G.     Ground Level Reform

§ 1:24 Form S-1 galvanized; Form S-2 eliminated

SORP would eliminate Form S-2 (and F-2) entirely[1] and would amend Form S-1 (and F-1) so that a reporting company may elect to incorporate by reference reports filed under the Exchange Act to satisfy Items 3 through 11 of Form S-1 or F-1.[2] To be qualified for this purpose, the registrant must not be an ineligible issuer (see § 1:4), must file reports pursuant to Section 13 or 15(d) of the Exchange Act; have filed all such reports required to be filed during the preceding 12 months (or such shorter period that it has been subject to the reporting requirements), and have filed an annual report (Form 10-K or 10-KSB) for its most recently completed fiscal year. [3] This apparently is not a misprint, although Items 3 through 10 includes offering related information that heretofore had to be included even in a Form S-3 registration statement/prospectus and could not be incorporated by reference. Item 11 of Form S-1 includes all of the business related information such as financial statements and Management’s Discussion & Analysis (MD&A) , executive compensation, management and transactions with management and the like, and this traditionally has been the information that can be incorporated by reference in the Form S-3, but not in a Form S-1. The Form S-3 and F-3, however, as proposed and discussed at § 1:32 would be amended to allow the incorporation of Items 3 through 10 offering related information by reference to Exchange Act reports. This in the Form S-3 (F-3) context works because in the registration for the shelf contexts a base prospectus is filed that incorporates by reference all ’34 Act reports subsequently filed until the offering is completed. The proposals as to Form S-1, however, does not permit incorporation by reference of reports filed under the’34 Act reports after the registration statement is effective, and it will be rare that most of the Item 3 to 10 information will be available in ’34 Act reports to incorporate by reference into a Form S-1. The proposed change to Form 10-K discussed at § 1:25, however, requiring disclosure of risk factors in the Form 10-K will permit the incorporation of risk factors and, presumably, a Form 8-K could be filed before the registration statement becomes effective describing the distribution terms and including the underwriting agreement as an exhibit, all of which could be incorporated by reference.

One can only wonder, however, at the wisdom of allowing the omission of such information by an unseasoned reporting company from the preliminary prospectus used to market the issue. To be eligible to incorporate by reference, however, the unseasoned reporting issuer must also makes its periodic and current reports filed pursuant to Section 13 or 15(d) of the Exchange Act readily available and accessible on a web site maintained by or for the issuer and containing information about the issuer.[4] The availability of such reports on the company’s web site may explain the apparent willingness of the Commission to allow risk factors and offering related information to be incorporated by reference by such issuers. Interestingly, there is no similar requirement with respect to seasoned or well seasoned reporting companies that similarly are allowed to incorporate such information by reference from ’34 Act reports under the proposed amendments to Form S-3.

Although this does not permit similar incorporation by reference on Forms SB-1 or SB-2 by small business issuers (SBI), this provision is structured so that an SBI could file a Form S-1 and if it meets the foregoing requirements elect to incorporate by reference to the same extent as other issuers. Since an SBI files a Form 10-KSB and since that form as discussed below, unlike Form 10-K, will not be required to include disclosure of risk factors, an SBI will be unable to incorporate risk factors from its ’34 Act reports although conceivably it could include them on a Form 8-K as other events and incorporate them by reference into the Form S-1.

Form S-1 registrants who elect to incorporate by reference do so by specifically incorporating by reference and listing (1) its latest annual report on Form 10-K or 10-KSB containing financial statements for its latest fiscal year, (2) all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and proxy statements filed pursuant to Section 14 since the end of the last fiscal year covered by its annual report.[5] The prospectus also must state the following:[6]

·         That registrant will provide to each person to whom a prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference in the prospectus but not delivered with the prospectus;

·         That registrant will provide these reports or documents upon written or oral request;

·         That registrant will provide these reports or documents at no cost to the requester;

·         The name, address, telephone number, and e-mail address, if any, to which the request for these reports or documents must be made; and

·         The registrant’s Web Site address, including the URL where the reports and other documents may be accessed

·         Registrant must also include in the prospectus a description of the reports it files with the Commission and advise of their availability at the Commission’s Public Reference Room and the availability of EDGAR reports on the Commission’s website.[7]

The Form S-1 prospectus relying on incorporation by reference must also set forth all material changes in the company’s affairs since the end of the latest fiscal year covered by the incorporated annual report that are not described in a Form 10-Q, Form 10-QSB or  Form 8-K that has been incorporated by reference.[8] Registrant is not required and not allowed to incorporate by reference ’34 Act reports filed subsequent to the effective date of the registration statement, which distinguishes it in this respect from incorporation by reference in a Form S-3 registration statement. SORP includes a proposed Rule 430C that impacts some shelf offerings made on Form S-1 as discussed at § 1:41.

§ 1:25 Proposed amendments to form 10-K and form 10

The Commission also has proposed to amend the annual report on Form 10-K (see § 7:33)[9] and Form 10 (see § 7:25)[10] (to register a class of securities under the Exchange Act) to require disclosure in plain English under the caption Risk Factors the risk factors referenced in Item 503(c) of Regulation S-K “that may have a negative impact on the registrant’s future financial performance.” The Form 10-Q (see § 7:34) also would be amended to require disclosure of any material change to previously disclosed risk factors in the Form 10-K.[11] SORP would break new ground in requiring the Form 10-K of accelerated filers (see § 7:35.10)[12] to disclose written comments from the staff relating to the company’s filed periodic reports (Form 10-K and Form 10-Q) that remain unresolved.[13] Such disclosure would be required only with respect to comments made at least 180 days before the end of the fiscal year as to which the annual report relates. The company may set forth its position with respect to any such comment. The Commission has proposed to require non-U.S. issuers that are accelerated filers filing an annual report on Form 20-F to similarly disclose unresolved staff comments.[14] The required risk factors disclosures would not be applicable to small business issuers[15] that file annual reports on Form 10-KSB, register securities under the Exchange Act on Form 10-SB, and file quarterly reports on Form 10-QSB. The requirement requiring disclosure of staff comments for apparent reasons would not be applicable to small business issuers, but it also would not be applicable to reporting companies that are not small issuers but that are not accelerated filers.

H.     Delayed and unallocated primary shelf offerings

§ 1:26 Overview

The principal changes that relate to shelf-registration pertain to delayed primary offerings by issuers, which as in the past can be made only by issuers eligible to use Form S-3 or F-3 for a primary offering (i.e seasoned reporting companies[16]  under the new terminology).[17] SORP also introduces a new Automatic Shelf Registration limited to well-known seasoned issuers, which are discussed separately below. See § 1:34. Our immediate focus is a delayed shelf primary offering, which can be made only by issuers eligible to use Form S-3 or F-3, and particularly unallocated delayed shelf offerings.

A registered public primary offering of securities by domestic (U.S.) issuers in most instances are going to be made on Form S-1 by companies not eligible to use Form S-3 for a primary offering, or, on Form S-3 if eligible to use that form for a primary offering. There are some differences in the information required in a Form S-1 registration statement and that required in a Form S-3 registration statement, but for the most part the information called for is the same. The difference is that presently all of the information called for must be included in the Form S-1 registration statement,[18] whereas a significFant part of the information included in the Form S-3 prospectus is incorporated by reference from periodic and current reports filed under the Exchange Act. For exposition purposes, we divide the information into the standard registration items (Items 1-10 of Form S-1 and S-3) that presently have to be included in both the Form S-1 prospectus and the Form S-3 prospectus and cannot be incorporated by reference in the Form S-3 registration. The remainder of the prospectus, including such basic company related information as financial statements, management’s discussion and analysis, management and transaction with management, executive compensation, in a Form S-3 for a seasoned issuer are incorporated by reference from its periodic and current ’34 Act reports.[19]

All issuers to be eligible to use Form S-3 must have been reporting companies pursuant to Section 13(a) or 15(d) for one year (the preceding 12 calendar months) and have filed all reports timely during the past 12 calendar months and the portion of the month in which the registration statement is filed.[20] An issuer otherwise qualified to use Form S-3 cannot do so if during the last fiscal year for which it has to include certified financial statements it (or any of its subsidiaries) has (a) failed to pay any dividend or sinking fund payment on preferred stock, or (b) is in default of any installment payment on borrowed money or rental payment on a long-term lease and the defaults in the aggregate are material.[21] To be eligible to use Form S-3 for a primary distribution of common and preferred stock and non-investment grade debt securities, the issuer must have a public float (market value of common equity securities held by non-affiliates) of at least $75 million.[22]

We focus on delayed primary offerings (offerings of the registrant’s securities) that can be registered for the shelf only by registrants that are eligible to make a primary offering on Form S-3 (or F-3).[23] Since 1992 a delayed shelf can be an unallocated or universal shelf as to domestic issuers eligible to use Form S-3 for a primary offering by the issuer,[24] and since 1994 for foreign issuers eligible to use Form F-3 for a primary offering by the issuer.[25] Although a delayed primary shelf does not have to be an unallocated shelf, the tendency is to file the registration statement as an unallocated shelf to provide maximum flexibility. In an unallocated or universal shelf, the issuer can list each class of securities it may offer pursuant to the shelf without designating the amount or price at which to be offered, The Commission made unallocated shelf offerings possible by the simple expedient of amending Rule 457(o)[26] relating to the payment of the registration fee and amending Form S-3 by adding an Instruction II.D. allowing the fee table on the facing page of such shelf-registration to “list each of the classes of securities being registered and the aggregate proceeds to be raised, the Fee Table need not specify by each class information as to the amount to be registered, proposed maximum offering price per unit, and proposed maximum aggregate offering price.” The following is a typical fee table from the facing page of an S-3 unallocated shelf-registration.

Title of Securities to be registered	Amount to be Registered(1)	Proposed Maximum Aggregate Offering Price(2)	Amount of Registration Fee (3)
Common Stock, par value $.01 per share
Preferred Stock, par value $.01 per share
Depositary Shares representing Preferred Stock(4)
Senior debt securities, senior subordinated debt securities, subordinated debt securities and junior subordinated debt securities (collectively, “Debt Securities”)
TOTAL	$1,000,000,000	$ 1,000,000,000	$ 117,700

 The counterpart cover page statement re securities offered in the Subject to Completion (Preliminary Prospectus) on which the registration statement goes effective might read as follows:

Under this prospectus, ABC Corp. may:

• sell common stock to the public;

• sell preferred stock to the public;

• sell common stock purchase warrants; and

• sell debt securities to the public.

All delayed primary shelf-registrations, and in particular all unallocated shelf offerings, contemplate that to some degree at the time the registration statement is filed the registration statement does not include all the information required in a Section 10(a) final prospectus. The so-called base prospectus included in a delayed primary shelf registration statement necessarily omits (or at best generically describes) a significant part of what we have referred to the standard registration items--information relating to the offering, including in the case of an unallocated shelf details as to the security to be offered, the distribution plan and the terms of the offering. The whole point of a delayed unallocated shelf is to permit the registration statement to go effective without this information in order to permit an offering to commence with a minimum delay once it is determined the security to be offered, the terms of the offering, and the manner of the distribution. To understand what is being proposed by SORP with respect to delayed unallocated shelf registration, we have to understand the conceptual framework, and, more important, the practices that have been accepted in connection with shelf offerings and delayed primary unallocated shelf offerings in particular.

§ 1:27 Conceptual framework

We start with Rule 415 relating to registration for the shelf and Rule 415(a)(1)(x), which provides for registration for the shelf on a delayed basis for securities to be registered on Form S-3 or Form F-3 that are being offered by or on behalf of the registrant. This limits such offerings to a primary offering by a registrant and requires that the registrant meet the General Instruction I.B.1. requirements of Form S-3 for a primary offering, including the $75 million public float requirement, since only such registrants are eligible to use Form S-3 for such offerings. Such registrants are referred to by SORP as seasoned reporting companies.[27] Although not our focus, we need to qualify this by noting that a registrant that meets all the Form S-3 requirements but the public float requirements also could make a delayed offering limited to an investment grade non-convertible securities[28] in reliance on Rule 415(a)(1)(x).

A delayed shelf and in particular a delayed unallocated shelf registration, as we noted, necessarily omits information that can be described only in generic terms if at all at the time the registration statement becomes effective. The second piece of the conceptual framework is the requirement applicable to all shelf-registration statements[29] that the registration statement include the Regulation S-K Item 512(a) undertakings. Those undertakings require the following to be furnished by post-effective amendment:[30]

1. To bring the prospectus into compliance with Section 10(a)(3),[31] which requires that a prospectus used nine months after the effective date of the registration statement not include information over 16 months old. The information that triggers this requirement to update the prospectus is usually the audited financial statements.

2. To reflect in the prospectus 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. Emphasis added.

3. To reflect any previously undisclosed material information relating to the plan of distribution or any material change in the plan of distribution. Emphasis added.

There is a proviso as to 1. and 2. above, in that they do not apply in the case of an offering registered on Form S-3 or F-3 if the necessary information is included in a periodic report filed pursuant to Section 13 or 15(d) of the Exchange Act. We emphasize. periodic reports, which refer to an annual (Form 10-K) or quarterly report (Form 10-Q), but not to a current report on Form 8-K, filed under the Exchange Act. A good deal of the information not included in a shelf-registration statement prospectus when the registration statement becomes effective (e.g. the actual terms of the security being offered if other than common stock) is not of the type called for by a Form 10-K or 10-Q; hence, if “fundamental” in concept at least must be filed by a post-effective amendment. Similarly, if it is material and relates to the plan of distribution, in concept the information when known must be included in a post-effective amendment rather than a prospectus supplement.

The third and final piece of the conceptual framework is the Rule 424(b) prospectus supplement. There are five principal types of 424(b) supplements; to wit: (1) through (5) as follows:[32]

Rule 424(b)(1) supplement is specific to a registration statement that goes effective pursuant to Rule 430A and is to be filed to furnish the offering price related information omitted at the time the registration statement went effective without such information and that is necessary to constitute a Section 10(a) final prospectus. A Rule 424(b)(1) prospectus supplement must be filed “no later than the second business day following the earlier of the date of determination of the offering price or the date it is first used after effectiveness in connection with a public offering or sales.”[33] The Rule 424(b)(1) supplement is a staple as to conventional offerings, but generally does not play a role in connection with delayed shelf-offerings.

A Rule 424(b)(2) supplement includes a supplement to a shelf-registration prospectus relating to a delayed primary offering that “discloses the public offering price, description of securities, specific method of distribution or similar matters.” The Release in which Rule 424(b)(2) was adopted describes such information as “‘transaction-specific’ information, i.e., information relating primarily to the securities offering.”[34]  A Rule 424(b)(2) prospectus supplement must be filed “no later than the second business day following the earlier of the date of determination of the offering price or the date it is first used after effectiveness in connection with a public offering or sales.”

A Rule 424(b)(3) supplement refers to a supplement that covers facts or events that are a substantive addition to the last prospectus other than such facts or events covered by a (b)(1) or (b)(2) prospectus. In the context of a shelf registration, the reference would be to facts or events other than those to be included in a (b)(2) supplement. A Rule 424(b)(3) prospectus supplement must be filed “no later than the fifth business day following the earlier of the date of determination of the offering price or the date it is first used after effectiveness in connection with a public offering or sales.”

A Rule 424(b)(5) supplement, which is a supplement “that discloses information, facts or events that can be covered in both (b)(2) and (b)(3) prospectus supplement. A Rule 424(b)(5) prospectus supplement must be filed “no later than the second business day following the earlier of the date of determination of the offering price or the date it is first used after effectiveness in connection with a public offering or sales.”

A Rule 424(b)(4) supplement is the same as a Rule 424(b)(5) prospectus except it discloses facts or events covered in both (b)(1) and (b)(3) prospectus supplement and generally is not relevant to a delayed shelf-offering. A Rule 424(b)(4) prospectus supplement must be filed “no later than the second business day following the earlier of the date of determination of the offering price or the date it is first used after effectiveness in connection with a public offering or sales.”

§ 1:28 Current practice

Keep in mind, that as to a shelf-registration, a supplemental prospectus is appropriate generally only to provide omitted information that is not fundamental and as to the plan of distribution only if the information is not material. In connection with a delayed primary shelf-offering, however, in practice it would be a challenge to find information omitted from the effective registration statement filed as a post-effective amendment. Since such offerings must be eligible to be registered on Form S-3, considerable information will automatically be incorporated by reference from the annual report filed on Form 10-K and quarterly reports on Form 10-Q. This will not include, however, for purposes of the Regulation S-K, Item 512(a)(1) undertaking “transaction-specific” information relating to the offering such as pricing information, description of securities, or specific distribution terms that typically if included at all are included in a Form 8-K, which does not satisfy the proviso for incorporating fundamental information from a periodic report and does not allow material changes in the distribution terms to be incorporated by reference from any ’34 Act report.

There has been very little formal guidance as to what can be omitted from the base prospectus relating to a delayed unallocated shelf and/or how it is to be furnished although there are several non-binding staff pronouncement of various types (particularly the telephone manual) that suggest what can or cannot be done under the accepted practice. We attempt to synopsize immediately below that guidance as it would apply to a delayed primary shelf offering registered on Form S-3:

A request for acceleration pursuant to Rule 461 does not need to be joined in by an underwriter when the registration statement is a delayed-offering shelf filing.[35] Since the purpose of a delayed shelf generally is to have the registration statement effective before any underwriter is selected this is critical concession. In fact, the requirements of Rules 460 relating to the distribution to underwriters and dealers of a preliminary prospectus realistically are not taken into account in granting acceleration. Although the subject to completion prospectus that is part of the registration statement at the effective date is conceptually a preliminary prospectus that can be distributed, it is not well designed to perform the marketing role that a preliminary prospectus plays in a conventional offering. Since both Rule 460 and 461 relating to the granting of acceleration are premised on having “due regard to the adequacy of the information respecting the issuer theretofore available to the public,” the assumption appears to be made that the information available relating to the issuer in reports filed under the Exchange Act largely satisfy this requirement.

The distribution terms relating to a takedown including the name of the underwriter can be furnished on a Form 8-K that will be incorporated by reference into the shelf-prospectus and the underwriting agreement can be filed as an exhibit to a Form 8-K provided it is not an offering at the market and that the description of the distribution terms in the effective shelf-registration contemplates that the offering may be distributed in this manner.[36] This is permitted notwithstanding material information relating to the plan of distribution not included in the shelf registration statement when it became effective according to the Regulation S-K Item 512(a)(1)(iii) undertaking requires the filing of a post-effective amendment.

In the case of a delayed shelf primary offering of equity securities made at the market, which Rule 415(a)(4)(iv) presently requires that an underwriter be named before the offering commences, however, the name of the underwriter if not set forth in the registration statement when it became effective must be included in a post-effective amendment.[37] SORP would amend Rule 415(a)(4) to eliminate the present restrictions on a delayed shelf offering made at the market.

A shelf-registration cannot go effective without an opinion of counsel as to the legality of issuance. Such opinion in the case of a delayed shelf may be a qualified opinion that will be updated with an unqualified opinion before any securities are sold under the shelf. The updated opinion of counsel relating to the legality of the issuance of securities can be furnished as an exhibit to a Form 8-K that will be incorporated by reference rather than by the filing of a post-effective amendment.[38]

An offering by selling shareholders may not be included among securities registered on an unallocated basis in a Rule 415 offering. Securities offered by selling shareholders, however, may be registered on the same registration statement as an unallocated shelf offering, but a separate section in the fee table must be included for the selling shareholders. That section lists the class(es) of securities registered and allocates a dollar amount to each class to be offered by selling shareholders.[39]

If preferred stock is included in an unallocated shelf, the preferred stock may be described in the base prospectus in general terms and a prospectus supplement used to describe the specific terms if taken down from the shelf. The instrument defining the specific terms may be filed as an exhibit to a Form 8-K.[40]

If debt securities are included in an unallocated shelf, the approach has to take into account that a trust indenture in compliance with the Trust Indenture Act of 1939 will have to filed as part of the registration process. The Trust Indenture Act of 1939 as amended in 1990 determines the content of a trust indenture and precludes a Securities Act registration statement becoming effective unless the securities are to be issued pursuant to an indenture that is in compliance with the Trust Indenture Act and the trustee meets the eligibility requirements of the Act.[41] The Trust Indenture Act, includes an exception for determining the eligibility of the Trustee prior to the effective date in the case of securities to be offered on a delayed basis.[42] The Act also authorizes the Commission to determine by rule the description of the indenture to be included in a prospectus meeting the requirements of Section 10 of the Securities Act.[43] The telephone manual describes the procedures to be followed “with respect to shelf registration statements that contemplate a series of debt offerings under Rule 415” requiring a Trust Indenture Act indenture:

·         The indenture that is filed with, and qualified upon the effectiveness of, the registration statement may be open-ended (i.e., it may provide a generic, non-specific description of the securities, such as ‘unsecured debentures, notes or other evidences of indebtedness’ which are to be issued in series).

·         The details of the securities to be offered in each series under the indenture (i.e., type of securities [notes, debentures, or other], interest rates and maturities) must be disclosed both in the prospectus and in a supplemental indenture at the time such series is to be offered. However, in order to avoid the delays attendant to post-effective amendments, in the case of the Form S-3 registration statement a Rule 424 sticker [prospectus supplement] may be used to make the requisite prospectus disclosures, and the supplemental indenture may be filed as an exhibit to an 8-K (in the same manner as specified for underwriting agreements).[44]

Accordingly, provided described generically in the effective registration statement, most of the transaction specific information such as the incidents of the securities, the distribution terms, and other offering specific information can be furnished by a prospectus supplement, and the underwriting agreement, trust indentures, opinions of counsel, consents of accountants and other experts can be furnished by exhibits to a Form 8-K in accordance with the foregoing. Since the information filed in periodic reports will be incorporated by reference into the Form S-3, disclosure required to keep the non-offering specific information such as financial information, material developments relating to the business of the issuer, management and the like may be kept current by the filing of periodic reports, current reports on Form 8-K, proxy statements, and other ’34 Act filings that are incorporated by reference into a Form S-3 registration statement until the offering is terminated.[45]

§ 1:29 An Unallocated shelf walkthrough

A walkthrough of an unallocated shelf that appears to be representative of the general practice may be helpful. Telik, Inc. presumably knew what it was doing since the unallocated shelf we have selected was its second unallocated shelf within a span of 17 months. The Company filed an S-3 registration statement (No. 333-108031) on August 15, 2003; amendment No. 1 to the registration statement on September 23, 2003 and amendment No. 2 on October 14, 2003. The registration statement covered common stock, preferred stock, warrants, and debt securities and the aggregate offering price was $150,000,000 on which the company paid a registration fee of $12,135. Amendment No. 1 included two significant changes. First, it set forth under an appropriate caption, Risk Factors as required by Regulation S-K, Item 503(c) and added on the cover page of the prospectus a cross-reference to the Risk Factors as required by Item 501(b)(5) of Regulation S-K. Secondly, it added to a separate section of the fee table on the cover page of the registration statement 1 million shares of common stock to be sold by a selling stockholder and set forth the maximum per share price for those shares; aggregate offering price and related registration fee. The cover page of the prospectus reflected the 1,000,000 shares being offered by a selling stockholder and under the caption Selling Stockholder the required information called for by Item 507 of Regulation S-K disclosed the Selling Stockholder to be a Japanese company that previously entered into a collaboration and license agreement with the registrant and was proposing to offer 1 million of the 2,445, 301 shares it owned in the registrant. Amendment No. 2 has the identical table of contents as Amendment No. 1, the same cover page of the prospectus (except for a new date on the subject to completion prospectus, updated market price of the company’s common stock.). What is new about amendment No. 2 is an updated consent of the accountants filed as an exhibit and an opinion of counsel relating to the legality of issuance of the shares being sold by the selling stockholder. Telik included as an exhibit to its registration statement an indenture with a named trustee that had been executed by the parties, providing for the issuance of securities there under in an unlimited amount to be issued in one or more series as to each issuance the terms of which are to be authorized by the board of directors and to be set forth in a supplemental indenture. Since no debt securities was ever taken down, the indenture has never been implemented. Some issuers in an unallocated shelf filed a form of indenture substantially identical to that filed by Telik as to the description of the debt securities to be issued there under, but the indenture is not executed and does not name a trustee.

Four related filings followed in short order. On October 29, the company filed a Rule 424(b)(3) supplemental prospectus; on November 6, the company filed a Rule 424(b)(5) supplemental prospectus; on October 30 the company filed a Form 8-K, on November 7 the company filed another Form 8-K. What becomes apparent from the October 29 prospectus supplement is that the registration statement became effective on or about October 23, the company now has an agreement with an underwriter(s), and is planning the takedown of 5 million shares and the selling shareholder will also offer through the underwriter 1 million shares. Prior to these events, the cover page of the prospectus included the following in prominent bold type: THIS PROSPECTUS MAY NOT BE USED TO OFFER OR SELL ANY SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. The October 29 prospectus supplement is such a supplement. Although conceptually a different animal, it is in effect a Rule 430A subject to completion prospectus. Taking into account the reports incorporated by reference and the information included in the supplement, it is a final prospectus except for the pricing information and is to be used to market the offering. The marketing effort was an obvious success as the supplemental prospectus filed on November 6, in which the offering is priced and the price related information is included, increased the number of shares that the company was offering to 6.5 million. Such increase in the size of the offering necessitated the filing of a 462(b) abbreviated registration statement on November 6 adding $2.5 million to the aggregate offering price to accommodate the additional shares including shares underlying the underwriter’s over-allotment option which took the aggregate offering price over the $150 million aggregate offering price as initially filed.

The Form 8-K filed on October 30 included a Press Release dated October 29 stating as follows:

Telik, Inc. (Nasdaq: TELK) announced plans to offer 6,000,000 shares of common stock in an underwritten public offering under its existing shelf registration statement. Five million of the shares are expected to be offered by the company, and 1,000,000 shares are expected to be offered by a corporate selling stockholder. In addition, the underwriters will have an option to purchase from the company up to an additional 900,000 shares to cover over-allotments, if any. UBS Investment Bank is acting as the sole book-running manager on this offering. Lehman Brothers, Bear, Stearns & Co. Inc., Needham & Company, Inc., Lazard and Fortis Securities Inc. are acting as co-managers. This press release does not constitute an offer to sell or the solicitation of an offer to buy any of the securities. This offering of the shares of common stock may be made only by means of a prospectus, copies of which can be obtained from UBS Investment Bank, ECMG Syndicate, 299 Park Avenue, New York, NY 10171

The Form 8-K included another Press Release as discussed below. The above press release is tailored to comply with Rule 134(c) tombstone reflecting an earlier staff view that a Form 8-K can be used to file information identified as relating to a particular takedown of securities from a delayed shelf registration statement, but cannot be used it a manner that violates Section 5(b)(1) that prohibits the distribution of a communication other than a preliminary prospectus or a Rule 134 communication.[46] The November 10, Form 8-K, included a November 9 press release, which expanded on the October 29 press release reflecting the additional shares being offered, stating that the stock had been price at $20 a share, briefly describing the company’s business and to comply with a Rule 134(b) communication that there could be no sale in a state in which it would be unlawful without registration under that states law. As is common practice in this situation, the Form 8-K included as exhibit 1.1 to the registration statement the underwriting agreement entered into with the underwriters named in Press Release referred to above, as exhibit 5.1 to the registration statement opinion of counsel as to legality of issuance, and exhibit 23.1 consent of counsel to the use of the opinion.

To complete the picture, the October 29 Form 8-K press release filed pursuant to Item 12 of Form 8-K (now Item 2.02; see § 7:36.40) requiring any publicly announced  earnings release for a completed quarter including material non-public information be filed on a Form 8-K. The press release related to the quarter ended September 30 and was material non-public information as the Form 10-Q for that quarter, which would have included such information, had not been filed at that date. Since the Form 8-K is incorporated by reference by the Form S-3 (which incorporates all subsequent ’34 Act filings prior to termination of the offering), one purpose of the 8-K may have been to meet the requirement of S-3 that it include all material changes in registrant’s affairs (Item 11); particularly, since it reflected a loss for the quarter and for the 9 months from the end of the prior fiscal year substantially greater than the comparable period for the prior year. The Form 8-K included .a number of positive statements about the company’s FDA trials that presumably passed muster as factual business information rather than designed to stimulate investor interest in the offering.[47]

§ 1:30 A critique of delayed shelf practice

We hesitate to criticize a registration procedure that works and, perhaps, works because of its flexibility. The unallocated shelf registration process, however, is a cumbersome one, which SORP intends to codify and in some respects makes even more difficult for investors to piece together. We noted previously that the Form S-3 includes two types of information—(1) what we have referred to as standard registration items that have to be set forth in the prospectus and (2) what we refer to as business, financial, and management related information that is incorporated by reference from ’34 Act filings. The latter works very well since it incorporates ’34 Act filings filed subsequent to the filing of the registration statement until termination of the offering. The ’34 Act filings provide a means of keeping that information up to date without filing amendments to the registration statement or supplemental prospectuses. The standard registration items in the case of an unallocated shelf are another matter as so much of the information is not known when the registration statement is filed and what is put in place before there is a takedown is not informative except as to those items that can be described with some specificity such as risk factors, the summary to the extent it includes a description of the company’s business, and the description of the common stock. On the other hand, distribution terms, debt securities and preferred stock that might be issued, counsel’s qualified opinion, and to a lesser extent use of proceeds, are so generic that they could be omitted, if it were allowed, with explanation that they will be included when (and if as to some items) it becomes pertinent. The result under present practice, which is to be codified, is that when there is a takedown the prospectus consists of a prospectus supplement that includes most of the relevant information and the prospectus being supplemented; ordinarily the prospectus included when the registration statement went effective. Much of the latter is no longer pertinent or necessary to provide the information required to be included in the prospectus relating to the takedown and may even be inconsistent with the prospectus supplement.

In the case of Telik, for example, the prospectus at the effective date, which together with the prospectus supplement is included as part of the final prospectus, includes a description of preferred stock, a description of warrants, and a seven page description of debt securities that are not pertinent to the offering. That prospectus also included a generic description of the plan of distribution that is superseded by the description of the underwriting in the prospectus supplement. The prospectus also includes a ratio of earnings to fixed charges, which is useful information, but required by Regulation S-K, Item 503(d) only if debt securities are registered, and assumes they are to be offered. The final prospectus includes a cover page for the prospectus supplement and a totally different cover page for the prospectus being supplemented; risk factor sections in both with the prospectus supplement being more extensive. The summary in the prospectus supplement includes a very extensive description of the company’s business, whereas in the prospectus being supplemented it is a very brief description. The only matters included in the prospectus being supplemented not included in the supplemental prospectus that are relevant to the offering are cautionary statements relating to forward-looking statements; description of capital stock, experts, and incorporation by reference of ’34 act reports. Ideally these items would be included with the items noted above that appear in the prospectus supplement to form a single final prospectus covering the takedown.

One interesting aspect of the prospectus to be supplemented is that although it is the prospectus included in the registration statement as amended, if amendments have been filed prior to the effective date, it typically has a more current date that we assume is the approximate effective date of the registration statement. In the case of Telik, for example, the last amendment was filed on October 14 and the subject to completion prospectus included as part of the registration statement was dated October 14. The prospectus being supplemented by the prospectus supplement filed on October 29 and November 6 is October 23, 2004 rather than October 14. We assume that the change in date is a result of Rule 423,[48] which provides that a prospectus used after the effective date shall be dated approximately as of the effective date and each supplement to a prospectus shall be dated separately as of the approximate date of its issuance.

§ 1:31 Marketing of a delayed unallocated primary shelf-offering

Based on a search of the SEC News Digest there were approximately 103 unallocated primary shelf offerings filed by U.S. issuers on Form S-3 during 2004. The author selected at random 17 unallocated shelf-offerings by ten different companies that occurred primarily during 2003 and 2004.[49] As of December 31, 2004, eleven of the unallocated shelves resulted in the takedown only of common stock, one company taking down common stock twice from the same shelf registration. One company that accounted for three of the unallocated shelf offerings (one going back to 1999), took down senior notes and common stock under two unallocated shelfs; and only senior notes under a third unallocated shelf offerings. One company took down only senior notes and debentures under one unallocated shelf, and only common stock under another shelf. One company made three unallocated shelf offerings and took down only debt securities under all three. Although this is not a scientific sampling, it suggests that many unallocated shelf offerings result in only a takedown of common stock that could have been accomplished by a delayed shelf of common stock. Interestingly, one of the companies (Telik, Inc.) that took down only common stock in both its unallocated shelf offering, in April of 2004 registered $300 million in a delayed shelf offering of common stock, which was taken down in January 2005.[50]

Of the 13 unallocated shelves in which stock was taken down, nine involved the use of two prospectus supplements -- the initial prospectus supplement including all the details of the offering other than the pricing related information followed by a second prospectus supplement with the pricing information. In effect, the first prospectus supplement was the equivalent of a Rule 430A prospectus without offering related information, which we assume was used by the underwriters to market the offering. In four of the stock takedowns there was no intermediate supplement, but only a prospectus supplement with the pricing and other information necessary to have a final prospectus. In nine in which there was a delay between the Rule 430A simulated prospectus and a Section 10(a) final prospectus, we eliminate one involving an atypical interval of 70 days and a change in underwriters between the two supplements. The other eight involved a delay ranging from 19 to 5 days with a median delay of approximately 10 days. During that delay, the decrease in the closing sale price from the day before the first supplement to the day before the final supplement varied from 15.4% to 1.9% with a median of approximately 9.2 %. The additional decease between the offering price and the closing sale price on the preceding day ranged from 0% to 4.88% with a median of approximately 3.46%. The underwriting discounts on the eight takedowns ranged from 6% to 2.33% with a median of approximately 5%. The offerings ranged in size from $855 million to $35 million with the median of approximately $82 million and with only one under $50 million. On the other hand, the four takedowns in which there was only one supplement relating to the takedown the offering price ranged from 3.77% to 6.17% below the closing sales price on the day prior to pricing with a median of approximately 4.8%; underwriting commissions ranged from 0.86% to 2.73% with a median of approximately 1.5%, and the offerings ranged in size from $457.5 million to $26.25 million with only one less that $200 million. The one takedown with 70 days between the first prospectus supplement relating to the takedown and the supplement with the pricing related information was the only two step supplement that involved an increase in closing sales price between the two dates (from $4.05 to $6.54 or 61.5%), and was  priced at $6.00. The underwriter listed in the first supplement was JP Morgan acting as agent on a best efforts basis, but was changed to a different underwriter and a firm underwriting in the second supplement. The aggregate offering price was $25.8 million.

The above suggests that there is no single mold for the takedown of common stock from an unallocated shelf, but that there ordinarily is some marketing between the initial understanding with an underwriter and the filing of a supplement with the pricing related information that constitutes the Section 10(a) prospectus. In the two step takedown in which the proposed takedown is set forth in one supplement without offering price related information followed by a second supplement with the offering related information, we assume the first supplement is used for marketing purposes. We don’t know what was used in the four with only a single supplement, but all describe the underwriting arrangement in terms to take into account the possibility and terms on which unnamed broker-dealers may join as members of the selling group. Conceptually, the issuer and underwriter to be could have used the prospectus the company went effective on to solicit members of the selling group and the public, but this seems unlikely as it does not describe the offering except in generic terms. All four included the pricing and other previously omitted information in a Rule 424(b)(5) supplement that has to be filed within two days of first use or pricing, whichever occurs earlier; hence, the underwriters had two days in which they could have used the supplement with the offering related information to market the issue. We assume, however, that telephone and personal contact was the principal method of marketing without using a prospectus.

§ 1:32 Rule 430B and shelf-registration of primary offerings on Form S-3 (orF-3)

Proposed Rule 430B, which “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,”[51] and 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. 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 information “that is unknown or not reasonably available to the issuer pursuant to Rule 409.”[52] A Rule 430B prospectus is a Section 10 prospectus for the purpose of Section 5(b)(1);[53] 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 430B provides that information omitted from such prospectus that is part of an effective registration statement can be included in the prospectus by a post-effective amendment, or a Rule 424 prospectus, and/or by incorporation by reference for an issuer eligible to use a Form S-3 for a primary offering.[54] An amendment to Form S-3 would add 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 11cover the entire prospectus not incorporated by reference pursuant to Item 12 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,[55] 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.

We noted at § 1:27 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) 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 the Section 10(a) requirement if the company’s periodic reports filed under Sections 13 or 15(d) and incorporated by reference include the information required to update the prospectus. Similarly, a “fundamental change in information” does not have to be included in a post-effective amendment if incorporated by referenced in such a periodic report. The Section 10(a)(3) requirement routinely will be met as the result of the filing of a Form 10-K and periodic reports as they becomes due during the post-effective period during which the unallocated shelf remains open. The periodic reports (Form 10-K and 10-Qs), however, are not likely to reflect transaction/offering related information of the type omitted prior to takedown(s) under a delayed shelf or the material terms of specific underwriting arrangements. Consistent with the proposed amendment to Form S-3, which permits that information required by Items 3 through 11 to be furnished by any report filed pursuant to Section 13(a) or 15(d) (including a Form 8-K), the proviso to Item 512(a) would be amended to provide that in the case of a registration statement filed on Form S-3 or F-3 none of the three undertakings are applicable to the extent the information is included in reports filed with the Commission pursuant to Section 13(a) or 15(d) and incorporated by reference into the registration statement. The proviso as amended refers to reports and not periodic reports; hence, includes current reports filed on Form 8-K. In addition, it refers to all three of the undertakings (including material terms of the plan of distribution) not merely the first two. For good measure, the amended proviso also provides alternatively that the information called for by the undertaking does not have to be included in a post-effective amendment if included in a prospectus supplement filed pursuant to Rule 424(b). 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.[56] . 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, proposed Rule 424(g) would require a Rule 424(b)(2) or Rule 424(b)(b)(5) supplement “that does not include disclosure of omitted information regarding the terms of the offering, the securities, or the plan of distribution because such omitted information” is included in a periodic or current report filed pursuant to Section 13 or 15(d) to disclose on the supplement’s cover page the identification of the reports incorporated or deemed incorporated by reference that include such omitted information.[57] The Proposing Release makes clear that this cover page disclosure is intended to “assist investors and the markets in locating this offering-related information.”[58]

There presently as to a delayed primary shelf registration is no equivalent to Rule 430 prescribing the information that can be left out from the preliminary prospectus or of Rule 430A specifying the information that must be included and what can be omitted from the prospectus in order for the prospectus to become effective without the offering price related information. As described at length at §§ 1:28-1:29, there are well defined practices in this regard relating to a delayed shelf registration statement on Form S-3 for primary offerings based on informal staff guidance. The Proposing Release advises that “Proposed Rule 430B would be a shelf offering corollary to existing Rule 430A,”[59] 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. Proposed Rule 430B on the other hand provides that shelf prospectus for a primary delayed offering “may omit information that is unknown or not reasonably available to the issuer pursuant to Rule 409.” The title of Rule 409[60] is Information Unknown or Reasonably not Available. Rule 409, however, is not consistent with present practice or what is being proposed. 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. The 1987 Release reorganizing Rule 424(b) prospectus supplements (see § 1:27) put it more appropriately, stating: “Securities offerings that meet the criteria for delayed offerings under Rule 415 do not have to rely upon Rule 430A. Such registration statements may become effective without price, underwriting syndicate and other information, because the information is not known at the time of effectiveness.”[61]

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. Further, Rule 433(b)(2) specifically 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 base prospectus satisfying the conditions of Rule 430B. Similarly the revised Rule 134 communications under the SORP proposal which can be used after a registration statement including a Section 10 prospectus has been filed can be used in connection with a registration statement including a prospectus meeting the requirements of Rule 430B. 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 very much the prospectus described above under the unallocated shelf walkthrough and critique captions (see §§ 1:29-1:30) consisting[62] of 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 under the proposal as discussed at § 1:25 will have 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.

We assume that in most instances the omitted and revised information will be furnished primarily by a Rule 424(b) prospectus supplement. Rule 424(b)(2) is proposed to be amended in a fashion that facilitates such a prospectus supplement. Rule 424(b)(2) as proposed to be amended provides for a 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 would include 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 noted on the cover page of the prospectus supplement to the extent reliance is placed on incorporating any of the omitted offering related information in that manner. SORP also adds an Regulation S-K, Item 512(a)(5)(ii) undertaking that in conjunction with Rule 430B(e) determines the effective date for Section 11 liability purposes of a prospectus supplement covering a takedown from a delayed shelf and is discussed with other provisions relating to the effective date of a prospectus supplement at § 1:43.

One facet of what appears to be current practice not covered by SORP relates to the date of the audited financial statements at the time a prospectus supplement is filed. This is aside from the Item 512(a)(1)(i) undertaking that the prospectus if used nine months after the effective date of the registration statement must not include audited financial statements that are over 16 months old. If the Form 10-K is filed timely, Section 10(a)(3) is not a problem in this respect as the Form 10-K will be incorporated by reference by a Form S-3 registration statement and update the audited statements timely. The problem arises with respect to Article 3, Section 3-01 of Regulation S-X,[63] which provides that the registrant shall file an audited balance sheet as of the end of each of the two most recent fiscal years. Section 3-01(b) provides that a filing other than a filing made on Form 10-K made within 45 days of the end of the fiscal year may include balance sheets as of the end of the two preceding years if audited statements are not available for the last fiscal years. A similar provision is applicable to a filing made after 45 days and within 90 days of the end of the fiscal year, but only if registrant reasonably and in good faith expects to report income after taxes for the current year and has done so for one of the two preceding fiscal years. Section 3-02 has corresponding provisions relating to the statements of income and changes in cash flow. Article 3 is applicable to “the balance sheets and statements of income and cash flows to be included in disclosure documents prepared in accordance with Regulation S-X.” If a prospectus supplement is a filing for this purpose, and a takedown occurs 45 days after the end of a fiscal year and before 90 days after the fiscal year, a registrant without the required earnings could not meet the Section 3-01 and 3-02 requirements except by filing the Form 10-K earlier than otherwise required or including audited statements as of the end of the last fiscal year as part of the prospectus supplement. The Division of Corporation’s staff previously considered this precise issue as reflected by the Manual of Publicly Available Telephone Interpretations, stating: “Rule 3-01 did not prevent the shelf take-down and would not apply to the prospectus supplement as it was not for the purpose of updating the prospectus under Section 10(a)(3).”[64] This is reinforced to some degree by an introductory note to Article 3 stating that “[f]or filings under the Securities Act of 1933, attention is directed to…section 10(a)(3) of the Act regarding information required in the prospectus.” It would be helpful, if SORP were to make this clear in some fashion.

SORP also includes two 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 would expand this provision to permit an immediate offering. If nothing else, that would eliminate a question that presently can arise as to whether what purports to be a delayed shelf is not such as the registrant may have a tacit understanding with an investment banking firm for an immediate takedown at the time the registration statement went effective. This would also permit 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 if the decision to go forward with the offering depends on some future event. Rule 415 also would be 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.[65] This would supplant the present provision that requires registrants filing a delayed primary shelf offering can only register securities in an amount that “is reasonably expected to be offered and sold within two years from the initial effective date of the registration.”[66] Prior to the end of the three years, however a new shelf could be filed and be deemed a continuous offering of the unsold securities covered by the old shelf and the filing fee paid to register those unsold shares would be applied on the registration fee for the new shelf.[67]  

§ 1:33 Critique of Rule 430B as applicable to delayed shelf offering by a seasoned issuer

The current practice relating to delayed shelf offering as proposed to be codified by SORP results in a cobbled together dysfunctional prospectus. A prospectus and a prospectus supplement that require sorting out what is relevant and what is redundant in the prospectus being supplemented, or that may be inconsistent with the information included in the supplement. The SORP access is delivery of the prospectus approach under these circumstances is not well served for those investors that seek access to the prospectus. Why we have the cumbersome practice of putting together a prospectus in connection with a delayed primary shelf offering that SORP would codify in large part is the crafting of an alternative to filing a post-effective amendment that could put it all together in an integrated coherent prospectus. A post-effective amendment is to be avoided because historically it could not be used until the Commission declares it effective, and when there is a takedown of a delayed shelf time is of the essence to market the offering in a relatively short time frame. There is a simple solution to this problem and that is to provide a post-effective amendment filed in connection with a takedown to provide and integrate the information omitted from a prospectus in accordance with Rule 430B is effective on filing of the post-effective amendment.[68] Even if such an integrated prospectus and post-effective amendment were not required, it would at least provide a registrant the option of providing such a prospectus. There will be some that will object to a post-effective amendment even if effective immediately because of the requirement that it include the signatures of a majority of members of the Board. There are means to expedite such signatures, and all of the Board members in any event will have potential Section 11 liability for a prospectus supplement filed without their signature. See § 12:31.

SORP in many respects marginalizes the role of the prospectus in connection with an offering by a seasoned issuer, which an issuer must be in order to make a delayed primary shelf offering under Rule 415. In all registered offerings after SORP, if adopted as proposed, a final prospectus will not have to be delivered unless requested by a purchaser.[69] See § 1:19. This is understandable as a final prospectus is not delivered until after the purchaser is already committed to purchase the security. If a prospectus is to play a disclosure role it has to be delivered before investors have contracted to purchase the offered security. We assume that many if not most companies in connection with a takedown of a primary shelf offering; particularly, as to an unallocated shelf, will rely primarily on a prospectus supplement to provide the omitted information except for the filing of exhibits such as the underwriting agreement, opinion of counsel and consents of experts that are likely to be filed on a Form 8-K. To the extent the underwriter markets the offering to members of a selling group, institutional and other investors there is no obligation to deliver the prospectus unless it utilizes a Rule 134 communication. Since the underwriters can use a free writing prospectus to market the issue it can do so without delivering a preliminary prospectus. See § 1:18. A delayed primary shelf requires a seasoned issuer and there is no requirement that a free writing prospectus relating to an offering by a seasoned issuer be preceded or accompanied by a subject to completion or final prospectus if registrant has filed a registration statement including a Rule 430B base prospectus.[70] See § 1:10. The free writing prospectus, if widely disseminated, will have to be filed and in any event will have to include the required legend as to the availability of a prospectus with the URL that will link to the filing.[71] See § 1:11. The filing will include the prospectus supplement and prospectus supplemented each with a table of contents.[72] Although not required, if filed as an html document, which is increasingly likely, the person accessing the filing can use the linked table of contents to navigate the prospectus supplement and the prospectus that is supplemented. In addition, one knowledgeable in using EDGAR can access documents incorporated by reference that are listed on the cover page as well as the documents such as the Form 10-K and quarterly reports expressly incorporated by reference as required by Item 12 of Form S-3. Alternatively, the free writing prospectus legend has to disclose that the prospectus (presumably prospectus supplement and the prospectus supplemented) can be obtained by a request made to a toll free number. In addition, Rule 15c2-8[73] will require that the prospectus be made available to broker personnel of members of the selling group and persons requesting a copy, although the language of the rule has to be stretched some since it references a preliminary prospectus prior to the effective date and a final prospectus after the effective date rather than a subject to completion prospectus after the effective date. Beyond that, underwriters responsible for marketing the offering during the relatively short time frame characteristic of a delayed unallocated shelf may be inclined to deliver the prospectus supplement/prospectus to prospective members of the selling group, institutional and other investors.

The objective of delayed shelf registration and unallocated shelf in particular is to simulate company registration by relying primarily on ’34 Act filings for company related information and a prospectus supplement for offering/transaction related information. Since the company related information in the case of a seasoned issuer has been out there and is presumed to be followed by analysts and reflected in the market price, prospective investors will rely in large part on the market’s view of the offering in making investment decisions. The Commission is assuming, hopefully correctly, that the reforms Sarbanes-Oxley and the global settlement imposed on the research departments of investment banks enhances the reliability of that research. To that end, offering participants under SORP will have somewhat greater latitude to publish research reports relating to seasoned issuers in registration.[74] See § 1:20. At the risk of belaboring the point, prospective investors in a delayed shelf, nonetheless, should have available a prospectus that is self contained and includes risk factors, forward-looking cautionary statements, a description of the actual distribution arrangement, use of proceeds, and the terms of the securities being offered. An imaginative approach would also eliminate the need to include generic information that may never become relevant relating to distribution terms and description of securities, among other things, in the registration statement that becomes effective. A single paragraph could describe as is the case in most S-3 registration statements relating to an unallocated shelf offerings that the company may offer any of several classes of securities and when it takes down the specific security pursuant to a specific distribution arrangement that security and the distribution terms will be described in a prospectus supplement.

§ 1:34 Automatic shelf registration for well-known seasoned issuers

Automatic Shelf Registration (ASR) has much in common with delayed shelf registration to the extent it also relies in large part on Rule 430B. ASR is available only to well-known seasoned issuers. To be a well-known seasoned, the issuer must have a public float (market value of outstanding common equity held by non-affiliates) or $700 million or more, or during the last three years issued at least $1 billion in the aggregate of debt securities registered under the Securities Act and that will register only debt securities.[75] Assuming the issuer meets either of the above well-known seasoned issuer criteria, it also must be an issuer required to file reports pursuant to Section 13(a) or Section 15(d) under the Exchange Act; be current in its Exchange Act reports and filed such reports timely during the preceding 12 calendar months.[76] Comparable provisions of Form S-3 and Form F-3 provide for automatic shelf registration. See § 1:3. The securities to be offered can be offered by a well-known seasoned issuer pursuant to any type of shelf-offering other than securities relating to a business combination or mortgage backed-securities.[77] There also are detailed provisions as to the securities that can be offered in an automatic shelf registration by subsidiaries and parent, of the well-known seasoned issuer,[78] and securities of well-known seasoned issuers registered for sale by selling securities holders.[79] An automatic shelf-registration becomes effective on filing as does any post-effective amendment.[80] 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.[81]

A well-known seasoned issuer can rely on Rule 430B for any shelf offering other than business combination or asset-backed securities.[82] 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 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, Rule 430B provides that a well-known seasoned issuer may omit information that is unknown in accordance with Rule 409. As we noted at § 1:32