* requiring registrants to report additional events on Form 8-
K, including:
- material modifications to rights of security holders;
- departures of CEO, CFO, COO or president (or persons in
equivalent positions);
- material defaults on senior securities (must be
disclosed no later than one day following default);
- notices that reliance on prior audit is no longer
permissible, or that auditor will not consent to use of
its report in a Securities Act filing; [566] and
- change in company name.
* altering Form 6-K to:
- encourage registrants to voluntarily and promptly
report current important information;
- suggest that registrants report the same events that
are reported pursuant to Form 8-K; and
-include a signature requirement.
* treating the information in Part I of Forms 10-Q and 10-QSB
as “filed„ for purposes of Section 18 under the Exchange
Act; [567] and
* requiring risk factors disclosure in Forms 10-K and 10-KSB
with quarterly updating in Forms 10-Q and 10-QSB. [568]
Reducing filing periods and requiring firms to file summary
financial information with the Commission before filing Forms 10-
K and 10-Q would unify and in some instances accelerate the
release of information to investors. The other requirements
would enhance the uniformity and quality of information
disseminated to the market and investors.
The Commission is proposing to require that all persons who
sign a firm’s registration statements filed under the Securities
Act and reports filed under the Exchange Act certify they have
read the filing and do not know of any material misstatement or
omissions of information in the filing. [569] The proposals
would expand the number of persons required to sign forms to
include the registrant, the registrant’s principal executive
officer, principal financial officer, principal accounting
officer, and at least a majority of the registrant’s board.
[570] These revisions would help ensure that information is
adequately reviewed both internally by a registrant’s senior
management (and by its board), thereby enhancing investors’
confidence in the quality of the information.
The proposed rules and amendments would also improve
investors’ access to information by allowing issuers to use "free
writing" sales materials before the effectiveness of their
registration statement. [571] Current limitations on
communications originally were intended to focus investors’
attention on prospectuses, whose contents were specified by the
Commission. We believe that by allowing issuers the additional
flexibility to communicate with investors before the
effectiveness of a registration statement, investors may become
better informed before making their investment decisions. These
additional communications made during the offering period would
be subject to the provisions of Section 12(a)(2) under the
Securities Act and the antifraud provisions of the Securities and
the Exchange Acts. [572] Additionally, investors would continue
to have access to issuers’ registration statements through the
Commission’s Internet web site and several non-governmental web
sites. The Commission recognizes, however, that deregulating
communications may impose an analytical burden on investors. For
example, in some offerings, an investor may need to assemble and
assimilate various free writing documents and Exchange Act
materials in order to get the whole investment picture. We seek
comment on whether investors would benefit overall from issuers
communicating with investors during the waiting period.
The proposed rules and amendments would improve investors’
access to information by allowing issuers that register offerings
on Form B to communicate with investors before they file a
registration statement. [573] The proposed rules and amendments
would apply to:
* large, seasoned companies;
* offerings sold only to QIBs;
* offerings to certain existing shareholders;
* offerings of certain non-convertible investment securities;
and
* certain market making transactions by affiliated
brokers/dealers.
In these instances, the Commission anticipates investors
would benefit from receiving information from issuers during the
pre-filing period, and believes that doing so would not create an
investor protection concern, given the information is subject to
the provisions of Section 12(a)(2) under the Securities Act and
the antifraud provisions of the Securities and the Exchange Acts.
[574] Moreover, given the abundance of readily accessible
information about large, seasoned public companies, any
communications made by them while in the process of registering
an offering are less likely to have a significant impact by
conditioning the market or stimulating interest in a proposed
offering. The Commission, however, recognizes that deregulating
communications may lead to issuers “hyping„ securities more than
today. We seek comment on whether such activities would
interfere with investors’ ability to evaluate offerings
objectively.
Offerings to QIBs and existing shareholders also may be
registered on Form B. We believe that these investors, due to
their experience or nature, would be less susceptible than other
investors to pre-filing hype about a new offering. For example,
under the proposed rules, issuers may register on Form B an
offering of securities to QIBs. Because of their sophistication,
we believe QIBs are more likely than other investors to be in a
position to insist that issuers explain any information
disseminated before the filing of a registration statement.
Similarly, we believe that certain existing shareholders would
benefit from issuers communicating more freely. These investors
are likely to be knowledgeable about the investments in which
they would be eligible to receive additional issuer disclosures
during the pre-offering period. And finally, we believe
purchasers of non-convertible investment grade debt are unlikely
to need the additional protections offered by Form A
registration. We understand these securities’ investors buy
largely based on ratings and maturities. We request comment on
the accuracy of these views.
The proposed new rules and amendments are designed to
increase the amount of information provided to investors. For
example, the proposals would allow analysts to distribute
research reports around the time of offerings as long as they
disclosed potential conflicts of interest. [575] Facilitating
communication between analysts and investors would enhance
investors' ability to evaluate offerings and should increase the
speed at which the market discovers prices.
The proposed revisions also would reduce the effects of
selected disclosure by requiring issuers to file all "free
writing" materials with the Commission. These materials would
then be available to all investors through our web site. In
offerings today, many issuers and their representatives exclude
some investors from roadshows and other issuer communications.
The proposed rules and amendments should put investors with
Internet access on a more equal footing with respect to receiving
written information about the issuer, although issuers might
continue or increase their selective disclosure of oral
information. We request comment on whether investors without
access to the Internet may be disadvantaged.
The proposed new rules and amendments would likely expand
the registered investment opportunities available to investors.
The proposed revisions would lower the cost of registering public
offerings which in turn may motivate issuers to shift at least
some securities' sales from the private to the public market.
Investors that are eligible to purchase securities in private
placements today would be able to purchase securities that would
be similar to those before, but would be freely resalable. The
information would be subject to the higher liability standards of
Section 11 under the Securities Act. Investors currently
ineligible to purchase securities in private placements may have
new investment opportunities. Shifting securities offerings from
the private to the public market also would likely increase the
liquidity of the public market.
Although it is difficult to estimate the number of offerings
or aggregate amount of securities that might become available to
the public market, we anticipate that larger seasoned issuers
would register some offerings on Form B that otherwise would have
been privately placed, resulting in more offerings becoming
available to non-QIB investors. Smaller, less seasoned issuers
would likely register at least some offerings on Form B that they
offer exclusively to QIBs and to certain existing shareholders,
or that are investment grade non-convertible securities, rather
than privately place them, resulting in more offerings being
traded in the public market. [576] The Commission recognizes
that some smaller, less seasoned issuers, however, would choose
today to register their securities on Form B as an offering
exclusively to QIBs. In these instances, non-QIB investors under
the proposals would not be able to participate in the initial
distribution of securities. We request comment on the extent to
which the proposed rules would integrate the private and public
markets and bifurcate QIB versus non-QIB investment
opportunities.
One cost to investors of the proposed revisions is that they
might increase investors’ analytical burden. The proposed new
rules and amendments would allow Form A issuers with two years of
reporting history to incorporate Exchange Act reports into
prospectuses as long as they deliver the reports with
prospectuses to investors. Investors in these offerings would
have to physically compile the delivered integrated information.
The Commission notes that investors have not complained they are
unduly burdened when investing in offerings where company
information is incorporated by reference from the issuer's
Exchange Act reports. The Commission seeks comment from
investors as to whether, as a practical matter, compiling
delivered materials that are incorporated by reference into
prospectuses is burdensome to investors. The Commission seeks
comment from investors as to whether, in their experience,
issuers or mutual fund companies have promptly delivered periodic
reports incorporated by reference or, in the mutual fund context,
the Statement of Additional Information, when such materials were
requested. And we seek comment from companies on how often they
receive requests from investors.
The proposed new rules and amendments could also increase
investors’ analytical burden if they receive transactional
information in Form B registration statements that is not
uniform. In addition, investors would have the burden of
identifying omitted information that today may be mandated. In
general, however, we expect few problems. We anticipate that
issuers and underwriters would use the opportunity to craft
disclosure based on investors’ demand and the requirement to
provide material information to investors. The proposed rules do
not change issuers’ or underwriters’ liability, thus we expect
they would have incentives to present complete and correct
transactional information. The Commission also is proposing to
continue mandating the same company information as today, as well
as certain transactional disclosure items. We request your
comments on the accuracy of this view.
The Commission recognizes that some fraction of the cost
savings to issuers and underwriters reflects a shifting of costs
from issuers to investors, including investment advisers,
investment companies, and retail investors. These costs may
include quantifiable costs (such as printing) and less
quantifiable costs (such as time, effort, and inconvenience).
Some portion of the printing costs that Form B companies would
save by not printing and delivering final prospectuses might be
shifted to investors. Under the proposals, prospectuses would be
available to investors through the Commission’s web site or
issuers’ toll-free telephone numbers. Investors could either
rely on prospectuses’ continued availability on the Internet (and
not acquire hard copies), call issuers for free copies or
download and print them.
The Commission seeks comment on the assumptions and
quantitative data that should go into estimating the costs to
investors of acquiring prospectuses in Form B offerings. For
example, would investors be less likely to read and use
prospectuses if prospectuses are not delivered and investors have
to take extra steps to receive them? What percentage of
investors would contact issuers for free copies of prospectuses?
What percentage of investors would obtain prospectuses through
the Internet? How much does it cost investors in terms of paper,
Internet connection costs, and telephone connection time to
download information and print prospectuses? How likely is it
that investors would read prospectuses “on-line,„ and if they did
so, how much in additional connection charges would they pay?
What are the costs to issuers and underwriters of printing and
delivering prospectuses? What are the costs of bulk printing of
prospectuses through commercial printers relative to the cost of
“retail printing„ of prospectuses by individual investors? We
request comment on the number of prospectuses that issuers and
underwriters would no longer need to print and deliver to
investors and the size of the resulting cost savings.
The proposed new rules and amendments would allow companies
that currently are ineligible to register offerings on Forms SB-1
and SB-2 to use these forms, and to register business
combinations on new Form SB-3. [577] One issue that could arise
is the quality of the newly eligible firms’ disclosures might be
lower than today, because the small issuer disclosure system, of
which Forms SB-1 and SB-2 are part, allows companies to register
offerings with less extensive disclosure requirements than those
required by Forms S-1 and S-2. We do not anticipate, however,
that classifying companies with revenues up to $50 million as
small business issuers would harm investors. The information
that we have suggests allowing more firms to file on Forms SB-1
and SB-2 would not cause or allow firms that otherwise would
register on Forms A or B to misrepresent or omit material
information to investors. We request your comments on the
accuracy of this view.
A final concern is that eliminating staff review of
offerings registered on Form B would diminish issuers’ incentives
to fully and accurately disclose information in prospectuses.
Although the Commission’s staff currently reviews relatively few
offerings that would be registered on Form B under the proposals,
[578] the possibility of review likely enhances the quality of
disclosure. The Commission agrees that prospectus review is
valuable, but believes the resources currently dedicated to
prospectus review might better serve investors’ interests if
applied to reviews of Exchange Act reports. As discussed in the
Advisory Committee report, the equity trading markets are
approximately 35 times larger (approximately $5.5 trillion
dollars in 1995) than the primary markets (approximately $155
billion dollars in 1995). [579] Given that larger seasoned
issuers are followed by analysts and other providers of
information, we believe that focusing on Exchange Act report
reviews would benefit investors. We request your comments on the
accuracy of this view.
B. Impact on Issuers
The proposed rules and amendments would change the
registration forms on which issuers register offerings and
business combinations. Issuers would use Forms A, B, and C
rather than Forms S-1, F-1, S-2, F-2, S-3, F-3, S-4, and F-4.
Form A would be available to all issuers: It would roughly
parallel current Forms S-1, F-1, S-2, and F-2. Issuers that
would have been reporting companies for at least two years and
that used Form A would be able to incorporate Exchange Act
reports by reference. Form B would be available to larger
seasoned issuers; that is, issuers with either public floats of
at least $75 million and ADTVs of $1 million or public floats of
at least $250 million. [580] Alternatively, issuers could use
Form B if they sell securities exclusively to QIBs and certain
existing shareholders, or sell non-convertible investment grade
securities. Issuers would use Form C to register business
combinations. The Commission also is proposing to revise the
definition of small business issuer to increase the revenue test
from $25 to $50 million and remove the public float test. [581]
Firms that meet this test would be eligible to register offerings
on Forms SB-1 and SB-2, and business combinations on new Form SB-
3.
In the table below, we estimate the impact of the proposed
eligibility requirements on companies’ form eligibility based on
data from 1997. We apply the proposed Form A and Form B public
float, ADTV, and reporting history form requirements to the
companies that were publicly traded on the NYSE, AMEX, and NASDAQ
market in 1997. [582] Of the 8,825 companies that were traded on
these exchanges and market in 1997, 5,428 would have been
required to register offerings on Form A under the proposals,
unless they sold securities solely to QIBs and certain existing
shareholders, or sold non-convertible investment grade
securities. [583] Of those 5,428 companies, 1,075 of the
companies would not have been allowed to incorporate Exchange Act
reports by reference on Form A under the proposals, whereas 4,353
would have been permitted to incorporate Exchange Act reports by
reference. Of the 4,353 companies that would have been permitted
to incorporate Exchange Act reports by reference on Form A under
the proposals, 2,526 were required to register offerings on Forms
S-1 and F-1 in 1997, 400 were required to register offerings on
Forms S-2 and F-2, and 1,427 were required to register offerings
on Forms S-3 and F-3. Under the proposed rules and amendments,
3,397 registrants would have been eligible to register offering
on Form B based on their public floats and ADTVs. Not shown in
the table are the 4,087 companies, 1,050 more than today, that
would have been eligible in 1997 to register offerings on Forms
SB-1, SB-2, and SB-3 under the proposed rules. [584] The impact
of these changes on issuers is discussed below.
Table: Impact of Proposed Form Requirements on Registrants
----------------------------------------------------------------
Form A, No Form A,
Incorporation Incorporation
by by Form B Total
Reference Reference
----------------------------------------------------------------
Form S-1/F- 1,075 2,526 0 3,601
1
----------------------------------------------------------------
Form S-2/F- 0 400 0 400
2
----------------------------------------------------------------
Form S-3/F- 0 1,427 3,397 4,824
3
----------------------------------------------------------------
Total 1,075 4,353 3,397 8,825
----------------------------------------------------------------
We anticipate that the proposed rules and amendments would
lower the cost of raising capital in the public market for many
issuers. For the purposes of the Paperwork Reduction Act, the
table in Section XV summarizes our preliminary estimates of the
internal burden hours that parties would spend to comply with the
proposals. We base these estimates on current burden hour
estimates and the staff’s experience with these filings. The
estimates in the table indicate that public companies would
expend approximately 9,106,343 internal burden hours/year
complying with the proposals. If we assume 70% of these burden
hours would be expended by persons that cost the affected parties
$85/hour and 30% of these burden hours would be expended by
persons that cost $10/hour, then the proposals would cost
approximately $573,699,609/year in internal staff time. [585]
For the purposes of the Paperwork Reduction Act, we also estimate
that parties would spend approximately $4,754,863,050/year on
outside professional help to comply with the proposals. Thus we
estimate that affected parties would spend approximately
$5,328,562,659/year to comply with the proposals. Applying the
same cost estimates to the burden imposed by the current rules,
we estimate that issuers would spend approximately
$5,581,739,205/year. [586] Note that these estimates do not
attempt to quantify the proposals’ intangible benefits, such as
the benefits to issuers and investors of enhanced communications
and the greater likelihood that issuers would shift capital
raising from the private to the public market, nor its intangible
costs, such as the cost to security holders of identifying
misleading or incomplete pre-filing information. We request
comment on the reasonableness of our estimates.
The proposed rules would allow issuers that otherwise would
not be eligible to register securities on Form B to use Form B if
they sold securities exclusively to QIBs and certain existing
shareholders, or sold non-convertible investment grade
securities. Consequently, they would be able to incorporate
Exchange Act reports by reference without delivering them to
investors, and would be able to craft transactional disclosure,
subject to Section 11 liability standards, with fewer constraints
than under the current regime. These changes would lower
issuers’ expenses to publicly raise capital. Although we cannot
estimate the number of offerings or aggregate amount of
securities that these issuers might register on Form B rather
than on Form A, we anticipate that they would register at least
some offerings on Form B. If they used Form B, they would also
be allowed to communicate with investors during the pre-offering
period. We request your comments, including any supporting
empirical information, on the benefits and costs to smaller, less
seasoned issuers of registering securities on Form B under the
proposed rules.
The proposed rules would simplify larger seasoned issuers’
preparation of Form B by lifting restrictions on communications,
[587] enhancing these issuers’ control over the timing of public
offerings, [588] and not requiring physical delivery of a
prospectus. [589] Under the proposed rules, we would require
issuers in Form B offerings to deliver only a term sheet of the
securities’ most important features, instead of a full
prospectus. We request comment on the number of Form B offerings
in which issuers would not have to deliver prospectuses, the
number of offerees in these deals, and the percentage of
investors that would not request prospectuses. To the extent
investors do not request the prospectus or information
incorporated by reference, or obtain such information on the
Internet, issuers would save mailings costs. Specifically, how
does the difference in costs between the bulk mailing of
prospectuses, under current law, and the on-request mailing of
prospectuses as proposed, affect the potential cost to Form B
issuers? How much would it cost Form B issuers to establish
toll-free telephone numbers? How much would it cost Form B
issuers to deliver term sheets? In Form A offerings, issuers
would no longer have to deliver final prospectuses, but would
have to deliver preliminary prospectuses. How many prospectuses
would Form A issuers have to send to offerees? How does this
number compare to the number of investors in these offerings?
Would it cost more or less to send preliminary prospectuses
relative to sending final prospectuses today? We request comment
on the benefits and costs of these revisions to issuers.
The proposed rules and amendments would increase all
issuers’ flexibility to raise capital in a number of ways. The
proposals would allow issuers to “test the waters„ to gauge
investor interest in offerings, allowing them to withdraw
unpopular offerings more quickly than under the current regime.
Issuers would be able to convert more easily and with less
regulatory uncertainty between public and private offerings,
[590] and would no longer be required to announce public or
private status in “limited content notices.„ [591] The
Commission would also credit issuers’ registration fees if they
withdraw registration statements, and would allow small business
issuers to increase the amount of securities they register on a
statement by 50%, up from 20% today. The Commission is proposing
to permit issuers in the small business issuer system to delay
paying registration statement filing fees until shortly before
they sell securities. [592] This provision is designed to help
ease these issuers’ liquidity concerns. We anticipate these
changes would benefit issuers. We request comment on the
reasonableness of this view.
These proposed new rules and amendments could slow issuers’
access to the public market in quick offerings because issuers
would be required to deliver preliminary prospectuses in some
offerings and term sheets in others. The proposed rules and
amendments would require issuers registering securities on Form A
to deliver preliminary prospectuses to buyers 7 days before
pricing for initial public offerings and 3 days before pricing
for repeat offerings. In addition, issuers would have to notify
offerees of material changes at least 24 hours in advance of
pricing. For Form B offerings, issuers would be required to
deliver term sheets outlining the key features of securities
being offered. [593]
To assess the burden of the proposed Form A delivery
requirements on issuers whose public floats, ADTVs, and reporting
histories would otherwise require them to register offerings on
Form A, we examine whether these issuers’ offerings in 1996 would
have been slowed by the proposed restrictions. In the case of
non-shelf offerings, very few deals would have been affected.
[594] In the case of shelf offerings, more deals, especially
medium-term-note offerings, would have been slowed by the Form A
prospectus delivery requirements. [595] In general, however,
these offerings are sold to institutional buyers, and issuers
would be eligible to register offerings on Form B if securities
were sold solely to QIBs and certain existing shareholders, or
were non-convertible investment grade securities. Registration
on Form B would eliminate regulatory uncertainty and Form B
issuers would be required to deliver only a securities term sheet
to investors.
Under the proposals, we would require issuers to file post-
effective amendments for delayed shelf takedowns by the time of
first sale. This requirement would accelerate issuers' filing
obligation with respect to transactional disclosure in prospectus
supplements relative to today. We do not, however, anticipate a
substantial increase in burden on issuers. We ask comment on the
reasonableness of this view.
C. Impact on Other Parties
We anticipate that the proposed rules and amendments would
on balance benefit underwriters. The proposed changes would
clarify and expand the current safe harbors for research reports.
Analysts would be allowed to distribute research reports around
the time of an offering as long as potential conflicts of
interest were disclosed. [596] Thus analysts would be able to
continue servicing their clients, even during offerings.
The proposed rules and amendments would also remove much of
the burden on issuers and underwriters of delivering final
prospectuses. [597] We anticipate these parties would experience
tremendous cost savings from this change. The proposed rules
would also facilitate the Commission moving towards quicker
clearing and settling cycles in the future, reducing clearance
and settlement risk to clearing corporations, their members, and
public investors. The proposed rules and amendments would lift
the obligation on dealers to deliver final prospectuses to
investors in sales after initial distributions if final
prospectuses are on file with the Commission and dealers notify
investors where they may acquire them. [598]
The proposed rules, however, could increase the pressure on
underwriters to rapidly review offerings because more offerings
would be eligible to come to market quickly. Although
underwriters’ techniques to review offerings have improved since
the introduction of shelf registration in 1982, several
commentators on the Concept Release noted that further
deregulation of the registration process could undermine their
ability to influence the contents of issuer disclosure, leaving
them liable for prospectus content. The Commission is proposing
to revise Rule 176 to provide courts better guidance as to
whether a due diligence investigation meets a “reasonable
investigation„ and “reasonable ground for belief„ standard in a
defense against liability under Sections 11 and 12(a)(2) in a
quick offering. [599] We also are proposing to extend Rule 176
to cover liability under Section 12(a)(2) as well as Section 11.
We believe the revisions would provide guidance to underwriters
and the courts while preserving underwriters’ as “gatekeepers.„
For purposes of the Small Business Regulatory Enforcement
Fairness Act of 1996 (“SBREFA„), [600] a rule is “major„ if it
has resulted, or is likely to result in:
* an annual effect on the economy of $100 million or more;
* a major increase in costs or prices for consumers or
individual industries; or
* significant adverse effects on competition, investment or
innovation.
Commenters should provide empirical data on (a) the annual
effect on the economy; (b) any increase in costs or prices for
consumers or individual industries; and (c) any effect on
competition, investment or innovation. We note that for purposes
of the Paperwork Reduction Act, we estimate the proposals would
create an annual information collection paperwork preparation
savings to issuers of more than $100 million. We request your
comments on the reasonableness of this estimate.
In adopting rules under the Exchange Act, Section 23(a)
requires the Commission to consider the impact that rules would
have on competition and to not adopt any rule that would impose a
burden on competition not necessary or appropriate in the public
interest. Section 3(f) of the Exchange Act requires the
Commission, when engaged in rulemaking and required to consider
or determine whether the action is necessary or appropriate in
the public interest, to also consider, in addition to the
protection of investors, whether the action would promote
efficiency, competition, and capital formation. [601]
We believe the proposals would lower companies’ cost of
capital raising relative to today which would enhance their
efficiency and facilitate capital formation. We anticipate the
proposals would promote investor protection and enhance
communications between public companies and investors, thereby
increasing investors' confidence in the integrity of the
securities markets.
To the extent that the proposals would lower the cost of
raising capital in the United States, they could enhance the
competitiveness of issuers that raise capital in the U.S. public
capital markets. We anticipate the proposals also could reduce
some of the competitive disadvantage of small issuers that today
register offerings on Forms S-1, SB-1, and SB-2 relative to
larger firms. Given that the proposals would 1) allow small
issuers to raise capital from QIBs and certain existing
shareholders, or sell non-convertible investment grade securities
using Form B; 2) allow small businesses to incorporate Exchange
Act reports by reference into registration statements as long as
they deliver the reports with prospectuses to investors; and 3)
allow certain Form A issuers’ registration statements to go
effective immediately if they are reporting companies for at
least two years and have public floats of at least $75 million,
we believe small companies’ competitiveness could be enhanced
relative to today.
The proposals to revise Rule 176 to provide courts better
guidance as to whether a due diligence investigation meets a
“reasonable investigation„ and “reasonable ground for belief„
standard in a defense against liability under Sections 11 and
12(a)(2) in a quick offering could, however, put underwriters
that do not have in-house analysts at a competitive disadvantage
relative to other underwriters. The revision would allow
underwriters to cite the employment and consultation of research
analysts that are actively involved in an issuer’s industry as a
positive factor for the courts to consider when deciding whether
underwriters’ investigations are reasonable. Underwriters that
cannot rely on this factor may be somewhat at a competitive
disadvantage in underwriting quick offerings. We request comment
on the significance of this disadvantage.
As discussed above, the Commission anticipates that the
proposed rules and amendments would reduce the cost of raising
capital in the public market, promoting efficiency, competition,
and capital formation. The Commission requests comment on these
preliminary views and encourages commentators to provide
empirical data and other facts to support their views. We
request data and analysis on the effect of the proposed changes
on efficiency and capital formation. The Commission also
requests comments on the competitive effects that may impact
market participants under the proposed amendments.
XV. Initial Regulatory Flexibility Analysis
We prepared this Initial Regulatory Flexibility Analysis
under 5 U.S.C. §603 concerning the new rules, forms, and
amendments proposed today. We will consider your written
comments in the preparation of the final analysis.
A. Reasons and Objectives for Proposed Action
The purpose of the proposed new rules, forms, and amendments
is to modernize, rationalize, and clarify the Commission’s
regulatory system for offerings under the Securities Act of 1933,
enhance communications between public companies and investors,
and promote investor protection.
B. Objectives and Legal Basis
We propose the new rules, forms, and amendments to the
Commission’s existing rules and forms pursuant to Sections 2(b),
6, 7, 8, 10, 19(a), and 28 of the Securities Act, as amended and
Sections 3, 4, 10, 12, 15, 23, and 36 of the Exchange Act.
C. Small Entities Subject to the Rules
The proposed rules and amendments would affect small
entities that are required to file registration statements and
reports under the Securities Act, Exchange Act, and the
Investment Company Act. For the purposes of the Regulatory
Flexibility Act, the Securities Act and Exchange Act define a
“small business„ issuer, other than an investment company, to be
an issuer that, on the last day of its most recent fiscal year,
had total assets of $5 million or less. [602] When used with
respect to an issuer that is an investment company, the term is
defined as an investment company and any related investment
company with aggregate net assets of $50 million or less as of
the end of its most recent fiscal year. [603]
We currently are aware of approximately 1,100 reporting
companies that are not investment companies with assets of $5
million or less. There are approximately 400 investment
companies that satisfy the “small entity„ definition. All of
these companies would be subject to the proposed rules, forms,
and amended rules. We have no reliable way, however, to
determine how many businesses may become subject to Commission
reporting obligations in the future, or may otherwise be impacted
by the changes.
D. Reporting, Recordkeeping, and Other Compliance
Requirements
For the most part, the proposals are deregulatory in nature,
modernizing, rationalizing, and clarifying the Commission’s
regulatory system for offerings under the Securities Act and
enhancing communications between public companies and investors.
Under the proposed rules, small businesses would report and file
essentially the same information as today, although more small
companies would be eligible for the small business disclosure
system’s streamlined reporting. The Commission also is proposing
a new small business combination form, Form SB-3. One exception
to this generalization is the Commission would require issuers,
both large and small, to file written communication used during
the waiting period in a securities offering. The proposed rules
and amendments also could change small issuers’ recordkeeping of
prospectus delivery to investors. Our preliminary view is that
any additional recordkeeping burden resulting from our proposals
for prospectus delivery would be minimal. To the extent that
underwriters and issuers collect information to contact potential
investors and collect information to send prospectuses and
confirmations under the existing rules, we do not anticipate the
proposals would impose a significant additional burden on
underwriters and issuers. We request comment, however, on the
accuracy of this view.
E. Significant Alternatives
The Regulatory Flexibility Act directs the Commission to
consider significant alternatives that would accomplish the
stated objectives, while minimizing any significant adverse
impact on small issuers. In connection with the proposed rules
forms, and amendments, we considered several alternatives,
including:
* establishing different compliance and reporting requirements
or timetables that take into account the resources of small
businesses;
* clarifying, consolidating or simplifying compliance and
reporting requirements under the rule for small businesses;
* using performance rather than design standards; and
* exempting small businesses from all or part of the
requirements.
In a number of instances, the proposed rules, forms, and
amendments would reduce the burden of complying with the
Securities Act and Exchange Act to both large and small
businesses. We propose to allow issuers to simultaneously
register offerings under the Securities Act and classes of
securities under the Exchange Act by checking a box on their
Securities Act registration statements. [604] The revision would
reduce the number of issuer filings. And the proposed rules and
amendments would reduce uncertainty regarding staff review of
Exchange Act reports through notification of review and pre-
review. The proposed rules would allow issuers, both large and
small, to raise capital from QIBs and certain existing
shareholders, or sell non-convertible investment grade securities
using Form B. These issuers would be able to incorporate
Exchange Act reports by reference without necessarily delivering
them to investors, and would be able to craft transactional
disclosure, subject to Section 11 liability standards, with fewer
constraints than under the current regime. These changes should
lower issuers’ expenses to publicly raise capital.
The proposed rules and amendments would increase all
issuers’ flexibility to raise capital in a number of ways. The
proposals would allow issuers to “test the waters„ to gauge
investor interest in offerings, allowing them to withdraw
unpopular offerings more quickly than under the current regime.
Issuers would be able to convert more easily and with less
regulatory uncertainty between public and private offerings,
[605] and would no longer be required to announce public or
private status in “limited content notices.„ [606] The
Commission would credit issuers’ registration fees if they
withdraw registration statements. We anticipate these changes
would benefit small issuers.
The proposals would also relax many of the restrictions on
communications between issuers and investors and clarify any
remaining limitations. Issuers would be able to more freely
promote and sell securities to investors, subject to the
provisions of Section 12(a)(2) under the Securities Act and the
antifraud provisions of Rule 10b-5 under the Exchange Act. [607]
Specifically, the proposed rules and amendments would allow all
issuers to communicate freely with investors after registration
statements are filed. [608] During the pre-filing period,
issuers of offerings registered on Forms A, SB-1, and SB-2 and
unregistered offerings would be somewhat limited in their ability
to communicate with investors, but the proposed rules would
clearly define the length of the period and would delineate the
types of communications permitted and prohibited. [609] These
changes would enhance small businesses’ communications with
investors and reduce regulatory uncertainty.
The proposed rules and amendments explicitly would reduce
the impact on small businesses complying with the provisions of
the Securities Act by allowing seasoned small businesses to
incorporate Exchange Act reports by reference into the small
business registration forms as long as they deliver the reports
with prospectuses to investors. This provision should save
issuers time and money. For example, we estimate issuers would
spend approximately 533, or 343 fewer, burden hours preparing
Form SB-2 registration statements under the proposed rules than
today. [610] The Commission is proposing to allow more issuers
to qualify for the small business disclosure system and to allow
small business issuers to register business combinations and
exchange offers on a new form, Form SB-3. Form SB-3 is designed
to simplify and streamline the information that small businesses
must disclose when they combine with other firms. As discussed
in detail in Section XV, we estimate small business issuers would
expend approximately 1,095 burden hours to file business
combinations on Form SB-3, [611] or $163,155/filing in labor
costs. Relative to filing on Forms S-4 or F-4 today, we estimate
these issuers would save approximately 149 burden hours/filing or
$22,201/filing in labor costs. The Commission also is proposing
to permit issuers in the small business issuer system to delay
paying registration statement filing fees until shortly before
they sell securities. [612] This provision is designed to help
ease these issuers’ liquidity concerns. Small business issuers
also would gain approximately $166/filing in interest because
they would be able to defer paying registration fees. [613]
Finally, the Commission would allow small business issuers to
increase the amount of securities they register on a statement by
50%, up from 20% today.
The proposed rules and amendments could impose additional
analytical burdens on investors that qualify as small entities,
such as some investment companies and investment advisors. As
discussed in Section XV, the proposed rules and amendments would
allow issuers to communicate, including using written sales
materials, with investors, both large and small, after
registering offerings with the Commission. We seek comment on
whether small investors would benefit overall from issuers
communicating with investors during the waiting period. The
proposed new rules and amendments also would allow Form A issuers
with two years of reporting history to incorporate Exchange Act
reports into prospectuses as long as they deliver the reports
with prospectuses to investors. Investors in these offerings
would have to physically compile the delivered integrated
information. The Commission seeks comment from investors as to
whether, as a practical matter, compiling delivered materials
that are incorporated by reference into prospectuses would be
burdensome to small investors. Finally, the proposals could also
increase small investors’ analytical burden if they receive
transactional information in Form B registration statements that
is not uniform in presentation from offering to offering. We
request your comments on whether some issuer flexibility in
crafting Form B transactional disclosure would unduly burden
small investors.
As discussed in Section XV, the Commission recognizes that
some portion of the printing costs that Form B companies would
save by not printing and delivering final prospectuses might be
shifted to small investors. Under the proposals, prospectuses
would be available to investors through the Commission’s web site
or through issuers’ toll-free telephone numbers. Small investors
could either rely on prospectuses’ continued availability on the
Internet (and not acquire hard copies), call issuers for free
copies or download and print them. The Commission seeks comment
on whether the proposed revisions would unduly burden small
investors.
We did not propose all of the alternatives that we
considered. In some instances, the alternatives we chose not to
propose would be inconsistent with our statutory mandate to
require prospectuses to disclose fully and fairly all material
information to investors. In other instances, the alternatives
would significantly reduce the quality and timeliness of Exchange
Act report information, depriving shareholders of an important
means to evaluate investments. We believe that except in the
specific instances, such as in the case of the small business
disclosure system and Form B disclosure requirements, the
proposed rules, forms, and amendments should apply equally to all
entities required to disclose information to enhance protection
of all investors. For these reasons, we also believe there would
be no benefit in providing separate requirements for small
issuers based on the use of performance rather than design
standards.
F. Overlapping or Conflicting Federal Rules
We do not believe any current federal rules duplicate,
overlap or conflict with the rules, schedules, and amendments
that we propose to amend.
We request your written comments on any aspect of this
Initial Regulatory Flexibility Analysis. We particularly seek
comment on:
the number of small entities that would be affected by the
proposed rules, forms, and amendments;
the expected impact of the proposals as discussed above; and
how to quantify the number of small entities that would be
affected by, and how to quantify the impact of, the proposed
rules, forms, and amendments.
We ask commentators to describe the nature of any impact and
provide empirical data supporting the extent of the impact.
XVI. Paperwork Reduction Act
The proposed rules and amendments affect several regulations
and forms that contain “collection of information requirements„
within the meaning of the Paperwork Reduction Act of 1995. [614]
The Commission has submitted proposed revisions to those rules
and Forms to the Office of Management and Budget (“OMB„) for
review in accordance with 44 U.S.C. §3507(d) and 5 CFR 1320.11.
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 OMB control number.
The proposed new rules, forms, and amendments would
modernize, rationalize, and clarify the Commission's regulatory
system for offerings under the Securities Act of 1933, enhance
communications between public companies and investors, and
promote investor protection. The proposed forms and regulations
set forth the disclosures that the Commission would require
issuers to make about themselves and their securities offerings
to the public. The requirements of the forms would largely be
the same as today, except for a few changes that are discussed in
detail below and in Section XIII. The information is needed so
that prospective investors may make informed investment decisions
both in registered offerings and in secondary transactions of
registered securities. The information collection requirements
imposed by the forms and regulations would be mandatory to the
extent that companies are publicly owned and offer securities to
the public. There would be no mandatory retention period for the
information disclosed, and the information gathered would be made
publicly available.
Form S-1 under the Securities Act (OMB Control Number 3235-
0065) is used by issuers that are not eligible to use other forms
to register offerings of securities. [615] The form sets forth
the transactional and company information required by the
Commission in securities offerings. Form S-2 under the
Securities Act (OMB Control Number 3235-0072) is used by issuers
that have reported under the Exchange Act for a minimum of three
years and have timely filed all required reports during the 12
calendar months and any portion of the month immediately
preceding the filing of the registration statement to register
offerings of securities. The form sets forth the transactional
and company information required by the Commission in securities
offerings. It permits incorporation by reference of Exchange Act
reports. Delivery of these incorporated documents as well as the
prospectus to investors may be required. Form S-3 under the
Securities Act (OMB Control Number 3235-0073) is used by issuers
that have reported under the Exchange Act for a minimum of twelve
months and have met the timely filing requirements set forth
under Form S-3 (also, the offering and issuer must meet the
eligibility tests prescribed by the form) to register offerings
of securities. The form sets forth the transactional and company
information required by the Commission in securities offerings.
It permits incorporation by reference of Exchange Act reports.
Form F-1 under the Securities Act (OMB Control Number 3235-0258)
is used by foreign private issuers that are not eligible to use
other forms to register offerings of securities. The form sets
forth the transactional and company information required by the
Commission in securities offerings. Form F-2 under the
Securities Act (OMB Control Number 3235-0257) is used by foreign
private issuers that have reported under the Exchange Act for a
minimum of three years or have an equity float of at least $75
million worldwide or are registering non-convertible investment
grade securities to register offerings of securities. The form
is somewhat shorter than Form F-1 because it uses delivery of
filings made by the issuer under the Exchange Act, particularly
Form 20-F. Form F-3 under the Securities Act (OMB Control Number
3235-0256) is used by foreign private issuers that have reported
under the Exchange Act for a minimum of twelve months and that
have a worldwide public market float of more than $75 million
(the form also may be used by eligible foreign private issuers to
register offerings of non-convertible investment grade
securities, securities to be sold by selling security holders, or
securities to be issued to certain existing security holders) to
register offerings of securities. The form allows issuers to
incorporate Exchange Act reports by reference. Form SB-1 under
the Securities Act (OMB Control Number 3235-0423) is used by
small business issuers, as defined in Rule 405 of the Securities
Act, to register offerings of up to $10 million of securities in
a continuous 12-month period. The form sets forth the
transactional and company information required by the Commission
in securities offerings. It requires less detailed information
about the issuer’s business than Form S-1. Form SB-2 under the
Securities Act (OMB Control Number 3235-0418) is used by small
business issuers, as defined in Rule 405 of the Securities Act,
to register securities offerings. The form sets forth the
transactional and company information required by the Commission
in securities offerings. It requires less detailed information
about the issuer’s business than Form S-1. Form S-4 under the
Securities Act (OMB Control Number 3235-0324) is used by issuers
to register securities offerings in connection with business
combinations and exchange offers. The form sets forth the
transactional and company information required by the Commission
in securities offerings. Form F-4 under the Securities Act (OMB
Control Number 3235-0325) is used by issuers to register
securities offerings in connection with business combinations and
exchange offers involving foreign private issuers. The form sets
forth the transactional and company information required by the
Commission in securities offerings. Form F-7 under the
Securities Act (OMB Control Number 3235-0383) is used by publicly
traded Canadian foreign private issuers to register rights offers
extended to their U.S. holders. To be registered on Form F-7,
the rights must be granted to U.S. shareholders on terms no less
favorable than those extended to other shareholders. Form F-8
under the Securities Act (OMB Control Number 3235-0378) is used
by large publicly traded Canadian foreign private issuers to
register securities offerings in connection with business
combinations and exchange offers. To be registered on Form F-8,
the securities must be offered to U.S. shareholders on terms no
less favorable than those extended to other holders. Form F-9
under the Securities Act (OMB Control Number 3235-0377) is used
by large publicly traded Canadian foreign private issuers to
register non-convertible investment grade securities. Form F-10
under the Securities Act (OMB Control Number 3235-0380) is used
by large publicly traded Canadian foreign private issuers to
register any securities offerings, except certain derivative
securities. Unlike Forms F-7, F-8, F-9, and F-80, however, Form
F-10 requires the Canadian issuer to reconcile its financial
statements to U.S. GAAP. Form F-80 under the Securities Act (OMB
Control Number 3235-0404) is used by large publicly traded
Canadian foreign private issuers to register securities offerings
in connection with business combinations and exchange offers. To
be registered on Form F-80, the securities must be offered to
U.S. holders on terms no less favorable than those extended to
other holders. Schedule B under the Securities Act is used by
Foreign governments or political subdivisions thereof to register
securities offerings. Generally, it contains a description of
the country and its government, the terms of the offering, and
the uses of proceeds. Form S-8 under the Securities Act (OMB
Control Number 3235-0066) is used by issuers to register
securities for offer and sale to employees in a compensatory or
incentive context. Form A under the Securities Act (OMB Control
Number to be determined) would be used by issuers that are not
eligible to use other forms to register offerings of securities.
The form would set forth the transactional and company
information required by the Commission in securities offerings.
Form B under the Securities Act (OMB Control Number to be
determined) would be used by issuers that have reported under the
Exchange Act for a minimum of twelve months and that have public
floats of at least $75 million and ADTVs of $1 million or public
floats of at least $250 million (alternatively, issuers could use
Form B if they sell securities exclusively to QIBs and certain
existing shareholders or register non-convertible investment
grade securities) to register offerings of securities. These
issuers would be able to incorporate Exchange Act reports by
reference without necessarily delivering them to investors, and
would be able to craft transactional disclosure, subject to
Section 11 liability standards and some itemized requirements,
with fewer constraints than under the current Form S-3. Form C
under the Securities Act (OMB Control Number to be determined)
would be used by issuers to register securities offerings in
connection with business combinations and exchange offers. The
form would set forth the transactional and company information
required by the Commission in securities offerings. Form SB-3
under the Securities Act (OMB Control Number to be determined)
would be used by small business issuers, as defined in Rule 405
of the Securities Act, to register securities offerings in
connection with business combinations and exchange offers. The
form would set forth the transactional and company information
required by the Commission in securities offerings. It would
require less detailed information about the issuer’s business
than Form A.
Form 10 under the Exchange Act (OMB Control Number 3235-
0064) is used by registrants to file classes of securities. It
requires certain business and financial information about the
issuer. Form 8-A under the Exchange Act (OMB Control Number
3235-0056) is an optional short form used by issuers to file
classes of securities. Form 10-SB under the Exchange Act (OMB
Control Number 3235-0419) is used by small business issuers, as
defined in Rule 12b-2 of the Exchange Act, to file classes of
securities. This form requires slightly less detailed
information about the issuer’s business than Form 10 requires.
Form 20-F under the Exchange Act (OMB Control Number 3235-0288)
is used by foreign private issuers to register securities or file
annual reports. Form 40-F under the Exchange Act (OMB Control
Number 3235-0381) is used by Canadian foreign private issuers to
register securities or file annual reports. Form 18 under the
Exchange Act (OMB Control Number 3235-0121) is used by foreign
governments or political subdivisions thereof to register
securities on a national securities exchange. Form 10-K under
the Exchange Act (OMB Control Number 3235-0063) is used by
registrants to file annual reports. It provides a comprehensive
overview of the registrant’s business. Form 10-KSB under the
Exchange Act (OMB Control Number 3235-0420) is used by small
business registrants, as defined in Rule 12b-2 of the Exchange
Act, to file annual reports. It provides a comprehensive
overview of the registrant’s business, although its requirements
call for slightly less detailed information than required by Form
10-K. Form 18-K under the Exchange Act (OMB Control Number 3235-
0120) is used by foreign governments or political subdivisions
thereof to file annual reports. Form 10-Q under the Exchange Act
(OMB Control Number 3235-0070) is used by registrants to file
quarterly reports. It includes unaudited financial statements
and provides a continuing view of the registrant’s financial
position during the year. The report must be filed for each of
the first three fiscal quarters of the registrant’s fiscal year.
Form 10-QSB under the Exchange Act (OMB Control Number 3235-0416)
is used by small business registrants, as defined in Rule 12b-2
of the Exchange Act, to file quarterly reports. It includes
unaudited financial statements and provides a continuing view of
the registrant’s financial position during the year. The report
must be filed for each of the first three fiscal quarters of the
registrant’s fiscal year. Form 8-K under the Exchange Act (OMB
Control Number 3235-0060) is used by registrants to report the
occurrence of material events or corporate changes. Form 6-K
under the Exchange Act (OMB Control Number 3235-0116) is used by
foreign private issuers to report information: (i) required to be
made public in the country of its domicile; (ii) filed with and
made public by a foreign stock exchange on which its securities
are traded; or (iii) distributed to security holders. The report
must be furnished promptly after such material is made public.
Issuers would also file under Rule 425 of the Securities Act (OMB
Control Number to be determined) written communications (other
than required registration statements) about pending offerings.
In addition to affecting these collections of information,
the proposed rules and amendments also could change issuers’
recordkeeping of prospectus delivery to investors and impose a
new burden of tracking their “first offers„ in Form B offerings.
Our preliminary view is that any additional recordkeeping burden
resulting from our proposals for prospectus delivery would be
minimal. To the extent that underwriters and issuers collect
information to contact potential investors and collect
information to send prospectuses and confirmations under the
existing rules, we do not anticipate the proposals would impose a
significant additional burden on underwriters and issuers. We
request comment, however, on the accuracy of this view. We also
do not anticipate that requiring issuers to keep information
provided to investors fifteen days before the first offer and any
information used throughout the offering period would impose a
significant burden on issuers. Issuers would only have to keep
the information until they file it with us. Thus issuers might
not have to keep it longer than the date of their first offer
because they can file their registration statement with us at
that time. The longest issuers would have to keep the
information would be the length of the offering period, plus 15
days, since the latest they can file the registration statement
is at first sale. We request comment and any supporting data on
the burden that these requirements would impose on issuers and
underwriters.
We anticipate that the proposed rules and amendments would
lower the cost of raising capital in the public market for many
issuers. For the purposes of the Paperwork Reduction Act, the
table below summarizes our preliminary estimates of the burden
hours that parties would spend to comply with the proposals. We
base these estimates on current burden hour estimates and the
staff’s experience with these filings. The estimates in the
table indicate that parties would expend approximately 9,106,343
burden hours/year to comply with the proposals. In addition, as
discussed in more detail below, we estimate that parties would
spend approximately $4,754,863,050/year on outside professional
help to comply with the proposals. Note that these estimates do
not attempt to quantify the proposals’ intangible benefits, such
as the benefits to issuers and investors of enhanced
communications and the greater likelihood that issuers would
shift capital raising from the private to the public market, nor
its intangible costs, such as the cost to security holders of
identifying misleading or incomplete pre-filing information. We
request comment on the reasonableness of our estimates.Table:
Burden Hour Estimates
----------------------------------------------------------------
Estimated Burden Estimated Estimated
Hours/Filing Filings/Year Burden Hours/Year
----------------------------------------------------------------
-----------------------------------------------------------------
Before After Before After Before After
Form RevisionsRevisionsRevisionsRevisionsRevisions Revisions
(A) (B) (C) (D) (E) = A*C (F) =
B*D
-----------------------------------------------------------------
S-1 1,267 0 1,136 0 1,439,312 0
-----------------------------------------------------------------
S-2 470 0 152 0 71,440 0
-----------------------------------------------------------------
S-3 398 0 3,890 0 1,548,220 0
-----------------------------------------------------------------
F-1 1,868 0 139 0 259,652 0
-----------------------------------------------------------------
F-2 559 0 1 0 559 0
-----------------------------------------------------------------
F-3 166 0 172 0 28,552 0
-----------------------------------------------------------------
SB-1 710 178 8 8 5,680 1,424
-----------------------------------------------------------------
SB-2 876 138 414 559 362,664 77,142
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
S-4 1,233 0 3,701 0 4,563,333 0
-----------------------------------------------------------------
F-4 1,308 0 677 0 885,516 0
-----------------------------------------------------------------
F-7 2 1 1 1 2 1
-----------------------------------------------------------------
F-8 2 1 16 16 32 16
-----------------------------------------------------------------
F-9 420 105 12 12 5,040 1,260
-----------------------------------------------------------------
F-10 420 105 45 45 18,900 4,725
-----------------------------------------------------------------
F-80 2 1 2 2 4 2
-----------------------------------------------------------------
Schedule 0 0 33 33 0 0
B
-----------------------------------------------------------------
S-8 46 12 5,597 5,261 257,462 63,132
-----------------------------------------------------------------
A 0 152 0 2,616 0 397,632
-----------------------------------------------------------------
-----------------------------------------------------------------
B 0 75 0 3,067 0 230,025
-----------------------------------------------------------------
C 0 311 0 3,984 0 1,239,024
-----------------------------------------------------------------
SB-3 0 280 0 394 0 110,320
-----------------------------------------------------------------
10 95 24 124 124 11,780 2,976
-----------------------------------------------------------------
8-A 7 7 2,293 0 15,363 0
-----------------------------------------------------------------
10-SB 90 23 162 162 14,580 3,726
-----------------------------------------------------------------
20-F 1,991 498 908 908 1,807,828 452,184
-----------------------------------------------------------------
20-FR 95 24 99 99 9,405 2,376
-----------------------------------------------------------------
40-F 1,991 498 121 121 240,911 60,258
-----------------------------------------------------------------
40-FR 95 24 15 15 1,425 360
-----------------------------------------------------------------
18 8 2 0 0 0 0
-----------------------------------------------------------------
10-K 1,723 431 10,392 9,342 17,905,416 4,026,402
-----------------------------------------------------------------
10-KSB 1,179 295 2,591 3,641 3,054,789 1,074,095
-----------------------------------------------------------------
18-K 8 2 38 38 304 76
-----------------------------------------------------------------
10-Q 144 36 29,551 26,401 4,255,344 950,436
-----------------------------------------------------------------
10-QSB 131 33 7,521 10,671 985,251 352,143
-----------------------------------------------------------------
8-K 5 5 27,519 69,087 137,595 345,435
-----------------------------------------------------------------
6-K 8 8 10,582 11,000 84,656 88,000
-----------------------------------------------------------------
Filings 0 0.25 0 10,628 0 2,657
under
Rule 425
-----------------------------------------------------------------
Total 37,971,015 9,106,343
-----------------------------------------------------------------
The Commission’s experience indicates that allowing small
companies to register offerings on Forms SB-1 and SB-2 reduces
issuers’ disclosure burden hours and cost. The proposed rules
and amendments would therefore save time and money for 1,050
companies-companies that would become newly eligible to register
offerings on Forms SB-1, SB-2, and SB-3 under the proposed rules
and amendments. [616] Among those affected would be 1) non-
reporting companies with revenues between $25 and $50 million
that plan to register initial public offerings under the
Securities Act or propose to register under the Exchange Act, 2)
non-reporting companies with revenues under $25 million but
public float over $25 million, because the public float test
would be eliminated, and 3) reporting companies that would remain
in the small business disclosure system longer than under the
current system.
In fiscal year 1998, issuers registered eight offerings on
Form SB-1. Given the limited use of this form, we do not expect
any additional filings on this form under the proposed rules and
amendments. Under the proposed rules, we estimate issuers would
require 710 hours to file Form SB-1, the same as today. [617] Of
the 710 hours, we estimate that 25% (178 internal burden hours)
would be provided by corporate staff, and 75% (532 hours) by
external professional help. In addition, we anticipate filers
would spend, at an estimated $175/hour, approximately
$93,100/filing in professional labor costs to file Form
SB-1. [618] We request your comments and supporting empirical
information on the reasonableness of these estimates.
In fiscal year 1998, issuers registered 414 offerings on
Form SB-2. In addition to these filings, we expect an additional
143 filings/year, for a total of 559 filings/year, on Form SB-2
because more firms would be eligible to use Form SB-2 under the
proposed rules and amendments. [619] Under the current rules,
issuers expend approximately 876 hours to register securities on
Form SB-2, which does not allow issuers to incorporate Exchange
Act reports by reference. The proposed rules and amendments
would allow seasoned issuers to incorporate Exchange Act reports
by reference into Form SB-2 registration statements as long as
they deliver the reports with prospectuses to investors. We
anticipate this provision would save issuers time and money. We
anticipate approximately 330 (59%) of the 559 filings/year would
incorporate Exchange Act reports by reference under the proposed
rules, whereas 229 (41%) would not. [620] Under the proposed
rules, we estimate issuers would require 876 hours to file Form
SB-2 if they cannot incorporate Exchange Act reports by reference
under the proposals, and approximately 324 hours if they can.
[621] On average, we estimate small business issuers would spend
approximately 550 hours preparing Form SB-2 registration
statements under the proposed rules than today. [622] Of the 550
hours, we estimate that 25% (138 internal burden hours) would be
provided by corporate staff, and 75% (412 hours) by external
professional help. We anticipate filers would spend, at an
estimated $175/hour, approximately $72,100/filing in professional
labor costs to file Form SB-2. [623] We request your comments
and supporting empirical information on the reasonableness of
these estimates.
The proposed rules would simplify larger seasoned issuers’
preparation of Form B by allowing them greater flexibility to
craft their transactional disclosure. In fiscal year 1998,
approximately 4,824 issuers registered 4,062 offerings on Forms
S-3 and F-3. [624] Based on the proposed rule’s public float and
ADTV tests, approximately 3,397 or 70% of these issuers would be
eligible to register offerings on Form B under the proposed
rules. [625] The remaining 1,427 or 30% of issuers would be
required to register offerings on Form A. Based on relative
representation, and the total offerings registered on Forms S-3
and F-3 in fiscal year 1998, we estimate issuers would register
approximately 2,843 offerings on Form B and 1,219 offerings on
Form A. [626] (We anticipate, however, that many Form A issuers
would register at least some offerings on Form B by selling their
securities exclusively to QIBs and certain existing shareholders,
or selling non-convertible investment grade securities, and thus
would achieve the savings associated with filing on Form B.) We
estimate 224 additional secondary offerings would be filed on
Form B under the proposals that currently are filed on Form S-8.
[627] Thus, we anticipate 3,067 offerings would be filed on Form
B under the proposals. We anticipate that these issuers would
save burden hours and money from the simplification of Form B.
We estimate that issuers would require 300 hours to register
securities on Form B. Of the 300 hours, we estimate that 25% (75
internal burden hours) would be provided by corporate staff, and
75% (225 hours) by external professional help. We anticipate
filers would spend, at an estimated $175/hour, approximately
$39,375/filing in professional labor costs to file Form B. [628]
We request your comments and supporting empirical information on
the reasonableness of these estimates.
The proposed rules and amendments also would simplify
issuers’ preparation of Form A prospectuses and reduce regulatory
uncertainty. The proposals would allow certain Form A issuers’
registration statements to go effective immediately if they are
reporting companies for at least two years and have public floats
of at least $75 million. We estimate approximately 1,960 Form A
issuers would meet these criteria. The proposals would also
allow Form A issuers to incorporate Exchange Act disclosure by
reference in registration statements two years after becoming
reporting issuers rather than after three years, as currently
required. As discussed above, 2,526 companies that currently are
required to register offerings on Forms S-1 and F-1 would become
newly eligible to incorporate Exchange Act reports by reference.
These firms would save burden hours and prospectus preparation
costs when offering securities. Based on the number of offerings
filed on Forms S-1, S-2, F-1, and F-2 in fiscal year 1998, [629]
the proposed availability of Forms SB-1 and SB-2 to certain of
these issuers, [630] the number of offerings by issuers that
today would file on Forms S-3 and F-3 that would not be eligible
for Form B, [631] and the number of offerings currently filed on
Form S-8 that would be filed on Form A under the proposals, [632]
we estimate issuers would file approximately 2,616 offerings/year
on Form A. [633] We expect the 1,219 offerings/year that issuers
registered in fiscal year 1998 on Forms S-3 and F-3 to
incorporate Exchange Act reports by reference on Form A under the
proposals. In addition, we expect approximately 978 of the 1,397
remaining filings on Form A to incorporate Exchange Act reports
by reference each year. [634] Thus we expect issuers would
incorporate Exchange Act reports by reference into 2,197 Form A
offerings/year under the proposed rules. The remaining 419
offerings on Form A would not be eligible to incorporate Exchange
Act reports by reference. We estimate issuers filing on Form A
under the proposed rules and amendments would expend
approximately 1,333 burden hours/filing if they cannot
incorporate Exchange Act reports by reference, [635] and 471
burden hours if they can. [636] On average, we anticipate
issuers would spend about 609 hours preparing Form A registration
statements. [637] Of the 609 hours, we estimate that 25% (152
internal burden hours) would be provided by corporate staff, and
75% (457 hours) by external professional help. We anticipate
filers would spend, at an estimated $175/hour, approximately
$79,975/filing in professional labor costs to file Form B. [638]
We request your comments and supporting empirical information on
the reasonableness of these estimates.
The proposed rules and amendments would also create new Form
C for business combinations and new Form SB-3 for small business
issuer combinations. In fiscal year 1998, issuers registered
4,378 business combinations on Forms S-4 and F-4. Of these, we
estimate issuers would register approximately 3,984 on Form C and
394 on Form SB-3 under the proposed rules. [639] We estimate
issuers would expend approximately 1,245 hours to complete Form C
under the proposed rules and amendments. [640] Of the 1,245
hours, we estimate that 25% (311 internal burden hours) would be
provided by corporate staff, and 75% (934 hours) by external
professional help. We anticipate filers would spend, at an
estimated $175/hour, approximately $163,450/filing in
professional labor costs to file Form C. [641] We estimate small
business issuers would expend approximately 1,121 hours to file
business combinations on Form SB-3. [642] Of the 1,121 hours, we
estimate that 25% (280 internal burden hours) would be provided
by corporate staff, and 75% (841 hours) by external professional
help. We anticipate filers would spend, at an estimated
$175/hour, approximately $147,175/filing in professional labor
costs to file Form B. [643] We request your comments and
supporting empirical information on the reasonableness of these
estimates.
The proposals also would relax many of the restrictions on
communications between issuers and investors and clarify any
remaining limitations. Issuers would be able to more freely
promote securities to investors, subject to the provisions of
Section 12(a)(2) under the Securities Act and the antifraud
provisions of the Securities and the Exchange Acts. [644]
Specifically, the proposed rules and amendments would allow all
issuers to communicate freely with investors after a registration
statement was filed. [645] During the pre-filing period, issuers
of offerings registered on Forms A, SB-1, and SB-2 and
unregistered offerings would be somewhat limited in their ability
to communicate with investors, but the proposed rules would
clearly define the length of the period and would delineate the
types of communications permitted and prohibited. [646] The
Commission would permit larger seasoned issuers and other issuers
making particular kinds of offerings on Form B to communicate
with investors both before and after registration statements are
filed. [647] Proposed Rule 425 would require issuers to file
written communications (in addition to required registration
statements) about pending offerings. The rule, which would have
few specific information requirements, would require issuers to
attach their written communications and include a prominent
legend advising investors to read the registration statement.
The Commission recognizes that companies would incur costs from
filing sales literature used in public offerings. We estimate
that a firm’s corporate staff would expend approximately 15
burden minutes (0.25 internal burden hours) to file a written
communication under the proposed rule. [648] Not all issuers
would use sales literature in offerings, especially those that
occur quickly. In other offerings, however, issuers might
communicate with investors using sales literature.
Preliminarily, we estimate issuers would file, on average, one
written communication (besides the required registration) for
each offering. Thus, we anticipate issuers would register
approximately 10,628 offerings on Forms A, B, C, SB-1, SB-2, and
SB-3 per year. We estimate issuers would expend approximately
2,657 burden hours to file written communications under Rule 425.
We request your comments and supporting empirical information on
the reasonableness of these estimates.
We anticipate that the proposed rules and amendments would
streamline and simplify issuers’ filing of Exchange Act reports
in two ways. First, the Commission would allow issuers to
simultaneously register an offering under the Securities Act and
a class of securities under the Exchange Act by checking a box on
their Securities Act registration statements. [649] This change
would not result in any loss of information to investors because
the Securities Act registration forms would include any Exchange
Act registration information currently not required by the
Securities Act registration requirements. The revision, however,
would reduce the number of issuer filings. As indicated in the
Table, we anticipate that issuers would no longer need to file
approximately 2,293 Form 8-As/year, saving approximately 7 burden
hours/filing. Second, the proposed rules and amendments would
reduce uncertainty regarding staff review of Exchange Act reports
through notification of review and pre-review.
These proposed new rules and amendments, however, would
enhance and expedite some of the disclosure required in Exchange
Act reports filed by reporting companies. These revisions could
increase issuers’ cost of disclosure. To help assess the costs,
we asked representatives of the American Society of Corporate
Secretaries (ASCS), two issuers, one accounting firm, and two law
firms to assess the impact of the proposed rule changes. These
parties did not anticipate substantial increases in registrant
costs if the Commission required reporting companies to file
summary financial information on Form 8-K within 30 days after
quarter-end and 45 days after fiscal year-end. [650] They
reported that most firms release earnings information before
quarter end and hence the requirement would codify and unify
financial reporting practice. We estimate registrants would file
4 additional Form 8-Ks/year. If each Form 8-K filing requires a
registrant to expend 5 burden hours, companies would expend
approximately 20 additional burden hours/year. [651] We request
comment on the reasonableness of this estimate.
The proposed rules and amendments would also reduce the Form
8-K filing period from 15 to 5 days, affecting only announcements
of:
. changes in control;
. acquisitions or dispositions of assets;
. bankruptcies or receiverships; and
. changes of fiscal year.
The parties we contacted did not anticipate reducing the Form 8-K
filing period for these events would substantially increase
registrants' costs. They indicated that registrants typically
issue press releases when these events occur, and thus would be
able to file announcements on Form 8-K within 5 days at little
additional cost. We request comment on the feasibility and cost
of accelerating the filing deadline of Form 8-K for these events.
The proposed rules and amendments would also reduce the Form
8-K filing period from 5 to 1 days for announcements of:
. independent accountant resignations;
. director resignations; and
. material defaults, dividend arrearages, and
delinquencies.
The Commission does not anticipate that reducing the Form 8-K
filing period for these events would substantially increase
registrants' costs, and believes the benefits to investors would
outweigh the costs to registrants. We request comment, however,
on the validity of this view.
The proposed rules and amendments would require additional
events required to be reported on Form 8-K, including:
. material modifications to rights of security holders;
. departures of CEO, CFO, COO or president (or persons in
equivalent positions);
. material default on senior securities (must be
disclosed no later than one day following default);
. notice that reliance on prior audit is no longer
permissible, or that auditor will not consent to use of
its report in a Securities Act filing; [652] and
. change in company name.
As with the reduction in the Form 8-K filing period, the
Commission anticipates the cost of these revisions to be low.
After (or, in some cases, before) these events occur, registrants
are likely to issue press releases and file a Form 8-K based on
their more general obligation to release information about
material events. [653] And most of these events are likely to be
expected and thus issuers should be able to anticipate the need
to file. We request your comments, including any supporting
empirical information, on the costs that would be incurred by
companies under the proposed revisions. We also view the
proposed changes to Form 6-K as imposing little additional burden
on foreign private issuers. In many instances, the firms that
the Commission would ask to file a Form 6-K already are required
to file similar information in their home countries. The
proposed filings would also be voluntary, rather than required.
We request comment on the burden of these revisions, along with
the signature requirement, on foreign private issuers.
We propose to treat the information in Part I of Forms 10-Q
and 10-QSB as “filed„ for purposes of Section 18 under the
Exchange Act. Although the revision would increase the liability
associated with the financial information in Forms 10-Q and 10-
QSB, we do not believe it would significantly increase
registrants’ costs. The reporting systems that generate this
financial information also generate the financial information
contained in Forms 10-K and 10-KSB, which currently is subject to
liability under Section 18. We therefore do not anticipate that
registrants would need to undertake substantial investments to
generate information in quarterly reports that can withstand the
heightened standard of liability. We request comment on this
view.
Another proposed rule would require registrants to disclose
risk factors in Forms 10-K and 10-KSB and to update them
quarterly in Forms 10-Q and 10-QSB. [654] Again the Commission
does not anticipate that the rule would impose a substantial
burden on reporting companies. The Commission already requires
issuers to disclose risk factors in most Securities Act
registration statements. Thus the proposed revisions would
require firms that recently have raised capital just to update
previously disclosed risk factors. In a 1998 ASCS survey of its
members, only 20% of respondents indicated that the costs of
disclosing risk factors would be significant, 54% estimated
modest cost increases, and 26% estimated no cost increase. Of
those respondents estimating costs to be significant, 19%
believed the impact would be short term, rather than on-going.
To reflect this cost, we added one hour to the estimates for
Forms 10-K, 10-KSB, 10-Q, and 10-QSB. [655] On average, we
anticipate issuers would spend about 1,724 hours preparing Form
10-K. [656] Of the 1,724 hours, we estimate that 25% (431
internal burden hours) would be provided by corporate staff, and
75% (1,293 hours) by external professional help. We anticipate
filers would spend, at an estimated $175/hour, approximately
$226,275/filing in professional labor costs to file Form 10-K.
[657] We request your comments and supporting empirical
information on the reasonableness of these estimates. Finally,
the Commission is proposing to require that all persons who sign
a firm’s registration statements filed under the Securities Act
and reports filed under the Exchange Act certify they have read
the filing and do not know of any material misstatement or
omissions of information in the filings. [658] The proposals
would also expand the number of persons required to sign forms to
include the registrant, the registrant’s principal executive
officer, principal financial officer, principal accounting
officer, and at least a majority of the registrant’s board. [659]
The cost to registrants of these proposals would be the cost
associated with having managers and board members spend
additional time reading documents so that they can affirm having
read them. Given the involvement of most firms’ senior managers
in the reporting process, we do not anticipate significant
additional cost to registrants from these proposals. We request
comment, however, on this view.
In accordance with 44 U.S.C. §3506c(2)(B), we solicit
comment on the following:
whether the proposed changes in each collection of
information are necessary for the proper performance of
the function of the agency;
the accuracy of our estimate of the burden of the
proposed changes to each collection of information;
the quality, utility, and clarity of the information to
be collected; and
whether there are ways to minimize the burden of any of
the collections of information on those who are
required to respond, including through the use of
automated collection techniques or other forms of
information technology.
Anyone desiring to submit comments on any or all of the
collection of information requirements should direct them to the
Office of Management and Budget, Attention: Desk Officer for the
Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Washington, D.C. 20503, and should also send
a copy of their comments to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, with reference to File No. S7-30-98. The
Office of Management and Budget is required to make a decision
concerning the collection of information between 30 and 60 days
after publication, so a comment to OMB is best assured of having
its full effect if OMB receives it within 30 days of publication.
XVII.GENERAL REQUEST FOR COMMENTS
Given the scope and significance of this proposal, the
Commission is particularly eager to receive your comments. We
solicit comment, both specific and general, upon each component
of the proposal. We believe your comments will be very important
in determining the course these proposals will take. The
Commission therefore intends to review with great care all
comments received.
We also solicit comment on whether issuers would take
advantage of some of the flexibility in registration or
communication provided in the proposal to engage in fraudulent
activities. If so, what elements of the proposal could be open
to such abuse? How can we avoid abuse and continue to ensure
investor protection, for example, in the proposals for automatic
effectiveness and free communications, while at the same time
provide issuers with timing certainty and allow market
participants to take fuller advantage of today's technology?
We believe our proposals would provide additional benefits
for smaller companies (e.g., simpler and more flexible
registration process, elimination of restrictions on post-filing
**FOOTNOTES**
[566]:See 17 CFR 228.304 and 17 CFR 229.304.
[567]:See proposed revisions to Exchange Act Rules 13a-13(d)
and 15d-13(d), 17 CFR 240.13a-13(d) and 17 CFR 240.15d-
13(d).
[568]:The proposed revisions would also require issuers to
disclose risk factors in Forms 10, 10-SB, 18, 20-F, and 18-
K.
[569]:The proposed revisions would affect Forms A, B, C, SB-
1, SB-2, and SB-3 under the Securities Act and Forms 10-K,
10-KSB, 10-Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, 18, 8-K,
and 6-K under the Exchange Act.
[570]:Foreign private issuers also would need to have an
authorized representative in the United States sign. The
proposed revisions would affect Forms A, B, C, SB-1, SB-2,
and SB-3 under the Securities Act and Forms 10-K, 10-KSB,
10-Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, and 18 under the
Exchange Act. For Forms 8-K and 6-K, we would require
either the registrant’s principal executive officer,
principal financial officer, or principal accounting officer
to sign a particular Exchange Act report and certify he or
she provided a copy to board members.
[571]:See proposed Securities Act Rule 165, 17 CFR 230.165,
and Rule 166, 17 CFR 230.166.
[572]:Under the proposals, Form B offering information would
be subject to liability under Section 11 of the Securities
Act.
[573]:See proposed Securities Act Rule 166, 17 CFR 230.166.
[574]:Under the proposals, Form B offering information would
be subject to liability under Section 11 of the Securities
Act.
[575]:See proposed revisions to Securities Act Rules 137,
138, and 139, 17 CFR 230.137, 230.138, and 230.139.
[576]:In a study of non-convertible debt, we found that at
least 49% of the non-convertible debt issued in the 144A
market in the first half of 1998 would have likely migrated
to the public market under the proposed rules. The evidence
indicates yields on privately placed investment grade
securities and securities with registration rights are
essentially the same as yields on registered securities with
similar characteristics. The insignificant yield
differential suggests that investors perceive few
differences between these privately placed and publicly
registered securities. Yet issuers pay as much as 100 basis
points in extra issuance costs for privately placed
investment grade securities and securities with registration
rights. Presumably, issuers believe the additional expense
is more than justified by the issuance and timing
flexibility provided by the private market. Under the
proposed rules, issuers would have much of the same
flexibility when they register offerings on Form B that they
currently have in the private market. We therefore
anticipate that issuers would sell these securities in the
public rather than private market. See Effects of
Streamlined Registration, Memorandum by the Commission’s
Office of Economic Analysis (Sept. 18, 1998).
[577]:See proposed revisions to Securities Act Rule 405, 17
CFR 230.405.
[578]:See Advisory Committee Report at Appendix A, p. 9,
Table 2. The Commission reviewed approximately 15% of
prospectuses of underwritten common equity registered in
calendar years 1994 and 1995 on Form S-3, which roughly
parallels Form B.
[579]:See Advisory Committee Report at p. 2 and at Addendum
to Appendix A, Fig. 2.
[580]:Public float is the aggregate market value of the
issuer’s outstanding voting and non-voting common equity
held by non-affiliates of the issuer. See 17 CFR 230.405.
[581]:See proposed revisions to Securities Act Rule 405, 17
CFR 230.405.
[582]:Market capitalization was used as a proxy for public
float. We use data from the Center for Research in Security
Prices. We also are proposing to change the requirements
for Canadian foreign private issuers to be eligible for MJDS
to roughly conform with the requirements for Form B. These
changes affect Forms F-7, F-8, F-9, F-10, F-80 and 40-F. We
request comment on the impact of the revisions on these
issuers.
[583]:The proposed rules would allow certain Form A issuers
with at least $75 million in public float to go effective
whenever they request. We estimate approximately 1,960
issuers would be eligible under the proposals.
[584]:See 17 CFR 228.10.
[585]:These hourly rates translate to annual salaries of
$170,000/year and $20,000/year.
[586]:For the purposes of the Paperwork Reduction Act, we
estimate in the table of Section XV the burden hours imposed
on parties to comply with the current rules. Assuming (as
we did for the proposed rules) that 25% of the hours
required to comply with the rules are provided by corporate
staff at a cost of $63/hour (70% of the expended corporate
staff time cost $85/hour, whereas 30% of the expended
corporate staff time cost $10/hour), and 75% of the hours
required to comply with the rules are provided by external
professional help at a cost of $175/hour, we estimate that
affected parties spend approximately 37,971,015 burden
hours/year * $147/hour = $5,581,739,205/year.
[587]:See proposed Securities Act Rules 165 and 166, 17 CFR
230.165 and 230.166.
[588]:Offering materials would not be subject to staff
review, and issuers could designate offerings’ effective
dates. Certain Schedule B filers also could designate the
timing of their offerings’ effectiveness.
[589]:See proposed Securities Act Rules 172 and 173, 17 CFR
230.172 and 230.173.
[590]:See proposed revisions to Securities Act Rule 152, 17
CFR 230.152.
[591]:See proposed revisions to Securities Act Rules 135c
and 135, 17 CFR 230.135c and 230.135.
[592]:See 17 CFR 228.512.
[593]:See proposed Securities Act Rule 172, 17 CFR 230.172,
and proposed revisions to Exchange Act Rule 15c2-8, 17 CFR
240.15c2-8.
[594]:We found that 14 non-shelf offerings by 13 issuers
would have been slowed by the proposed Form A delivery
requirements. In all but one case, the requirement to
deliver notice of material changes at least 24 hours in
advance of pricing would have caused the delay. Of course,
the current registration regime encourages issuers to delay
filing registration statement amendments, thus it is unclear
as to whether these issuers could have filed their
amendments earlier without incurring additional cost.
[595]:In some cases, as discussed above, firms that
currently use Forms S-3 and F-3 to issue securities from
shelves would not have sufficient public float and ADTV to
qualify to use Form B. These firms would have to meet the
preliminary prospectus delivery requirements for Form A.
Here we examine these firms’ use in 1996 of unallocated
shelf to see if the proposed prospectus delivery
requirements would have slowed their offerings. In 1996,
187 firms that were eligible to use Forms S-3 and F-3, but
which would not have been eligible to use Form B took
securities off unallocated shelves. Not all of these
offerings, however, would have been slowed. In roughly 2/3
of equity deals and 1/3 of non medium-term-note (MTN) debt
deals, firms file preliminary takedown prospectuses (red
herrings) with the Commission because they market the deals.
Marketing, not regulatory requirements slow these deals.
Such marketing is rare, however, for takedowns in MTN
programs.
[596]:See proposed revisions to Securities Act Rules 137,
138, and 139, 17 CFR 230.137, 230.138, and 230.139.
[597]:See proposed Securities Act Rule 173, 17 CFR 230.173.
[598]:See proposed revisions to Securities Act Rule 174, 17
CFR 230.174.
[599]:See proposed revisions to Securities Act Rule 176, 17
CFR 230.176.
[600]:Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
[601]:15 U.S.C. § 78c(f).
[602]:See 17 CFR 230.157 and 17 CFR 240.0-10.
[603]:See 17 CFR 240.0-10.
[604]:See proposed Securities Act Rule 499, 17 CFR 230.499,
for Schedule B filers and proposed revisions to Exchange Act
Rule 12d1-2, 17 CFR 240.12d1-2.
[605]:See proposed revisions to Securities Act Rule 152, 17
CFR 230.152.
[606]:See proposed revisions to Securities Act Rules 135c
and 135, 17 CFR 230.135c and 230.135.
[607]:Under the proposals, Form B offering information would
be subject to liability under Section 11 of the Securities
Act.
[608]:See proposed Securities Act Rule 425, 17 CFR 230.425.
[609]:See proposed Securities Act Rules 167, 168, and 169,
17 CFR 230.167, 230.168, and 230.169.
[610]:See the detailed discussion in Section XV of this
release.
[611]:We base this estimate on the number of burden hours
required to file Form SB-2 under the proposals relative to
the number of burden hours required to file Form A. We then
reduce the number of burden hours required today to file
Form C by this ratio. Specifically, we estimate the number
of hours required to file Form SB-3 under the proposed rules
would be [(533 burden hours/SB-2 filing under the proposals
/ 606 burden hours/Form A filing under the proposals) *
1,244 burden hours/Form C filing under the proposals = 1,095
burden hours/SB-3 filing.
[612]:See 17 CFR 228.512.
[613]:In fiscal year 1998, small business issuers filed
registration statements an average of 103 days before
effectiveness. On average, these issuers raised
$13,068,000/filing. At an interest rate of 15%/year, which
the staff believes small firms could be required to pay, and
Commission filing fees of 0.03% per dollar of capital
raised, these issuers would have saved $166/filing on
average in interest if they had been able to postpone paying
their registration fee.
[614]:44 U.S.C. §3501 et seq.
[615]:Regulations S-K and S-B do not impose reporting
burdens directly on public companies. For administrative
convenience, each of these regulations is currently assigned
one burden hour. The burden hours imposed by the disclosure
regulations are currently included in the estimates for the
forms that refer to the regulations.
[616]:See proposed revisions to Securities Act Rule 405.
[617]:The numbers in Column B of the Table differ
significantly from those in Column A of Table 2 because the
estimated burden hours in Column A include the estimated
corporate burden hours and outside labor hours that parties
would require to file information statement. In Column B,
we estimate only the corporate burden hours needed to file
information statements (we estimate separately the expense,
in dollar terms, of outside labor).
[618]:We estimate filers would spend $93,100/filing in
professional labor costs. We base this estimate on 532
hours of professional labor/Form SB-1 * $175/hour. In
aggregate, we estimate that filers would spend $744,800/year
to file 8 Form SB-1s/year.
[619]:We base this estimate on the number of firms that
would be eligible to register offerings on Form SB-2 under
the proposals relative to the number of firms that are
eligible to register offerings on Form SB-2 today, and on
the number of SB-2 filings in fiscal year 1998.
Specifically, we estimate the number of SB-2 filings under
the proposals would be (4,087 firms eligible to register on
Form SB-2 under the proposals / 3,037 firms eligible to
register on Form SB-2 today) * 414 SB-2 filings/year today =
559 SB-2 filings/year.
[620]:We base this estimate on the number of repeat
offerings registered on Form SB-2 today relative to the
number of offerings registered on Form SB-2 today, and on
the number of offerings we expect would be registered on
Form SB-2 under the proposals. Specifically, we estimate
the number of SB-2 filings/year that would incorporate
Exchange Act reports by reference under the proposals would
be (246 repeat offerings registered on Form SB-2 today / 414
offerings registered on Form SB-2 today) * 559 SB-2
filings/year under the proposals = 330 SB-2 filings/year.
We expect the remaining 229 offerings (559 SB-2 filings/year
under the proposals - 330 SB-2 filings/year that would
incorporate Exchange Act reports by reference under the
proposals) not to incorporate Exchange Act reports by
reference.
[621]:We base this estimate on the number of burden hours
required today to file Form S-2 (which allows issuers to
incorporate Exchange Act reports by reference, but requires
them to deliver the reports to investors) relative to the
number of burden hours required today to file Form S-1. We
then reduce the number of burden hours we estimate issuers
would require under the proposed rules to file Form SB-2 if
they cannot incorporate Exchange Act information by
reference by this ratio. Specifically, we estimate the
number of hours required to file Form SB-2 under the
proposed rules if an issuer cannot incorporate Exchange Act
reports by reference would be (470 burden hours/S-2 filing
today / 1,267 burden hours/S-1 filing today) * 876 burden
hours/SB-2 filing under the proposals with no incorporation
by reference = 324 burden hours/SB-2 filing with
incorporation by reference.
[622]:We base this estimate on [(876 hours/SB-2 filing under
the proposals with no incorporation by reference * 229 SB-2
filings under the proposals with no incorporation by
reference) + (324 hours/SB-2 filing under the proposals with
incorporation by reference * 330 SB-2 filings under the
proposals with no incorporation by reference)]/559 SB-2
filings under the proposals = 550 hours/SB-2 filing on
average under the proposed rules. Today, SB-2 filings
require 876 hours/filing or 326 more hours than under the
proposed rules.
[623]:We estimate filers would spend $72,100/filing in
professional labor costs. We base this estimate on 412
hours of professional labor/Form SB-2 * $175/hour. In
aggregate, we estimate that filers would spend
$40,303,900/year to file 559 Form SB-2s/year.
[624]:In fiscal year 1998, issuers registered 3,890
offerings on Form S-3 and 172 offerings on Form F-3.
[625]:We estimate the percentage of firms that currently are
eligible to use Forms S-3 and F-3 that would be eligible
under the proposals to register offerings on Form B based on
their public floats and ADTVs would be (3,397 firms that
would be required to register offerings on Form B under the
proposals / 4,824 firms that would be eligible to register
offerings on Forms S-3 and F-3 today) = 70%.
[626]:Specifically, 70% * 4,062 offerings/year = 2,843
offerings/year on Form B under the proposals and 30% * 4,062
offerings/year = 1,219 offerings/year on Form A.
[627]:In a random sample of 50 offerings filed in 1996 and
1997 on Form S-8, we found 6% would no longer be eligible to
file on Form S-8 under the proposals. Under the proposed
rules and based on our sample, we would require 4% (224) of
the 5,597 offerings filed on Form S-8 in fiscal year 1998 to
file on Form B, 1% (56) to file on Form A with automatic
effectiveness and incorporation by reference, and 1% (56) to
file on Form A with no automatic effectiveness.
[628]:We estimate filers would spend $39,375/filing in
professional labor costs. We base this estimate on 225
hours of professional labor/Form B* $175/hour. In
aggregate, we estimate that filers would spend
$120,763,125/year to file 3,067 Form Bs/year.
[629]:Issuers registered 1,136 offerings on Form S-1, 152
offerings on Form S-2, 139 offerings on Form F-1, and one
offering on Form F-2, for a total of 1,428 offerings in
fiscal year 1998.
[630]:Under the proposed rules, issuers would register these
offerings on Form A, except for the 143 offerings we
anticipate issuers would register on Form SB-2.
[631]:We estimate 30% of the firms currently eligible to use
Forms S-3 and F-3 would be required to register offerings on
Form A based on their public floats and ADTVs.
Specifically, the percentage would be (1,427 firms that
would be required to register offerings on Form A under the
proposals / 4,824 firms that would be eligible to register
offerings on Forms S-3 and F-3 today) = 30%. If we adjust
the 4,062 offerings issuers registered on Forms S-3 and F-3
in fiscal year 1998 by this percentage, we estimate issuers
would register approximately 1,219 of these offerings/year
on Form A under the proposals.
[632]:In a random sample of 50 offerings filed in 1996 and
1997 on Form S-8, we found 6% would no longer be eligible to
file on Form S-8 under the proposals. Under the proposed
rules and based on our sample, we would require 4% (224) of
the 5,597 offerings filed on Form S-8 in fiscal year 1998 to
file on Form B, 1% (56) to file on Form A with automatic
effectiveness and incorporation by reference, and 1% (56) to
file on Form A with no automatic effectiveness.
[633]:Specifically, issuers would register on Form A under
the proposed rules 1,428 offerings/year currently registered
on Forms S-1, S-2, F-1, and F-2 - 143 offerings/year
registered on Form SB-2 + 1,219 offerings/year currently
registered on Form S-3 + 112 offerings/year currently
registered on Form S-8 = 2,616 offerings/year.
[634]:We base this conclusion on the number of firms that
currently are required to register offerings on Forms S-1
and F-1 that would become newly eligible to incorporate
Exchange Act reports by reference under the proposals
relative to the number of firms that currently are required
to register offerings on Forms S-1 and F-1. Specifically,
the number of filings on Form A that would incorporate
Exchange Act reports by reference each year would be (2,526
firms that would be eligible to incorporate Exchange Act
reports by reference on Form A under the proposals / 3,601
firms that currently are eligible to register offerings on
Forms S-1 and F-1) * (2,616 offerings/year on Form A - 1,219
offerings/year on Form A that would incorporate Exchange Act
reports by reference that are eligible to be registered on
Form S-3 today) = 978 offerings/year (in addition to the
1,219 offerings/year on Form A that would incorporate
Exchange Act reports by reference that are eligible to be
registered on Form S-3 today).
[635]:Both domestic and foreign issuers would be able to
register offerings on Form A. Domestic issuers currently
require 1,267 hours to complete Form S-1 (which does not
allow issuers to incorporate Exchange Act reports by
reference), whereas foreign issuers require 1,868 hours to
complete Form F-1 (which also does not allow issuers to
incorporate Exchange Act reports by reference). In fiscal
year 1998, issuers registered 1,136 offerings on Form S-1
and 139 offerings on Form F-1. We estimate the number of
hours that issuers would require to file Form A if they
cannot incorporate Exchange Act reports by reference would
be [(1,136 domestic Form A filings that previously would
have been filed on Form S-1 * 1,267 hours/domestic Form A
filing that previously would have been filed on Form S-1) +
(139 foreign Form A filings that previously would have been
filed on Form F-1 * 1,868 hours/foreign Form A filing that
previously would have been filed on Form F-1)]/1,275 filings
on Form A = 1,333 hours/filing.
[636]:Both domestic and foreign issuers would be able to
register offerings on Form A. Domestic issuers currently
require 470 hours to complete Form S-2 (which allows issuers
to incorporate Exchange Act reports by reference), whereas
foreign issuers require 559 hours to complete Form F-2
(which allows issuers to incorporate Exchange Act reports by
reference). In fiscal year 1998, issuers registered 152
offerings on Form S-2 and one offering on Form F-2. We
therefore estimate the number of hours that issuers would
require to file Form A if they can incorporate Exchange Act
reports by reference would be 471 hours/filing.
[637]:As discussed above, we anticipate issuers would
register 419 offerings/year on Form A where Exchange Act
reports would not be incorporated by reference and 2,197
offerings/year on Form A where Exchange Act reports would be
incorporated by reference. The average hours to file Form A
would be approximately 1,333 hours if they cannot
incorporate Exchange Act reports by reference and 471 hours
if they can incorporate Exchange Act reports by reference.
On average we expect the number of hours issuers would
expend to file Form A would be [(419 offerings/year on Form
A where Exchange Act reports would not be incorporated by
reference * 1,333 hours if they cannot incorporate Exchange
Act reports by reference) + (2,197 offerings/year on Form A
where Exchange Act reports would be incorporated by
reference * 471 hours if they can incorporate Exchange Act
reports by reference)]/2,616 offerings/year on Form A = 609
hours/filing.
[638]:We estimate filers would spend $79,975/filing in
professional labor costs. We base this estimate on 457
hours of professional labor/Form A* $175/hour. In
aggregate, we estimate that filers would spend
$209,214,600/year to file 2,616 Form As/year.
[639]:Issuers registered 3,701 offerings on Form S-4 in
fiscal year 1998 and 677 offerings on Form F-4, for a total
of 4,378 business combinations. Based on the number of
offerings we expect issuers would register on Forms SB-1 and
SB-2 under the proposals relative to the number of offerings
registered on Forms SB-1, SB-2, A, and B, and the number of
business combinations in fiscal year 1998, we estimate the
number of SB-3 filings issuers would file under the
proposals would be (567 offerings registered on Forms SB-1
and SB-2 under the proposals / 6,250 offerings registered in
fiscal year 1998) * 4,378 filings/year under the proposals =
394 SB-3 filings/year. The remaining 3,984 business
combinations (4,378 filings/year - 394 SB-3 filings/year)
would be filed on Form C.
[640]:Both domestic and foreign issuers would be required to
register business combinations on Form C. Domestic issuers
currently require 1,233 hours to complete Form S-4, whereas
foreign issuers require 1,308 hours to complete Form F-4.
In fiscal year 1998, issuers registered 3,701 business
combinations on Form S-4 and 677 business combinations on
Form F-4. We estimate the number of burden hours that
issuers would require to file Form C would be [(3,701 Form C
filings that previously would have been filed on Form S-4 *
1,233 hours/Form C filing that previously would have been
filed on Form S-4) + (677 Form C filings that previously
would have been filed on Form F-4 * 1,308 hours/Form C
filing that previously would have been filed on Form F-
4)]/4,378 filings on Form C = 1,245 hours/filing on Form C.
[641]:We estimate filers would spend $163,450/filing in
professional labor costs. We base this estimate on 934
hours of professional labor/Form C* $175/hour. In
aggregate, we estimate that filers would spend
$651,184,800/year to file 3,984 Form Cs/year.
[642]:We base this estimate on the number of hours required
to file Form SB-2 under the proposals relative to the number
of hours required to file Form A. We then reduce the number
of hours required today to file Form C by this ratio.
Specifically, we estimate the number of hours required to
file Form SB-3 under the proposed rules would be [(550
hours/SB-2 filing under the proposals / 609 hours/Form A
filing under the proposals) * 1,245 hours/Form C filing
under the proposals = 1,121 hours/SB-3 filing.
[643]:We estimate filers would spend $147,175/filing in
professional labor costs. We base this estimate on 841
hours of professional labor/Form A* $175/hour. In
aggregate, we estimate that filers would spend
$57,986,950/year to file 394 Form As/year.
[644]:Under the proposals, Form B offering information would
be subject to liability under Section 11 of the Securities
Act.
[645]:See proposed Securities Act Rule 165, 17 CFR 230.165.
[646]:See proposed Securities Act Rules 167, 168, and 169,
17 CFR 230.167, 230.168, and 230.169.
[647]:See proposed Securities Act Rule 166, 17 CFR 230.166.
[648]:We base this estimate on the burden imposed by a
similar filing requirement under Item 901(c) of Regulation
S-K for roll-up transactions.
[649]:See proposed Securities Act Rule 499, 17 CFR 230.499,
for Schedule B filers and proposed revisions to Exchange Act
Rule 12d1-2, 17 CFR 240.12d1-2.
[650]:In a 1998 survey of its members, the ASCS found that
although only 10% of respondents file Form 8-K with
quarterly financial information, over 99% issue quarterly
press releases. Of those, approximately 90% issue a press
release within 30 days after quarter-end. The results of
the survey indicate that 38% of respondents issue a summary
or complete balance sheet, 46% issue a summary or complete
income statement, 24% issue a summary or complete cash flow
statement, 69% issue information on revenues or sales
(including those that issued an income statement), 80% issue
earnings (including those that issued an income statement),
and 12% issue segment financial information.
[651]:The parties consulted generally indicated that Form 8-
K filings are prepared by corporate counsel.
[652]:See 17 CFR 228.304 and 17 CFR 229.304.
[653]:See, e.g., the comment letter on the Concept Release,
File No. S7-19-96, submitted by the American Bar Ass’n.
(Dec. 11, 1996).
[654]:The proposed revisions would also require issuers to
disclose risk factors in Forms 10, 10-SB, 18, 20-F, and 18-
K.
[655]:We also added a burden hour to our estimates for Forms
10, 10-SB, 18, 20-F, and 18-K.
[656]:As discussed above, we anticipate issuers would
register 419 offerings/year on Form A where Exchange Act
reports would not be incorporated by reference and 2,197
offerings/year on Form A where Exchange Act reports would be
incorporated by reference. The average hours to file Form A
would be approximately 1,333 hours if they cannot
incorporate Exchange Act reports by reference and 471 hours
if they can incorporate Exchange Act reports by reference.
On average we expect the number of hours issuers would
expend to file Form A would be [(419 offerings/year on Form
A where Exchange Act reports would not be incorporated by
reference * 1,333 hours if they cannot incorporate Exchange
Act reports by reference) + (2,197 offerings/year on Form A
where Exchange Act reports would be incorporated by
reference * 471 hours if they can incorporate Exchange Act
reports by reference)]/2,616 offerings/year on Form A = 609
hours/filing.
[657]:We estimate filers would spend $226,275/filing in
professional labor costs. We base this estimate on 1,293
hours of professional labor/Form 10-K* $175/hour. In
aggregate, we estimate that filers would spend
$2,113,861,050/year to file 9,342 Form 10-Ks/year. In
fiscal year 1998, registrants filed 10,392 Form 10-Ks and
2,591 Form 10-KSBs. Under the proposals 1,050 companies
that currently file their annual report on Form 10-K would
be eligible to file on Form 10-KSB. Thus we anticipate
registrants would file 9,342 Form 10-Ks and 3,641 Form 10-
KSBs. In fiscal year 1998, registrants filed 29,551 Form
10-Qs and 7,521 Form 10-QSBs. Under the proposals 1,050
companies that currently file their quarterly reports on
Form 10-Q would be eligible to file on Form 10-QSB. Thus we
anticipate registrants would file 26,401 Form 10-Qs [29,551
Form 10-Qs today - (3 quarterly reports on Form 10-QSB/year
* 1,050 companies)], and 10,671 Form 10-QSBs [7,521 Form 10-
QSBs today + (3 quarterly reports on Form 10-QSB/year *
1,050 companies)].
[658]:The proposed revisions would affect Forms A, B, C, SB-
1, SB-2, and SB-3 under the Securities Act and Forms 10-K,
10-KSB, 10-Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, 18, 8-K,
and 6-K under the Exchange Act. We also are proposing to
require registrants to disclose their email address and web
site on all registration statements and Exchange Act
reports. We do not anticipate any additional burden from
these requirements.
[659]:Foreign private issuers also would need to have an
authorized representative in the United States sign. The
proposed revisions would affect Forms A, B, C, SB-1, SB-2,
and SB-3 under the Securities Act and Forms 10-K, 10-KSB,
10-Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, and 18 under the
Exchange Act. For Forms 8-K and 6-K, we would require
either the registrant’s principal executive officer,
principal financial officer or principal accounting officer
to sign a particular Exchange Act report and certify he or
she provided a copy to board members.