Delayed & Continuous Offerings

Shelf offerings allow companies to sell shares after their IPO, either through a continuous offering or a delayed offering. A continuous offering means that the securities offering continues (i.e. the securities are available promptly upon effectiveness and will continue to be available in the future, though sales may be sporadic over the duration of the offering), whereas in a delayed offering, securities are not intended to be offered and available on the market until a later time. Shelf offerings can be done under either a traditional offering, using a Form S-1 or S-3, or a Regulation A (also known as a Regulation A+) offering. 

An effective shelf registration statement enables an issuer to access the capital markets quickly when necessary or when market conditions are optimal. This provides issuers with optimal timing and certainty, because takedowns can be made without SEC review or delay. 

Traditional Offerings

Form S-1 is the form typically filed for a traditional public offering. Issuers file a registration statement and prospectus with their Form S-1, and once all of this is declared effective by the SEC, the issuer may begin to sell securities pursuant to its prospectus. 

Continuous 

A continuous offering on a Form S-1 requires a fixed price for securities sold. This price is fixed promptly upon effectiveness of the registration statement, and securities must continue to be offered at that price in the future. If an issuer wishes to change this price at any time, they must file an amendment to the registration statement and wait (potentially weeks) until the SEC declares the amendment effective. Often, this delay can cause changes in the sales of the issuer’s securities – the market may have changed such that investors do not want to buy the issuer’s securities at the newly effective price. 

Delayed 

In a delayed offering, rather than filing a Form S-1 and immediately selling securities upon effectiveness, an issuer will file a base or shelf prospectus on a Form S-3. Once this is declared effective, an issuer will file either (1) a subsequent prospectus supplement (which is the most common method), (2) a post-effective amendment, or (3) where permitted, a periodic report. This will then be incorporated by reference into the registration statement that contains the actual terms and specifics of an offering. 

Generally, only more seasoned issuers are eligible to use a Form S-3, which means only they may conduct a delayed primary offering. A “seasoned issuer” typically means the issuer has had their securities registered for more than 12 months, they are current in SEC reporting obligations, and they have a public float of greater than $75,000,000.

Regulation A Offerings

A Regulation A (“Reg. A”) offering is conducted by filing an offering statement on a Form 1-A. Similar to a traditional, Form S-1 offering, the statements filed under a Form 1-A must be qualified by the SEC before the issuer may begin to sell its securities pursuant to the offering circular included in its offering statement. 

Requirements

Issuers can conduct continuous and delayed offerings under Reg. A only under certain conditions. These conditions apply to the offering itself, the securities, and the issuer. They, generally, are that: 

• The offering must:

  • Commence within two days of the qualification date;

  • Continue for a period greater than 30 calendar days; and

  • Be reasonably expected to be completed within two years of the qualification date. 

• The issuer must: 

  • Be current with all SEC reporting requirements at the time of such sale.

• The securities must be:

  • Offered or sold solely by or on behalf of a person or persons other than the issuer (or a parent or subsidiary of the issuer);

  • Offered or sold pursuant to a dividend or interest reinvestment plan or an employee benefit plan of the issuer;

  • Issued upon the exercise of outstanding options, warrants, or rights;

  • Used upon the conversion of other outstanding securities; or

  • Be pledged as collateral. 

Benefits

One of the greatest advantages of a Reg. A offering is that it allows issuers to conduct certain continuous and delayed offerings without containing a fixed price at the time of qualification. Issuers can insert a price range in their offering statement, and then file specific pricing information via a supplement to the offering statement at the time of a security’s sale. Unlike a traditional offering, this supplement does not require SEC review or qualification before the sale can take place. 

Drawbacks

While there are benefits to a Reg. A offering, there are also drawbacks. First, a Reg. A issuer cannot use an offering supplement to increase the volume of shares in the offering. Second, any decrease in the volume of shares or deviation in the price range set forth in the original offering cannot represent more than a 20% change from the aggregate maximum offering price calculated from the original, qualified offering statement. Third, Reg. A offerings can only be sold up to $50,000,000 within any 12-month period, unlike traditional offerings, which can be for an unlimited dollar amount.

Are Shelf Offerings Right for You?

Shelf offerings hold many benefits to issuers, as do the various ways of performing them. If you need assistance with conducting a shelf offering, have questions about what we’ve discussed here, or need help deciding which path to a shelf offering is right for you, reach out to our offices today.