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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228, 230, 239, 240 and 249
[Release Nos. 33-7419 and 34-38581; File No. S7-23-96]
RIN 3235-AG82
Expansion of Short-Form Registration to Include Companies with
Non-voting Common Equity.
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
SUMMARY: The Securities and Exchange Commission ("Commission")
today is adopting amendments to Forms S-3, F-2 and F-3 under the
Securities Act of 1933 ("Securities Act") to include non-voting
as well as voting common equity in the computation of the $75
million aggregate market value of common equity held by non-
affiliates of the registrant. The Commission also is adopting
conforming amendments to include non-voting as well as voting
common equity in calculating the float used in determining small
business issuer status and in stating the amount of the public
float on Forms 10-K and 10-KSB under the Securities Exchange Act
of 1934 ("Exchange Act").
EFFECTIVE DATE: The rule revisions are effective [30 days after
publication date].
FOR FURTHER INFORMATION CONTACT: Mary J. Kosterlitz, Special
Counsel, (202) 942-2900, Office of Chief Counsel, Division of
Corporation Finance, Securities and Exchange Commission, 450
Fifth Street, N.W., Mail Stop 3-3, Washington, D.C. 20549.
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SUPPLEMENTARY INFORMATION: On August 30, 1996, the Commission
published for comment proposed amendments to Forms S-3 -[1]-
and F-3 -[2]- under the Securities Act -[3]- to
include non-voting common equity in the computation of the
required public float. Conforming changes were also proposed to
Forms F-2, -[4]- 10-K, -[5]- and 10-KSB -[6]- and
to the definition of "small business issuer" in Rule 405,
-[7]- in Item 10 of Regulation S-B -[8]- under the
Securities Act, and in Rule 12b-2 -[9]- under the Exchange
Act. -[10]- Having considered the comments received, the
Commission is adopting the revisions as proposed. -[11]-
---------FOOTNOTES----------
-[1]- 17 CFR 239.13.
-[2]- 17 CFR 239.33.
-[3]- 15 USC 77a et seq.
-[4]- 17 CFR 239.32.
-[5]- 17 CFR 249.310.
-[6]- 17 CFR 249.310b.
-[7]- 17 CFR 230.405.
-[8]- 17 CFR 228.10.
-[9]- 17 CFR 240.12b-2.
-[10]- 15 U.S.C. 78a et seq.
-[11]- The Commission received letters from two
commenters. These letters are available for
inspection and copying in the Commission's public
reference room, File No. S7-23-96. Both
commenters were generally supportive of the
proposed changes, but also suggested that the
proposed revisions be expanded to include certain
types of preferred stock in the calculation of the
(continued...)
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I. DISCUSSION OF RULE CHANGES
A. Changes to Forms S-3 and F-3
The Commission's short-form registration statements, Forms
S-3 and F-3, require as one condition to eligibility for
registration of a primary offering of non-investment grade
securities that the company have at least $75 million of voting
stock held by non-affiliates (referred to as the "public float"). -
[12]-
Some companies, both domestic and foreign, that have significant
amounts of non-voting common stock held by non-affiliates (but
not significant amounts of voting stock) are not eligible to use
these forms for such an offering because non-voting stock is not
included in the calculation of the required public float. The
revisions adopted today make Forms S-3 and F-3 available to these
issuers, provided they otherwise qualify for these forms. These
changes will provide additional flexibility for registered
capital raising transactions by extending the availability of the
short form registration statements.
The amendments relating to the use of Forms S-3 and F-3 for
primary offerings of non-investment grade securities change the
---------FOOTNOTES----------
-[11]-(...continued)
required public float. After considering these
suggested changes, the Commission has determined
to proceed with adoption of the revisions as
proposed. However, these comments will be
considered by the Commission in connection with
future rulemaking.
-[12]- See General Instruction I.B.1 of Forms S-3 and F-
3. General registrant requirements for Forms S-3
and F-3 eligibility are outlined in General
Instruction I.A to these forms.
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transaction requirements outlined in the General Instructions to
the Forms to provide that non-voting common equity is included in
the calculation of the $75 million float requirement.
-[13]- These changes are accomplished by removing the term
"voting stock" as it appears in these sections and substituting
the phrase "shares of voting and non-voting common equity." The
meaning of the term "common equity" is as defined in Rule 405
under the Securities Act. -[14]-
B. Conforming Changes to Other Commission Rules and
Forms Referencing Public Float
The Commission also is adopting the proposed conforming
changes to Forms F-2, 10-K and 10-KSB, as well as to the
definition of "small business issuer" in Rule 405 and in Item 10
of Regulation S-B under the Securities Act and to Rule 12b-2
under the Exchange Act. Pursuant to these changes, the public
float calculations will include the aggregate market value of
both voting and non-voting common equity.
---------FOOTNOTES----------
-[13]- The amendments do not alter any other requirements
of Forms S-3 or F-3, including the amount of the
public float.
-[14]- Rule 405 defines "common equity" as "any class of
common stock, or an equivalent interest, including
but not limited to a unit of beneficial interest
in a trust or a limited partnership interest."
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II. COST-BENEFIT ANALYSIS
The Commission solicited comment to assist in its evaluation
of the costs and benefits that might result from the expansion of
the short-form registration to include non-voting common equity
in the calculation of required float and to the proposed
conforming revisions. It was anticipated that the revisions
would have a benefit to issuers with filing obligations that
would become eligible to use short form registration, by
decreasing their costs. It was also expected that a small number
of issuers currently able to use the small business issuer
disclosure system might have increased costs due to their
inability to use this system. No detrimental effects to
investors were expected. Commenters supported the position that
revisions would have a benefit to issuers that would become
eligible to use short form registration. No comments were
received concerning the impact on small business issuers.
Consequently, the Commission has determined to adopt the changes
as proposed.
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III. SUMMARY OF FINAL REGULATORY FLEXIBILITY ANALYSIS
A final regulatory flexibility analysis was prepared in
accordance with 5 U.S.C. 604 concerning the changes to Forms S-3
and F-3 under the Securities Act to include non-voting common
equity in the computation of the required public float and
conforming changes to Forms F-2, 10-K, 10-KSB and to the
definition of "small business issuer" in Rule 405 and in Item 10
of Regulation S-B under the Securities Act and in Rule 12b-2
under the Exchange Act.
The final regulatory flexibility analysis notes that the
amendments will revise forms and rules, which may increase the
availability of Forms S-3, F-2 and F-3 and possibly decrease the
availability of the small business disclosure system (Forms SB-1,
SB-2, 10-SB, 10-KSB and 10-QSB) for some issuers.
As discussed more fully in the analysis, the amendments may
affect persons that are small entities, as defined in the
Commission's rules, because the changes to the definition of
small business issuer could cause some issuers that have non-
voting common equity held by non-affiliates to become ineligible
to use the small business disclosure system. The Commission
estimated that approximately three percent of the small business
issuers may become subject to more detailed reporting obligations
in the future, or may otherwise be impacted by the rule
revisions.
These estimates were the result of estimates provided by the
staff of the Division of Corporation Finance based on its
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expertise from the review of corporate filings and on estimates
provided by the Commission's Office of Economic Analysis ("OEA").
The OEA estimates confirmed the estimates made by the Division of
Corporation Finance and have been incorporated into the final
regulatory flexibility analysis. As a result, the Commission
does not expect that the number of companies that will become
ineligible to meet the definition of small business issuer will
be significant. The Commission also does not expect that
materially increased reporting, recordkeeping and compliance
burdens will result from the changes.
The Commission sought comment on its preliminary estimates
of the number of small entities that would be impacted by the
proposed rules and on whether these proposed amendments would
result in significant new burdens for small entities. No
comments were received concerning the impact of the amendments on
small entities.
As stated in the analysis, several possible significant
alternatives to the amendments were considered, including, among
others, establishing different compliance or reporting
requirements for small entities or exempting them from all or
part of the amended requirements. As discussed more fully in the
analysis, the nature of these amendments does not lend themselves
to separate treatment, nor would they impose significant
additional burdens on small entities. A copy of the final
regulatory flexibility analysis may be obtained by contacting
Mary J. Kosterlitz, Office of Chief Counsel, Division of
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Corporation Finance, Mail Stop 3-2, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
IV. PAPERWORK REDUCTION ACT
In accordance with the Paperwork Reduction Act of 1965 (the
"Act")(44 U.S.C. 3501 et seq.) the staff submitted to the Office
of Management and Budget ("OMB") for review proposals to amend
the following forms under the Securities Act and the Exchange
Act: "Form S-1," "Form S-2," "Form S-3," "Form F-1," "Form F-2,"
"Form F-3," "Form SB-1," "Form SB-2," "Form 10-K," "Form 10-Q,"
"Form 10-KSB," "Form 10-QSB," "Form 10," and "Form 10-SB." The
collection of information contained in the fourteen forms at
issue is required for the registration of various securities for
sale to the public under the Securities Act and periodic
reporting obligations under the Exchange Act. The Commission
solicited comment on the compliance burdens associated with the
proposals but received no public comment on the burden estimates.
The Commission is adopting the amendments as proposed.
V. STATUTORY BASIS FOR THE AMENDMENTS
The amendments to the Commission's rules and forms are being
adopted by the Commission pursuant to Sections 6, 7, 8, 10,
19(a), and 27A of the Securities Act and Sections 12, 13, 14,
15(d), 21E, 23(a) and 35A of the Exchange Act.
List of Subjects in 17 CFR Parts 228, 230, 239, 240 and 249
Reporting and recordkeeping requirements, Securities.
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TEXT OF THE AMENDMENTS
In accordance with the foregoing, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows:
PART 228 - INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS
ISSUERS
1. The authority citation for Part 228 continues to read
as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,
77sss, 78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-
37, 80b-11, unless otherwise noted.
2. By amending 228.10(a)(1) by removing the word
"securities" in the Provided however sentence immediately
following 228.10(a)(1)(iv) and adding the words "voting and non-
voting common equity" in its place.
PART 230 - GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
3. The authority citation for Part 230 continues to read
in part as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss,
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29,
80a-30, and 80a-37, unless otherwise noted.
* * * * *
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4. By amending 230.405 the definition of "Small Business
Issuer" by removing the words "outstanding securities" in the
Provided however clause and adding the words "outstanding voting
and non-voting common equity" in their place.
PART 239 - FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
5. The authority citation for Part 239 continues to read
in part as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l,
79m, 79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless
otherwise noted.
* * * * *
6. 17 CFR 239 is amended by removing the words "voting
stock" and adding, in their place, the words "voting and non-
voting common equity" in the following sections:
(a) 17 CFR 239.13(b)(1)
(b) 17 CFR 239.32(b)(2)(i)
(c) 17 CFR 239.33(b)(1)
7. By amending Form S-3 (referenced in 239.13) by
amending the General Instruction I.B.1 of Form S-3, by removing
the words "voting stock" and adding, in their place, the words
"voting and non-voting common equity" and
by revising the Instruction to General Instruction I.B.1 to read
as follows:
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[Note: The text of Form S-3 does not and the amendments will not
appear in the Code of Federal Regulations.]
FORM S-3
* * * * *
GENERAL INSTRUCTIONS
I. Eligibility Requirements For Use of Form S-3
* * * * *
B. Transaction Requirements * * *
1. Primary Offerings by Certain Registrants. * * *
Instruction. For the purposes of this Form, "common equity" is
as defined in Securities Act Rule 405 (230.405 of this chapter).
The aggregate market value of the registrant's outstanding voting
and non-voting common equity shall be computed by use of 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 filing. See the definition of "affiliate" in
Securities Act Rule 405.
* * * * *
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8. By amending Form F-2 (referenced in 239.32) by
amending the General Instruction I.B.2.(i) of Form F-2, by
removing the words "voting stock" and adding, in their place, the
words "voting and non-voting common equity" and
by revising Instruction 1 to General Instruction I.B.2.(i) to
read as follows:
[Note: The text of Form F-2 does not and the amendments will not
appear in the Code of Federal Regulations.]
FORM F-2
* * * * *
GENERAL INSTRUCTIONS
I. Eligibility Requirements For Use of Form F-2
* * * * *
B. * * *
2. * * *
Instructions
1. For the purposes of this Form, "common equity" is as defined
in Securities Act Rule 405 (230.405 of this chapter). The
aggregate market value of the registrant's outstanding common
equity shall be computed by use of the price at which the voting
and non-voting 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 filing. See the definition of "affiliate" in
Securities Act Rule 405.
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* * * * *
9. By amending Form F-3 (referenced in 239.33) by
amending the General Instruction I.B.1 of Form F-3, by removing
the words "voting stock" and adding, in their place, the words
"voting and non-voting common equity" and by revising the
Instruction to General Instruction I.B.1 to read as follows:
[Note: The text of Form F-3 does not appear in the Code of
Federal Regulations.]
FORM F-3
* * * * *
GENERAL INSTRUCTIONS
I. Eligibility Requirements For Use of Form F-3
* * * * *
B. Transaction Requirements
* * * * *
1. Primary Offerings by Certain Registrants. * * *
Instruction
For the purposes of this Form, "common equity" is as defined in
Securities Act Rule 405 (230.405 of this chapter). The
aggregate market value of the registrant's outstanding voting and
non-voting common equity shall be computed by use of 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
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date of filing. See the definition of "affiliate" in Securities
Act Rule 405.
* * * * *
PART 240 - GENERAL RULE AND REGULATIONS, SECURITIES EXCHANGE
ACT OF 1934
10. The authority citation for Part 240 continues to read,
in part, as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29,
80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
11. By amending 240.12b-2 the definition of "Small
Business Issuer" by removing the words "outstanding securities"
in the Provided however clause and adding the words "outstanding
voting and non-voting common equity" in their place.
PART 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934
12. The authority citation for Part 249 continues to read
in part as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise
noted;
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* * * * *
13. By amending the front page of Form 10-K (referenced in
249.310) by revising the paragraph before the "Note" to read as
follows:
[Note: The text of Form 10-K does not and the amendments
will not appear in the Code of Federal Regulations.]
FORM 10-K
* * * * *
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the registrant.
The aggregate market value shall be computed by reference to the
price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of a specified date within
60 days prior to the date of filing. (See definition of
affiliate in Rule 405, 17 CFR 230.405.)
Note.* * *
14. By amending the front page of Form 10-KSB (referenced
in 249.310b) by revising the paragraph before the "Note" to read
as follows:
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[Note: The text of Form 10-KSB does not, and the amendments
will not appear in the Code of Federal Regulations.]
FORM 10-KSB
* * * * *
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by reference
to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of a specified date
within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
Note:* * *
By the Commission.
Jonathan G. Katz
Secretary
May 8, 1997