Statement by SEC Staff:
Opening Statement of the Division of Corporation Finance Regarding Revisions to the Eligibility Requirements of Forms S-3 and F-3
Special Counsel, Division of Corporation Finance
U.S. Securities and Exchange Commission
Commission Open Meeting
December 11, 2007
On May 23, 2007, the Commission published for comment amendments to the eligibility requirements of registration Forms S-3 and F-3. As proposed in May, these amendments would have allowed issuers to conduct primary securities offerings on Forms S-3 and F-3 without regard to the size of their public float, so long as they satisfied the other eligibility conditions of the applicable form and did 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. These changes to Forms S-3 and F-3 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 Forms S-3 and F-3 in a manner that is consistent with investor protection.
We recommend that the Commission adopt the form amendments substantially as proposed, but with certain modifications. Specifically, we recommend that the Commission adopt amendments to Forms S-3 and F-3 that would allow companies with less than $75 million in public float to register primary offerings of their securities on these forms, provided they:
- meet the other registrant eligibility conditions for the use of the respective form;
- are not shell companies and have not been shell companies for at least 12 calendar months before filing the registration statement;
- have a class of common equity securities listed and registered on a national securities exchange; and
- do not sell more than the equivalent of one-third of their public float in primary offerings pursuant to the new instructions in any period of 12 calendar months.
In response to commenters who were concerned that imposing a cap of 20% on the amount of securities that could be sold annually under the new form eligibility rules would not satisfy the capital needs of smaller companies, we are recommending that the rule, as adopted, establish a higher cap of one-third of public float. We believe that setting the cap at 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.
In conjunction with our recommendation that you adopt the new rules with a larger cap on sales than was proposed, we are also recommending that you make eligibility under these new rules contingent on the issuer having at least one class of common equity securities listed and registered on a national securities exchange. Allowing only companies with at least one class of listed common equity securities to avail themselves of the new form eligibility rules should help to minimize potential abuses that may arise from expanded shelf registration. This is because the stock exchanges' listing rules and procedures, as well as other requirements, provide an additional measure of protection for investors by providing listed status to issuers with sufficient public float, investor base, and trading interest to evidence that the market for the issuer's security has the depth and liquidity necessary to maintain fair and orderly markets. While the exchanges' listing standards with respect to common equity securities can vary, their rules and procedures allow the exchanges to sustain efficient and liquid markets that should help monitor the expansion of shelf registration eligibility on Forms S-3 and F-3 to help mitigate any attendant risks posed by the expansion of shelf registration.
In the twenty-five years since the Commission first introduced the system of integrated disclosure, the ability to conduct primary offerings on Forms S-3 and F-3 "off the shelf" has been carefully tempered by restricting the class of companies eligible for this benefit. Consistent with this well-established approach, we recommend amending the Form S-3 and Form F-3 eligibility requirements to enable more companies to use these forms for primary offerings, but only to the extent that the changes are consistent with investor protection. Therefore, we believe that careful and modest expansion of Form S-3 and Form F-3 eligibility is warranted at this time.
Thank you. We would be pleased to answer your questions.