumstances:[67]

1)         The initial offering transactions in which the securities (or securities convertible into such securities) were issued has been completed.

2)         Such securities were issued and outstanding before the filing of the registration statement.

3)         The registration statement identifies the offering pursuant to which sold and identifies the selling security holders in a generic manner.

4)         The issuer must not be or have been during the prior three years a shell company (other than a business combination shell), a blank check company, or have made a penny stock offering.

This will come into play under different circumstances, but one consequence will be that with respect to a PIPE resale registration statement even if we assume the registrant would be eligible pursuant to General Instruction I.B.1 to use Form S-3 for a primary offering and can rely on Rule 430B(b)(2) the registration statement as filed will have to include the names of the selling securities holders. A PIPE private placement, as noted above, does not have to close until after the registration statement is effective provided all of the private placees are unconditionally committed before the registration statement is filed. The names and number of shares offered by the selling security holders cannot be omitted in reliance of Rule 430B(b)(2) since the securities must be issued and outstanding before the registration statement is filed.[68] This should be no problem, however, as all have to be contractually committed before the registration statement is filed; hence, their names will be known.

Under some circumstances, the filing of an S-3 secondary shelf involving a General Instruction I.B.3 issuer (i.e., an issuer listed on a national securities exchange or Nasdaq but with a public float of less than $75 million) may have to be delayed until the registrant sorts out who are the selling shareholders and is able to include the appropriate information. For reasons noted below, otherwise a secondary shelf involving a General Instruction I.B.3 issuer will not differ from that of a General Instruction I.B.1 issuer. The Commission justified this distinction as to naming the selling shareholders in the Adopting Release because “issuers that are not eligible to file a primary offering on Form S-3 or Form F-3 are more prone, in general, to engage in transactions some of which have raised disclosure and registration issues. As a result, we believe it is important to have complete selling security holder information and be able to review that information in registration statements to assure compliance with Section 5 and our disclosure rules in connection with these offerings.”[69]

Rule 430B(d) provides that the names of omitted selling shareholders when appropriate or any other information omitted from a Rule 430B prospectus may be included in the prospectus by post-effective amendment, or by a Rule 424 supplement, or by incorporation by reference from periodic or current reports under the Exchange Act. Except with respect to including the names of the selling security holders in the registration statement when filed, there appears to be no significant difference in terms of a secondary shelf offering filed by a General Instruction I.B.1 issuer and a General Instruction I.B.3 issuer, although the latter does not have the benefit of Rule 430B as to what can be omitted from the prospectus.

Although Rule 430B provides for the manner in which omitted information can be furnished after the effective date, this overlaps with the Regulation S-K, Item 512(a)(1) undertaking that has to be included in all shelf registration statements. As we noted above, Item 512(a)(1) provides that the issuer will file a post-effective amendment (1) to bring the prospectus within the aging limitations of Section 10(a)(3); (2) to reflect “any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement,” and (3) to reflect any material change in the plan of distribution. The first two, however, relating to updating the prospectus and fundamental changes in the information included in the registration statement generally do not come into play because under Item 512 they are not applicable to the extent the required updating and/or fundamental changes are reflected in periodic reports filed with the Commission that are incorporated by reference. Since Item 12(b) of a Form S-3 registration statement requires the incorporation of such periodic reports as long as the offering remains in effect, if the appropriate periodic reports are filed the information necessary to keep the prospectus current will have been incorporated by reference into the prospectus. The one item that may come into play is the undertaking to furnish any material change in the plan of distribution by a post-effective amendment. This may arise if, for example, one or more of the selling security holders enters into an arrangement with an investment banking firm to acquire and/or distribute the shares. As we noted in connection with a delayed primary S-3 shelf, the practice has been to permit this information to be furnished by a prospectus supplement and/or a Form 8-K that will be incorporated by reference into the prospectus. Prospectus supplements may also be filed to reflect changes in the selling shareholders when there are transfers, for example, to a donee or as the result of the liquidation of a corporate selling shareholder.

SOR codifies the practice of allowing prospectus supplements to satisfy substantive changes in the prospectus including the plan of distribution in a shelf registration on Form S-3. Whereas this required under previous practice a liberal construction as to what are fundamental changes in the prospectus generally and material changes in the plan of distribution, SOR specifically empowers the use of a prospectus supplement to satisfy the Regulation S-K, Item 512(a)(1) undertakings. SOR does so by amending the proviso to this provision to specifically provides that the three undertakings of Item 512(a)(1) “if the registration statement is on Form S-3 or Form F-3 the information required” by the undertakings is satisfied if “contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a prospectus supplement filed pursuant to Rule 424(b).”[70] What is new about this proviso is (1) adding a Rule 424 prospectus supplement as an alternative to a post effective amendment for satisfying all three undertakings if the registration statement is filed on Form S-3 and (2) referring to all Section 13 or 15(d) Exchange Act reports (including current reports on Form 8-K) and not merely periodic reports.

A secondary shelf filed on Form S-3 by an issuer satisfying General Instruction I.B.3 does not have the benefit of omitting information in reliance on Rule 430B and cannot as noted above omit the name of the selling shareholders from the registration statement as filed. We are not certain that it is subject to Rule 430C, which is applicable to offerings not made in reliance on Rule 430B or Rule 430A, but assume that it is.[71] Rule 430C, however, does not expressly provide as to what information can be omitted from the prospectus at the effective date of the registration statement. As we noted above, however, a secondary shelf on a Form S-3; particularly if it includes the names and other relevant information is substantially complete when the registration statement becomes effective. The information that may change is likely to involve changes in selling shareholders resulting from exempt transfers among such selling shareholders (e.g., a gift), and in some instances specific changes in the distribution plan as to specific selling shareholders. The registration statement must contain the Regulation S-K Item 512(a)(1) undertakings discussed above re providing information subsequent to the effective date. The amendments made by SOR to the proviso to this provision are applicable to registration statements filed on Form S-3. We take it to mean what it says and that the proviso is applicable to Form S-3 secondary shelf involving a General Instruction I.B.3 issuer as well as a secondary shelf offering involving a General Instruction I.B.1 issuer and this does not require that the prospectus have the benefit of Rule 430B. Accordingly, in accordance with this proviso information omitted from such a shelf registration or that needs updating (including a change in selling shareholders) can be furnished by a Rule 424 prospectus supplement or by incorporation by reference from reports filed under the Exchange Act, including information filed on Form 8-K.

It was troubling in this respect that the proposing release in discussing the Item 512(a) undertaking stated as follows: “We are proposing to revise the Item 512(a) undertaking to clarify that for shelf registration statements filed on Forms S-3 and F-3 for primary offerings of securities in reliance on Rule 415(a)(1)(x), all the disclosures required by this undertaking can be contained in any filed prospectus supplement deemed part of and included in a registration statement or any Exchange Act report that an issuer files that is incorporated by reference into the registration statement, instead of only in periodic reports.”[72] The Adopting Release on the other hand, referencing the Item 512(a) undertaking states as follows: “We are amending the Item 512(a) undertaking as proposed to clarify that, in shelf registration statements filed on Forms S-3 and F-3, all the disclosures required by this undertaking also may be contained in any filed prospectus supplement deemed part of and included in a registration statement or any Exchange Act report, instead of only in periodic reports, that an issuer files that is incorporated by reference into the registration statement.”[73] This incidentally is in accordance with prior practice without the benefit of the revised proviso. A substantial percentage of the Rule 424(b) prospectus supplements filed with the Commission are filed for the purpose of reflecting changes in selling shareholders, often several such filings over the extended life of a resale shelf registration statement.[74] There can be no question that the Regulation S-K expanded proviso to the Item 512 undertaking is applicable to the I.B.3 secondary shelf as well as an I.B.3 secondary shelf. Small business issuers also can use the S-3 for a secondary shelf made in reliance on I.B.3. The Form S-3 specifically provides that a small business issuer is to refer to disclosure Items in Regulation S-B rather than Regulation S-K and is to file the financial statements called for by Item 310 of Regulation S‑B.[75] Regulation S-B, Item 512(a)(1) includes the substantially same undertakings and proviso in the case of a shelf offering as Regulation S‑K, except the proviso is in the form of a Note rather than proviso in Regulation S-B. Item 512(a)(1). SOR changes the Item 512(a)(1) proviso (note) in Regulation S-B as it does in Regulation S-K to provide with one qualification that if registered on Form S-3 that ’34 Act reports incorporated by reference and/or a Rule 424(b) prospectus can be used in lieu of a post effective amendment to comply with the undertaking. The one difference is that a small business issuer can only rely on information incorporated from its periodic reports (Form 10-KSB and 10-QSB) and cannot rely on information filed on its current reports on Form 8-K for this purpose. Since small business issuers by definition cannot satisfy the $75 million public float requirement to rely on General Instruction I.B.1, it appears apparent that the expanded proviso (note) of Item 512(a)(1) is applicable to any secondary offering that can be filed on Form S-3, with Regulation S-B version applicable to small business issuers and Regulation S-K version applicable to other issuers.

A well-known seasoned issuer eligible to file an automatic shelf registration has the greatest freedom with respect to shelf offerings. Such issuers can file any shelf offering (other than a mortgage related securities or securities issued in connection with a business combination) and in reliance on Rule 430B omit in addition to other information whether the offering is a primary offering, a secondary offering by selling shareholders, or a combination of both.[76] In addition, such issuers may omit the identities of the selling shareholders and the amount of shares to be sold by each without meeting the conditions applicable to a shelf offering filed by a Form S-3 registrant eligible to make a primary offering pursuant to General Instruction I.B.1 as discussed above. A well-known seasoned issuer may use Form S-3 and rely on Rule 430B in this context if a well-known seasoned issuer under either the public float or the $1 million debt prongs of the definition provided in the case of the latter the issuer has a public float of at least $75 million.[77] A well-known seasoned issuer under the debt prong can also use Form S-3 and rely on Rule 430B if it does not meet the $75 million public float requirement to offer non-convertible securities other than common equity.[78]