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Release No. 33-6943 Release No. 34-30930 Form S-3 Availability
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 Table of Contents
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I. EXECUTIVE SUMMARY
The Commission today is proposing several initiatives designed to further streamline the process of registering securities for sale to the public. These initiatives, intended to provide issuers greater flexibility and increase efficiency in raising capital from the public securities markets, recognize and build on the success of the integrated disclosure system and shelf registration process adopted 10 years ago.
The proposals expand the classes of companies that would be eligible to register primary offerings based on the size of the public float or the investment grade rating of the securities on Form S-3, the short-form registration statement. Specific provision would be made for asset-backed securities including, pools of small business loans. To implement these initiatives, three principal changes to the Form S-3 eligibility requirements are proposed. First, the reporting history necessary to register on Form S-3 would be reduced from 36 to 12 months for most issuers. Second, the aggregate market value of the issuers voting stock held by non-affiliates (referred to as the public float) qualifying an issuer for use of Form S-3 for any of its securities would be reduced from $150 million to $75 million, and the 3 million share trading volume test would be eliminated. Under these two proposals, an estimated 450 additional issuers with an aggregate public float of approximately $88 billion would become eligible to use Form S-3. Third, Form S-3 would be revised to specifically provide for registration of investment grade asset-backed securities offerings without regard to whether the issuer has a reporting history. If this proposal had been in effect in calendar year 1991, an estimated $48 billion of investment grade asset-backed securities offerings could have been registered on Form S-3.
These proposed changes to Form S-3 would result in increased availability of shelf registration for the newly eligible offerings. Issuers eligible to use Form S-3 for primary offerings are permitted to register securities prior to any planned offering and offer these securities after effectiveness in one or more tranches without any additional pre-offering clearance from the Commission. 11 During calendar year 1991, approximately 370 companies registered approximately $200 billion of debt, preferred stock and other securities on Form S-3 for delayed primary shelf offerings. In addition, the Form S-3 revisions would extend shelf registration to all investment grade asset-backed offerings, a financing benefit already available to issuers of mortgage-related securities. 12 This proposal would thus reduce costs of securitization of small business loans as well as other financial assets.
To provide additional flexibility and facilitate the use of shelf registration for delayed offerings of common stock, the proposals would permit a Form S-3 eligible company to register debt, equity and other securities on a single shelf registration statement, without having to specify in the registration statement the amount of each class of securities to be offered. Under this proposal, a Form S-3 eligible company would specify an aggregate dollar amount of securities to be offered under the registration statement and the categories of securities that may be offered. Any combination of the disclosed securities up to the aggregate dollar amount registered could be taken off the shelf.
The proposals also include a revision to Form S-3 and Rule 462 to permit Form S-3 registration statements covering dividend and interest reinvestment plans to become effective automatically upon filing with the Commission. This treatment would be consistent with the current treatment of post-effective amendments for such offerings.
The initiatives include a proposal designed to enhance the utility of Rule 430A, a rule adopted by the Commission in 1987 to eliminate the need to file most pre-effective pricing amendments. 13 Rule 430A would be revised to permit changes in the offering price and decreases in the amount of the securities offered to be reflected after effectiveness in the final prospectus without the need to file a post-effective amendment so long as such changes would not materially change the disclosure contained in the effective registration statement.
Further, a proposed revision to Rule 424(b), the prospectus filing rule, would codify a staff interpretive position that permits issuers of collateralized mortgage obligations to file prospectus supplements containing price and other offering information two business days following first use, rather than two business days following the earlier of pricing or first use as is now generally required. 14 This proposal also would extend to issuers of other types of mortgage-related and investment grade asset-backed offerings.
Finally, a proposed revision to Form 8-A, the Exchange Act short-form registration statement, would eliminate the need to file with the Commission an amendment to that form to provide pricing information relating to the terms of the securities prior to effectiveness. This information would be incorporated by reference from a subsequently filed prospectus.
II. INITIATIVES TO SIMPLIFY THE REGISTRATION PROCESS
A. Proposals Relating to Form S-3 Registration Statement
1. Background
Under the integrated disclosure system, the disclosure requirements under the Securities Act and the Exchange Act are integrated so that one set of disclosure rules applies under both Acts. 15 This disclosure system is based on the premise that investors purchasing securities in offerings registered under the Securities Act and secondary market purchasers should have access to the same basic information package about the issuer of the securities. 16 As a result, the same information about the issuer is required to be included in prospectuses used to sell securities and in periodic reports filed by issuers.
The Securities Act registration forms in the integrated disclosure system, principally Forms S-1, S-2 and S-3, establish three categories of registrants. 17 While the same information is required to be included as a part of the registration statement pursuant to each of these forms, the method of providing the information--whether physically presented in the prospectus, delivered with the prospectus, or incorporated by reference from Exchange Act reports into the prospectus--varies with each category of registrants.
Form S-3 permits maximum reliance upon Exchange Act reports, allowing issuers that qualify to use the form to incorporate information about the issuer into the prospectus by reference from Exchange Act filings, rather than having to reiterate this information in the prospectus or otherwise deliver it to investors. 18 In addition, in a delayed or continuous offering, Form S-3 allows issuers to update the issuer-related prospectus information through incorporation by reference of future Exchange Act filings, rather than through post-effective amendments to the registration statement. 19
Under the current rules, an issuer may register any primary offering of its securities on Form S-3 if, among other requirements, 20 (1) the issuer has been subject to Exchange Act reporting for at least 36 months and (2) has a public float of at least $150 million, or, alternatively, at least $100 million if the annual trading volume of such stock is at least 3 million shares. 21 An issuer may register specific securities transactions on Form S-3, including a primary offering of investment grade non-convertible debt or preferred stock, without regard to the minimum public float requirement provided the issuer satisfies the 36-month minimum reporting requirement and other registrant criteria. 22 Other offerings, such as secondary offerings of a class of securities currently listed on a national securities exchange or quoted on NASDAQ, 23 rights offerings to shareholders, 24 offerings of securities issuable upon exercise of warrants or upon conversion of other outstanding securities 25 and offerings pursuant to dividend and interest reinvestment plans, 26 also may be registered on Form S-3 whether or not the issuer meets the minimum public float test, provided, among other things, that the issuer meets the 36-month minimum reporting requirement. 27
Form S-2, which is available to issuers of any size that have been reporting for at least 36 months, 28 allows some reliance upon Exchange Act reports. Issuers that qualify to use the form can choose to either (i) deliver a copy of the annual report to security holders with the prospectus, or (ii) present registrant-oriented information comparable to that required to be included in such annual report in the prospectus; in either case, the more complete registrant information otherwise required to be included is incorporated by reference into the prospectus from the issuers most recent annual report on Form 10-K. 29 Because Form S-2 does not permit incorporation by reference of future Exchange Act reports, updating amendments requiring Commission action must be filed in ongoing offerings. Form S-1, which is available to all issuers, requires complete disclosure to be set forth in the prospectus--no incorporation by reference is permitted.
In addition to full incorporation by reference, one of the most important benefits associated with Form S-3 eligibility is the ability to conduct delayed offerings under the Commissions Rule 415, which provides for shelf registration. 30 Rule 415 specifies those offerings that may be conducted on a delayed or a continuous basis. Only limited categories of offerings are permitted to be conducted on a delayed (episodic) basis; Rule 415 permits delayed offerings of specified traditional shelf offerings, 31 offerings of mortgage-related securities 32 and offerings of securities qualified to be registered for a primary offering on Form F-3 33 or Form S-3. 34 An issuer that is eligible to use Form S-3 and Rule 415 for a delayed offering gains significant flexibility and financing efficiency since it is able to complete the registration of securities prior to the planned offering, and then offer and sell the securities from time to time in response to market and other factors without having to wait for further Commission action.
After ten years of experience through various stages of the business cycle, the integrated disclosure system and shelf registration have achieved their intended effects of providing issuers efficient access to the public securities markets without compromising investor protection, with about $200 billion of securities registered on Form S-3 for delayed primary offerings during 1991 alone and about $50 billion during the first calendar quarter of 1992. One issuer has used a single shelf registration statement for approximately 500 separate takedowns, and another had approximately 160 separate takedowns off its registration statement. At the same time, improvement in the quality of ongoing Exchange Act reporting, which the Commission cited as a basis for the integrated disclosure system, 35 continues.
2. Proposed Revisions to Form S-3
a. Registrant Requirements--Reporting History
The proposals would shorten from 36 to 12 months Form S-3s minimum issuer reporting requirement for all offerings of non-asset-backed securities. 36 Under this change, an issuer that had been subject to reporting for at least 12 months prior to filing its registration statement, and had timely filed all required reports during the 12 months prior to filing, would be eligible to use Form S-3 if applicable transaction requirements were met. 37 This change would apply to all offerings of non-asset-backed securities permitted to be registered on Form S-3, including, for example, primary offerings of debt, equity or other securities (whether or not investment grade), secondary offerings, rights offerings to shareholders and offerings of securities issuable upon exercise of warrants.
The proposed change to the reporting history reflects the nature of offerings registerable on Form S-3. Issuers offering investment grade securities or meeting the public float test 38 should have sufficient market following so that a three-year reporting requirement would not appear to materially enhance the market following of these issuers. Secondary offerings, offerings pursuant to dividend or investment reinvestment plans and offerings of securities underlying rights, warrants and convertible securities have been permitted to be registered on Form S-3 without a public float test since the form was adopted, reflecting the historic availability of Form S-16. 39 The proposals would continue the Commissions traditional treatment of these offerings.
Comment is requested as to whether the proposed 12 month requirement is sufficient, or whether a shorter or longer period, such as two years or the current three years, would be preferable. The specific reasons for the suggested period should be stated. 40
b. Transactional Requirements
i. public float requirement
The proposals would reduce the minimum public float eligibility criteria of Form S-3. Under the proposals, an issuer with at least $75 million in voting stock held by non-affiliates would be eligible to use Form S-3 to register any class of its securities, as long as the issuer satisfied the issuer eligibility requirements. 41 The proposal would eliminate the trading volume test for companies with a public float of under $150 million. The Commission requests comment as to whether it should continue the 3 million share trading volume test for some or all of the issuers whose public float is between $75 million and $150 million. If a trading volume test is favored, comment is requested as to whether a different minimum volume, such as 1 million or 2 million shares, is preferred. Should there be a requirement that the voting stock be traded on a national exchange or NASDAQ?
Under the proposals, there would be an estimated 450 additional companies eligible to register primary offerings of all their securities as follows.
S-3 ELIGIBLE ISSUERS ON BASIS OF PUBLIC FLOAT AND TRADING VOLUME
Total NYSE AMEX NMS NASDAQ Other
Current 1,510 925 77 415 37 56
Additional
If $75 million
public float
and 1 year
reporting 449 140 44 190 29 46
If $75 million
float, 1 year
reporting and
retain 3 million
share minimum
trading volume
for $75 to $150
million float 177 55 13 102 5 2
The public float eligibility criteria are proposed based upon an analysis of the trading markets and market following of registrants included in various market capitalization ranges. The proposed criteria are designed to extend the benefits of Form S-3 and shelf registration to a larger class of issuers, while insuring that the investing public has access to sufficient and timely information about the issuers included in the new categories.
As the above chart illustrates, a large majority of the companies that would become eligible to use Form S-3 for a primary offering under the proposals have securities traded on either a national securities exchange or authorized for inclusion on the NASDAQ National Market System (NMS). One indicia of market interest and following of a company is the number of research analysts covering the company. Approximately two-thirds of the estimated newly eligible companies are followed by at least three research analysts. 42 Of the estimated 177 new companies that would become eligible if the 3 million share trading test is retained, approximately 80% are followed by at least three research analysts.
Comment is requested on whether the proposed change in the public float eligibility criteria is appropriate. Would the issuers eligible under the proposed criteria be sufficiently followed by the market to permit incorporation by reference of information from Exchange Act filings to satisfy the prospectus disclosure and updating requirements? Specific comment is requested as to whether the float test should be higher or lower, and, if so, at what level should it be set.
As noted above, if these proposals to expand the availability of Form S-3 are adopted, greater numbers of issuers would become eligible to conduct delayed offerings of equity, debt (including debt that is not investment grade), preferred stock or other securities. Comment also is requested as to whether the categories of companies proposed to be permitted to conduct delayed offerings is appropriate, or whether the use of shelf registration for delayed offerings should be limited to a specified more limited class of Form S-3 offerings. Commenters that favor different criteria are requested to describe such criteria and specifically address whether the same or different standards are appropriate for Form S-3 eligibility and for Rule 415-delayed offering eligibility.
ii. investment grade non-convertible securities
The Form S-3 eligibility criteria for investment grade securities also is proposed to be amended to substitute the term non-convertible securities for the current specific references to nonconvertible debt or preferred stock. This proposal would clarify that other investment grade financing instruments (such as foreign currency or other cash settled derivative securities) could be registered under the investment grade eligibility standard. Consistent with current staff interpretations, Form S-3 also would be amended to clarify that investment grade securities must have the required rating at the time of offer and sale to the public.
iii. investment grade asset-backed securities
Under the current rules, the benefits of Form S-3 registration and shelf registration for delayed offerings generally are not available to issuers of investment grade asset-backed securities that are not mortgage-related securities. As a result, for example, investment grade small business loan or credit card receivables trust certificates generally cannot be registered for sale on a delayed basis, since the issuers ordinarily are not eligible to use Form S-3 43 and non-mortgage, asset-backed securities are not a permitted category in Rule 415. By contrast, mortgage-related asset backed securities, which may be of comparable character and quality to other investment grade asset-backed securities, are specifically permitted to be offered on a delayed basis under Rule 415, whether or not registered on Form S-3. 44
Form S-3 is proposed to be amended to add offerings of investment grade asset-backed securities as an additional category of transactions that may be registered on the form. As proposed, asset-backed securities could be registered on Form S-3 whether or not the issuer has a previous Exchange Act reporting history. The proposed rules do not require a reporting history in light of the limited utility of the information about the issuer that would be provided by an Exchange Act reporting history. Until an asset-backed issuer is formed, raises capital and purchases assets, any information about the issuer that might be included in Exchange Act reports would not appear to be useful to investors. Comment is requested, however, as to whether a reporting history for the depositor, servicer and/or trust should be required, and, if so, for what period.
The proposed eligibility criteria for the registration of asset-backed securities on Form S-3 is intended to reflect current practices in the asset-backed securities markets and to provide sufficient flexibility to accommodate future developments. To qualify, the securities would be required to represent obligations primarily serviced by the cashflows of a discrete pool of similar assets. The proposed definition would not distinguish between pass-through (i.e. equity) and pay-through (i.e. debt) asset-backed securities. Consequently, both pay-through and pass-through securities, as well as residual or subordinate interests, could be registered on the form if all other conditions were met. Further, the proposed definition would include both whole securities and interest-only or principal-only components of such securities. Moreover, unlike current Form S-3, the legal nature of the issuing entity--whether a trust, limited purpose subsidiary, or other legal person--would be irrelevant to the proposed eligibility analysis. Comment is requested on the proposed definition should the definition be limited to subcategories of asset-backed financing and if so what categories?
Under the proposal, Form S-3 and shelf registration would be available for asset-backed securities with the following two characteristics. First, the payment obligations on the securities must be serviced primarily by the cashflows of a pool of discrete liquidating assets such as small business loans, accounts receivable, notes, installment sales contracts, leases or other assets that by their terms convert into cash within a specified period of time. 45 Structured financings would not be considered asset-backed securities for purposes of the proposed revision to Form S-3 where a substantial portion of the underlying assets are originated by one obligor (including affiliated entities). For example, securities issued by a trust that leases property to one company would not be contemplated by the asset-backed securities definition. Commenters are requested to address whether a specific asset concentration limitation should be set forth in the definition and, if so, what level of asset concentration would be appropriate, e.g. 5%40%.
Second, the securities must be rated investment grade by a nationally recognized statistical rating organization (NRSRO) at the time of offer and sale to the public. The definition of investment grade would be the same as that currently set forth in Form S-3 for other investment grade securities. 46 Under this standard, asset-backed securities would be investment grade if, the securities, at the time of offer and sale are rated by at least one NRSRO in one of its generic rating categories which signifies investment grade, typically one of the four highest categories. 47 This standard is proposed since this has been Form S-3s standard for investment grade since its adoption 10 years ago. Comment is requested, however, as to whether the rating standard for asset-backed securities should be more limited, such as requiring that the securities be rated in one of the two highest rating categories, as is currently the case for mortgage-related securities under Section 3(a)(41) of the Exchange Act.
Under the proposals, mortgage-related securities could be registered on Form S-3 and, therefore, sold pursuant to Rule 415 if the securities otherwise came within the asset-backed securities definition in Form S-3. As a result, mortgage-related securities that are related in the top four rating categories, but not the top two rating categories, which are not currently eligible to be sold on a delayed basis, would become eligible. This would provide comparable treatment to all types of asset-backed securities and is otherwise consistent with Form S-3s current approach to other investment grade securities. Comment is requested as to whether it is appropriate to expand the categories of mortgage-related securities that may be registered for shelf offerings in this manner.
In connection with the asset-backed securities proposal, Rule 424(b), the prospectus filing rule, is proposed to be amended to codify a staff interpretive position that permits issuers of collateralized mortgage obligations to file prospectus supplements containing price and other offering information within two business days following first use (or to transmit such supplements by a means reasonably calculated to result in filing by such date), rather than Rule 424(b)s general rule that the prospectus be filed not later than the earlier of two business days following pricing or first use (or transmitted by a means reasonably calculated to result in filing by such date). This proposed revision also would extend to issuers of other mortgage-related and asset-backed securities.
c. Majority-owned Subsidiaries
Current Form S-3 is available to majority-owned subsidiaries in three circumstances. 48 Under the proposals, General Instruction I.C.3. would be revised to make clear that the Form would be available where an S-3 eligible parent fully and unconditionally guarantees the payment obligations on the subsidiarys non-convertible securities being registered. Currently the form refers only to principal and interest obligations. This proposed change would clarify that the form is available to register securities other than traditional debt securities. Comment is requested as to whether it would be appropriate to revise this eligibility criteria as proposed.
d. Dividend or Interest Reinvestment Plans
Form S-3 is proposed to be amended to provide for the automatic effectiveness upon filing of a Form S-3 registration statement relating solely to a dividend or interest reinvestment plan. To implement this proposal, Rule 462 also would be amended to provide for such immediate effectiveness. Elimination of the current 20-day waiting period should not adversely affect the quality of disclosure in such filings. In addition, automatic effectiveness upon filing is consistent with the treatment of post-effective amendments for such registration statements under the current rules. Comment is requested on the appropriateness of this change.
e. Proposal to Permit Form S-3/Shelf Registration of Aggregate Amounts of Securities Without Allocation Among Classes
While shelf registration of delayed offerings on Form S-3 is permitted for common stock as well as debt and other securities, it has been used almost entirely with respect to senior securities. In calendar year 1991 for example, of the approximately $200 billion of securities registered on Form S-3 for delayed primary offerings, approximately $199.7 billion was for delayed offerings of non-convertible debt or preferred stock, while only $300 million was for delayed offerings of common stock. Similarly, in the first quarter of calendar year 1992, only $118 million of the $50 billion registered for delayed primary offerings was for delayed common stock primary offerings. The limited use of shelf registration for common stock reportedly reflects concerns by registrants about the market effects from the overhang created by such registration, as well concerns that the market would view even a registration statement for possible future sales of common stock as signalling managements view that the price of the stock has reached a peak.
Currently, registration statements are required to specify the amount of securities to be offered. In the case of debt securities offered on a delayed offering shelf registration on Form S-3, the issuer has disclosed a dollar amount of generic debt and indicated various categories of debt securities that may be included. No allocation among the categories of possible debt securities is specified. In the case of common stock or preferred stock, the amount of securities to be offered is specified in terms of the number of shares. The proposed rule would incorporate the practice currently used for investment grade debt registered on Form S-3 to all securities. An issuer registering securities on Form S-3 based on the public float of its voting stock or investment grade rating of the securities being offered would be permitted to disclose the various types of securities covered by the registration statement (both debt and equity), but would not have to identify the specific amount of each category to be offered. 49 The prospectus supplement would specify the amount of the particular security to be offered. In this way, the registrant would be able to offer any category of securities specified in the registration statement up to the total dollar amount registered. 50 Investors would receive the same information as is currently required for any shelf offering. No change is intended with respect to the disclosures necessary in a shelf registration statement with respect to the types of each category of securities being registered. A conforming change to Form S-4 is proposed for shelf acquisition registrations by Form S-3 eligible issuers.
The Commission requests comment on the appropriateness of the proposed change. Comment also is requested as to whether this proposal would in fact encourage the use of shelf registration for those delayed offerings of common stock and convertible securities currently permitted under Rule 415. Further, comment is requested as to whether there are other changes to Rule 415, Form S-3 or other Commission rules that would facilitate the use of shelf registration for delayed offerings of common stock and convertible securities.
B. Proposed Revisions to Rule 430A
To further the efficiencies of Rule 430A the proposals include an amendment to the rule to permit price and volume changes that do not materially change the disclosures in the registration statement to be reflected in the final prospectus without the need to file a post-effective amendment.
Rule 430A permits the omission of specified price-related information from the registration statement at the time of effectiveness, provided specific conditions are met. Although not part of the rule, the Commission stated in the Rule 430A adopting release that information about a change in the volume of securities being offered would not be considered information that could omitted in reliance on the rule and disclosed in the prospectus filed pursuant to paragraph (b)(1) or (b)(4) of Rule 424. 51 Under this interpretation, a decrease in [the] amount [of securities to be offered] generally would require a post-effective amendment. 52 This proposed revision does not change the requirement that an increase in the size of the offering after effectiveness requires a new registration statement. 53
The Rule 430A adopting release also advised that where the initial public offering price for securities fixed after effectiveness falls outside the bona fide range of the offering price of the securities disclosed in the prospectus at effectiveness, the registrant must file a post-effective amendment to include the price-related information or to update the estimated range.
These interpretive positions have unnecessarily limited the flexibility intended to result from eliminating the requirement to file most pre-effective pricing amendments. Accordingly, the Commission proposes to amend Rule 430A to replace these interpretations with a materiality standard to be used in determining whether a post-effective amendment would be required to reflect a decrease in volume or to update price range information. Under this materiality standard, a post-effective amendment would not be required unless a reduction in volume or a change in the price range would materially change the disclosure included in the registration statement at effectiveness. Examples of situations in which a post-effective amendment would be required include changes to the volume or price that would materially affect the public float after the offering, the use of proceeds, the issuers financial condition or the control of the issuer.
Specific comment is requested with regard to this proposed revision to Rule 430A. If a standard other than the proposed materiality standard is considered preferable, commenters should specifically describe such standard and the reasons for recommending it.
C. Proposals to Simplify Concurrent Securities Act and Exchange Act Registration
Todays initiatives include proposals to further streamline the registration of securities under the Exchange Act in order to facilitate concurrent Securities Act and Exchange Act registration. 54 Under the proposal, the Exchange Act registration form used in concurrent registration would be amended to permit price-related terms of the securities to be omitted at the time of effectiveness in a manner similar to Securities Act Rule 430A.
Concurrent Exchange Act registration generally may be accomplished through the filing of a Form 8-A short-form registration statement. 55 This form is very brief, consisting of a cover page, a description of the class of securities to be registered, a signature page and certain required exhibits. When common stock is being registered, concurrent registration can be accomplished easily, even when pricing information will be omitted from the Securities Act registration statement at the time of effectiveness, because pricing information is not necessary to complete the Form 8-A. 56 Accordingly, in a common stock offering, if Rule 430A or Rule 415 is used, no pricing amendment generally would be required under either the Securities Act or the Exchange Act.
By contrast, when the security being registered is one in which the terms of the security are established when the securities are priced, such as debt securities or preferred stock, an amendment to the Form 8-A setting forth the pricing information is necessary under the current rules before the Form 8-A can be declared effective. 57 The need for this pricing amendment to the Form 8-A presents logistical and administrative difficulties, and undercuts the efficiencies of Rule 430A and Rule 415.
In order to address this concern, Form 8-A is proposed to be amended to permit the Form 8-A to become effective without the final, price-related terms of the securities. This price-related information would then be incorporated by reference into the Form 8-A from a prospectus or prospectus supplement filed in accordance with current Rule 424(b) under the Securities Act. 58 The proposed amendment would permit the same price-related information that is permitted to be omitted from the Securities Act registration statement at the time of effectiveness in reliance upon Rule 430A to be omitted from the Form 8-A. 59
Incorporation by reference to the Rule 424(b) prospectus would be permitted under the proposal only in those instances in which price-related terms that are required to be included in the Form 8-A registration statement 60 are not known or are unavailable to the registrant prior to the filing of the Form 8-A. The form would be required to be complete in all other respects; a generic or largely incomplete Form 8-A would not be permitted. The proposed change is not intended to affect the listing, informational or filing requirements imposed by a national securities exchange or registered securities association.
III. COST-BENEFIT ANALYSIS
To evaluate the benefits and costs associated with the proposed amendments to Form S-3, Form S-4, Rule 424, Rule 430A, Rule 457, Rule 462, Form 8-A and Rule 12b-23, the Commission requests commenters to provide views and data as to the costs and benefits associated with amending the rules and forms to expand the availability of Form S-3 and the resultant extension of Rule 415 to a greater variety of offerings, including investment grade asset-backed securities. Similar comments are requested on the proposals to permit shelf registration of equity, debt and other securities without a specific allocation of offering amounts among the classes of securities being registered; amend Rule 430A to allow non-material price changes and decreases in volume to be made after effectiveness without the filing a post-effective amendment; and to permit limited information regarding the securities to be incorporated by reference into Exchange Act registration statements on Form 8-A from prospectuses filed after effectiveness. Finally, comment is request on the proposal to have registration statements on Form S-3 for dividend or interest reinvestment plans to become effective automatically upon filing with the Commission.
IV. SUMMARY OF THE INITIAL REGULATORY FLEXIBILITY ANALYSIS
The Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA), pursuant to the requirements of the Regulatory Flexibility Act, 61 regarding the proposed rules. The IRFA notes that the proposed amendments are intended to provide issuers greater flexibility and efficiency in accessing the public securities markets. The proposed amendments would not impose any new reporting, recordkeeping or compliance requirements on any entities. No alternatives to the proposed amendments consistent with their objectives and the Commissions statutory mandate were found. It is expected that the overall effect of the proposed rules will provide issuers greater flexibility and increased efficiency in raising capital from the public securities markets. The proposals to reduce the reporting history requirement for use of Form S-3 and the proposed revisions to Rule 430A and Form 8-A, if adopted, could apply to any issuer, including small entities registering securities for public sale. For example, a small entity that has been reporting for at least 12 months but less than 36 months could become eligible to use Form S-3 for the registration of a secondary offering or an offering of securities underlying warrants. To the extent that these proposals have an effect on small entities, it is believed that the proposals would reduce the compliance burdens associated with Securities Act or Exchange Act registration for such entities, as they would for any other issuer. A copy of the IRFA may be obtained from Meredith B. Cross, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 3-3, Washington, D.C. 20549, (202) 272-2573.
V. GENERAL REQUEST FOR COMMENTS
Any interested persons wishing to submit written comments on the proposed rule amendments that are the subject of this release, to suggest additional changes, or to submit comments on other matters that might have an impact of the proposals contained herein, are requested to do so. Comments should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and should refer to file number S7-20-92. Comment is requested on the impact of the proposals from the point of view of the public, as well as the entities or persons making filings with the Commission. Comments on this inquiry will be considered by the Commission in complying with its responsibility under Section 19(a) of the Securities Act. 62 The Commission further requests comment on any competitive burdens that may result from adoption of the proposals. Comments on this inquiry will be considered by the Commission in complying with its responsibilities under Section 23(a) of the Exchange Act. 63
VI. STATUTORY BASES
The amendments to the Commissions rules and forms are being proposed pursuant to sections 6, 7, 8, 10 and 19(a) of the Securities Act of 1933, as amended, sections 12, 13, 15(d) and 23(a) of the Securities Exchange Act of 1934, as amended.
List of Subjects
Reporting and recordkeeping requirements, Securities.
VII. TEXT OF PROPOSED AMENDMENTS
In accordance with the foregoing, Title 17, chapter II of the Code of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1.The authority citation for Part 230 continues to read as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise noted.
2.By amending §230.424 by adding a new Instruction at the end of paragraph of (b) to read as follows:
§230.424 Filing of Prospectuses, Number of Copies.
* * * * *
(b)***
Instruction. Notwithstanding §230.424(b)(2) and (b)(4) above, a form of prospectus or prospectus supplement relating to an offering of mortgage-related securities on a delayed basis under §230.415(a)(1)(vii) or asset-backed securities on a delayed basis under §230.415(a)(1)(x) that is required to be filed pursuant to paragraph (b) of this section shall be filed with the Commission no later than the second business day following the date it is first used after effectiveness in connection with a public offering or sales, or transmitted by a means reasonably calculated to result in filing with the Commission by that date.
3.By amending §230.430A by adding an instruction to paragraph (a) to read as follows:
§230.430A Prospectus in a Registration Statement at the Time of Effectiveness
(a)***
Instruction to paragraph (a): A decrease in the volume of securities or change in the bona fide estimate of the maximum offering price range from that contained in the registration statement that is declared effective may be disclosed in the form of prospectus filed with the Commission pursuant to §230.424(b) or §230.497(h) under the Securities Act so long as the decrease in volume or change in the price range would not materially change the diclosure contained in the registration statement at effectiveness.
* * * * *
4.By amending §230.457 by adding new paragraph (o) to read as follows:
§230.457 Computation of Fee
* * * * *
(o)Where an issuer eligible to use Form S-3 is registering securities pursuant to General Instruction I.B.1 or I.B.2 to Form S-3 to be offered on a delayed or continuous basis pursuant to §230.415(a)(1)(x) or in connection with a business combination transaction pursuant to §230.415(a)(1)(viii), the registration fee may be calculated on the basis of the maximum offering price of all the securities listed in the Calculation of Registration Fee Table.
5.By revising §230.462 to read as follows:
§230.462 Effective Date of a Registration Statement Filed on Form S-8 and Dividend or Interest Reinvestment Plan Filed on Form S-3
A registration statement on Form S-8 (§239.16b of this chapter) and a registration statement on Form S-3 (§239.13) for a dividend or interest reinvestment plan shall become effective upon filing with the Commission.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
6.The authority citation for Part 239 continues to read as follows:
Authority: 15 U.S.C. 77a, et seq., unless otherwise noted.
7.By amending General Instructions I and II to Form S-3 (§239.13) by revising the introductory text to paragraphs A. and B. of Instruction I; by revising paragraphs A.3.(a), B.1. and C.2. of Instruction I; by revising the first sentence of paragraphs B.2. and C.3. of Instruction I; by redesignating paragraphs A.4. through A.6. of Instruction I as paragraphs A.5. through A.7. of Instruction I; adding new paragraphs A.4. and B.5. to Introduction I; adding new paragraph C. to Instruction II; and by revising General Instruction III to read as follows:
NOTE: Form S-3 does not appear in the Code of Federal Regulations.
Form S-3.
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General Instructions
I.***
A.Registrant Requirements. Registrants must meet the following conditions in order to use this Form for registration under the Securities Act of securities offered in the transactions specified in I.B. below:
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3.The registrant:
(a)has been subject to the requirements of Section 12 or 15(d) of the Exchange Act and has filed all the material required to be filed pursuant to Sections 13, 14 or 15(d) for a period of at least twelve calendar months immediately preceding the filing of the registration statement on this Form; and
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4.The provisions of paragraph A.3.(a) above do not apply to any issuer registering investment grade asset-backed securities as defined in I.B.5. below.
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B.Transaction Requirements. Security offerings meeting any of the following conditions and made by a registrant meeting the Registrant Requirements specified in I.A. above may be registered on this Form:
1.Primary Offerings by Certain Registrants. Securities to be offered for cash by or on behalf of a registrant, or outstanding securities to be offered for cash for the account of any person other than the registrant, including securities acquired by standby underwriters in connection with the call or redemption by the registrant of warrants or a class of convertible securities; provided that the aggregate market value of the voting stock held by non-affiliates of the registrant is $75 million or more.
Instruction. The aggregate market value of the registrants outstanding voting stock shall be computed by use of the price at which the stock was last sold, or the average of the bid and asked prices of such stock, as of a date within 60 days prior to the date of filing. See the definition of affiliate in Securities Act Rule 405 (§230.405 of this chapter).
2.Primary Offerings of Non-convertible Investment Grade Securities. Non-convertible securities to be offered for cash by or on behalf of a registrant, provided such securities at the time of the offer and sale are investment grade securities, as defined below.***
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5.Offerings of Investment Grade Asset-backed Securities. Asset-backed securities to be offered for cash, provided the securities are investment grade securities, as defined in I.B.2. above (Primary Offerings of Certain Non-convertible Securities). For purposes of this form, the term asset-backed security means a security the obligations of which are primarily serviced by the cashflows of a discrete pool of receivables or other financial assets that by their terms convert into cash within a finite time period plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to the securityholders.
C.***
2.the parent of the registrant-subsidiary meets the Registrant Requirements and the conditions of Transaction Requirements B.2. (Primary Offerings of Certain Non-Convertible Securities) are met; or
3.the parent of the registrant-subsidiary meets the Registrant Requirements and the applicable Transaction Requirement, and fully and unconditionally guarantees the payment obligations on the securities being registered, and the securities being registered are non-convertible securities.
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II.***
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C.Where two or more classes of securities being registered on the form pursuant to General Instruction I.B.1 or I.B.2 are to be offered on a delayed or continuous basis pursuant to §230.415(a)(1)(x), §230.457(o) under the Securities Act permits the registration fee to be calculated on the basis of the maximum offering price of all the securities listed in the Calculation of Registration Fee Table (Fee Table). In this event, while the Fee Table would list each of the classes of securities being registered and the aggregate proceeds to be raised, the Table need not specify by each class information as to the amount to be registered, proposed maximum offering price per unit, and proposed maximum aggregate offering price.
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III.Dividend or Interest Reinvestment Plans: Filing and Effectiveness of Registration Statement; Request for Confidential Treatment
A registration statement on this Form S-3 relating solely to securities offered pursuant to a dividend or interest reinvestment plan will become effective automatically (§230.462) upon filing (§230.456). Post-effective amendments to such a registration statement on this Form shall become effective upon filing (§230.464)*****
8.By amending the General Instructions to Form S-4 (17 CFR 239.25) by adding new paragraph J. to read as follows:
NOTE: Form S-4 does not appear in the Code of Federal Regulations.
Form S-4
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General Instructions
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J.Where two or more classes of securities being registered on the form are to be offered on a delayed or continuous basis pursuant to §230.415(a)(1)(viii), §230.457(o) under the Securities Act permits the registration fee to be calculated on the basis of the maximum offering price of all the securities listed in the Calculation of Registration Fee Table (Fee Table). In this event, while the Fee Table would list each of the classes of securities being registered and the aggregate proceeds to be raised, the Table need not specify by each class information as to the amount to be registered, proposed maximum offering price per unit, and proposed maximum aggregate offering price.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
9.The authority citation for Part 240 continues to read 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, 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.
10.By amending §240.12b-23 by revising paragraph (a)(3) to read as follows:
§240.12b-23 Incorporation by Reference
(a)***
(3)Copies of any information or financial statement incorporated into a registration statement or report by reference, or copies of the pertinent pages of the document containing such information or statements, shall be filed as an exhibit to the statement or report, except that:
(i)a proxy or information statement incorporated by reference in response to Part III of Form 10-K [§249.310]; and
(ii)a form of prospectus filed pursuant to §230.424(b) incorporated by reference in response to Item 1 of Form 8-A [§249.208a] need not be filed as an exhibit.
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PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
11.The authority citation for Part 249 continues to read as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
12.By amending Form 8-A (17 CFR 249.208a) by revising the instruction to Item 1 to read as follows:
Note: Form 8-A does not appear in the Code of Federal Regulations.
Form 8-A
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Item 1.***
Instruction. If a description of the securities comparable to that required here is contained in any prior filing with the Commission, such description may be incorporated by reference to such other filing in answer to this item. If such description will be included in a form of prospectus subsequently filed by the registrant pursuant to Rule 424(b) under the Securities Act [§230.424(b) of this chapter] this registration statement shall state that such prospectus shall be deemed to be incorporated by reference into the registration statement.
By the Commission.
Jonathan G. Katz
Secretary
SEC Release 33-6943; 34-30930
Form S-3 Availability --
Proposes Rule and Form Amendments
1 17 CFR 239.13.
2 15 U.S.C. 77a et seq.
3 17 CFR 230.415.
4 17 CFR 230.457.
5 17 CFR 230.462.
6 17 CFR 230.403A.
7 17 CFR 230.424.
8 17 CFR 249.208a.
9 15 U.S.C. 78l(g).
10 17 CFR 240.12b-23.
11 See Rule 415(a)(1)(x).
12 See Rule 415(a)(1)(vii).
13 See Release No. 33-6714, June 5, 1987 [52 FR 21252].
14 See Division of Corporation Finance Interpretive Letter to Skadden, Arps, Slate, Meager & Flom regarding Certain Mortgage Related Securities Under Rule 415(a)(1)(vii) and Prospectus Filing Requirements of Rule 424(b)(2) and (5) (avail. August 19, 1987).
15 See Securities Act Release No. 6383 (March 3, 1982) [47 FR 11380] (Adoption of Integrated Disclosure System).
16 Id.
17 17 CFR 239.11; 17 CFR 239.12. See also registration statement on Form S-4 which is used to register securities offered in connection with business acquisitions. Comparable registration statements under the F series are available to foreign private issuers. No changes to the F series forms are being proposed at this time.
18 See Item 12 of Form S-3.
19 See Id.; and the Item 512(a) undertakings [17 CFR 229.512(a)] applicable to shelf registration statements.
20 Other Form S-3 eligibility requirements include timely filing of Exchange Act filings during the 12 months prior to filing the Form S-3 and the absence of enumerated defaults since the last required audited financial statements. See General Instruction I.A. to Form S-3.
21 General Instruction I.B.1 of Form S-3.
22 General Instruction I.B.2 of Form S-3.
23 General Instruction I.B.3 of Form S-3.
24 See General Instruction I.B.4 of Form S-3 which permits issuers to engage in rights offerings with its existing shareholders. Consistent with the Forms eligibility requirements, where the securities underlying the rights may be acquired by new investors because, for example, the rights are transferable, the issuer may use Form S-3 only if it satisfies the minimum trading float test applicable to primary offerings of equity securities.
25 Id.
26 Id.
27 Form S-3 also is available to a majority-owned subsidiary if (1) the subsidiary independently satisfies the forms registrant eligibility and transactional criteria, (2) its parent meets such criteria and fully guarantees the principal and interest on the securities, or (3) its parent meets registrant eligibility requirement and the securities will be non-convertible investment grade debt or preferred stock. See General Instructional I.C of Form S-3.
28 General Instruction I.C. of Form S-2.
29 See Item 12 of Form S-2.
30 See Rule 415(a)(1)(x).
31 The traditional shelf offerings that may be conducted on either a delayed or continuous basis include securities that will be offered on behalf of selling security holders (Rule 415(a)(1)(i)), employee benefit or dividend or interest reinvestment plan offerings (Rule 415(a)(1)(ii)), offerings pursuant to outstanding options, warrants or rights (Rule 415(a)(1)(iii)), securities to be issued upon conversion of outstanding securities (Rule 415(a)(1)(iv)), securities pledged as collateral (Rule 415(a)(1)(v)), securities registered in connection with ADR facilities (Rule 415(a)(1)(vi)) and securities to be issued in business combination transactions (Rule 415(a)(1)(viii)).
32 Rule 415(a)(1)(vii).
33 17 CFR 239.33.
34 17 CFR 230.415(a)(1)(x).
35 See Securities Act Release No. 33-6235 (September 16, 1980) [45 FR 63693].
36 General Instruction I.A.3(a) would be amended to change the current thirty-six calendar month requirement to twelve calendar months.
37 The proposals would not alter any other registrant requirements set forth in General Instruction I.A. of Form S-3.
38 See General Instruction I.B.1 of Form S-3 (Primary Offerings by Certain Registrants) and b. i. public float requirements infra.
39 Form S-16 was rescinded in connection with the adoption of the integrated disclosure system. See Securities Act Release No. 6383 (March 3, 1982) [47 FR 11380].
40 No change is proposed to the 36 month reporting requirement of Form S-2. Issuers eligible to register primary offerings of common stock and non-investment grade debt or preferred stock on this Form do not necessarily include those with substantial market following.
41 General Instruction I.B.1 (Primary Offerings by Certain Registrants) of Form S-3 would be amended to change the $150 million minimum requirement to $75 million.
42 Data concerning analyst following is derived from information obtained from Nelson Publications, the publisher of Nelsons Directory of Investment Research (1992).
43 Although the trusts that are formed to issue such asset-backed securities may be created by S-3 eligible issuers, the trusts generally do not qualify as majority owned subsidiaries of such issuers for purposes of Form S-3.
44 The Secondary Mortgage Market Enhancement Act of 1984, Pub. L. No. 98-440, 98 Stat. 1689 (1984) (SMMEA) was enacted by Congress to increase the flow of funds to the housing market by removing unnecessary regulatory impediments to the creation and sale of private mortgage-backed securities. An early version of the legislation contained a provision that specifically would have required the Commission to create a permanent procedure for shelf registration of mortgage-related securities. The provision was removed from the final version of the legislation, however, as a result of the Commissions decision to adopt Rule 415, implementing a shelf registration procedure for mortgage-related securities. See H.R. Rep. No. 994, 98th Cong., 2d Sess. 14, reprinted in. 1984 U.S. Code Cong. & Admin. News 2827; see also Release No. 33-6499 (November 17, 1983) [48 FR 52889], n. 30 (noting that mortgage-related securities were the subject of pending legislation).SMMEA added a definition of mortgage-related security in Section 3(a)(41) of the Exchange Act. The definition requires, inter alia, that the securities be rated in one of the two highest statistical rating categories and represent an ownership interest in, or be secured by, notes secured by a first lien interest on real estate. As a result of the relationship between paragraph (a)(1)(vii) of Rule 415 and the SMMEA legislation, the Division generally has required issuers seeking to rely on this provision of Rule 415 to meet the requirements of Section 3(a)(41). See Piper Mortgage Incorporated (April 22, 1987); Sears Mortgage Securities Corp. (April 21, 1985).
45 The assets also may include guarantees, letters of credit, financial insurance or other instruments provided as a credit enhancement for the obligations of the issuer. The type or category of asset to be securitized must be described in the registration statement at the time of effectiveness. A registration statement that merely identifies several alternative types of assets that may be securitized would not meet this proposed criteria.
46 See General Instruction I.B.2 of Form S-3.
47 If the securities are not investment grade at the time of offer and sale, a post-effective amendment on Form S-1 could be used with respect to that particular take-down; alternatively the issuer would file a new registration statement with respect to the non-qualifying securities.
48 See n. 25 supra.
49 Proposed new paragraph (o) to Rule 457 would specify that the registration fee would be computed on the basis of the maximum offering price of the securities being registered.
50 In computing the amount available on the registration statement, the dollar amount of each offering would be subtracted from the remaining amount.
51 Securities Act Release No. 33-6714 (May 27, 1987).
52 Id. n. 34.
53 See Rule 413 of Regulation C [17 CFR 230.413].
54 When securities registered under the Securities Act will be traded on a national securities exchange, Section 12 of the Exchange Act requires the class of securities to be registered under the Exchange Act before the securities may begin trading. See Section 12(a) of the Exchange Act, 15 U.S.C. 78l(a). Similarly, the NASDAQ system requires as a condition to inclusion in the system that the securities be Section 12 registered.
55 Form 8-A is available to those issuers that are subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. However, to facilitate timely registration under the Exchange Act, the Division of Corporation Finance permits non-reporting registrants to file a Form 8-A prior to the effective date of an initial public offering in order to permit concurrent effectiveness of the Securities Act and Exchange Act registrations. This is permitted because the additional information that would be provided in a Form 10 (the long-form Exchange Act registration form for nonreporting issuers) is included in the concurrent Securities Act registration statement.
56 The price of common stock is not a term of the security required to be described in the Form 8-A.
57 For example, in an offering of convertible debt securities, the interest rate, the conversion rate, and the call price are terms of the securities that must be included in the Form 8-A, but which are not known until the time of pricing.
58 A related technical amendment to Rule 12b-23 under the Exchange [17 CFR 240.12b-23] also is proposed. The proposed amendment would except Rule 424(b) supplements filed after effectiveness of a Form 8-A from Rule 12b-23s requirement that information incorporated by reference into an Exchange Act registration statement be included as an exhibit to the registration statement.
59 Under the proposed amendment to Form 8-A, registrants would be permitted to provide the title of the securities on the cover of the Form 8-A in preliminary form before the securities are priced (e.g., --------% debentures due 20--------), so that the requirement to provide the title of the securities would not be an impediment to the effectiveness of the Form 8-A prior to pricing.
60 See Item 1 of Form 8-A, which requires the information specified in Item 202 of Regulation S-K.
61 5 U.S.C. 603 (1988).
62 15 U.S.C. 77s(a).
63 15 U.S.C. 78w(a).
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