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U.S. Securities and Exchange Commission

SEC Votes to Adopt Three Rules to Improve Regulation of Smaller Businesses


Washington, D.C., Nov. 15, 2007 - The Securities and Exchange Commission today voted unanimously to adopt three measures to modernize and improve its capital-raising, reporting and disclosure requirements for smaller companies. These measures address some of the key recommendations made by the SEC's Advisory Committee on Smaller Public Companies in its final report.

The final rules:

  • make scaled disclosure regulations available to an additional 1,500 smaller companies;
  • shorten the holding periods under Securities Act Rule 144 for restricted securities of public companies from one year to six months to reduce the cost of capital and to increase access to capital; and
  • create two new exemptions for compensatory employee stock options so that the Exchange Act registration requirements will not be triggered solely by a company's compensation decisions.

"Smaller businesses are a critical part of our nation's economy," said SEC Chairman Christopher Cox. "Although it may seem that large multinational companies are creating most of the new jobs and innovation, in fact, small business is leading the way in America's economy. Today's rule amendments will enable smaller companies to raise capital more effectively and ease some of the burdens of our reporting and disclosure requirements, and they will ensure that investors in these companies are paying for important investor protections and not red tape."

John W. White, Director of the SEC's Division of Corporation Finance, said, "In taking these steps to enhance capital-raising opportunities for smaller public companies, and expanding the pool of smaller companies that is eligible to comply with scaled disclosure requirements, the Commission has again demonstrated its commitment to the well-being of these companies. The revisions to Rule 144 should make it more efficient for companies of all sizes to access the private markets. In the coming months, we expect to recommend that the Commission finalize additional rules that will further promote capital formation by smaller companies."

Smaller Reporting Company Regulatory Relief and Simplification

The final rules:

  • replace the current "small business issuer" category with a new expanded category of "smaller reporting companies" having less than $75 million in public equity float or, if a company does not have a calculable public equity float, having revenues of less than $50 million in the last fiscal year;
  • expand eligibility for the Commission's scaled disclosure and reporting requirements for smaller companies by allowing the newly defined category of smaller reporting companies to use the scaled disclosure requirements;
  • move 12 non-financial scaled disclosure item requirements from Regulation S-B into Regulation S-K (the scaled disclosure requirements will only be available to smaller reporting companies);
  • move the scaled financial statement requirements in Item 310 of Regulation S-B into new Article 8 of Regulation S-X, and amend these requirements to provide a scaled disclosure option for smaller reporting companies, requiring two years of balance sheet data instead of one year;
  • permit smaller reporting companies to elect to comply with scaled financial disclosure and non-financial disclosure on an item-by-item or "a la carte" basis;
  • eliminate our current "SB" forms, but allow a phase-out period for current small business issuers transitioning to smaller reporting company status; and
  • permit all foreign companies to qualify as "smaller reporting companies" if they choose to file on domestic company forms and provide financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles.

The effective date for these rules will be 30 days after their publication in the Federal Register.

Revisions to Securities Act Rules 144 and 145

The amendments to Rule 144:

  • shorten the holding period for restricted securities of reporting companies to six months;
  • substantially simplify Rule 144 compliance for non-affiliates by allowing non-affiliates of reporting companies to freely resell restricted securities after satisfying a six-month holding period (subject only to the Rule 144(c) public information requirement until the securities have been held for one year) and by allowing non-affiliates of non-reporting companies to freely resell restricted securities after satisfying a 12-month holding period;
  • for affiliates' sales, revise the manner of sale requirements for equity securities and eliminate them for debt securities and relax the volume limitations for debt securities;
  • for affiliates' sales, raise the thresholds that trigger Form 144 filing requirements from 500 shares or $10,000 to 5,000 shares or $50,000;
  • simplify and streamline the Preliminary Note to and other parts of Rule 144; and
  • codify certain staff interpretations relating to Rule 144.

The amendments to Rule 145:

  • eliminate the presumptive underwriter provision except with respect to transactions involving blank check or shell companies; and
  • revise the resale provisions of Rule 145(d).

These amendments will be effective 60 days after their publication in the Federal Register.

Exemption of Compensatory Employee Stock Options from Registration under Section 12(g) of the Exchange Act

The two amendments to Exchange Act Rule 12h-1:

  • provide an exemption for private non-reporting issuers from Exchange Act Section 12(g) registration for compensatory employee stock options issued under employee stock option plans; and
  • provide an exemption for issuers that are required to file reports under the Exchange Act pursuant to Exchange Act Section 13 or Section 15(d) from Section 12(g) registration for compensatory employee stock options.

The exemptions will apply only to an issuer's compensatory employee stock options and will not extend to the class of securities underlying those options.

These amendments will be effective as soon as they are published in the Federal Register.

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The full text of the detailed releases concerning these items will be posted to the SEC Web site as soon as possible.

Additional materials:

Video of Chairman's Statement:
 Windows Media Player (11 MB)
 QuickTime (12 MB)



Modified: 11/15/2007