Rule: Securities: Primary Securities Offerings On Forms S-3 and F-3 Eligibility Requirements

Thursday,
December 27, 2007
Part V
Securities and
Exchange
Commission
17 CFR Parts 230 and 239
Revisions to the Eligibility Requirements
for Primary Securities Offerings on
Forms S–3 and F–3; Final Rule
pwalker on PROD1PC71 with RULES4
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73534 Federal Register / Vol. 72, No. 247 / Thursday, December 27, 2007 / Rules and Regulations
SECURITIES AND EXCHANGE Rule 401(g) 3 under the Securities Act of of groups and constituencies, most of
COMMISSION 1933.4 whom expressed their general support
Table of Contents
for the proposed form amendments and
17 CFR Parts 230 and 239 the objectives that we articulated in the
I. Discussion Proposing Release. Notwithstanding
A. Background
[Release No. 33–8878; File No. S7–10–07] 1. Proposing Release and Public Comment their general support, however, several
Letters commenters thought that some
2. Form S–3 modifications to the proposal were
RIN 3235–AJ89
3. Reasons for New Form S–3 Amendments advisable, either to improve the
Revisions to the Eligibility 4. Limited Expansion of Form Eligibility usefulness of the form amendments to
B. Amendments to Form S–3 smaller public companies seeking
Requirements for Primary Securities
1. One-Third Cap and Listed Securities capital,6 or to ensure that the rule
Offerings on Forms S–3 and F–3 Only changes are consistent with investor
2. Calculation of Amount of Securities That
AGENCY: Securities and Exchange May Be Sold
protection.7 After considering each of
Commission. 3. Exclusion of Shell Companies the comments, we are adopting
ACTION: Final rule. C. Amendments to Form F–3 amendments to Form S–3 and Form F–
II. Paperwork Reduction Act 3 substantially in the form proposed,
SUMMARY: We are adopting amendments A. Background but with certain modifications as
to the eligibility requirements of Form B. Summary of Information Collections discussed more fully in this release.
C. Summary of Comments and Revisions to These amendments are intended to
S–3 and Form F–3 to allow certain
Amendments allow a larger number of public
domestic and foreign private issuers to D. Revised Paperwork Reduction Act
conduct primary securities offerings on companies to benefit from the greater
Burden Estimates flexibility and efficiency in accessing
these forms without regard to the size of III. Cost-Benefit Analysis
their public float or the rating of debt A. Summary of Amendments
the public securities markets afforded
they are offering, so long as they satisfy B. Benefits by Form S–3 and Form F–3 in a manner
the other eligibility conditions of the C. Costs that is consistent with investor
respective form, have a class of common IV. Consideration of Promotion of Efficiency, protection. Accordingly, we are placing
equity securities listed and registered on Competition and Capital Formation certain restrictions on the class of
V. Final Regulatory Flexibility Act Analysis issuers who will be eligible under the
a national securities exchange, and the A. Need for the Amendments
issuers do not sell more than the new rules and are adopting a ceiling on
B. Significant Issues Raised by Public the amount of securities that eligible
equivalent of one-third of their public Comment
float in primary offerings over any issuers may offer pursuant to these
C. Small Entities Subject to the
rules. In creating new opportunities to
period of 12 calendar months. The Amendments
D. Reporting, Recordkeeping and Other facilitate capital formation consistent
amendments are intended to allow more
Compliance Requirements with the protection of investors, we
companies to benefit from the greater
E. Agency Action to Minimize Effect on believe that a careful and modest
flexibility and efficiency in accessing
Small Entities expansion of Form S–3 and Form F–3
the public securities markets afforded VI. Statutory Authority and Text of the eligibility is warranted at this time.
by Form S–3 and Form F–3 without Amendments However, as we indicated in the
compromising investor protection. The
I. Discussion Proposing Release, we may revisit the
expanded form eligibility does not
appropriateness of the form restrictions
extend to shell companies, however, A. Background at a later time if our experience with
which are prohibited from using the this revised requirement suggests issuer
new provisions until 12 calendar 1. Proposing Release and Public
Comment Letters eligibility for primary offerings on Form
months after they cease being shell S–3 and Form F–3 should be further
companies. In addition, we are adopting On May 23, 2007, we proposed revised.8
an amendment to the rules and revisions to the eligibility requirements
regulations promulgated under the of Form S–3 and Form F–3 to allow 2. Form S–3
Securities Act to clarify that violations domestic and foreign private issuers, Form S–3 is the ‘‘short form’’ used by
of the one-third restriction will also respectively, to conduct primary eligible domestic companies to register
violate the requirements as to proper securities offerings on these forms securities offerings under the Securities
registration form, even though the without regard to the size of their public Act of 1933. The form also allows these
registration statement has been declared float or the rating of debt they are companies to rely on their reports filed
effective previously. offering, so long as they satisfy the other under the Securities Exchange Act of
EFFECTIVE DATE: January 28, 2008. eligibility conditions of the applicable
form and do not sell securities valued in 6 See, for example, letters from the American Bar
FOR FURTHER INFORMATION CONTACT:
excess of 20% of their public float in Association, Committees on Federal Regulation of
Raymond A. Be, at (202) 551–3430, or primary offerings pursuant to the new Securities and State Regulation of Securities
the Office of Chief Counsel, at (202) instructions on these forms over any
(‘‘ABA’’); Brinson Patrick Securities Corporation
551–3500, in the Division of (‘‘Brinson Patrick’’); Feldman Weinstein and Smith
period of 12 calendar months.5 LLP (‘‘Feldman Weinstein’’); Malizia Spidi & Fisch
Corporation Finance, U.S. Securities In response to our request for (‘‘Malizia Spidi’’); Morrison & Foerster LLP
and Exchange Commission, 100 F comment on the Proposing Release, we (‘‘Morrison & Foerster’’); Office of Advocacy, Small
Street, NE., Washington, DC 20549– received comment letters from a variety
Business Administration (‘‘SBA’’); Roth Capital
3010. Partners, LLP (‘‘Roth Capital’’); Marshal Shichtman
(‘‘M. Shichtman’’); and Williams Securities Law
3 17 CFR 230.401(g). (‘‘Williams Securities’’). All comment letters are

SUPPLEMENTARY INFORMATION: We are
4 15 U.S.C. 77a et seq. publicly available at http://www.sec.gov/comments/
amending Form S–3,1 Form F–3 2 and 5 Revisions to the Eligibility Requirements for s7–10–07/s71007.shtml.
7 See letter from the Council of Institutional
Primary Securities Offerings on Forms S–3 and F–
1 17 CFR 239.13. Investors (‘‘CII’’).
3, Release No. 33–8812 (June 20, 2007) [72 FR
2 17 CFR 239.33. 35118] (the ‘‘Proposing Release’’). 8 Proposing Release, at 35124.
Federal Register / Vol. 72, No. 247 / Thursday, December 27, 2007 / Rules and Regulations 73535
1934 9 to satisfy the form’s disclosure significant advantages on eligible ability to access the public securities
requirements. Prior to today’s companies.15 Form S–3 permits the markets. Likewise, a significant
amendments, companies have been able incorporation of required information proportion of commenters to the
to register primary offerings (that is, by reference to a company’s disclosure Proposing Release welcomed an
securities offered by or on behalf of the in its Exchange Act filings, including expansion of Form S–3 eligibility,
registrant for its own account) on Form Exchange Act reports that were agreeing that such a measure would
S–3 only if their non-affiliate equity previously filed and those that will be greatly enhance smaller public
market capitalization, or ‘‘public float,’’ filed in the future.16 companies’ access to capital in the
was $75 million or more.10 In contrast, Form S–3 eligibility for primary securities markets, with far less burden
transactions involving primary offerings offerings also enables companies to and cost.19
of non-convertible investment grade conduct primary offerings ‘‘off the Given the great advances in the
securities, certain rights offerings, shelf’’ under Rule 415 of the Securities electronic dissemination and
dividend reinvestment plans and Act.17 Rule 415 provides considerable accessibility of company disclosure
conversions, and offerings by selling flexibility in accessing the public transmitted over the Internet in the last
shareholders of securities registered on securities markets from time to time in several years,20 we believe that
a national securities exchange do not response to changes in the markets and moderately expanding the class of
require the company to have a other factors. The shelf eligibility transactions that are permitted on Form
minimum public float.11 resulting from Form S–3 eligibility and S–3 for primary securities offerings is
Recently, the issue of Form S–3 the ability to forward incorporate warranted once again. In contrast to
eligibility for primary offerings was information on Form S–3, therefore, 1992, when the Commission last
addressed by the Commission’s allow companies to avoid additional adjusted the issuer eligibility
Advisory Committee on Smaller Public delays and interruptions in the offering requirements for Form S–3,21 most
Companies (the ‘‘Advisory Committee’’), process and can reduce or even public filings under the Securities Act
which the Commission chartered in eliminate the costs associated with and the Exchange Act, and all Forms S–
2005 to assess the current regulatory preparing and filing post-effective 3, are now filed on the Commission’s
system for smaller companies under amendments to the registration Electronic Data Gathering, Analysis, and
U.S. securities laws.12 In its April 23, statement. Retrieval system (‘‘EDGAR’’). The
2006 Final Report to the Commission, By having more control over the pervasiveness of the Internet in daily
the Advisory Committee recommended timing of their offerings, these life and the advent of EDGAR as a
that we allow all reporting companies companies can take advantage of central repository of company filings
with securities listed on a national desirable market conditions, thus have combined to allow widespread,
securities exchange or Nasdaq,13 or allowing them to raise capital on more direct, and contemporaneous
quoted on the Over-the-Counter Bulletin favorable terms (such as pricing) or to accessibility to company disclosure at
Board electronic quotation service, to be obtain lower interest rates on debt. As little or no cost to those interested in
eligible to use Form S–3 if they have a result, the ability to take securities off obtaining the information. For this
been reporting under the Exchange Act the shelf as needed gives issuers a reason, we think it is appropriate to
for at least one year and are current in significant financing alternative to other once again expand the class of
their reporting at the time of filing.14 widely available methods, such as companies who may register primary
private placements with shares usually offerings on Form S–3 in a limited
3. Reasons for New Form S–3 priced at discounted values based in manner.
Amendments part on their relative illiquidity.18
The ability to conduct primary Consequently, we believe that extending 4. Limited Expansion of Form Eligibility
offerings on Form S–3 confers Form S–3 short-form registration to We are not prepared at this time to
additional issuers should enhance their abandon our longstanding prerequisite
9 15 U.S.C. 78a et seq. contained in the instructions to Form S–
10 General Instruction I.B.1. of Form S–3. The 15 See generally, Shelf Registration, Release No.
3 and allow unlimited use of this form
history and use of Form S–3 are discussed in greater 33–6499 (Nov. 17, 1983) [48 FR 5289] (discussing
detail in the Proposing Release. the benefits of shelf registration).
for primary offerings by companies who
11 See General Instructions I.B.2. through I.B.4. of 16 Item 12 of Form S–3: ‘‘Incorporation of Certain do not have at least $75 million in
Form S–3. Information by Reference.’’
12 More information about the Advisory 17 Rule 415 [17 CFR 230.415] provides that: 19 See, for example, letters from Feldman
Committee is available at http://www.sec.gov/info/ (a) Securities may be registered for an offering to Weinstein; Malizia Spidi; and M. Shichtman.
smallbus/acspc.shtml. be made on a continuous or delayed basis in the 20 See, for example, Internet Availability of Proxy
13 There is no longer a distinction between future, Provided, That: Materials, Release No. 34–52926 (Dec. 8, 2005) [70
Nasdaq and national securities exchanges. On (1) the registration statement pertains only to: FR 74597] and the Final Report of the Advisory
January 13, 2006, the Commission approved * * * Committee, at 69:
Nasdaq’s application to become a national (x) Securities registered (or qualified to be The Commission has recently taken several steps
securities exchange. The Nadsaq Stock Market registered) on Form S–3 or Form F–3 which are to acknowledging the widespread accessibility over
commenced operations on August 1, 2006. be offered and sold on an immediate, continuous the Internet of documents filed with the
14 Recommendation IV.P.3. of the Final Report of or delayed basis by or on behalf of the registrant, Commission. In its recent release concerning
the Advisory Committee on Smaller Public a majority owned subsidiary of the registrant or a Internet delivery of proxy materials, the
Companies (Apr. 23, 2006) (the ‘‘Final Report’’), at person of which the registrant is a majority-owned Commission notes that recent data indicates that up
68–72. The Final Report is available at http:// subsidiary. to 75% of Americans have access to the Internet in
www.sec.gov/info/smallbus/acspc/acspc- 18 See, for example, Susan Chaplinsky and David their homes, and that this percentage is increasing
finalreport.pdf. In addition to elimination of the Haushalter, Financing Under Extreme Uncertainty: steadily among all age groups. As a result we
public float requirement, Recommendation IV.P.3. Contract Terms and Returns to Private Investments believe that investor protection would not be
also called for (1) elimination of General Instruction in Public Equity (May 2006), available at: http:// materially diminished if all reporting companies on
I.A.3.(b) to Form S–3 requiring that the issuer has papers.ssrn.com/sol3/ a national securities exchange, NASDAQ or the
timely filed all required reports in the last year and papers.cfm?abstract_id=907676 (discussing the Over-the-Counter Bulletin Board were permitted to
(2) extending Form S–3 eligibility for secondary typical contractual terms of PIPEs (Private utilize Form S–3 and the associated benefits of
transactions to issuers quoted on the Over-the- Investments in Public Equities) financings, where incorporation by reference.
Counter Bulletin Board. The Proposing Release also the average purchase discount is between 18.5% to 21 Simplification of Registration Procedures for
included additional discussion of the Advisory 19.7%, depending on the types of contractual rights Primary Securities Offerings, Release No. 33–6964
Committee and its recommendations. embedded in the securities). (Oct. 22, 1992) [57 FR 48970].
public float. Although the Advisory technology provides investors with Release, although we believe that the
Committee recommended the qualified access to information about publicly public securities markets have benefited
elimination of this requirement 22 and reporting companies at an from advances in both technology and
some commenters supported removing unprecedented level of ease and speed, corporate disclosure requirements, we
the concept of float altogether as a it does not guarantee that the market has are nevertheless mindful that companies
criterion of eligibility,23 we believe that fully absorbed and synthesized all of the with a smaller market capitalization as
retaining some capitalization available information of a given a group have a comparatively smaller
restrictions on Form S–3 eligibility is company. Technology can facilitate and market following than larger, well-
still advisable. We are persuaded that enhance market following, but it does seasoned issuers and are more thinly
the technological advances that have not ensure it. Therefore, we are traded. In such markets, the potential
revolutionized communications retaining public float as a factor in for manipulative practices is more
between companies and the market determining the extent of short-form acute.30 As such, we are sensitive to the
should allow us to ease the Form S–3 eligibility. While the purpose of these market effects of loosening the
eligibility standards without amendments is to give smaller standards for shelf eligibility without
undermining investor protection or the companies added flexibility to quickly limitation.
integrity of the markets. However, as respond to favorable market conditions We also note that the disclosure
explained more fully below, we believe by conducting some primary shelf obligations and liability imposed by the
this warrants only the limited expansion offerings on Form S–3, this objective federal securities laws on smaller public
of certain offerings on Form S–3, not the must be balanced against the companies are comparable, but not
wholesale elimination of public float as imperatives of investor protection. identical, to the largest reporting
an important criterion of form Concerns have been raised in the past companies.31 We are comfortable that
eligibility. The Commission’s system of when the Commission considered
integrated disclosure has, since its easing the restrictions of shelf reporting errors at smaller public companies ‘‘tend
inception, been premised on the idea registration eligibility to allow smaller to be more significant’’ than those of larger
companies; and (2) smaller public companies ‘‘are
that a company’s disclosure in its public companies to use a modified more likely to sit on errors that decrease earnings
registration statement can be form of shelf registration,26 and similar than big companies.’’ Thus, the Commission should
streamlined to the extent that the market concerns were voiced again during the ensure that the final rule avoids understating the
has already taken that information into comment period.27 It has been observed significant risks that smaller public companies
present to investors [emphasis in original].
account.24 Public float has for many that the securities of smaller public 30 The Commission’s staff has stated previously
years been used as an approximate companies are comparatively more that, with respect to short sales in reliance on the
measure of a stock’s market following vulnerable to price manipulation than safe harbor of Rule 144 where the borrower closes
and, consequently, the degree of the securities of larger public out using the restricted securities, all the conditions
of Rule 144 must be met at the time of the short
efficiency with which the market companies,28 and may also be more sale. See Questions 80 through 82 of Resales of
absorbs information and reflects it in the prone to financial reporting error and Restricted and Other Securities, Release No. 33–
price of a security.25 While current abuses.29 As we stated in the Proposing 6099 (Aug. 2, 1979) [44 FR 46752, 46765]. In the
Commission’s view, the term ‘‘sale’’ under the
22 The Advisory Committee’s recommendation to dissemination to the market and following by Securities Act includes contract of sale. See
investment institutions.’’ See also Thomas and Securities Offering Reform, Release No. 33–8591
expand Form S–3 eligibility encompassed only
Cotter, Measuring Securities Market Efficiency in (Jul. 19, 2005) [70 FR 44722, 44765] and Short
companies whose securities are listed on a national
the Regulatory Setting, at 108 (stating that the Selling in Connection With a Public Offering,
securities exchange or Nasdaq (which, at the time,
numerical thresholds of Form S–3 were intended to Release No. 34–56206 (Aug. 6, 2007) [72 FR 45094].
was not yet a national securities exchange), or
be a rough proxy for which companies were widely The Commission has previously indicated that, in
quoted on the Over-the Counter Bulletin Board.
followed by the investment community). a short sale, the sale of securities occurs at the time
Refer to Recommendation IV.P.3. of the Final
the short position is established, rather than when
Report. 26 See, for example, Report of the Task Force on
shares are delivered to close out that short position,
23 See letters from the ABA; Morrison & Foerster; Disclosure Simplification (Mar. 5, 1996), available for purposes of Section 5 of the Securities Act. See,
and Roth Capital. at http://www.sec.gov/news/studies/smpl.htm. See for example, Questions 3 and 5 of Commission
24 See Release No. 33–6499, at 5: also Delayed Pricing for Certain Registrants, Release Guidance on the Application of Certain Provisions
Forms S–3 and F–3 recognize the applicability of No. 33–7393 (Feb. 20, 1997) [62 FR 9276]. of the Securities Act of 1933, the Securities
27 See letter from the CII.
the efficient market theory to those companies Exchange Act of 1934, and Rules Thereunder to
which provide a steady stream of high quality 28 See, for example, Rajesh Aggarwal and Guojon
Trading in Security Futures Products, Release No.
corporate information to the marketplace and Wu, Stock Market Manipulations, 79 Journal of 33–8107 (June 21, 2002) [67 FR 43234] and Release
whose corporate information is broadly Business, No. 4 (2006). The authors’ data indicate No. 34–56206 n. 46 (Aug. 6, 2007) [72 FR 45094,
disseminated. Information about these companies is that manipulative practices predominantly occur in 45096].
constantly digested and synthesized by financial the Over-the-Counter Bulletin Board, Pink Sheets 31 Beginning with its introduction in 1992,
analysts, who act as essential conduits in the and other regional or unidentified markets Regulation S–B of the Securities Act provided for
continuous flow of information to investors, and is characterized by very low average trading volume a scaled set of disclosure requirements for small
broadly disseminated on a timely basis by the and market capitalization. The authors conclude business issuers. Small Business Initiatives, Release
financial press and other participants in the that stock manipulation is more likely to occur ‘‘in No. 33–6949 (July 30, 1992) [57 FR 36442]. Recent
marketplace. Accordingly, at the time S–3/F–3 relatively inefficient markets * * * that are small amendments to the disclosure regime for smaller
registrants determine to make an offering of and illiquid.’’ companies maintain these scaled disclosure
securities, a large amount of information already 29 In its letter commenting on the Proposing requirements, but integrate them into Regulation S–
has been disseminated to and digested by the Release, the CII ‘‘strongly opposed any weakening K. Smaller Reporting Company Regulatory Relief
marketplace. of the proposed limitations on eligibility in the final and Simplification, Release No. 33–8876 (Dec. 19,
See also Harold S. Bloomenthal and Samuel rule,’’ stating: 2007).
Wolff, Securities and Federal Corporate Law, § 9:30, We share the Commission’s concerns that the In addition, we acknowledge that the companies
available through Westlaw at 3B Sec. & Fed. Corp. Proposed Rule presents ‘‘risks to investor protection implicated in this rulemaking are not yet fully
Law § 9:30 (2d. ed.) (‘‘Form S–3 epitomizes the by expanding the base of companies eligible for subject to Section 404 of Sarbanes-Oxley. See
efficient market concept.’’). See also Randall S. primary offerings’’ on Forms S–3 and F–3 * * * In Internal Control Over Financial Reporting in
Thomas and James F. Cotter, Measuring Securities addition [to the risks discussed by the Commission Exchange Act Periodic Reports of Non-Accelerated
Market Efficiency in the Regulatory Setting, 63 Law in the Proposing Release], we believe that the final Filers and Newly Public Companies, Release No.
& Contemp. Probs. 105 (2000) at 106. rule should explicitly acknowledge that smaller 33–8760 (Dec. 15, 2006) [71 FR 76580]. We have
25 See Reproposal of Comprehensive Revision to public companies have long been especially prone taken steps to implement a plan to improve the
System for Registration of Securities Offerings, to financial reporting fraud. Consistent with the efficiency and effectiveness of Section 404
Release No. 33–6331 (Aug. 6, 1981) [46 FR 41902], historical evidence, a recent analysis of the implementation, including its scalability to smaller
at 9: ‘‘The Commission views as significant the reporting by public companies in response to SEC companies. See Commission Guidance Regarding
strong relationship between float and information Staff Accounting Bulletin 108 found that (1) Management’s Report on Internal Control Over
the scaled disclosure standards for addition, the short time horizon of shelf but only to the extent that they are
smaller public companies are offerings may also reduce the time that consistent with investor protection.
sufficiently comparable to those participating underwriters have to apply
B. Amendments to Form S–3
governing larger issuers such that the their independent scrutiny and
limited expansion of Form S–3 primary judgment to an issuer’s prospectus We are adopting new General
offering eligibility, as we are adopting it, disclosure. Historically, concerns such Instruction I.B.6. to Form S–3 to allow
will not adversely impact investors. as these have been at the center of the companies with less than $75 million in
However, the level of disclosure debate when the Commission has public float to register primary offerings
required of smaller public companies previously considered expanding shelf of their securities on Form S–3,36
under the federal securities laws is yet registration eligibility.34 provided they:
another factor that we believe weighs Accordingly, since the Commission • Meet the other registrant eligibility
against expanding Form S–3 eligibility first introduced the system of integrated conditions for the use of Form S–3; 37
further than we have in this release.32 disclosure more than twenty-five years
In revising the shelf eligibility ago, the ability to use Form S–3 to exchange or * * * quoted on the automated
requirements, therefore, we must conduct primary offerings ‘‘off the quotation system of a national securities
consider the unique set of investment shelf’’ has been carefully tempered by association,’’ a restriction that excludes the
risks posed by smaller public companies restricting the class of companies securities of Over-the-Counter Bulletin Board and
Pink Sheets issuers. In addition, some commenters
in the context of shelf registration, eligible for this benefit. Consistent with to the Proposing Release echoed the
which provides speed and flexibility to this well-established approach, we are recommendation of the Advisory Committee and
issuers, but at the same time may limit amending the Form S–3 eligibility supported extending the use of Form S–3 for
Commission and underwriter requirements to enable more companies secondary offerings to additional issuers who are
ineligible under current rules. See letters from the
involvement in the registration process. to use Form S–3 for primary offerings,35 ABA; Feldman Weinstein; SBA; and Williams
Extending the benefits of shelf Securities. After considering the recommendation
registration to an expanded group of would not address the fact that the staff does not of the Advisory Committee and commenters, we are
transactions will limit the staff’s direct have the ability to review, in advance, individual not at this time amending the Form S–3 eligibility
takedowns off an effective shelf registration rules for secondary offerings. As we made clear in
prior involvement in takedowns of statement. Prospectus supplements reflecting such the Proposing Release, this rulemaking pertains
securities off the shelf. Although the takedowns are filed after the fact. Similarly, the fact only to the limited issue of Form S–3 eligibility for
Commission’s staff may review that the Form S–3 filed by reporting companies primary securities offerings and is not intended to
registration statements before they are with smaller public floats would not become encompass or otherwise impact existing
declared effective, individual automatically effective and would therefore remain requirements for secondary offerings on Form S–3.
subject to pre-effective review and comment by the Moreover, any amendment of the Form S–3
takedowns are not conditioned on Commission’s staff does not satisfactorily address requirements for secondary offerings would have to
further Commission action or subject to the lack of the staff’s prior involvement in shelf be carefully weighed against the costs of further
prior selective staff review.33 In takedowns. See letter from the ABA. exposing the markets to the potential for abusive
34 Among other things, the Commission’s 1996 primary offerings disguised as secondary offerings.
Task Force on Disclosure Simplification made Therefore, at this time we are not revising
Financial Reporting Under Section 13(a) or 15(d) of secondary offering eligibility under General
the Securities Exchange Act of 1934, Release No. several recommendations to amend the shelf
registration procedure ‘‘so as to provide increased Instruction I.B.3.
34–55929 (June 20, 2007) [72 FR 35323]. It is true,
however, that, unlike ‘‘large accelerated filers’’ and flexibility to a wider array of companies with 36 Form S–3 eligibility under new General
‘‘accelerated filers,’’ companies that are ‘‘non- respect to their capital-raising activities.’’ These Instruction I.B.6. (and Form F–3 eligibility under
accelerated filers’’ (companies with less than $75 recommendations included a ‘‘modified form of new General Instruction I.B.5.) applies only to an
million in float) will not need to comply with the shelf registration’’ that would have allowed smaller issuer’s ability to conduct a limited primary offering
auditor’s attestation report requirements of Section companies to price their securities on a delayed on Form S–3 (or Form F–3, as applicable). That is,
404 until they file their annual report for the fiscal basis for up to one year in order to time securities an issuer’s eligibility to use Form S–3 or Form F–
year ending on or after December 15, 2008. For large offerings more effectively with opportunities in the 3 under these new form instructions does not mean
accelerated filers and accelerated filers, the marketplace. The Task Force stated: that the issuer meets the requirements of Form S–
auditor’s attestation report is required for all annual While this recommendation will afford small 3 or Form F–3 for purposes of any other rule or
reports for fiscal years ending on or after November companies time and cost savings, the Task Force regulation of the Commission (apart from Rule
15, 2004. In light of this fact, one commenter appreciates concerns raised about possible adverse 415(a)(1)(x), which pertains to shelf registration).
recommended that Form S–3 eligibility be effects shelf registration may have on the adequacy Instruction 6 to new General Instruction I.B.6. of
contingent on full implementation of both the and accuracy of disclosures provided to investors, Form S–3 and Instruction 6 to new General
management and auditor attestation report on Commission oversight of the disclosures and on Instruction I.B.5. of Form F–3.
requirements of Section 404. See letter from the CII. the role of underwriters in the registration process. Rule 415(a)(1)(x) permits shelf offerings of
Because adding this condition would effectively These concerns are similar to those raised when the securities ‘‘registered (or qualified to be registered)’’
delay the benefits of these Form S–3 amendments shelf registration rule was first being considered on on Form S–3 or Form F–3 (emphasis added). We
to smaller public companies for at least one year, a temporary basis and was made available to any note that a closed-end investment company,
and because the decision has been made to allow offering including an initial public offering. including a business development company,
smaller public companies to phase in full Report of the Task Force on Disclosure (‘‘closed-end fund’’) that meets the eligibility
compliance with Section 404, we have decided not Simplification, at 33. Following on the Task Force’s standards enumerated in Form S–3, as revised by
to delay the effective date of this rulemaking. We recommendations, in 1997 the Commission new General Instruction I.B.6., may register its
may revisit the limitation on our expansion of Form proposed to permit certain smaller companies to securities in reliance on Rule 415(a)(1)(x)
S–3 after full compliance with Section 404 is price registered securities offerings on a delayed notwithstanding the fact that closed-end funds
complete. basis for up to one year after effectiveness. Release register their securities on Form N–2 rather than
32 This is especially true given that, under recent No. 33–7393. In that release, the Commission noted: Form S–3.
37 See General Instruction I.A. of Form S–3.
amendments, the scaled detailed disclosure regime Concerns have been raised that the expedited
for smaller companies will now extend to issuers access to the markets that would be provided by Among other things, General Instruction I.A.
who have a public float between $25 and $75 these proposals could make it difficult for requires that the registrant:
million. Release No. 33–8876. Prior to such gatekeepers, particularly underwriters, to perform • Has a class of securities registered pursuant to
amendments, only companies with less than $25 adequate due diligence for the smaller companies Sections 12(b) or 12(g) of the Exchange Act or is
million in public float were covered by the that would be eligible to use expanded Rule 430A. required to file reports pursuant to Section 15(d) of
disclosure requirements of Regulation S–B. 35 As part of Recommendation IV.P.3 of the Final the Exchange Act; and
33 We note some commenters suggested that our Report, the Advisory Committee also recommended • Has been subject to the requirements of
concerns about expanding the base of companies that the Commission extend S–3 eligibility for Sections 12 or 15(d) of the Exchange Act and has
eligible to use Form S–3 for primary offerings ‘‘off secondary transactions to issuers with securities filed in a timely manner all the material required
the shelf’’ could be alleviated by requiring more quoted on the Over-the-Counter Bulletin Board. to be filed pursuant to Sections 13, 14 or 15(d) for
detailed disclosure from these companies. See General Instruction I.B.3. to Form S–3 limits the use a period of at least twelve calendar months
letters from Feldman Weinstein and Morrison & of the form for secondary offerings to securities immediately preceding the filing of the Form S–3
Foerster. However, requiring additional disclosure ‘‘listed and registered on a national securities registration statement.
• Have a class of common equity under new General Instruction I.B.6. of from 20% to at least one-third of a
securities that is listed and registered on Form S–3 on having a class of common company’s public float.46
a national securities exchange; 38 equity securities listed and registered on After considering these comments, we
• Do not sell more than the a national securities exchange (often have decided to set the twelve-month
equivalent of one-third of their public described as ‘‘listed’’ securities).41 offering threshold under new General
float in primary offerings under General As proposed, new General Instruction Instruction I.B.6. of Form S–3 at one-
Instruction I.B.6. of Form S–3 over the I.B.6. of Form S–3 would have limited third of an issuer’s public float. We are
previous period of 12 calendar the amount of securities eligible comfortable making this adjustment in
months; 39 and companies could sell in accordance light of the additional protection
• Are not shell companies 40 and have with its provisions to no more than the afforded by the new requirement in
not been shell companies for at least 12 equivalent of 20% of their public float General Instruction I.B.6(c) of Form S–
calendar months before filing the over any period of 12 calendar months. 3 that eligibility under this instruction
registration statement. We proposed a cap of 20% in order to is contingent upon the registrant having
1. One-Third Cap and Listed Securities allow an offering that is large enough to a class of common equity securities
Only help an issuer obtain financing when listed and registered on a national
market opportunities arise, yet small
As discussed above, we are sensitive enough to take into account the effect suggesting that additional disclosure be required in
to the risks associated with making shelf such new issuance may have on the lieu of imposing a 20% ceiling). Some commenters
registration available to more issuers. At market for a thinly traded security. As
were also concerned that the Commission might
the same time, we are also sensitive to amend Rule 430B of the Securities Act to vary the
we stated in the Proposing Release, we application of Section 11 liability to the various
the possibility that constraining the rule
believed that the 20% ceiling would parties involved in a shelf registration statement
too much may limit its utility to the based on the size of the issuer. See letters from BDO
help a large number of smaller public
companies that qualify for its use. Seidman, LLP; Center for Audit Quality; Deloitte &
companies with their capital raising.42 Touche LLP; Ernst & Young LLP (‘‘Ernst & Young’’);
Therefore, we have decided to increase Some commenters, however, were and KPMG LLP (‘‘KPMG’’). These commenters
the limitation on the amount of
critical of this proposed restriction and maintained that the filing of a prospectus
securities that can be offered by supplement to a shelf registration statement should
concerned that capping issuers at 20%
companies under the new rules from not be considered a new effective date for purposes
of the value of their public float every
20% of public float to one-third of of Section 11 liability for auditors, regardless of the
twelve months would limit the size of the issuer’s public float. The set of
public float, while at the same time
usefulness of the rule.43 The comprehensive amendments in 2005, known as
conditioning a company’s eligibility ‘‘Securities Offering Reform,’’ provide in Rule 430B
commenters thought that the 20%
that the effective date for auditors who previously
38 A ‘‘national securities exchange’’ is a securities
ceiling would be of limited utility provided consent in an existing registration
exchange that has registered with the Commission because they believed that the capital statement for their report on previously issued
under Section 6 of the Exchange Act [15 U.S.C. 78f]. needs of small businesses would, in financial statements or previous reports on
There are currently ten securities exchanges many cases, greatly exceed the amount management’s assessment of internal control over
registered under Section 6(a) of the Exchange Act financial reporting does not change upon the filing
as national securities exchanges. These are the New
of securities that could be sold under of a prospectus supplement unless the prospectus
York Stock Exchange, American Stock Exchange the rule.44 Several commenters also supplement (and any Exchange Act report
and Nasdaq, as well as the Boston Stock Exchange, suggested various alternatives to a 20% incorporated by reference into the prospectus and
Chicago Board Options Exchange, Chicago Stock limit,45 including raising the ceiling registration statement) contains new audited
Exchange, International Securities Exchange, financial statements or other information as to
National Stock Exchange (formerly the Cincinnati which the auditor is an expert and for which a new
41 New General Instruction I.B.6(c) of Form S–3.
Stock Exchange), NYSE Arca (formerly the Pacific consent is required. Release No. 33–8591. Two of
42 As we noted in the Proposing Release, the
Exchange) and the Philadelphia Stock Exchange. In the commenters emphasized that taking a different
addition, an exchange that lists or trades security Division of Corporation Finance undertook a study approach for smaller issuers would run the risk of
futures products (as defined in Section 3(a)(56) of of shelf registration takedowns in 2006 by creating substantial delays in the filing process (as
the Exchange Act [15 U.S.C. 78c(56)]) may register companies with a public float of moderate size in auditors would have to provide new consents) and
as a national securities exchange under Section 6(g) order to evaluate the appropriate public float ceiling issuers would likely lose a substantial amount of
of the Exchange Act solely for the purpose of for the new rule. Specifically, the Division looked flexibility in accessing the public markets. See
trading security futures products. For purposes of at all prospectus supplements filed pursuant to letters from Ernst & Young and KPMG. We agree
new General Instruction I.B.6., however, only shelf registration statements in calendar year 2006 with these commenters and are not modifying Rule
exchanges registered under Section 6(a) of the by companies with a public float between $75 430B in connection with this rulemaking.
Exchange Act will be deemed to be ‘‘national million and $140 million. While we observed a 46 See letters from the ABA; Feldman Weinstein;
securities exchanges.’’ Instruction 8 to new General wide range of variously sized shelf takedowns (from Morrison & Foerster; M. Shichtman; and Williams
Instruction I.B.6. less than 1% of float to greater than 80% of float), Securities. The SBA also suggested raising the
39 The meaning of the phrase ‘‘period of 12 the data indicated that 20% of float was threshold in its letter, but did not specify the size
calendar months’’ is intended to be consistent with approximately the median annual takedown for of the increase it favored. We note that some of the
the way in which the phrase ‘‘12 calendar months’’ companies in the band considered. This suggested commenters who advocated increasing the
is used for purposes of the registrant eligibility that limiting smaller public companies to 20% of threshold to one-third of a company’s public float
requirements in Form S–3. A ‘‘calendar month’’ is their public float in any 12-month period might reasoned that doing so would harmonize the
a month beginning on the first day of the month and increase the capital raising alternatives for these amount of securities which could be registered in
ending on the last day of that month. For example, companies consistent with investor protection. a primary offering on Forms S–3 and F–3 under the
43 See, for example, letters from the ABA; SBA;
for purposes of Form S–3 registrant eligibility, if a proposed rule with a purported staff position in a
registrant were not timely on a Form 10–Q due on Feldman Weinstein; Malizia Spidi; Morrison & different context. See letter from Feldman
September 15, 2006, but was timely thereafter, it Foerster; M. Shichtman; and Roth Capital. Weinstein. See also letters from Morrison & Foerster
would first be eligible to use Form S–3 on October 44 See letters from the SBA; Brinson Patrick;
and Williams Securities. The purported staff
1, 2007. Similarly, for purposes of new General Feldman Weinstein; Malizia Spidi; M. Shichtman; position is not related to the instant Form S–3 and
Instruction I.B.6. of Form S–3, if a registrant relies and Roth Capital. For an opposing viewpoint, see Form F–3 amendments, which concern expanding
on this Instruction to conduct a shelf takedown letter from the CII. the availability of these forms for primary offerings
equivalent to one-third of its public float on 45 See, for example, letters from Feldman to more companies. Rather, the staff has indicated
September 15, 2007, it will next be eligible to do Weinstein; Morrison & Foerster; and Williams that some resale registration statements may raise
another takedown (assuming no change in its float) Securities (commenters suggesting that a percentage a concern where, among other things, there is an
on October 1, 2008. of trading volume be used as an alternative to unusually large number of shares being registered
40 The term ‘‘shell company’’ is defined in Rule public float); Malizia Spidi and Roth Capital in relation to the number of the issuer’s outstanding
405 of the Securities Act [17 CFR 230.405]. See also (commenters suggesting that shareholder approval shares held by nonaffiliates. In these situations, the
Use of Form S–8, Form 8–K, and Form 20–F by Shell be obtained for dilutive issuances constituting over staff may question whether the offering is a bona
Companies, Release No. 33–8587 (July 15, 2005) [70 20% of public float); and letters from Feldman fide secondary transaction or a disguised primary
FR 42233] (adopting definition of shell company). Weinstein and Morrison & Foerster (commenters offering.
securities exchange, as discussed below. Instruction I.B.6. to Form S–3 only implementation of both the management
We think raising the cap to one-third of relates to other primary offerings and auditor attestation report
public float will allow an offering that conducted pursuant to this instruction. requirements of Section 404.54 At a
is large enough to help an issuer raise Accordingly, an issuer that is minimum, the commenter opposed any
a relatively significant amount of capital temporarily prevented from utilizing weakening of the proposed limitations
when market opportunities arise, but Form S–3 for shelf offerings to raise on eligibility in the final rule.
still small enough for us to moderate the capital would not be foreclosed from Allowing only companies with at
expansion of shelf eligibility with registering a primary offering of least one class of listed common equity
appropriate attention to the protection securities on Form S–1 or in private securities to avail themselves of new
of investors, including the effect such placements. The new eligibility General Instruction I.B.6. should help to
new issuance may have on the market instruction that we are adopting today is minimize potential abuses that may
for a thinly traded security. not meant to be mutually exclusive. arise from expanded shelf registration.
Under these amendments, offerings Rather, it is designed to provide added This is because the exchanges’ listing
above the one-third cap would violate flexibility to smaller public companies rules and procedures, as well as other
the form requirements of Form S–3. In by giving them supplemental avenues of requirements, provide an additional
order to provide absolute clarity on this capital formation. As we have stated measure of protection for investors.55
point, we are adopting a corresponding previously, our adoption of this Exchanges have both quantitative and
amendment to Rule 401(g) 47 of the amendment does not foreclose the qualitative listing rules that are
Securities Act to provide that violations possibility that we may revisit the designed to evidence that their listed
of the one-third cap would also violate appropriateness of this one-third cap at issuers meet specified minimum
the requirements as to proper form a later time. For now, however, we think requirements when the issuer first lists
under Rule 401 even though the that this limitation promotes small on the exchange and thereafter. Initial
registration statement previously has business capital formation consistent listing standards serve as a means for an
been declared effective.48 with the protection of investors. exchange to screen issuers and to
Our objective with this rulemaking is At the same time that we are adopting provide listed status to issuers with
to provide smaller companies some an offering ceiling under new General sufficient public float, investor base,
additional financing flexibility that will Instruction I.B.6. of one-third of an and trading interest to assure that the
aid them in their efforts to raise capital, issuer’s public float, we are also making market for the issuer’s security has the
but at the same time give the eligibility under this new rule depth and liquidity necessary to
Commission an opportunity to consider contingent on the issuer having a class maintain fair and orderly markets.
the impact of this expansion in an of common equity securities listed and Maintenance listing criteria help assure
environment where there are limitations registered on a national securities that the issuer continues to meet the
in place to address investor protection. exchange.50 In the Proposing Release, exchange’s standards for depth and
As a general proposition, the greater the we requested comment as to whether we liquidity. While the exchanges’ listing
magnitude of the offering, the more should allow all companies with a standards with respect to common
likely it is that the transaction will be public trading market, including equity securities can vary,56 generally
transformative to the issuer rather than companies with securities traded in the the exchanges require the issuer to meet
routine in nature, such as the over-the-counter market such as the minimum standards relating to number
incremental expansion of the issuer’s Pink Sheets, to use the amended Form of public shareholders and shares
business. At the current time, we S–3 as proposed or whether we should outstanding, shareholder approval of
believe that securities transactions limit eligibility to inter-dealer specified matters, and, in certain cases,
exceeding one-third of the value of an quotations systems with some level of earnings or income. Moreover, the
issuer’s public float are generally of oversight and operated by a self- exchanges’ listing standards generally
such significance to the issuer that the regulatory organization.51 In addition, require issuers of common equity
opportunity for specific staff review of we asked whether there were other securities to meet strong corporate
the transaction and a greater window for restraints on the proposed expansion of governance standards, including the
underwriter due diligence are advisable. Form S–3 eligibility that should be requirement that the issuer’s board be
We believe that the one-third cap will considered, such as restrictions on the composed of a majority of independent
help a substantial number of smaller class of issuers that could utilize the directors and that key committees be
public companies with their capital revised forms.52 Most commenters did composed solely of independent
raising needs, which is supported by not address these specific points directors.57 Exchange-listed securities
our observations of market activity of directly, but their responses generally
recent shelf registrants.49 Moreover, it is suggested that they would not favor 54 See letter from the CII. See also nn. 29 and 31
important to understand that the one- further restrictions on a registrant’s form discussing this letter.
eligibility in addition to those already 55 In contrast to the national securities exchanges,
third cap imposed by new General automated inter-dealer quotation systems such as
proposed.53 However, one commenter
the Over-the-Counter Bulletin Board and the Pink
47 17 CFR 230.401(g).
expressed concern over the risks Sheets do not provide companies with the ability
48 See letter from the ABA (recommending that inherent in expanding the base of to list their securities, but, rather, serve as a
the Commission not revise current Rule 401(g) to companies eligible for primary offerings medium for the over-the-counter securities market
provide that an issuer will be deemed to have used on Forms S–3 and F–3 and, accordingly, by collecting and distributing market maker quotes
an incorrect registration form if it exceeds the one- recommended that Form S–3 and Form to subscribers. These automated inter-dealer
third cap under new General Instruction I.B.6.). quotation systems do not maintain or impose listing
49 When we further narrowed the set of shelf
F–3 eligibility be contingent on full standards, nor do they have a listing agreement or
registration takedowns reviewed (the original arrangement with the companies whose securities
review is referenced in n. 42) to companies with at
50 New General Instruction I.B.6(c) of Form S–3. are quoted through them.
51 The Proposing Release, at 35127. 56 See, for example, Nasdaq Rules 4300 et seq.,
least one class of listed common equity, the data
indicated that 75% of sample registrants took down 52 Id. and NYSE Listed Company Manual (‘‘LCM’’),
the equivalent of one-third or less of their public 53 See, for example, letters from the ABA; Sections 1 through 9.
float annually off the shelf. For the majority of these Feldman Weinstein; Malizia Spidi; Morrison & 57 See, for example, Nasdaq Rule 4350 and NYSE
sample registrants, therefore, an offering ceiling of Foerster; SBA; M. Shichtman; and Williams LCM Section 3, which require listed issuers to
one-third would appear satisfactory. Securities. Continued
also are subject to real-time reporting of requirements, which would frustrate the sold in primary offerings on Form S–3
quotation and transaction information, speed and efficacy of shelf registration. under new General Instruction I.B.6. in
which benefits investors by apprising However, because we are limiting the prior period of 12 calendar months.
them of current market information eligibility under the new rules to The aggregate gross sales price
about the security. Together, these companies with listed equity, in most includes sales of equity as well as debt
common attributes allow the exchanges cases issuers will not be subject to state offerings.64 Therefore, eligible
to sustain efficient and liquid markets securities registration requirements in registrants will also be able to offer non-
that should help monitor the expansion their efforts to raise capital utilizing investment grade debt on Form S–3.65 In
of shelf registration eligibility on Form new General Instruction I.B.6. By the case of securities that are convertible
S–3 and help mitigate any attendant requiring issuers to have at least one into or exercisable for equity shares,
risks posed by expansion.58 listed class of common equity securities, such as convertible debt or warrants,
We also note that limiting eligibility most securities offered pursuant to the however, we are requiring that
under new General Instruction I.B.6. to new eligibility rules will be ‘‘covered registrants calculate the amount of
companies with common equity securities,’’ as defined by Section 18(b) securities they may sell in any period of
securities listed on a national securities of the Securities Act, and therefore 12 calendar months by reference to the
exchange is more consistent with our exempt from state Blue Sky aggregate market value of the underlying
historical treatment of secondary regulation.62 equity shares in lieu of the market value
offering eligibility on Form S–3.59 We of the convertible securities. The
think this parallel approach is sensible 2. Calculation of Amount of Securities aggregate market value of the underlying
given that Form S–3 has for many years That May Be Sold equity will be based on the maximum
allowed registrants to conduct To ascertain the amount of securities number of shares into which the
secondary offerings on the form that may be sold pursuant to Form S– securities sold in the prior period of 12
irrespective of public float, so long as 3 by registrants with a public float calendar months are convertible as of a
the securities offered thereby were listed below $75 million, the new rule date within 60 days prior to the date of
securities.60 requires a two-step process: sale, multiplied by the same per share
Some commenters noted that, under • Determination of the registrant’s market price of the registrant’s equity
the proposed amendments, companies public float immediately prior to the used for purposes of calculating its
with securities not listed or authorized intended sale; and public float pursuant to Instruction 1 to
for listing on a national securities • Aggregation of all sales of the new General Instruction I.B.6. of Form
exchange would nevertheless be eligible registrant’s securities pursuant to S–3. We believe calculating the one-
to offer such securities in primary primary offerings under General third cap based on the market value of
offerings on Form S–3 or Form F–3 so Instruction I.B.6. of Form S–3 in the the underlying securities makes it less
long as there was a public trading previous 12-month period (including likely that convertible securities would
market for their securities.61 Because the intended sale) to determine whether be structured and offered in a manner
such securities would not be ‘‘covered the one-third cap would be exceeded. designed to avoid the effectiveness of
securities,’’ as defined by Section 18(b) The new rule requires registrants to the cap.
of the Securities Act, commenters compute their public float by reference It is important to note that the one-
expressed concern that some companies to the price at which their common third cap on sales is not intended to
registering transactions under new equity was last sold, or the average of impact a holder’s ability to convert or
General Instruction I.B.6. might well be the bid and asked prices of their exercise derivative securities purchased
subject to state securities registration common equity, in the principal market from the company. For example, this
for the common equity as of a date limit will apply to the amount of
comply with Rule 10A–3 under the Exchange Act, within 60 days prior to the date of common stock warrants that a company
17 CFR 240.10A–3, with regard to audit committee can sell under Form S–3, and the
responsibility and independence, as well as an
sale.63 Then, for purposes of calculating
additional, broader array of corporate governance the aggregate market value of securities number of common shares into which
standards. sold during the preceding period of 12 the warrants are exercisable will be
58 See n. 28.
calendar months, the rule requires relevant for determining the company’s
59 See General Instruction I.B.3. of Form S–3.
registrants to add together the gross compliance with the one-third cap at
60 In its comment letter, the ABA pointed out that,
sales price for all primary offerings the time the warrants were sold, but the
as proposed, the eligibility standards for primary
offerings on Form S–3 would have allowed both pursuant to new General Instruction number will not impede the purchaser’s
‘‘listed and unlisted’’ reporting companies to make I.B.6. to Form S–3 during the preceding later exercise of the warrants.
primary offerings on the form, while resale period of 12 calendar months. Based on As adopted, the one-third cap is
transactions on Form S–3 are limited to reporting designed to allow issuers flexibility.
companies whose securities are listed on a national
that calculation, registrants will be
securities exchange or quoted on the automated permitted to sell securities with a value Because the restriction on the amount of
quotation system of a national securities up to, but not greater than, the
64 As adopted, the method of calculating the one-
association. In addition, the ABA noted that the difference between one-third of their
staff of the Commission, through interpretive third cap on sales is the same whether the registrant
guidance, has historically permitted unlisted
public float and the value of securities is selling equity or debt securities, or a combination
companies that are primarily eligible to use Form of both. As we discussed in the Proposing Release,
S–3 under the existing rules to register resale 62 The exception would be a class of securities we had some concern that we would be
transactions on Form S–3 notwithstanding that the that are neither listed nor at least equal in seniority inadvertently encouraging issuances of debt
resale eligibility rules of Form S–3 require that the to a class of the issuer’s listed securities. See securities over equity if the proposed limitation on
securities be listed on an exchange or quoted on the Section 18(b)(1)(A) through (C) of the Securities Act sales excluded debt. Because we do not intend for
automated quotation system of a national securities [15 U.S.C. 77r(b)(1) (A) through (C)]. the rule to dictate or otherwise influence the overall
association. We believe that the final rules, by 63 Instruction 1 to new General Instruction I.B.6. form of security that companies offer, we have
limiting primary offering eligibility under new of Form S–3. This is modeled after the calculation adopted the one-third cap on sales to include both
General Instruction I.B.6. to companies with equity of public float provided in the instruction to equity and debt.
securities listed on a national securities exchange, General Instruction I.B.1. of Form S–3. However, 65 The provisions of Form S–3 in effect today
address these inconsistencies noted by the ABA in the relevant date for purposes of Instruction 1 to allow registrants to offer non-convertible
its comment letter. new General Instruction I.B.6. is the date of sale, investment grade debt securities on Form S–3
61 See letters from the ABA; Feldman Weinstein; while the relevant date for purposes of General regardless of the size of their public float. General
Morrison & Foerster; and Williams Securities Law. Instruction I.B.1. is the date of filing. Instruction I.B.2. to Form S–3.
securities that can be sold over a period ends on, and includes, the date of the sale of up to $50 million of debt and
of 12 calendar months is calculated by prospectus.67 equity securities over the next three
reference to a registrant’s public float Because Form S–3 registrants who years from time to time as market
immediately prior to a contemplated meet the $75 million float threshold of opportunities arise.70 The registration
sale, as opposed to the time of the initial existing General Instruction I.B.1. at the statement is subsequently declared
filing of the registration statement, the time their registration statement is filed effective. In March 2009, the registrant
amount of securities that an issuer is are not subject to restrictions on the decides to sell common stock off the
permitted to sell can continue to grow amount of securities they may sell registration statement. To determine the
over time as the issuer’s public float under the registration statement even if amount of securities that it may sell in
increases. Therefore, the value of one- their float falls below $75 million connection with the intended takedown,
subsequent to the effective date of the the registrant calculates its public float
third of a registrant’s float during the
Form S–3 but prior to the update as of a date within 60 days prior to the
period that a shelf registration statement
required under Section 10(a)(3) of the anticipated date of sale, pursuant to
is effective may, at any given time, be Securities Act, we believe it is Instruction 1 to new General Instruction
much greater than at the time the appropriate to provide issuers I.B.6. Calculating that its public float
registration statement was initially filed. registering on Form S–3 pursuant to has risen to $30 million, the registrant
Registrants may therefore benefit from new General Instruction I.B.6. the same determines that the total market value of
increases in the size of their public float flexibility if their float increases to a all sales effected pursuant to new
during the time that the registration level that equals or exceeds $75 million General Instruction I.B.6. over the past
statement is effective. Conversely, the subsequent to the effective date of their year, including the intended sale, may
amount of securities that an issuer is Form S–3 without the additional burden not exceed $10 million, or one-third of
permitted to sell at any given time may of filing a new Form S–3 registration the registrant’s float. Since the registrant
also decrease if the issuer’s public float statement. Therefore, we are adopting has conducted no prior securities
contracts. It is important to note, an instruction to I.B.6. that lifts the one- offerings on Form S–3 pursuant to new
however, that a contraction in a third cap on additional sales in the General Instruction I.B.6., it is able to
registrant’s float, such that the value of event that the registrant’s float increases sell the entire $10 million off the Form
one-third of the float decreases from the to $75 million or more subsequent to the S–3.
time the registration statement was effective date of the registration Assuming that it sold the entire $10
initially filed, would not necessarily run statement.68 Of course, pursuant to Rule million of securities in March 2009, the
afoul of the cap because the relevant 401 under the Securities Act, registrants registrant in September 2009 once again
point in time for determining whether a are also required to recompute their contemplates a takedown off the shelf.
registrant has exceeded the threshold is public float each time an amendment to It determines that its public float (as
the time of sale. If the sale of securities, the Form S–3 is filed for the purpose of calculated pursuant to Instruction 1 to
together with all securities sold in the updating the registration statement in new General Instruction I.B.6.) has again
preceding period of 12 calendar months, accordance with Section 10(a)(3) of the risen, this time to $54 million. Because
does not exceed one-third of the Securities Act—typically when an one-third of $54 million is $18 million,
registrant’s float calculated within 60 annual report on Form 10-K is filed. In the registrant is now able to sell
days of the sale, then the transaction the event that the registrant’s public additional securities in accordance with
float as of the date of the filing of the new General Instruction I.B.6(a), even
would not violate new General
annual report is less than $75 million, though in March 2009 it took down the
Instruction I.B.6. to Form S–3 even if
the one-third cap will be reimposed for equivalent of what was then the entire
the registrant’s public float later drops
all subsequent sales made pursuant to one-third of its float. However, because
to a level such that the prior sale now new General Instruction I.B.6. and will
accounts for over one-third of the new the registrant has already sold $10
remain in place until the registrant’s million worth of its securities within the
lower float.66 To keep track of the float equals or exceeds $75 million.
securities sold under General 12 calendar months prior to the
The following examples illustrate contemplated sale, the registrant may
Instruction I.B.6., the revised how the new Instruction will operate.69 sell no more than $8 million of
instructions to Form S–3 require For purposes of these examples, we are additional securities at this time ($18
registrants to disclose in each assuming that the hypothetical million minus $10 million of securities
prospectus filed with the Commission registrants satisfy the registrant previously sold).
their updated calculation of public float eligibility requirements in General In December 2009, the registrant
and the amount of securities offered Instruction I.A. of Form S–3, are not determines that its public float has risen
pursuant to this instruction during the shell companies, and have at least one to $78 million. To this point, assuming
prior 12 calendar month period that class of common equity securities listed it has only sold an aggregate of $18
and registered on a national securities million of its securities pursuant to the
66 Along these lines, under the amendments exchange. subject Form S–3 as described above, it
registrants will be able to sell up to the equivalent
of the full one-third of their public float Example A has $32 million of securities remaining
immediately following the effective date of their on the registration statement and
On January 1, 2009, a registrant with
registration statement, provided that there were no potentially available for takedown (the
prior sales pursuant to new General Instruction a public float of $25 million files a shelf
registration statement on Form S–3 total amount registered of $50 million,
I.B.6. of Form S–3. This is consistent with Rule
415(a)(1)(x), which was amended in 2005 to allow pursuant to new General Instruction less the $18 million previously sold).
primary offerings on Form S–3 or Form F–3 to I.B.6. intending to register the offer and
occur immediately after effectiveness of a shelf 70 Although only one-third of the public float may
registration statement. Release No. 33–8591. be sold in any year, a company may register a larger
67 Instruction 7 to new General Instruction I.B.6.

Assuming that the sale of the entire one-third of amount. Release No. 33–8591 at 44774–5
68 Instruction 3 to new General Instruction I.B.6.
public float allotted under the new form eligibility (discussing the adoption of an amendment to Rule
rules complied with the rule at the time of the of Form S–3. 415 that eliminated limits on the amount of
takedown, the subsequent contraction in the 69 The examples that follow are for illustrative securities that may be registered on Form S–3 or
registrant’s public float will not invalidate this prior purposes only and are not intended to be indicative Form F–3 under Rule 415(a)(1)(x) and Rule
sale. of actual market activity. 415(a)(1)(ix)).
Because one-third of $78 million is $26 registrant contemplates an additional I.B.6., $5,550,000 is the value of the
million, and the registrant has already takedown. To determine the amount of outstanding notes that have not yet been
sold $18 million within the previous securities that the registrant may sell converted. Adding this to the value of
year, new General Instruction I.B.6(a) under General Instruction I.B.6. in the the notes that have already been
will, in most circumstances, prohibit the anticipated offering, the registrant must converted results in a total value of
registrant from selling more than an know its current public float and must $11,105,555 having been issued under
additional $8 million of securities in the calculate the aggregate market value of this Form S–3.
latest offering. However, under all securities sold in the last year on To determine the amount of
Instruction 3 to new General Instruction Form S–3 pursuant to General additional securities that the registrant
I.B.6., the registrant is no longer subject Instruction I.B.6. Instruction 2 to new may sell under General Instruction
to the one-third cap on annual sales General Instruction I.B.6. requires that I.B.6., the registrant should add the
because its float has exceeded $75 the registrant compute the market value value of the notes issued ($11,105,555)
million. If it chooses, the registrant may of convertible debt securities sold under plus the value of all other securities sold
sell the entire $32 million of securities I.B.6. by reference to the value of the by the registrant pursuant to Instruction
remaining on the registration statement underlying common stock rather than I.B.6. during the preceding 12 calendar
all at once or in separate tranches at any the amount for which the debt securities months. If this amount is less than one-
time until the company next updates the were sold. With respect to the notes that third of the registrant’s current public
registration statement pursuant to were sold and have been converted, the float, it may sell additional securities
Section 10(a)(3) by filing its Form 10-K. aggregate market value of the underlying with a value up to, but not greater than,
This will be the case even if the common stock is calculated by the difference between one-third of its
registrant’s float subsequently falls multiplying the number of common current public float and the value of all
below $75 million before it files that shares into which the outstanding securities sold by it pursuant to
Form 10-K, at which time the registrant convertible securities were converted Instruction I.B.6. during the preceding
is required to recompute its public float times the market price on the day of 12 calendar months.
in accordance with Rule 401. In the conversion. With respect to the notes Example C
event that the registrant’s public float as that were sold but have not yet been
of the date of that Form 10-K filing is converted, the aggregate market value of A registrant has an effective
less than $75 million, the one-third cap the underlying common stock is registration statement on Form S–3,
will be reimposed for all subsequent calculated by multiplying the maximum filed pursuant to new General
sales made pursuant to new General number of common shares into which Instruction I.B.6., through which it
Instruction I.B.6. and will remain in the notes are convertible as of a date intends to conduct shelf offerings of its
place until the registrant’s float equals within 60 days prior to the anticipated securities. At the time of its first shelf
or exceeds $75 million. sale by the per share market price of the takedown, the registrant’s public float is
registrant’s equity used for purposes of equal to $21 million (which means that
Example B the maximum amount available to be
determining its current float.71
A registrant has 12 million shares of In this example, assume that the sold under the one-third cap would be
voting common equity outstanding held registrant has a current per share stock $7 million). Based on new General
by nonaffiliates. The market price of this price of $5.55. If half of the notes Instruction I.B.6(a), the registrant sells
stock is $5 per share, so the registrant converted into common stock while the $3 million of its debt securities. Six
has a public float of $60 million. The per share market price was $5.00 ($4.50 months later, the registrant’s public float
registrant has an effective Form S–3 discount), then, for purposes of has decreased to $9 million. The
shelf registration statement filed in Instruction 2 to new General Instruction registrant wishes to conduct an
reliance on new General Instruction I.B.6., the value of that prior issuance is additional takedown of debt securities
I.B.6. of Form S–3, pursuant to which $5,555,555 (half of the notes divided by off the shelf but, because of the
the registrant wants to issue $10 million the discounted conversion price of reduction in its float, it is prohibited
of convertible debt securities which will $4.50 and then multiplied by $5, the from doing so. This is because with a
be convertible into common stock at a market price on the day of conversion). public float of $9 million, General
10% discount to the market price of the As for the notes that have not yet been Instruction I.B.6(a) only allows the
common stock. Pursuant to Instruction converted, the aggregate market value of registrant to sell a maximum of $3
2 to new General Instruction I.B.6., the the underlying common stock is million worth of securities (one-third of
amount of securities issued is measured determined by calculating the number $9 million) pursuant to the registration
by reference to the value of the of shares that may be received upon statement during the prior period of 12
underlying common stock rather than conversion and multiplying that by the calendar months that ends on the date
the amount for which the debt securities current market value of $5.55. of the contemplated sale. However, the
will be sold. At the 10% discount, the Therefore, the outstanding note amount registrant has already sold securities
conversion price is $4.50 and, as a ($5 million) is divided by the discount valued (for purposes of new General
result, 2,222,222 shares currently Instruction I.B.6.) at $3 million in the 6
conversion price ($5), resulting in
underlie the $10 million of convertible months prior to the contemplated sale
1,000,000 shares and this amount is
debt. Because the current market price and so must wait until at least one full
then multiplied by the current market
of those underlying shares is $5 per year has passed since the $3 million sale
value of $5.55. Thus, for purposes of
share, for purposes of General of securities to undertake another
Instruction 2 to new General Instruction
Instruction I.B.6. the value of the offering off the Form S–3 unless its float
securities being offered is $11,111,110 71 The date chosen by the registrant for increases. Note that although the
(2,222,222 shares at $5 per share), determination of the maximum number of shares registrant’s float does not allow
which is less than the $20 million underlying the convertible notes must be the same additional sales, the $3 million
allowed by the one-third cap (one-third date that the registrant chooses for determining its takedown of securities 6 months prior
market price in connection with the calculation of
of $60 million). public float pursuant to new General Instruction
does not violate the one-third cap
After the convertible debt securities I.B.6. See Instruction 5 to new General Instruction because, at the time of that prior sale,
are sold and are outstanding, the I.B.6. the registrant’s float was $21 million.
Example D million of common stock underlying the shell company that cannot meet the $75
Pursuant to new General Instruction convertible notes). million float criterion but otherwise
I.B.6., a registrant with a public float of To calculate the value of the warrants, satisfies the registrant requirements of
$48 million files a Form S–3, which the which are derivative securities, Form S–3 will become eligible to use
registrant intends to use as a universal Instruction 2 to General Instruction Form S–3 to register primary offerings of
shelf registration statement to sell up to I.B.6. requires that the registrant its securities, provided that:
$100 million of debt or equity securities, calculate the value of the shares • It has not been a shell company for
or a combination of both at any time or underlying the warrants in lieu of the at least 12 calendar months;74
from time to time. market value of the warrants. Under the • It has filed information that would
After the registration statement is terms of the warrants, the warrants are be required in a registration statement
declared effective, the registrant decides exercisable for 10,000 shares at an on Form 10 or Form 20–F, as applicable,
to do a takedown off the shelf exercise price of $5 per share. to register a class of securities under
comprised of convertible promissory Instruction 2 to General Instruction Section 12 of the Exchange Act;75 and
notes and warrants to purchase to I.B.6. states that the aggregate market • It has been timely reporting for 12
common stock. The notes are value of the underlying equity shall be calendar months.76
convertible into shares of common stock calculated by multiplying the maximum Ordinarily, the information required
at a 50% discount to the market price number of common equity shares into to be filed would be in a current report
of the common stock. The warrants are which the derivative securities are on Form 8–K, reporting completion of
exercisable for shares of common stock convertible or for which they are the transaction that caused it to cease
at an exercise price equal to $5 per exercisable, as of a date within 60 days being a shell company.77 In other cases,
share. Because the registrant’s float is prior to the date of sale, by the same per the information may be filed in a Form
$48 million, it may sell up to $16 share market price of the registrant’s 10 or Form 20–F. Consistent with the
million of securities (one-third of $48 equity used for purposes of calculating current registrant eligibility rules of
million) pursuant to General Instruction the registrant’s float. Assuming that the Form S–3 that require at least 12
I.B.6. The registrant wants to do a market price of the registrant’s stock is calendar months of timely reporting, the
takedown of $1 million in convertible $2 per share, the value of the shares 12 calendar-month delay under the new
promissory notes. The registrant intends underlying the warrants is $20,000 rules is intended to provide investors in
to issue the notes along with warrants (10,000 shares multiplied by $2 per the former shell company with the
to purchase an additional 10,000 shares share). Because the underlying value of benefit of disclosure over a full 12-
of its common stock. the convertible notes is $2 million and month period in the newly structured
In order to determine if this sale is the underlying value of the warrants is entity prior to its use of Form S–3 for
permissible under General Instruction $20,000, the intended sale has a value primary securities offerings.
I.B.6., the registrant must calculate the of $2,020,000 and does not exceed the Commenters held contrasting
amount of securities it has sold one-third cap (of $16 million). opinions of our proposal to exclude
pursuant to General Instruction I.B.6. in 3. Exclusion of Shell Companies shell companies 78 and the requirement
the previous 12 months and add this to that former shell companies may not
In accordance with our desire to rely on General Instruction I.B.6. to
the value of the securities in the expand Form S–3 eligibility consistent
intended sale. If the combined value is with the protection of investors, the Stock Definition for Purposes of Blank Check Rule,
$16 million or less, it may proceed with expanded eligibility rules specifically Release No. 33–7024 (Oct. 25, 1993) [58 FR 58099].
the sale. exclude shell companies, which will be 74 Similarly, Form S–8 is not available to shell
Assume that the registrant has not companies or to former shell companies until 60
prohibited from registering securities in
sold any securities pursuant to the days after they have ceased being shell companies
primary offerings on Form S–3 unless and have filed information that would be required
Instruction I.B.6. in the previous 12
they meet the minimum $75 million in a registration statement on Form 10 or Form 20-
months. To determine the value of the
float threshold of General Instruction F, as applicable, to register a class of securities
convertible promissory notes, the under Section 12 of the Exchange Act. Release No.
I.B.1.72 While we are not passing on the
registrant is required by Instruction 2 to 33–8587. Unlike the eligibility rules of Form S–8,
relative merits of shell companies and however, a company must be reporting for at least
General Instruction I.B.6. to calculate
we recognize that these entities are used 12 calendar months before it is eligible under any
the value of the shares underlying the
for many legitimate business purposes, criteria to use Form S–3. Therefore, instead of the
convertible notes. The notes are 60-day delay required by Form S–8, it is more
we have repeatedly stated our belief that
convertible into shares of common stock appropriate for a shell company to be prohibited
these entities may give rise to disclosure from using the new provisions of S–3 and F–3 until
at a 50% discount to the market price
abuses.73 Under the final rules, a former at least 12 calendar months after it ceases being a
of the common stock. Assuming that the shell company.
market price of the common stock is $2 72 This prohibition is intended to apply equally 75 This information is collectively described as
per share, the notes are convertible as to ‘‘blank check companies,’’ as such entities are ‘‘Form 10 information.’’ See Instruction 4 to new
follows: $1 million (the price of the defined in Rule 419 of the Securities Act. However, General Instruction I.B.6(b).
notes) divided by 1 (50% of the market because we believe that the definition of ‘‘shell 76 New General Instruction I.B.6(b) of Form S–3
company’’ under Rule 405 is expansive enough to addresses the requirements pertaining to former
price of the common stock) is equal to encompass blank check companies for purposes of shell companies.
1 million shares of common stock that excluding them from S–3 eligibility under new 77 Items 2.01(f) and 5.01(a)(8) of Form 8–K require
the purchasers will receive upon General Instruction I.B.6., we do not exclude them a company in a transaction where the company
conversion. Since the market price of separately. See Use of Form S–8 and Form 8–K by ceases being a shell company to file a current report
Shell Companies, Release No. 33–8407 (Apr. 15, on Form 8–K containing the information (or
the stock is $2 per share, the value of 2004) [69 FR 21650], at n. 20: identifying the previous filing in which the
the 1 million shares is $2 million (1 We believe that under today’s proposals all blank information is included) that would be required in
million shares at $2 per share). check companies as defined in Rule 419 would be a registration statement on Form 10 to register a
Therefore, the value of the considered shell companies until they acquire an class of securities under Section 12 of the Exchange
accompanying warrants for 10,000 operating business or more than nominal assets. Not Act.
all shell companies, however, would be classified 78 See letters from the ABA and Morrison &
shares must be less than $14 million for as blank check companies under Rule 419. Foerster (supporting the exclusion of shell
the sale to be within the one-third cap 73 See, for example, Release No. 33–8591; Release companies) and letter from M. Baum (opposing the
(one-third of $48 million, less the $2 No. 33–8587; Release No. 33–7393; and Penny exclusion).
Form S–3 until at least one year has the Exchange Act.84 In addition, like the by domestic issuers on Form S–3
elapsed since they ceased being shell Form S–3 registration statement, Form consistent with investor protection.90
companies.79 Because of the limited and F–3 limits the ability of registrants to In order to maintain the rough
less comprehensive public information conduct primary offerings on the form equivalency between Form S–3 and
available regarding shell companies, we unless their public float equals or Form F–3, which have had the same
are adopting General Instruction I.B.6(b) exceeds a particular threshold.85 public float criteria for primary offering
as proposed to ensure that investors eligibility since 1994,91 we are adopting
As with Form S–3, the Commission
have the benefit of one full year of amendments to Form F–3 that are
has attempted to limit the availability of
disclosure once the entity ceases to be comparable to our changes to Form
Form F–3 for primary offerings to a class
a shell company. In this regard, S–3. Specifically, new General
of companies believed to provide a
requiring one year of timely reporting Instruction I.B.5. to Form F–3 will allow
steady stream of corporate disclosure
puts our treatment of former shell foreign private issuers with less than
that is broadly disseminated to, and
companies on par with the eligibility $75 million in worldwide public float to
digested by, the marketplace. When the
register primary offerings of their
requirements of any other new company Commission adopted Form F–3 in
securities on Form F–3, provided:
wishing to use Form S–3.80 1982,86 it set the public float test for • They meet the other registrant
foreign issuers at $300 million in eligibility conditions for the use of Form
C. Amendments to Form F–3
response to public comment F–3;
Form F–3, which was designed to recommending that the numerical test • The class of securities to be offered
parallel Form S–3,81 is the equivalent for foreign issuers be much greater than is listed and registered on a national
short-form registration form available for domestic registrants.87 In 1994, securities exchange;
for use by ‘‘foreign private issuers’’82 to however, the Commission reduced this • They do not sell more than the
register securities offerings under the threshold to $75 million in order to equivalent of one-third of their public
Securities Act. Similar to Form S–3, extend to foreign issuers the benefits of float in primary offerings under General
Form F–3 is available to foreign private short-form registration ‘‘to the same Instruction I.B.5. on Form F–3 over any
issuers that satisfy the form’s registrant extent available to domestic period of 12 calendar months; and
requirements and at least one of the companies.’’ 88 In explaining its • They are not shell companies and
form’s transaction requirements.83 The rationale, the Commission stated: have not been shell companies for at
Form F–3 registrant requirements are [Our] experience with foreign issuers, as least 12 calendar months before filing
similar to Form S–3 and generally relate well as the internationalization of securities the registration statement.
to a registrant’s reporting history under markets, indicates that foreign issuers with a II. Paperwork Reduction Act
public float of $75 million or more have a
79 See letters from the ABA and Morrison & degree of analyst following in their world- A. Background
Foerster (supporting the one-year delay) and letters wide markets comparable to similarly-sized The new rules and amendments to
from Feldman Weinstein and Williams Securities domestic companies.89 Forms S–3 and F–3 contain ‘‘collection
(objecting to the one-year delay and contrasting it
to the 90-day delay the Commission proposed in As a result, the Commission believed of information’’ requirements within the
Release No. 33–8813 (July 5, 2007) [72 FR 36822] that expanding Form F–3 eligibility by meaning of the Paperwork Reduction
in order for shareholders of former shell companies
lowering the float standard to $75 Act of 1995.92 We published a notice
to resell their securities in reliance on Rule 144). requesting comment on the collection of
This analogy to Rule 144 is inapposite. A delay of million would give foreign issuers the
at least 90 days under Rule 144, versus one year same capital raising advantages enjoyed information requirements in the
under Form S–3, is not unique to shell companies. Proposing Release and submitted these
Form S–3 requires any issuer to have been timely 84 One difference is that, unlike Form S–3,
to the Office of Management and Budget
reporting for at least one year, while Rule 144 for review and approval in accordance
requires that an issuer be subject to the reporting General Instruction I.A.1. of Form F–3 requires that
registrants have previously filed at least one annual with the Paperwork Reduction Act.93
requirements for at least 90 days before an affiliate
of a reporting issuer is able to sell unrestricted report on Form 20–F, Form 10–K or, in certain The titles for the collection of
securities under the rule. cases, Form 40–F under the Exchange Act. For an information are:
80 See General Instruction I.A.3. of Form S–3. explanation of this difference, see Simplification of ‘‘Form S–3’’ (OMB Control No. 3235–
Registration and Reporting Requirements for
81 Integrated Disclosure System for Foreign
Foreign Companies; Safe Harbors for Public 0073);
Private Issuers, Release No. 33–6360 (Nov. 20, 1981) Announcements of Unregistered Offerings and ‘‘Form F–3’’ (OMB Control No. 3235–
[46 FR 58511], at 7: Broker-Dealer Research Reports, Release No. 33– 0256);
The three forms proposed under the Securities 7029 (Nov. 3, 1993) [58 FR 60307], at 3; and
Act roughly parallel proposed Forms S–1, S–2 and Simplification of Registration and Reporting 90 The Commission stated:
S–3 in the domestic integration system, but the Requirements for Foreign Companies; Safe Harbors
foreign system is based on the Form 20–F instead for Public Announcements of Unregistered These provisions are part of the ongoing efforts
of the Form 10–K and annual report to shareholders of the Commission to ease the transition of foreign
Offerings and Broker-Dealer Research Reports,
as the uniform disclosure package. companies into the U.S. disclosure system, enhance
Release No. 33–7053 (Apr. 19, 1994) [59 FR 21644],
82 The term ‘‘foreign private issuer’’ is defined in the efficiencies of the registration and reporting
at 2 (explaining that the requirement was adopted
Rule 405 of the Securities Act to mean any foreign processes and lower costs of compliance, where
‘‘in order to ensure that information regarding the
issuer other than a foreign government except an consistent with investor protection.
issuer is available to the market’’).
issuer meeting the following conditions: 85 General Instruction I.B.1. of Form F–3. Note
Release No. 33–7053, at 2.
91 The Commission’s adoption of the ‘‘Securities
(1) More than 50 percent of the outstanding that, unlike Form S–3, the Instruction makes
voting securities of such issuer are directly or Offering Reform’’ amendments in July 2005 is a
reference to the registrant’s ‘‘worldwide’’ public
indirectly owned of record by residents of the recent instance where parallel changes were made
float.
United States; and 86 Adoption of Foreign Issuer Integrated
to Form S–3 and Form F–3. See Release No. 33–
8591. For example, the 2005 amendments provided
(2) Any of the following: Disclosure System, Release No. 33–6437 (Nov. 19, that the ability to conduct an automatic shelf
(i) The majority of the executive officers or 1982) [47 FR 54764]. offering under both Form S–3 and Form F–3 is
directors are United States citizens or residents; 87 Release No. 33–7029, at 2.
limited to registrants that qualify as ‘‘well-known
(ii) More than 50 percent of the assets of the 88 Release No. 33–7053, at 2. In the same seasoned issuers’’ under Rule 405 of the Securities
issuer are located in the United States; or rulemaking, the Commission also reduced the Act. We note the minimum public float threshold
(iii) The business of the issuer is administered reporting history requirement in Form F–3 from 36 required to be a well-known seasoned issuer is the
principally in the United States. to 12 months to match the eligibility criteria same for both Form S–3 and Form F–3.
83 General Instruction I. of Form F–3: ‘‘Eligibility applicable to domestic companies using Form S–3. 92 44 U.S.C. 3501 et seq.
Requirements for Use of Form F–3.’’ 89 Release No. 33–7029, at 2. 93 44 U.S.C. 3507(d) and 5 CFR 1320.11.
‘‘Form S–1’’ 94 (OMB Control No. required by these forms, we do not registration forms instead of through
3235–0065); and believe that the amendments will private placements and, therefore, we
‘‘Form F–1’’ 95 (OMB Control No. impose any new recordkeeping or expect comparatively more Forms S–3
3235–0258). information collection requirements, and F–3 registration statements to be
We adopted existing Forms S–3, S–1, other than those that will be de minimis filed as companies forego private
F–3 and F–1 pursuant to the Securities in nature.96 On a per-response basis, offerings in favor of the public markets.
Act. These forms set forth the disclosure therefore, the amendments should not In order to provide an estimate of the
requirements for registration statements increase or decrease existing disclosure change in the collection of information
that are prepared by eligible issuers to burdens for Form S–3 or Form F–3. burden for purposes of the Paperwork
provide investors with the information However, because we expect that many Reduction Act, our assumption is that
they need to make informed investment companies newly eligible for primary the amendments to Forms S–3 and
decisions in registered offerings. offerings on Forms S–3 and F–3 as a F–3 will result in an overall increase in
Our amendments to Forms S–3 and result of these amendments will choose the number of such forms filed annually
F–3 are intended to allow issuers that to file short-form Form S–3 and Form by eligible companies and an overall
are ineligible to use Forms S–3 and F–3 registration statements in lieu of decrease in the number of Forms S–1
F–3 for primary offerings because they Forms S–1 or F–1, as applicable, we and Forms F–1 filed annually by these
do not meet the forms’ public float believe there will be an aggregate companies. As discussed, however, we
requirements to nevertheless register a decrease in the disclosure burdens do not expect that the incremental
limited amount of securities in primary associated with Forms S–1 and F–1 and increase in the number of all Forms
offerings on Form S–3 or Form F–3, as an increase in the disclosure burdens S–3 and F–3 filed will be roughly equal
applicable, so long as they are not shell associated with Forms S–3 and F–3. The to the incremental decrease in the
companies, they meet the other shift in aggregate disclosure burden number of Forms S–1 and Forms F–1
eligibility requirements of the forms, among these forms will be due entirely filed, because our assumption is that the
and they have at least one class of to the change in the number of annual advantages of shelf registration on Form
common equity securities listed and responses expected with respect to each S–3 and Form F–3 will encourage
registered on a national securities form, as companies previously ineligible financings on these forms that would
exchange. to use Form S–3 and Form F–3 switch otherwise have been carried out through
The hours and costs associated with to these forms for their public offerings exempt offerings or perhaps not at all.
preparing disclosure, filing forms, and and away from Forms S–1 and F–1. Therefore, we believe the amendments
retaining records constitute reporting In addition, because of the anticipated will result in a net increase in the
and cost burdens imposed by the benefits to issuers associated with annual aggregate number of filings on
collection of information. An agency Forms S–3 and F–3, in particular the all Forms S–3, S–1, F–3 and F–1 taken
may not conduct or sponsor, and a lower costs of preparing and filing the together, since the increased number of
person is not required to respond to, a registration statements and the ability to Form S–3 and F–3 filings should exceed
collection of information unless it make delayed and continuous offerings the decreased number of Form S–1 and
displays a currently valid control in response to changing market F–1 filings. Accordingly, we believe the
number. conditions, we think that this will overall net decrease in disclosure
The information collection increase the demand for, and lead to burden that should result from
requirements related to registration more, company filings on Forms S–3 companies changing to the more
statements on Forms S–3, S–1, F–3 and and F–3 than would otherwise have streamlined Forms S–3 and F–3 will be
F–1 are mandatory. There is no been made on Forms S–1 and F–1. That offset to some extent by newly eligible
mandatory retention period for the is, we think that the opportunity for companies filing Forms S–3 and F–3
information disclosed, and the capital raising will be more robust for more frequently than they did Forms
information disclosed would be made many companies because of the S–1 or F–1. However, this offset could
publicly available on the EDGAR filing availability of shelf registration on be lessened in part by the one-third cap
system. Forms S–3 and F–3. We also anticipate on the amount of securities that eligible
B. Summary of Information Collections that many companies newly eligible to companies may sell on Form S–3 and
use Forms S–3 or F–3 will choose to Form F–3 in any period of 12 calendar
Because the amendments that we are
offer their securities directly to the months pursuant to the new form
adopting in this release pertain
public through registration on these eligibility rules.97 Companies that
principally to Forms S–3 and F–3
require more capital but are prohibited
eligibility, rather than to the disclosure 96 Instruction 7 to new General Instruction I.B.6. by this one-third cap from using Form
of Form S–3 and Instruction 7 to new General S–3 and Form F–3 for primary offerings
94 Because our amendments to Form S–3 and
Instruction I.B.5. of Form F–3 require registrants to
Form F–3 are anticipated to affect the annual disclose in each prospectus filed with the
may, as a result, continue to conduct
number of Forms S–1 and Forms F–1 filed, we are Commission their updated calculation of public some offerings on Forms S–1 or F–1 or
including them in the titles of information float and the amount of securities offered on Form through the private markets even though
collections even though we are not amending the S–3 or F–3, as applicable, pursuant to this Forms S–3 and F–3 are preferable.
substance of the collection in this release. Note that instruction during the prior 12 calendar months.
the Proposing Release also included our estimates Although this is a new disclosure requirement for C. Summary of Comments and
with respect to Form SB–2 (OMB Control No. 3235– Forms S–3 and F–3, we think that the registrant’s Revisions to Amendments
0418), in addition to Forms S–3, F–3, S–1 and F– determination of its public float and the amount of
1. However, Release No. 33–8876, which was securities offered in the prior twelve-month period None of the commenters addressed
adopted by the Commission on November 15, 2007, should be readily accessible and easily calculable. our request for comment on the
will eliminate Form SB–2 when it becomes In addition, we note that registrants are already
effective. Therefore, our revised Paperwork
Paperwork Reduction Act analysis
required to ascertain their public float at the time
Reduction Act estimates do not include new they file a registration statement for a primary contained in the Proposing Release. We
estimates for Form SB–2. As discussed in greater offering on Form S–3 or Form F–3. See General
detail below, we have taken the elimination of Form Instruction I.B.1. of Form S–3 and General 97 As previously discussed, new General
SB–2 into consideration for purposes of revising our Instruction I.B.1. of Form F–3. As such, we Instructions I.B.6. of Form S–3 and I.B.5. of Form
estimates of the burden associated with Forms anticipate that the total time, effort and financial F–3 prohibit registrants from selling more than the
S–3, S–1 and F–1. resources to generate and maintain this information equivalent of one-third of their public float in any
95 Id. will be insignificant for each registrant. period of 12-calendar months.
are nevertheless revising our Paperwork mentioned, however, the estimated some Forms S–1 and F–1 will continue
Reduction Act estimates in light of decreases are wholly attributable to our to be filed annually by these companies.
certain modifications we have made to assumptions, discussed in Section II.B. To reflect this, we have taken the
the final rules as opposed to the above, about how the amendments will number of Forms S–1 and F–1 that were
proposal. influence the behavior of certain issuers filed by these companies in calendar
As proposed, new General Instruction who were formerly ineligible to conduct year 2006 and decreased this number by
I.B.6. of Form S–3 and new General primary offerings on Forms S–3 and 90% 105 for each form, for a total
Instruction I.B.5. of Form F–3 would F–3. These issuers are non-shell decrease of 60 filings.106 Therefore, we
have limited the amount of securities companies who satisfy the registrant assume that approximately 60 fewer
eligible companies could sell in eligibility requirements of Form S–3 99 Forms S–1 and F–1 will be filed by all
accordance with these provisions to no or Form F–3,100 as applicable, have at issuers annually as a result of the new
more than the equivalent of 20% of their least one class of common equity amendments. The actual number could
public float over any period of 12 securities listed and registered on a be more or less depending on various
calendar months. In consideration of national securities exchange, and had a factors, including future market
commenters who were concerned that public float of less than $75 million at conditions.
capping issuers at 20% of the value of the end of their last fiscal year. In all, Furthermore, we believe that the
their public float every twelve months we estimate that there were 1,400 companies that we estimate will
would limit the usefulness of these new approximately 1,400 such companies at be affected by the rule change would
rules, we have decided to increase the the end of calendar year 2006 and that have conducted more registered
twelve-month offering threshold to one- they filed a total of 66 registration securities offerings had they been able
third of an issuer’s public float. In light statements on Forms S–1, SB–2 101 and to use Forms S–3 and F–3, because of
of this increase, however, we are F–1 during the twelve months ending the benefits of forward incorporation
adopting a further condition to December 31, 2006.102 To determine the and the ability to utilize shelf
eligibility under new General effect of our amendments on the overall registration to maximize market
Instruction I.B.6. of Form S–3 and new paperwork burden, we have assumed opportunities. We assume that the
General Instruction I.B.5. of Form F–3 that these filings on Forms S–1, SB–2 103 inability of these companies to utilize
that the issuer must have at least one and F–1 would be made instead on Forms S–3 and F–3 limited their
class of common equity securities listed Form S–3 or Form F–3, as applicable, to capacity to access the public securities
and registered on a national securities the extent that the issuers would not be markets and, because of the cost and
exchange. This additional restriction limited by the one-third cap on the lack of flexibility associated with Forms
should help to minimize the potential amount of securities they may sell in S–1, SB–2 and F–1, they either did not
abuses arising from expanded shelf any period of 12 calendar months under file registration statements on Forms
registration because the securities the new rules. Therefore, we assume S–1 SB–2 or F–1, or were limited in the
exchanges, through their listing rules that the Forms S–1 and F–1 filed by the number that they filed. We therefore
and procedures, as well as other subject companies will decrease from believe that the annual number of
requirements, provide an additional the number filed in 2006, but because of responses on Forms S–3 and F–3 for
measure of protection for investors. the one-third cap on sales, will not purposes of the Paperwork Reduction
decrease to 0.104 Instead, we believe that Act will increase by an increment
D. Revised Paperwork Reduction Act
greater than simply the total of 60 fewer
Burden Estimates
99 See n. 37. registration statements on Forms S–1
As discussed in Section II.C. above, 100 See n. 83. and F–1 that we estimate will be filed
we are revising our Paperwork 101 As mentioned, the Commission voted to in future years by the 1,400 companies
Reduction Act burden estimates that eliminate Form SB–2 on November 15, 2007. who would qualify for primary offerings
were originally submitted to the Office Release No. 33–8876. However, because some of the
companies who filed on Form SB–2 in 2006 will
on Forms S–3 and F–3 as a result of our
of Management and Budget. Our revised become eligible to use Form S–3 under the new amendments. We further assume that
estimates reflect the changes that we amendments to the form, we factor these Form this increase in Forms S–3 and F–3 will
have made to the final rules as SB–2 filings into our estimate of the number of be mitigated to some degree by the one-
compared to the proposal. additional Forms S–3 that will be filed in 2008 as
a result of the rule change.
third cap on securities sold in any
For purposes of the Paperwork 102 The total of 66 filings is comprised of 37 period of 12 calendar months under the
Reduction Act, we now estimate the Forms S–1; 26 Forms SB–2; and 3 Forms F–1. new rules, which may limit the
annual decrease in the paperwork 103 See n. 101.
burden for companies to comply with 104 Because it has been eliminated, the number of become eligible to use Form S–3 under the new
our collection of information new Forms SB–2 will, in fact, decrease to 0 after rules will include the number of Forms SB–2 filed
requirements to be approximately Release No. 33–8876 goes into effect. Therefore, in 2006 by qualifying companies (26) and will
companies that previously filed Forms SB–2, but therefore total 63 filings (37 Forms S–1 plus 26
10,375 hours of in-house company who are now eligible to use Form S–3 under new Forms SB–2).
personnel time and to be approximately General Instruction I.B.6. of the form, would not be 105 In the Proposing Release, this decrease was
$12,450,000 for the services of outside able to fall back to Form SB–2 in the event that they 85% for each form but has been raised to 90% in
professionals.98 These estimates include exceed the one-third cap on Form S–3. Instead, to light of the 12-month offering restriction on sales
the time and the cost of preparing and the extent they wanted to conduct an additional being raised from 20% to one-third of a company’s
registered public offering, they would likely have to public float. In other words, because the ceiling has
reviewing disclosure, filing documents file on Form S–1. To reflect this, we have taken the been raised, eligible companies will be able to
and retaining records. Our number of 2006 Form SB–2 filings by companies expand the size and/or frequency of their offerings
methodologies for deriving the above that we estimate will become eligible on Form on Forms S–3 and F–3 and, consequently, will have
estimates are discussed below. S–3 under the new rules and added this to the less need to file alternate registration forms.
number of Forms S–1 filed in 2006 by companies Therefore, the number of filings on these forms
Our estimates represent the burden who qualify to use Form S–3 for primary offerings should decrease even more than was predicted in
for all issuers, both large and small. As under the new rules. This allows us to estimate how the Proposing Release.
many total Forms S–1 will be filed by domestic 106 This number deducts 90% from the totals for
98 For administrative convenience, the totals companies that exceed the one-third cap but still each of the registration forms, as follows: Form
related to the paperwork burden hours have been wish to conduct registered public offerings. So, for S–1 (90% of 63, rounded up, equals 57) and Form
rounded to the nearest whole number and the cost purposes of our baseline assumptions, the number F–1 (90% of 3, rounded up, equals 3). Adding these
totals have been rounded to the nearest thousand. of Forms S–1 filed in 2006 by companies who will together, the combined reduction totals 60 filings.
frequency and volume of additional factors, including future market recent Commission rulemaking,109 we
securities offerings on Form S–3 and conditions. estimate that 25% of the burden of
Form F–3. To reflect this, we have taken To calculate the total effect of the preparation of Forms S–3, S–1, F–3 and
the total of 60 fewer Forms S–1 and amendments on the overall compliance F–1 is carried by the company internally
F–1 that we think will be filed by these burden for all issuers, large and small, and that 75% of the burden is carried by
companies in future years as a result of we subtracted the burden associated outside professionals retained by the
the amendments (because of the with the 60 fewer Forms S–1 and F–1 issuer at an average cost of $400 per
availability of Forms S–3 and F–3) and registration statements that we expect hour.110 The portion of the burden
will be filed annually in the future and carried by outside professionals is
increased this number by 15% 107 for
added the burden associated with our reflected as a cost, while the portion of
each form, for a total increase of 70
estimate of 70 additional Forms S–3 and the burden carried by the company
filings.108 Therefore, we assume that F–3 filed annually as a result of the
approximately 70 additional Forms S–3 internally is reflected in hours.
amendments. We used current Office of
and F–3 will be filed annually over and Management and Budget estimates in The table below illustrates our
above the number of total Forms S–3 our calculation of the hours and cost estimates concerning the incremental
and F–3 filed by all issuers, large and burden associated with preparing, annual compliance burden in the
small, as a result of the new reviewing and filing each of these forms. collection of information in hours and
amendments. The actual number could Consistent with current Office of cost for Forms S–3, S–1, F–3 and F–1 as
be more or less depending on various Management and Budget estimates and a result of these amendments.
Estimated
change in an- Hours/ Incremental 75% Profes- $400/hr Profes-
Form 25% Issuer
nual reform 111 burden sional sional cost
sponses
(A) (B) (C)=(A)*(B) (D)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400
S–3 ..................................................... 66 459 30,294 7,573.50 22,720.50 $9,088,200

S–1 ..................................................... (57) 1,176 (67,032) (16,758) (50,274) (20,109,600)
F–3 ..................................................... 4 166 664 166 498 199,200
F–1 ..................................................... (3) 1,809 (5,427) (1,356.75) (4,070.25) (1,628,100)
Total ............................................ ...................... .................... (41,501) (10,375.25) (31,125.75) ($12,450,300)
III. Cost-Benefit Analysis register primary offerings of their B. Benefits

A. Summary of Amendments securities on Forms S–3 and F–3,
provided: The ability to conduct primary
We are adopting revisions to the offerings on Forms S–3 and F–3 confers
transaction eligibility requirements of • They meet the other registrant significant advantages on eligible
Forms S–3 and F–3 that will allow eligibility conditions for the use of Form companies in terms of cost savings and
companies to take advantage of these S–3 or Form F–3, as applicable; capital formation. The time required to
forms for primary offerings regardless of • They have at least one class of prepare Form S–3 or Form
the size of their public float. Whereas common equity securities listed and F–3 is significantly lower than that
secondary offerings may be registered registered on a national securities required for Forms S–1 and F–1.112 This
on Forms S–3 and F–3 irrespective of exchange; difference is magnified by the fact that
float, the instructions to Forms S–3 and Form S–3 and Form F–3, unlike Forms
• They do not sell more than the
F–3 have, before now, restricted the use S–1 and F–1, permit registrants to
equivalent of one-third of their public
of these forms for primary securities forward incorporate required
float in primary offerings under General
offerings to companies that have a information by reference to disclosure
Instruction I.B.6. of Form S–3 or under in their Exchange Act filings. Therefore,
minimum of $75 million in public float
General Instruction I.B.5. of Form F–3, Form S–3 and Form F–3 registration
calculated within 60 days prior to the
date the registration statement is filed. as applicable, over the previous period statements can be automatically
To expand the availability of Forms S– of 12 calendar months; and updated. This allows such companies to
3 and F–3 for primary offerings to more • They are not shell companies and avoid additional delays and
companies, we are adopting revisions to have not been shell companies for at interruptions in the offering process and
these forms that allow companies with least 12 calendar months before filing can reduce the costs associated with
less than $75 million in public float to the registration statement. preparing and filing post-effective
107 In the Proposing Release, this increase was S–1 and F–1 filed by the subject companies in 2006 110 In connection with other recent rulemakings,
10% for each form but has been raised to 15% in that we believe will be filed on Forms S–3 and F– we have had discussions with several private law
light of the 12-month offering restriction on sales 3 by these companies in future years. The total is firms to estimate an hourly rate of $400 as the
being raised from 20% to one-third of a company’s an estimated increase of 70 Forms S–3 and F–3 average cost of outside professionals that assist
public float. That is, because the ceiling has been (comprised of 66 additional Forms S–3 and four issuers in preparing disclosures and conducting
raised, eligible companies will be able to conduct registered offerings.
additional Forms F–3).
somewhat larger and/or more frequent offerings on 109 For discussions of the relative burden of
111 This reflects current Office of Management
Form S–3 and F–3. and Budget estimates.

108 This number adds a 15% premium to the preparation of registration statements under the 112 The Office of Management and Budget
individual totals for each of the registration forms, Securities Act allocated between issuers internally currently estimates the time required to prepare
as follows: Form S–1 (15% of 57, rounded up, and their outside advisers, see Executive Form S–3 and Form F–3 as 459 hours and 166
equals 9) and Form F–1 (15% of 3, rounded up, Compensation and Related Person Disclosure, hours, respectively. This is contrasted with current
equals 1). The sum of these increases, which is Release No. 33–8732A (Aug. 29, 2006) [71 FR estimates for Form S–1 and F–1 as 1,176 hours and
equal to 10, is then added to the total of 60 Forms 56225] and Release No. 33–8591. 638 hours, respectively.
amendments to the registration smaller public companies who currently would permit such companies to avail
statement. have fewer financing options than their themselves of periodic takedowns
Overall, we anticipate that the larger counterparts.114 Consequently, we without further Commission action or
expansion of Form S–3 and Form F–3 anticipate that the amendments will prior staff review, concerns have been
eligibility will decrease the aggregate result in smaller issuers raising more raised about the increased potential for
costs of complying with the capital through the public markets fraud and market manipulation.116
Commission’s rules by allowing rather than through exempt offerings Although the Commission would retain
companies previously eligible to use conducted in the domestic and offshore the authority to review registration
only Form S–1 or Form F–1 the use of markets. Investors in these companies statements before declaring them
short-form registration on Form S–3 or will benefit by such companies’ effective, individual takedowns are not
Form F–3, as applicable. Using our improved access to capital on more subject to prior staff review. Under the
estimates prepared for purposes of the favorable terms. In particular, investors current rules, if issuers are instead using
Paperwork Reduction Act, we estimate in smaller public companies may be less Forms S–1 or F–1, they would be
that under the amendments the annual subject to the risk of dilution in the required to file separate registration
decrease in the compliance burden for value of their shares if the companies in statements for each new offering, which
companies to comply with our which they invest are able to meet more would be subject to selective staff
collection of information requirements of their capital needs in the public review before going effective. If these
to be approximately 10,375 hours of in- markets. By selling into the public issuers can instead conduct shelf
house company personnel time (valued markets, these companies may be able to offerings on Form S–3 and Form F–3,
at $1,816,000 113) and to be avoid the substantial pricing discounts there may be some loss of the deterrent
approximately $12,450,000 for the that private investors often demand to effect on the companies’ disclosures in
services of outside professionals. compensate them for the relative connection with each takedown off the
In addition to the benefits associated illiquidity of the restricted shares they shelf because of the lack of prior staff
with the estimated reduction in the time are purchasing.115 review. In addition, the short time
required to prepare Forms S–3 and The public registration of securities horizon of shelf offerings may also
F–3 in lieu of Forms S–1 and F–1, and also provides additional benefits to reduce the time that participating
a company’s ability to forward investors over alternative forms of underwriters have to apply their
incorporate prospectus disclosure by capital raising. To the extent that the independent scrutiny and judgment to
reference, Forms S–3 and F–3 provide amendments lead to an increase in the an issuer’s prospectus disclosure. We
substantial flexibility to companies use of registered offerings through the have also considered the effect the
raising money in the capital markets, use of Form S–3 and Form F–3 as a amendments may have on market
which ultimately may reduce the cost of source of financing and a resulting demand for the securities of smaller
capital for such companies and facilitate decrease in private market alternatives, public companies offered on Form S–3
their access to additional sources of investors in those offerings will benefit and Form F–3. If there is a perception
investment. Companies that are eligible from the additional investor protections that smaller public company securities
to use Form S–3 or Form F–3 for associated with public registration. offered through shelf registration
primary offerings are able to conduct Notwithstanding our belief regarding statements are more prone to abuse
delayed and continuous registered the beneficial effects of the because of the lack of involvement by
offerings under Rule 415 of the amendments, however, any resulting the Commission staff, this may erode
Securities Act, which provides benefits that accrue to companies and investor confidence in these offerings
considerable flexibility in accessing the their investors as a result of these generally. This could, in turn, make it
public securities markets from time to amendments will depend on future more difficult for these companies to
time in response to changes in the market conditions and circumstances raise capital and significantly negate
market and other factors. Eligible unique to each company. some of the benefits of the rule.
companies are permitted to register C. Costs While we recognize that extending the
securities prior to planning any offering benefits of shelf registration to an
and, once the registration statement is As discussed in Section B. above, we expanded group of companies will limit
effective, offer these securities in one or do not expect that the amendments to the staff’s direct involvement in
more tranches without waiting for Forms S–3 and F–3 will materially takedowns of securities off the shelf and
further Commission action. By having increase companies’ overall compliance could therefore pose some risk to
costs associated with preparing, investors, we believe that the risks are
more control over the timing of their
reviewing and filing these registration justified by the benefits that we
offerings, these companies can take
statements, although there may be some anticipate will accrue by facilitating the
advantage of desired market conditions,
additional costs incurred by companies capital formation efforts of smaller
thus allowing them to raise capital on
to monitor their ongoing compliance public companies. As we have
more favorable terms (such as pricing)
with the one-third sales cap imposed by discussed elsewhere in this release, we
or to obtain lower interest rates on debt.
the amendments. At the same time, the believe these risks have been mitigated
In addition, they can vary certain terms
amendments could result in certain by the emergence of the Internet which,
of the securities being offered upon
additional market costs that are difficult in combination with the Commission’s
short notice, enabling them to more
to quantify. For example, it has been EDGAR database, has greatly enhanced
efficiently meet the competitive suggested that there are risks inherent in
requirements of the public securities the ability of the market to readily digest
allowing smaller public companies to and assimilate public company
markets. We believe that extending shelf take advantage of shelf primary offerings
registration benefits to more companies, information.
on Forms S–3 and F–3. Because this However, in order minimize risks to
in the manner we have chosen, will
facilitate the capital-raising efforts of investors, the amendments include

114 See generally, Chaplinsky and Haushalter,
certain restrictions intended to
Financing Under Extreme Uncertainty: Contract
113 Consistent with recent rulemaking releases, Terms and Returns to Private Investments in Public moderate the impact of expanding
we estimate the value of work performed by the Equity.
company internally at a cost of $175 per hour. 115 Id. 116 See n. 34.
Forms S–3 and F–3 eligibility. These We therefore believe that extending because of their Form S–3 and Form
are: shelf registration benefits to more F–3 ineligibility will now find it cost-
• Excluding shell companies from companies in the manner that we have effective to offer their securities
eligibility; chosen will facilitate the capital-raising domestically in primary offerings on
• Requiring that companies have at efforts of smaller public companies who Form S–3 and Form F–3. If such a
least one class of common equity currently have fewer financing options reallocation occurs, it may also impact
securities listed and registered on a than their larger counterparts.119 securities market professionals, such as
national securities exchange; and Consequently, we anticipate that the finders, brokers and agents, who
• Imposing a cap of one-third of a amendments will lead to efficiencies in specialize in facilitating private
company’s public float on the amount of capital formation, as smaller issuers will securities offerings. The demand for
securities that can be sold into the be able to raise more capital through the these services may shift to the public
market in any period of 12 calendar public markets rather than through markets, where other professionals,
months by eligible issuers on Forms exempt offerings conducted in the such as investment banks that
S–3 and F–3. domestic and offshore markets. underwrite public offerings, have a
We note, however, that monitoring At the same time, we have also comparative advantage.
compliance with the one-third cap may considered the potential that the
be difficult given the lack of staff review amendments might result in certain V. Final Regulatory Flexibility Act
before a shelf offering. additional market costs that could limit Analysis
any efficiencies realized. For example, it This Final Regulatory Flexibility Act
IV. Consideration of Promotion of
has been suggested that extending the Analysis has been prepared in
Efficiency, Competition and Capital
benefits of shelf registration to an accordance with 5 U.S.C. 603. It relates
Formation
expanded group of companies will limit to revisions to the eligibility
Securities Act Section 2(b)117 requires the staff’s direct involvement in requirements for the use of registration
us, when engaging in rulemaking where takedowns of securities off the shelf and statements on Forms S–3 and F–3 to
we are required to consider or could therefore pose some risk to register primary offerings of securities.
determine whether an action is investors. In addition, the short time
necessary or appropriate in the public A. Need for the Amendments
horizon of shelf offerings also may
interest, to consider, in addition to the reduce the time that participating Prior to these amendments, many
protection of investors, whether the underwriters have to apply their smaller public companies have been
action will promote efficiency, independent scrutiny and judgment to ineligible to use Forms S–3 and F–3 to
competition, and capital formation. an issuer’s prospectus disclosure. By register primary offerings of their
We expect the amendments will reducing this staff and underwriter securities because the size of their
increase efficiency and enhance capital oversight, there is a risk that these public float did not satisfy the $75
formation by facilitating the ability of securities offerings may be more million threshold required by these
smaller public companies to access the vulnerable to abuses. Moreover, because forms. Consequently, they have been
capital markets consistent with investor companies with a smaller market unable to take advantage of the
protection. Prior to these amendments, capitalization, as a group, have a important benefits enjoyed by eligible
many companies have been ineligible to comparatively smaller market following companies, the most significant of
use Forms S–3 and F–3 to register than larger, well-seasoned issuers and which is the ability to conduct primary
primary offerings of their securities are more thinly traded, smaller offerings on a delayed and continuous
because the size of their public float did companies’ securities may be more basis. The ability to register securities
not satisfy the $75 million threshold vulnerable to potential manipulative that may be taken off the shelf as
required by these forms. Consequently, practices. We also have considered the needed, without prior staff review,
they have been unable to take advantage effect the amendments may have on provides a powerful tool for capital
of the important benefits enjoyed by market demand for the securities of formation because it allows companies
eligible companies, the most significant smaller public companies offered on the flexibility to take advantage of
of which is the ability to conduct Form S–3 and Form F–3. If there is a desired market conditions efficiently
primary offerings on a delayed and perception that smaller public company and on short notice. As such, eligible
continuous basis. The ability to register securities offered through shelf companies may be able to raise capital
securities that may be taken off the shelf registration statements are more prone more cheaply, quickly, and on more
as needed, without prior staff review, to abuse because of the lack of prior favorable terms than would otherwise
provides a powerful tool for capital involvement by the Commission staff, be the case. Without this source of
formation because it allows companies this may erode investor confidence in financing, smaller public companies
the flexibility to take advantage of these offerings generally. This could, in that are not eligible to register primary
desired market conditions efficiently turn, make it more difficult for these offerings on Form S–3 or Form F–3
and upon short notice. Companies may companies to raise capital and currently have fewer, and less favorable,
be able to raise capital more cheaply, significantly negate the benefits of the financing options than their larger Form
quickly, and on more favorable terms rule. S–3 and F–3-eligible counterparts.
than would otherwise be the case. By The effects of the amendments on
competition are difficult to predict, but B. Significant Issues Raised by Public
selling into the public markets, these
it is possible that making it easier for Comment
companies may be able to avoid the
substantial pricing discounts that smaller public issuers to access the In the Proposing Release, we
private investors often demand to domestic public securities markets will requested comment on any aspect of the
compensate them, in part, for the lead to a reallocation of capital, as Initial Regulatory Flexibility Act
relative illiquidity of the restricted companies that previously had little Analysis, including the number of small
shares they are purchasing.118 choice but to offer their securities in entities that would be affected by the
private offerings or in offshore markets proposals, and both the qualitative and
117 15 U.S.C. 77b(b). quantitative nature of the impact.
118 See n. 115. 119 See n. 114. Several commenters supported the
proposal because they believed it would D. Reporting, Recordkeeping and Other amendments, the Regulatory Flexibility
benefit smaller public companies, but Compliance Requirements Act requires that we consider the
did not provide any specific comments Because Forms S–3 and F–3 are following alternatives:
on the Initial Regulatory Flexibility Act abbreviated registration forms that can 1. Establishing different compliance
Analysis. be updated automatically through or reporting requirements which take
C. Small Entities Subject to the incorporation by reference of a into account the resources available to
Amendments registrant’s Exchange Act filings, we smaller entities;
The Regulatory Flexibility Act defines believe use of the forms by eligible 2. The clarification, consolidation or
‘‘small entity’’ to mean ‘‘small small entities will decrease their simplification of disclosure for small
business,’’ ‘‘small organization,’’ or existing compliance burden. Because entities;
‘‘small governmental jurisdiction.’’120 the amendments have little effect on the
information disclosure requirements of 3. Use of performance standards
The Commission’s rules define ‘‘small rather than design standards; and
business’’ and ‘‘small organization’’ for Form S–3 or Form F–3,125 we do not
purposes of the Regulatory Flexibility believe that the costs of complying with 4. Exempting smaller entities from
Act for each of the types of entities the amendments for small entities will coverage of the disclosure requirements,
regulated by the Commission.121 be disproportionate to that of large or any part thereof.
Roughly speaking, a ‘‘small business’’ entities.126 We recognize, however, that Of these alternatives, only the last
and ‘‘small organization,’’ when used there will be some additional costs appears germane to these amendments.
with reference to an issuer other than an associated with an issuer’s need to Alternative 3 is not applicable, as the
investment company, means an issuer continually monitor its compliance with distinction between performance
with total assets of $5 million or less on the one-third cap on sales in any period standards and design standards has no
the last day of its most recent fiscal year. of 12 calendar months, but we believe bearing on the amendments.
We estimate that there are that any such costs will be insignificant. Alternatives 1 and 2, because they
approximately 1,100 issuers, other than For purposes of the Paperwork pertain to establishing different or
investment companies, that may be Reduction Act, we estimate the annual simplified reporting requirements for
considered reporting small entities.122 decrease in the paperwork burden for smaller entities, also would not seem
The amendments will affect small small entities to comply with our helpful in this instance because our
entities that: collection of information requirements amendments are already expected to
• Are not shell companies; to be approximately between 3,843 and reduce the compliance burden on
• Have at least one class of common 14,168 hours of in-house company eligible smaller entities. Regarding
equity securities listed and registered on personnel time (valued between Alternatives 1, 2 and 4, we considered
a national securities exchange; and $673,000 to 2,480,000 127) and to be relaxing the transaction eligibility
• Satisfy the registrant eligibility approximately between $4,612,000 and
requirements for Forms S–3 and F–3 to
requirements for the use of Form S–3 or $17,001,000 for the services of outside
a greater degree than we are adopting,
Form F–3, which generally pertain to a professionals.
which would have the effect of further
company’s reporting history under the
Exchange Act.123 E. Agency Action to Minimize Effect on reducing the compliance burden among
Based on these registrant eligibility Small Entities smaller entities by making more entities
requirements, we estimate that there are The Regulatory Flexibility Act directs eligible for short-form disclosure. As we
approximately 115 to 350 small entities us to consider significant alternatives stated, however, we decline at this time
that will be affected by the amendments that would accomplish the stated to adopt a less restrictive eligibility
and therefore will become eligible to use objectives, while minimizing any requirement. We believe at this time
Form S–3 or Form F–3 for primary significant adverse impact on small that imposing the one-third cap on the
securities offerings.124 entities. In connection with the amount of securities that smaller public
companies listed on exchanges may sell
120 5 U.S.C. 601(6). 125 See n. 96. Instruction 7 to new General pursuant to primary offerings on Forms
121 Rules 157 under the Securities Act [17 CFR Instruction I.B.6. of Form S–3 and Instruction 7 to S–3 and F–3, as described, will help to
230.157], 0–10 under the Exchange Act [17 CFR new General Instruction I.B.5. of Form F–3 require facilitate capital formation through the
240.0–10] and 0–10 under the Investment Company disclosure of the registrant’s updated calculation of
public float and the amount of securities offered on
securities markets consistent with our
Act [17 CFR 270.0–10] contain the applicable
definitions. Form S–3 or F–3, as applicable, pursuant to this primary objective of investor protection.
122 The estimated number of reporting small instruction during the prior 12 calendar months,
entities is based on 2007 data, including the but we believe any burden associated with this VI. Statutory Authority and Text of the
Commission’s EDGAR database and Thomson requirement will be minimal. Amendments
126 It should be noted, however, that General
Financial’s Worldscope database. See also
Revisions to Rule 144 and Rule 145 to Shorten Instruction II.C. of Form S–3 currently requires: The amendments described in this
Holding Period for Affiliates and Non-Affiliates, * * * smaller reporting compan[ies] (as defined release are being adopted under the
Release No. 33–8813 (June 20, 2007) [72 FR 36822, in Rule 405 of the Securities Act [17 CFR 230.405])
36841–36842]. This represents an update from the that [are] eligible to use Form S–3 shall use the
authority set forth in Sections 6, 7, 8, 10
number of reporting small entities estimated in disclosure items in Regulation S–K [17 CFR 229.10 and 19(a) of the Securities Act, as
prior rulemakings. See, for example, Executive et seq.] with specific attention to the subparagraph amended.
Compensation and Related Disclosure, Release No. describing scaled disclosure, if any. Smaller
33–8732A (Aug. 29, 2006) [71 FR 53158] (in which reporting companies may provide the financial List of Subjects in 17 CFR Parts 230 and
the Commission’s estimated a total of 2,500 small information called for by Item 310 of Regulation 239
entities, other than investment companies). S–K in lieu of the financial information called for
123 See n. 37 and n. 83. by Item 11 in this form. Reporting and recordkeeping
124 The burden estimates for small entities are Release No. 33–8876. Because such scaled
requirements, Securities.
presented as a range representing the minimum and disclosure requirements generally allow scaled
maximum number of small entities that we estimate disclosure for smaller reporting companies, small ■ For the reasons set out in the
would currently qualify for eligibility under either entities that file on Form S–3 may have a
General Instruction I.B.6. of Form S–3 or General comparatively lesser compliance burden overall preamble, the Commission amends title
Instruction I.B.5. of Form F–3, as applicable, based than larger issuers. 17, chapter II, of the Code of Federal
on data available to us. 127 See n. 113. Regulations as follows:
PART 230—GENERAL RULES AND third of the aggregate market value of into which the securities were
REGULATIONS, SECURITIES ACT OF the voting and non-voting common converted or received upon exercise, by
1933 equity held by non-affiliates of the the market price of such shares on the
registrant; date of conversion or exercise.
■ 1. The authority citation for part 230 (b) the registrant is not a shell
continues to read in part as follows: 3. If the aggregate market value of the
company (as defined in § 230.405 of this registrant’s outstanding voting and non-
Authority: 15 U.S.C. 77b, 77c, 77d, 77f, chapter) and has not been a shell voting common equity computed
77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, company for at least 12 calendar months pursuant to General Instruction I.B.6.
78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), previously and if it has been a shell
78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– equals or exceeds $75 million
company at any time previously, has subsequent to the effective date of this
30, and 80a–37, unless otherwise noted. filed current Form 10 information with registration statement, then the one-
* * * * * the Commission at least 12 calendar
third limitation on sales specified in
■ 2. Amend § 230.401 by: months previously reflecting its status
General Instruction I.B.6(a) shall not
■ a. in paragraph (g)(1), revising the cite as an entity that is not a shell company;
apply to additional sales made pursuant
‘‘paragraph (g)(2)’’ to read ‘‘paragraphs and
(c) the registrant has at least one class to this registration statement on or
(g)(2) and (g)(3)’’; and
of common equity securities listed and subsequent to such date and instead the
■ b. adding paragraph (g)(3).
The addition reads as follows: registered on a national securities registration statement shall be
exchange. considered filed pursuant to General
§ 230.401 Requirements as to proper form. Instructions. Instruction I.B.1.
* * * * * 1. ‘‘Common equity’’ is as defined in 4. The term ‘‘Form 10 information’’
(g) * * * Securities Act Rule 405 (§ 230.405 of means the information that is required
(3) Violations of General Instruction this chapter). For purposes of by Form 10 or Form 20–F (§ 249.210 or
I.B.6. of Form S–3 or General Instruction computing the aggregate market value of § 249.220f of this chapter), as applicable
I.B.5. of Form F–3 will also violate the the registrant’s outstanding voting and to the registrant, to register under the
requirements as to proper form under non-voting common equity pursuant to Securities Exchange Act of 1934 each
this section notwithstanding that the General Instruction I.B.6., registrants class of securities being registered using
registration statement may have been shall use the price at which the common this form. A registrant may provide the
declared effective previously. equity was last sold, or the average of Form 10 information in another
the bid and asked prices of such Commission filing with respect to the
PART 239—FORMS PRESCRIBED common equity, in the principal market registrant.
UNDER THE SECURITIES ACT OF 1933 for such common equity as of a date 5. The date used in Instruction 2 to
within 60 days prior to the date of sale. General Instruction I.B.6. shall be the
■ 3. The authority citation for part 239 See the definition of ‘‘affiliate’’ in
continues to read in part as follows: same date used in Instruction 1 to
Securities Act Rule 405 (§ 230.405 of General Instruction I.B.6.
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, this chapter).
77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 2. For purposes of computing the 6. A registrant’s eligibility to register
78o(d), 78u–5, 78w(a), 78ll, 77mm, 80a–2(a), aggregate market value of all securities a primary offering on Form S–3
80a–3, 80a–8, 80a–9, 80a–10, 80a–13, 80a– sold by or on behalf of the registrant in pursuant to General Instruction I.B.6.
24, 80a–26, 80a–29, 80a–30, and 80a–37, does not mean that the registrant meets
offerings pursuant to General
unless otherwise noted. the requirements of Form S–3 for
Instruction I.B.6. during any period of
* * * * * 12 calendar months, registrants shall purposes of any other rule or regulation
■ 4. Amend Form S–3 (referenced in aggregate the gross proceeds of such of the Commission apart from Rule
§ 239.13) by adding General Instruction sales; provided, that, in the case of 415(a)(1)(x) (§ 230.415(a)(1)(x) of this
I.B.6. to read as follows: derivative securities convertible into or chapter).
Note: The text of Form S–3 does not, and exercisable for shares of the registrant’s 7. Registrants must set forth on the
this amendment will not, appear in the Code common equity, registrants shall outside front cover of the prospectus the
of Federal Regulations. calculate the aggregate market value of calculation of the aggregate market
any underlying equity shares in lieu of value of the registrant’s outstanding
FORM S–3—REGISTRATION the market value of the derivative voting and non-voting common equity
STATEMENT UNDER THE securities. The aggregate market value of pursuant to General Instruction I.B.6.
SECURITIES ACT OF 1933 the underlying equity shall be and the amount of all securities offered
* * * * * calculated by multiplying the maximum pursuant to General Instruction I.B.6.
number of common equity shares into during the prior 12 calendar month
General Instructions which the derivative securities are period that ends on, and includes, the
I. Eligibility Requirements for Use of convertible or for which they are date of the prospectus.
Form S–3 * * * exercisable as of a date within 60 days 8. For purposes of General Instruction
prior to the date of sale, by the same per I.B.6(c), a ‘‘national securities
B. Transaction Requirements. * * * share market price of the registrant’s exchange’’ shall mean an exchange
6. Limited Primary Offerings by equity used for purposes of calculating registered as such under Section 6(a) of
Certain Other Registrants. Securities to the aggregate market value of the the Securities Exchange Act of 1934.
be offered for cash by or on behalf of a registrant’s outstanding voting and non-
registrant; provided that: voting common equity pursuant to * * * * *
(a) the aggregate market value of Instruction 1 to General Instruction ■ 5. Amend Form F–3 (referenced in
securities sold by or on behalf of the I.B.6. If the derivative securities have § 239.33) by adding General Instruction
registrant pursuant to this Instruction been converted or exercised, the I.B.5. to read as follows:
I.B.6. during the period of 12 calendar aggregate market value of the underlying Note: The text of Form F–3 does not, and
months immediately prior to, and equity shall be calculated by this amendment will not, appear in the Code
including, the sale is no more than one- multiplying the actual number of shares of Federal Regulations.
FORM F–3—REGISTRATION within 60 days prior to the date of sale. subsequent to such date and instead the
STATEMENT UNDER THE See the definition of ‘‘affiliate’’ in registration statement shall be
SECURITIES ACT OF 1933 Securities Act Rule 405 (§ 230.405 of considered filed pursuant to General
* * * * * this chapter). Instruction I.B.1.
2. For purposes of computing the 4. The term ‘‘Form 10 information’’
General Instructions aggregate market value of all securities means the information that is required
I. Eligibility Requirements for Use of sold by or on behalf of the registrant in by Form 10 or Form 20–F (§ 249.210 or
Form F–3 * * * offerings pursuant to General § 249.220f of this chapter), as applicable
Instruction I.B.5. during any period of to the registrant, to register under the
B. Transaction Requirements * * * 12 calendar months, registrants shall Securities Exchange Act of 1934 each
5. Limited Primary Offerings by aggregate the gross proceeds of such class of securities being registered using
Certain Other Registrants. Securities to sales; provided, that, in the case of this form. A registrant may provide the
be offered for cash by or on behalf of a derivative securities convertible into or Form 10 information in another
registrant; provided that: exercisable for shares of the registrant’s Commission filing with respect to the
(a) the aggregate market value of common equity, registrants shall registrant.
securities sold by or on behalf of the calculate the aggregate market value of 5. The date used in Instruction 2 to
registrant pursuant to this Instruction any underlying equity shares in lieu of General Instruction I.B.5. shall be the
I.B.5. during the period of 12 calendar the market value of the derivative same date used in Instruction 1 to
months immediately prior to, and securities. The aggregate market value of General Instruction I.B.5.
including, the sale is no more than one- the underlying equity shall be 6. A registrant’s eligibility to register
third of the aggregate market value calculated by multiplying the maximum a primary offering on Form F–3
worldwide of the voting and non-voting number of common equity shares into pursuant to General Instruction I.B.5.
common equity held by non-affiliates of which the derivative securities are does not mean that the registrant meets
the registrant; convertible or for which they are the requirements of Form F–3 for
(b) the registrant is not a shell exercisable as of a date within 60 days purposes of any other rule or regulation
company (as defined in § 230.405 of this prior to the date of sale, by the same per of the Commission apart from Rule
chapter) and has not been a shell share market price of the registrant’s 415(a)(1)(x) (§ 230.415(a)(1)(x) of this
company for at least 12 calendar months equity used for purposes of calculating chapter).
previously and if it has been a shell the aggregate market value of the 7. Registrants must set forth on the
company at any time previously, has registrant’s outstanding voting and non- outside front cover of the prospectus the
filed current Form 10 information with voting common equity pursuant to calculation of the aggregate market
the Commission at least 12 calendar Instruction 1 to General Instruction value of the registrant’s outstanding
months previously reflecting its status I.B.5. If the derivative securities have voting and non-voting common equity
as an entity that is not a shell company; been converted or exercised, the pursuant to General Instruction I.B.5.
and aggregate market value of the underlying and the amount of all securities offered
(c) the registrant has at least one class equity shall be calculated by pursuant to General Instruction I.B.5.
of common equity securities listed and multiplying the actual number of shares during the prior 12 calendar month
registered on a national securities into which the securities were period that ends on, and includes, the
exchange. converted or received upon exercise, by date of the prospectus.
Instructions. the market price of such shares on the 8. For purposes of General Instruction
1. ‘‘Common equity’’ is as defined in date of conversion or exercise. I.B.5(c), a ‘‘national securities
Securities Act Rule 405 (§ 230.405 of 3. If the aggregate market value of the exchange’’ shall mean an exchange
this chapter). For purposes of registrant’s outstanding voting and non- registered as such under Section 6(a) of
computing the aggregate market value of voting common equity computed the Securities Exchange Act of 1934.
the registrant’s outstanding voting and pursuant to General Instruction I.B.5. * * * * *
non-voting common equity pursuant to equals or exceeds $75 million
By the Commission.
General Instruction I.B.5., registrants subsequent to the effective date of this
shall use the price at which the common registration statement, then the one- Dated: December 19, 2007.
equity was last sold, or the average of third limitation on sales specified in Nancy M. Morris,
the bid and asked prices of such General Instruction I.B.5(a) shall not Secretary.
common equity, in the principal market apply to additional sales made pursuant [FR Doc. E7–24968 Filed 12–26–07; 8:45 am]
for such common equity as of a date to this registration statement on or BILLING CODE 8011–01–P

Rule: Securities: Primary Securities Offerings On Forms S-3 and F-3 Eligibility Requirements

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Rule: Securities: Primary Securities Offerings On Forms S-3 and F-3 Eligibility Requirements

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Thursday,

December 27, 2007

3 17 CFR 230.401(g). (‘‘Williams Securities’’). All comment letters are

67 Instruction 7 to new General Instruction I.B.6.

(A) (B) (C)=(A)(B) (D)=(C)0.25 (E)=(C)0.75 (F)=(E)$400

S–3 ..................................................... 66 459 30,294 7,573.50 22,720.50 $9,088,200

Total ............................................ ...................... .................... (41,501) (10,375.25) (31,125.75) ($12,450,300)

III. Cost-Benefit Analysis register primary offerings of their B. Benefits

Form S–3 and F–3. and Budget estimates.

facilitate the capital-raising efforts of investors, the amendments include

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