On Friday, Corp Fin updated one and withdrew several Securities Act CDIs. These CDIs relate to equity line financing arrangements and PIPEs that can raise issues under Securities Act Section 5 – CDI 139.13 has been updated and CDIs 139.15, 139.16, 139.17, 139.18, 139.19 and 139.20 have been withdrawn. Here’s updated CDI 139.13, which clarifies when a company may file a resale registration statement:
Question: In many equity line financings, the company will rely on the private placement exemption from registration to sell the securities under the equity line and will then seek to register the “resale” of the securities sold in the equity line financing. When may a company file a registration statement for the resale by the investors of securities sold in a private equity line financing?
Answer: In these types of equity line financings, the company’s right to put shares to the investor in the future and the lack of market risk resulting from the formula price differentiate private equity line financings from financing PIPEs (private investment, public equity). We, therefore, analyze private equity line financings as indirect primary offerings, even though the “resale” form of registration is sought in these financings.
The at-the-market limitations contained in Rule 415(a)(4) would otherwise prohibit market-based formula pricing for issuers that are not eligible to conduct primary offerings on Form S-3 or Form F-3. Nevertheless, we will not object to such companies registering the “resale” of the securities prior to the exercise of the equity line put if the transactions meet the following conditions:
- the company and the investor have entered into a binding agreement with respect to the private equity line financing at the time the registration statement is filed;
- the “resale” registration statement is on a form that the company is eligible to use for a primary offering;
- there is an existing market for the securities, as evidenced by trading on a national securities exchange or alternative trading system, which is a registered broker-dealer and has an active Form ATS on file with the Commission; and
- the equity line investor is identified in the prospectus as an underwriter, as well as a selling shareholder.
We will not object to the filing of a registration statement for a private equity line financing prior to the issuance of securities by the company under the equity line even when there are contingencies attached to the investor’s obligation to accept a put of shares from the company, as long as the above conditions are satisfied and the following terms of the investment have been agreed upon by both parties and disclosed by the company at the time that the resale registration statement is filed:
- the number of shares registered for resale;
- the maximum principal amount available under the equity line agreement;
- the term of the agreement; and
- the full discounted price (or formula for determining it) at which the investor will receive the shares.
[November 13, 2020]
-Lynn Jokela, TheCorporateCounsel.net November 16, 2020