SEC adopts new rules for small business eligibility for use of Form S-3 and mandates (eventually) electronic Forms D

By Cydney Posner

At an open meeting this morning, the SEC voted on several matters, key among them being revisions to the eligibility requirements for use of Forms S-3 and F-3 on a primary basis by smaller public companies. The SEC also mandated electronic filing of Forms D.

Revisions to the Eligibility Requirements for Primary Securities Offerings on Forms S-3 and F-3

The SEC adopted amendments to the eligibility requirements for use of Forms S-3 and F-3 to allow companies, regardless of size, to register primary offerings of their securities, subject to certain requirements and limitations. The amendments will allow companies with public float of less than $75 million (the current public float requirement under the Form) to register primary offerings of their securities on Form S-3, provided:

• they meet the other registrant eligibility conditions for the use of Form S-3;
• they have at least one class of equity securities listed on a national securities exchange;
• they are not shell companies and have not been shell companies for at least 12 calendar months before filing the registration statement; and
• they do not sell more than the equivalent of 33% of their public float in primary offerings under this general instruction over any period of 12 calendar months.

The SEC had initially proposed a cap of 20% of public float, but increased that level to 33% in response to public comment. However, to ensure investor protection, the final rules add the requirement for exchange listing. Comparable changes are being made to Form F-3.

The amendments are an outgrowth of the report of the SEC's Advisory Committee on Smaller Public Companies, which recommended that the SEC allow all reporting companies listed on a national securities exchange, NASDAQ or trading on the OTCBB to be eligible to use Form S-3 if they have been reporting under the Exchange Act for at least one year and are current in their reporting at the time of filing. The SEC decided to retain the requirement that companies be both timely and current in their public reporting.

Electronic Filing and Revision of Form D

The SEC also adopted amendments to mandate electronic filing of Form D and to revise the information requirements of that form. Form D is a notice required to be filed by companies that have sold securities without registration under the Securities Act based on a claim of exemption under Regulation D or Section 4(6) of the Act. Form D filings are also required by most states. Typically, the SEC receives 28,000 Forms D annually on paper (times five because of the five-copy requirement). Because the new form will be interactive and searchable, it is expected to substantially ease data collection. The SEC is exploring with NASAA the possibility of "one-stop filing" by linking the SEC's site to the NASAA site. The SEC is also looking at ways to streamline the ID authentication process.

The Form will also be updated to simplify it, translate it into plain English, require identification of the exemption paragraph relied upon, eliminate the requirement to identify 10% holders, allow free writing to clarify responses (but not to engage in solicitation) and answer some interpretive questions. The new system will become available for filings on a voluntary basis on September 15, 2008 and will become mandatory for filings beginning March 16, 2009.

In other matters, the SEC voted to publish a concept release to solicit public comment concerning possible revisions to the oil and gas reserves disclosure requirements.

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