Document ID: SEC-2007-1760-0001
Agency: sec
Document Type: Rule
Title: Revisions to the Eligibility Requirements for Primary Securities Offerings on Forms S-3 and F-3
Posted Date: 2007-12-27T05:00Z

[Federal Register: December 27, 2007 (Volume 72, Number 247)]
[Rules and Regulations]               
[Page 73533-73552]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de07-15]                         

[[Page 73533]]

-----------------------------------------------------------------------

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

[[Page 73534]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 239

[Release No. 33-8878; File No. S7-10-07]
RIN 3235-AJ89

 
Revisions to the Eligibility Requirements for Primary Securities 
Offerings on Forms S-3 and F-3

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: We are adopting amendments to the eligibility requirements of 
Form S-3 and Form F-3 to allow certain domestic and foreign private 
issuers to conduct primary securities offerings on these forms without 
regard to the size of their public float or the rating of debt they are 
offering, so long as they satisfy the other eligibility conditions of 
the respective form, have a class of common equity securities listed 
and registered on a national securities exchange, and the issuers do 
not sell more than the equivalent of one-third of their public float in 
primary offerings over any period of 12 calendar months. The amendments 
are intended to allow more companies to benefit from the greater 
flexibility and efficiency in accessing the public securities markets 
afforded by Form S-3 and Form F-3 without compromising investor 
protection. The expanded form eligibility does not extend to shell 
companies, however, which are prohibited from using the new provisions 
until 12 calendar months after they cease being shell companies. In 
addition, we are adopting an amendment to the rules and regulations 
promulgated under the Securities Act to clarify that violations of the 
one-third restriction will also violate the requirements as to proper 
registration form, even though the registration statement has been 
declared effective previously.

EFFECTIVE DATE: January 28, 2008.

FOR FURTHER INFORMATION CONTACT: Raymond A. Be, at (202) 551-3430, or 
the Office of Chief Counsel, at (202) 551-3500, in the Division of 
Corporation Finance, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-3010.

SUPPLEMENTARY INFORMATION: We are amending Form S-3,\1\ Form F-3 \2\ 
and Rule 401(g) \3\ under the Securities Act of 1933.\4\
---------------------------------------------------------------------------

    \1\ 17 CFR 239.13.
    \2\ 17 CFR 239.33.
    \3\ 17 CFR 230.401(g).
    \4\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

Table of Contents

I. Discussion
    A. Background
    1. Proposing Release and Public Comment Letters
    2. Form S-3
    3. Reasons for New Form S-3 Amendments
    4. Limited Expansion of Form Eligibility
    B. Amendments to Form S-3
    1. One-Third Cap and Listed Securities Only
    2. Calculation of Amount of Securities That May Be Sold
    3. Exclusion of Shell Companies
    C. Amendments to Form F-3
II. Paperwork Reduction Act
    A. Background
    B. Summary of Information Collections
    C. Summary of Comments and Revisions to Amendments
    D. Revised Paperwork Reduction Act Burden Estimates
III. Cost-Benefit Analysis
    A. Summary of Amendments
    B. Benefits
    C. Costs
IV. Consideration of Promotion of Efficiency, Competition and 
Capital Formation
V. Final Regulatory Flexibility Act Analysis
    A. Need for the Amendments
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action to Minimize Effect on Small Entities
VI. Statutory Authority and Text of the Amendments

I. Discussion

A. Background

1. Proposing Release and Public Comment Letters
    On May 23, 2007, we proposed revisions to the eligibility 
requirements of Form S-3 and Form F-3 to allow domestic and foreign 
private issuers, respectively, to conduct primary securities offerings 
on these forms without regard to the size of their public float or the 
rating of debt they are offering, so long as they satisfy the other 
eligibility conditions of the applicable form and do not sell 
securities valued in excess of 20% of their public float in primary 
offerings pursuant to the new instructions on these forms over any 
period of 12 calendar months.\5\
---------------------------------------------------------------------------

    \5\ Revisions to the Eligibility Requirements for Primary 
Securities Offerings on Forms S-3 and F-3, Release No. 33-8812 (June 
20, 2007) [72 FR 35118] (the ``Proposing Release'').
---------------------------------------------------------------------------

    In response to our request for comment on the Proposing Release, we 
received comment letters from a variety of groups and constituencies, 
most of whom expressed their general support for the proposed form 
amendments and the objectives that we articulated in the Proposing 
Release. Notwithstanding their general support, however, several 
commenters thought that some modifications to the proposal were 
advisable, either to improve the usefulness of the form amendments to 
smaller public companies seeking capital,\6\ or to ensure that the rule 
changes are consistent with investor protection.\7\ After considering 
each of the comments, we are adopting amendments to Form S-3 and Form 
F-3 substantially in the form proposed, but with certain modifications 
as discussed more fully in this release.
---------------------------------------------------------------------------

    \6\ See, for example, letters from the American Bar Association, 
Committees on Federal Regulation of Securities and State Regulation 
of Securities (``ABA''); Brinson Patrick Securities Corporation 
(``Brinson Patrick''); Feldman Weinstein and Smith LLP (``Feldman 
Weinstein''); Malizia Spidi & Fisch (``Malizia Spidi''); Morrison & 
Foerster LLP (``Morrison & Foerster''); Office of Advocacy, Small 
Business Administration (``SBA''); Roth Capital Partners, LLP 
(``Roth Capital''); Marshal Shichtman (``M. Shichtman''); and 
Williams Securities Law (``Williams Securities''). All comment 
letters are publicly available at http://www.sec.gov/comments/s7-10-07/s71007.shtml
.

    \7\ See letter from the Council of Institutional Investors 
(``CII'').
---------------------------------------------------------------------------

    These amendments are intended to allow a larger number of public 
companies to benefit from the greater flexibility and efficiency in 
accessing the public securities markets afforded by Form S-3 and Form 
F-3 in a manner that is consistent with investor protection. 
Accordingly, we are placing certain restrictions on the class of 
issuers who will be eligible under the new rules and are adopting a 
ceiling on the amount of securities that eligible issuers may offer 
pursuant to these rules. In creating new opportunities to facilitate 
capital formation consistent with the protection of investors, we 
believe that a careful and modest expansion of Form S-3 and Form F-3 
eligibility is warranted at this time. However, as we indicated in the 
Proposing Release, we may revisit the appropriateness of the form 
restrictions at a later time if our experience with this revised 
requirement suggests issuer eligibility for primary offerings on Form 
S-3 and Form F-3 should be further revised.\8\
---------------------------------------------------------------------------

    \8\ Proposing Release, at 35124.
---------------------------------------------------------------------------

2. Form S-3
    Form S-3 is the ``short form'' used by eligible domestic companies 
to register securities offerings under the Securities Act of 1933. The 
form also allows these companies to rely on their reports filed under 
the Securities Exchange Act of

[[Page 73535]]

1934 \9\ to satisfy the form's disclosure requirements. Prior to 
today's amendments, companies have been able to register primary 
offerings (that is, securities offered by or on behalf of the 
registrant for its own account) on Form S-3 only if their non-affiliate 
equity market capitalization, or ``public float,'' was $75 million or 
more.\10\ In contrast, transactions involving primary offerings of non-
convertible investment grade securities, certain rights offerings, 
dividend reinvestment plans and conversions, and offerings by selling 
shareholders of securities registered on a national securities exchange 
do not require the company to have a minimum public float.\11\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78a et seq.
    \10\ General Instruction I.B.1. of Form S-3. The history and use 
of Form S-3 are discussed in greater detail in the Proposing 
Release.
    \11\ See General Instructions I.B.2. through I.B.4. of Form S-3.
---------------------------------------------------------------------------

    Recently, the issue of Form S-3 eligibility for primary offerings 
was addressed by the Commission's Advisory Committee on Smaller Public 
Companies (the ``Advisory Committee''), which the Commission chartered 
in 2005 to assess the current regulatory system for smaller companies 
under U.S. securities laws.\12\ In its April 23, 2006 Final Report to 
the Commission, the Advisory Committee recommended that we allow all 
reporting companies with securities listed on a national securities 
exchange or Nasdaq,\13\ or quoted on the Over-the-Counter Bulletin 
Board electronic quotation service, to be eligible to use Form S-3 if 
they have been reporting under the Exchange Act for at least one year 
and are current in their reporting at the time of filing.\14\
---------------------------------------------------------------------------

    \12\ More information about the Advisory Committee is available 
at http://www.sec.gov/info/smallbus/acspc.shtml.

    \13\ There is no longer a distinction between Nasdaq and 
national securities exchanges. On January 13, 2006, the Commission 
approved Nasdaq's application to become a national securities 
exchange. The Nadsaq Stock Market commenced operations on August 1, 
2006.
    \14\ Recommendation IV.P.3. of the Final Report of the Advisory 
Committee on Smaller Public Companies (Apr. 23, 2006) (the ``Final 
Report''), at 68-72. The Final Report is available at http://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf.
 In addition 

to elimination of the public float requirement, Recommendation 
IV.P.3. also called for (1) elimination of General Instruction 
I.A.3.(b) to Form S-3 requiring that the issuer has timely filed all 
required reports in the last year and (2) extending Form S-3 
eligibility for secondary transactions to issuers quoted on the 
Over-the-Counter Bulletin Board. The Proposing Release also included 
additional discussion of the Advisory Committee and its 
recommendations.
---------------------------------------------------------------------------

3. Reasons for New Form S-3 Amendments
    The ability to conduct primary offerings on Form S-3 confers 
significant advantages on eligible companies.\15\ Form S-3 permits the 
incorporation of required information by reference to a company's 
disclosure in its Exchange Act filings, including Exchange Act reports 
that were previously filed and those that will be filed in the 
future.\16\
---------------------------------------------------------------------------

    \15\ See generally, Shelf Registration, Release No. 33-6499 
(Nov. 17, 1983) [48 FR 5289] (discussing the benefits of shelf 
registration).
    \16\ Item 12 of Form S-3: ``Incorporation of Certain Information 
by Reference.''
---------------------------------------------------------------------------

    Form S-3 eligibility for primary offerings also enables companies 
to conduct primary offerings ``off the shelf'' under Rule 415 of the 
Securities Act.\17\ Rule 415 provides considerable flexibility in 
accessing the public securities markets from time to time in response 
to changes in the markets and other factors. The shelf eligibility 
resulting from Form S-3 eligibility and the ability to forward 
incorporate information on Form S-3, therefore, allow companies to 
avoid additional delays and interruptions in the offering process and 
can reduce or even eliminate the costs associated with preparing and 
filing post-effective amendments to the registration statement.
---------------------------------------------------------------------------

    \17\ Rule 415 [17 CFR 230.415] provides that:
    (a) Securities may be registered for an offering to be made on a 
continuous or delayed basis in the future, Provided, That:
    (1) the registration statement pertains only to: * * *
    (x) Securities registered (or qualified to be registered) on 
Form S-3 or Form F-3 which are to be offered and sold on an 
immediate, continuous or delayed basis by or on behalf of the 
registrant, a majority owned subsidiary of the registrant or a 
person of which the registrant is a majority-owned subsidiary.
---------------------------------------------------------------------------

    By having more control over the timing of their offerings, these 
companies can take advantage of desirable market conditions, thus 
allowing them to raise capital on more favorable terms (such as 
pricing) or to obtain lower interest rates on debt. As a result, the 
ability to take securities off the shelf as needed gives issuers a 
significant financing alternative to other widely available methods, 
such as private placements with shares usually priced at discounted 
values based in part on their relative illiquidity.\18\ Consequently, 
we believe that extending Form S-3 short-form registration to 
additional issuers should enhance their ability to access the public 
securities markets. Likewise, a significant proportion of commenters to 
the Proposing Release welcomed an expansion of Form S-3 eligibility, 
agreeing that such a measure would greatly enhance smaller public 
companies' access to capital in the securities markets, with far less 
burden and cost.\19 \
---------------------------------------------------------------------------

    \18\ See, for example, Susan Chaplinsky and David Haushalter, 
Financing Under Extreme Uncertainty: Contract Terms and Returns to 
Private Investments in Public Equity (May 2006), available at: 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907676 

(discussing the typical contractual terms of PIPEs (Private 
Investments in Public Equities) financings, where the average 
purchase discount is between 18.5% to 19.7%, depending on the types 
of contractual rights embedded in the securities).
    \19\ See, for example, letters from Feldman Weinstein; Malizia 
Spidi; and M. Shichtman.
---------------------------------------------------------------------------

    Given the great advances in the electronic dissemination and 
accessibility of company disclosure transmitted over the Internet in 
the last several years,\20\ we believe that moderately expanding the 
class of transactions that are permitted on Form S-3 for primary 
securities offerings is warranted once again. In contrast to 1992, when 
the Commission last adjusted the issuer eligibility requirements for 
Form S-3,\21\ most public filings under the Securities Act and the 
Exchange Act, and all Forms S-3, are now filed on the Commission's 
Electronic Data Gathering, Analysis, and Retrieval system (``EDGAR''). 
The pervasiveness of the Internet in daily life and the advent of EDGAR 
as a central repository of company filings have combined to allow 
widespread, direct, and contemporaneous accessibility to company 
disclosure at little or no cost to those interested in obtaining the 
information. For this reason, we think it is appropriate to once again 
expand the class of companies who may register primary offerings on 
Form S-3 in a limited manner.
---------------------------------------------------------------------------

    \20\ See, for example, Internet Availability of Proxy Materials, 
Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597] and the Final 
Report of the Advisory Committee, at 69:
    The Commission has recently taken several steps acknowledging 
the widespread accessibility over the Internet of documents filed 
with the Commission. In its recent release concerning Internet 
delivery of proxy materials, the Commission notes that recent data 
indicates that up to 75% of Americans have access to the Internet in 
their homes, and that this percentage is increasing steadily among 
all age groups. As a result we believe that investor protection 
would not be materially diminished if all reporting companies on a 
national securities exchange, NASDAQ or the Over-the-Counter 
Bulletin Board were permitted to utilize Form S-3 and the associated 
benefits of incorporation by reference.
    \21\ Simplification of Registration Procedures for Primary 
Securities Offerings, Release No. 33-6964 (Oct. 22, 1992) [57 FR 
48970].
---------------------------------------------------------------------------

4. Limited Expansion of Form Eligibility
    We are not prepared at this time to abandon our longstanding 
prerequisite contained in the instructions to Form S-3 and allow 
unlimited use of this form for primary offerings by companies who do 
not have at least $75 million in

[[Page 73536]]

public float. Although the Advisory Committee recommended the qualified 
elimination of this requirement \22\ and some commenters supported 
removing the concept of float altogether as a criterion of 
eligibility,\23 \we believe that retaining some capitalization 
restrictions on Form S-3 eligibility is still advisable. We are 
persuaded that the technological advances that have revolutionized 
communications between companies and the market should allow us to ease 
the Form S-3 eligibility standards without undermining investor 
protection or the integrity of the markets. However, as explained more 
fully below, we believe this warrants only the limited expansion of 
certain offerings on Form S-3, not the wholesale elimination of public 
float as an important criterion of form eligibility. The Commission's 
system of integrated disclosure has, since its inception, been premised 
on the idea that a company's disclosure in its registration statement 
can be streamlined to the extent that the market has already taken that 
information into account.\24\ Public float has for many years been used 
as an approximate measure of a stock's market following and, 
consequently, the degree of efficiency with which the market absorbs 
information and reflects it in the price of a security.\25\ While 
current technology provides investors with access to information about 
publicly reporting companies at an unprecedented level of ease and 
speed, it does not guarantee that the market has fully absorbed and 
synthesized all of the available information of a given company. 
Technology can facilitate and enhance market following, but it does not 
ensure it. Therefore, we are retaining public float as a factor in 
determining the extent of short-form eligibility. While the purpose of 
these amendments is to give smaller companies added flexibility to 
quickly respond to favorable market conditions by conducting some 
primary shelf offerings on Form S-3, this objective must be balanced 
against the imperatives of investor protection.
---------------------------------------------------------------------------

    \22\ The Advisory Committee's recommendation to expand Form S-3 
eligibility encompassed only companies whose securities are listed 
on a national securities exchange or Nasdaq (which, at the time, was 
not yet a national securities exchange), or quoted on the Over-the 
Counter Bulletin Board. Refer to Recommendation IV.P.3. of the Final 
Report.
    \23\ See letters from the ABA; Morrison & Foerster; and Roth 
Capital.
    \24\ See Release No. 33-6499, at 5:
    Forms S-3 and F-3 recognize the applicability of the efficient 
market theory to those companies which provide a steady stream of 
high quality corporate information to the marketplace and whose 
corporate information is broadly disseminated. Information about 
these companies is constantly digested and synthesized by financial 
analysts, who act as essential conduits in the continuous flow of 
information to investors, and is broadly disseminated on a timely 
basis by the financial press and other participants in the 
marketplace. Accordingly, at the time S-3/F-3 registrants determine 
to make an offering of securities, a large amount of information 
already has been disseminated to and digested by the marketplace.
    See also Harold S. Bloomenthal and Samuel Wolff, Securities and 
Federal Corporate Law, Sec.  9:30, available through Westlaw at 3B 
Sec. & Fed. Corp. Law Sec.  9:30 (2d. ed.) (``Form S-3 epitomizes 
the efficient market concept.''). See also Randall S. Thomas and 
James F. Cotter, Measuring Securities Market Efficiency in the 
Regulatory Setting, 63 Law & Contemp. Probs. 105 (2000) at 106.
    \25\ See Reproposal of Comprehensive Revision to System for 
Registration of Securities Offerings, Release No. 33-6331 (Aug. 6, 
1981) [46 FR 41902], at 9: ``The Commission views as significant the 
strong relationship between float and information dissemination to 
the market and following by investment institutions.'' See also 
Thomas and Cotter, Measuring Securities Market Efficiency in the 
Regulatory Setting, at 108 (stating that the numerical thresholds of 
Form S-3 were intended to be a rough proxy for which companies were 
widely followed by the investment community).
---------------------------------------------------------------------------

    Concerns have been raised in the past when the Commission 
considered easing the restrictions of shelf registration eligibility to 
allow smaller public companies to use a modified form of shelf 
registration,\26\ and similar concerns were voiced again during the 
comment period.\27\ It has been observed that the securities of smaller 
public companies are comparatively more vulnerable to price 
manipulation than the securities of larger public companies,\28\ and 
may also be more prone to financial reporting error and abuses.\29\ As 
we stated in the Proposing Release, although we believe that the public 
securities markets have benefited from advances in both technology and 
corporate disclosure requirements, we are nevertheless mindful that 
companies with a smaller market capitalization as a group have a 
comparatively smaller market following than larger, well-seasoned 
issuers and are more thinly traded. In such markets, the potential for 
manipulative practices is more acute.\30\ As such, we are sensitive to 
the market effects of loosening the standards for shelf eligibility 
without limitation.
---------------------------------------------------------------------------

    \26\ See, for example, Report of the Task Force on Disclosure 
Simplification (Mar. 5, 1996), available at http://www.sec.gov/news/studies/smpl.htm.
 See also Delayed Pricing for Certain Registrants, 

Release No. 33-7393 (Feb. 20, 1997) [62 FR 9276].
    \27\ See letter from the CII.
    \28\ See, for example, Rajesh Aggarwal and Guojon Wu, Stock 
Market Manipulations, 79 Journal of Business, No. 4 (2006). The 
authors' data indicate that manipulative practices predominantly 
occur in the Over-the-Counter Bulletin Board, Pink Sheets and other 
regional or unidentified markets characterized by very low average 
trading volume and market capitalization. The authors conclude that 
stock manipulation is more likely to occur ``in relatively 
inefficient markets * * * that are small and illiquid.''
    \29\ In its letter commenting on the Proposing Release, the CII 
``strongly opposed any weakening of the proposed limitations on 
eligibility in the final rule,'' stating:
    We share the Commission's concerns that the Proposed Rule 
presents ``risks to investor protection by expanding the base of 
companies eligible for primary offerings'' on Forms S-3 and F-3 * * 
* In addition [to the risks discussed by the Commission in the 
Proposing Release], we believe that the final rule should explicitly 
acknowledge that smaller public companies have long been especially 
prone to financial reporting fraud. Consistent with the historical 
evidence, a recent analysis of the reporting by public companies in 
response to SEC Staff Accounting Bulletin 108 found that (1) 
reporting errors at smaller public companies ``tend to be more 
significant'' than those of larger companies; and (2) smaller public 
companies ``are more likely to sit on errors that decrease earnings 
than big companies.'' Thus, the Commission should ensure that the 
final rule avoids understating the significant risks that smaller 
public companies present to investors [emphasis in original].
    \30\ The Commission's staff has stated previously that, with 
respect to short sales in reliance on the safe harbor of Rule 144 
where the borrower closes out using the restricted securities, all 
the conditions of Rule 144 must be met at the time of the short 
sale. See Questions 80 through 82 of Resales of Restricted and Other 
Securities, Release No. 33-6099 (Aug. 2, 1979) [44 FR 46752, 46765]. 
In the Commission's view, the term ``sale'' under the Securities Act 
includes contract of sale. See Securities Offering Reform, Release 
No. 33-8591 (Jul. 19, 2005) [70 FR 44722, 44765] and Short Selling 
in Connection With a Public Offering, Release No. 34-56206 (Aug. 6, 
2007) [72 FR 45094]. The Commission has previously indicated that, 
in a short sale, the sale of securities occurs at the time the short 
position is established, rather than when shares are delivered to 
close out that short position, for purposes of Section 5 of the 
Securities Act. See, for example, Questions 3 and 5 of Commission 
Guidance on the Application of Certain Provisions of the Securities 
Act of 1933, the Securities Exchange Act of 1934, and Rules 
Thereunder to Trading in Security Futures Products, Release No. 33-
8107 (June 21, 2002) [67 FR 43234] and Release No. 34-56206 n. 46 
(Aug. 6, 2007) [72 FR 45094, 45096].
---------------------------------------------------------------------------

    We also note that the disclosure obligations and liability imposed 
by the federal securities laws on smaller public companies are 
comparable, but not identical, to the largest reporting companies.\31\ 
We are comfortable that

[[Page 73537]]

the scaled disclosure standards for smaller public companies are 
sufficiently comparable to those governing larger issuers such that the 
limited expansion of Form S-3 primary offering eligibility, as we are 
adopting it, will not adversely impact investors. However, the level of 
disclosure required of smaller public companies under the federal 
securities laws is yet another factor that we believe weighs against 
expanding Form S-3 eligibility further than we have in this 
release.\32\
---------------------------------------------------------------------------

    \31\ Beginning with its introduction in 1992, Regulation S-B of 
the Securities Act provided for a scaled set of disclosure 
requirements for small business issuers. Small Business Initiatives, 
Release No. 33-6949 (July 30, 1992) [57 FR 36442]. Recent amendments 
to the disclosure regime for smaller companies maintain these scaled 
disclosure requirements, but integrate them into Regulation S-K. 
Smaller Reporting Company Regulatory Relief and Simplification, 
Release No. 33-8876 (Dec. 19, 2007).
    In addition, we acknowledge that the companies implicated in 
this rulemaking are not yet fully subject to Section 404 of 
Sarbanes-Oxley. See Internal Control Over Financial Reporting in 
Exchange Act Periodic Reports of Non-Accelerated Filers and Newly 
Public Companies, Release No. 33-8760 (Dec. 15, 2006) [71 FR 76580]. 
We have taken steps to implement a plan to improve the efficiency 
and effectiveness of Section 404 implementation, including its 
scalability to smaller companies. See Commission Guidance Regarding 
Management's Report on Internal Control Over Financial Reporting 
Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, 
Release No. 34-55929 (June 20, 2007) [72 FR 35323]. It is true, 
however, that, unlike ``large accelerated filers'' and ``accelerated 
filers,'' companies that are ``non-accelerated filers'' (companies 
with less than $75 million in float) will not need to comply with 
the auditor's attestation report requirements of Section 404 until 
they file their annual report for the fiscal year ending on or after 
December 15, 2008. For large accelerated filers and accelerated 
filers, the auditor's attestation report is required for all annual 
reports for fiscal years ending on or after November 15, 2004. In 
light of this fact, one commenter recommended that Form S-3 
eligibility be contingent on full implementation of both the 
management and auditor attestation report requirements of Section 
404. See letter from the CII. Because adding this condition would 
effectively delay the benefits of these Form S-3 amendments to 
smaller public companies for at least one year, and because the 
decision has been made to allow smaller public companies to phase in 
full compliance with Section 404, we have decided not to delay the 
effective date of this rulemaking. We may revisit the limitation on 
our expansion of Form S-3 after full compliance with Section 404 is 
complete.
    \32\ This is especially true given that, under recent 
amendments, the scaled detailed disclosure regime for smaller 
companies will now extend to issuers who have a public float between 
$25 and $75 million. Release No. 33-8876. Prior to such amendments, 
only companies with less than $25 million in public float were 
covered by the disclosure requirements of Regulation S-B.
---------------------------------------------------------------------------

    In revising the shelf eligibility requirements, therefore, we must 
consider the unique set of investment risks posed by smaller public 
companies in the context of shelf registration, which provides speed 
and flexibility to issuers, but at the same time may limit Commission 
and underwriter involvement in the registration process. Extending the 
benefits of shelf registration to an expanded group of transactions 
will limit the staff's direct prior involvement in takedowns of 
securities off the shelf. Although the Commission's staff may review 
registration statements before they are declared effective, individual 
takedowns are not conditioned on further Commission action or subject 
to prior selective staff review.\33\ In addition, the short time 
horizon of shelf offerings may also reduce the time that participating 
underwriters have to apply their independent scrutiny and judgment to 
an issuer's prospectus disclosure. Historically, concerns such as these 
have been at the center of the debate when the Commission has 
previously considered expanding shelf registration eligibility.\34\
---------------------------------------------------------------------------

    \33\ We note some commenters suggested that our concerns about 
expanding the base of companies eligible to use Form S-3 for primary 
offerings ``off the shelf'' could be alleviated by requiring more 
detailed disclosure from these companies. See letters from Feldman 
Weinstein and Morrison & Foerster. However, requiring additional 
disclosure would not address the fact that the staff does not have 
the ability to review, in advance, individual takedowns off an 
effective shelf registration statement. Prospectus supplements 
reflecting such takedowns are filed after the fact. Similarly, the 
fact that the Form S-3 filed by reporting companies with smaller 
public floats would not become automatically effective and would 
therefore remain subject to pre-effective review and comment by the 
Commission's staff does not satisfactorily address the lack of the 
staff's prior involvement in shelf takedowns. See letter from the 
ABA.
    \34\ Among other things, the Commission's 1996 Task Force on 
Disclosure Simplification made several recommendations to amend the 
shelf registration procedure ``so as to provide increased 
flexibility to a wider array of companies with respect to their 
capital-raising activities.'' These recommendations included a 
``modified form of shelf registration'' that would have allowed 
smaller companies to price their securities on a delayed basis for 
up to one year in order to time securities offerings more 
effectively with opportunities in the marketplace. The Task Force 
stated:
    While this recommendation will afford small companies time and 
cost savings, the Task Force appreciates concerns raised about 
possible adverse effects shelf registration may have on the adequacy 
and accuracy of disclosures provided to investors, on Commission 
oversight of the disclosures and on the role of underwriters in the 
registration process. These concerns are similar to those raised 
when the shelf registration rule was first being considered on a 
temporary basis and was made available to any offering including an 
initial public offering.
    Report of the Task Force on Disclosure Simplification, at 33. 
Following on the Task Force's recommendations, in 1997 the 
Commission proposed to permit certain smaller companies to price 
registered securities offerings on a delayed basis for up to one 
year after effectiveness. Release No. 33-7393. In that release, the 
Commission noted:
    Concerns have been raised that the expedited access to the 
markets that would be provided by these proposals could make it 
difficult for gatekeepers, particularly underwriters, to perform 
adequate due diligence for the smaller companies that would be 
eligible to use expanded Rule 430A.
---------------------------------------------------------------------------

    Accordingly, since the Commission first introduced the system of 
integrated disclosure more than twenty-five years ago, the ability to 
use Form S-3 to conduct primary offerings ``off the shelf'' has been 
carefully tempered by restricting the class of companies eligible for 
this benefit. Consistent with this well-established approach, we are 
amending the Form S-3 eligibility requirements to enable more companies 
to use Form S-3 for primary offerings,\35\ but only to the extent that 
they are consistent with investor protection.
---------------------------------------------------------------------------

    \35\ As part of Recommendation IV.P.3 of the Final Report, the 
Advisory Committee also recommended that the Commission extend S-3 
eligibility for secondary transactions to issuers with securities 
quoted on the Over-the-Counter Bulletin Board. General Instruction 
I.B.3. to Form S-3 limits the use of the form for secondary 
offerings to securities ``listed and registered on a national 
securities exchange or * * * quoted on the automated quotation 
system of a national securities association,'' a restriction that 
excludes the securities of Over-the-Counter Bulletin Board and Pink 
Sheets issuers. In addition, some commenters to the Proposing 
Release echoed the recommendation of the Advisory Committee and 
supported extending the use of Form S-3 for secondary offerings to 
additional issuers who are ineligible under current rules. See 
letters from the ABA; Feldman Weinstein; SBA; and Williams 
Securities. After considering the recommendation of the Advisory 
Committee and commenters, we are not at this time amending the Form 
S-3 eligibility rules for secondary offerings. As we made clear in 
the Proposing Release, this rulemaking pertains only to the limited 
issue of Form S-3 eligibility for primary securities offerings and 
is not intended to encompass or otherwise impact existing 
requirements for secondary offerings on Form S-3. Moreover, any 
amendment of the Form S-3 requirements for secondary offerings would 
have to be carefully weighed against the costs of further exposing 
the markets to the potential for abusive primary offerings disguised 
as secondary offerings. Therefore, at this time we are not revising 
secondary offering eligibility under General Instruction I.B.3.
---------------------------------------------------------------------------

B. Amendments to Form S-3

    We are adopting new General Instruction I.B.6. to Form S-3 to allow 
companies with less than $75 million in public float to register 
primary offerings of their securities on Form S-3,\36\ provided they:
---------------------------------------------------------------------------

    \36\ Form S-3 eligibility under new General Instruction I.B.6. 
(and Form F-3 eligibility under new General Instruction I.B.5.) 
applies only to an issuer's ability to conduct a limited primary 
offering on Form S-3 (or Form F-3, as applicable). That is, an 
issuer's eligibility to use Form S-3 or Form F-3 under these new 
form instructions does not mean that the issuer meets the 
requirements of Form S-3 or Form F-3 for purposes of any other rule 
or regulation of the Commission (apart from Rule 415(a)(1)(x), which 
pertains to shelf registration). Instruction 6 to new General 
Instruction I.B.6. of Form S-3 and Instruction 6 to new General 
Instruction I.B.5. of Form F-3.
    Rule 415(a)(1)(x) permits shelf offerings of securities 
``registered (or qualified to be registered)'' on Form S-3 or Form 
F-3 (emphasis added). We note that a closed-end investment company, 
including a business development company, (``closed-end fund'') that 
meets the eligibility standards enumerated in Form S-3, as revised 
by new General Instruction I.B.6., may register its securities in 
reliance on Rule 415(a)(1)(x) notwithstanding the fact that closed-
end funds register their securities on Form N-2 rather than Form S-
3.
---------------------------------------------------------------------------

     Meet the other registrant eligibility conditions for the 
use of Form S-3; \37\
---------------------------------------------------------------------------

    \37\ See General Instruction I.A. of Form S-3. Among other 
things, General Instruction I.A. requires that the registrant:
     Has a class of securities registered pursuant to 
Sections 12(b) or 12(g) of the Exchange Act or is required to file 
reports pursuant to Section 15(d) of the Exchange Act; and
     Has been subject to the requirements of Sections 12 or 
15(d) of the Exchange Act and has filed in a timely manner all the 
material required to be filed pursuant to Sections 13, 14 or 15(d) 
for a period of at least twelve calendar months immediately 
preceding the filing of the Form S-3 registration statement.

---------------------------------------------------------------------------

[[Page 73538]]

     Have a class of common equity securities that is listed 
and registered on a national securities exchange; \38\
---------------------------------------------------------------------------

    \38\ A ``national securities exchange'' is a securities exchange 
that has registered with the Commission under Section 6 of the 
Exchange Act [15 U.S.C. 78f]. There are currently ten securities 
exchanges registered under Section 6(a) of the Exchange Act as 
national securities exchanges. These are the New York Stock 
Exchange, American Stock Exchange and Nasdaq, as well as the Boston 
Stock Exchange, Chicago Board Options Exchange, Chicago Stock 
Exchange, International Securities Exchange, National Stock Exchange 
(formerly the Cincinnati Stock Exchange), NYSE Arca (formerly the 
Pacific Exchange) and the Philadelphia Stock Exchange. In addition, 
an exchange that lists or trades security futures products (as 
defined in Section 3(a)(56) of the Exchange Act [15 U.S.C. 78c(56)]) 
may register as a national securities exchange under Section 6(g) of 
the Exchange Act solely for the purpose of trading security futures 
products. For purposes of new General Instruction I.B.6., however, 
only exchanges registered under Section 6(a) of the Exchange Act 
will be deemed to be ``national securities exchanges.'' Instruction 
8 to new General Instruction I.B.6.
---------------------------------------------------------------------------

     Do not sell more than the equivalent of one-third of their 
public float in primary offerings under General Instruction I.B.6. of 
Form S-3 over the previous period of 12 calendar months; \39\ and
---------------------------------------------------------------------------

    \39\ The meaning of the phrase ``period of 12 calendar months'' 
is intended to be consistent with the way in which the phrase ``12 
calendar months'' is used for purposes of the registrant eligibility 
requirements in Form S-3. A ``calendar month'' is a month beginning 
on the first day of the month and ending on the last day of that 
month. For example, for purposes of Form S-3 registrant eligibility, 
if a registrant were not timely on a Form 10-Q due on September 15, 
2006, but was timely thereafter, it would first be eligible to use 
Form S-3 on October 1, 2007. Similarly, for purposes of new General 
Instruction I.B.6. of Form S-3, if a registrant relies on this 
Instruction to conduct a shelf takedown equivalent to one-third of 
its public float on September 15, 2007, it will next be eligible to 
do another takedown (assuming no change in its float) on October 1, 
2008.
---------------------------------------------------------------------------

     Are not shell companies \40\ and have not been shell 
companies for at least 12 calendar months before filing the 
registration statement.
---------------------------------------------------------------------------

    \40\ The term ``shell company'' is defined in Rule 405 of the 
Securities Act [17 CFR 230.405]. See also Use of Form S-8, Form 8-K, 
and Form 20-F by Shell Companies, Release No. 33-8587 (July 15, 
2005) [70 FR 42233] (adopting definition of shell company).
---------------------------------------------------------------------------

1. One-Third Cap and Listed Securities Only
    As discussed above, we are sensitive to the risks associated with 
making shelf registration available to more issuers. At the same time, 
we are also sensitive to the possibility that constraining the rule too 
much may limit its utility to the companies that qualify for its use. 
Therefore, we have decided to increase the limitation on the amount of 
securities that can be offered by companies under the new rules from 
20% of public float to one-third of public float, while at the same 
time conditioning a company's eligibility under new General Instruction 
I.B.6. of Form S-3 on having a class of common equity securities listed 
and registered on a national securities exchange (often described as 
``listed'' securities).\41\
---------------------------------------------------------------------------

    \41\ New General Instruction I.B.6(c) of Form S-3.
---------------------------------------------------------------------------

    As proposed, new General Instruction I.B.6. of Form S-3 would have 
limited the amount of securities eligible companies could sell in 
accordance with its provisions to no more than the equivalent of 20% of 
their public float over any period of 12 calendar months. We proposed a 
cap of 20% in order to allow an offering that is large enough to help 
an issuer obtain financing when market opportunities arise, yet small 
enough to take into account the effect such new issuance may have on 
the market for a thinly traded security. As we stated in the Proposing 
Release, we believed that the 20% ceiling would help a large number of 
smaller public companies with their capital raising.\42\
---------------------------------------------------------------------------

    \42\ As we noted in the Proposing Release, the Division of 
Corporation Finance undertook a study of shelf registration 
takedowns in 2006 by companies with a public float of moderate size 
in order to evaluate the appropriate public float ceiling for the 
new rule. Specifically, the Division looked at all prospectus 
supplements filed pursuant to shelf registration statements in 
calendar year 2006 by companies with a public float between $75 
million and $140 million. While we observed a wide range of 
variously sized shelf takedowns (from less than 1% of float to 
greater than 80% of float), the data indicated that 20% of float was 
approximately the median annual takedown for companies in the band 
considered. This suggested that limiting smaller public companies to 
20% of their public float in any 12-month period might increase the 
capital raising alternatives for these companies consistent with 
investor protection.
---------------------------------------------------------------------------

    Some commenters, however, were critical of this proposed 
restriction and concerned that capping issuers at 20% of the value of 
their public float every twelve months would limit the usefulness of 
the rule.\43\ The commenters thought that the 20% ceiling would be of 
limited utility because they believed that the capital needs of small 
businesses would, in many cases, greatly exceed the amount of 
securities that could be sold under the rule.\44\ Several commenters 
also suggested various alternatives to a 20% limit,\45\ including 
raising the ceiling from 20% to at least one-third of a company's 
public float.\46\
---------------------------------------------------------------------------

    \43\ See, for example, letters from the ABA; SBA; Feldman 
Weinstein; Malizia Spidi; Morrison & Foerster; M. Shichtman; and 
Roth Capital.
    \44\ See letters from the SBA; Brinson Patrick; Feldman 
Weinstein; Malizia Spidi; M. Shichtman; and Roth Capital. For an 
opposing viewpoint, see letter from the CII.
    \45\ See, for example, letters from Feldman Weinstein; Morrison 
& Foerster; and Williams Securities (commenters suggesting that a 
percentage of trading volume be used as an alternative to public 
float); Malizia Spidi and Roth Capital (commenters suggesting that 
shareholder approval be obtained for dilutive issuances constituting 
over 20% of public float); and letters from Feldman Weinstein and 
Morrison & Foerster (commenters suggesting that additional 
disclosure be required in lieu of imposing a 20% ceiling). Some 
commenters were also concerned that the Commission might amend Rule 
430B of the Securities Act to vary the application of Section 11 
liability to the various parties involved in a shelf registration 
statement based on the size of the issuer. See letters from BDO 
Seidman, LLP; Center for Audit Quality; Deloitte & Touche LLP; Ernst 
& Young LLP (``Ernst & Young''); and KPMG LLP (``KPMG''). These 
commenters maintained that the filing of a prospectus supplement to 
a shelf registration statement should not be considered a new 
effective date for purposes of Section 11 liability for auditors, 
regardless of the size of the issuer's public float. The set of 
comprehensive amendments in 2005, known as ``Securities Offering 
Reform,'' provide in Rule 430B that the effective date for auditors 
who previously provided consent in an existing registration 
statement for their report on previously issued financial statements 
or previous reports on management's assessment of internal control 
over financial reporting does not change upon the filing of a 
prospectus supplement unless the prospectus supplement (and any 
Exchange Act report incorporated by reference into the prospectus 
and registration statement) contains new audited financial 
statements or other information as to which the auditor is an expert 
and for which a new consent is required. Release No. 33-8591. Two of 
the commenters emphasized that taking a different approach for 
smaller issuers would run the risk of creating substantial delays in 
the filing process (as auditors would have to provide new consents) 
and issuers would likely lose a substantial amount of flexibility in 
accessing the public markets. See letters from Ernst & Young and 
KPMG. We agree with these commenters and are not modifying Rule 430B 
in connection with this rulemaking.
    \46\ See letters from the ABA; Feldman Weinstein; Morrison & 
Foerster; M. Shichtman; and Williams Securities. The SBA also 
suggested raising the threshold in its letter, but did not specify 
the size of the increase it favored. We note that some of the 
commenters who advocated increasing the threshold to one-third of a 
company's public float reasoned that doing so would harmonize the 
amount of securities which could be registered in a primary offering 
on Forms S-3 and F-3 under the proposed rule with a purported staff 
position in a different context. See letter from Feldman Weinstein. 
See also letters from Morrison & Foerster and Williams Securities. 
The purported staff position is not related to the instant Form S-3 
and Form F-3 amendments, which concern expanding the availability of 
these forms for primary offerings to more companies. Rather, the 
staff has indicated that some resale registration statements may 
raise a concern where, among other things, there is an unusually 
large number of shares being registered in relation to the number of 
the issuer's outstanding shares held by nonaffiliates. In these 
situations, the staff may question whether the offering is a bona 
fide secondary transaction or a disguised primary offering.
---------------------------------------------------------------------------

    After considering these comments, we have decided to set the 
twelve-month offering threshold under new General Instruction I.B.6. of 
Form S-3 at one-third of an issuer's public float. We are comfortable 
making this adjustment in light of the additional protection afforded 
by the new requirement in General Instruction I.B.6(c) of Form S-3 that 
eligibility under this instruction is contingent upon the registrant 
having a class of common equity securities listed and registered on a 
national

[[Page 73539]]

securities exchange, as discussed below. We think raising the cap to 
one-third of public float will allow an offering that is large enough 
to help an issuer raise a relatively significant amount of capital when 
market opportunities arise, but still small enough for us to moderate 
the expansion of shelf eligibility with appropriate attention to the 
protection of investors, including the effect such new issuance may 
have on the market for a thinly traded security.
    Under these amendments, offerings above the one-third cap would 
violate the form requirements of Form S-3. In order to provide absolute 
clarity on this point, we are adopting a corresponding amendment to 
Rule 401(g) \47\ of the Securities Act to provide that violations of 
the one-third cap would also violate the requirements as to proper form 
under Rule 401 even though the registration statement previously has 
been declared effective.\48\
---------------------------------------------------------------------------

    \47\ 17 CFR 230.401(g).
    \48\ See letter from the ABA (recommending that the Commission 
not revise current Rule 401(g) to provide that an issuer will be 
deemed to have used an incorrect registration form if it exceeds the 
one-third cap under new General Instruction I.B.6.).
---------------------------------------------------------------------------

    Our objective with this rulemaking is to provide smaller companies 
some additional financing flexibility that will aid them in their 
efforts to raise capital, but at the same time give the Commission an 
opportunity to consider the impact of this expansion in an environment 
where there are limitations in place to address investor protection. As 
a general proposition, the greater the magnitude of the offering, the 
more likely it is that the transaction will be transformative to the 
issuer rather than routine in nature, such as the incremental expansion 
of the issuer's business. At the current time, we believe that 
securities transactions exceeding one-third of the value of an issuer's 
public float are generally of such significance to the issuer that the 
opportunity for specific staff review of the transaction and a greater 
window for underwriter due diligence are advisable.
    We believe that the one-third cap will help a substantial number of 
smaller public companies with their capital raising needs, which is 
supported by our observations of market activity of recent shelf 
registrants.\49\ Moreover, it is important to understand that the one-
third cap imposed by new General Instruction I.B.6. to Form S-3 only 
relates to other primary offerings conducted pursuant to this 
instruction. Accordingly, an issuer that is temporarily prevented from 
utilizing Form S-3 for shelf offerings to raise capital would not be 
foreclosed from registering a primary offering of securities on Form S-
1 or in private placements. The new eligibility instruction that we are 
adopting today is not meant to be mutually exclusive. Rather, it is 
designed to provide added flexibility to smaller public companies by 
giving them supplemental avenues of capital formation. As we have 
stated previously, our adoption of this amendment does not foreclose 
the possibility that we may revisit the appropriateness of this one-
third cap at a later time. For now, however, we think that this 
limitation promotes small business capital formation consistent with 
the protection of investors.
---------------------------------------------------------------------------

    \49\ When we further narrowed the set of shelf registration 
takedowns reviewed (the original review is referenced in n. 42) to 
companies with at least one class of listed common equity, the data 
indicated that 75% of sample registrants took down the equivalent of 
one-third or less of their public float annually off the shelf. For 
the majority of these sample registrants, therefore, an offering 
ceiling of one-third would appear satisfactory.
---------------------------------------------------------------------------

    At the same time that we are adopting an offering ceiling under new 
General Instruction I.B.6. of one-third of an issuer's public float, we 
are also making eligibility under this new rule contingent on the 
issuer having a class of common equity securities listed and registered 
on a national securities exchange.\50\ In the Proposing Release, we 
requested comment as to whether we should allow all companies with a 
public trading market, including companies with securities traded in 
the over-the-counter market such as the Pink Sheets, to use the amended 
Form S-3 as proposed or whether we should limit eligibility to inter-
dealer quotations systems with some level of oversight and operated by 
a self-regulatory organization.\51\ In addition, we asked whether there 
were other restraints on the proposed expansion of Form S-3 eligibility 
that should be considered, such as restrictions on the class of issuers 
that could utilize the revised forms.\52\ Most commenters did not 
address these specific points directly, but their responses generally 
suggested that they would not favor further restrictions on a 
registrant's form eligibility in addition to those already 
proposed.\53\ However, one commenter expressed concern over the risks 
inherent in expanding the base of companies eligible for primary 
offerings on Forms S-3 and F-3 and, accordingly, recommended that Form 
S-3 and Form F-3 eligibility be contingent on full implementation of 
both the management and auditor attestation report requirements of 
Section 404.\54\ At a minimum, the commenter opposed any weakening of 
the proposed limitations on eligibility in the final rule.
---------------------------------------------------------------------------

    \50\ New General Instruction I.B.6(c) of Form S-3.
    \51\ The Proposing Release, at 35127.
    \52\ Id.
    \53\ See, for example, letters from the ABA; Feldman Weinstein; 
Malizia Spidi; Morrison & Foerster; SBA; M. Shichtman; and Williams 
Securities.
    \54\ See letter from the CII. See also nn. 29 and 31 discussing 
this letter.
---------------------------------------------------------------------------

    Allowing only companies with at least one class of listed common 
equity securities to avail themselves of new General Instruction I.B.6. 
should help to minimize potential abuses that may arise from expanded 
shelf registration. This is because the exchanges' listing rules and 
procedures, as well as other requirements, provide an additional 
measure of protection for investors.\55\ Exchanges have both 
quantitative and qualitative listing rules that are designed to 
evidence that their listed issuers meet specified minimum requirements 
when the issuer first lists on the exchange and thereafter. Initial 
listing standards serve as a means for an exchange to screen issuers 
and to provide listed status to issuers with sufficient public float, 
investor base, and trading interest to assure that the market for the 
issuer's security has the depth and liquidity necessary to maintain 
fair and orderly markets. Maintenance listing criteria help assure that 
the issuer continues to meet the exchange's standards for depth and 
liquidity. While the exchanges' listing standards with respect to 
common equity securities can vary,\56\ generally the exchanges require 
the issuer to meet minimum standards relating to number of public 
shareholders and shares outstanding, shareholder approval of specified 
matters, and, in certain cases, earnings or income. Moreover, the 
exchanges' listing standards generally require issuers of common equity 
securities to meet strong corporate governance standards, including the 
requirement that the issuer's board be composed of a majority of 
independent directors and that key committees be composed solely of 
independent directors.\57\ Exchange-listed securities

[[Page 73540]]

also are subject to real-time reporting of quotation and transaction 
information, which benefits investors by apprising them of current 
market information about the security. Together, these common 
attributes allow the exchanges to sustain efficient and liquid markets 
that should help monitor the expansion of shelf registration 
eligibility on Form S-3 and help mitigate any attendant risks posed by 
expansion.\58\
---------------------------------------------------------------------------

    \55\ In contrast to the national securities exchanges, automated 
inter-dealer quotation systems such as the Over-the-Counter Bulletin 
Board and the Pink Sheets do not provide companies with the ability 
to list their securities, but, rather, serve as a medium for the 
over-the-counter securities market by collecting and distributing 
market maker quotes to subscribers. These automated inter-dealer 
quotation systems do not maintain or impose listing standards, nor 
do they have a listing agreement or arrangement with the companies 
whose securities are quoted through them.
    \56\ See, for example, Nasdaq Rules 4300 et seq., and NYSE 
Listed Company Manual (``LCM''), Sections 1 through 9.
    \57\ See, for example, Nasdaq Rule 4350 and NYSE LCM Section 3, 
which require listed issuers to comply with Rule 10A-3 under the 
Exchange Act, 17 CFR 240.10A-3, with regard to audit committee 
responsibility and independence, as well as an additional, broader 
array of corporate governance standards.
    \58\ See n. 28.
---------------------------------------------------------------------------

    We also note that limiting eligibility under new General 
Instruction I.B.6. to companies with common equity securities listed on 
a national securities exchange is more consistent with our historical 
treatment of secondary offering eligibility on Form S-3.\59\ We think 
this parallel approach is sensible given that Form S-3 has for many 
years allowed registrants to conduct secondary offerings on the form 
irrespective of public float, so long as the securities offered thereby 
were listed securities.\60\
---------------------------------------------------------------------------

    \59\ See General Instruction I.B.3. of Form S-3.
    \60\ In its comment letter, the ABA pointed out that, as 
proposed, the eligibility standards for primary offerings on Form S-
3 would have allowed both ``listed and unlisted'' reporting 
companies to make primary offerings on the form, while resale 
transactions on Form S-3 are limited to reporting companies whose 
securities are listed on a national securities exchange or quoted on 
the automated quotation system of a national securities association. 
In addition, the ABA noted that the staff of the Commission, through 
interpretive guidance, has historically permitted unlisted companies 
that are primarily eligible to use Form S-3 under the existing rules 
to register resale transactions on Form S-3 notwithstanding that the 
resale eligibility rules of Form S-3 require that the securities be 
listed on an exchange or quoted on the automated quotation system of 
a national securities association. We believe that the final rules, 
by limiting primary offering eligibility under new General 
Instruction I.B.6. to companies with equity securities listed on a 
national securities exchange, address these inconsistencies noted by 
the ABA in its comment letter.
---------------------------------------------------------------------------

    Some commenters noted that, under the proposed amendments, 
companies with securities not listed or authorized for listing on a 
national securities exchange would nevertheless be eligible to offer 
such securities in primary offerings on Form S-3 or Form F-3 so long as 
there was a public trading market for their securities.\61\ Because 
such securities would not be ``covered securities,'' as defined by 
Section 18(b) of the Securities Act, commenters expressed concern that 
some companies registering transactions under new General Instruction 
I.B.6. might well be subject to state securities registration 
requirements, which would frustrate the speed and efficacy of shelf 
registration. However, because we are limiting eligibility under the 
new rules to companies with listed equity, in most cases issuers will 
not be subject to state securities registration requirements in their 
efforts to raise capital utilizing new General Instruction I.B.6. By 
requiring issuers to have at least one listed class of common equity 
securities, most securities offered pursuant to the new eligibility 
rules will be ``covered securities,'' as defined by Section 18(b) of 
the Securities Act, and therefore exempt from state Blue Sky 
regulation.\62\
---------------------------------------------------------------------------

    \61\ See letters from the ABA; Feldman Weinstein; Morrison & 
Foerster; and Williams Securities Law.
    \62\ The exception would be a class of securities that are 
neither listed nor at least equal in seniority to a class of the 
issuer's listed securities. See Section 18(b)(1)(A) through (C) of 
the Securities Act [15 U.S.C. 77r(b)(1) (A) through (C)].
---------------------------------------------------------------------------

2. Calculation of Amount of Securities That May Be Sold
    To ascertain the amount of securities that may be sold pursuant to 
Form S-3 by registrants with a public float below $75 million, the new 
rule requires a two-step process:
     Determination of the registrant's public float immediately 
prior to the intended sale; and
     Aggregation of all sales of the registrant's securities 
pursuant to primary offerings under General Instruction I.B.6. of Form 
S-3 in the previous 12-month period (including the intended sale) to 
determine whether the one-third cap would be exceeded.

The new rule requires registrants to compute their public float by 
reference to the price at which their common equity was last sold, or 
the average of the bid and asked prices of their common equity, in the 
principal market for the common equity as of a date within 60 days 
prior to the date of sale.\63\ Then, for purposes of calculating the 
aggregate market value of securities sold during the preceding period 
of 12 calendar months, the rule requires registrants to add together 
the gross sales price for all primary offerings pursuant to new General 
Instruction I.B.6. to Form S-3 during the preceding period of 12 
calendar months. Based on that calculation, registrants will be 
permitted to sell securities with a value up to, but not greater than, 
the difference between one-third of their public float and the value of 
securities sold in primary offerings on Form S-3 under new General 
Instruction I.B.6. in the prior period of 12 calendar months.
---------------------------------------------------------------------------

    \63\ Instruction 1 to new General Instruction I.B.6. of Form S-
3. This is modeled after the calculation of public float provided in 
the instruction to General Instruction I.B.1. of Form S-3. However, 
the relevant date for purposes of Instruction 1 to new General 
Instruction I.B.6. is the date of sale, while the relevant date for 
purposes of General Instruction I.B.1. is the date of filing.
---------------------------------------------------------------------------

    The aggregate gross sales price includes sales of equity as well as 
debt offerings.\64\ Therefore, eligible registrants will also be able 
to offer non-investment grade debt on Form S-3.\65\ In the case of 
securities that are convertible into or exercisable for equity shares, 
such as convertible debt or warrants, however, we are requiring that 
registrants calculate the amount of securities they may sell in any 
period of 12 calendar months by reference to the aggregate market value 
of the underlying equity shares in lieu of the market value of the 
convertible securities. The aggregate market value of the underlying 
equity will be based on the maximum number of shares into which the 
securities sold in the prior period of 12 calendar months are 
convertible as of a date within 60 days prior to the date of sale, 
multiplied by the same per share market price of the registrant's 
equity used for purposes of calculating its public float pursuant to 
Instruction 1 to new General Instruction I.B.6. of Form S-3. We believe 
calculating the one-third cap based on the market value of the 
underlying securities makes it less likely that convertible securities 
would be structured and offered in a manner designed to avoid the 
effectiveness of the cap.
---------------------------------------------------------------------------

    \64\ As adopted, the method of calculating the one-third cap on 
sales is the same whether the registrant is selling equity or debt 
securities, or a combination of both. As we discussed in the 
Proposing Release, we had some concern that we would be 
inadvertently encouraging issuances of debt securities over equity 
if the proposed limitation on sales excluded debt. Because we do not 
intend for the rule to dictate or otherwise influence the overall 
form of security that companies offer, we have adopted the one-third 
cap on sales to include both equity and debt.
    \65\ The provisions of Form S-3 in effect today allow 
registrants to offer non-convertible investment grade debt 
securities on Form S-3 regardless of the size of their public float. 
General Instruction I.B.2. to Form S-3.
---------------------------------------------------------------------------

    It is important to note that the one-third cap on sales is not 
intended to impact a holder's ability to convert or exercise derivative 
securities purchased from the company. For example, this limit will 
apply to the amount of common stock warrants that a company can sell 
under Form S-3, and the number of common shares into which the warrants 
are exercisable will be relevant for determining the company's 
compliance with the one-third cap at the time the warrants were sold, 
but the number will not impede the purchaser's later exercise of the 
warrants.
    As adopted, the one-third cap is designed to allow issuers 
flexibility. Because the restriction on the amount of

[[Page 73541]]

securities that can be sold over a period of 12 calendar months is 
calculated by reference to a registrant's public float immediately 
prior to a contemplated sale, as opposed to the time of the initial 
filing of the registration statement, the amount of securities that an 
issuer is permitted to sell can continue to grow over time as the 
issuer's public float increases. Therefore, the value of one-third of a 
registrant's float during the period that a shelf registration 
statement is effective may, at any given time, be much greater than at 
the time the registration statement was initially filed. Registrants 
may therefore benefit from increases in the size of their public float 
during the time that the registration statement is effective. 
Conversely, the amount of securities that an issuer is permitted to 
sell at any given time may also decrease if the issuer's public float 
contracts. It is important to note, however, that a contraction in a 
registrant's float, such that the value of one-third of the float 
decreases from the time the registration statement was initially filed, 
would not necessarily run afoul of the cap because the relevant point 
in time for determining whether a registrant has exceeded the threshold 
is the time of sale. If the sale of securities, together with all 
securities sold in the preceding period of 12 calendar months, does not 
exceed one-third of the registrant's float calculated within 60 days of 
the sale, then the transaction would not violate new General 
Instruction I.B.6. to Form S-3 even if the registrant's public float 
later drops to a level such that the prior sale now accounts for over 
one-third of the new lower float.\66\ To keep track of the securities 
sold under General Instruction I.B.6., the revised instructions to Form 
S-3 require registrants to disclose in each prospectus filed with the 
Commission their updated calculation of public float and the amount of 
securities offered pursuant to this instruction during the prior 12 
calendar month period that ends on, and includes, the date of the 
prospectus.\67\
---------------------------------------------------------------------------

    \66\ Along these lines, under the amendments registrants will be 
able to sell up to the equivalent of the full one-third of their 
public float immediately following the effective date of their 
registration statement, provided that there were no prior sales 
pursuant to new General Instruction I.B.6. of Form S-3. This is 
consistent with Rule 415(a)(1)(x), which was amended in 2005 to 
allow primary offerings on Form S-3 or Form F-3 to occur immediately 
after effectiveness of a shelf registration statement. Release No. 
33-8591. Assuming that the sale of the entire one-third of public 
float allotted under the new form eligibility rules complied with 
the rule at the time of the takedown, the subsequent contraction in 
the registrant's public float will not invalidate this prior sale.
    \67\ Instruction 7 to new General Instruction I.B.6.
---------------------------------------------------------------------------

    Because Form S-3 registrants who meet the $75 million float 
threshold of existing General Instruction I.B.1. at the time their 
registration statement is filed are not subject to restrictions on the 
amount of securities they may sell under the registration statement 
even if their float falls below $75 million subsequent to the effective 
date of the Form S-3 but prior to the update required under Section 
10(a)(3) of the Securities Act, we believe it is appropriate to provide 
issuers registering on Form S-3 pursuant to new General Instruction 
I.B.6. the same flexibility if their float increases to a level that 
equals or exceeds $75 million subsequent to the effective date of their 
Form S-3 without the additional burden of filing a new Form S-3 
registration statement. Therefore, we are adopting an instruction to 
I.B.6. that lifts the one-third cap on additional sales in the event 
that the registrant's float increases to $75 million or more subsequent 
to the effective date of the registration statement.\68\ Of course, 
pursuant to Rule 401 under the Securities Act, registrants are also 
required to recompute their public float each time an amendment to the 
Form S-3 is filed for the purpose of updating the registration 
statement in accordance with Section 10(a)(3) of the Securities Act--
typically when an annual report on Form 10-K is filed. In the event 
that the registrant's public float as of the date of the filing of the 
annual report is less than $75 million, the one-third cap will be 
reimposed for all subsequent sales made pursuant to new General 
Instruction I.B.6. and will remain in place until the registrant's 
float equals or exceeds $75 million.
---------------------------------------------------------------------------

    \68\ Instruction 3 to new General Instruction I.B.6. of Form S-
3.
---------------------------------------------------------------------------

    The following examples illustrate how the new Instruction will 
operate.\69\ For purposes of these examples, we are assuming that the 
hypothetical registrants satisfy the registrant eligibility 
requirements in General Instruction I.A. of Form S-3, are not shell 
companies, and have at least one class of common equity securities 
listed and registered on a national securities exchange.
---------------------------------------------------------------------------

    \69\ The examples that follow are for illustrative purposes only 
and are not intended to be indicative of actual market activity.
---------------------------------------------------------------------------

Example A

    On January 1, 2009, a registrant with a public float of $25 million 
files a shelf registration statement on Form S-3 pursuant to new 
General Instruction I.B.6. intending to register the offer and sale of 
up to $50 million of debt and equity securities over the next three 
years from time to time as market opportunities arise.\70\ The 
registration statement is subsequently declared effective. In March 
2009, the registrant decides to sell common stock off the registration 
statement. To determine the amount of securities that it may sell in 
connection with the intended takedown, the registrant calculates its 
public float as of a date within 60 days prior to the anticipated date 
of sale, pursuant to Instruction 1 to new General Instruction I.B.6. 
Calculating that its public float has risen to $30 million, the 
registrant determines that the total market value of all sales effected 
pursuant to new General Instruction I.B.6. over the past year, 
including the intended sale, may not exceed $10 million, or one-third 
of the registrant's float. Since the registrant has conducted no prior 
securities offerings on Form S-3 pursuant to new General Instruction 
I.B.6., it is able to sell the entire $10 million off the Form S-3.
---------------------------------------------------------------------------

    \70\ Although only one-third of the public float may be sold in 
any year, a company may register a larger amount. Release No. 33-
8591 at 44774-5 (discussing the adoption of an amendment to Rule 415 
that eliminated limits on the amount of securities that may be 
registered on Form S-3 or Form F-3 under Rule 415(a)(1)(x) and Rule 
415(a)(1)(ix)).
---------------------------------------------------------------------------

    Assuming that it sold the entire $10 million of securities in March 
2009, the registrant in September 2009 once again contemplates a 
takedown off the shelf. It determines that its public float (as 
calculated pursuant to Instruction 1 to new General Instruction I.B.6.) 
has again risen, this time to $54 million. Because one-third of $54 
million is $18 million, the registrant is now able to sell additional 
securities in accordance with new General Instruction I.B.6(a), even 
though in March 2009 it took down the equivalent of what was then the 
entire one-third of its float. However, because the registrant has 
already sold $10 million worth of its securities within the 12 calendar 
months prior to the contemplated sale, the registrant may sell no more 
than $8 million of additional securities at this time ($18 million 
minus $10 million of securities previously sold).
    In December 2009, the registrant determines that its public float 
has risen to $78 million. To this point, assuming it has only sold an 
aggregate of $18 million of its securities pursuant to the subject Form 
S-3 as described above, it has $32 million of securities remaining on 
the registration statement and potentially available for takedown (the 
total amount registered of $50 million, less the $18 million previously 
sold).

[[Page 73542]]

Because one-third of $78 million is $26 million, and the registrant has 
already sold $18 million within the previous year, new General 
Instruction I.B.6(a) will, in most circumstances, prohibit the 
registrant from selling more than an additional $8 million of 
securities in the latest offering. However, under Instruction 3 to new 
General Instruction I.B.6., the registrant is no longer subject to the 
one-third cap on annual sales because its float has exceeded $75 
million. If it chooses, the registrant may sell the entire $32 million 
of securities remaining on the registration statement all at once or in 
separate tranches at any time until the company next updates the 
registration statement pursuant to Section 10(a)(3) by filing its Form 
10-K. This will be the case even if the registrant's float subsequently 
falls below $75 million before it files that Form 10-K, at which time 
the registrant is required to recompute its public float in accordance 
with Rule 401. In the event that the registrant's public float as of 
the date of that Form 10-K filing is less than $75 million, the one-
third cap will be reimposed for all subsequent sales made pursuant to 
new General Instruction I.B.6. and will remain in place until the 
registrant's float equals or exceeds $75 million.

Example B

    A registrant has 12 million shares of voting common equity 
outstanding held by nonaffiliates. The market price of this stock is $5 
per share, so the registrant has a public float of $60 million. The 
registrant has an effective Form S-3 shelf registration statement filed 
in reliance on new General Instruction I.B.6. of Form S-3, pursuant to 
which the registrant wants to issue $10 million of convertible debt 
securities which will be convertible into common stock at a 10% 
discount to the market price of the common stock. Pursuant to 
Instruction 2 to new General Instruction I.B.6., the amount of 
securities issued is measured by reference to the value of the 
underlying common stock rather than the amount for which the debt 
securities will be sold. At the 10% discount, the conversion price is 
$4.50 and, as a result, 2,222,222 shares currently underlie the $10 
million of convertible debt. Because the current market price of those 
underlying shares is $5 per share, for purposes of General Instruction 
I.B.6. the value of the securities being offered is $11,111,110 
(2,222,222 shares at $5 per share), which is less than the $20 million 
allowed by the one-third cap (one-third of $60 million).
    After the convertible debt securities are sold and are outstanding, 
the registrant contemplates an additional takedown. To determine the 
amount of securities that the registrant may sell under General 
Instruction I.B.6. in the anticipated offering, the registrant must 
know its current public float and must calculate the aggregate market 
value of all securities sold in the last year on Form S-3 pursuant to 
General Instruction I.B.6. Instruction 2 to new General Instruction 
I.B.6. requires that the registrant compute the market value of 
convertible debt securities sold under I.B.6. by reference to the value 
of the underlying common stock rather than the amount for which the 
debt securities were sold. With respect to the notes that were sold and 
have been converted, the aggregate market value of the underlying 
common stock is calculated by multiplying the number of common shares 
into which the outstanding convertible securities were converted times 
the market price on the day of conversion. With respect to the notes 
that were sold but have not yet been converted, the aggregate market 
value of the underlying common stock is calculated by multiplying the 
maximum number of common shares into which the notes are convertible as 
of a date within 60 days prior to the anticipated sale by the per share 
market price of the registrant's equity used for purposes of 
determining its current float.\71\
---------------------------------------------------------------------------

    \71\ The date chosen by the registrant for determination of the 
maximum number of shares underlying the convertible notes must be 
the same date that the registrant chooses for determining its market 
price in connection with the calculation of public float pursuant to 
new General Instruction I.B.6. See Instruction 5 to new General 
Instruction I.B.6.
---------------------------------------------------------------------------

    In this example, assume that the registrant has a current per share 
stock price of $5.55. If half of the notes converted into common stock 
while the per share market price was $5.00 ($4.50 discount), then, for 
purposes of Instruction 2 to new General Instruction I.B.6., the value 
of that prior issuance is $5,555,555 (half of the notes divided by the 
discounted conversion price of $4.50 and then multiplied by $5, the 
market price on the day of conversion).
    As for the notes that have not yet been converted, the aggregate 
market value of the underlying common stock is determined by 
calculating the number of shares that may be received upon conversion 
and multiplying that by the current market value of $5.55. Therefore, 
the outstanding note amount ($5 million) is divided by the discount 
conversion price ($5), resulting in 1,000,000 shares and this amount is 
then multiplied by the current market value of $5.55. Thus, for 
purposes of Instruction 2 to new General Instruction I.B.6., $5,550,000 
is the value of the outstanding notes that have not yet been converted. 
Adding this to the value of the notes that have already been converted 
results in a total value of $11,105,555 having been issued under this 
Form S-3.
    To determine the amount of additional securities that the 
registrant may sell under General Instruction I.B.6., the registrant 
should add the value of the notes issued ($11,105,555) plus the value 
of all other securities sold by the registrant pursuant to Instruction 
I.B.6. during the preceding 12 calendar months. If this amount is less 
than one-third of the registrant's current public float, it may sell 
additional securities with a value up to, but not greater than, the 
difference between one-third of its current public float and the value 
of all securities sold by it pursuant to Instruction I.B.6. during the 
preceding 12 calendar months.

Example C

    A registrant has an effective registration statement on Form S-3, 
filed pursuant to new General Instruction I.B.6., through which it 
intends to conduct shelf offerings of its securities. At the time of 
its first shelf takedown, the registrant's public float is equal to $21 
million (which means that the maximum amount available to be sold under 
the one-third cap would be $7 million). Based on new General 
Instruction I.B.6(a), the registrant sells $3 million of its debt 
securities. Six months later, the registrant's public float has 
decreased to $9 million. The registrant wishes to conduct an additional 
takedown of debt securities off the shelf but, because of the reduction 
in its float, it is prohibited from doing so. This is because with a 
public float of $9 million, General Instruction I.B.6(a) only allows 
the registrant to sell a maximum of $3 million worth of securities 
(one-third of $9 million) pursuant to the registration statement during 
the prior period of 12 calendar months that ends on the date of the 
contemplated sale. However, the registrant has already sold securities 
valued (for purposes of new General Instruction I.B.6.) at $3 million 
in the 6 months prior to the contemplated sale and so must wait until 
at least one full year has passed since the $3 million sale of 
securities to undertake another offering off the Form S-3 unless its 
float increases. Note that although the registrant's float does not 
allow additional sales, the $3 million takedown of securities 6 months 
prior does not violate the one-third cap because, at the time of that 
prior sale, the registrant's float was $21 million.

[[Page 73543]]

Example D

    Pursuant to new General Instruction I.B.6., a registrant with a 
public float of $48 million files a Form S-3, which the registrant 
intends to use as a universal shelf registration statement to sell up 
to $100 million of debt or equity securities, or a combination of both 
at any time or from time to time.
    After the registration statement is declared effective, the 
registrant decides to do a takedown off the shelf comprised of 
convertible promissory notes and warrants to purchase to common stock. 
The notes are convertible into shares of common stock at a 50% discount 
to the market price of the common stock. The warrants are exercisable 
for shares of common stock at an exercise price equal to $5 per share. 
Because the registrant's float is $48 million, it may sell up to $16 
million of securities (one-third of $48 million) pursuant to General 
Instruction I.B.6. The registrant wants to do a takedown of $1 million 
in convertible promissory notes. The registrant intends to issue the 
notes along with warrants to purchase an additional 10,000 shares of 
its common stock.
    In order to determine if this sale is permissible under General 
Instruction I.B.6., the registrant must calculate the amount of 
securities it has sold pursuant to General Instruction I.B.6. in the 
previous 12 months and add this to the value of the securities in the 
intended sale. If the combined value is $16 million or less, it may 
proceed with the sale.
    Assume that the registrant has not sold any securities pursuant to 
the Instruction I.B.6. in the previous 12 months. To determine the 
value of the convertible promissory notes, the registrant is required 
by Instruction 2 to General Instruction I.B.6. to calculate the value 
of the shares underlying the convertible notes. The notes are 
convertible into shares of common stock at a 50% discount to the market 
price of the common stock. Assuming that the market price of the common 
stock is $2 per share, the notes are convertible as follows: $1 million 
(the price of the notes) divided by 1 (50% of the market price of the 
common stock) is equal to 1 million shares of common stock that the 
purchasers will receive upon conversion. Since the market price of the 
stock is $2 per share, the value of the 1 million shares is $2 million 
(1 million shares at $2 per share). Therefore, the value of the 
accompanying warrants for 10,000 shares must be less than $14 million 
for the sale to be within the one-third cap (one-third of $48 million, 
less the $2 million of common stock underlying the convertible notes).
    To calculate the value of the warrants, which are derivative 
securities, Instruction 2 to General Instruction I.B.6. requires that 
the registrant calculate the value of the shares underlying the 
warrants in lieu of the market value of the warrants. Under the terms 
of the warrants, the warrants are exercisable for 10,000 shares at an 
exercise price of $5 per share.
    Instruction 2 to General Instruction I.B.6. states that the 
aggregate market value of the underlying equity shall be calculated by 
multiplying the maximum number of common equity shares into which the 
derivative securities are convertible or for which they are 
exercisable, as of a date within 60 days prior to the date of sale, by 
the same per share market price of the registrant's equity used for 
purposes of calculating the registrant's float. Assuming that the 
market price of the registrant's stock is $2 per share, the value of 
the shares underlying the warrants is $20,000 (10,000 shares multiplied 
by $2 per share). Because the underlying value of the convertible notes 
is $2 million and the underlying value of the warrants is $20,000, the 
intended sale has a value of $2,020,000 and does not exceed the one-
third cap (of $16 million).
3. Exclusion of Shell Companies
    In accordance with our desire to expand Form S-3 eligibility 
consistent with the protection of investors, the expanded eligibility 
rules specifically exclude shell companies, which will be prohibited 
from registering securities in primary offerings on Form S-3 unless 
they meet the minimum $75 million float threshold of General 
Instruction I.B.1.\72\ While we are not passing on the relative merits 
of shell companies and we recognize that these entities are used for 
many legitimate business purposes, we have repeatedly stated our belief 
that these entities may give rise to disclosure abuses.\73\ Under the 
final rules, a former shell company that cannot meet the $75 million 
float criterion but otherwise satisfies the registrant requirements of 
Form S-3 will become eligible to use Form S-3 to register primary 
offerings of its securities, provided that:
---------------------------------------------------------------------------

    \72\ This prohibition is intended to apply equally to ``blank 
check companies,'' as such entities are defined in Rule 419 of the 
Securities Act. However, because we believe that the definition of 
``shell company'' under Rule 405 is expansive enough to encompass 
blank check companies for purposes of excluding them from S-3 
eligibility under new General Instruction I.B.6., we do not exclude 
them separately. See Use of Form S-8 and Form 8-K by Shell 
Companies, Release No. 33-8407 (Apr. 15, 2004) [69 FR 21650], at n. 
20:
    We believe that under today's proposals all blank check 
companies as defined in Rule 419 would be considered shell companies 
until they acquire an operating business or more than nominal 
assets. Not all shell companies, however, would be classified as 
blank check companies under Rule 419.
    \73\ See, for example, Release No. 33-8591; Release No. 33-8587; 
Release No. 33-7393; and Penny Stock Definition for Purposes of 
Blank Check Rule, Release No. 33-7024 (Oct. 25, 1993) [58 FR 58099].
---------------------------------------------------------------------------

     It has not been a shell company for at least 12 calendar 
months;\74\
---------------------------------------------------------------------------

    \74\ Similarly, Form S-8 is not available to shell companies or 
to former shell companies until 60 days after they have ceased being 
shell companies and have filed information that would be required in 
a registration statement on Form 10 or Form 20-F, as applicable, to 
register a class of securities under Section 12 of the Exchange Act. 
Release No. 33-8587. Unlike the eligibility rules of Form S-8, 
however, a company must be reporting for at least 12 calendar months 
before it is eligible under any criteria to use Form S-3. Therefore, 
instead of the 60-day delay required by Form S-8, it is more 
appropriate for a shell company to be prohibited from using the new 
provisions of S-3 and F-3 until at least 12 calendar months after it 
ceases being a shell company.
---------------------------------------------------------------------------

     It has filed information that would be required in a 
registration statement on Form 10 or Form 20-F, as applicable, to 
register a class of securities under Section 12 of the Exchange 
Act;\75\ and
---------------------------------------------------------------------------

    \75\ This information is collectively described as ``Form 10 
information.'' See Instruction 4 to new General Instruction 
I.B.6(b).
---------------------------------------------------------------------------

     It has been timely reporting for 12 calendar months.\76\
---------------------------------------------------------------------------

    \76\ New General Instruction I.B.6(b) of Form S-3 addresses the 
requirements pertaining to former shell companies.
---------------------------------------------------------------------------

    Ordinarily, the information required to be filed would be in a 
current report on Form 8-K, reporting completion of the transaction 
that caused it to cease being a shell company.\77\ In other cases, the 
information may be filed in a Form 10 or Form 20-F. Consistent with the 
current registrant eligibility rules of Form S-3 that require at least 
12 calendar months of timely reporting, the 12 calendar-month delay 
under the new rules is intended to provide investors in the former 
shell company with the benefit of disclosure over a full 12-month 
period in the newly structured entity prior to its use of Form S-3 for 
primary securities offerings.
---------------------------------------------------------------------------

    \77\ Items 2.01(f) and 5.01(a)(8) of Form 8-K require a company 
in a transaction where the company ceases being a shell company to 
file a current report on Form 8-K containing the information (or 
identifying the previous filing in which the information is 
included) that would be required in a registration statement on Form 
10 to register a class of securities under Section 12 of the 
Exchange Act.
---------------------------------------------------------------------------

    Commenters held contrasting opinions of our proposal to exclude 
shell companies \78\ and the requirement that former shell companies 
may not rely on General Instruction I.B.6. to

[[Page 73544]]

Form S-3 until at least one year has elapsed since they ceased being 
shell companies.\79\ Because of the limited and less comprehensive 
public information available regarding shell companies, we are adopting 
General Instruction I.B.6(b) as proposed to ensure that investors have 
the benefit of one full year of disclosure once the entity ceases to be 
a shell company. In this regard, requiring one year of timely reporting 
puts our treatment of former shell companies on par with the 
eligibility requirements of any other new company wishing to use Form 
S-3.\80\
---------------------------------------------------------------------------

    \78\ See letters from the ABA and Morrison & Foerster 
(supporting the exclusion of shell companies) and letter from M. 
Baum (opposing the exclusion).
    \79\ See letters from the ABA and Morrison & Foerster 
(supporting the one-year delay) and letters from Feldman Weinstein 
and Williams Securities (objecting to the one-year delay and 
contrasting it to the 90-day delay the Commission proposed in 
Release No. 33-8813 (July 5, 2007) [72 FR 36822] in order for 
shareholders of former shell companies to resell their securities in 
reliance on Rule 144). This analogy to Rule 144 is inapposite. A 
delay of at least 90 days under Rule 144, versus one year under Form 
S-3, is not unique to shell companies. Form S-3 requires any issuer 
to have been timely reporting for at least one year, while Rule 144 
requires that an issuer be subject to the reporting requirements for 
at least 90 days before an affiliate of a reporting issuer is able 
to sell unrestricted securities under the rule.
    \80\ See General Instruction I.A.3. of Form S-3.
---------------------------------------------------------------------------

C. Amendments to Form F-3

    Form F-3, which was designed to parallel Form S-3,\81\ is the 
equivalent short-form registration form available for use by ``foreign 
private issuers''\82\ to register securities offerings under the 
Securities Act. Similar to Form S-3, Form F-3 is available to foreign 
private issuers that satisfy the form's registrant requirements and at 
least one of the form's transaction requirements.\83\ The Form F-3 
registrant requirements are similar to Form S-3 and generally relate to 
a registrant's reporting history under the Exchange Act.\84\ In 
addition, like the Form S-3 registration statement, Form F-3 limits the 
ability of registrants to conduct primary offerings on the form unless 
their public float equals or exceeds a particular threshold.\85\
---------------------------------------------------------------------------

    \81\ Integrated Disclosure System for Foreign Private Issuers, 
Release No. 33-6360 (Nov. 20, 1981) [46 FR 58511], at 7:
    The three forms proposed under the Securities Act roughly 
parallel proposed Forms S-1, S-2 and S-3 in the domestic integration 
system, but the foreign system is based on the Form 20-F instead of 
the Form 10-K and annual report to shareholders as the uniform 
disclosure package.
    \82\ The term ``foreign private issuer'' is defined in Rule 405 
of the Securities Act to mean any foreign issuer other than a 
foreign government except an issuer meeting the following 
conditions:
    (1) More than 50 percent of the outstanding voting securities of 
such issuer are directly or indirectly owned of record by residents 
of the United States; and
    (2) Any of the following:
    (i) The majority of the executive officers or directors are 
United States citizens or residents;
    (ii) More than 50 percent of the assets of the issuer are 
located in the United States; or
    (iii) The business of the issuer is administered principally in 
the United States.
    \83\ General Instruction I. of Form F-3: ``Eligibility 
Requirements for Use of Form F-3.''
    \84\ One difference is that, unlike Form S-3, General 
Instruction I.A.1. of Form F-3 requires that registrants have 
previously filed at least one annual report on Form 20-F, Form 10-K 
or, in certain cases, Form 40-F under the Exchange Act. For an 
explanation of this difference, see Simplification of Registration 
and Reporting Requirements for Foreign Companies; Safe Harbors for 
Public Announcements of Unregistered Offerings and Broker-Dealer 
Research Reports, Release No. 33-7029 (Nov. 3, 1993) [58 FR 60307], 
at 3; and Simplification of Registration and Reporting Requirements 
for Foreign Companies; Safe Harbors for Public Announcements of 
Unregistered Offerings and Broker-Dealer Research Reports, Release 
No. 33-7053 (Apr. 19, 1994) [59 FR 21644], at 2 (explaining that the 
requirement was adopted ``in order to ensure that information 
regarding the issuer is available to the market'').
    \85\ General Instruction I.B.1. of Form F-3. Note that, unlike 
Form S-3, the Instruction makes reference to the registrant's 
``worldwide'' public float.
---------------------------------------------------------------------------

    As with Form S-3, the Commission has attempted to limit the 
availability of Form F-3 for primary offerings to a class of companies 
believed to provide a steady stream of corporate disclosure that is 
broadly disseminated to, and digested by, the marketplace. When the 
Commission adopted Form F-3 in 1982,\86\ it set the public float test 
for foreign issuers at $300 million in response to public comment 
recommending that the numerical test for foreign issuers be much 
greater than for domestic registrants.\87\ In 1994, however, the 
Commission reduced this threshold to $75 million in order to extend to 
foreign issuers the benefits of short-form registration ``to the same 
extent available to domestic companies.'' \88\ In explaining its 
rationale, the Commission stated:
---------------------------------------------------------------------------

    \86\ Adoption of Foreign Issuer Integrated Disclosure System, 
Release No. 33-6437 (Nov. 19, 1982) [47 FR 54764].
    \87\ Release No. 33-7029, at 2.
    \88\ Release No. 33-7053, at 2. In the same rulemaking, the 
Commission also reduced the reporting history requirement in Form F-
3 from 36 to 12 months to match the eligibility criteria applicable 
to domestic companies using Form S-3.

    [Our] experience with foreign issuers, as well as the 
internationalization of securities markets, indicates that foreign 
issuers with a public float of $75 million or more have a degree of 
analyst following in their world-wide markets comparable to 
similarly-sized domestic companies.\89\
---------------------------------------------------------------------------

    \89\ Release No. 33-7029, at 2.

    As a result, the Commission believed that expanding Form F-3 
eligibility by lowering the float standard to $75 million would give 
foreign issuers the same capital raising advantages enjoyed by domestic 
issuers on Form S-3 consistent with investor protection.\90\
---------------------------------------------------------------------------

    \90\ The Commission stated:
    These provisions are part of the ongoing efforts of the 
Commission to ease the transition of foreign companies into the U.S. 
disclosure system, enhance the efficiencies of the registration and 
reporting processes and lower costs of compliance, where consistent 
with investor protection.
    Release No. 33-7053, at 2.
---------------------------------------------------------------------------

    In order to maintain the rough equivalency between Form S-3 and 
Form F-3, which have had the same public float criteria for primary 
offering eligibility since 1994,\91\ we are adopting amendments to Form 
F-3 that are comparable to our changes to Form S-3. Specifically, new 
General Instruction I.B.5. to Form F-3 will allow foreign private 
issuers with less than $75 million in worldwide public float to 
register primary offerings of their securities on Form F-3, provided:
---------------------------------------------------------------------------

    \91\ The Commission's adoption of the ``Securities Offering 
Reform'' amendments in July 2005 is a recent instance where parallel 
changes were made to Form S-3 and Form F-3. See Release No. 33-8591. 
For example, the 2005 amendments provided that the ability to 
conduct an automatic shelf offering under both Form S-3 and Form F-3 
is limited to registrants that qualify as ``well-known seasoned 
issuers'' under Rule 405 of the Securities Act. We note the minimum 
public float threshold required to be a well-known seasoned issuer 
is the same for both Form S-3 and Form F-3.
---------------------------------------------------------------------------

     They meet the other registrant eligibility conditions for 
the use of Form F-3;
     The class of securities to be offered is listed and 
registered on a national securities exchange;
     They do not sell more than the equivalent of one-third of 
their public float in primary offerings under General Instruction 
I.B.5. on Form F-3 over any period of 12 calendar months; and
     They are not shell companies and have not been shell 
companies for at least 12 calendar months before filing the 
registration statement.

II. Paperwork Reduction Act

A. Background

    The new rules and amendments to Forms S-3 and F-3 contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995.\92\ We published a notice requesting 
comment on the collection of information requirements in the Proposing 
Release and submitted these to the Office of Management and Budget for 
review and approval in accordance with the Paperwork Reduction Act.\93\ 
The titles for the collection of information are:
---------------------------------------------------------------------------

    \92\ 44 U.S.C. 3501 et seq.
    \93\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Form S-3'' (OMB Control No. 3235-0073);
    ``Form F-3'' (OMB Control No. 3235-0256);

[[Page 73545]]

    ``Form S-1'' \94\ (OMB Control No. 3235-0065); and
---------------------------------------------------------------------------

    \94\ Because our amendments to Form S-3 and Form F-3 are 
anticipated to affect the annual number of Forms S-1 and Forms F-1 
filed, we are including them in the titles of information 
collections even though we are not amending the substance of the 
collection in this release. Note that the Proposing Release also 
included our estimates with respect to Form SB-2 (OMB Control No. 
3235-0418), in addition to Forms S-3, F-3, S-1 and F-1. However, 
Release No. 33-8876, which was adopted by the Commission on November 
15, 2007, will eliminate Form SB-2 when it becomes effective. 
Therefore, our revised Paperwork Reduction Act estimates do not 
include new estimates for Form SB-2. As discussed in greater detail 
below, we have taken the elimination of Form SB-2 into consideration 
for purposes of revising our estimates of the burden associated with 
Forms S-3, S-1 and F-1.
---------------------------------------------------------------------------

    ``Form F-1'' \95\ (OMB Control No. 3235-0258).
---------------------------------------------------------------------------

    \95\ Id.
---------------------------------------------------------------------------

    We adopted existing Forms S-3, S-1, F-3 and F-1 pursuant to the 
Securities Act. These forms set forth the disclosure requirements for 
registration statements that are prepared by eligible issuers to 
provide investors with the information they need to make informed 
investment decisions in registered offerings.
    Our amendments to Forms S-3 and F-3 are intended to allow issuers 
that are ineligible to use Forms S-3 and F-3 for primary offerings 
because they do not meet the forms' public float requirements to 
nevertheless register a limited amount of securities in primary 
offerings on Form S-3 or Form F-3, as applicable, so long as they are 
not shell companies, they meet the other eligibility requirements of 
the forms, and they have at least one class of common equity securities 
listed and registered on a national securities exchange.
    The hours and costs associated with preparing disclosure, filing 
forms, and retaining records constitute reporting and cost burdens 
imposed by the collection of information. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control number.
    The information collection requirements related to registration 
statements on Forms S-3, S-1, F-3 and F-1 are mandatory. There is no 
mandatory retention period for the information disclosed, and the 
information disclosed would be made publicly available on the EDGAR 
filing system.

B. Summary of Information Collections

    Because the amendments that we are adopting in this release pertain 
principally to Forms S-3 and F-3 eligibility, rather than to the 
disclosure required by these forms, we do not believe that the 
amendments will impose any new recordkeeping or information collection 
requirements, other than those that will be de minimis in nature.\96\ 
On a per-response basis, therefore, the amendments should not increase 
or decrease existing disclosure burdens for Form S-3 or Form F-3. 
However, because we expect that many companies newly eligible for 
primary offerings on Forms S-3 and F-3 as a result of these amendments 
will choose to file short-form Form S-3 and Form F-3 registration 
statements in lieu of Forms S-1 or F-1, as applicable, we believe there 
will be an aggregate decrease in the disclosure burdens associated with 
Forms S-1 and F-1 and an increase in the disclosure burdens associated 
with Forms S-3 and F-3. The shift in aggregate disclosure burden among 
these forms will be due entirely to the change in the number of annual 
responses expected with respect to each form, as companies previously 
ineligible to use Form S-3 and Form F-3 switch to these forms for their 
public offerings and away from Forms S-1 and F-1.
---------------------------------------------------------------------------

    \96\ Instruction 7 to new General Instruction I.B.6. of Form S-3 
and Instruction 7 to new General Instruction I.B.5. of Form F-3 
require registrants to disclose in each prospectus filed with the 
Commission their updated calculation of public float and the amount 
of securities offered on Form S-3 or F-3, as applicable, pursuant to 
this instruction during the prior 12 calendar months. Although this 
is a new disclosure requirement for Forms S-3 and F-3, we think that 
the registrant's determination of its public float and the amount of 
securities offered in the prior twelve-month period should be 
readily accessible and easily calculable. In addition, we note that 
registrants are already required to ascertain their public float at 
the time they file a registration statement for a primary offering 
on Form S-3 or Form F-3. See General Instruction I.B.1. of Form S-3 
and General Instruction I.B.1. of Form F-3. As such, we anticipate 
that the total time, effort and financial resources to generate and 
maintain this information will be insignificant for each registrant.
---------------------------------------------------------------------------

    In addition, because of the anticipated benefits to issuers 
associated with Forms S-3 and F-3, in particular the lower costs of 
preparing and filing the registration statements and the ability to 
make delayed and continuous offerings in response to changing market 
conditions, we think that this will increase the demand for, and lead 
to more, company filings on Forms S-3 and F-3 than would otherwise have 
been made on Forms S-1 and F-1. That is, we think that the opportunity 
for capital raising will be more robust for many companies because of 
the availability of shelf registration on Forms S-3 and F-3. We also 
anticipate that many companies newly eligible to use Forms S-3 or F-3 
will choose to offer their securities directly to the public through 
registration on these registration forms instead of through private 
placements and, therefore, we expect comparatively more Forms S-3 and 
F-3 registration statements to be filed as companies forego private 
offerings in favor of the public markets.
    In order to provide an estimate of the change in the collection of 
information burden for purposes of the Paperwork Reduction Act, our 
assumption is that the amendments to Forms S-3 and F-3 will result in 
an overall increase in the number of such forms filed annually by 
eligible companies and an overall decrease in the number of Forms S-1 
and Forms F-1 filed annually by these companies. As discussed, however, 
we do not expect that the incremental increase in the number of all 
Forms S-3 and F-3 filed will be roughly equal to the incremental 
decrease in the number of Forms S-1 and Forms F-1 filed, because our 
assumption is that the advantages of shelf registration on Form S-3 and 
Form F-3 will encourage financings on these forms that would otherwise 
have been carried out through exempt offerings or perhaps not at all. 
Therefore, we believe the amendments will result in a net increase in 
the annual aggregate number of filings on all Forms S-3, S-1, F-3 and 
F-1 taken together, since the increased number of Form S-3 and F-3 
filings should exceed the decreased number of Form S-1 and F-1 filings. 
Accordingly, we believe the overall net decrease in disclosure burden 
that should result from companies changing to the more streamlined 
Forms S-3 and F-3 will be offset to some extent by newly eligible 
companies filing Forms S-3 and F-3 more frequently than they did Forms 
S-1 or F-1. However, this offset could be lessened in part by the one-
third cap on the amount of securities that eligible companies may sell 
on Form S-3 and Form F-3 in any period of 12 calendar months pursuant 
to the new form eligibility rules.\97\ Companies that require more 
capital but are prohibited by this one-third cap from using Form S-3 
and Form F-3 for primary offerings may, as a result, continue to 
conduct some offerings on Forms S-1 or F-1 or through the private 
markets even though Forms S-3 and F-3 are preferable.
---------------------------------------------------------------------------

    \97\ As previously discussed, new General Instructions I.B.6. of 
Form S-3 and I.B.5. of Form F-3 prohibit registrants from selling 
more than the equivalent of one-third of their public float in any 
period of 12-calendar months.
---------------------------------------------------------------------------

C. Summary of Comments and Revisions to Amendments

    None of the commenters addressed our request for comment on the 
Paperwork Reduction Act analysis contained in the Proposing Release. We

[[Page 73546]]

are nevertheless revising our Paperwork Reduction Act estimates in 
light of certain modifications we have made to the final rules as 
opposed to the proposal.
    As proposed, new General Instruction I.B.6. of Form S-3 and new 
General Instruction I.B.5. of Form F-3 would have limited the amount of 
securities eligible companies could sell in accordance with these 
provisions to no more than the equivalent of 20% of their public float 
over any period of 12 calendar months. In consideration of commenters 
who were concerned that capping issuers at 20% of the value of their 
public float every twelve months would limit the usefulness of these 
new rules, we have decided to increase the twelve-month offering 
threshold to one-third of an issuer's public float. In light of this 
increase, however, we are adopting a further condition to eligibility 
under new General Instruction I.B.6. of Form S-3 and new General 
Instruction I.B.5. of Form F-3 that the issuer must have at least one 
class of common equity securities listed and registered on a national 
securities exchange. This additional restriction should help to 
minimize the potential abuses arising from expanded shelf registration 
because the securities exchanges, through their listing rules and 
procedures, as well as other requirements, provide an additional 
measure of protection for investors.

D. Revised Paperwork Reduction Act Burden Estimates

    As discussed in Section II.C. above, we are revising our Paperwork 
Reduction Act burden estimates that were originally submitted to the 
Office of Management and Budget. Our revised estimates reflect the 
changes that we have made to the final rules as compared to the 
proposal.
    For purposes of the Paperwork Reduction Act, we now estimate the 
annual decrease in the paperwork burden for companies to comply with 
our collection of information requirements to be approximately 10,375 
hours of in-house company personnel time and to be approximately 
$12,450,000 for the services of outside professionals.\98\ These 
estimates include the time and the cost of preparing and reviewing 
disclosure, filing documents and retaining records. Our methodologies 
for deriving the above estimates are discussed below.
---------------------------------------------------------------------------

    \98\ For administrative convenience, the totals related to the 
paperwork burden hours have been rounded to the nearest whole number 
and the cost totals have been rounded to the nearest thousand.
---------------------------------------------------------------------------

    Our estimates represent the burden for all issuers, both large and 
small. As mentioned, however, the estimated decreases are wholly 
attributable to our assumptions, discussed in Section II.B. above, 
about how the amendments will influence the behavior of certain issuers 
who were formerly ineligible to conduct primary offerings on Forms S-3 
and F-3. These issuers are non-shell companies who satisfy the 
registrant eligibility requirements of Form S-3 \99\ or Form F-3,\100\ 
as applicable, have at least one class of common equity securities 
listed and registered on a national securities exchange, and had a 
public float of less than $75 million at the end of their last fiscal 
year. In all, we estimate that there were approximately 1,400 such 
companies at the end of calendar year 2006 and that they filed a total 
of 66 registration statements on Forms S-1, SB-2 \101\ and F-1 during 
the twelve months ending December 31, 2006.\102\ To determine the 
effect of our amendments on the overall paperwork burden, we have 
assumed that these filings on Forms S-1, SB-2 \103\ and F-1 would be 
made instead on Form S-3 or Form F-3, as applicable, to the extent that 
the issuers would not be limited by the one-third cap on the amount of 
securities they may sell in any period of 12 calendar months under the 
new rules. Therefore, we assume that the Forms S-1 and F-1 filed by the 
subject companies will decrease from the number filed in 2006, but 
because of the one-third cap on sales, will not decrease to 0.\104\ 
Instead, we believe that some Forms S-1 and F-1 will continue to be 
filed annually by these companies. To reflect this, we have taken the 
number of Forms S-1 and F-1 that were filed by these companies in 
calendar year 2006 and decreased this number by 90% \105\ for each 
form, for a total decrease of 60 filings.\106\ Therefore, we assume 
that approximately 60 fewer Forms S-1 and F-1 will be filed by all 
issuers annually as a result of the new amendments. The actual number 
could be more or less depending on various factors, including future 
market conditions.
---------------------------------------------------------------------------

    \99\ See n. 37.
    \100\ See n. 83.
    \101\ As mentioned, the Commission voted to eliminate Form SB-2 
on November 15, 2007. Release No. 33-8876. However, because some of 
the companies who filed on Form SB-2 in 2006 will become eligible to 
use Form S-3 under the new amendments to the form, we factor these 
Form SB-2 filings into our estimate of the number of additional 
Forms S-3 that will be filed in 2008 as a result of the rule change.
    \102\ The total of 66 filings is comprised of 37 Forms S-1; 26 
Forms SB-2; and 3 Forms F-1.
    \103\ See n. 101.
    \104\ Because it has been eliminated, the number of new Forms 
SB-2 will, in fact, decrease to 0 after Release No. 33-8876 goes 
into effect. Therefore, companies that previously filed Forms SB-2, 
but who are now eligible to use Form S-3 under new General 
Instruction I.B.6. of the form, would not be able to fall back to 
Form SB-2 in the event that they exceed the one-third cap on Form S-
3. Instead, to the extent they wanted to conduct an additional 
registered public offering, they would likely have to file on Form 
S-1. To reflect this, we have taken the number of 2006 Form SB-2 
filings by companies that we estimate will become eligible on Form 
S-3 under the new rules and added this to the number of Forms S-1 
filed in 2006 by companies who qualify to use Form S-3 for primary 
offerings under the new rules. This allows us to estimate how many 
total Forms S-1 will be filed by domestic companies that exceed the 
one-third cap but still wish to conduct registered public offerings. 
So, for purposes of our baseline assumptions, the number of Forms S-
1 filed in 2006 by companies who will become eligible to use Form S-
3 under the new rules will include the number of Forms SB-2 filed in 
2006 by qualifying companies (26) and will therefore total 63 
filings (37 Forms S-1 plus 26 Forms SB-2).
    \105\ In the Proposing Release, this decrease was 85% for each 
form but has been raised to 90% in light of the 12-month offering 
restriction on sales being raised from 20% to one-third of a 
company's public float. In other words, because the ceiling has been 
raised, eligible companies will be able to expand the size and/or 
frequency of their offerings on Forms S-3 and F-3 and, consequently, 
will have less need to file alternate registration forms. Therefore, 
the number of filings on these forms should decrease even more than 
was predicted in the Proposing Release.
    \106\ This number deducts 90% from the totals for each of the 
registration forms, as follows: Form S-1 (90% of 63, rounded up, 
equals 57) and Form F-1 (90% of 3, rounded up, equals 3). Adding 
these together, the combined reduction totals 60 filings.
---------------------------------------------------------------------------

    Furthermore, we believe that the 1,400 companies that we estimate 
will be affected by the rule change would have conducted more 
registered securities offerings had they been able to use Forms S-3 and 
F-3, because of the benefits of forward incorporation and the ability 
to utilize shelf registration to maximize market opportunities. We 
assume that the inability of these companies to utilize Forms S-3 and 
F-3 limited their capacity to access the public securities markets and, 
because of the cost and lack of flexibility associated with Forms S-1, 
SB-2 and F-1, they either did not file registration statements on Forms 
S-1 SB-2 or F-1, or were limited in the number that they filed. We 
therefore believe that the annual number of responses on Forms S-3 and 
F-3 for purposes of the Paperwork Reduction Act will increase by an 
increment greater than simply the total of 60 fewer registration 
statements on Forms S-1 and F-1 that we estimate will be filed in 
future years by the 1,400 companies who would qualify for primary 
offerings on Forms S-3 and F-3 as a result of our amendments. We 
further assume that this increase in Forms S-3 and F-3 will be 
mitigated to some degree by the one-third cap on securities sold in any 
period of 12 calendar months under the new rules, which may limit the

[[Page 73547]]

frequency and volume of additional securities offerings on Form S-3 and 
Form F-3. To reflect this, we have taken the total of 60 fewer Forms S-
1 and F-1 that we think will be filed by these companies in future 
years as a result of the amendments (because of the availability of 
Forms S-3 and F-3) and increased this number by 15% \107\ for each 
form, for a total increase of 70 filings.\108\ Therefore, we assume 
that approximately 70 additional Forms S-3 and F-3 will be filed 
annually over and above the number of total Forms S-3 and F-3 filed by 
all issuers, large and small, as a result of the new amendments. The 
actual number could be more or less depending on various factors, 
including future market conditions.
---------------------------------------------------------------------------

    \107\ In the Proposing Release, this increase was 10% for each 
form but has been raised to 15% in light of the 12-month offering 
restriction on sales being raised from 20% to one-third of a 
company's public float. That is, because the ceiling has been 
raised, eligible companies will be able to conduct somewhat larger 
and/or more frequent offerings on Form S-3 and F-3.
    \108\ This number adds a 15% premium to the individual totals 
for each of the registration forms, as follows: Form S-1 (15% of 57, 
rounded up, equals 9) and Form F-1 (15% of 3, rounded up, equals 1). 
The sum of these increases, which is equal to 10, is then added to 
the total of 60 Forms S-1 and F-1 filed by the subject companies in 
2006 that we believe will be filed on Forms S-3 and F-3 by these 
companies in future years. The total is an estimated increase of 70 
Forms S-3 and F-3 (comprised of 66 additional Forms S-3 and four 
additional Forms F-3).
---------------------------------------------------------------------------

    To calculate the total effect of the amendments on the overall 
compliance burden for all issuers, large and small, we subtracted the 
burden associated with the 60 fewer Forms S-1 and F-1 registration 
statements that we expect will be filed annually in the future and 
added the burden associated with our estimate of 70 additional Forms S-
3 and F-3 filed annually as a result of the amendments. We used current 
Office of Management and Budget estimates in our calculation of the 
hours and cost burden associated with preparing, reviewing and filing 
each of these forms.
    Consistent with current Office of Management and Budget estimates 
and recent Commission rulemaking,\109\ we estimate that 25% of the 
burden of preparation of Forms S-3, S-1, F-3 and F-1 is carried by the 
company internally and that 75% of the burden is carried by outside 
professionals retained by the issuer at an average cost of $400 per 
hour.\110\ The portion of the burden carried by outside professionals 
is reflected as a cost, while the portion of the burden carried by the 
company internally is reflected in hours.
---------------------------------------------------------------------------

    \109\ For discussions of the relative burden of preparation of 
registration statements under the Securities Act allocated between 
issuers internally and their outside advisers, see Executive 
Compensation and Related Person Disclosure, Release No. 33-8732A 
(Aug. 29, 2006) [71 FR 56225] and Release No. 33-8591.
    \110\ In connection with other recent rulemakings, we have had 
discussions with several private law firms to estimate an hourly 
rate of $400 as the average cost of outside professionals that 
assist issuers in preparing disclosures and conducting registered 
offerings.
---------------------------------------------------------------------------

    The table below illustrates our estimates concerning the 
incremental annual compliance burden in the collection of information 
in hours and cost for Forms S-3, S-1, F-3 and F-1 as a result of these 
amendments.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Estimated
                                                           change in    Hours/form    Incremental                           75%             $400/hr
                          Form                              annual        \111\          burden         25% Issuer      Professional   Professional cost
                                                           responses
                                                                  (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

A. Summary of Amendments

    We are adopting revisions to the transaction eligibility 
requirements of Forms S-3 and F-3 that will allow companies to take 
advantage of these forms for primary offerings regardless of the size 
of their public float. Whereas secondary offerings may be registered on 
Forms S-3 and F-3 irrespective of float, the instructions to Forms S-3 
and F-3 have, before now, restricted the use of these forms for primary 
securities offerings to companies that have a minimum of $75 million in 
public float calculated within 60 days prior to the date the 
registration statement is filed. To expand the availability of Forms S-
3 and F-3 for primary offerings to more companies, we are adopting 
revisions to these forms that allow companies with less than $75 
million in public float to register primary offerings of their 
securities on Forms S-3 and F-3, provided:
---------------------------------------------------------------------------

    \111\ This reflects current Office of Management and Budget 
estimates.
---------------------------------------------------------------------------

     They meet the other registrant eligibility conditions for 
the use of Form S-3 or Form F-3, as applicable;
     They have at least one class of common equity securities 
listed and registered on a national securities exchange;
     They do not sell more than the equivalent of one-third of 
their public float in primary offerings under General Instruction 
I.B.6. of Form S-3 or under General Instruction I.B.5. of Form F-3, as 
applicable, over the previous period of 12 calendar months; and
     They are not shell companies and have not been shell 
companies for at least 12 calendar months before filing the 
registration statement.

B. Benefits

    The ability to conduct primary offerings on Forms S-3 and F-3 
confers significant advantages on eligible companies in terms of cost 
savings and capital formation. The time required to prepare Form S-3 or 
Form F-3 is significantly lower than that required for Forms S-1 and F-
1.\112\ This difference is magnified by the fact that Form S-3 and Form 
F-3, unlike Forms S-1 and F-1, permit registrants to forward 
incorporate required information by reference to disclosure in their 
Exchange Act filings. Therefore, Form S-3 and Form F-3 registration 
statements can be automatically updated. This allows such companies to 
avoid additional delays and interruptions in the offering process and 
can reduce the costs associated with preparing and filing post-
effective

[[Page 73548]]

amendments to the registration statement.
---------------------------------------------------------------------------

    \112\ The Office of Management and Budget currently estimates 
the time required to prepare Form S-3 and Form F-3 as 459 hours and 
166 hours, respectively. This is contrasted with current estimates 
for Form S-1 and F-1 as 1,176 hours and 638 hours, respectively.
---------------------------------------------------------------------------

    Overall, we anticipate that the expansion of Form S-3 and Form F-3 
eligibility will decrease the aggregate costs of complying with the 
Commission's rules by allowing companies previously eligible to use 
only Form S-1 or Form F-1 the use of short-form registration on Form S-
3 or Form F-3, as applicable. Using our estimates prepared for purposes 
of the Paperwork Reduction Act, we estimate that under the amendments 
the annual decrease in the compliance burden for companies to comply 
with our collection of information requirements to be approximately 
10,375 hours of in-house company personnel time (valued at $1,816,000 
\113\) and to be approximately $12,450,000 for the services of outside 
professionals.
---------------------------------------------------------------------------

    \113\ Consistent with recent rulemaking releases, we estimate 
the value of work performed by the company internally at a cost of 
$175 per hour.
---------------------------------------------------------------------------

    In addition to the benefits associated with the estimated reduction 
in the time required to prepare Forms S-3 and F-3 in lieu of Forms S-1 
and F-1, and a company's ability to forward incorporate prospectus 
disclosure by reference, Forms S-3 and F-3 provide substantial 
flexibility to companies raising money in the capital markets, which 
ultimately may reduce the cost of capital for such companies and 
facilitate their access to additional sources of investment. Companies 
that are eligible to use Form S-3 or Form F-3 for primary offerings are 
able to conduct delayed and continuous registered offerings under Rule 
415 of the Securities Act, which provides considerable flexibility in 
accessing the public securities markets from time to time in response 
to changes in the market and other factors. Eligible companies are 
permitted to register securities prior to planning any offering and, 
once the registration statement is effective, offer these securities in 
one or more tranches without waiting for further Commission action. By 
having more control over the timing of their offerings, these companies 
can take advantage of desired market conditions, thus allowing them to 
raise capital on more favorable terms (such as pricing) or to obtain 
lower interest rates on debt. In addition, they can vary certain terms 
of the securities being offered upon short notice, enabling them to 
more efficiently meet the competitive requirements of the public 
securities markets. We believe that extending shelf registration 
benefits to more companies, in the manner we have chosen, will 
facilitate the capital-raising efforts of smaller public companies who 
currently have fewer financing options than their larger 
counterparts.\114\ Consequently, we anticipate that the amendments will 
result in smaller issuers raising more capital through the public 
markets rather than through exempt offerings conducted in the domestic 
and offshore markets. Investors in these companies will benefit by such 
companies' improved access to capital on more favorable terms. In 
particular, investors in smaller public companies may be less subject 
to the risk of dilution in the value of their shares if the companies 
in which they invest are able to meet more of their capital needs in 
the public markets. By selling into the public markets, these companies 
may be able to avoid the substantial pricing discounts that private 
investors often demand to compensate them for the relative illiquidity 
of the restricted shares they are purchasing.\115\
---------------------------------------------------------------------------

    \114\ See generally, Chaplinsky and Haushalter, Financing Under 
Extreme Uncertainty: Contract Terms and Returns to Private 
Investments in Public Equity.
    \115\ Id.
---------------------------------------------------------------------------

    The public registration of securities also provides additional 
benefits to investors over alternative forms of capital raising. To the 
extent that the amendments lead to an increase in the use of registered 
offerings through the use of Form S-3 and Form F-3 as a source of 
financing and a resulting decrease in private market alternatives, 
investors in those offerings will benefit from the additional investor 
protections associated with public registration.
    Notwithstanding our belief regarding the beneficial effects of the 
amendments, however, any resulting benefits that accrue to companies 
and their investors as a result of these amendments will depend on 
future market conditions and circumstances unique to each company.

C. Costs

    As discussed in Section B. above, we do not expect that the 
amendments to Forms S-3 and F-3 will materially increase companies' 
overall compliance costs associated with preparing, reviewing and 
filing these registration statements, although there may be some 
additional costs incurred by companies to monitor their ongoing 
compliance with the one-third sales cap imposed by the amendments. At 
the same time, the amendments could result in certain additional market 
costs that are difficult to quantify. For example, it has been 
suggested that there are risks inherent in allowing smaller public 
companies to take advantage of shelf primary offerings on Forms S-3 and 
F-3. Because this would permit such companies to avail themselves of 
periodic takedowns without further Commission action or prior staff 
review, concerns have been raised about the increased potential for 
fraud and market manipulation.\116\ Although the Commission would 
retain the authority to review registration statements before declaring 
them effective, individual takedowns are not subject to prior staff 
review. Under the current rules, if issuers are instead using Forms S-1 
or F-1, they would be required to file separate registration statements 
for each new offering, which would be subject to selective staff review 
before going effective. If these issuers can instead conduct shelf 
offerings on Form S-3 and Form F-3, there may be some loss of the 
deterrent effect on the companies' disclosures in connection with each 
takedown off the shelf because of the lack of prior staff review. In 
addition, the short time horizon of shelf offerings may also reduce the 
time that participating underwriters have to apply their independent 
scrutiny and judgment to an issuer's prospectus disclosure. We have 
also considered the effect the amendments may have on market demand for 
the securities of smaller public companies offered on Form S-3 and Form 
F-3. If there is a perception that smaller public company securities 
offered through shelf registration statements are more prone to abuse 
because of the lack of involvement by the Commission staff, this may 
erode investor confidence in these offerings generally. This could, in 
turn, make it more difficult for these companies to raise capital and 
significantly negate some of the benefits of the rule.
---------------------------------------------------------------------------

    \116\ See n. 34.
---------------------------------------------------------------------------

    While we recognize that extending the benefits of shelf 
registration to an expanded group of companies will limit the staff's 
direct involvement in takedowns of securities off the shelf and could 
therefore pose some risk to investors, we believe that the risks are 
justified by the benefits that we anticipate will accrue by 
facilitating the capital formation efforts of smaller public companies. 
As we have discussed elsewhere in this release, we believe these risks 
have been mitigated by the emergence of the Internet which, in 
combination with the Commission's EDGAR database, has greatly enhanced 
the ability of the market to readily digest and assimilate public 
company information.
    However, in order minimize risks to investors, the amendments 
include certain restrictions intended to moderate the impact of 
expanding

[[Page 73549]]

Forms S-3 and F-3 eligibility. These are:
     Excluding shell companies from eligibility;
     Requiring that companies have at least one class of common 
equity securities listed and registered on a national securities 
exchange; and
     Imposing a cap of one-third of a company's public float on 
the amount of securities that can be sold into the market in any period 
of 12 calendar months by eligible issuers on Forms S-3 and F-3.
    We note, however, that monitoring compliance with the one-third cap 
may be difficult given the lack of staff review before a shelf 
offering.

IV. Consideration of Promotion of Efficiency, Competition and Capital 
Formation

    Securities Act Section 2(b)\117\ requires us, when engaging in 
rulemaking where we are required to consider or determine whether an 
action is necessary or appropriate in the public interest, to consider, 
in addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    We expect the amendments will increase efficiency and enhance 
capital formation by facilitating the ability of smaller public 
companies to access the capital markets consistent with investor 
protection. Prior to these amendments, many companies have been 
ineligible to use Forms S-3 and F-3 to register primary offerings of 
their securities because the size of their public float did not satisfy 
the $75 million threshold required by these forms. Consequently, they 
have been unable to take advantage of the important benefits enjoyed by 
eligible companies, the most significant of which is the ability to 
conduct primary offerings on a delayed and continuous basis. The 
ability to register securities that may be taken off the shelf as 
needed, without prior staff review, provides a powerful tool for 
capital formation because it allows companies the flexibility to take 
advantage of desired market conditions efficiently and upon short 
notice. Companies may be able to raise capital more cheaply, quickly, 
and on more favorable terms than would otherwise be the case. By 
selling into the public markets, these companies may be able to avoid 
the substantial pricing discounts that private investors often demand 
to compensate them, in part, for the relative illiquidity of the 
restricted shares they are purchasing.\118\
---------------------------------------------------------------------------

    \118\ See n. 115.
---------------------------------------------------------------------------

    We therefore believe that extending shelf registration benefits to 
more companies in the manner that we have chosen will facilitate the 
capital-raising efforts of smaller public companies who currently have 
fewer financing options than their larger counterparts.\119\ 
Consequently, we anticipate that the amendments will lead to 
efficiencies in capital formation, as smaller issuers will be able to 
raise more capital through the public markets rather than through 
exempt offerings conducted in the domestic and offshore markets.
---------------------------------------------------------------------------

    \119\ See n. 114.
---------------------------------------------------------------------------

    At the same time, we have also considered the potential that the 
amendments might result in certain additional market costs that could 
limit any efficiencies realized. For example, it has been suggested 
that extending the benefits of shelf registration to an expanded group 
of companies will limit the staff's direct involvement in takedowns of 
securities off the shelf and could therefore pose some risk to 
investors. In addition, the short time horizon of shelf offerings also 
may reduce the time that participating underwriters have to apply their 
independent scrutiny and judgment to an issuer's prospectus disclosure. 
By reducing this staff and underwriter oversight, there is a risk that 
these securities offerings may be more vulnerable to abuses. Moreover, 
because companies with a smaller market capitalization, as a group, 
have a comparatively smaller market following than larger, well-
seasoned issuers and are more thinly traded, smaller companies' 
securities may be more vulnerable to potential manipulative practices. 
We also have considered the effect the amendments may have on market 
demand for the securities of smaller public companies offered on Form 
S-3 and Form F-3. If there is a perception that smaller public company 
securities offered through shelf registration statements are more prone 
to abuse because of the lack of prior involvement by the Commission 
staff, this may erode investor confidence in these offerings generally. 
This could, in turn, make it more difficult for these companies to 
raise capital and significantly negate the benefits of the rule.
    The effects of the amendments on competition are difficult to 
predict, but it is possible that making it easier for smaller public 
issuers to access the domestic public securities markets will lead to a 
reallocation of capital, as companies that previously had little choice 
but to offer their securities in private offerings or in offshore 
markets because of their Form S-3 and Form F-3 ineligibility will now 
find it cost-effective to offer their securities domestically in 
primary offerings on Form S-3 and Form F-3. If such a reallocation 
occurs, it may also impact securities market professionals, such as 
finders, brokers and agents, who specialize in facilitating private 
securities offerings. The demand for these services may shift to the 
public markets, where other professionals, such as investment banks 
that underwrite public offerings, have a comparative advantage.

V. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to revisions to the 
eligibility requirements for the use of registration statements on 
Forms S-3 and F-3 to register primary offerings of securities.

A. Need for the Amendments

    Prior to these amendments, many smaller public companies have been 
ineligible to use Forms S-3 and F-3 to register primary offerings of 
their securities because the size of their public float did not satisfy 
the $75 million threshold required by these forms. Consequently, they 
have been unable to take advantage of the important benefits enjoyed by 
eligible companies, the most significant of which is the ability to 
conduct primary offerings on a delayed and continuous basis. The 
ability to register securities that may be taken off the shelf as 
needed, without prior staff review, provides a powerful tool for 
capital formation because it allows companies the flexibility to take 
advantage of desired market conditions efficiently and on short notice. 
As such, eligible companies may be able to raise capital more cheaply, 
quickly, and on more favorable terms than would otherwise be the case. 
Without this source of financing, smaller public companies that are not 
eligible to register primary offerings on Form S-3 or Form F-3 
currently have fewer, and less favorable, financing options than their 
larger Form S-3 and F-3-eligible counterparts.

B. Significant Issues Raised by Public Comment

    In the Proposing Release, we requested comment on any aspect of the 
Initial Regulatory Flexibility Act Analysis, including the number of 
small entities that would be affected by the proposals, and both the 
qualitative and quantitative nature of the impact. Several commenters 
supported the

[[Page 73550]]

proposal because they believed it would benefit smaller public 
companies, but did not provide any specific comments on the Initial 
Regulatory Flexibility Act Analysis.

C. Small Entities Subject to the Amendments

    The Regulatory Flexibility Act defines ``small entity'' to mean 
``small business,'' ``small organization,'' or ``small governmental 
jurisdiction.''\120\ The Commission's rules define ``small business'' 
and ``small organization'' for purposes of the Regulatory Flexibility 
Act for each of the types of entities regulated by the Commission.\121\ 
Roughly speaking, a ``small business'' and ``small organization,'' when 
used with reference to an issuer other than an investment company, 
means an issuer with total assets of $5 million or less on the last day 
of its most recent fiscal year. We estimate that there are 
approximately 1,100 issuers, other than investment companies, that may 
be considered reporting small entities.\122\
---------------------------------------------------------------------------

    \120\ 5 U.S.C. 601(6).
    \121\ Rules 157 under the Securities Act [17 CFR 230.157], 0-10 
under the Exchange Act [17 CFR 240.0-10] and 0-10 under the 
Investment Company Act [17 CFR 270.0-10] contain the applicable 
definitions.
    \122\ The estimated number of reporting small entities is based 
on 2007 data, including the Commission's EDGAR database and Thomson 
Financial's Worldscope database. See also Revisions to Rule 144 and 
Rule 145 to Shorten Holding Period for Affiliates and Non-
Affiliates, Release No. 33-8813 (June 20, 2007) [72 FR 36822, 36841-
36842]. This represents an update from the number of reporting small 
entities estimated in prior rulemakings. See, for example, Executive 
Compensation and Related Disclosure, Release No. 33-8732A (Aug. 29, 
2006) [71 FR 53158] (in which the Commission's estimated a total of 
2,500 small entities, other than investment companies).
---------------------------------------------------------------------------

    The amendments will affect small entities that:
     Are not shell companies;
     Have at least one class of common equity securities listed 
and registered on a national securities exchange; and
     Satisfy the registrant eligibility requirements for the 
use of Form S-3 or Form F-3, which generally pertain to a company's 
reporting history under the Exchange Act.\123\
---------------------------------------------------------------------------

    \123\ See n. 37 and n. 83.
---------------------------------------------------------------------------

    Based on these registrant eligibility requirements, we estimate 
that there are approximately 115 to 350 small entities that will be 
affected by the amendments and therefore will become eligible to use 
Form S-3 or Form F-3 for primary securities offerings.\124\
---------------------------------------------------------------------------

    \124\ The burden estimates for small entities are presented as a 
range representing the minimum and maximum number of small entities 
that we estimate would currently qualify for eligibility under 
either General Instruction I.B.6. of Form S-3 or General Instruction 
I.B.5. of Form F-3, as applicable, based on data available to us.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    Because Forms S-3 and F-3 are abbreviated registration forms that 
can be updated automatically through incorporation by reference of a 
registrant's Exchange Act filings, we believe use of the forms by 
eligible small entities will decrease their existing compliance burden. 
Because the amendments have little effect on the information disclosure 
requirements of Form S-3 or Form F-3,\125\ we do not believe that the 
costs of complying with the amendments for small entities will be 
disproportionate to that of large entities.\126\ We recognize, however, 
that there will be some additional costs associated with an issuer's 
need to continually monitor its compliance with the one-third cap on 
sales in any period of 12 calendar months, but we believe that any such 
costs will be insignificant.
---------------------------------------------------------------------------

    \125\ See n. 96. Instruction 7 to new General Instruction I.B.6. 
of Form S-3 and Instruction 7 to new General Instruction I.B.5. of 
Form F-3 require disclosure of the registrant's updated calculation 
of public float and the amount of securities offered on Form S-3 or 
F-3, as applicable, pursuant to this instruction during the prior 12 
calendar months, but we believe any burden associated with this 
requirement will be minimal.
    \126\ It should be noted, however, that General Instruction 
II.C. of Form S-3 currently requires:
    * * * smaller reporting compan[ies] (as defined in Rule 405 of 
the Securities Act [17 CFR 230.405]) that [are] eligible to use Form 
S-3 shall use the disclosure items in Regulation S-K [17 CFR 229.10 
et seq.] with specific attention to the subparagraph describing 
scaled disclosure, if any. Smaller reporting companies may provide 
the financial information called for by Item 310 of Regulation S-K 
in lieu of the financial information called for by Item 11 in this 
form.
    Release No. 33-8876. Because such scaled disclosure requirements 
generally allow scaled disclosure for smaller reporting companies, 
small entities that file on Form S-3 may have a comparatively lesser 
compliance burden overall than larger issuers.
---------------------------------------------------------------------------

    For purposes of the Paperwork Reduction Act, we estimate the annual 
decrease in the paperwork burden for small entities to comply with our 
collection of information requirements to be approximately between 
3,843 and 14,168 hours of in-house company personnel time (valued 
between $673,000 to 2,480,000 \127\) and to be approximately between 
$4,612,000 and $17,001,000 for the services of outside professionals.
---------------------------------------------------------------------------

    \127\ See n. 113.
---------------------------------------------------------------------------

E. Agency Action to Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objectives, while 
minimizing any significant adverse impact on small entities. In 
connection with the amendments, the Regulatory Flexibility Act requires 
that we consider the following alternatives:
    1. Establishing different compliance or reporting requirements 
which take into account the resources available to smaller entities;
    2. The clarification, consolidation or simplification of disclosure 
for small entities;
    3. Use of performance standards rather than design standards; and
    4. Exempting smaller entities from coverage of the disclosure 
requirements, or any part thereof.
    Of these alternatives, only the last appears germane to these 
amendments. Alternative 3 is not applicable, as the distinction between 
performance standards and design standards has no bearing on the 
amendments. Alternatives 1 and 2, because they pertain to establishing 
different or simplified reporting requirements for smaller entities, 
also would not seem helpful in this instance because our amendments are 
already expected to reduce the compliance burden on eligible smaller 
entities. Regarding Alternatives 1, 2 and 4, we considered relaxing the 
transaction eligibility requirements for Forms S-3 and F-3 to a greater 
degree than we are adopting, which would have the effect of further 
reducing the compliance burden among smaller entities by making more 
entities eligible for short-form disclosure. As we stated, however, we 
decline at this time to adopt a less restrictive eligibility 
requirement. We believe at this time that imposing the one-third cap on 
the amount of securities that smaller public companies listed on 
exchanges may sell pursuant to primary offerings on Forms S-3 and F-3, 
as described, will help to facilitate capital formation through the 
securities markets consistent with our primary objective of investor 
protection.

VI. Statutory Authority and Text of the Amendments

    The amendments described in this release are being adopted under 
the authority set forth in Sections 6, 7, 8, 10 and 19(a) of the 
Securities Act, as amended.

List of Subjects in 17 CFR Parts 230 and 239

    Reporting and recordkeeping requirements, Securities.

0
For the reasons set out in the preamble, the Commission amends title 
17, chapter II, of the Code of Federal Regulations as follows:

[[Page 73551]]

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *

0
2. Amend Sec.  230.401 by:
0
a. in paragraph (g)(1), revising the cite ``paragraph (g)(2)'' to read 
``paragraphs (g)(2) and (g)(3)''; and
0
b. adding paragraph (g)(3).
    The addition reads as follows:

Sec.  230.401  Requirements as to proper form.

* * * * *
    (g) * * *
    (3) Violations of General Instruction I.B.6. of Form S-3 or General 
Instruction I.B.5. of Form F-3 will also violate the requirements as to 
proper form under this section notwithstanding that the registration 
statement may have been declared effective previously.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
3. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll, 77mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *

0
4. Amend Form S-3 (referenced in Sec.  239.13) by adding General 
Instruction I.B.6. to read as follows:

    Note: The text of Form S-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM S-3--REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

General Instructions

I. Eligibility Requirements for Use of Form S-3 * * *

B. Transaction Requirements. * * *

    6. Limited Primary Offerings by Certain Other Registrants. 
Securities to be offered for cash by or on behalf of a registrant; 
provided that:
    (a) the aggregate market value of securities sold by or on behalf 
of the registrant pursuant to this Instruction I.B.6. during the period 
of 12 calendar months immediately prior to, and including, the sale is 
no more than one-third of the aggregate market value of the voting and 
non-voting common equity held by non-affiliates of the registrant;
    (b) the registrant is not a shell company (as defined in Sec.  
230.405 of this chapter) and has not been a shell company for at least 
12 calendar months previously and if it has been a shell company at any 
time previously, has filed current Form 10 information with the 
Commission at least 12 calendar months previously reflecting its status 
as an entity that is not a shell company; and
    (c) the registrant has at least one class of common equity 
securities listed and registered on a national securities exchange.
    Instructions.
    1. ``Common equity'' is as defined in Securities Act Rule 405 
(Sec.  230.405 of this chapter). For purposes of computing the 
aggregate market value of the registrant's outstanding voting and non-
voting common equity pursuant to General Instruction I.B.6., 
registrants shall use the price at which the common equity was last 
sold, or the average of the bid and asked prices of such common equity, 
in the principal market for such common equity as of a date within 60 
days prior to the date of sale. See the definition of ``affiliate'' in 
Securities Act Rule 405 (Sec.  230.405 of this chapter).
    2. For purposes of computing the aggregate market value of all 
securities sold by or on behalf of the registrant in offerings pursuant 
to General Instruction I.B.6. during any period of 12 calendar months, 
registrants shall aggregate the gross proceeds of such sales; provided, 
that, in the case of derivative securities convertible into or 
exercisable for shares of the registrant's common equity, registrants 
shall calculate the aggregate market value of any underlying equity 
shares in lieu of the market value of the derivative securities. The 
aggregate market value of the underlying equity shall be calculated by 
multiplying the maximum number of common equity shares into which the 
derivative securities are convertible or for which they are exercisable 
as of a date within 60 days prior to the date of sale, by the same per 
share market price of the registrant's equity used for purposes of 
calculating the aggregate market value of the registrant's outstanding 
voting and non-voting common equity pursuant to Instruction 1 to 
General Instruction I.B.6. If the derivative securities have been 
converted or exercised, the aggregate market value of the underlying 
equity shall be calculated by multiplying the actual number of shares 
into which the securities were converted or received upon exercise, by 
the market price of such shares on the date of conversion or exercise.
    3. If the aggregate market value of the registrant's outstanding 
voting and non-voting common equity computed pursuant to General 
Instruction I.B.6. equals or exceeds $75 million subsequent to the 
effective date of this registration statement, then the one-third 
limitation on sales specified in General Instruction I.B.6(a) shall not 
apply to additional sales made pursuant to this registration statement 
on or subsequent to such date and instead the registration statement 
shall be considered filed pursuant to General Instruction I.B.1.
    4. The term ``Form 10 information'' means the information that is 
required by Form 10 or Form 20-F (Sec.  249.210 or Sec.  249.220f of 
this chapter), as applicable to the registrant, to register under the 
Securities Exchange Act of 1934 each class of securities being 
registered using this form. A registrant may provide the Form 10 
information in another Commission filing with respect to the 
registrant.
    5. The date used in Instruction 2 to General Instruction I.B.6. 
shall be the same date used in Instruction 1 to General Instruction 
I.B.6.
    6. A registrant's eligibility to register a primary offering on 
Form S-3 pursuant to General Instruction I.B.6. does not mean that the 
registrant meets the requirements of Form S-3 for purposes of any other 
rule or regulation of the Commission apart from Rule 415(a)(1)(x) 
(Sec.  230.415(a)(1)(x) of this chapter).
    7. Registrants must set forth on the outside front cover of the 
prospectus the calculation of the aggregate market value of the 
registrant's outstanding voting and non-voting common equity pursuant 
to General Instruction I.B.6. and the amount of all securities offered 
pursuant to General Instruction I.B.6. during the prior 12 calendar 
month period that ends on, and includes, the date of the prospectus.
    8. For purposes of General Instruction I.B.6(c), a ``national 
securities exchange'' shall mean an exchange registered as such under 
Section 6(a) of the Securities Exchange Act of 1934.
* * * * *
0
5. Amend Form F-3 (referenced in Sec.  239.33) by adding General 
Instruction I.B.5. to read as follows:

    Note: The text of Form F-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

[[Page 73552]]

FORM F-3--REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

General Instructions

I. Eligibility Requirements for Use of Form F-3 * * *

B. Transaction Requirements * * *

    5. Limited Primary Offerings by Certain Other Registrants. 
Securities to be offered for cash by or on behalf of a registrant; 
provided that:
    (a) the aggregate market value of securities sold by or on behalf 
of the registrant pursuant to this Instruction I.B.5. during the period 
of 12 calendar months immediately prior to, and including, the sale is 
no more than one-third of the aggregate market value worldwide of the 
voting and non-voting common equity held by non-affiliates of the 
registrant;
    (b) the registrant is not a shell company (as defined in Sec.  
230.405 of this chapter) and has not been a shell company for at least 
12 calendar months previously and if it has been a shell company at any 
time previously, has filed current Form 10 information with the 
Commission at least 12 calendar months previously reflecting its status 
as an entity that is not a shell company; and
    (c) the registrant has at least one class of common equity 
securities listed and registered on a national securities exchange.
    Instructions.
    1. ``Common equity'' is as defined in Securities Act Rule 405 
(Sec.  230.405 of this chapter). For purposes of computing the 
aggregate market value of the registrant's outstanding voting and non-
voting common equity pursuant to General Instruction I.B.5., 
registrants shall use the price at which the common equity was last 
sold, or the average of the bid and asked prices of such common equity, 
in the principal market for such common equity as of a date within 60 
days prior to the date of sale. See the definition of ``affiliate'' in 
Securities Act Rule 405 (Sec.  230.405 of this chapter).
    2. For purposes of computing the aggregate market value of all 
securities sold by or on behalf of the registrant in offerings pursuant 
to General Instruction I.B.5. during any period of 12 calendar months, 
registrants shall aggregate the gross proceeds of such sales; provided, 
that, in the case of derivative securities convertible into or 
exercisable for shares of the registrant's common equity, registrants 
shall calculate the aggregate market value of any underlying equity 
shares in lieu of the market value of the derivative securities. The 
aggregate market value of the underlying equity shall be calculated by 
multiplying the maximum number of common equity shares into which the 
derivative securities are convertible or for which they are exercisable 
as of a date within 60 days prior to the date of sale, by the same per 
share market price of the registrant's equity used for purposes of 
calculating the aggregate market value of the registrant's outstanding 
voting and non-voting common equity pursuant to Instruction 1 to 
General Instruction I.B.5. If the derivative securities have been 
converted or exercised, the aggregate market value of the underlying 
equity shall be calculated by multiplying the actual number of shares 
into which the securities were converted or received upon exercise, by 
the market price of such shares on the date of conversion or exercise.
    3. If the aggregate market value of the registrant's outstanding 
voting and non-voting common equity computed pursuant to General 
Instruction I.B.5. equals or exceeds $75 million subsequent to the 
effective date of this registration statement, then the one-third 
limitation on sales specified in General Instruction I.B.5(a) shall not 
apply to additional sales made pursuant to this registration statement 
on or subsequent to such date and instead the registration statement 
shall be considered filed pursuant to General Instruction I.B.1.
    4. The term ``Form 10 information'' means the information that is 
required by Form 10 or Form 20-F (Sec.  249.210 or Sec.  249.220f of 
this chapter), as applicable to the registrant, to register under the 
Securities Exchange Act of 1934 each class of securities being 
registered using this form. A registrant may provide the Form 10 
information in another Commission filing with respect to the 
registrant.
    5. The date used in Instruction 2 to General Instruction I.B.5. 
shall be the same date used in Instruction 1 to General Instruction 
I.B.5.
    6. A registrant's eligibility to register a primary offering on 
Form F-3 pursuant to General Instruction I.B.5. does not mean that the 
registrant meets the requirements of Form F-3 for purposes of any other 
rule or regulation of the Commission apart from Rule 415(a)(1)(x) 
(Sec.  230.415(a)(1)(x) of this chapter).
    7. Registrants must set forth on the outside front cover of the 
prospectus the calculation of the aggregate market value of the 
registrant's outstanding voting and non-voting common equity pursuant 
to General Instruction I.B.5. and the amount of all securities offered 
pursuant to General Instruction I.B.5. during the prior 12 calendar 
month period that ends on, and includes, the date of the prospectus.
    8. For purposes of General Instruction I.B.5(c), a ``national 
securities exchange'' shall mean an exchange registered as such under 
Section 6(a) of the Securities Exchange Act of 1934.
* * * * *

    By the Commission.

    Dated: December 19, 2007.
Nancy M. Morris,
Secretary.
 [FR Doc. E7-24968 Filed 12-26-07; 8:45 am]

BILLING CODE 8011-01-P