Registration on Form S-3

Form S-3 is a form created by the SEC for follow-on public offerings of stock by companies that are already publicly listed. As such, this form is less complicated and can be completed more quickly than Form S-1, which is used for an IPO.

– The SEC has several requirements for a Company to file an S-3 form:

  • The Company must be based in and operated out of the U.S. or a U.S. territory;
  • A minimum of $75 million worth of shares must be owned by public Investors;
  • The Company must have traded a minimum of $1 billion in non-convertible (excluding common equity) shares for the past 3 years; and
  • The Company hasn’t defaulted on any dividends or sinking fund installments (a store of money set aside and periodically added to pay off future debt).

The Investors’ Rights Agreement often describes the requirements for an Investor to demand that the Company register its shares in a follow-on public offering on Form S-3. This includes (1) the percentage of total registrable securities the Investor must own to make the demand (10-30%), (2) the offering price ($3-5 million), and (3) how many Form S-3 registrations are allowed (no more than two per year).

Notice that the requirements to register the Registerable Securities in a follow-on public offering on Form S-3 are a lower bar as compared to the Demand Registration rights requiring the Company to register the shares in an IPO.

Term Sheet Language: The holders of [[10-30]% of the] Registrable Securities will have the right to require the Company to register on Form S-3, if available for use by the Company, Registrable Securities for an aggregate offering price of at least $[3-5 million]. There will be no limit on the aggregate number of such Form S-3 registrations, provided that there are no more than [two (2)] per twelve (12) month period.