* 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.