[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Rules and Regulations]
[Pages 26386-26389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12637]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 230, 239, 240 and 249

[Release Nos. 33-7419 and 34-38581; File No. S7-23-96]
RIN 3235-AG82


Expansion of Short-Form Registration To Include Companies With 
Non-Voting Common Equity

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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SUMMARY: The Securities and Exchange Commission (``Commission'') today 
is adopting amendments to Forms S-3, F-2 and F-3 under the Securities 
Act of 1933 (``Securities Act'') to include non-voting as well as 
voting common equity in the computation of the $75 million aggregate 
market value of common equity held by non-affiliates of the registrant. 
The Commission also is adopting conforming amendments to include non-
voting as well as voting common equity in calculating the float used in 
determining small business issuer status and in stating the amount of 
the public float on Forms 10-K and 10-KSB under the Securities Exchange 
Act of 1934 (``Exchange Act'').

EFFECTIVE DATE: The rule revisions are effective June 13, 1997.

FOR FURTHER INFORMATION CONTACT: Mary J. Kosterlitz, Special Counsel, 
(202) 942-2900, Office of Chief Counsel, Division of Corporation 
Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., 
Mail Stop 3-3, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: On August 30, 1996, the Commission published 
for comment proposed amendments to

[[Page 26387]]

Forms S-3 1 and F-3 2 under the Securities Act 
3 to include non-voting common equity in the computation of 
the required public float. Conforming changes were also proposed to 
Forms F-2,4 10-K,5 and 10-KSB 6 and to 
the definition of ``small business issuer'' in Rule 405,7 in 
Item 10 of Regulation S-B 8 under the Securities Act, and in 
Rule 12b-2 9 under the Exchange Act.10 Having 
considered the comments received, the Commission is adopting the 
revisions as proposed.11
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    \1\ 17 CFR 239.13.
    \2\ 17 CFR 239.33.
    \3\ 15 USC 77a et seq.
    \4\ 17 CFR 239.32.
    \5\ 17 CFR 249.310.
    \6\ 17 CFR 249.310b.
    \7\ 17 CFR 230.405.
    \8\ 17 CFR 228.10.
    \9\ 17 CFR 240.12b-2.
    \10\ 15 U.S.C. 78a et seq.
    \11\ The Commission received letters from two commenters. These 
letters are available for inspection and copying in the Commission's 
public reference room, File No. S7-23-96. Both commenters were 
generally supportive of the proposed changes, but also suggested 
that the proposed revisions be expanded to include certain types of 
preferred stock in the calculation of the required public float. 
After considering these suggested changes, the Commission has 
determined to proceed with adoption of the revisions as proposed. 
However, these comments will be considered by the Commission in 
connection with future rulemaking.
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I. Discussion of Rule Changes

A. Changes to Forms S-3 and F-3

    The Commission's short-form registration statements, Forms S-3 and 
F-3, require as one condition to eligibility for registration of a 
primary offering of non-investment grade securities that the company 
have at least $75 million of voting stock held by non-affiliates 
(referred to as the ``public float'').12 Some companies, 
both domestic and foreign, that have significant amounts of non-voting 
common stock held by non-affiliates (but not significant amounts of 
voting stock) are not eligible to use these forms for such an offering 
because non-voting stock is not included in the calculation of the 
required public float. The revisions adopted today make Forms S-3 and 
F-3 available to these issuers, provided they otherwise qualify for 
these forms. These changes will provide additional flexibility for 
registered capital raising transactions by extending the availability 
of the short form registration statements.
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    \12\ See General Instruction I.B.1 of Forms S-3 and F-3. General 
registrant requirements for Forms S-3 and F-3 eligibility are 
outlined in General Instruction I.A to these forms.
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    The amendments relating to the use of Forms S-3 and F-3 for primary 
offerings of non-investment grade securities change the transaction 
requirements outlined in the General Instructions to the Forms to 
provide that non-voting common equity is included in the calculation of 
the $75 million float requirement.13 These changes are 
accomplished by removing the term ``voting stock'' as it appears in 
these sections and substituting the phrase ``shares of voting and non-
voting common equity.'' The meaning of the term ``common equity'' is as 
defined in Rule 405 under the Securities Act.14
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    \13\ The amendments do not alter any other requirements of Forms 
S-3 or F-3, including the amount of the public float.
    \14\ Rule 405 defines ``common equity'' as ``any class of common 
stock, or an equivalent interest, including but not limited to a 
unit of beneficial interest in a trust or a limited partnership 
interest.''
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B. Conforming Changes to Other Commission Rules and Forms Referencing 
Public Float

    The Commission also is adopting the proposed conforming changes to 
Forms F-2, 10-K and 10-KSB, as well as to the definition of ``small 
business issuer'' in Rule 405 and in Item 10 of Regulation S-B under 
the Securities Act and to Rule 12b-2 under the Exchange Act. Pursuant 
to these changes, the public float calculations will include the 
aggregate market value of both voting and non-voting common equity.

II. Cost-Benefit Analysis

    The Commission solicited comment to assist in its evaluation of the 
costs and benefits that might result from the expansion of the short-
form registration to include non-voting common equity in the 
calculation of required float and to the proposed conforming revisions. 
It was anticipated that the revisions would have a benefit to issuers 
with filing obligations that would become eligible to use short form 
registration, by decreasing their costs. It was also expected that a 
small number of issuers currently able to use the small business issuer 
disclosure system might have increased costs due to their inability to 
use this system. No detrimental effects to investors were expected. 
Commenters supported the position that revisions would have a benefit 
to issuers that would become eligible to use short form registration. 
No comments were received concerning the impact on small business 
issuers. Consequently, the Commission has determined to adopt the 
changes as proposed.

III. Summary of Final Regulatory Flexibility Analysis

    A final regulatory flexibility analysis was prepared in accordance 
with 5 U.S.C. 604 concerning the changes to Forms S-3 and F-3 under the 
Securities Act to include non-voting common equity in the computation 
of the required public float and conforming changes to Forms F-2, 10-K, 
10-KSB and to the definition of ``small business issuer'' in Rule 405 
and in Item 10 of Regulation S-B under the Securities Act and in Rule 
12b-2 under the Exchange Act.
    The final regulatory flexibility analysis notes that the amendments 
will revise forms and rules, which may increase the availability of 
Forms S-3, F-2 and F-3 and possibly decrease the availability of the 
small business disclosure system (Forms SB-1, SB-2, 10-SB, 10-KSB and 
10-QSB) for some issuers.
    As discussed more fully in the analysis, the amendments may affect 
persons that are small entities, as defined in the Commission's rules, 
because the changes to the definition of small business issuer could 
cause some issuers that have non-voting common equity held by non-
affiliates to become ineligible to use the small business disclosure 
system. The Commission estimated that approximately three percent of 
the small business issuers may become subject to more detailed 
reporting obligations in the future, or may otherwise be impacted by 
the rule revisions.
    These estimates were the result of estimates provided by the staff 
of the Division of Corporation Finance based on its expertise from the 
review of corporate filings and on estimates provided by the 
Commission's Office of Economic Analysis (``OEA''). The OEA estimates 
confirmed the estimates made by the Division of Corporation Finance and 
have been incorporated into the final regulatory flexibility analysis. 
As a result, the Commission does not expect that the number of 
companies that will become ineligible to meet the definition of small 
business issuer will be significant. The Commission also does not 
expect that materially increased reporting, recordkeeping and 
compliance burdens will result from the changes.
    The Commission sought comment on its preliminary estimates of the 
number of small entities that would be impacted by the proposed rules 
and on whether these proposed amendments would result in significant 
new burdens for small entities. No comments were received concerning 
the impact of the amendments on small entities.
    As stated in the analysis, several possible significant 
alternatives to the amendments were considered, including, among 
others, establishing different compliance or reporting

[[Page 26388]]

requirements for small entities or exempting them from all or part of 
the amended requirements. As discussed more fully in the analysis, the 
nature of these amendments does not lend themselves to separate 
treatment, nor would they impose significant additional burdens on 
small entities. A copy of the final regulatory flexibility analysis may 
be obtained by contacting Mary J. Kosterlitz, Office of Chief Counsel, 
Division of Corporation Finance, Mail Stop 3-2, 450 Fifth Street, N.W., 
Washington, D.C. 20549.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1965 (the 
``Act'')(44 U.S.C. 3501 et seq.) the staff submitted to the Office of 
Management and Budget (``OMB'') for review proposals to amend the 
following forms under the Securities Act and the Exchange Act: ``Form 
S-1,'' ``Form S-2,'' ``Form S-3,'' ``Form F-1,'' ``Form F-2,'' ``Form 
F-3,'' ``Form SB-1,'' ``Form SB-2,'' ``Form 10-K,'' ``Form 10-Q,'' 
``Form 10-KSB,'' ``Form 10-QSB,'' ``Form 10,'' and ``Form 10-SB.'' The 
collection of information contained in the fourteen forms at issue is 
required for the registration of various securities for sale to the 
public under the Securities Act and periodic reporting obligations 
under the Exchange Act. The Commission solicited comment on the 
compliance burdens associated with the proposals but received no public 
comment on the burden estimates. The Commission is adopting the 
amendments as proposed.

V. Statutory Basis for the Amendments

    The amendments to the Commission's rules and forms are being 
adopted by the Commission pursuant to Sections 6, 7, 8, 10, 19(a), and 
27A of the Securities Act and Sections 12, 13, 14, 15(d), 21E, 23(a) 
and 35A of the Exchange Act.

List of Subjects in 17 CFR Parts 228, 230, 239, 240 and 249

    Reporting and recordkeeping requirements, Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    1. The authority citation for Part 228 continues to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss, 
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.

Sec. 228.10  [Amended]

    2. By amending Sec. 228.10(a)(1) by removing the word 
``securities'' in the Provided however sentence immediately following 
Sec. 228.10(a)(1)(iv) and adding the words ``voting and non-voting 
common equity'' in its place.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    3. The authority citation for Part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, 
and 80a-37, unless otherwise noted.
* * * * *


Sec. 230.405  [Amended]

    4. By amending Sec. 230.405 the definition of ``Small Business 
Issuer'' by removing the words ``outstanding securities'' in the 
Provided however clause and adding the words ``outstanding voting and 
non-voting common equity'' in their place.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    5. The authority citation for Part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l, 
78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m, 
79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise 
noted.
* * * * *


Sec. 239.13  [Amended]


Sec. 239.32  [Amended]


Sec. 239.33  [Amended]

    6. 17 CFR 239 is amended by removing the words ``voting stock'' and 
adding, in their place, the words ``voting and non-voting common 
equity'' in the following sections:
    (a) 17 CFR 239.13(b)(1)
    (b) 17 CFR 239.32(b)(2)(i)
    (c) 17 CFR 239.33(b)(1)
    7. By amending Form S-3 (referenced in Sec. 239.13) by amending the 
General Instruction I.B.1 of Form S-3, by removing the words ``voting 
stock'' and adding, in their place, the words ``voting and non-voting 
common equity'' and by revising the Instruction to General Instruction 
I.B.1 to read as follows:

(Note: The text of Form S-3 does not and the amendments will not 
appear in the Code of Federal Regulations.)

Form S-3

* * * * *

General Instructions

I. Eligibility Requirements For Use of Form S-3
* * * * *
B. Transaction Requirements * * *
    1. Primary Offerings by Certain Registrants. * * *
    Instruction. For the purposes of this Form, ``common equity'' is as 
defined in Securities Act Rule 405 (Sec. 230.405 of this chapter). The 
aggregate market value of the registrant's outstanding voting and non-
voting common equity shall be computed by use of the price at which the 
common equity was last sold, or the average of the bid and asked prices 
of such common equity, in the principal market for such common equity 
as of a date within 60 days prior to the date of filing. See the 
definition of ``affiliate'' in Securities Act Rule 405.
* * * * *
    8. By amending Form F-2 (referenced in Sec. 239.32) by amending the 
General Instruction I.B.2.(i) of Form F-2, by removing the words 
``voting stock'' and adding, in their place, the words ``voting and 
non-voting common equity'' and by revising Instruction 1 to General 
Instruction I.B.2.(i) to read as follows:

(Note: The text of Form F-2 does not and the amendments will not 
appear in the Code of Federal Regulations.)

Form F-2

* * * * *

General Instructions

I. Eligibility Requirements For Use of Form F-2
* * * * *
    B. * * *
    2. * * *

Instructions

    1. For the purposes of this Form, ``common equity'' is as defined 
in Securities Act Rule 405 (Sec. 230.405 of this chapter). The 
aggregate market value of the registrant's outstanding common equity 
shall be computed by use of the price at which the voting and non-
voting common equity was last sold, or the average of the bid and asked 
prices of such common equity, in the principal market for such common 
equity as of a date within 60 days prior to the date of filing. See the 
definition of ``affiliate'' in Securities Act Rule 405.
* * * * *
    9. By amending Form F-3 (referenced in Sec. 239.33) by amending the 
General Instruction I.B.1 of Form F-3, by removing the words ``voting 
stock'' and adding, in their place, the words ``voting and non-voting 
common equity'' and by

[[Page 26389]]

revising the Instruction to General Instruction I.B.1 to read as 
follows:

(Note: The text of Form F-3 does not appear in the Code of Federal 
Regulations.)

Form F-3

* * * * *

General Instructions

I. Eligibility Requirements For Use of Form F-3
* * * * *
B. Transaction Requirements
* * * * *
    1. Primary Offerings by Certain Registrants. * * *

Instruction

    For the purposes of this Form, ``common equity'' is as defined in 
Securities Act Rule 405 (Sec. 230.405 of this chapter). The aggregate 
market value of the registrant's outstanding voting and non-voting 
common equity shall be computed by use of the price at which the common 
equity was last sold, or the average of the bid and asked prices of 
such common equity, in the principal market for such common equity as 
of a date within 60 days prior to the date of filing. See the 
definition of ``affiliate'' in Securities Act Rule 405.
* * * * *

PART 240--GENERAL RULE AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    10. The authority citation for Part 240 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *


Sec. 240.12b-2  [Amended]

    11. By amending Sec. 240.12b-2 the definition of ``Small Business 
Issuer'' by removing the words ``outstanding securities'' in the 
Provided however clause and adding the words ``outstanding voting and 
non-voting common equity'' in their place.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    12. The authority citation for Part 249 continues to read in part 
as follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;

* * * * *


Sec. 249.310  [Amended]

    13. By amending the front page of Form 10-K (referenced in 
Sec. 249.310) by revising the paragraph before the ``Note'' to read as 
follows:

(Note: The text of Form 10-K does not and the amendments will not 
appear in the Code of Federal Regulations.)
Form 10-K
* * * * *
    State the aggregate market value of the voting and non-voting 
common equity held by non-affiliates of the registrant. The aggregate 
market value shall be computed by reference to the price at which the 
common equity was sold, or the average bid and asked prices of such 
common equity, as of a specified date within 60 days prior to the date 
of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405.)

Note. * * *
    14. By amending the front page of Form 10-KSB (referenced in 
Sec. 249.310b) by revising the paragraph before the ``Note'' to read as 
follows:

(Note: The text of Form 10-KSB does not, and the amendments will not 
appear in the Code of Federal Regulations.)
Form 10-KSB
* * * * *
    State the aggregate market value of the voting and non-voting 
common equity held by non-affiliates computed by reference to the price 
at which the common equity was sold, or the average bid and asked price 
of such common equity, as of a specified date within the past 60 days. 
(See definition of affiliate in Rule 12b-2 of the Exchange Act.)

    Note: * * *

    Dated: May 8, 1997.
    By the Commission.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12637 Filed 5-13-97; 8:45 am]
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