Davis Polk & Wardwell Newsflash

Time to Check Your Shelf Registration Statement
Recent Stock Market Price Declines Have Caused Many Issuers to Lose WKSI Status

October 30, 2008

The recent precipitous decline in stock market valuations has caused the market capitalization of many issuers to fall near or below the $700 million held by non-affiliates required to be a “well known seasoned issuer” or “WKSI.”  WKSIs are the only class of issuer whose registration statements (and amendments thereto) are automatically effective without risk of SEC review.  Accordingly, issuers in jeopardy of losing their WKSI status should insure that they currently have a broad-based universal shelf registration statement in place to provide financing flexibility should they lose that status at a later date.  Most importantly, issuers whose market capitalization has recently fallen below $700 million may still have time to file an automatic shelf registration statement since an issuer need only meet the market capitalization test on at least 1 day in the 60 days preceding the filing of the registration statement.  Finally, issuers whose registration statements are approaching the end of their three-year life (or December 1, 2008 for registration statements filed before December 1, 2005) should consider putting a new automatic shelf registration statement in place early.

Once an automatic shelf registration statement is effective, loss of WKSI status due to share price declines does not affect an issuer’s ability to use it until, at least, the next filing of the issuer’s annual report on Form 10-K. At the time of filing its annual report on Form 10-K an issuer must reassess its WKSI status and if it no longer meets the requirements, it must amend its automatic shelf registration statement on the form it is then eligible to use.

There are many benefits to having an effective universal shelf registration statement in place:

  • the ability to access public capital markets without the timing risk presented by a potential SEC review
  • the ability to “test the waters” with investors (with appropriate confidentiality agreements) regarding a potential public offering
  • loss of S-3 status (such as by a late filing of a required current report on Form 8-K) does not affect the ability of an issuer to use its effective registration statement prior to the next filing of its annual report on Form 10-K, but would preclude it from filing a new registration statement on Form S-3
  • form requirements for financial statements are determined at the time of effectiveness of the registration statement as opposed to at the time of a takedown—having an effective shelf registration statement permits an issuer to proceed without financial statements, such as for a pending acquisition, that it determines to be immaterial even if they would be required in a new registration statement

Issuers considering an offering in the near term may also consider prepaying a portion of the SEC filing fee since it is scheduled to increase from $39.30 per million dollars of securities registered to $55.80 per million dollars of securities registered within five days of the date upon which the SEC receives its appropriation for its 2009 fiscal year.

* * *

If you have any questions regarding this newsflash, please call your Davis Polk contact.

Davis Polk & Wardwell