Posted by Laura Anthony, Esq. on April 22, 2019
S-3 Eligibility- Today is the first of a LawCast series talking about S-3 eligibility. The ability to use an S-3 registration statement is significant for exchange traded companies. An S-3 allows forward incorporation by reference and can be used for a shelf registration allowing current market pricing of shelf take-downs, among other benefits. S-3 eligibility is comprised of both registrant or company requirements and transaction requirements. There are 7 high level Registrant or company Requirements (1) The company must be organized under the laws of the United States and must have its principal business operations in the United States or its territories; (2) The company must have a class of securities registered pursuant to either Section 12(b) or 12(g) of the Exchange Act or be required to file reports pursuant to Section 15(d) of the Exchange Act; (3) The company (i) has been required to file Exchange Act reports and has filed all such reports for a period of 12 months; and (ii) has timely filed all reports required by Sections 13(a), 15(d) and Section 14(a) and 14(c) materials for a period of 12 calendar months, except for certain 8-K items. In particular reports under Item 1.01 (entry into a material definitive agreement), 1.02 (termination of a material definitive agreement), 1.04 (mine safety – reporting shutdowns and patterns of violations), 2.03 (creation of a direct financial obligation or an obligation under an off-balance sheet arrangement), 2.04 (triggering events that accelerate or increase a direct financial obligation or off-balance sheet obligation), 2.05 (costs associated with exit or disposal activities), 2.06 (material impairments), 4.02(a) (non-reliance on previously issued financial statements or related audit report where the company makes the non-reliance determination) or 5.02(e) (compensatory arrangements with certain officers). This eligibility rule specifically refers to reports required to be “filed” under the Exchange Act. Certain Items in a Form 8-K may be “furnished” and not “filed,” including disclosures pursuant to Items 2.02 (results of operations and financial conditions) and 7.01 (Regulation FD disclosure) and as such, the failure to timely file an 8-K under these Items will not affect Form S-3 eligibility. If a company files for an extension of a Form 10-Q or 10-K on Form 12b-25 and files its report within the extension time frame, that report will be deemed timely filed. Eligibility requires that a company have been required to file reports under the Exchange Act and as such, the voluntary filing of reports generally does not count. However, in the Lamar Advertising Co. no-action letter issued in 2009, the SEC set out nine factors that, if satisfied, would allow a voluntary filer to use form S-3. In short, the company must have been required to file Exchange Act reports because of an effective Securities Act registration statement, at some point thereafter become a voluntary filer as they had less than 300 shareholders, did not file a Form 15, had a contractual obligation to file reports and continued to do so, and then again became required to file reports either because of a newly filed Securities Act or Exchange Act registration statement. Also, a company can request relief from the timeliness requirement; however, such relief is only granted in very limited circumstances; (4) Since the filing of its last Exchange Act report, neither the company nor any of its subsidiaries has: (i) failed to pay a dividend or sinking fund installment or a cumulative dividend on preferred stock; or (ii) defaulted on any installment on indebtedness for borrowed money or on any rental on a long-term lease if the default is material. Furthermore, regardless of the fact that a disqualifying default is either cured or waived after it occurs, the form may not be used between the date of the default and the audit at the end of the fiscal year in which the material default occurred. If a prospective default never occurs because the lenders have waived payment in advance of the due date, the form may still be used; (5) A foreign company that meets all of the other eligibility requirements and files regular U.S. Exchange Act reports; (6) A company will not lose eligibility if it is a successor registrant as long as the succession was for the purpose of changing state of domicile or creating a holding company structure and the assets and liabilities of the successor are substantially the same as the predecessor; (7) The company must have made all required XBRL filings.