Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, February 19, 2014

Selling Shareholder Registration Statements in Going Public Transactions

Going public transactions can be structured a variety of ways.   An initial public offering or primary offering involves a registration statement covering shares for sale by an issuer. Many going public transactions involve the filing of a registration statement with the Securities and Exchange Commission (“SEC”) registering shares held by existing stockholders so that the issuer can meet FINRA’s shareholder requirements.
This type of registration statement is referred to as a resale registration statement or secondary offering.  The issuer does not receive proceeds from the sale of the securities subject to a resale registration statementCompanies often file resaleregistration statements when they have granted existing shareholders registration rights.  An issuer can file a Form S-1 statement covering both a secondary offering by selling shareholders and a primary offering of its own behalf.  This structure is common in going public transactions  particularly when an issuer does not have enough stockholders for a ticker symbol assignment.

Secondary offerings are generally done on either Form S-1 or Form S-3.  Each of these registration statement forms requires a description of the securities being offered, risk factors and the plan of distribution.  The most significant distinction between Form S-1 and S-3 is that S-3 allows the issuer to incorporate all Exchange Act reports into the registration statement.   Form S-1 registration statements allow the issuer to incorporate by reference only Exchange Act reports filed prior to the date of the registration statement, and only under limited circumstances.
Form S-1 Registration Statements
Form S-1 is the most common form of registration statement and all issuers are eligible to use Form S-1.  Form S-1 is typically used by companies that are conducting initial public offerings/IPO’s, direct public offerings or going public transactions where shares are registered on behalf of existing shareholders.
Form S-1 registration statements, require expansive disclosure of all items required by Regulation S-K.    An issuer can  incorporate certain information into its Form S-1 if it is already a public company subject to the reporting requirements of the Securities Exchange Act that has filed all Exchange Act reports during the past 12 months that were required to be filed and has filed an annual report on Form 10-K for its most recent fiscal year. Issuers meeting these requirements can incorporate its Exchange Act reports that have been filed on or before the date of the Form S-1 registration statement.
Form S-1 registration statement will not be continuously updated every time the issuer files a new Exchange Act report. The issuer can amend its registration statement to include any Exchange Act reports that are filed between the date of the original filing of the registration statement and the date of the amendment. Once the SEC declares the registration statement effective, the issuer should file a post-effective amendment to incorporate any Exchange Act reports that were filed after theForm S-1 effective date. Alternatively, the issuer can file and distribute a prospectus supplement containing the information from the Exchange Act reports filed after the registration statement becomes effective.
Form S-3 Registration Statements
Form S-3 is a short-form registration statement that consists primarily of information about the specific transaction. Most of the information required by Regulation S-K can be incorporated by reference from the issuer’s current and future periodic reports and proxy statements filed with the SEC. Because the Form S-3 allows the incorporation by reference of future filings made by the issuer, the registration statement is automatically updated every time the issuer files a new Exchange Act report or other filing incorporated by reference.
Because of the reduced amount of required disclosures, Form S-3 is the most cost- and time-efficient registration statement to prepare and use for issuers who qualify. Issuers who qualify as well known seasoned issuers can use Form S-3 registration statements to register securities on behalf of existing stockholders in a secondary offering.
For an issuer to register securities on Form S-3, it must be a domestic issuer.  Additionally, the issuer must:
♦  Have a class of securities registered under Section 12, or have been subject to Section 15(d), of the Exchange Act for the past 12 months;
♦ Have timely filed all Exchange Act reports required to be filed during the past 12 months, other than any Form 8-K reports required solely under Items 1.01, 1.02, 1.04, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e);
♦ Not have defaulted on any material debt or long-term lease since the end of the most recent fiscal year;
♦ Not have failed to pay any dividend or sinking fund installment on preferred stock since the end of the most recent fiscal year; and
♦ Have filed with the SEC and posted on its corporate website all interactive data files (XBRL information) required to have been filed during the past 12 months (and any portion of the month in which the issuer intends to file the registration statement).
If a issuer satisfies the issuer requirements above, it can use Form S-3 for offerings that comply with certain transaction requirements. If the issuer has a public float of $75 million or more, it can register any offering of debt or equity for cash on a Form S-3 registration statement.
If an issuer has a public float of less than $75 million, it can register the following securities offerings on a Form S-3 registration statement:
♦ Secondary offerings of securities that are of a class listed on a national securities exchange;
♦  Primary offerings of non-convertible securities if the issuer:
• has issued at least $1 billion in aggregate principal amount of non-convertible securities (other than common equity) in registered primary offerings for cash in the past three years;
• has at least $750 million in aggregate principal amount of non-convertible securities (other than common equity) outstanding, which were issued in registered primary offerings for cash;
• is a wholly-owned subsidiary of a well known seasoned issuer; or
• is a majority-owned operating partnership of a REIT that is a well known seasoned issuer.
♦ Securities to be offered upon the exercise of outstanding convertible securities or rights under a dividend or interest reinvestment plan.
♦ Any primary offering if the issuer meets all of the following additional requirements:
• Is not and has not been a shell issuer at least the past 12 months.
• Has a class of common stock listed on a national securities exchange.
• Has not sold securities under this exception (including the securities proposed to be sold in this follow-on offering) in an amount exceeding one-third of its public float during the past 12 months.
This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting SEC registration statements, Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, 1933 Act registration statements on Form S-1, S-8 and 1934 Act registration statements on Form 10, OTC Pink Sheet listings, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates l Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 N
Boca Raton, Florida 33432
Telephone: 561-416-8956
Facsimile: 561-416-2855

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