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SEC Expands Form S-3, F-3 Eligibility, Mandates Form D Electronic Filing

The SEC voted unanimously to adopt amendments to the eligibility requirements of Securities Act Forms S-3 and F-3 to allow companies that do not meet the current public float requirements of the forms to use them to register primary offerings of their securities. The Commission also adopted amendments to mandate the electronic filing of Form D starting in March 2009, and voted to issue a concept release on possible revisions to the agency's oil and gas reserves disclosure requirements. Corporation Finance Director John White said that expanding the eligibility of Forms S-3 and F-3 will allow smaller companies to benefit from the efficiency and flexibility of the short form registration statements. Commissioner Kathleen Casey estimated that 1,400 new companies will be eligible to use the forms.

The adopted rules contain several conditions, as well as two significant changes from the proposal released in the summer. The first change is that in order to be eligible to use the forms, a company must have at least one class of common equity securities listed on an exchange. Daniel Greenspan of the Division of Corporation Finance staff said that this change was intended to provide additional protections for investors in the form the exchange's listing rules.

The second change in the adopted rules is that to be eligible to use the forms, a company may not sell more than the equivalent of one-third of its public float during any 12-month period. The staff had originally proposed a threshold of 20 percent, but commenters overwhelmingly favored a larger amount, Director White said. Commissioner Casey applauded the change, saying it balances greater access to capital with investor protection.

A shell company is not eligible to use the forms, nor is a company that has been a shell company within the preceding 12 months. In addition, companies must be timely in their filings with the SEC to be able to use Forms S-3 and F-3 under the amendments.

Form D is a notice required to be filed by companies that have sold securities without Securities Act registration based on a claim of exemption under Regulation D or Securities Act Section 4(6). Form D filings are also required by most states. The Commission receives 28,000 of the filings on paper each year, and dedicates three full-time staff members to opening and reviewing the mailed filings.

The amendments provide that Form D should be filed electronically effective September 15, 2008. The Commission will provide a six-month phase-in period, and electronic filing of Form D will become mandatory March 16, 2009. Mr. White said that the phase-in period would act as a test for the new electronic filing system.

One important element of the system, according to Director White, is a possible link to the North American Securities Administrators Association. The staff hopes to be able to create a one-stop filing system where companies can file their Form D with the SEC and with state regulators at the same time, he said. The remaining issues related to creating that system have to do with NASAA's resources, he noted. Among other things, the association is trying to determine how they will finance the system since it is not in the group's budget.

The final action taken by the Commission was the approval of a concept release to solicit public comment concerning possible revisions to the oil and gas reserves disclosure requirements. The requirements exist in their current form in Item 102 of Regulation S-K and Rule 4-10 of Regulation S-X. SEC Chairman Christopher Cox noted that the SEC's existing definition of "proven reserves" was developed in the late 1970s. Since then, technological changes have occurred in the way oil and gas are extracted and measured. Mr. White said that it is time to learn from industry participants whether the existing definition is adequate. He said that he has received feedback indicating that the current definition does not allow industry participants to estimate oil and gas reserves properly.