The ability to utilize a shelf registration statement on Form F-3 or S-3 offers significant advantages to publicly traded companies. A Form F-3/S-3 allows for variably priced offerings – that is offerings made either at-the-market or at other than fixed prices. Only companies that are eligible for F-3/S-3 can complete primary (or indirect primary) offerings at prices other than a fixed price (for more on primary offerings see HERE).
I have previously written a detailed blog related to S-3 eligibility (see HERE) and although the requirements for an F-3 are substantially similar, there are some key differences due to the different regulatory framework applicable to foreign private issuers (“FPIs”) – i.e. “F Filers.” Like an S-3, F-3 eligibility is comprised of both registrant or company requirements and transaction requirements.
Moreover, like Form S-3, a Form F-3 specifies generally that the Form may not be used for an offering of asset-backed securities.
Registrant Requirements
Companies that meet the following requirements are eligible to use a Form S-3 for a transaction that meets one of the transaction requirements:
- The company has a class of securities registered pursuant to either Section 12(b) or 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) or is required to file reports pursuant to Section 15(d) of the Exchange Act;
- The company has filed at least one annual report on Form 20-F, 10-K or 40-F;
- The company (a) has been required to file Exchange Act reports and has filed all such Exchange Act reports for a period of 12 months prior to the filing of the F-3; and (b) has filed in a timely manner all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement.
A report is still timely after the filing of a 12b-25 extension as long as the report is filed during the extension period. Also, this rule specifically refers to reports required to be “filed” under the Exchange Act. Unlike a Form 8-K, a Form 6-K is “furnished” and not “filed” with the SEC and accordingly the failure to timely file a Form 6-K will not impair F-3 eligibility. For more information on the difference between “furnished” and “filed” and Form 6-K see HERE.
- Since the end of the last fiscal year end for which audited financial statement were including in an Exchange Act report, neither the company nor any of its subsidiaries has: (a) failed to pay a dividend or sinking fund installment or a cumulative dividend on preferred stock; or (b) defaulted on any installment on indebtedness for borrowed money or on any rental on a long-term lease if the default is material to the financial position of the company or its subsidiaries on a consolidated basis. 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 such material default occurred. However, if a prospective default never occurs because the lenders have waived payment in advance of the due date, the form may still be used;
- 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;
- If a company is subject to the electronic filing requirements of Rule 101 of Regulation S-T, which all reporting companies are, it must have made all required electronic filings and complied with all Inline XBRL requirements (for more on Inline XBRL see HERE and HERE).
Transaction Requirements
Primary Offerings – Instruction 1.B.1
Form F-3 can be used for primary offerings by or on behalf of a company for the sale of securities for cash, whose market value of voting and non-voting common equity held by non-affiliates is $75 million or more, including for the sale and issuance of new securities. Common equity is defined as “any class of common stock or an equivalent interest, including but not limited to a unit of beneficial interest in a trust or a limited partnership interest.” For purposes of determining the value threshold, market value is computed by using the last sale price or the average of the bid and asked prices as of a date within 60 days prior to the date of filing. The number of shares held by non-affiliates is usually determined as of the date of filing but can be any day within the 60 day look-back period. It is not necessary to calculate the number of shares held by non-affiliates for the same day on which the average price of the stock is determined. For example, the number of shares outstanding on the date of filing might be used, together with the average price of stock for any day within the 60-day period.
A company must meet this eligibility requirement each time it files an update to the registration statement. Accordingly, if the market value drops between updates, a company would need to switch to an F-1 (or other form it is qualified to use) when filing an update. Furthermore, as Form F-3 incorporates Exchange Act reports by reference, the filing of a Form 20-F is the equivalent to filing a post-effective amendment. This means that if the company is not eligible to use Form F-3 at the time of filing its 20-F, it would be required to file a post-effective amendment on whatever other form would be available at the time. However, a company can use the same Form F-3 (as updated and amended through subsequent Exchange Act reports or post effective amendments) to switch between a baby shelf and full shelf based on the fluctuating market value of voting and non-voting common equity held by non-affiliates.
Unlike the baby shelf rule, companies eligible to use Form F-3 for a primary offering, are not required to have a class of equity registered on a national exchange. In other words, a company whose market value of voting and non-voting common equity held by non-affiliates is $75 million or more and that trades on the over the counter market, would be eligible to use Form F-3 assuming it met the other eligibility requirements (such as the timely filing of all Exchange Act reports).
A company that qualifies to use Form F-3 for primary offerings under Instruction 1.B.1 may use that form to register the offer and sale of both an immediately convertible security and the underlying security. The fact that subsequent conversions may occur at a time when the company does not meet the transaction requirement for conversions described below, would not affect the initial registration of the offer of the underlying securities. If it becomes necessary to update the registration statement, the company may accomplish the update by incorporation by reference or post-effective amendment only if it meets the conditions for the use of the form at that time.
A Form F-3 cannot be used for exchange offers or other business combination transactions. Although securities registered on Form F-3 cannot be sold in exchange for other securities, the consideration is not strictly limited to cash. Form S-3 would be available, for example, for transactions in which the consideration for the securities consists of promissory notes or services performed for the issuer by the recipient of the securities.
Other Limited Primary Offerings (the “Baby Shelf Rule”) – Instruction 1.B.5
For companies that have an aggregate market value of voting and non-voting common stock held by non-affiliates of less than $75 million, Instruction 1.B.5(a) limits the amount that the company can offer to up to one-third of that market value in any trailing 12-month period. This one-third limitation is referred to as the “baby shelf rule.” The baby shelf rule is only available to companies that have at least one class of securities listed on a national exchange.
To calculate the non-affiliate float for purposes of F-3 eligibility, a company may use the last sale price or the average of the bid and asked prices on any date within the last 60 days. The registration capacity for a baby shelf is measured immediately prior to the offering and re-measured on a rolling basis in connection with subsequent takedowns. The availability for a particular takedown is measured as the current allowable offering amount less any amounts actually sold relying on the baby shelf rule in prior takedowns. Accordingly, the available offering amount will increase as a company’s stock price increases, and decrease as a stock price decreases. Moreover, if the aggregate market value of voting and non-voting common stock held by non-affiliates equals or exceeds $75 million after the effective date of the F-3, the one third limit will not apply to additional sales and instead the registration statement will be considered filed under the full shelf registration provisions.
In making the calculation where derivative securities had been sold, the company should multiply the aggregate market value of the underlying equity by the maximum number of common shares that the derivative securities can be converted into. The market value of the underlying common equity can be determined using the same per share price used to determine the market value of the non-affiliate float. If the derivative securities have been converted or exercised, the aggregate market value of the underlying equity shall be calculated by multiplying the actual number of shares into which the securities were converted or received upon exercise, by the market price of the shares on the date of conversion or exercise.
To rely on this instruction to conduct an offering the company cannot be a shell company and must not have been a shell company for at least 12 calendar months prior to utilizing Form F-3. In addition, if the company has been a shell company at any time previously, it must have filed current Form 10 information with the SEC at least 12 calendar months previously reflecting its status as an entity that is not a shell company.
Primary Offerings of Non-Convertible Securities Other than Common Equity – Instruction 1.B.2
Form F-3 can be used for the primary offering of non-convertible securities other than common equity (such as debt or preferred stock), to be offered by cash, if the company (i) has issued at least $1 billion in non-convertible securities in registered primary offerings over the prior three years; or (ii) has outstanding at least $750 million of non-convertible securities, issued in primary offerings for cash; or (iii) is a wholly owned subsidiary of a well-known seasoned issuer; or (iv) is a majority owned operating partnership of a real estate investment trust that qualifies as a well-known seasoned issuer.
Secondary Offerings – Instruction 1.B.3
A Form F-3 can be used to register the re-sale of outstanding securities held by a shareholder, including securities acquired by standby underwriters in connection with the call or redemption of warrants or a class of convertible securities. In addition, Form F-3 may be used by affiliates to register securities for resale pursuant to the conditions specified in General Instruction C to Form S-8. To utilize Form F-3 for one of these transactions, the financial statements in the Form F-3 must comply with Item 18 of Form 20-F.
Instruction 1.B.3 is not the exclusive way to use Form F-3 for secondary offerings. That is, if a company meets the eligibility requirement for a primary offering under Instruction 1.B.1 (i.e. market value of voting and non-voting common equity held by non-affiliates is $75 million or more) it can use Form F-3 to register a secondary offering under that provision, regardless of whether it has a class of securities registered on a national exchange.
Earnout shares to be issued in connection with a consummated merger may be registered on Form F-3, even though the shares have not been earned and are not outstanding at the time the registration statement. Likewise, securities to be issued in an exchange relying on Section 3(a)(9) of the Securities Act may be registered for re-sale on Form F-3 even though the exchange has not yet been completed.
A Form F-3 may be used under Instruction 1.B.3 to register the re-sale of securities to be issued upon the conversion of a convertible security such as a convertible note or preferred stock prior to the actual conversion. However, the company may not register an indeterminate number of shares. Accordingly, if the conversion formula is floating such as a discount to market price, the company must make a good-faith estimate of the maximum number of shares that it may issue on conversion to determine the number of shares to register for resale. If the number of registered shares is less than the actual number issued, the company would need to file a new registration statement to register the additional shares. Furthermore, if the number of shares to be registered is in excess of thirty percent (30%) of the outstanding public float at the time of registration, it will be considered an indirect primary offering and a company may only use Form F-3 if it qualifies to use the form for a primary offering under Instruction 1.B.1.
Instruction 1.B.3 may not be relied on for the “re-sale” of securities held by a parent or subsidiary as a parent or subsidiary is generally considered an alter-ego of the company itself. That is, a re-sale in that case would be considered a primary offering and the company would have to rely on Instruction 1.B.1 to use Form F-3. However, there are circumstances where affiliates may make offerings that are deemed to be genuine secondaries.
Rights Offerings, Dividend or Interest Reinvestment Plans, and Conversions of Warrants and Options – Instruction 1.B.4
Form F-3 is available for securities to be offered (i) upon the exercise of outstanding rights granted by the issuer of the securities to be offered, if such rights are granted on a pro rata basis to all existing security holders of the class of securities to which the rights attach, (ii) under a dividend or interest reinvestment plan, or (iii) upon the conversion of outstanding convertible securities or the exercise of outstanding warrants or options issued by the issuer of the securities to be offered, or by an affiliate of the issuer. To utilize Form F-3 for one of these transactions, the financial statements in the Form F-3 must comply with Item 18 of Form 20-F. Also, this instruction cannot be relied upon for the registration of securities to be offered or sold in a standby underwriting or similar arrangement in the U.S.
Equity Line Transactions
Depending on the amount of securities to be issued in an equity line transaction, a company that meets the eligibility requirements could use a Form F-3 to register the put shares as a primary indirect offering (Instruction 1.B.1), a baby shelf offering (Instruction 1.B.5) or a secondary offering (Instruction 1.B.3).
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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