Eligibility of Smaller Companies to Use Form S-3 or F-3 for Primary Securities Offerings

A Small Entity Compliance Guide¹

• Form S-3 (and Form F-3 with respect to foreign private issuers) allows a company with less than $75 million in public float to register primary offerings of its securities on Form S-3 or F-3, if the company:
   
  • Meets the general eligibility conditions for the use of Form S-3 or F-3;
  • Has a class of common equity securities that is listed and registered on a national securities exchange;  
  • Has not sold securities valued at more than one-third of its public float in certain primary offerings over the previous 12 calendar months; and  
  • Is not a shell company and has not been a shell company for at least 12 calendar months.

What are the general eligibility conditions of Form S-3?

• Domestic Company: The company must be organized under the laws of the United States or any State or Territory or the District of Columbia and have its principal business operations in the United States or its territories.
• Registration: The company must have a class of securities registered under Section 12(b) of the Securities Exchange Act of 1934 or a class of equity securities registered under Section 12(g) of the Exchange Act or is required to file reports under Section 15(d) of the Exchange Act.
• Reporting: The company must have been subject to the reporting requirements of Section 12 or 15(d) of the Exchange Act and must have filed all material required to be filed pursuant to Section 13, 14 or 15(d) for a period of at least 12 calendar months immediately preceding the filing of the registration statement on Form S-3; and
• Timely Filings: The company has filed in a timely manner all reports required to be filed by it with the SEC during the 12 calendar months and any portion of a month immediately before the filing of the Form S-3 registration statement, other than a report that is required solely under Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8-K.

What are the general eligibility conditions of Form F-3?

• Same as Form S-3, except the company must be a foreign private issuer (that is, not a domestic (U.S.) company).

How does a company calculate how much capital it can raise through an offering on Form S-3 or F-3?

• To calculate how much capital a company can raise without violating the “one-third” rule, the company must use the following formula:
   
  Amount That Can be Raised = (1/3 x Public Float) – Prior Amounts Sold
   
  • “Public Float” is calculated immediately before the intended sale using the formula:
     
    Public Float = Price x Number of Shares Held by Non-Affiliates
     
    • the price that a company should use in the formula should either be:
       
      • The price at which the company’s common equity was last sold in the principal market for the company’s common equity as of a date within 60 days before the date of sale, or
         
      • The average of the bid and asked prices of the company’s common equity in the principal market for the company’s common equity as of a date within 60 days before the date of sale.
         
• “Prior Amounts Sold” is the total amount of money that the company has raised through primary offerings of debt or equity securities on Form S-3 or F-3 in the previous 12-month period.
   
  • Use the actual amount of proceeds from the sale of the securities in prior offerings, except
  • For securities convertible into, or exerciseable for, equity shares (e.g., options), use the total number of underlying equity shares into which the securities are convertible times the price used to calculate the public float, rather than the market value of the convertible or exerciseable securities themselves.
     
• For examples of these calculations, please refer to the adopting release at: http://www.sec.gov/rules/final/2007/33-8878.pdf.

What if the company’s public float increases?

• The company’s public float may increase because of an increase price of the stock or because it raises capital in equity offerings. If the company’s public float rises, its one-third threshold also rises. Thus, you may be able to raise more funds, even if you had previously raised the maximum based on your public float at an earlier date.

Other Resources

The adopting release for the amendments to Forms S-3 and F-3 that allowed smaller companies to use the forms for primary offerings can be found on the SEC’s website at http://www.sec.gov/rules/final/2007/33-8878.pdf.

The text of Forms S-3 and F-3 can be accessed through the “Securities Act Forms” section of the SEC’s website at http://www.sec.gov/divisions/corpfin/forms/securities.shtml.

Additional materials regarding Forms S-3 and F-3 generally are available at http://www.sec.gov/divisions/corpfin/cfguidance.shtml.

Contacting the SEC

The SEC's Division of Corporation Finance is happy to assist small companies with questions regarding the amendments and the SEC's proxy rules. The Division's Office of Chief Counsel answers questions submitted by on-line form or by telephone at (202) 551-3500. Questions on other corporate finance matters concerning small companies may be directed to the Division's Office of Small Business Policy by on-line form or by telephone at (202) 551-3460.

¹ This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.