It has been a tough few years for small cap (and all) initial public offerings (IPOs). Although I have been seeing a small up-tick in priced deals recently, we are not yet near the highs of 2020 – 2022. Among the various challenges facing IPO issuers, lengthy Nasdaq/NYSE review periods and trouble building out sufficient allocations have been especially difficult resulting in a lengthier IPO process than expected.
An increased IPO timeline adds significant expense to the process. A registration statement cannot go effective with stale financial statement. Financial statements for domestic issuers go stale every 135 days requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that a closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.
Rule 430A allows a registration statement to go effective without the final public offering price, underwriting syndicate, underwriting discounts or commissions, amount of proceeds and other items depending upon the offering price, as long as a final prospectus with the omitted items is filed with the SEC no later than fifteen business days after the effective date of the registration statement. Once the registration statement is effective, the issuer becomes subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act) in accordance with Exchange Act Section 15(d).
Of course, there is a risk that the IPO will not be ready to close within the fifteen-day time limit, in which case the issuer will not have completed an IPO but will be subject to the Exchange Act reporting requirements. I’ve previously written about terminating Section 15(d) reporting requirements (see HERE).
The Section 15(d) reporting requirements are scaled down from the Exchange Act reporting requirements for a company with a class of securities registered under Section 12. In particular, a company that is only subject to Section 15(d) need only comply with the Section 13 reporting obligations and need not comply with the federal proxy rules and third-party tender offer rules in Section 14, the officer/director and 10% shareholder reporting requirements in Section 16 or the 5% or greater shareholder reporting requirements in Sections 13(d), (g) and (f) of the Exchange Act.
Generally, in an IPO the issuer will also file a short form Exchange Act registration statement on Form 8-A/12(b), subjecting the issuer to the full Exchange Act reporting requirements and listing on a national exchange. However, a Form 8-A/12(b) will not go effective until certified by a national exchange and in any event is not filed until right before the IPO closing. Accordingly, an 8-A/12(b) would not go effective if the IPO is not proceeding.
Section 15(d) reporting obligations may not be terminated in the same year in which a registration statement has gone effective, or before an annual report for such year has been filed with the SEC. However, in 2010, in response to numerous no-action requests, the SEC issued Staff Legal Bulletin No. 18 providing for a methodology for an issuer to immediately suspend reporting obligations where either (i) there has been an abandoned IPO; or (ii) the issuer has been acquired by another entity.
Terminating Reporting Obligations After an Abandoned IPO
As mentioned, a company becomes subject to Exchange Act Section 15(d) upon effectiveness of a registration statement filed under the Securities Act of 1933 (“Securities Act”). The purpose of periodic reporting under Section 15(d) is “to assure a stream of current information about an issuer for the benefit of purchasers in the registered offering, and for the public aftermarket investors.
Exchange Act Rule 12h-3 provides that the duty to file reports under Section 15(d) is automatically suspended: (i) If the company has a class of securities registered under Section 12 of the Exchange Act and is thus separately subject to the reporting requirements due to that registration; or (ii) on the first day of any fiscal year, other than the fiscal year in which a Securities Act registration statement became effective, in which the company has fewer than 300 record security holders.
In addition, Rule 12h-3 provides that the duty to file reports may be voluntarily suspended, at any time, by the filing of a Form 15 upon meeting certain conditions, to wit: (i) the company is current in its Exchange Act reporting obligations; (ii) the company has either fewer than 300 record security holders (or 1,200 if a bank holding company) or fewer than 500 record security holders and less than $10 million in assets on the last day of each of the company’s three most recent fiscal years; and (iii) the company must not have had a Securities Act registration statement become effective in the fiscal year in which reporting suspension is requested, or if relying on the 500 record holder threshold, during the two preceding fiscal years.
To suspend reporting obligations a company must file a Form 15. However, SEC C&DI confirms that a Form 15 is not a condition to the automatic suspension described above.
Through no action relief and later Staff Legal Bulletin No. 18, the SEC has taken the position that a company may file a Form 15 and suspend its Section 15(d) reporting obligations, even though a Securities Act registration statement went effective during the specified time periods in two circumstances. That is:
(i) Abandoned IPO – a company has an effective registration statement but does not sell any securities pursuant to such registration statement and files an application to withdraw the registration statement pursuant to Securities Act Rule 477, which withdrawal is granted by the SEC; or
(ii) Acquisition – a company is acquired by another entity resulting in the company’s securities either being extinguished or held solely by the acquirer.
The following conditions must be met in order for a company to avail itself of this early Form 15 filing: (i) the company may not have a class of securities registered under Section 12 of the Exchange Act (i.e. no Form 8-A may have gone effective); (ii) the company may not exceed the record security holders thresholds in Rule 12h-3; (iii) the company must be current in any Exchange Act reports; (iv) the company must file a Form 15; (iv) the company must deregister any unsold securities in the Securities Act registration statement or withdraw the registration statement if no securities were sold; and (v) the company must not voluntarily report to the SEC.
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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