The Securities and Exchange Commission (“SEC”) on December 19, 2007, adopted amendments expanding the availability of Forms S-3 and F-3 for primary offerings. Forms S-3 and F-3 are “short form” registration statements that permit incorporation by reference to reports filed with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”). This allows for more concise disclosure, as well as automatic updating of the registration statement through forward incorporation. As a result, short-form registration statements typically are less expensive to prepare and enable quicker access to the market.

Previously, a registrant could use Forms S-3 or F-3 for a primary offering of securities only if it had a non-affiliated public float of at least $75 million or if the securities were nonconvertible, investment-grade securities. As a result of the amendments, a registrant with a public float of less than $75 million may now use Form S-3 or F-3 for any primary offering, whether of debt, equity or derivative securities, and including off-theshelf registration statements, so long as the offering satisfies the requirements described below.

The amendments, which are largely contained in the General Instructions to the forms, take effect on January 28, 2008. The adopting release is available at http://www.sec.gov/rules/final/2007/33-8878.pdf.

Eligibility Requirements

In order for a registrant with less than $75 million in public float to use Form S-3 or F-3 for a primary offering of its securities:

  • the aggregate market value of securities sold by the registrant pursuant to the new instructions during the prior 12 calendar months may not exceed one-third of the aggregate market value of its public float;
  • the registrant must have a class of common equity securities listed and registered on a national securities exchange; and
  • the registrant may not have been a shell company for at least 12 calendar months before filing the registration statement.

The registrant also must satisfy the general registrant eligibility requirements for the use of Form S-3 or F-3, which include the following: 

  • It must have a class of securities registered pursuant to Section 12(b) or 12(g) of the Exchange Act or be required to file reports pursuant to Section 15(d) of the Exchange Act; and
  • It must have been subject to the requirements of Section 12 or 15(d) of the Exchange Act and have filed in a timely manner all the material required to be filed pursuant to Section 13, 14 or 15(d) of the Exchange Act for a period of at least 12 calendar months immediately preceding the filing of the Form S-3 or F-3.

Since the amendments limit the use of Form S-3 and F-3 in this context to registrants with a class of common equity securities listed and registered on a national securities exchange, absent meeting the $75 million public float requirement, registrants with securities quoted on the OTC Bulletin Board or Pink Sheets are not eligible to use the forms for primary offerings.

Cap on Sales

A registrant with a public float of less than $75 million annually may sell a dollar value of securities of up to one-third of its public float in primary offerings on Form S-3 or F-3. These securities may be sold in one or more transactions, including in a single transaction immediately following the effectiveness of the registration statement. With respect to a particular proposed sale, public float is computed by using the price at which the registrant’s common equity was last sold, or the average of the bid and ask prices of its common equity, in the principal market for the common equity as of a date within 60 days prior to the date of sale.

Aggregate sales are calculated by totaling the gross sales price for all primary offerings made on Form S-3 or F-3 pursuant to the new General Instruction during the preceding 12 calendar months, including the proposed sale. Sales of both debt and equity securities must be included in the aggregate calculation.

The aggregate gross sales price of securities that are convertible into or exercisable for equity securities, such as convertible debt or warrants, is calculated using the aggregate market value of the underlying equity securities. The aggregate market value of the underlying equity is based on the maximum number of shares into which the derivative securities are convertible or for which they are exercisable as of a date within 60 days prior to the anticipated date of sale, multiplied by the same per-share market price of the registrant’s equity used for purposes of calculating its public float. The date chosen by the registrant for determination of the maximum number of shares underlying the derivative securities must be the same date that the registrant chooses for determining its market price in connection with the calculation of its public float.

If the derivative securities have been converted or exercised, the aggregate market value of the underlying equity is calculated by multiplying the actual number of shares into which the securities were converted or that were received upon exercise, by the market price of the shares on the date of conversion or exercise. To keep track of the securities sold under the new General Instruction, the registrant must disclose in each prospectus filed with the SEC its updated calculation of the public float and the amount of securities offered pursuant to the new General Instruction during the prior 12 calendar month period that ends on the date of the prospectus.

Effect of Fluctuations in Public Float

The public float is calculated at the time of an intended sale, not at the time of the initial filing of the registration statement. A registrant can therefore benefit from an increase in its public float during the time that the registration statement is effective. If the registrant’s public float increases to the $75 million threshold after the effective date of the Form S-3 or F-3, the volume limitation on additional primary sales is suspended, without the burden of having to file a new registration statement.

Conversely, if the registrant’s public float decreases, the amount of securities that the registrant may sell also will decrease. Similarly, if, at the time the registrant filed the registration statement, its public float exceeded $75 million, but later dropped below $75 million, the volume restrictions would apply to subsequent primary sales made after the registration statement is amended in accordance with Section 10(a)(3) of the Securities Act of 1933, which typically occurs by the registrant filing its Form 10-K, and would continue for as long as the registrant’s public float was less than $75 million