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Corp & Sec Update #5

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Corp & Sec Update #5 Corporate and Securities Update www.BlankRome.com March 2008 No. 5 SEC Permits the Use of Forms S-3 and F-3 by Small Businesses Introduction public float of less than $75 mil- equivalent of one-third of its public The Securities and Exchange lion to take advantage of the ben- float in primary offerings registered Commission (“SEC”) recently efits of Form S-3, including “short on Form S-3 or Form F-3 within a amended the eligibility require- form” registration and shelf regis- 12-month period. In order to use ments for use of the registration tration in connection with certain Form S-3, a company and the offer- statement on Form S-3 (and Form limited primary offerings of securi- ing must meet certain registrant and F-3 for foreign private issuers) as ties, without compromising transaction requirements. The regis- part of its initiatives to increase investor protection. The amended trant requirements generally deal access to the capital markets by rules were effective on January 28, with a company’s reporting history smaller companies.1 Form S-3 is 2008. under the Exchange Act. The the “short form” registration state- The amended rules would transaction requirements provide, ment used by companies to regis- allow certain domestic public and among other things, that com- ter primary offerings under the foreign private issuers to conduct panies can use Form S-3 for Securities Act of 1933, as amend- primary securities offerings regard- primary offerings of nonconvertible ed (the “Securities Act”), which less of the size of their public float investment-grade securities, non- allows these companies to rely on or the rating of the debt they are investment-grade debt, certain their reports filed under the offering, as long as they satisfy the rights offerings, dividend reinvest- Securities Exchange Act of 1934, as eligibility conditions of the forms, ment plans, and conversions. have a class of common equity amended (the “Exchange Act”), to Benefits to Smaller securities listed and registered on satisfy disclosure and updating Public Companies requirements. These amendments a national exchange, and the The amended rules liberalize permit certain companies with a issuer does not sell more than the the eligibility requirements for use of the Form S-3 in order to bene- fit smaller public companies who 1. See SEC Rel. No. 33-8878 (December 19, 2007). Available on the SEC’s website at www.sec.gov/rules/final/2007/33-8878.pdf. wish to increase their flexibility © 2008, BLANK ROME LLP. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. One Logan Square • Philadelphia, Pennsylvania 19103-6998 • 215.569.5500 CORPORATE AND SECURITIES UPDATE and efficiency in taking advantage Form S-3, such as: • The company does not sell of desirable market conditions. more than the equivalent of – Being organized under These companies would be able one-third of its public float the laws of a jurisdic- to conduct primary offerings “off in primary offerings under tion in the United the shelf” under Rule 415 of the General Instruction I.B.6 States; Securities Act. This would permit of Form S-3 over the previ- the registration of securities offer- – Having its principal ous period of 12 calendar ings prior to planning any specific place of business locat- months. offering and, once the registration ed in the Untied States; In order to determine the statement is effective, companies – Having a class of secu- amount of securities that could be utilizing Form S-3 could offer rities registered under sold by a public company with securities in one or more tranches Sections 12(b) or 12(g) less than $75 million in public without waiting for further SEC of the Exchange Act or float, the company would have to: action. Having more control over be required to file • Determine its public float the timing of an offering could reports pursuant to immediately prior to the intend- allow companies to raise capital Section 15(d) of the ed sale. Public float is calcu- on more favorable terms and Exchange Act; and lated by multiplying the obtain lower interest rates on debt. price at which the com- The amendment also allows – Having timely filed all pany’s common equity was smaller public companies to “for- required reports under last sold—or the average of ward incorporate,” by reference in the Exchange Act dur- the bid and asked prices of the registration statement on ing the last 12 months its common equity, in the Form S-3 to reports filed with the preceding the filing of principal market for the SEC subsequent to the filing of the registration state- common equity, as of a date the Form S-3. Without this ability, ment (and during the within 60 days prior to the registrants would have to file a portion of the calendar date of sale—by the number new registration statement or month immediately of shares of common equity post-effective amendment to its preceding the filing of outstanding held by nonaf- registration statement to prevent the registration state- filiates of the company; and information in its registration ment), subject to certain statement from becoming outdat- limited exceptions; • Aggregate all sales of its securi- ed and to update fundamental ties, including equity and debt, • The company is not a shell changes to the information set pursuant to primary offerings in company (as defined by forth in the registration statement. the previous 12-month period on Rule 405 of the Securities Form S-3 (including the intended Revised Eligibility Act) and has not been a sale) to determine whether the Requirements of Form S-3 shell company for a mini- one-third limitation would be mum of 12 calendar months The revised eligibility require- exceeded. To calculate the prior to filing the registra- ments now allow a public compa- aggregate market value of tion statement; ny with less than $75 million in securities sold during the public float to register primary • The company has a class of preceding 12-month period, offerings of its securities using common equity securities a company would add Form S-3 if: listed on a national securi- together the gross sales price • The company meets all ties exchange; and for all primary offerings pur- existing registrant eligibility suant to amended requirements for the use of Instruction I.B.6 to Form S- BLANK ROME LLP 2 CORPORATE AND SECURITIES UPDATE 3 during the preceding 12- • Not be a shell company or month period. For the regis- have been a shell company Office Locations tration of convertible securi- for at least 12 calendar ties which are exercisable months before filing the reg- The Chrysler Building, 405 Lexington Avenue New York, NY 10174-0208 • 212.885.5000 into or for equity shares, the istration statement; and company must calculate the One Logan Square, 130 North 18th Street • Not sell more than the aggregate market value of Philadelphia, PA 19103-6998 • 215.569.5500 equivalent of one-third of the underlying equity Watergate, 600 New Hampshire Avenue NW their public float in primary shares, rather than the mar- Washington, DC 20037 • 202.772.5800 offerings under General ket value of the convertible Instruction I.B.5 on Form securities. F-3 over any period of 12 The amendments make offer- calendar months. ings above the one-third cap a Public Companies Group violation of the form require- Conclusion Philadelphia Office Telephone ments of Form S-3 and a violation The amended rules provide Yelena Barychev 215.569.5737 of proper form under amended many smaller public companies Christin R. Cerullo 215.569.5744 Rule 401, even though the regis- increased flexibility to conduct Loretta A. Damron 215.569.5368 tration statement was previously certain limited public offerings of Frank E. Dehel 215.569.5532 declared effective. However, the securities at times and under con- Ronald Fisher 215.569.5479 amended Instruction I.B.6 to ditions that are best suited for Barry H. Genkin 215.569.5514 Form S-3 lifts the one-third cap them, with fewer regulatory Alan H. Lieblich 215.569.5693 on additional sales if the regis- requirements. The amended rules Frederick D. Lipman 215.569.5518 trant’s float increases to $75 million also streamline the offering Richard J. McMahon 215.569.5554 or more after the effective date of process, potentially lowering the Michael J. Medveckus 215.569.5335 the registration statement. cost of capital for smaller com- Melissa P. Murawsky 215.569.5732 Revised Eligibility panies. In short, the revised rules Edward F. Spaniel 215.569.5521 Requirements of Form F-3 will make it easier for smaller Jane K. Storero * 215.569.5488 public companies meeting the The revised eligibility require- Jeffrey M. Taylor 215.569.5579 revised criteria to access the ments for Form F-3 mirror those Larry R. Wiseman 215.569.5549 public securities markets for sales for Form S-3. As such, foreign of their securities in a timely, New York Office Telephone private companies wishing to use Elise M. Adams 212.885.5544 efficient, and cost-effective manner. Form F-3 and lacking the $75 mil- Matthew K. Breitman 212.885.5479 lion in worldwide public float Questions Richard DiStefano 212.885.5372 would have to: Any person who has a question Pamela E. Flaherty 212.885.5174 • Meet the other registrant regarding the issues raised in this Robert J.
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