Jumping Through the Market Window: The Value of a Shelf Registration Statement

15 Min Read By: David M. Lynn, Lawrence R. Bard, Alyse Latour

Maintaining an effective shelf registration statement is key for public companies seeking to raise capital during tumultuous economic times.

In recent years, the capital markets have experienced extraordinary volatility, and as a result, companies may find it challenging to raise capital for a number of reasons, even as the markets begin to recover. Not only has available capital decreased, but gaining access to the markets can be costly. Companies also risk a potentially adverse impact to the price of their stock if an announced offering is ultimately unsuccessful. In response, several nontraditional approaches to accessing the markets have emerged. Variations of registered offerings, such as registered direct offerings, “at-the-market” offerings, “over-the-wall” offerings, and “overnight” offerings are being used by companies with greater frequency. Such offerings are allowing companies to take advantage of an open “market window” on short notice, and quickly and cost-effectively raise capital. The key to the success of each of these approaches is maintaining an effective shelf registration statement.

Shelf Registration Statements

An effective shelf registration statement permits issuers to take securities “off the shelf” and offer them to the public on a continuous or delayed basis. This “takedown from the shelf” can be accomplished in a number of types of public offerings, some of which are discussed below. A public offering may be registered by filing a shelf registration statement on Form S-3 (or Form F-3 for foreign private issuers). The shelf registration statement is typically used where the issuer does not intend to immediately sell its securities. It can be used for both debt and equity offerings, including common stock, preferred stock, warrants, debt (convertible and nonconvertible), or equity-related debt securities, which can be sold in one or more offerings from time to time. There is no limit on the amount of securities that can be registered.

There are many advantages to using a shelf registration statement. First, it permits companies to register takedowns of its securities on a delayed basis under Rule 415 of the Securities Act of 1933, as amended (the Securities Act). It also allows companies to incorporate by reference periodic reports that are filed after the effective date of the registration statement, eliminating the need to file post-effective amendments and prospectus supplements to reflect new business and financial developments. Historically, the SEC staff has been less likely to review, and comment on, short-form registration statements such as a shelf registration statement, and in some instances shelf registration statements are automatically effective. In addition, the SEC will not review offering documents for a specific takedown under the shelf registration statement. For these reasons, companies using shelf registration statements are able to gain quicker access to capital when a “market window” opens.

Eligibility to Use Shelf Registration Statements

Not every company is eligible to use a shelf registration statement. To be eligible, the company must be a public company (and have been a public company for at least 12 months prior to filing the registration statement), have a timely reporting history for the last 12 months, and not be in default on indebtedness for borrowed money or material leases, or have failed to pay dividends or sinking fund installments on preferred stock since the end of its last fiscal year (together, the Company Requirements).

Shelf-eligible companies are then further divided into two classes based on the size of the issuer’s public float (as discussed below). A larger company may use a shelf for a primary offering (sale by an issuer of newly issued securities) if (1) the aggregate market value of its voting and nonvoting common equity held by nonaffiliates (the “public float”) is at least $75 million, within 60 days of the filing of the registration statement, or (2) only nonconvertible investment-grade securities are being offered. Companies with a public float of less than $75 million may nevertheless register primary offerings on a shelf if the company (1) meets all of the other eligibility requirements, (2) is not (and has not been during the previous 12 months) a shell company, (3) has a class of common equity securities listed on a national securities exchange (i.e., not the over-the-counter market or the “pink sheets”), and (4) does not sell in a 12-month period more than the equivalent of one-third of its public float (the “one-third cap”).

In light of the current uncertain market conditions, it is important for an issuer to consider filing a shelf registration statement as soon as it is eligible. An issuer’s ability to use an existing shelf registration statement will only be retested when the issuer files its annual report on Form 10-K. It is important for issuers who may need to raise more funds than they could under the one-third cap to carefully consider the timing of any financing transactions to take maximum advantage of the Form S-3.

Filing a Shelf Registration Statement

The shelf registration statement is filed with the SEC on a Form S-3 (or Form F-3 for foreign private issuers), with a base prospectus. The base prospectus typically contains general information such as the types of securities to be offered, a brief summary of the issuer’s business, the use of proceeds, and a plan of distribution. The base prospectus also may contain a description of the risk factors of the offering and, if the offering involves the sale of debt securities, it may contain a ratio of earnings to fixed charges.

The shelf registration statement also will include the estimated expenses of the registration, required exhibits, the undertakings required by the SEC rules, and the issuer’s signature page. The issuer is not required to specify the exact amount or offering price of each type of security in its registration statement, but instead may include only an aggregate dollar amount of securities to be offered.

Once a shelf registration has been declared effective, an issuer can take securities “off the shelf.” Takedowns are described in a prospectus supplement. The prospectus supplement typically contains the terms of an offering that were not provided in the base prospectus. It may include the risk factors and tax consequences of a specific offering, as well as a description of the specific distribution arrangements and any planned use of the proceeds that differs from the description in the base prospectus. A prospectus supplement is generally filed pursuant to Rule 424(b) of the Securities Act and is delivered to investors with the base prospectus.

Three-Year Limit

A shelf registration statement can generally only be used for three years after its initial effective date. Unsold securities and fees paid under an expiring registration statement can be rolled over to the new registration statement. Some types of shelf registration statements are not subject to the three-year limitation, including registration statements to be used only for secondary offerings by selling security holders and shelf registration statements to be used in connection with an acquisition.

The issuer has a 180-day grace period between the expiration of the old registration statement and the effectiveness of the new registration statement. It may continue to offer and sell securities under the expiring registration statement for up to 180 days as long as the new shelf registration statement is filed within three years of the original effective date of the old registration statement. The 180-day grace period does not apply to automatic shelf registration statements filed by “well-known seasoned issuers” (as defined below), since they are effective immediately upon filing. In addition, continuous offerings that commenced under the old registration statement prior to the end of the three-year period may continue under the expiring registration statement until the effective date of the new registration statement if such offerings are permitted to be made under the new registration statement.

Increased Flexibility for Well-Known Seasoned Issuers

Some companies may qualify for a “well-known seasoned issuer” (WKSI) status. WKSIs are exempt from certain requirements. For example, WKSIs may exclude certain information from the base prospectus, such as whether the offering is a primary or secondary offering, a description of the securities (other than the name or class of the securities), and the plan of distribution. Moreover, WKSIs can file an automatically effective shelf registration (ASR) statement. In other words, there will be no delay in effectiveness as the issuer will not have to receive and respond to any SEC comments. Automatic effectiveness is particularly important to issuers contemplating a nontraditional offering as it provides a shorter waiting period and quicker access to the markets. Post-effective amendments also will be automatically effective, which allows issuers to amend the registration statement to do things such as registering additional classes of shares quickly. WKSIs have the convenience of being able to pay filing fees on a pay-as-you-go basis at the time of each takedown.

A WKSI is an issuer that (1) is required to file reports with the SEC under section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; (2) meets the Company Requirements (as described above); and (3) as of date within 60 days of the “determination date,” has either (a) a public float of $700 million or more or (b) issued, in the last three years, at least $1 billion aggregate principal amount of nonconvertible securities in primary offerings for cash. The “determination date,” or the date upon which it is determined whether a company will qualify for WKSI status, is the later of (1) the filing of its most recent shelf registration statement, (2) the filing of its most recent post-effective amendment, or (3) if it has not filed a shelf registration statement in the previous 16 months, the filing of its most recent annual report on Form 10-K. An issuer’s eligibility to use an existing ASR will be retested when the issuer files its annual report on Form 10-K.

A WKSI should consider the benefits of filing a shelf registration statement as soon as it is eligible. Filing an ASR when the issuer is able to do so will protect the issuer’s ability to use the ASR until the issuer’s WKSI status is retested when the next Form 10-K is filed, and may permit the use of an ASR at a time when the issuer does not meet the WKSI test and would thus otherwise not be able to file an ASR.

Nontraditional Uses of Shelf Registration Statements

As a result of the recent market turmoil, issuers and investors are seeking new ways to access the markets. Some of the options available to issuers with a shelf registration statement include at-the-market offerings, over-the-wall offerings, and registered direct offerings.

At-the-Market Offerings

An “at-the-market” (or ATM) offering, the most common of the nontraditional approaches, is an offering of securities into an existing trading market for outstanding shares of the same class at the price of the securities in the market. Therefore, the price at which securities are sold varies as the market price for the securities varies. Typically, the distribution agent completes sales of the issuer’s securities through ordinary trading transactions. Companies must have an effective shelf registration statement to enter into an ATM program due to the continuous nature of this type of offering.

At-the-market offerings are advantageous over traditional offerings for several reasons, including

  • Capital is raised quickly by selling new shares into the existing trading flow of the market without having to market or announce the offering, which serves to mitigate the risk of an adverse impact on the issuer’s stock price;
  • Issuers can structure the deal with the distribution agent to match its capital needs, including with respect to timing and size;
  • At-the-market offerings typically cost less than traditional offerings; and
  • Companies usually don’t engage in special selling efforts (i.e., no roadshows).

Over-the-Wall Transactions

An “over-the-wall” offering occurs when underwriters market the offering to a limited number of potential investors prior to the public announcement of the transaction. This type of offering has been used more frequently since the downturn in the markets began, prompted by concerns issuers have with the potential adverse impact an announced offering would have on its stock price if the offering fails. Subject to a limited exception for WKSIs, companies using this rule must have a shelf registration statement on file with the SEC in order to avoid gun jumping issues.

In an over-the-wall transaction, underwriters typically contact a group of institutional investors about a potential offering but do not disclose the identity of the issuer. If a prospective investor expresses interest in the offering, the underwriter will bring the investor “over the wall” and disclose the identity of the issuer and specifics relating to the offering.

Over-the-wall offerings are sometimes completed overnight. In an overnight offering, underwriters will contact investors to gauge interest prior to the marketing period. After investors are brought “over the wall” and the¬†offering is priced, the issuer will take the offering public in a fully disclosed offering for a short period of time after the market closes. The marketing period only lasts overnight and the offering is completed before the markets open the next morning.

SEC rules (Rule 163) sought to provide additional benefits to WKSI’s wall-crossed deals by permitting pre-marketing efforts without having a shelf registration in place. Only the WKSI itself may engage in pre-marketing offers under Rule 163. This limitation, however, exposes the issuer to the very market risk issuers are attempting to avoid. The issuer’s identity will clearly be made known once it begins to solicit potential investors. On December 21, 2009, the SEC proposed an amendment to Rule 163 to close this gap for WKSIs and allow an authorized underwriter or dealer to make offers prior to the marketing period if the following conditions are met: (1) the underwriter or dealer receives written authorization from the issuer to act as the issuer’s agent or representative before any communications are made on the issuer’s behalf; (2) the issuer authorizes or approves any written or oral communication before such communication is made by an authorized underwriter or dealer acting as an agent or representative for the issue; and (3) any authorized underwriter or dealer that has made any authorized communication on behalf of the issuer is identified in the prospectus.

Over-the-wall transactions have a number of advantages, including the following:

  • Companies have the ability to test the waters for interest in an offering of the Company’s securities without risking a negative impact on its stock price;
  • Offerings can be completed quickly following the announcement of the offering, typically within several days, and even overnight on occasion;
  • A large marketing effort can be avoided since potential investors have already indicated their interest in the offering; and
  • Costs are reduced by shorter transaction times and reduced marketing efforts.

Registered Direct Offerings

A registered direct offering is a public offering of registered securities that is marketed like a private placement or a PIPE (private investment in public equity). An issuer may conduct the registered direct offering as a takedown off of an existing shelf registration statement. Registered direct offerings are typically marketed to a targeted group of investors, oftentimes through a placement agent.

Advantages of using a registered direct offering include

  • The offering may be conducted with minimal publicity, reducing the effects of speculative trading on the market, because the group of investors is targeted;
  • When a company has an effective shelf registration statement on file, it may obtain confidentiality agreements from potential investors during the marketing period, allowing the company to lower its risk of falling stock prices upon announcement of the offering; and
  • Companies may receive better pricing than in a PIPE due to the liquidity discount traditionally associated with a PIPE.

Regulation FD Considerations

Regulation FD requires that any time an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding the issuer or its securities, the issuer must publicly disclose such information. In general, continuous or delayed offerings under a shelf registration statement, including at-the-market, over-the-wall, and overnight offerings, will not be exempt from Regulation FD. Issuers should keep in mind its obligations under Regulation FD prior to engaging in any of the offerings described in this article. Most companies require prospective investors to sign a confidentiality agreement to hold nonpublic information relating to the company confidential until the information is made available to the public. In the absence of a confidentiality agreement, issuers may be required to file current reports on Form 8-K, from time to time, relating to the offering.

Securities Exchange Approval Policies

Although there is no limit on the number of shares an issuer may sell under a shelf registration statement, in certain circumstances, the securities exchanges require issuers to obtain the consent of the stockholders. Nasdaq Rule 5635(d) and NYSE Rule 312.03 generally require stockholder approval of any issuance that may exceed 20 percent of the pre-offering total shares outstanding that are priced at less than the book or market value (whichever is greater). Stockholder approval, however, is not required in a public offering. In light of the extremely short period of time in which overnight or over-the-wall transactions are conducted and the pre-marketing efforts, companies should carefully consider whether a registered offering will trigger the stockholder approval policies of the securities exchanges.


In summary, shelf registration statements are useful tools to access the capital markets quickly and cost-effectively, while also minimizing some of the risks facing issuers contemplating an offering. It is important for companies to maintain an effective shelf registration statement and ensure that a new statement is filed every three years to avoid any blackout periods and preserve its ability to use the shelf in the event of a significant market decline. The key to a company’s successful transaction on the capital markets during tumultuous economic conditions is a shelf registration statement–it ensures quicker access to capital, greater flexibility in structure, and the ability to jump when the market window opens.

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