The SEC today proposed amendments that would represent a sweeping overhaul of the registered offering framework if adopted. The proposed amendments would significantly expand access to Form S-3 and shelf registration, extending many benefits currently limited to well-known seasoned issuers (“WKSIs”) to a broader range of public companies. The proposed amendments are intended to facilitate capital formation, modernize offering communications and simplify the registration process for seasoned issuers. Amendments to related Securities Act and Exchange Act rules governing offering communications and free writing prospectuses are also proposed, along with conforming changes to Regulation S-X and other rules and forms.
Most notably, the proposal would substantially broaden eligibility to use Form S-3 for primary offerings. The SEC has proposed eliminating both the current 12-month Exchange Act reporting requirement and the $75 million public float threshold for unlimited primary offerings. Instead, an issuer would become eligible to use Form S-3 as soon as it becomes subject to Exchange Act reporting, provided it is current and timely in its filings and is not otherwise an “ineligible issuer.” The proposal would also eliminate the existing “baby shelf” regime, including the one-third public float limitation applicable to smaller issuers.
The proposal would also retire the current WKSI framework for domestic issuers, replacing it with two new issuer categories: “Eligible Listed Issuers” (“ELIs”) and “Seasoned Eligible Listed Issuers” (“SELIs”). ELIs would generally be Form S-3 eligible issuers with exchange-listed common equity. SELIs would be the subset of ELIs with at least 12 months of Exchange Act reporting history.
Under the proposal, SELIs would be permitted to use automatic shelf registration statements, effectively replacing the existing WKSI automatic shelf regime. In addition, both ELIs and SELIs would gain access to several accommodations currently available only to WKSIs, including:
- expanded flexibility for pre-filing and post-filing offering communications;
- broader use of free writing prospectuses;
- “pay-as-you-go” filing fee treatment;
- the ability to omit additional information from base prospectuses at effectiveness; and
- increased flexibility to add securities and eligible subsidiaries through post-effective amendments.
The proposed amendments would also expand the availability of forward incorporation by reference in Form S-1 registration statements, a development that could streamline capital raising for newly public and smaller reporting companies. In particular, the SEC proposes to extend forward incorporation by reference to all issuers that meet Form S-1’s incorporation-by-reference conditions, not just smaller reporting companies, and to remove the existing requirement that the issuer must have filed an annual report for its most recently completed fiscal year in order to be eligible.
The proposal also includes a significant “blue sky” preemption measure: the SEC proposes to define “qualified purchaser” under Section 18(b)(3) of the Securities Act such that any person offered or sold securities in a Securities Act-registered offering would be a “qualified purchaser,” making all such offerings “covered securities” and thereby preempting State securities law registration and qualification requirements — a change that would particularly benefit issuers of unlisted registered securities currently subject to multi-state securities compliance obligations.
The proposal would specifically bar blank check companies, shell companies, penny stock issuers, issuers convicted of certain felonies or misdemeanors, and issuers subject to antifraud-related decrees or orders or pending stop-order proceedings from using Form S-3. Former SPACs that have completed a de-SPAC transaction, however, would be excepted from the shell company lookback. The proposal would also codify a grace period permitting an issuer to maintain Form S-3 eligibility notwithstanding a single untimely filing during the lookback period, provided that the filing was made within seven calendar days of the original due date.
If adopted, the proposed amendments would represent one of the most significant changes to the registered offering framework since the SEC’s 2005 Securities Offering Reform initiative, with potentially meaningful implications for capital raising by smaller and newly public companies. Comments on the proposal are due within 60 days after publication in the Federal Register.
Stay tuned for our forthcoming client alert with a deeper dive into the proposal and key considerations for public companies and other market participants.