If the US Government shutdown drags on, market participants will start to ask what options are available to get pending deals across the finish line while the SEC is not able to declare registration statements effective.
Securities Act Section 8(a) provides a key tool while the SEC is in shutdown mode. Under this provision, a registration statement will automatically go effective 20 calendar days after filing unless the SEC intervenes. (Section 8(a) is not used in normal practice when the SEC is operating; instead the registration statement cover page includes magic words – known as the delaying amendment – to postpone effectiveness until the SEC has reviewed the filing and declared it effective.)
Here’s what you need to know about removing the delaying amendment under Section 8(a).
1. In which types of transactions would removal be appropriate?
You can consider removing the delaying amendment if you are working on:
- IPOs, follow-on offerings, or shelf registration statements on Form S-1/F-1;
- conventional shelf registration statements on Form S-3/F-3; or
- business combinations and exchange offers on Form S-4/F-4.
In each case, however, removal is only appropriate if you have already cleared all significant SEC comments. Note that removal is not relevant for automatically effective registration statements such as WKSI shelves or Form S-8 filings.
2. How do I remove the delaying amendment?
You will need to publicly file (or amend, if you have already filed) the registration statement to include the following sentence from Rule 473(b): “This registration statement shall hereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933.” Note that confidential submission will not work for these purposes.
3. When does my registration statement go effective under Section 8(a)?
At exactly 5:30 p.m. on the 20th day (i.e.,19 days after filing), with each new day starting at 5:30 p.m. See Rule 459. To take an example, if you were to file before 5:30 pm on January 30, your registration statement would be effective after 5:30 pm on February 18.
4. What must be in my registration statement?
Your registration statement needs to be final, with all required disclosure. In the case of a shelf registration statement on Form S-3/F-3 or Form S-1/F-1, you would include all the information you normally include in a base prospectus and would subsequently file prospectus supplements once the base had gone effective. Bear in mind that Form S-3/F-3 benefits from forward incorporation by reference, while Form S-1/F-1 generally does not. So, you will need to sticker your Form S-1/F-1 shelf with updates filed as prospectus supplements under Rule 424(b).
For business combination transactions and exchange offers on Form S-4/F-4, you would include all the information that would be required in an effective registration statement, including the meeting date or tender offer expiration date.
5. I’m working on an IPO. Must we include a pinpoint price to remove the delaying amendment – i.e., are the figures for the price to the public and underwriting discount fixed in stone for 20 days before sales can be made?
No. The SEC Staff has provided welcome no-action relief in Corp Fin's October 25 shutdown FAQs to enable IPOs to use the traditional path to manage pricing disclosures under Rule 430A.
Here’s how it works: Rule 430A refers to a prospectus in “a registration statement that is declared effective.” But the no-action relief allows you to rely on Rule 430A even though the registration statement goes effective automatically after 20 days without ever having been declared effective. This means you can follow a regular-way marketing and pricing process for your IPO – i.e., go effective on a price range; price the transaction; and then subsequently file the final Rule 424(b) prospectus containing the price per share.
Note that, under Rule 430A(b), the later-supplied pricing information “shall be deemed to be a part of the registration statement as of the time it was declared effective.” This special feature, unique to Rule 430A, allows price-dependent information to travel back in time from the date of filing of the final prospectus under Rule 424(b) to the effective date of the registration statement. Thanks to this, and unlike reliance on Rule 430 and Rule 430C (an alternative discussed below), there would be no specific need in a Rule 430A scenario to provide the Rule 424(b) final prospectus to investors before confirming orders, although some deal teams may nonetheless choose to do so out of an abundance of caution.
6. Can I reflect price-dependent disclosures in my final prospectus?
Yes, under Rule 430A(a). You would also need to update investors before pricing under Rule 159, either orally or by filing an FWP containing the new disclosure.
7. Can I upsize or downsize my IPO?
You can upsize or downsize, following Rule 430A. In addition, we believe the Staff’s Rule 430A no-action relief entails the ability to rely on Rule 462(b) in connection with an upsize.
Rule 462(b) provides for an immediately effective registration statement used to register increases in the number of shares for sale (if you paid the filing fee under Rule 457(a)) or aggregate offering size (if you paid under Rule 457(o)). Rule 430A applies to registration statements that are “declared effective,” whereas Rule 462(b) authorizes an immediately effective registration statement to add shares to an “earlier registration statement for the same offering” that was “declared effective.” In other words, the “declared effective” condition that appears in both Rule 430A(a) and Rule 462(b)(1) refers in an IPO upsizing scenario to the exact same instance of effectiveness for the exact same registration statement covered by the no-action relief. Therefore, in our view the Staff’s Rule 430A no-action relief implicitly means you can rely on Rule 462(b) for these purposes.
8. I’m working on a follow-on offering that will be registered on Form S-1/F-1. How will pricing mechanics work?
There are two paths you can take. The first is to use Rule 430A, looking to the Staff’s no-action guidance as outlined for IPOs above. The second is a workaround approach, based on Rules 430 and 430C. (Like most follow-on offerings, the pre-effective prospectus under either option would include the last sale price of the shares rather than a price range, as with IPOs.)
In particular:
- Rule 430 permits offers using a pre-effective prospectus that omits information including a specific final offering price and “other matters dependent upon the offering price”; and
- Rule 430C provides that information in a Rule 424(b) prospectus “shall be deemed to be part of and included in the registration statement on the date it is first used after effectiveness.”
Rule 430C does not limit the type of information that can be included in a Rule 424(b) prospectus. Instead, information in the final prospectus cannot “supersede or modify any statement” that was made in the original registration statement “as to a purchaser with a time of contract of sale prior to such first use” (i.e., the point at which that information “shall be deemed to be part of and included in the registration statement” under Rule 430C). See Rule 430C(b).
What does all this mean? Consider the following:
- You file a registration statement without a delaying amendment and, under Rule 430, omit the final offering price.
- Then, under Rule 430C, you file a final Rule 424(b) prospectus containing the final price and related disclosure, which would be provided to investors prior to the time of sale.
As a result, you have achieved the same result as under the Rule 430A approach – i.e., you have gone effective on a registration statement without a final price, and 20 days later have added the final price by Rule 424(b) prospectus. The key difference when using the workaround under Rule 430/430C is that you need to provide the Rule 424(b) final prospectus to investors after the registration statement has gone effective but before confirming orders to comply with Section 5(b)(2) (and Rule 159). In other words, Rule 430C lacks the time-travel feature of Rule 430A(b).
In the shutdown context, one advantage of the Rule 430/430C approach over Rule 430A is that Rule 430C could facilitate substantive disclosure updates in the final Rule 424(b) prospectus. This is so because Rule 430A expressly contemplates the addition of only price-dependent disclosure in the final prospectus. By contrast, Rule 430C additions are not limited by type.
As a result, using Rule 430C permits the addition of disclosure developments that are not price-dependent without the need to file a pre-effective amendment that triggers a new 20-day period. Instead, you would add these new developments by including them in the final Rule 424(b) prospectus provided to investors before confirming orders, and at the same time updating investors either orally or by filing an FWP containing the new disclosure.
That said, Rule 430C is not widely used outside the context of Form S-1/F-1 shelves (e.g., non-underwritten resales of shares by selling stockholders). As a result, some deal teams may prefer during the shutdown to follow the familiar approach of Rule 430A, and accept the risk that substantive disclosure updates that are not price-dependent could lead to a pre-effective amendment restarting the 20-day clock.
9. If the shutdown ends and the SEC reopens before completion of the Section 8(a) period of 20 calendar days, would we continue the deal as planned?
If the SEC reopens before the 20-day clock runs, deal teams will need to decide how to proceed. Depending on the circumstances, you might press on, or you could change back to a regular-way process involving SEC Staff review and a request for the SEC to declare the registration statement effective. The answer will depend on factors such as how far along the deal has already progressed, how many days remain before effectiveness, whether the Staff requests an amended filing to restore the delaying amendment, etc.
10. If we want to reinstate the delaying amendment, is there an easy way to do that?
Yes. In lieu of an entirely new pre-effective amendment, you can file a one-page letter using EDGAR form type DEL AM to add the standard delaying amendment language required under Rule 473(a). This special form type is designed to facilitate a separately filed delaying amendment under Securities Act Rule 473 to delay effectiveness of registration statement.
