[Federal Register Volume 69, Number 221 (Wednesday, November 17, 2004)]
[Proposed Rules]
[Pages 67392-67487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24910]



[[Page 67391]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 228, 229, et al.



Securities Offering Reform; Proposed Rule

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / 
Proposed Rules

[[Page 67392]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 230, 239, 240, 243, and 274

[Release Nos. 33-8501; 34-50624; IC-26649; International Series Release 
No. 1282; File No. S7-38-04]
RIN 3235-AI11


Securities Offering Reform

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing rules that 
would modify and advance significantly the registration, 
communications, and offering processes under the Securities Act of 
1933. Today's proposals would eliminate unnecessary and outmoded 
restrictions on offerings. In addition, the proposals would provide 
more timely investment information to investors without mandating 
delays in the offering process that we believe would be inconsistent 
with the needs of issuers for timely access to capital. The proposals 
also would continue our long-term efforts toward integrating disclosure 
and processes under the Securities Act and the Securities Exchange Act 
of 1934. The proposals would accomplish these goals by addressing 
communications related to registered securities offerings, delivery of 
information to investors, and procedural restrictions in the offering 
and capital formation processes.

DATES: Comments should be received on or before January 31, 2005.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#4133342d246c222e2c2c242f3532013224226f262e37"><span class="__cf_email__" data-cfemail="6d1f180108400e0200000803191e2d1e080e430a021b">[email protected]</span></a>. Please include 
File Number S7-38-04 on the subject line; or
    <bullet> Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number S7-38-04. This file 
number should be included on the subject line if e-mail is used. To 
help us process and review your comments more efficiently, please use 
only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/ 
proposed.shtml). Comments also are available for public inspection and 
copying in the Commission's Public Reference Room, 450 Fifth Street, 
NW., Washington, DC 20549. All comments received will be posted without 
change; we do not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: Amy M. Starr, Consuelo Hitchcock, 
Andrew Thorpe, Daniel Horwood, or Anne Nguyen, at (202) 824-5300, in 
the Division of Corporation Finance, U.S. Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0402 or, with 
respect to questions regarding investment companies, Kieran Brown in 
the Division of Investment Management, at (202) 942-0721.

SUPPLEMENTARY INFORMATION: We are proposing to amend Item 512 \1\ of 
Regulation S-B,\2\ Item 512 \3\ of Regulation S-K,\4\ and Rules 134, 
137, 138, 139, 153, 158, 174, 401, 405, 408, 412, 413, 415, 418, 424, 
430A, 434, 439, 456, 457, 462, 473, and 902 \5\ under the Securities 
Act.\6\ We also propose to add Rules 159, 159A, 163, 163A, 164, 168, 
169, 172, 173, 430B, 430C, and 433 under the Securities Act. We further 
propose to amend Forms S-1, S-3, S-4, F-1, F-3, and F-4 and eliminate 
Forms S-2 and F-2 \7\ under the Securities Act; to amend Rule 100 \8\ 
of Regulation FD \9\ and Rule 14a-2 \10\ under the Securities Exchange 
Act of 1934; \11\ to amend Forms 10, 10-K, 10-Q, 10-KSB, and 20-F \12\ 
under the Exchange Act; and to amend Form N-2 under the Securities Act 
and the Investment Company Act of 1940.\13\
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    \1\ 17 CFR 228.512.
    \2\ 17 CFR 228.10 et seq.
    \3\ 17 CFR 229.512.
    \4\ 17 CFR 229.10 et seq.
    \5\ 17 CFR 230.134; 17 CFR 230.137; 17 CFR 230.138; 17 CFR 
230.139; 17 CFR 230.153; 17 CFR 158; 17 CFR 230, 174; 17 CFR 
230.401; 17 CFR 230.405; 17 CFR 230.408; 17 CFR 230.412; 17 CFR 
230.413; 17 CFR 230.415; 17 CFR 230.418; 17 CFR 230.424; 17 CFR 
430A; 17 CFR 230.434; 17 CFR 230.439; 17 CFR 230.456; 17 CFR 
230.457; 17 CFR 230.462; 17 CFR 230.473; and 17 CFR 230.902.
    \6\ 15 U.S.C. 77a et seq.
    \7\ 17 CFR 239.11; 17 CFR 239.13; 17 CFR 239.25; 17 CFR 239.31; 
17 CFR 239.33; 17 CFR 239.34; 17 CFR 239.12; and 17 CFR 239.32.
    \8\ 17 CFR 243.100.
    \9\ 17 CFR 243.100 through 243.103.
    \10\ 17 CFR 240.14a-2.
    \11\ 15 U.S.C. 78a et seq.
    \12\ 17 CFR 249.210; 17 CFR 249.308a; 17 CFR 249.310; 17 CFR 
249.310b; and 17 CFR 249.220f.
    \13\ 17 CFR 239.14 and 17 CFR 274.11a-1.
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Table of Contents

I. Introduction
    A. Overview of Today's Proposals
    B. Background
    1. Advances in Technology
    2. Exchange Act Reporting Standards
II. Well-Known Seasoned Issuers; Other Categories of Issuers
    A. Well-Known Seasoned Issuers
    B. Other Categories of Issuers
III. Communications Proposals
    A. Current Communications Requirements
    B. Need for Modernization of Communications Requirements
    1. General
    2. Definition of Written Communication
    C. Overview of Communications Proposals
    D. Proposed Rules
    1. Permitted Continuation of Ongoing Communications During an 
Offering
    a. Regularly Released Factual Business and Forward Looking 
Information--Reporting Issuers
    i. Factual Business Information
    ii. Forward-Looking Information
    iii. Conditions of Safe Harbors
    (A) By or on Behalf of'' the Issuer
    (B) Regularly Released Information
    (C) Non-Offering Related Information
    b. Regularly Released Factual Business Information--Non-
Reporting Issuers
    2. Other Permitted Communications Prior to Filing a Registration 
Statement
    a. 30-Day Bright Line Exclusion From the Prohibition on Offers 
Prior to Filing a Registration Statement--All Issuers
    b. Permitted Pre-Filing Offers for Well-Known Seasoned Issuers
    3. Relaxation of Restrictions on Written Offering Related 
Communications
    a. Rule 134
    i. Expansion of Permitted Information
    ii. Changes to Required Information
    a. Permissible Use of Free Writing Prospectuses
    i. Overview
    ii. Definition of Free Writing Prospectus
    (A) General
    (B) Media Publications
    iii. Permitted Use of a Free Writing Prospectus After the Filing 
of a Registration Statement Under Proposed Rule 433
    (A) Conditions to Permitted Use of a Free Writing Prospectus
    (1) Prospectus Delivery and/or Availability
    (a) Non-Reporting Issuers and Unseasoned Issuers
    (b) Seasoned Issuers and Well-Known Seasoned Issuers
    (2) Ineligible Issuers
    (3) Filing Conditions
    (a) General Conditions
    (b) Electronic Road Shows
    (c) Unintentional Failures to File
    (d) Filed Free Writing Prospectus Not Part of Registration 
Statement
    (4) Information in a Free Writing Prospectus
    (a) Legend Condition
    (b) Proposed Amendment to Rule 408

[[Page 67393]]

    (5) Record Retention Condition
    (B) Treatment of Communications on Web Sites and Other 
Electronics Issues
    (1) General
    (2) Historical Information on an Issuer Web Site
    c. Interaction of Communications Proposals With Regulation FD
    4. Use of Research Reports
    a. Current Regulatory Treatment of Research Reports
    b. Proposals Amending Exemptions for Research
    i. Definition of Research Report
    ii. Rule 137
    iii. Rule 138
    iv. Rule 139
    (A) Issuer Specific Reports
    (B) Industry-Related Reports
    v. Research Report Proposals in Connection With Regulation S and 
Rule 144A Offerings
    vi. Research and Proxy Solicitations
IV. Liability Issues
    A. Information Conveyed by the Time of Sale for Purposes of 
Section 12(a)(2) and Section 17(a)(2) Liability
    1. Rule 412
    2. Relationship of Interpretation and Proposed Rule to Section 
11 Liability
    B. Issuer as Seller
V. Securities Act Registration Proposals
    A. Overview of Proposals
    B. Procedural Proposals
    1. Procedural Changes Regarding Shelf Offerings
    a. Overview
    b. Information in a Prospectus
    i. Mechanics
    (A) Proposed Rule 430B
    (B) Means for Providing Information
    (C) Identification of Selling Security Holders Following 
Effectiveness
    ii. Information Deemed Part of Registration Statement
    iii. Date of Inclusion of Prospectus Supplements in Registration 
Statements and New Effective Dates of Registration Statements
    iv. Proposed Amendments to Rule 415
    (A) Elimination of Limitation on Amount of Securities Registered
    (B) Immediate Takedowns From a Shelf Registration Statement 
Filed Under Rule 415(a)(1)(x)
    (C) Eliminating ``At-the-Market'' Offering Restrictions
    v. Rule 424 Amendments
    vi. Issuer Undertakings
    (A) Treatment of Information in Prospectus Supplements
    (B) Prospectus Supplements Deemed Part of a Registration 
Statement and New Effective Dates
    c. Changes to Form S-3 and Form F-3
    2. Automatic Shelf Registration for Well-Known Seasoned Issuers
    a. Overview
    b. Automatic Shelf Registration Mechanics
    i. Eligibility
    ii. Information in a Registration Statement
    (A) Information That May be Omitted From the Base Prospectus
    (B) Mechanics for Including Information
    (C) Registration of Securities to be Offered
    (D) Pay-as-You-Go Registration Fees
    (E) Registration Under Securities Act Sections 5 and 6
    (F) Automatic Effectiveness
    (G) Duration
    3. Unseasoned Issuers and Non-Reporting Issuers
    a. Overview
    b. Proposed Amendments to Form S-1 and Form F-1--Expanded Use of 
Incorporation by Reference
    i. Eligibility
    ii. Proposed Procedural Requirements
    c. Elimination of Form S-2 and Form F-2
VI. Prospectus Delivery Reforms
    A. Current Prospectus Delivery Requirements
    B. Prospectus Delivery Proposals
    1. Access Equals Delivery
    a. Proposals
    b. Exceptions to the Proposals
    c. Notification
    2. Confirmations and Notices of Allocations
    3. Transactions Taking Place on an Exchange or Through a 
Registered Trading Facility--Rule 153
    4. Aftermarket Prospectus Delivery--Rule 174
VII. Additional Exchange Act Disclosure Proposals
    A. Risk Factor Disclosure
    B. Disclosure of Unresolved Staff Comments
    C. Disclosure of Status as Voluntary Filer Under the Exchange 
Act
VIII. Application of Proposals to Asset-Backed Securities
IX. General Request for Comment
X. Paperwork Reduction Act
    A. Background
    B. Summary of Information Collections
    C. Paperwork Reduction Act Burden Estimates
    1. Exchange Act Periodic Reports and Registration Statements
    2. Communications and Prospectus Delivery
    3. Securities Act Registration Statements
    D. Request for Comment
XI. Cost Benefit Analysis
    A. Background
    B. Summary of Proposals
    1. Communications
    2. Securities Act Registration Amendments
    3. Prospectus Delivery
    4. Exchange Act Reports
    C. Benefits
    1. Increased Information Flow
    2. Investor Protection
    3. Facilitating Capital Formation
    4. Reduced Regulatory Uncertainty
    5. Lower Costs
    D. Costs
    1. Compliance Costs
    2. Potential for Increased Liability
    3. Research Reports
    4. Other Potential Costs
    E. Request for Comment
XII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
XIII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for the Proposed Action
    B. Objectives
    C. Legal Basis
    D. Small Entities Subject to the Proposed Rules
    E. Reporting, Recordkeeping and Other Compliance Requirements
    F. Duplicative, Overlapping or Conflicting Federal Rules
    G. Significant Alternatives
    H. Solicitation of Comment
XIV. Small Business Regulatory Enforcement Fairness Act
XV. Statutory Basis--Text of the Proposed Amendments

I. Introduction

A. Overview of Today's Proposals

    In 1998, the Commission proposed new rules under the Securities Act 
that were intended to modernize the securities offering process to 
recognize the evolution of the securities markets and securities 
products since the Securities Act's adoption and to enable market 
participants to capitalize on new technologies.\14\ The underlying 
premise of those proposals--the need to modernize the securities 
offering and communications processes--was supported by commenters at 
the time. However, commenters indicated dissatisfaction with a number 
of the specifics in the 1998 proposals. We believe that the objectives 
of the 1998 proposals in reforming the offering process continue to be 
supported, and merit our attention still.
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    \14\ See The Regulation of Securities Offerings, Release No. 33-
7606A (Nov. 13, 1998 [63 FR 67174] (the ``1998 proposals'').
    The National Securities Markets Improvement Act of 1996 (NSMIA) 
provided the Commission with general authority to adopt exemptive 
rules under the Securities Act to the extent that such exemptive 
action is ``necessary or appropriate in the public interest and 
consistent with the protection of investors.'' See Securities Act 
Section 28 [15 U.S.C. 77z-3]. This authority permitted a number of 
the proposals put forth in our 1998 proposals to go beyond previous 
modernization efforts.
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    The 1998 proposals were a step in an evaluation of the offering 
process under the Securities Act that began as far back as 1966, when 
Milton Cohen noted the anomaly of the structure of the disclosure rules 
under the Securities Act and the Exchange Act and suggested the 
integration of the requirements under the two statutes.\15\ Mr. Cohen's

[[Page 67394]]

article was followed by a 1969 study led by Commissioner Francis Wheat 
\16\ and the Commission's Advisory Committee on Corporate Disclosure in 
1977.\17\ These studies eventually led to the Commission's adoption of 
the integrated disclosure system, short-form registration under the 
Securities Act, and Securities Act Rule 415 permitting shelf 
registration of continuous offerings and delayed offerings.\18\
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    \15\ Milton H. Cohen, Truth in Securities Revisited, 79 Harv. L. 
Rev. 1340 (1966). (``It is my thesis that the combined disclosure 
requirements of these statutes would have been quite different if 
the 1933 and 1934 Acts * * * had been enacted in opposite order, or 
had been enacted as a single, integrated statute--that is, if the 
starting point had been a statutory scheme of continuous disclosures 
covering issuers of actively traded securities and the question of 
special disclosures in connection with public offerings had then 
been faced in this setting. Accordingly, it is my plea that there 
now be created a new coordinated disclosure system having as its 
basis the continuous disclosure system of the 1934 Act and treating 
the ``1933 Act'' disclosure needs on this foundation.'')
    \16\ See Disclosure to Investors--a Reappraisal of Federal 
Administrative Policies under the '33 and '34 Acts, Policy Study 
(the ``Wheat Report''), www.sechistorical.org/museum/Museum--Papers/
museum--Papers--Chron.php<greek-i>1960 (Mar. 27, 1969).
    \17\ See Report of the Advisory Committee on Corporate 
Disclosure, Cmte. Print 95-29, House Cmte. On Interstate and Foreign 
Commerce, 95th Cong., 1st. Sess., Nov. 3, 1977 (Nov. 3, 1977). In 
addition, beginning in 1968, the American Law Institute (``ALI'') 
began its work on a Federal Securities Code, which was approved in 
1978 by the ALI membership. The ALI Federal Securities Code included 
company registration as a central component. See American L. Inst., 
Federal Securities Code (1980).
    \18\ See Adoption of Integrated Disclosure System, Release No. 
33-6383 (Mar. 3, 1982) [47 FR 11380], Delayed or Continuous Offering 
and Sale of Securities, Release No. 33-6423 (Sept. 2, 1982) [47 FR 
39799], and Shelf Registration, Release No. 33-6499 (Nov. 17, 1983) 
[48 FR 52889].
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    The Commission's attention to the offering and communications 
processes under the Securities Act has continued more recently. In 
particular, in March 1996, members of the Commission staff delivered 
the Report of the Task Force on Disclosure Simplification to the 
Commission.\19\ It recommended a number of areas where simplification 
and modernization of the registration and offering process could be 
accomplished. In July 1996, the Advisory Committee on the Capital 
Formation and Regulatory Processes delivered its report to the 
Commission.\20\ Its principal recommendation was that the Securities 
Act registration and disclosure processes be more directly tied to the 
philosophy and structure of the Exchange Act through the adoption of a 
system of ``company registration.'' Under company registration, the 
focus of Securities Act and Exchange Act registration and disclosure 
would move from transactions to issuers and corollary steps would be 
taken to provide for disclosure and registration of individual 
offerings within the company registration framework.
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    \19\ Report of the Task Force on Disclosure Simplification, 
available at www.sec.gov/news/studies/smpl.htm (Mar. 5, 1996).
    \20\ Report of the Advisory Committee on the Capital Formation 
and Regulatory Process, (the ``Advisory Committee Report'') 
www.sec.gov/news/studies/ capform.htm (July 24, 1996).
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    Promptly after the Advisory Committee on the Capital Formation and 
Regulatory Processes delivered its report, the Commission issued a 
concept release regarding regulation of the securities offering 
process.\21\ The release sought input on a number of significant 
issues, including:
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    \21\ Securities Act Concepts and Their Effects on Capital 
Formation, Release No. 33-7314 (July 25, 1996) [61 FR 40044] (the 
``1996 Concept Release'').
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    <bullet> Whether the concept of company registration should be 
pursued;
    <bullet> Whether other methods of increasing the integration of 
Securities Act and Exchange Act disclosure and other processes should 
be considered;
    <bullet> Whether existing or further reliance on Exchange Act 
filings should be accompanied by enhancements to Exchange Act 
reporting;
    <bullet> Whether companies make information about their public 
securities offerings available to investors in an appropriate and 
timely manner, including:
    [cir] At what point in the offering process delivery of, or access 
to, information should be assured in connection with registered 
offerings under the Securities Act and whether current requirements 
ensure timely delivery of information to the secondary market in 
connection with such offerings;
    [cir] Whether prospectus supplements in shelf offerings should be 
made part of the registration statement;
    [cir] Whether and, if so, in what circumstances electronic access 
should replace actual delivery of information in connection with 
offerings registered under the Securities Act; and
    [cir] Whether restrictions on written offers under the Securities 
Act should be liberalized and the liability standards that should 
attach to such communications;
    <bullet> Whether adjustments to the roles and responsibilities of 
traditional ``gatekeepers'' in the Securities Act offering process, 
such as underwriters and accountants, should be made in light of 
increases in the speed of and other evolutions in the offering process;
    <bullet> Whether changes should be made to address evolution in the 
relationships between the public and private offering processes, 
including:
    [cir] Whether changes in Rules 144A \22\ and 144 \23\ under the 
Securities Act should be considered; and
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    \22\ 17 CFR 230.144A.
    \23\ 17 CFR 230.144.
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    [cir] Whether there should be any relaxation in our prohibition 
against general solicitations of interest or offers in unregistered 
private offerings; and
    <bullet> Whether the review process of issuer filings under the 
Securities Act and the Exchange Act by the staff of the Division of 
Corporation Finance should be modified to limit the impact of the 
process on access to capital markets, at least for some category of 
large seasoned issuers.\24\
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    \24\ In addition, the 1996 Concept Release sought input on a 
number of items suggested for consideration by the Task Force on 
Disclosure Simplification, including the following: Allowing smaller 
issuers that have been reporting for a year to make delayed 
offerings (without altering the disclosure requirements for 
permitting forward incorporation by reference); eliminating ``at-
the-market'' offering restrictions; allowing universal shelf 
registration for secondary offerings; allowing issuers and majority-
owned subsidiaries to be named as possible issuers on a shelf 
registration (without designating the issuer until takedown); 
allowing reallocation of securities on a shelf registration 
statement by post-effective amendment; allowing registration by 
seasoned issuers without any specification of the classes 
registered; and allowing seasoned issuers to pay registration fees 
at the time of the takedown.
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    While many of the issues cited above remain valid matters for 
consideration, much of the comment in response to our 1998 proposals 
suggested that the existing system of regulating capital formation in 
the registered offering market provides a number of advantages that 
should be carefully considered and retained if we are to make other 
changes. In putting forward proposed rules today, we have focused 
primarily on constructive, incremental changes in our regulatory 
structure and the offering process rather than the introduction of a 
far-reaching new system, as we believe that we can best achieve further 
integration of Securities Act and Exchange Act disclosure and processes 
by making adjustments in the current integrated disclosure and shelf 
registration systems. Further, consistent with our belief that 
investors and the securities markets will benefit from greater 
permissible communications by issuers while retaining appropriate 
liability for these communications, we have sought to address the need 
for timeliness of information for investors by building on current 
rules and processes without mandating delays in the offering process 
that we believe would be inconsistent with the needs of issuers for 
timely access to the securities markets and capital.
    We are proposing revisions to the registration, communications, and 
offering processes under the Securities Act that we believe, while 
limited in scope, properly address the areas that are in need of 
modernization. Our proposals involve three main areas:
    <bullet> Communications related to registered securities offerings;
    <bullet> Registration and other procedures in the offering and 
capital formation processes; and

[[Page 67395]]

    <bullet> Delivery of information to investors, including delivery 
through access and notice, and timeliness of that delivery.\25\
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    \25\ While we continue to consider possible modifications to our 
regulatory framework regarding private offerings and the 
relationship between the public and private offering processes, we 
do not address these areas in today's proposals.
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    Today's proposals reflect our view that revisions to the Securities 
Act registration and offering processes are appropriate in light of 
significant developments in the offering and capital formation 
processes and can provide enhanced protection of investors under the 
statute. This view is based on our belief that today's proposals would:
    <bullet> Facilitate greater availability of information to 
investors and the market with regard to all issuers;
    <bullet> Eliminate barriers to open communications that have been 
made increasingly outmoded by technological advances;
    <bullet> Reflect the increased importance of electronic 
dissemination of information, including the use of the Internet;
    <bullet> Make the capital formation process more efficient; and
    <bullet> Define more clearly both the information and the 
timeliness of the availability of information against which a seller's 
statements are evaluated for liability purposes.

B. Background

1. Advances in Technology
    Significant technological advances over the last three decades have 
increased both the market's demand for more timely corporate disclosure 
and the ability of issuers to capture, process, and disseminate this 
information. Computers, sophisticated financial software, electronic 
mail, teleconferencing, videoconferencing, webcasting, and other 
technologies available today have replaced, to a large extent, paper, 
pencils, typewriters, adding machines, carbon paper, paper mail, 
travel, and face-to-face meetings relied on previously. Our evaluation 
of the securities offering process and procedural enhancements seeks to 
recognize the integral role that technology plays in timely informing 
the markets and investors about important corporate information and 
developments.
2. Exchange Act Reporting Standards
    A necessary starting point in considering reforms to the securities 
offering process is the role that a public issuer's Exchange Act 
reports play in investment decision making. Congress recognized that 
the ongoing dissemination of accurate information by issuers about 
themselves and their securities is essential to the effective operation 
of the trading markets. The Exchange Act and underlying rules have 
established a system of continuing disclosure about issuers that have 
offered securities to the public, or that have securities that are 
listed on a national securities exchange or are broadly held by the 
public. The Exchange Act rules require public issuers to make periodic 
disclosures at annual and quarterly intervals, with other important 
information reported on a more current basis. The Exchange Act 
specifically provides for current disclosure to maintain the timeliness 
and adequacy of information disclosed by issuers, and we have 
significantly expanded our current disclosure requirement consistent 
with the mandate in the Sarbanes-Oxley Act of 2002 \26\ that ``[e]ach 
issuer reporting under Section 13(a) or 15(d) * * * disclose to the 
public on a rapid and current basis such additional information 
concerning material changes in the financial condition or operations of 
the issuer * * * as the Commission determines * * * is necessary or 
useful for the protection of investors and in the public interest.'' 
\27\
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    \26\ Pub. L. 107-204, 116 Stat. 745 (2002).
    \27\ See Section 409 of the Sarbanes-Oxley Act which added 
Section 13(l) to the Exchange Act (15 U.S.C. 78m(l). See also 
Additional Form 8-K Disclosure Requirements and Acceleration of 
Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69 FR 15594] and 
Additional Form 8-K Disclosure Requirements and Acceleration of 
Filing Date; Correction, Release No. 33-8400A (Aug. 4, 2004) [69 FR 
48370] (``Form 8-K Releases'').
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    A public issuer's Exchange Act record provides the basic source of 
information to the market and to potential purchasers regarding the 
issuer, its management, its business, its financial condition, and its 
prospects. Because an issuer's Exchange Act reports and other publicly 
available information form the basis for the market's evaluation of the 
issuer and the pricing of its securities, investors in the secondary 
market use that information in making their investment decisions. 
Similarly, during a securities offering in which an issuer uses a 
short-form registration statement, an issuer's Exchange Act record 
often is the largest part of the information about the issuer in the 
registration statement.
    With the enactment of the Sarbanes-Oxley Act and our recent 
rulemaking and interpretive actions, we have enhanced significantly the 
amount of disclosure included in issuers' Exchange Act filings and 
accelerated the filing deadlines for many issuers. The following are 
examples of recent regulatory actions that have improved the delivery 
of timely, high-quality information to the securities markets by 
issuers under the Exchange Act:
    <bullet> Requiring the establishment of disclosure controls and 
procedures; \28\
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    \28\ See Certification of Disclosure in Companies'' Quarterly 
and Annual Reports, Release No. 33-8124 (Aug. 28, 2002) [67 FR 
57276] (``Certification Release'').
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    <bullet> Requiring a public issuer's top management to certify the 
content of periodic reports and highlight their responsibilities for 
and evaluation of the issuer's disclosure controls and procedures and 
internal control over financial reporting; \29\
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    \29\ See Management's Report on Internal Control Over Financial 
Reporting and Certification of Disclosure in Exchange Act Periodic 
Reports, Release No. 33-8238 (June 5, 2003) [68 FR 36636]; 
Certification Release note 28.
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    <bullet> Modifying the approach to current disclosure by increasing 
significantly the types of events that must be reported on a current 
basis and shortening the time for filing current reports; \30\
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    \30\ See Form 8-K Releases note 27.
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    <bullet> Shortening the timeframe for filing annual reports and 
quarterly reports by accelerated filers; \31\
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    \31\ See Acceleration of Periodic Report Filing Dates and 
Disclosure Concerning Web Site Access to Reports, Release No. 33-
8128 (Sept. 5, 2002) [67 FR 58480].
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    <bullet> Approving listing standard changes intended to improve 
corporate governance and enhance the role of the audit committee of the 
issuer's board of directors with regard to financial reporting and 
auditor independence; \32\ and
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    \32\ See Standards Relating to Listed Company Audit Committees, 
Release No. 33-8220 (Apr. 9, 2003) [68 FR 18788].
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    <bullet> Providing further interpretive guidance regarding the 
content and understandability of Management's Discussion and Analysis 
of Financial Condition and Results of Operations (MD&A) `` a disclosure 
item we believe is at the core of a reporting issuer's periodic 
reports.\33\
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    \33\ See Commission Guidance Regarding Management's Discussion 
and Analysis of Financial Condition and Results of Operations, 
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056] (the ``2003 MD&A 
Release'').
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    Many of the recent changes to the Exchange Act reporting framework 
provide greater structure and rigor to the process that issuers must 
follow in preparing their financial statements and Exchange Act 
reports. Senior management must now certify the material adequacy of 
the content of periodic Exchange Act reports. Moreover, issuers, with 
the involvement of senior management, now must implement and evaluate 
disclosure controls and procedures and internal controls over financial 
reporting.

[[Page 67396]]

Further, we believe the heightened role of an issuer's board of 
directors and its audit committee will instill greater confidence in 
the integrity of the contents of an issuer's Exchange Act reports.
    The 1996 Concept Release and the 1998 proposals considered the role 
of enhanced Exchange Act reporting as an important corollary to reform 
of the offering process under the Securities Act.\34\ We believe that 
the enhancements to Exchange Act reporting described above enable us to 
rely on these reports to a greater degree as a cornerstone of our 
proposals to reform the securities offering process.
---------------------------------------------------------------------------

    \34\ Enhanced Exchange Act reporting was also central to the 
recommendations of the Advisory Committee. See note 20.
---------------------------------------------------------------------------

II. Well-Known Seasoned Issuers; Other Categories of Issuers

A. Well-Known Seasoned Issuers

    Our proposals today modify the framework for communications in 
connection with public offerings for all issuers and the framework of 
the registration process for most issuers that report under the 
Exchange Act. However, we believe that the most far-reaching revisions 
of our communications rules and registration processes should be 
considered for issuers that have a reporting history under the Exchange 
Act and are presumptively the most widely followed in the 
marketplace.\35\ We believe that these issuers have an Exchange Act 
record, a broad following of their Exchange Act filings, and the 
contemplated attention directed to their Exchange Act reports by the 
staff of the Division of Corporation Finance that will produce the 
greatest likelihood of Exchange Act reports that not only are reliable 
but also are broadly scrutinized by investors and the markets.
---------------------------------------------------------------------------

    \35\ Our proposals would provide a class of well-known seasoned 
issuers greater flexibility in registering their securities 
offerings under a more streamlined registration process known as 
automatic shelf registration. Under the automatic shelf registration 
process, eligible well-known seasoned issuers could register, on a 
more flexible basis than is currently the case, offerings of 
different types of securities using Form S-3 or Form F-3 
registration statements that are effective upon filing. See 
discussion in Section V.B.2. below under ``Automatic Shelf 
Registration for Well-Known Seasoned Issuers.''
---------------------------------------------------------------------------

    Today, the largest issuers are followed by sophisticated 
institutional and retail investors, members of the financial press, and 
numerous sell-side and buy-side analysts that actively seek new 
information on a continual basis. Unlike smaller or less mature 
issuers, large, seasoned public issuers tend to have a more regular 
dialogue with investors and market participants through the press and 
other media. The communications of these well-known seasoned issuers 
are subject to scrutiny by investors, the financial press, analysts, 
and others who evaluate disclosure when it is made.
    We therefore propose to add a new category of issuer `` a ``well-
known seasoned issuer'' `` that has these characteristics and would be 
permitted to benefit to the greatest degree from proposed modifications 
to our rules regarding communications and the registration 
processes.\36\ We are proposing to define a well-known seasoned issuer 
as an issuer that is required to file reports pursuant to Section 13(a) 
or Section 15(d) the Exchange Act and satisfies the following 
requirements: \37\
---------------------------------------------------------------------------

    \36\ Our proposals would not change the existing eligibility 
standards for the use of Form S-3 and Form F-3.
    \37\ See proposed amendments to Securities Act Rule 405. As 
later discussed, an issuer that files Exchange Act reports 
voluntarily would not be a well-known seasoned issuer or a seasoned 
issuer. Rather, those voluntary filers would be considered 
unseasoned issuers for purposes of our proposals. In addition, 
asset-backed issuers would not be well-known seasoned issuers.
---------------------------------------------------------------------------

    <bullet> The issuer must be current in its reporting obligations 
under the Exchange Act and timely in satisfying those obligations for 
the preceding 12 calendar months;
    <bullet> The issuer must be eligible to register a primary offering 
of its securities on Form S-3 or Form F-3;
    <bullet> The issuer either:
    <bullet> Must have outstanding a minimum $700 million of common 
equity market capitalization held by non-affiliates; or
    <bullet> Must have issued $1 billion aggregate amount of debt 
securities in registered offerings during the past three years and 
register only debt securities; and
    <bullet> Neither the offering nor the issuer may be of a type that 
falls within the category of ineligible issuers or offerings.\38\
---------------------------------------------------------------------------

    \38\ See proposed definition of ``ineligible issuers'' in 
Securities Act Rule 405 as discussed in Section III.D.3 below under 
``Ineligible Issuers.''
---------------------------------------------------------------------------

    A majority-owned subsidiary of a well-known seasoned issuer also 
may be considered a well-known seasoned issuer in connection with the 
offer and sale of its own securities if:
    <bullet> The majority-owned subsidiary itself meets the conditions 
for eligibility;
    <bullet> A parent of the majority-owned subsidiary is a well-known 
seasoned issuer and fully and unconditionally guarantees the 
subsidiary's non-convertible obligations; \39\
---------------------------------------------------------------------------

    \39\ Whether a guarantee is full and unconditional would be 
analyzed under the same principles as those used under Rule 3-10 of 
Regulation S-X [17 CFR 210.3-10] and Exchange Act Rule 12h-5 [17 CFR 
240.12h-5]. In addition, the guarantee may only be of an obligation 
that has a limited duration and is not perpetual. This analysis is 
not different from the current analysis under Form S-3 or Form F-3.
---------------------------------------------------------------------------

    <bullet> The majority-owned subsidiary guarantees the obligations 
of (1) its parent or (2) another majority-owned subsidiary where there 
is also a full and unconditional guarantee of the same obligation by a 
parent that is a well-known seasoned issuer and the obligations are 
non-convertible; or
    <bullet> The majority-owned subsidiary's non-convertible 
obligations are fully and unconditionally guaranteed by another 
majority-owned subsidiary that itself is a well-known seasoned 
issuer.\40\
---------------------------------------------------------------------------

    \40\ See proposed amendment to Securities Act Rule 405.
---------------------------------------------------------------------------

    Whether an issuer satisfies the requirements for current and timely 
filing of Exchange Act reports and the general eligibility requirements 
of Form S-3 or F-3 would be determined at the time of filing of its 
registration statement and, thereafter, at the time of the update of 
that registration statement required by Securities Act Section 
10(a)(3).\41\ For purposes of determining their status as well-known 
seasoned issuers, issuers would measure their non-affiliate equity 
market capitalization, or ``public float'', and the aggregate amount of 
their debt issuances as of the last business day of their most recently 
completed second fiscal quarter prior to the date of filing the Form 
10-K or Form 20-F.\42\
---------------------------------------------------------------------------

    \41\ The Section 10(a)(3) update generally occurs when the 
issuer files its Form 10-K containing the issuer's audited financial 
statements for its most recently completed fiscal year. See 15 
U.S.C. 77j(a)(3).
    \42\ Form 10-K and Form 20-F currently require that the 
aggregate market value of the voting and non-voting common equity 
held by non-affiliates be computed as of the last business day of 
the registrant's most recently completed second fiscal quarter. This 
is the same date as when issuers would determine their non-affiliate 
equity market capitalization for assessing their status as 
``accelerated filers'' under Rule 12b-2 [17 CFR 240.12b-2]. This is 
different than the non-affiliate equity market capitalization used 
in determining eligibility to use Form S-3 and Form F-3 for primary 
offerings in reliance on General Instruction I.B.1 of Form S-3 or 
Form F-3 that is computed as of a day within 60 days of the date of 
filing (or the date of the Section 10(a)(3) update to the 
registration statement). We believe it is appropriate to use the 
same computation for purposes of eligibility as a well-known 
seasoned issuer.
---------------------------------------------------------------------------

    We believe that the public float of a reporting issuer can be used 
as a proxy for whether the issuer has a demonstrated market 
following.\43\ The threshold we propose is that an issuer have a public 
float of $700 million or

[[Page 67397]]

more. We have used market capitalization as a proxy for public float in 
evaluating this threshold and its implications.
---------------------------------------------------------------------------

    \43\ Public float is also one of the key determinants for 
eligibility for current short-form registration on Forms S-3 and F-
3.
---------------------------------------------------------------------------

    To evaluate the implications of a $700 million public float 
threshold, staff in our Office of Economic Analysis (``OEA'') obtained 
data on the 9690 registered offerings that were conducted during 1997-
2003 by 2784 issuers that had public equity outstanding and were listed 
on a major exchange or equity market.\44\ Of these offerings, 6998 were 
debt offerings that raised proceeds of $1272 billion, and 2692 were 
equity offerings that raised proceeds of $477 billion. The average 
issuer conducted 3.8 debt offerings and 1.1 equity offerings per 
calendar year, although as many as 157 debt offerings have been 
conducted by a single issuer within a calendar year.
---------------------------------------------------------------------------

    \44\ OEA compiled and analyzed the supporting data for the 
public float (using market capitalization) and outstanding debt 
thresholds.
---------------------------------------------------------------------------

    OEA also analyzed data on the financial market conditions under 
which these offerings were made. High levels of analyst coverage, 
institutional ownership, and trading volume are useful indicators of 
the scrutiny that an issuer receives from the market, although no one 
statistic can fully capture the extent to which an issuer is well-
followed by the market.\45\ Issuers with market capitalization in 
excess of $700 million that conducted offerings in 1997-2003 typically 
have had an average of 10 analysts following them prior to the 
offering.\46\ This includes only sell-side analysts and is, we believe, 
a conservative indicator of analyst scrutiny. Institutional investors 
accounted for an average of 56% of equity ownership prior to offerings 
by issuers with market capitalization above $700 million. Those issuers 
had an average daily trading volume of nearly $25 million prior to 
offerings in this period and accounted for the following percentages of 
capital raised:
---------------------------------------------------------------------------

    \45\ See e.g., Harrison Hong, Terrence Lim and Jeremy C. Stein, 
Bad News Travels Slowly: Size, Analyst Coverage and the 
Profitability of Momentum Strategies, 55 Journal of Finance 265 
(2000); Robert C. Merton, A Simple Model of Capital Market 
Equilibrium with Incomplete Information, 42 Journal of Finance 483 
(1987).
    \46\ Issuers with a market capitalization of between $75 million 
and $200 million, in most cases, have between zero to four analysts 
following them with approximately 50% having zero to one analysts 
following them. These issuers, therefore, have significantly less 
analyst coverage than well-known seasoned issuers.

 Offering Proceeds, by Issuer Capitalization Primary Seasoned Offerings,
                               1997-2003*
    [$Billions (%) proceeds from offerings, by issuer capitalization]
------------------------------------------------------------------------
                                       Market capitalization of issuers
------------------------------------------------------------------------
                                                            >$0 (All
                                           >$700mm          issuers)
------------------------------------------------------------------------
Equity..............................        $373 (78%)       $477 (100%)
Debt................................        1232 (97%)       1272 (100%)
                                     -------------------
    Total...........................        1606 (92%)      1749 (100%)
------------------------------------------------------------------------
* Source: Office of Economic Analysis estimates using Center for
  Research in Securities Prices at the University of Chicago (``CRSP'')
  and Securities Data Corporation (``SDC'') data. The issuers in this
  table do not reflect issuers meeting the well-known seasoned issuer
  threshold based on the $1 billion threshold discussed below.

    Issuers that do not meet the public equity float test would be 
considered well-known seasoned issuers solely for purposes of debt 
offerings if they have sold more than an aggregate of $1 billion in 
debt through registered offerings over the prior three years. These 
issuers also would have to satisfy the other conditions of the well-
known seasoned issuer definition, such as the reporting history 
requirement.\47\
---------------------------------------------------------------------------

    \47\ These issuers would only be eligible to register non-
convertible obligations on an automatic shelf registration 
statement. See discussion in Section V.B.2 below under ``Automatic 
Shelf Registration for Well-Known Seasoned Issuers.''
---------------------------------------------------------------------------

    We have chosen the $1 billion threshold for issuers of public debt 
based on an evaluation of statistics on issuers that do not have public 
equity outstanding. The relevant statistics for these issuers are 
different from those for issuers that have securities traded on major 
equity markets.
    The issuers of debt that meet the $1 billion threshold account for 
23% of the issuers that issued public debt during the period 1997-2003. 
These issuers account for 72% of debt issued during the same period. 
None of these issuers' debt offerings were rated below investment 
grade, and 84% of their debt offerings were rated A or higher by a 
nationally recognized security rating organization, an NRSRO. This 
group of issuers also on average had 44 basis points lower yield spread 
for their issues relative to issuers that had not issued any debt in 
the past three years. We believe that this lower yield spread reflects 
lower default risk (higher ratings) and higher liquidity and 
transparency of the issuers.\48\
---------------------------------------------------------------------------

    \48\ See Gordon J. Alexander, William F. Sharpe, and Jeffrey V. 
Bailey, Fundamentals of Investments (2001 ed.) at 530.
---------------------------------------------------------------------------

    Overall, the issuers that would meet our proposed thresholds for 
well-known seasoned issuers are thus the most active issuers in the 
U.S. public capital markets. In 2003, those issuers, which represented 
approximately 30% of listed issuers, accounted for about 95% of U.S. 
equity market capitalization. They have accounted for 87% of the total 
debt raised in registered offerings over the past seven years. These 
issuers accordingly represent the most significant amount of capital 
raised and traded in the U.S. As a result of the active participation 
of these issuers in the markets and, among other things, the wide 
following of these issuers by market participants, the media, and 
institutional investors, we believe that it is appropriate to provide 
greater communications and registration flexibilities to these well-
known seasoned issuers beyond that provided to other issuers, including 
other seasoned issuers.

B. Other Categories of Issuers

    We also would use existing categories of issuers, including 
seasoned issuers, unseasoned Exchange Act reporting issuers, and non-
reporting issuers, in our proposals, discussed below, regarding 
communications and the registration process. A seasoned issuer would be 
an issuer that is eligible to use Form S-3 or Form F-3 to register 
primary offerings of securities--securities to be sold by or on its 
behalf, on behalf of its subsidiary, or on behalf of a person of which 
it is the subsidiary.\49\ Majority-owned subsidiaries eligible to use 
Form S-3 or Form F-3 for offerings of their securities

[[Page 67398]]

also would be considered seasoned issuers.\50\
---------------------------------------------------------------------------

    \49\ Eligibility to register primary offerings of securities on 
Form S-3 or Form F-3 is based on public float or issuance of 
investment grade securities. See General Instruction I.B.1 and I.B.2 
to Form S-3 and Form F-3.
    \50\ We propose to expand the majority-owned subsidiary 
eligibility in Form S-3 and Form F-3 to allow majority-owned 
subsidiaries to use the forms under the same circumstances in which 
majority-owned subsidiaries would be well-known seasoned issuers. 
For example, see General Instruction I.C. to Form S-3.
---------------------------------------------------------------------------

    An unseasoned issuer would be an issuer that is required to file 
reports pursuant to Section 13 or Section 15(d) of the Exchange Act, 
but does not satisfy the requirements of Form S-3 or Form F-3 for a 
primary offering of its securities. Under the proposal, an issuer that 
is filing Exchange Act reports voluntarily would be treated as a 
reporting unseasoned issuer. A non-reporting issuer would be an issuer 
that is not required to file reports pursuant to Section 13 or Section 
15(d) of the Exchange Act and is not filing such reports voluntarily.

Request for Comment

    <bullet> Should we raise the proposed public float test of $700 
million (e.g., to $800 million)? If so, why?
    <bullet> Alternatively, should we lower the public float test 
(e.g., to $500 million, $400 million, or $300 million)? If so, why? If 
we were to lower the threshold, how can we ensure that the issuers 
meeting that threshold would be sufficiently well followed? If we were 
to lower the threshold, what other characteristics not present in 
issuers with a lower public float would need to be present to ensure 
that an issuer would be well followed?
    <bullet> Is a public float threshold the proper standard, or should 
we use another standard, such as percentage of institutional ownership, 
average daily trading volume, asset size, or any combination of these? 
If so, how would the standard compare to the public float threshold and 
how could it be readily determined and verified?
    <bullet> Should we use the same public float calculation as we use 
for purposes of the cover page of the Form 10-K and Form 20-F? Would 
another calculation date for the public float be more appropriate? Is 
there another readily available information source for public floats of 
issuers that provides the information other than annually?
    <bullet> Should we have a requirement for the staff to evaluate the 
eligibility thresholds for well-known seasoned issuers on a periodic 
basis? If so, how often should we evaluate the thresholds and what 
factors should we consider? Alternatively, should the definition 
provide for automatic adjustments in the public float and aggregate 
debt requirement based on factors such as, for example, analyst 
coverage, institutional ownership, or average daily trading volume for 
equity, or changes in debt rating for debt issuers? If yes, how often 
should adjustments occur, what factors should trigger an adjustment, 
and why?
    <bullet> Should eligibility to use the proposals available to well-
known seasoned issuers be calculated on the basis of trading conducted 
on any national securities exchange, any particular national securities 
exchange, the Nasdaq Stock Market, or any particular portion of the 
Nasdaq Stock Market (e.g., the National Market System or the SmallCap 
Market)? If yes, should there be any limitation on the trading location 
or platform?
    <bullet> Besides the amount of registered debt sold by the issuer 
over a three-year period, are there any other bases upon which to 
determine that issuers eligible based on debt issuances are well-known 
seasoned issuers? Should investment grade debt ratings be part of the 
basis for eligibility?
    <bullet> Is the eligibility threshold of $1 billion of registered 
debt over the prior three years the appropriate threshold? If not, 
should the threshold be higher? Should it be lower?
    <bullet> Should an issuer be eligible to be a well-known seasoned 
issuer based on debt issuances if it has both publicly held debt and 
equity securities?
    <bullet> Should offering participants be required to recalculate an 
issuer's eligibility at the time of use of a free writing prospectus or 
should the eligibility determination be done once a year for all 
purposes?
    <bullet> Should we permit majority-owned subsidiaries to be 
considered well-known seasoned issuers under the proposed tests? Should 
we limit the definition only to wholly-owned subsidiaries? We are 
proposing conforming changes to Forms S-3 and F-3. Is this appropriate 
or necessary?
    <bullet> Our proposed $700 million public float requirement is 
higher than the current $75 million public float level generally 
required for short-form and delayed shelf registration. The public 
float threshold for short-form and delayed shelf registration has not 
been revised since 1992.\51\ While our proposals do not alter that 
public float threshold for short-form registration, should that 
threshold be revised upward in light of the length of time since it was 
last revised, the changes that have occurred in the markets since then, 
and the underlying rationale that the firms eligible to use short form 
registration should be sufficiently well-followed? If so, what 
threshold would be appropriate? Provide empirical data supporting any 
proposed threshold.
---------------------------------------------------------------------------

    \51\ See Simplification of Registration Procedures for Primary 
Securities Offerings, Release No. 33-6943 (July 16, 1992) [57 FR 
32461].
---------------------------------------------------------------------------

    <bullet> One disqualification from an issuer being considered a 
well-known seasoned issuers is that it is an ``ineligible issuer'', as 
we propose to define that term. Should well-known seasoned issuers, who 
otherwise satisfy the eligibility conditions, be disqualified from 
being a well-known seasoned issuer for all purposes of our proposals if 
it is an ineligible issuer under the definition? If not, why not?
    <bullet> Do the categories of seasoned, unseasoned, and non-
reporting issuers appropriately describe the issuers that fall into 
these categories? If not, why not and what would be a more appropriate 
categorization?

III. Communications Proposals

A. Current Communications Requirements

    The Securities Act restricts the types of offering communications 
that an issuer or other parties subject to the Act's provisions (such 
as underwriters) may use during a registered public offering. The 
nature of the restrictions depends on the period during which the 
communications are to occur. The restrictions do not depend on the 
accuracy of the information contained in the communication. Before the 
registration statement is filed, all offers, in whatever form, are 
prohibited.\52\ Between the filing of the registration statement and 
its effectiveness, offers made in writing (including by e-mail or 
Internet), by radio, or by television are limited to a ``statutory 
prospectus'' that conforms to the information requirements of 
Securities Act Section 10.\53\ As a result, the only written material 
that is permitted in connection with the offering of the securities 
during the period between filing and

[[Page 67399]]

effectiveness of a registration statement is a preliminary prospectus 
meeting the requirements of Section 10, which must be filed with the 
Commission. Even after the registration statement is declared 
effective, offering participants may still make written offers only 
through a statutory prospectus, except that they may use additional 
written offering materials if a final prospectus that meets the 
requirements of Securities Act Section 10(a) is sent or given prior to 
or with those materials.\54\ Violations of these restrictions are often 
generally referred to as ``gun-jumping'', and we use the term ``gun-
jumping provisions'' to describe the statutory provisions of the 
Securities Act that set forth these restrictions.
---------------------------------------------------------------------------

    \52\ See Securities Act Section 5(c) [15 U.S.C. 77e(c)]. 
Securities Act Section 2(a)(3) [15 U.S.C. 77b(a)(3)] defines 
``offer'' as any attempt or offer to dispose of, or solicitation of 
an offer to buy, a security or interest in a security, for value. 
The term ``offer'' has been interpreted broadly and goes beyond the 
common law concept of an offer. See Diskin v. Lomasney & Co., 452 
F.2d 871 (2d. Cir. 1971); SEC v. Cavanaugh, 1 F. Supp. 2d 337 
(S.D.N.Y. 1998). The Commission has explained that ``the publication 
of information and publicity efforts, made in advance of a proposed 
financing which have the effect of conditioning the public mind or 
arousing public interest in the issuer or in its securities 
constitutes an offer * * *'' Guidelines for the Release of 
Information by Issuers Whose Securities are in Registration, Release 
No. 33-5180 (Aug. 16, 1971) [36 FR 16506].
    \53\ See Securities Act Section 5(b)(1) [15 U.S.C. 77e(b)(1)] 
and Securities Act Section 10 [15 U.S.C.77j].
    \54\ See Securities Act Section 2(a)(10) [15 U.S.C. 77b(a)(10)] 
and Section 5(b)(1).
---------------------------------------------------------------------------

B. Need for Modernization of Communications Requirements

1. General
    The gun-jumping provisions of the Securities Act were enacted at a 
time when the means of communications were limited and restricting 
communications (without regard to accuracy) to the statutory prospectus 
appropriately balanced available communications and investor 
protection. They were designed to make the statutorily mandated 
prospectus the primary means for investors to obtain information 
regarding a registered securities offering. The capital markets, in the 
United States and around the world, have changed significantly since 
those limitations were enacted. Today, issuers engage in all types of 
communications on an ongoing basis, including, importantly, 
communications mandated or encouraged by our rules under the Exchange 
Act. Modern communications technology, including the Internet, provides 
a powerful, versatile, and cost-effective medium to communicate quickly 
and broadly.\55\ The changes in the Exchange Act disclosure regime and 
the tremendous growth in communications technology are resulting in 
more information being provided to the market on a more non-
discriminatory, current and ongoing basis. Thus, while the investor 
protection concerns remain, the gun-jumping provisions of the 
Securities Act impose substantial and increasingly unworkable 
restrictions on communications that would be beneficial to investors 
and markets and consistent with investor protection.
---------------------------------------------------------------------------

    \55\ For example, the Internet provides a medium through which 
to deliver electronic documents, to broadcast radio and television 
programs, to issue press releases or print advertisements, to 
conduct telephone or videoconferences with investors, prospective 
investors, and other parties, and to send personal e-mails.
---------------------------------------------------------------------------

    The following factors, combined with the advances in technology 
described above, lead us to believe that investors and the market would 
benefit from access to greater permissible communications where 
protection for investors in connection with these communications is 
retained through the appropriate liability standards under the 
Securities Act for materially deficient disclosures in prospectuses and 
oral communications:
    <bullet> Much of our recent rulemaking is intended to encourage 
reporting issuers to provide additional materially accurate and 
complete information to the market on a more current basis.\56\ The 
Securities Act's constraints on communications during an offering have, 
however, caused issuers to be concerned about the treatment of their 
ongoing communications and whether, if they are engaged, or will soon 
be engaged, in capital raising, their customary disclosures will be 
considered an impermissible offer of securities; \57\
---------------------------------------------------------------------------

    \56\ Other recent rulemaking initiatives addressing disclosure 
issues include those referenced in notes 27 through 33 and those 
contained in Disclosure Regarding Nominating Committee Functions and 
Communications Between Security Holders and Boards of Directors, 
Release No. 33-8340 (Nov. 24, 2003) [68 FR 66992]; and Disclosure in 
Management's Discussion and Analysis About Off-Balance Sheet 
Arrangements and Aggregate Contractual Obligations, Release No. 34-
47264 (Jan. 28, 2003) [68 FR 5982] (the ``Off-Balance Sheet 
Disclosure Release'').
    \57\ See, e.g. letter from the American Bar Association 
Committee on Federal Regulation of Securities to the Director of the 
Division of Corporation Finance, Aug. 22, 2001 (available at 
www.abanet.org); comment letters in File No. S7-30-98 from Gerald S. 
Backman, et al.; Fried Frank Harris Shriver & Jacobson (``Fried 
Frank''); Service Employees International Union; and Sullivan & 
Cromwell. See also Edward F. Greene and Linda C. Quinn, ``Building 
on the International Convergence of the Global Markets: a Model for 
Securities Law Reform,'' presented at A Major Issues Conference: 
Securities Regulation in the Global Internet Economy, Washington, 
DC, Nov. 14-15, 2001 (available at www.law.northwestern.edu).
---------------------------------------------------------------------------

    <bullet> The multiplicity of means of communication has led us to 
recognize that restricting written offers to a statutory prospectus 
inhibits desirable methods of timely communication of information;
    <bullet> There are many more offerings of increasingly complex 
securities where written communications, such as term sheets, would 
enhance significantly the offering process for the benefit of 
investors; \58\ and
---------------------------------------------------------------------------

    \58\ The staff and the Commission have recognized the usefulness 
of term sheets in some structured finance offerings. See, e.g., 
Staff no-action letters to Greenwood Trust Co., Discover Master Card 
Trust I (Apr. 5, 1996); Public Securities Ass'n (Mar. 9, 1995); 
Public Securities Ass'n (Feb. 17, 1995); Public Securities Ass'n 
(May 27, 1994); and Kidder Peabody Acceptance Corporation I (May 20, 
1994). See also, Asset-Backed Securities, Release No. 33-8419 (May 
3, 2004) (the ``Asset-Backed Securities Proposing Release''); and 
Securities Act Rule 434 (17 CFR 230.434).
---------------------------------------------------------------------------

    <bullet> The continuing trends towards globalization of securities 
markets and multinationalization of issuers and offerings increase the 
need for a regulatory framework that accommodates more flexible 
communications.
    When we first proposed a broad relaxation of the gun-jumping 
provisions during an offering in 1998, the majority of commenters 
favored the proposals.\59\ Commenters raised concerns regarding certain 
other elements of those proposals, however, and we did not go forward 
with those proposals. In view of the many recent changes to the 
Exchange Act reporting system that are designed to produce more timely 
and extensive disclosures and greater scrutiny of, and confidence in, 
those reports, it is appropriate at this time to revisit the concept of 
communications and offering reforms.\60\
---------------------------------------------------------------------------

    \59\ Commenters on the 1998 proposals suggested that both 
investors and sellers would benefit from loosened restrictions on 
communications prior to and during an offering, as sellers would be 
able to use a variety of sales documents and investors would get 
more timely access to information. See, e.g., comment letters in 
File No. S7-30-98 from the American Bar Association (``ABA''); 
American College of Investment Counsel (``ACIC''); American 
Corporate Counsel Association (``ACCA''); Business Roundtable; 
Merrill Lynch; and Sullivan & Cromwell.
    \60\ We have been considering communications reform in other 
contexts for a number of years. We have recently proposed 
communications reforms for asset-backed offerings, as well. See the 
Asset-Backed Securities Proposing Release, note 58. With our 
adoption of the communications reforms for business combinations in 
1999, we reduced the regulation of offers and brought the regulatory 
structure closer to the practices in those offerings while ensuring 
continued investor protection. See Regulation of Takeovers and 
Security Holder Communications, Release No. 33-7760 (Oct. 22, 1999) 
[64 FR 61408] (the ``Regulation M-A Release'').
---------------------------------------------------------------------------

2. Definition of Written Communication
    As a starting point for reform, we propose to define all methods of 
communication, other than oral communications, as written 
communications for purposes of the Securities Act. While we have 
addressed the issue of electronic communications in a number of 
different contexts, at this time we are proposing a rule making it 
clear that all electronic communications (other than telephone as noted 
below) are graphic and, therefore, written communications for purposes 
of the Securities Act. In this manner, we intend to encompass new 
technologies without needing to revisit our rules in the future.

[[Page 67400]]

Accordingly, we are proposing new definitions of ``written 
communication'' and ``graphic communication'' to ensure consistent 
understanding of what constitutes such a communication in view of the 
technological developments since the enactment of the Securities Act 
and to eliminate any remaining uncertainty regarding the permitted 
means for delivery of information under the Securities Act.
    Under the proposals, ``written communication'' would mean any 
communication that is written, printed, broadcast, or a graphic 
communication. The definition would not cover oral communications, such 
as live telephone calls (whatever the medium by which they are carried, 
including the Internet) \61\ and other direct oral communications.
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    \61\ Written communications would not include individual 
telephone voice mail messages but would include broadly disseminated 
or ``blast'' voice mail messages. The latter would be included in 
the definition because we believe they are more like broadcasts than 
oral communications.
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    We are proposing to amend the definition of ``graphic 
communication'' contained in Securities Act Rule 405 to provide that it 
includes any form of electronic media, such as audiotapes, videotapes, 
facsimiles, CD-ROM, electronic mail, Internet web sites, and computers, 
computer networks and other forms of computer data compilation.\62\ 
Because written communications would, therefore, include Internet 
communications, e-mails and other electronic and web-based 
communications, electronic postings on web sites--including electronic 
road shows--would be written communications within the scope of the 
definition.\63\
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    \62\ The forms of media that would be described in the proposed 
definition encompass the forms of media that are addressed in our 
interpretive guidance on the use of electronic media. In recognition 
of continuing developments in technology, the forms of electronic 
media described in the proposed definition are intended to be 
illustrative rather than exhaustive. See e.g., Use of Electronic 
Media, Release No. 33-7856 (Apr. 28, 2000) [65 FR 25843] (the``2000 
Electronics Release'').
    \63\ All electronic road shows in registered offerings would be 
considered written communications, regardless of the audience, but 
under our proposals would be permissible, subject to conditions. See 
discussion in Section III.D.3 below under ``Electronic Road Shows''.
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Request for Comment

    <bullet> Does the proposed definition of graphic communication 
provide a workable framework within which to analyze electronic 
communications?
    <bullet> Are there communications not covered by the proposed 
definitions that should be considered written or graphic? Should we 
provide that only interactive communications, such as those allowing 
face-to-face or telephonic interactions, would still be considered 
oral?
    <bullet> Although the analysis required for any particular 
communication would be fact-specific, should we provide further 
guidance or examples regarding the use of specific technologies? If so, 
which technologies should we address at this time?

C. Overview of Communications Proposals

    In this section of the release, we will discuss proposals that 
relate to the following:
    <bullet> Regularly released factual business information;
    <bullet> Regularly released forward-looking information;
    <bullet> Communications made more than 30 days before filing a 
registration statement;
    <bullet> Communications by well-known seasoned issuers during the 
30 days before filing a registration statement;
    <bullet> Written communications made in accordance with the safe 
harbor in Securities Act Rule 134; and
    <bullet> Written communications by any issuer (other than the 
statutory prospectus) after filing a registration statement.
    The following table provides a brief overview of the operation of 
these proposals. While the table clearly does not include the level of 
detail necessary to explain the proposals, we have included it to help 
readers in commenting on the proposals.

----------------------------------------------------------------------------------------------------------------
                                                                              Is it a in
                                    Could it be an          Is it a         prohibited pre-   Is it a prohibited
                                     ``offer'' as      ``prospectus'' as   filing offer for     prospectus for
                                  defined in Section  defined in Section      purposes of         purposes of
                                       2(a)(3)?            2(a)(10)?         Section 5(c)?     Section 5(b)(1)?
----------------------------------------------------------------------------------------------------------------
Regularly Released Factual        Yes...............  No................  Rule would define   Section 5(b)(1)
 Business Information.                                                     it as not an        relates only to
                                                                           offer for Section   ``prospectuses''-
                                                                           5(c) purposes.      -it would not be
                                                                                               applicable.
Regularly Released Forward-       Yes...............  No................  Rule would define   Section 5(b)(1)
 Looking Information.                                                      it as not an        relates only to
                                                                           offer for Section   ``prospectuses''-
                                                                           5(c) purposes.      -it would not be
                                                                                               applicable.
Communications Made More Than 30  Yes...............  No................  Rule would define   Section 5(b)(1)
 Days Before Filing of                                                     it as not an        does not apply in
 Registration Statement.                                                   offer for Section   the pre-filing
                                                                           5(c) purposes.      period--it would
                                                                                               not be
                                                                                               applicable.
Well-Known Seasoned Issuers--     Yes...............  No................  Would be exempted   Section 5(b)(1)
 Oral Offers Made Within 30 Days                                           from prohibition    would not be
 of Filing of Registration                                                 of Section 5(c).    applicable.
 Statement.
Well-Known Seasoned Issuers--     Yes...............  Yes...............  Would be exempted   Section 5(b)(1)
 Free Writing Prospectuses Used                                            from prohibition    does not apply in
 Before Filing of Registration                                             of Section 5(c).    the pre-filing
 Statement.                                                                                    period--it would
                                                                                               not be
                                                                                               applicable.
Identifying Statements in         Yes...............  No................  Section 5(c) is     Section 5(b)(1)
 Accordance with Rule 134.                                                 not applicable,     relates only to
                                                                           as Rule 134         ``prospectuses''-
                                                                           relates only to     -it would not be
                                                                           the period after    applicable.
                                                                           the filing of a
                                                                           registration
                                                                           statement.

[[Page 67401]]

 
All Eligible Issuers--Free        Yes...............  Yes...............  Section 5(c) would  Section 5(b)(1)
 Writing Prospectuses Used After                                           not be              would be
 Filing of Registration                                                    applicable, as it   satisfied, as the
 Statement.                                                                does not apply in   free writing
                                                                           the post-filing     prospectus would
                                                                           period.             be a permitted
                                                                                               Section 10(b)
                                                                                               prospectus.
----------------------------------------------------------------------------------------------------------------

    We are proposing communications rules that recognize the value of 
ongoing communications as well as the importance of avoiding 
unnecessary restrictions on offers during a registered offering. In 
particular, the proposals would eliminate requirements that can 
interrupt unnecessarily an issuer's normal and routine communications 
into the market while an issuer is engaging in a securities offering, 
and would enhance the ability of issuers and other offering 
participants to make written offers outside the statutory prospectus.
    Our proposals contemplate a communications framework that, in some 
cases, would operate along a spectrum based on the type of issuer, its 
reporting history, and its equity market capitalization or historical 
debt issuance. Thus, eligible well-known seasoned issuers would have 
freedom generally from the gun-jumping provisions to communicate around 
the time of a registered offering, including by means of a written 
offer other than a statutory prospectus. Varying levels of restrictions 
would apply to other categories of issuers. We believe these 
distinctions are appropriate because the market has more familiarity 
with large, more seasoned issuers and, as a result of the ongoing 
market following of their activities, including the role of market 
participants and the media, these issuers' communications would have 
less potential for conditioning the market for the issuers' securities 
to be sold in a registered offering. Disclosure obligations and 
practices outside the offering process, including under the Exchange 
Act, also determine the scope of communications flexibility the 
proposals would give to issuers and other offering participants.\64\
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    \64\ See, e.g., Regulation FD [17 CFR 243.100 et seq.], 
Regulation G [17 CFR 244.100 et seq.], and Form 8-K [17 CFR 
249.308].
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    The cumulative effect of the proposals under the gun-jumping 
provisions would be the following:
    <bullet> Well-known seasoned issuers would be permitted to engage 
at any time in oral and written communications, including use at any 
time of a free writing prospectus,\65\ subject to enumerated conditions 
(including, in specified cases, filing with the Commission).\66\
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    \65\ A ``free writing prospectus'' is proposed to be defined in 
Securities Act Rule 405. This proposed definition is discussed in 
Section III.D.3 below under ``Definition of Free Writing 
Prospectus.''
    \66\ See proposed Rule 163.
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    <bullet> All reporting issuers would, at any time, be permitted to 
continue to publish regularly released factual business information and 
forward-looking information.\67\
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    \67\ See proposed Rule 168.
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    <bullet> Non-reporting issuers would, at any time, be permitted to 
continue to publish factual business information that is regularly 
released to persons other than in their capacity as investors or 
potential investors.\68\
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    \68\ See proposed Rule 169.
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    <bullet> Communications by issuers more than 30 days before filing 
a registration statement would not be considered prohibited offers so 
long as they did not reference a securities offering.\69\
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    \69\ See proposed Rule 163A.
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    <bullet> Issuers and other offering participants would be permitted 
to use free writing prospectuses after the filing of the registration 
statement, subject to enumerated conditions (including, in specified 
cases, filing with the Commission).\70\
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    \70\ See proposed Rules 164 and 433.
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    <bullet> A broader category of routine communications regarding 
issuers, offerings, and procedural matters, such as communications 
about the schedule for an offering or about account-opening procedures, 
would be excluded from the definition of ``prospectus''.\71\
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    \71\ See proposed amendments to Securities Act Rule 134.
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    <bullet> The exemptions for research reports would be expanded.\72\
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    \72\ See proposed amendments to Securities Act Rules 137, 138, 
and 139.
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    As discussed below, a number of these new proposals would include 
conditions of eligibility. Most of the proposals, for example, would 
not be available to blank check companies, penny stock issuers, or 
shell companies.\73\
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    \73\ We recently proposed to define shell companies. See Use of 
Form S-8 and Form 8-K by Shell Companies, Release No. 33-8407 (April 
15, 2004) (the ``Shell Companies Release''). For purposes of today's 
proposals, such as proposed Rules 163A, 164, 168, 169 and amendments 
to Securities Act Rule 405, we propose using the definition of shell 
company proposed in the Shell Companies Release.
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    Commenters on the 1998 proposals were concerned that increased 
liability would diminish the utility of the proposed communications 
reform. Today's proposals would address this concern by ensuring that 
appropriate liability is maintained for the communications. For 
example, all free writing prospectuses would have liability under the 
same provisions as apply today to oral offers and statutory 
prospectuses.\74\ Written communications not constituting prospectuses 
would not be subject to disclosure liability applicable to prospectuses 
\75\ under Securities Act Section 12(a)(2). This result would not 
affect their status for liability purposes under other provisions of 
the federal securities laws, including the anti-fraud provisions.\76\
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    \74\ These liability provisions include Securities Act Section 
12(a)(2) and 17(a) [15 U.S.C. 771(a)(2) and 77q(a)], Exchange Act 
Section 10(b) [15 U.S.C. 78j(b)], and Exchange Act Rule 10b-5 [17 
CFR 240.10b-5].
    \75\ See Securities Act Section 2(a)(10).
    \76\ See, e.g., Securities Act Section 17(a), Exchange Act 
Section 10(b) and Exchange Act Rule 10b-5.
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D. Proposed Rules

1. Permitted Continuation of Ongoing Communications During an Offering
    We are proposing two separate safe harbors from the gun-jumping 
provisions for continuing ongoing business communications.\77\ The 
first safe harbor would permit a reporting issuer's continued 
publication or dissemination of regularly released factual business and 
forward-looking information at any time, including around the time of a 
registered offering.\78\ The second safe harbor would permit a non-
reporting issuer's publication or dissemination of factual business 
information that had been regularly released to persons other than

[[Page 67402]]

in their capacity as investors or potential investors.\79\
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    \77\ These safe harbor provisions would operate by excluding 
such communications from the definition of offer for purposes of 
Securities Act Sections 2(a)(10) and 5 (c). See proposed Rules 168 
and 169.
    \78\ See proposed Rule 168.
    \79\ See proposed Rule 169.
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    Investment companies registered under the Investment Company Act of 
1940 and business development companies would be ineligible to use the 
proposed safe harbors for factual business information and forward-
looking information.\80\ These issuers are subject to a separate 
framework governing communications with investors.\81\
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    \80\ Business development companies are a category of closed-end 
investment companies that are not required to register under the 
Investment Company Act. See Section 2(a)(48) of the Investment 
Company Act of 1940 [15 U.S.C. 80a-2(a)(48)] defining ``business 
development company'').
    \81\ See, e.g., Securities Act Rules 156, 482, and 498 [17 CFR 
230.156; 17 CFR 230.482; 17 CFR 230.498]; Investment Company Act 
Rule 34b-1 [17 CFR 270.34b-1].
---------------------------------------------------------------------------

a. Regularly Released Factual Business and Forward Looking 
Information--Reporting Issuers
    Our proposals applicable to reporting issuers would provide a safe 
harbor from the gun-jumping provisions for continued publication or 
dissemination of regularly released factual business and forward-
looking information. Our proposed safe harbor would apply to factual 
business and forward-looking information that has been regularly 
released in the ordinary course by or on behalf of a reporting 
issuer.\82\
---------------------------------------------------------------------------

    \82\ See proposed Rule 168.
---------------------------------------------------------------------------

i. Factual Business Information
    We believe it is important to provide certainty regarding when the 
gun-jumping provisions would be inapplicable to the continuing ongoing 
communication of factual business information. We are proposing 
Securities Act Rule 168, which would provide for such a communication a 
safe harbor from being an impermissible prospectus and from violating 
the prohibition on pre-filing offers.\83\ We want to encourage 
reporting issuers to continue to provide this information. For purposes 
of these proposals, factual business information would be defined as: 
\84\
---------------------------------------------------------------------------

    \83\ Our proposed Rule 168 would be a safe harbor from the 
definition of ``prospectus'' in Securities Act Section 2(a)(10) and 
would, therefore, prevent the application of the prohibition in 
Securities Act Section 5(b)(1) on the use of a prospectus that is 
not a statutory prospectus. The proposed Rule would also be a safe 
harbor from the prohibitions on pre-filing ``offers'' in Securities 
Act Section 5(c).
    In general, as we recognized many years ago, ordinary factual 
business communications that an issuer regularly releases are not 
considered an offer of securities. See, e.g., the guidelines 
contained in the 2000 Electronics Release note 62; Guidelines for 
the Release of Information by Issuers Whose Securities are in 
Registration, Release No. 33-5180 (Aug. 16, 1971) [36 FR 16506]; 
Publication of Information Prior to or After the Filing and 
Effective Date of a Registration Statement Under the Securities Act 
of 1933, Release No. 33-5009 (Oct. 7, 1969) [34 FR 16870]; Offers 
and Sales by Underwriters and Dealers, Release No. 33--After the 
Effective Date of a Registration Statement, Release No. 33-3844 
(Oct. 8, 1957) [22 FR 8359]. The safe harbors we are proposing 
today, if adopted, would not affect in any way the Securities Act 
analysis regarding ordinary course business communications that are 
not within the proposed safe harbors. Such communications would not 
be presumed to be offers, and whether they were offers would depend 
on the facts and circumstances.
    \84\ Regularly released factual business information would not 
include information about the registered offering or information 
released as part of the offering activities in the registered 
offering.
---------------------------------------------------------------------------

    <bullet> Factual information about the issuer or some aspect of its 
business;
    <bullet> Advertisements of, or other information about, the 
issuer's products or services;
    <bullet> Factual information about business or financial 
developments with respect to the issuer;
    <bullet> Dividend notices; and
    <bullet> Factual information set forth in the issuer's Exchange Act 
reports.\85\
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    \85\ Factual business information that reporting issuers release 
or disseminate would continue to be subject to the provisions of 
Regulation FD, Regulation G, Item 10 of Regulation S-K and 
Regulation S-B, and Item 2.02 of Form 8-K. See Regulation FD [17 CFR 
243.100 et seq.]; Regulation G [17 CFR 244.100 et seq.]; Item 10 of 
Regulation S-K and S-B [17 CFR 229.10 et seq. and 17 CFR 228.10 et 
seq.]; and Form 8-K [17 CFR 249.308]. These are essentially the same 
categories of information discussed in the releases discussed in 
note 83.
---------------------------------------------------------------------------

ii. Forward-Looking Information
    Our view of the value of forward-looking information in the market 
has evolved through the years. Through the 1970's we were most 
concerned with the potentially misleading effect that forward-looking 
information could have on investors.\86\ Beginning in the 1980's we 
have encouraged issuers to disclose forward-looking information and, in 
some situations (such as the disclosures in MD&A),\87\ required them to 
do so.\88\ The existing safe harbors for the content of forward-looking 
statements are designed to encourage the provision of forward-looking 
information.\89\
---------------------------------------------------------------------------

    \86\ Until the 1970s, the Commission prohibited disclosure of 
forward-looking information in any disclosure document. In 1979, the 
Commission adopted a safe harbor for release of forward-looking 
information. See Statement by the Commission on the Disclosure of 
Projections of Future Economic Performance, Release No. 33-5362 
(Feb. 2, 1973) [38 FR 7220]; Safe Harbor Rule for Projections, 
Release No. 33-6084 (June 25, 1979) [44 FR 38810{time} . See also, 
the Wheat Report, note 16 at 94.
    \87\ See Item 303 of Regulation S-K and Regulation S-B [17 CFR 
229.303 and 17 CFR 228.303].
    \88\ In our 2003 MD&A Release discussed at note 33, we issued 
interpretive guidance on management's discussion and analysis which 
stated:
    In addressing prospective financial condition and operating 
performance, there are circumstances, particularly regarding known 
material trends and uncertainities, where forward-looking 
information is required to be disclosed. We also encourage companies 
to discuss prospective matters and include forward-looking 
information in circumstances where that information may not be 
required, but will provide useful material information for investors 
that promotes understanding * * * [M]aterial forward-looking 
information regarding known material trends and uncertainties is 
required to be disclosed as part of the required discussion of those 
matters and the analysis of their effects. In addition, forward-
looking information is required in connection with the disclosure in 
MD&A regarding off-balance sheet arrangements.
    \89\ See Securities Act Section 27A [15 U.S.C. 77z-2] and 
Securities Act Rule 175 [17 CFR 230.175]. Section 27A provides a 
safe harbor for certain forward-looking statements. See also, the 
Off-Balance Sheet Disclosure Release at note 56 (stating that any 
forward-looking information required pursuant to the off-balance 
sheet arrangement disclosure in Items 303(a)(4) and (a)(5) of 
Regulation S-K and Regulation S-B would be subject to the statutory 
safe harbor contained in Sections 27A of the Securities Act and 21E 
of the Exchange Act [15 U.S.C. 78u-5]). Rule 175 provides a limited 
safe harbor for the content of forward-looking statements contained 
in documents filed with us, including in registration statements and 
periodic reports.
---------------------------------------------------------------------------

    Where an issuer regularly releases forward-looking information in 
the ordinary course, we believe that the purpose of such communication 
is to keep the market informed about the issuer and its future 
prospects and, thus, the continued release or dissemination of this 
information in the ordinary course is not for the purpose of offering 
securities or conditioning the market for new issuances of the issuer's 
securities. We understand that issuers increasingly have been 
disclosing earnings forecasts and other forward-looking information 
publicly to provide more information to the markets and to enable them 
to continue to have discussions to which Regulation FD applies.\90\ We 
do not believe that it is beneficial to investors or the markets to 
force reporting issuers to suspend their ordinary course communications 
of this information because they are raising capital in a registered 
offering.
---------------------------------------------------------------------------

    \90\ As with factual business information, Regulation FD, 
Regulation G, Item 10 of Regulation S-K and Regulation S-B, and Item 
2.02 of Form 8-K would continue to apply to the release or 
dissemination of forward-looking information by reporting issuers. 
See note 86.
---------------------------------------------------------------------------

    Our proposals would provide for the use of such a communication a 
safe harbor from being an impermissible prospectus and from violating 
the prohibitions on pre-filing offers. Under our proposals, the safe 
harbor would apply to the release or dissemination of the following 
forward-looking information if the release or dissemination satisfies 
the other conditions of the Rule: \91\
---------------------------------------------------------------------------

    \91\ Our proposed Rule 168 would be a safe harbor from the 
definition of ``prospectus'' in Securities Act Section 2(a)(10) and 
would therefore disapply the prohibition in Securities Act Section 
5(b)(1) on the use of a prospectus that is not a statutory 
prospectus. The proposed Rule would also be a safe harbor from the 
prohibitions on pre-filing ``offers'' in Securities Act Section 
5(c).
    These are essentially the same categories of statements that are 
defined as forward-looking statements under the safe harbor in 
Securities Act Section 27A(i)(1) [15 U.S.C. 77z-2(i)(1)]. The 
proposed safe harbor covering the release or dissemination would be 
available for the regular release of earnings expectations and 
guidance information. At least one commenter on the 1998 proposals 
requested clarification of this point. See, e.g., comment letter in 
File No. S7-30-98 from the Association for Investment Management and 
Research. Proposed Rule 168 would provide a safe harbor for the use 
of such information, not the content of the communication. An 
issuer's communications of forward-looking information made in 
reliance on the proposed safe harbor would still have to satisfy the 
conditions of Securities Act Section 27A if the issuer wished to 
rely on the statutory safe harbor for the content of the 
information.

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[[Page 67403]]

    <bullet> Projections of the issuer's revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure, or other financial items;
    <bullet> Statements about the issuer management's plans and 
objectives for future operations, including plans or objectives 
relating to the products or services of the issuer;
    <bullet> Statements about the issuer's future economic performance, 
including statements of the type contemplated by MD&A described in Item 
303 of Regulation S-K and Regulation S-B, or Item 5 of Form 20-F; and
    <bullet> Assumptions underlying or relating to any of the foregoing 
information.
    Given our expressed intention through Item 2.02 of Form 8-K to make 
such earnings expectations and guidance information public,\92\ we 
believe it is appropriate to include these communications within the 
scope of the proposed safe harbor if the issuer satisfies the safe 
harbor's other conditions.
---------------------------------------------------------------------------

    \92\ See Exchange Act Form 8-K. In addition, through the 
operation of Regulation FD, forward-looking information, such as 
company earnings guidance, provided to persons enumerated in that 
Regulation must be made public.
---------------------------------------------------------------------------

iii. Conditions of Safe Harbors
(A) ``By or on Behalf of'' the Issuer
    As proposed, factual business and forward-looking information would 
be considered released or disseminated by or on behalf of an issuer if 
the issuer, an agent of the issuer, or a representative of the issuer 
authorized and approved its use before its release or 
dissemination.\93\ Satisfaction of this condition is separate from the 
``regularly released'' condition. The proposed safe harbor would not be 
available for information released in a manner intended to circumvent 
either the conditions to use or the permitted manner of use of the 
information.
---------------------------------------------------------------------------

    \93\ We are using the same definition as contained in Securities 
Act Rule 146 [17 CFR 230.146].
---------------------------------------------------------------------------

Request for Comment

    <bullet> Is the definition of ``by or on behalf of an issuer'' 
clear? If not, why not?
    <bullet> Should we provide more specificity limiting the approval 
or authorization to specific persons acting for the issuer, whether as 
an employee, agent, or representative? For example, should we specify 
that the approval and authorization must be made by persons who 
regularly provide such approval and authorization? In addressing this 
question, discuss whether there should be different formulations 
depending on the applicable contexts for determining whether 
information is provided or actions are taken ``by or on behalf of'' a 
person.
    <bullet> The ``by or on behalf of'' condition is included in many 
of our proposed rules, should we include a general definition of ``by 
or on behalf of'' in Securities Act Rule 405?
    <bullet> Is it clear when communications are made ``by or on 
behalf'' of an issuer? If not, what additional conditions should we 
include?
(B) Regularly Released Information
    The purpose of the proposed safe harbor is to enable a reporting 
issuer to continue its past ordinary course practice of releasing or 
disseminating publicly factual business and forward-looking 
information. Communications of both factual business information and 
forward-looking information must satisfy the same conditions regarding 
regular release.
    As proposed, information will be considered regularly released or 
disseminated if the issuer has previously released or disseminated the 
same type of information in the ordinary course of its business, 
releases or disseminated the information in the ordinary course of its 
business, and the release or dissemination is materially consistent in 
timing, manner and form with the issuer's similar past releases or 
disseminations of such information. The method of releasing or 
disseminating the information, thus, must also be consistent with prior 
practice. These conditions seek to ensure that the information is not 
being released to condition the market for the registered offering of 
the issuer's securities.
    While the proposal does not establish any minimum time period to 
satisfy the regularly released element, the safe harbor would require 
the issuer to have a track record of releasing the particular type of 
information. Issuers should consider the frequency and regularity with 
which they have released the same type of information. For example, an 
issuer's release of new types of financial information or projections 
just before or during a registered offering would likely prevent a 
conclusion that the issuer regularly released that type of forward-
looking information in the ordinary course of its business. As another 
example, if an issuer has consistently released certain forward-looking 
information on a quarterly basis through ordinary course press 
releases, it could not satisfy the condition if it instituted a 
stepped-up media campaign just before or during an offering to release 
that type of forward-looking information on a different basis or with 
different timing.
(C) Non-Offering Related Information
    The proposed safe harbor would exclude from its operation any 
information about the registered offering itself. Publication of 
information about an offering outside the registration statement would 
be limited to statements allowed under Rule 134, Rule 135, or other 
exemptions or safe harbors, or contained in a permissible free writing 
prospectus, as discussed below.\94\
---------------------------------------------------------------------------

    \94\ Our other proposals address communications in the offering 
context. For example, we are proposing amendments to Rule 134 to 
increase the amount of communication allowed under that rule about a 
registered offering without it being considered a prospectus.
---------------------------------------------------------------------------

    Because the proposed safe harbor is intended to facilitate 
continued release or dissemination of regularly released ordinary 
course factual business and forward-looking communications, it also 
excludes information released as part of the offering activities in the 
registered offering. For example, the safe harbor would be unavailable 
for the text of an Exchange Act report that is incorporated by 
reference into a registration statement, a copy of a prior release that 
originally had been regularly released in accordance with the safe 
harbor but was specifically provided to investors or potential 
investors as part of offering activities, or disclosure of information 
at a road show. As another example, as permitted by the ``regularly 
released condition,'' an issuer would be able to rely on the proposed 
safe harbor for the publication of an earnings release consistent with 
past practice, including the posting of and maintaining the release on 
an issuer's Web site, whether or not located in a separate section of 
the Web site for historical information. The use of that earnings 
release (or its contents), however, as part of the marketing activities 
to potential investors by an underwriter or dealer

[[Page 67404]]

participating in distribution of the issuer's securities in the 
registered offering would be outside the scope of the proposed safe 
harbor.\95\
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    \95\ In those situations, the earnings release would be 
considered a free writing prospectus as used by the underwriter or 
dealer, as discussed below.
---------------------------------------------------------------------------

    Commenters on the 1998 proposals, which contained similar 
provisions, were concerned about staff practice with regard to 
requiring disclosures of forward-looking information in an issuer's 
registration statements if such information was provided publicly. 
Public statements by issuers would not necessarily require that the 
disclosed information be included in registration statements.\96\
---------------------------------------------------------------------------

    \96\ The same is true for any public release of information 
pursuant to Regulation FD and Item 2.02 of Form 8-K. See Regulation 
S-K [17 CFR 229.10 et seq.] and Securities Act Rule 408. See also 
Exchange Act Rule 12b-20 [17 CFR 240.12b-20]. The information may be 
required to be included in the registration statement pursuant to 
some other disclosure obligation.
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Request for Comment

    <bullet> Does the safe harbor provide sufficient certainty for 
issuers as to when particular types of communications can be made? If 
not, how could additional certainty be provided without opening the 
door to risks of abuse?
    <bullet> Are there other categories of factual business information 
or forward-looking information that should be added to the list of 
permitted communications within the safe harbor? Should any of the 
proposed categories be deleted?
    <bullet> Should we require a particular history, or length of time 
that the issuer has been regularly releasing this information as a 
condition to reliance on the exemption? For example, six months; one 
year; or a different period? What would be an appropriate period?
    <bullet> Should there be any limitation on the availability of the 
safe harbor for issuers that have been determined to have not complied 
with Regulation FD, Regulation G, or any Form 8-K requirements for 
earnings releases?
    <bullet> Would reporting issuers involved in registered offerings 
be reluctant to release ordinary course forward-looking information 
despite the proposed safe harbors? More or less reluctant than they are 
today? What other changes could we make to eliminate this reluctance?
    <bullet> Should there be a specified history of releasing 
information for only certain categories of forward-looking information, 
such as financial projections?
    <bullet> Is the proposal regarding forward-looking information 
appropriate? Are the risks of this information conditioning the market 
greater than with the release of factual business information? If so, 
how? Should there be additional restrictions in this safe harbor?
    <bullet> Should there be a distinction between releasing such 
information in the pre-filing and post-filing periods?
    <bullet> Should the safe harbor identify the specific conditions 
under which communications would constitute ordinary course 
communications?
    <bullet> Should we consider defining what ``part of the offering 
activities'' means for purposes of the safe harbors?
    <bullet> As we note above, a voluntary filer would fall into the 
category of unseasoned issuers because it is not required to file 
periodic or current reports under the Exchange Act. Should voluntary 
filers be permitted to rely on the safe harbor available to reporting 
issuers even though they are not required to file Exchange Act reports?
    <bullet> Should registered investment companies and business 
development companies be eligible to use the proposed safe harbors for 
factual business information and forward-looking information?
b. Regularly Released Factual Business Information--Non-Reporting 
Issuers
    We are proposing a narrower safe harbor from the gun-jumping 
provisions for a non-reporting issuer's regularly released factual 
business information.\97\ The proposal would provide a safe harbor for 
a non-reporting issuer's release or dissemination of regularly released 
ordinary course factual business information to persons receiving the 
information other than in their capacity as investors or potential 
investors, such as customers and suppliers.\98\ Because a condition of 
the proposed Rule involves the manner and timing of the communication, 
the same issuer employees who have historically been responsible for 
providing the information to, for example, customers and suppliers, 
should communicate the information provided in reliance on this safe 
harbor. As proposed, non-reporting issuers' release or dissemination of 
factual business information that satisfy the conditions of the 
proposed Rule would have a safe harbor from being an impermissible 
prospectus and from violating the prohibition on pre-filing offers.\99\
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    \97\ See proposed Rule 169.
    \98\ The fact that a customer also may be a potential investor 
in the issuer's securities would not affect the availability of the 
safe harbor if the conditions are otherwise satisfied.
    \99\ Our proposed Rule 169 would be a safe harbor from the 
definition of ``prospectus'' in Securities Act Section 2(a)(10) and 
would therefore disapply the prohibition in Securities Act Section 
5(b)(1) on the use of a prospectus that is not a statutory 
prospectus. The proposed Rule would also be a safe harbor from the 
prohibitions on pre-filing ``offers'' in Securities Act Section 
5(c).
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    Under the proposed safe harbor, factual business communications 
would be defined as:
    <bullet> Factual information about the issuer or some aspect of its 
business;
    <bullet> Advertisements of, or other information about, the 
issuer's products or services; and
    <bullet> Factual information about business or financial 
developments with respect to the issuer.
    As with the safe harbor for reporting issuers, the safe harbor 
requires that the information be regularly released in the ordinary 
course, disseminated by or on behalf of the issuer, and not include 
information about the registered offering or information released as 
part of the offering activities in the registered offering.
    Because non-reporting issuers generally are not releasing 
information in connection with securities market activities, we believe 
it is appropriate to restrict the scope of the safe harbor to limited 
regularly released ordinary course factual business information.\100\ 
Further, we are not proposing a safe harbor for forward-looking 
information for non-reporting issuers because of the lack of such 
information or history for these issuers in the marketplace. In those 
circumstances, we believe that the potential for abuse in permitting a 
safe harbor for the continued release of forward-looking information as 
a way to condition the market for the issuer's securities outweighs the 
legitimate utility to the issuer of the safe harbor.
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    \100\ These issuers would still be able to rely on Securities 
Act Rules 134 and 135 [17 CFR 230.134 and 230.135] and proposed 
Rules 163A and 164.
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Request for Comment

    <bullet> We request comment on the same issues regarding the 
regularly released concept as in the safe harbor for reporting issuers.
    <bullet> Should the factual business information safe harbor permit 
some related forward-looking information so long as the information is 
not projections?
    <bullet> In initial public offerings by non-reporting issuers, 
should we consider using our authority, including our exemptive 
authority in Section 27A, to propose a projections and forward-looking 
information safe harbor from liability for the forward-looking 
statements that would be similar to the liability safe harbor for 
forward-looking statements contained in Securities Act Section 27A?

[[Page 67405]]

    <bullet> If we determine to propose a safe harbor of this type for 
initial public offerings, what kinds of conditions should we consider 
for its use?
    <bullet> As a condition for this safe harbor or one for initial 
public offerings, should we require the issuer to file projections or 
other forward-looking information as part of the registration 
statement? Should the projections be required to follow Item 10 of 
Regulation S-K or S-B as applicable? Should projections be required to 
be accompanied by an accountant's report on the projections or 
forecasts? \101\
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    \101\ In this regard, see Sections 210 and 316 of the AICPA 
Guide for Prospective Financial Statements.
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    <bullet> Would a liability safe harbor for initial public offerings 
cause issuers to provide more projections publicly? Would there be 
concerns about the quality of these projections in light of the safe 
harbor?
2. Other Permitted Communications Prior To Filing a Registration 
Statement
    Beyond the continuing ongoing release of information discussed 
above, there is an increased amount of information disseminated to the 
market about issuers, including through the Internet. We believe that 
information availability should be encouraged, subject to appropriate 
standards of liability. At times when the risk of conditioning the 
market for a securities offering is sufficiently remote, it is 
important to provide issuers with greater certainty that the release of 
information would not be considered impermissible offers under the 
Securities Act. Such an approach would avoid hindering issuer 
communications except where necessary for investor protection. We are, 
therefore, proposing rules that would be aimed at communications that 
might not fall within the proposed safe harbors for regularly released 
factual business and forward-looking information.
a. 30-Day Bright Line Exclusion From the Prohibition on Offers Prior To 
Filing a Registration Statement--All Issuers
    The proposed rule would provide all issuers a bright-line time 
period, ending 30 days prior to filing a registration statement, during 
which issuers may communicate without risk of violating the gun-jumping 
provisions. Such communications would be excluded from the definition 
of offer for purposes of Securities Act Section 5(c).\102\ A bright-
line test would provide greater certainty in the offering process and 
avoid unnecessary limitations on issuer communications more than 30 
days prior to the filing of the registration statement. Further, we 
believe that the 30-day timeframe adequately assures that these 
communications would not condition the market for a securities offering 
by providing a sufficient time period to cool any interest in the 
offering that might arise from the communication.\103\
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    \102\ While communications made in reliance on the proposed rule 
could, depending on the particular facts, be an ``offer'' as defined 
in Securities Act Section 2(a)(3), the proposal would provide that 
the communication would not be an ``offer'' for purposes of 
Securities Act Section 5(c). See proposed Rule 163A. During the 30-
day period immediately prior to registration, issuers would have 
available, in addition to the other exemptions proposed in this 
release, communications permitted under Securities Act Rule 135. 
Rule 135 permits an issuer or a selling security holder (and persons 
acting on behalf of either of them) to publish a notice of a 
proposed registered offering of securities containing limited 
information, without the notice being considered an offer of the 
securities. As we note above, the 30-day exclusion is available only 
to the issuer for communications made by it or on its behalf.
    For all issuers, the exemption would only apply prior to the 
filing of a registration statement. This exclusion would thus not 
apply to issuers with shelf registration statements on file, whether 
or not effective, to whom the prohibition on all offers in the gun-
jumping provisions would not apply.
    See also Harold Bloomenthal and Samuel Wolff, Emerging Trends in 
Securities Laws [2003-2004 ed.], ``Securities Act Reform--
D[eacute]j[agrave] Vu All Over Again,'' Commissioner Roel C. Campos 
(the ``Campos Article'') at Sec.  1:28.
    \103\ As we discuss below, the issuer would have to take 
reasonable steps to avoid redissemination of such information during 
the 30-day period. We also chose to propose a 30-day timeframe 
because it is consistent with the timeframe in Securities Act Rule 
155 regarding integration of abandoned offering [17 CFR 230.155] and 
Securities Act Rule 254 regarding pre-filing solicitations of 
interest in Regulation A offerings [17 CFR 230.254].
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    As proposed, the 30-day bright line exclusion from the gun-jumping 
provisions would be subject to the following conditions:
    <bullet> Communications made in reliance on the proposed rule could 
not reference a securities offering; \104\
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    \104\ Securities Act Rule 155, relating to integration of 
abandoned offerings, permits issuers to register a securities 
offering immediately following the abandonment of a private offering 
made to accredited or sophisticated persons and not involving 
general solicitation and general advertising. The proposed 30-day 
exclusion, on the other hand, applies to public communications made 
prior to a registered offering. Because Rule 155 treats any private 
offers made in the abandoned private offering as not part of the 
subsequent registered offering, issuers relying on Rule 155 in 
connection with a subsequently registered offering would continue to 
rely on Rule 155 and need not rely on the 30-day bright line 
exclusion for public communications before a registration statement 
is filed.
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    <bullet> Communications made in reliance on the proposed rule would 
have to be made ``by or on behalf of the issuer''; \105\ and
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    \105\ As with proposed Rules 168 and 169, communications could 
be made under this proposed rule only if the issuer authorized and 
approved the communication before its use. Other communications, 
such as those by an underwriter or prospective underwriter, would 
not be covered by the proposed rule. For a further discussion of the 
``by or on behalf of the issuer'' condition, see the discussion at 
Section III.D.1 above under `` `By or on Behalf of the Issuer''.
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    <bullet> The issuer would have to take reasonable steps within its 
control to prevent further distribution or publication of the 
information during the 30-day period immediately before the issuer 
files the registration statement.
    We included a similar exclusion in our 1998 proposals. Commenters 
generally agreed that a bright-line exclusion would be helpful, 
although they expressed some concerns. Some commenters were concerned 
that issuers might make misleading statements in connection with a 
proposed registered offering prior to the 30-day period and claim 
protection of the exclusion.\106\ We believe that our proposals address 
those concerns in a number of ways. First, the proposals would not 
permit information about a securities offering so that the 
communications are less likely to be used to condition the market for 
the issuer's securities. Second, for all reporting issuers, the 
communications would still be subject to Regulation FD

[[Page 67406]]

and other disclosure requirements, as well as the anti-fraud 
provisions.\107\ Third, the proposed safe harbor would be available 
only for communications made by or on behalf of the issuer so that 
other potential offering participants could not use the exemption to 
condition the market for the issuer's securities.
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    \106\ See, e.g., comment letters in File No. S7-30-98 from the 
American Association of Retired Persons (``AARP'') and the Consumer 
Federation of America.
    Some commenters believed the 30-day period was too short, see, 
comment letters in File No. S7-30-98 from the North American 
Securities Administrators Association, Inc. (``NASAA''), while some 
commenters viewed it as too long, see, e.g., comment letter in File 
No. S7-30-98 from the American College of Investment Counsel 
(``ACIC''). As we note above, our proposals are consistent with the 
30-day time period we adopted for Rule 155, relating to integration 
of abandoned offerings.
    Commenters also addressed the inclusion in the 1998 proposals of 
the condition that the issuer take reasonable steps to prevent 
further distribution of information during the 30-day period 
immediately before the issuer files a registration statement. These 
commenters expressed concern that such a condition added uncertainty 
to the exemption. See, e.g., comment letters in File No. S7-30-98 
letters from the Bond Market Association (``TBMA''); American 
Federation of Labor and Congress of Industrial Organizations (``AFL-
CIO''); Fried, Frank, Harris, Shriver & Jacobson (``Fried Frank''); 
Pennsylvania Securities Commission; and Service Employees 
International Union Master Trust. The 1998 proposals would have 
permitted other offering participants, in addition to the issuer, to 
rely on the exclusion. Our proposals would limit the exclusion to 
issuers. While we would not expect an issuer to be able to control 
the republication or accessing of previously published press 
releases, we would expect issuers and persons acting on their behalf 
to be able to control their own involvement in any subsequent 
redistribution or publication and, therefore, believe that it is an 
appropriate condition to the ability to rely on the exclusion. As 
another example, if an issuer or its representative gave an 
interview to the press prior to the 30-day period, it would not be 
able to rely on the exclusion if the interview was published during 
the 30-day period. We have proposed to address the same issues in 
the context of free writing prospectuses discussed below.
    \107\ Communications made in reliance on the proposed rule would 
not be in connection with a registered securities offering for 
purposes of the exclusion in Regulation FD. See Rule 100(b)(2)(iv) 
of Regulation FD [17 CFR 243.100(b)(2)(iv)].
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    We propose to preclude reliance on the 30-day bright-line exclusion 
for enumerated categories of offerings and issuers that pose the 
greatest risk of abuse of that exclusion. Specifically, our proposed 
rule excluding communications made more than 30 days before filing of 
the registration statement from the definition of offer would not be 
available to communications made in connection with:
    <bullet> Offerings by a blank check company;
    <bullet> Offerings by a shell company; or
    <bullet> Offerings of penny stock by an issuer.\108\
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    \108\ See Securities Act Rule 419(a)(2) [17 CFR 230.419(a)(2)], 
Exchange Act Rule 3a51-1 [17 CFR.240.3a51-1], and proposed 
amendments to Rule 405 defining ``shell company.'' The proposed rule 
also would exclude issuers whose predecessors in the prior three 
years were blank check companies, shell companies, or issuers that 
issued penny stock and other issuers falling into the category of 
``ineligible issuers'' discussed in Section III.D.3. below under 
``Ineligible Issuers.'' The proposed rule also would exclude 
offerings registered on Form S-8.
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    We also would exclude communications regarding business combination 
transactions from being able to rely on the proposed exclusion, as 
those communications are regulated separately.\109\ The proposed rule 
would also not be available for communications regarding offerings made 
by a registered investment company or a business development 
company.\110\
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    \109\ See the Regulation M-A Release, note 60. The proposal 
would exclude any business combination transaction as defined in 
Rule 165(f)(1) [17 CFR 230.165(f)(1)]. Rule 165(f)(1) defines a 
business combination transaction to mean any transaction specified 
in Rule 145(a) [17 CFR 230.145(a)] or exchange offer.
    \110\ Registered investment companies and business development 
companies are subject to separate rules regarding their 
communications.
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Request for Comment

    <bullet> Should we restrict the ability to rely on the exclusion 
only to the issuer or should we allow other offering participants to 
rely on the exclusion? If so, why?
    <bullet> Is the 30-day timeframe sufficient? Should it be longer? 
Should it be shorter?
    <bullet> Would issuers engage in communications using the exclusion 
prior to the 30-day period before registration?
    <bullet> Would issuers be able to establish appropriate procedures 
to ensure compliance with the ``reasonable steps'' requirement?
    <bullet> Does the concept of ``reasonable steps'' in the proposed 
rule provide sufficient guidance to issuers? If not, what additional 
restrictions or provisions should be included?
    <bullet> If the issuer puts information on its web site or another 
web site prior to the 30-day period and the information remains on the 
web site, thus being available during the 30-day period prior to the 
registration statement being filed, should the issuer be able to rely 
on the proposed 30-day exclusion for such information?
    <bullet> Is it clear when communications made in reliance on the 
30-day exemption are made ``by or on behalf'' of an issuer? If not, 
what additional conditions should we include?
    <bullet> Are the classes of ineligible issuers and offerings 
appropriate? Should the exclusion not be available to any other type of 
issuers or offerings?
    <bullet> Should the exclusion apply to offerings registered on Form 
S-8?
    <bullet> Should the exclusion be available for non-reporting 
issuers? Would there be greater potential for abuse with this category 
of issuers?
    <bullet> Should there be a restriction on inclusion of securities 
offering-related information in view of Securities Act Rule 135?
    <bullet> Should we limit the condition restricting any reference to 
securities offering only to references to registered securities 
offerings?
    <bullet> Should communications in offerings relying on Rule 155 be 
permitted during the 30-day period without further conditions?
    <bullet> Should Regulation FD continue to apply to these 
communications, as we propose? If not, why not?
b. Permitted Pre-Filing Offers for Well-Known Seasoned Issuers
    As noted above, our proposals taken together are intended to 
provide exemptions generally from the applicability of the gun-jumping 
provisions for eligible well-known seasoned issuers. The proposed safe 
harbors for regularly released factual business and forward-looking 
information and the exemption from the definition of offer for 
communications more than 30 days prior to filing of a registration 
statement would also apply to well-known seasoned issuers. In addition, 
as discussed below, the proposed broadened exemption for routine 
offering-related communications and the proposed availability of an 
exemption for eligible issuers from the gun-jumping provisions for 
free-writing prospectuses, in both cases after filing of a registration 
statement, also would be available to well-known seasoned issuers. 
However, the gun-jumping provisions prohibit all offers--written or 
oral--before the filing of a registration statement.\111\ To address 
communications made in the 30 days prior to filing a registration 
statement not otherwise excluded from the gun-jumping provisions and to 
complete the set of proposals permitting all communications by well-
known seasoned issuers under the gun-jumping provisions, we are 
proposing an exemption from the prohibition on offers before the filing 
of a registration statement for offers made by or on behalf of eligible 
well-known seasoned issuers.\112\ The proposed exemption would permit 
these issuers to engage in unrestricted oral and written offers before 
a registration statement is filed without violating the gun-jumping 
provisions. As proposed, these communications, while exempt from the 
gun-jumping provisions, would still be considered offers and subject to 
liability standards applicable to such offers.\113\ In addition, while 
``offers,'' all such communications would still be subject to 
Regulation FD.\114\ The anti-fraud provisions of the federal securities 
laws would also continue to apply to these communications. The 
exemption would be available only for communications made ``by or on 
behalf of'' the issuer. We have included as a condition to

[[Page 67407]]

reliance on this exemption that communications cannot be used as part 
of a scheme to avoid or evade the requirements of the gun-jumping 
provisions.
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    \111\ See Securities Act Section 5(c).
    \112\ See proposed Rule 163.
    \113\ Any written offer would be a prospectus under Section 
2(a)(10) of the Securities Act relating to a public offering of the 
securities to be covered by the registration statement to be filed. 
All oral communications and prospectuses would be subject to 
liability under Section 12(a)(2). The offers would also be subject 
to liability under other provisions relating to offers, including 
Section 17(a) of the Securities Act, Section 10(b) of the Exchange 
Act and Rule 10b-5 under the Exchange Act.
    The proposed rule is different from Securities Act Rule 254 [17 
CFR 230.254]. Securities Act Rule 254 permits solicitations of 
interest in Regulation A offerings provided the conditions of the 
rule, including pre-use submission of the materials to the 
Commission, are satisfied, and does not treat the materials as 
prospectuses. Proposed Rule 163 would not require pre-filing of the 
communications and written offers would be prospectuses.
    \114\ Communications made in reliance on the proposed rule would 
not be considered to be in connection with a registered securities 
offering for purposes of the exclusion from Regulation FD. See Rule 
100(b)(2)(iv) of Regulation FD [17 CFR 240.100(b)(2)(iv)].
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    In view of the proposed ``automatic shelf'' registration process we 
describe below, we expect that well-known seasoned issuers usually 
would have a registration statement on file that it could use for any 
of its registered offerings.\115\ Consequently, it would be rare for 
these issuers to make offers prior to the filing of a registration 
statement; \116\ however, to liberalize communications for these 
issuers to the appropriate extent, it is appropriate to provide this 
exemption from the prohibition on pre-filing offers. A written offer 
made under the proposed exemption would, however, meet our proposed 
definition of ``free writing prospectus'' \117\ and would need to 
include a legend and be filed promptly upon the issuer filing its 
registration statement.\118\ Any written communication used in reliance 
on this proposed exemption would be subject to the same cure and record 
retention provisions as those applicable to free writing prospectuses 
used after a registration statement is filed in reliance on our 
proposed rules governing free writing prospectuses discussed 
below.\119\
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    \115\ As with any other delayed shelf registration statement, 
issuers using an automatic shelf registration statement would be 
considered to be offering securities off the shelf registration 
statement at the time of each takedown of securities.
    \116\ See the discussion in Section V.B.2 below under 
``Automatic Shelf Registration for Well-Known Seasoned Issuers,'' 
with regard to the proposed availability of an ``automatic shelf'' 
registration process for these issuers.
    \117\ See Section III.D.3 below under ``Definition of Free 
Writing Prospectus'' for a discussion of the definition and the 
circumstances under which media publications (in any form) would be 
free writing prospectuses.
    \118\ The legend would be similar to the one we are proposing 
for free writing prospectuses. See the discussion in Section III.D.3 
below under ``Legend Condition'' with regard to the requirements for 
use of a ``free writing prospectus.'' Under our proposals, all 
issuer free writing prospectuses would need to be filed.
    \119\ See discussion in Section III.D.3 below under 
``Unintentional Failures to File'' and ``Record Retention 
Condition'' regarding proposed Rules 164 and 433 with respect to the 
cure and record retention provisions.
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Request for Comment

    <bullet> Should we permit any written or oral offer to be made by a 
well-known seasoned issuer before a registration statement is filed?
    <bullet> In addition to provisions that would allow issuers to cure 
an omission of the legend, should there be cure provisions in the event 
that the issuer failed to file the written offer when the registration 
statement was filed?
    <bullet> Should the requirement for filing written offers made in 
reliance on the proposed exemption apply to written offers that only 
contain a description of the securities being offered?
    <bullet> Should communications made in reliance on the proposed 
rule be subject to Regulation FD, as we propose? If not, why not? Or 
should there be specific exceptions? If so, what type of communications 
should be excluded?
    <bullet> Should there be other exclusions from the filing 
requirement?
    <bullet> Should the filing obligation apply if the issuer fails to 
file a registration statement covering the securities offered within a 
particular time period after the offer? If so, how long?
3. Relaxation of Restrictions on Written Offering Related 
Communications
    Our proposals would expand the amount and types of permitted 
written offering related communications that may be made by offering 
participants under the gun-jumping provisions after a registration 
statement is filed.\120\ The two main elements of these proposals are 
expansion of information that Securities Act Rule 134 permits to be 
communicated and the permitted use of free writing prospectuses in 
connection with a registered offering.
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    \120\ As noted previously, Securities Act Section 5(b)(1) limits 
the means by which written offers may be made following the filing 
of a registration statement. Section 5(b)(1) does not include a 
limitation on oral offers after the filing of a registration 
statement.
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a. Rule 134
    Rule 134 provides a safe harbor from the gun-jumping provisions for 
limited public notices about an offering made after an issuer files its 
registration statement.\121\ The Rule was intended originally to 
provide an ``identifying statement'' that could be used to locate 
persons that might be interested in receiving a prospectus.\122\ All 
issuers, including well-known seasoned issuers, are precluded from 
relying on Rule 134 until the issuer files a registration 
statement.\123\
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    \121\ The safe harbor operates by excluding such notices from 
the definition of prospectus under Securities Act Section 2(a)(10). 
See Rule 134 [17 CFR 230.134] and Adoption of Rules 134 and 135, 
Release No. 33-3568 (Aug. 29, 1955) [20 FR 6523]. Currently, Rule 
134 does not apply to notices relating to a registered investment 
company or business development company, and under our proposed 
amendments, this would continue to be the case. 17 CFR 230.134(e).
    \122\ Rule 134 is available only after the issuer files a 
registration statement that includes a statutory prospectus. Because 
a purpose of Rule 134 is to facilitate the dissemination of the full 
information required in the prospectus, Rule 134 would not be 
available until a preliminary prospectus, or in the case of shelf 
registration, a base prospectus, is available. As our proposal makes 
clear, to satisfy the requirements of Securities Act Section 10 in 
an initial public offering, a prospectus must include bona fide 
estimates of the offering price range and the maximum amount of 
securities to be offered. This would not mean, however, that a final 
prospectus meeting the requirements of Securities Act Section 10(a) 
including a price would be required as a condition to Rule 134. 
Further, the prospectus required for reliance on Rule 134(d) is a 
statutory prospectus, and it need not be a prospectus that satisfies 
Section 10(a).
    Rule 134 requires in some cases that the notice must be 
accompanied or preceded by a written prospectus meeting the 
requirements of Section 10 of the Securities Act. The notice cannot, 
however, otherwise include a hyperlink or uniform resource locator 
(``URL'') for an address containing information beyond that 
permitted by Rule 134. See the 2000 Electronics Release note 62 at 
II.B.2.
    \123\ If a well-known seasoned issuer communicated information 
of the type covered by Rule 134 in writing prior to filing its 
registration statement, such that the communication constituted an 
offer, it would have to rely on proposed Rule 163 excepting pre-
filing offers from the gun-jumping provisions, and the communication 
would be a free writing prospectus.
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i. Expansion of Permitted Information
    We are proposing to modify and expand the information permitted 
under Rule 134 to include information that issuers, underwriters, and 
investors would find helpful and to permit the types of written 
communications during an offering that we would not consider to be 
prospectuses. We propose a limited expansion of the information 
permitted in the notice about the issuer and the registered offering. 
The proposed amendments to Rule 134 would:
    <bullet> Permit increased information about an issuer and its 
business, including where to contact the issuer;
    <bullet> Permit more information about the terms of the securities 
being offered; \124\
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    \124\ For example, for fixed income securities, the proposed 
changes would allow greater information about final interest rates 
and yield information, including yield information on fixed income 
securities with comparable maturities and credit ratings.
---------------------------------------------------------------------------

    <bullet> Expand the scope of permissible factual information about 
the offering itself, including underwriter information, more details 
about the mechanics of and procedures for transactions in connection 
with the offering process, the anticipated schedule of the offering, 
and a description of marketing events; \125\
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    \125\ The information on marketing events, such as road shows, 
could include greater detail on the date, time, location, and 
procedures for attending or otherwise accessing the events.
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    <bullet> Allow more factual information about procedures for 
account opening and submitting indications of interest and conditional 
offers to buy the offered securities; \126\ and
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    \126\ For example, a broker or dealer could inform investors of 
the procedural aspects of an auction or a directed share program. 
The proposed changes would not include written notices of 
allocations of securities, including those delivered electronically. 
These notices would be a type of written confirmation of sale and, 
thus, prospectuses. Our proposals regarding prospectus delivery 
reforms, as discussed later, would apply to these notices.

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[[Page 67408]]

    <bullet> Expand the disclosure permitted regarding credit ratings 
to include the security rating that is reasonably expected to be 
assigned.
    While we have proposed to expand the amount of information 
regarding the terms of an offering that may be included in a Rule 134 
notice, the proposed expansion would not permit use of a Rule 134 
notice to provide a detailed term sheet for securities being offered. 
There is increased ability under our proposals to deliver such a term 
sheet as a free writing prospectus, as discussed below.
ii. Changes to Required Information
    We also are proposing to modify the information that must be 
included in a Rule 134 notice. First, we are proposing to eliminate the 
reference in the legend to state securities laws, as we believe that 
other provisions of the Rule already address any state securities law 
requirements, as applicable.\127\ Second, we are proposing to eliminate 
the requirement to specify whether the financing is a new financing or 
refunding, as we believe that such information is no longer necessary 
because such information would, with regard to non-reporting or 
unseasoned issuers, be provided by the issuer's disclosure of the use 
of the proceeds of the offering in the filed preliminary 
prospectus.\128\
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    \127\ See paragraphs (a)(11) and (a)(14) of our proposed 
amendments to Rule 134.
    \128\ For seasoned issuers and well-known seasoned issuers, 
evaluation of an issuer's capital resource needs would be included 
in its MD&A discussion in its periodic reports.
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Request for Comment

    <bullet> Is there information that we propose to permit under Rule 
134 that should be prohibited or limited because it will further the 
use of ``selling'' documents that are not prospectuses?
    <bullet> Is there other information that we should permit under 
Rule 134? For example, is there information about the issuer or the 
offering that should be included in Rule 134 but is not part of these 
proposals? If so, address whether the additional information might 
transform the notice into a selling document.
    <bullet> Should the Rule permit more information about the 
underwriters or the syndicate, such as information about the allocation 
of shares among the members of the underwriting syndicate?
    <bullet> Should we permit more information about allocations and 
auction mechanics?
    <bullet> Should we revise the information requirements of Rule 134 
with regard to solicitations of offers to buy or indications of 
interest? If so, would it be appropriate to require a communication 
containing such a solicitation to describe how and when offers to buy 
would be accepted, including the methods and timing of notification of 
the registration statement's effective date, the purchase price of the 
securities, and how indications of interest would become offers to buy?
    <bullet> Where Rule 134 requires that a notice be accompanied or 
preceded by a prospectus, should we permit notification of the location 
of the prospectus to satisfy this requirement? Should we permit this 
for a certain class of issuers such as well-known seasoned issuers? 
Other seasoned issuers?
b. Permissible Use of Free Writing Prospectuses
i. Overview
    As discussed above, even after the filing of a registration 
statement, under the gun-jumping provisions issuers and other offering 
participants currently may make written offers only in the form of a 
statutory prospectus. After effectiveness of a registration statement, 
written offers other than a statutory prospectus may be made if prior 
to or at the same time as the written offer a final prospectus meeting 
the requirements of Securities Act Section 10(a) is sent or given.\129\ 
We believe that written communications during the offering process are 
unnecessarily restricted and that this would be the case even if the 
substantial relaxations in restrictions on communications that would 
result from the proposals that we describe above were adopted.
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    \129\ See Securities Act Section 2(a)(10).
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    We are proposing to permit written communications that constitute 
offers, including electronic communications, outside the statutory 
prospectus beyond those currently permitted by the Securities Act, if 
certain conditions are met. We are proposing to define such a written 
offer outside of the statutory prospectus, beyond those currently 
permitted by the Securities Act, as a ``free writing prospectus.'' 
\130\
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    \130\ We are proposing to include this definition in Securities 
Act Rule 405.
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    Our proposals would not affect the statutory framework allowing 
written offers after effectiveness if prior to or at the same time as 
the written offer is made a final prospectus meeting the requirements 
of Section 10(a) is sent or given. Those written offers would not be 
prospectuses and therefore would not be free writing prospectuses.\131\
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    \131\ See Securities Act Section 2(a)(10).
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    As proposed, a free writing prospectus that satisfies specified 
conditions could be used by a well-known seasoned issuer at any time. 
Further, as proposed, a free writing prospectus that satisfies 
specified conditions could be used by any other issuer or offering 
participant after a registration statement has been filed and, in some 
cases, as discussed below, if a statutory prospectus precedes or 
accompanies the free writing prospectus or if a statutory prospectus is 
available.\132\ A free writing prospectus used after a registration 
statement is filed and that satisfies specified conditions could be 
used without violation of the gun-jumping provisions.\133\ A free 
writing prospectus could take any form and would not be required to 
meet the informational requirements otherwise applicable to 
prospectuses.\134\ In general, our proposals would allow offering 
participants to use free writing prospectuses in conjunction with most 
registered capital formation transactions, although we do not treat all 
issuers and offerings the same.\135\
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    \132\ As we discuss above, a free writing prospectus used by a 
well-known seasoned issuer prior to filing pursuant to proposed Rule 
163 would be a prospectus for purposes of Securities Act Section 
2(a)(10).
    \133\ Our proposals would provide that such a free writing 
prospectus is a permitted prospectus for purposes of Securities Act 
Section 10(b) [15 U.S.C. 77j(b)] and, as such, could be used without 
violating Securities Act Section 5(b)(1).
    \134\ As we discuss in more detail below, we are proposing to 
permit a free writing prospectus used after a registration statement 
is filed meeting the conditions of proposed Rule 433 to be a 
Securities Act Section 10(b) prospectus without requiring that the 
free writing prospectus contain any particular information, 
including information contained in the prospectus that is part of 
the registration statement, other than a legend.
    \135\ Our proposals relate only to capital formation 
transactions and do not extend to business combination transactions, 
for which we have already adopted rules. See Securities Act Rule 162 
[17 CFR 230.162], Rule 165 [17 CFR 230.165], Rule 166 [17 CFR 
230.166], and Rule 425 [17 CFR 230.425]. Rule 162 relates to 
submission of tenders in registered exchange offers. Communications 
relating to business combinations are covered by Rule 165 and Rule 
166. Rule 425 relates to the filing of certain prospectuses and 
communications in connection with business combination transactions. 
See also, the Regulation M-A Release note 60; and Cross-Border 
Tender and Exchange Offers, Business Combinations and Rights 
Offerings, Release No. 33-7759 (Oct. 22, 1999) (exemptive rules for 
cross-border tender and exchange offers, business combinations, and 
rights offerings relating to the securities of foreign issuers).
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    The issuer and any other offering participant satisfying the 
conditions of our proposed rules could use a free writing prospectus 
after a registration

[[Page 67409]]

statement is filed to communicate information about a registered 
offering of securities.\136\ This would permit affiliates, 
underwriters, dealers, and others acting on behalf of the parties to 
the transaction to use a free writing prospectus without violating the 
gun-jumping provisions. A free writing prospectus would not be part of 
a registration statement subject to liability under Securities Act 
Section 11, unless the issuer elected to file it as a part of the 
registration statement. We propose to condition the use of free writing 
prospectuses prepared by an issuer or containing information provided 
by an issuer on filing, as a free writing prospectus, but not as part 
of the registration statement. We generally would not condition the use 
of free writing prospectuses prepared by other persons, such as 
underwriters, not containing such information on filing. Regardless of 
whether a free writing prospectus is filed, any person using the free 
writing prospectus would be subject to liability for prospectuses under 
Securities Act Section 12(a)(2) and liability under the anti-fraud 
provisions of the federal securities laws.\137\
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    \136\ Prior to filing a registration statement, only a well-
known seasoned issuer would be able to use a free writing prospectus 
in reliance on proposed Rule 163.
    \137\ After effectiveness of a registration statement free 
writing prospectuses would not be the exclusive means by which 
participants could make a written offer outside of the statutory 
prospectus. Under current requirements which our proposals would not 
affect, any written offer that is accompanied or preceded by a final 
prospectus that meets the requirements of Securities Act Section 
10(a) (such as sales literature used after effectiveness) would 
continue to be permitted without having to satisfy the requirements 
of any safe harbor or other rule permitting its use or proposed Rule 
433. This is because such a written offer is excluded from the 
definition of ``prospectus'' under the Securities Act by reason of 
clause (a) of Securities Act Section 2(a)(10), if a final prospectus 
meeting the Section 10(a) information requirements is sent or given 
before or at the same time as the written offer. A base prospectus 
included in a shelf registration statement that omits information is 
not a final prospectus meeting the requirements of Section 10(a).
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ii. Definition of Free Writing Prospectus
(A) General
    We are proposing to define ``free writing prospectus'' to include, 
except as otherwise provided specifically or otherwise required by the 
context, any written communication that constitutes an offer to sell or 
a solicitation of an offer to buy securities that are or will be the 
subject of a registration statement that is not a prospectus satisfying 
the requirements of Securities Act Section 10(a) or our rules 
permitting the use of preliminary or summary prospectuses or 
prospectuses subject to completion, or that, by virtue of the exception 
in clause (a) of Section 2(a)(10), is not a prospectus because, at or 
prior to that time, a final prospectus meeting the requirements of 
Section 10(a) was sent or given.\138\ The proposed definition would 
make clear that, although a free writing prospectus would not be filed 
as part of a registration statement, regardless of the method of its 
use or distribution, it would still be considered to be used in 
connection with a public offering of securities that is or would be the 
subject of a registration statement.\139\
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    \138\ The definition would include free writing prospectuses 
used pursuant to proposed Rule 433 and Rule 163 because these would 
not be summary prospectuses.
    \139\ Under our proposal, a free writing prospectus used after a 
registration statement is filed that satisfies the conditions in 
proposed Rule 433 would be a permitted prospectus for purposes of 
Securities Act Section 10(b). A free writing prospectus used other 
than in accordance with our proposed rules would continue to be a 
prospectus for Section 12(a)(2) and the anti-fraud provisions of the 
federal securities laws, and its use would violate Section 5.
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    A communication would be a free writing prospectus only where it 
constituted an offer of a security under the Securities Act. Whether a 
particular communication constituted such an offer would, as today, be 
determined based on the particular facts and circumstances. 
Communications that would not be considered offers or prospectuses for 
purposes of the gun-jumping provisions, such as Rule 134 notices, Rule 
135 communications, regularly released factual business information and 
forward-looking information falling within our proposed safe harbors, 
and research reports falling within the safe harbors provided by our 
rules, would not be free writing prospectuses.\140\
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    \140\ Written communications of a well-known seasoned issuer 
that are exempt pursuant to proposed Rule 163 would be within the 
definition of free writing prospectus. A free writing prospectus 
used in reliance on Rule 163 would not be a Section 10(b) prospectus 
because it would be used prior to the filing of a registration 
statement.
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(B) Media Publications
    We believe it is important to identify the circumstances under 
which information released or disseminated to the media by an issuer or 
offering participant in connection with a registered offering would be 
considered the use of a free writing prospectus under our proposals. We 
recognize that the financial news media are a valuable source of 
information about issuers to the public at large. Issuers and offering 
participants use the media to disseminate important information about 
themselves, such as through the use of press releases and interviews. 
The media plays an integral role, therefore, in providing information 
about issuers to the market.
    While we want to encourage the continued role of the media as an 
important communicator of information, we do not want issuers and 
offering participants to use the media to avoid our current or proposed 
communications rules. Under our proposals, if an issuer or any offering 
participant provided information about the issuer or the offering that 
constituted an offer, whether orally or in writing, to a member of the 
press or other media that was published (in any form), where 
dissemination in writing by the issuer or offering participant would 
constitute a free writing prospectus, we would consider the publication 
to be a free writing prospectus that would have been made by or on 
behalf of the issuer or offering participant. If the communication 
occurred after the filing of the registration statement, it would be 
subject to the requirements of proposed Rule 433.\141\
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    \141\ Except in the case of a well-known seasoned issuer, if the 
communication occurred prior to the filing of the registration 
statement, it would violate Section 5 unless it fell within one of 
the existing or proposed safe harbors or exemptions.
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    The treatment of a media publication that constituted a free 
writing prospectus under our proposed rules would depend on whether the 
issuer or other offering participant prepared the publication or 
broadcast or paid for or provided other consideration for the 
publication or broadcast, or whether independent media prepared and 
published or broadcast the communication for no consideration or 
payment from an issuer or offering participant. If an issuer or 
offering participant prepared, paid, or gave consideration for, a 
published article, broadcast, or advertisement, the issuer would have 
to satisfy the conditions to the use of a free writing prospectus at 
the time of the publication or broadcast. For example, in the case of a 
non-reporting issuer a statutory prospectus would have to precede or 
accompany the communication.\142\ As a consequence of this requirement, 
in offerings by non-reporting and unseasoned issuers, issuers and 
offering participants would not be able to

[[Page 67410]]

publish or broadcast written advertisements, ``infomercials,'' or 
broadcast spots about the issuer, its securities, or the offering that 
included information beyond that permitted by Rule 134. For seasoned 
issuers, the most recent statutory prospectus would have to be on file 
with us and the issuer or offering participant would have to file the 
free writing prospectus with us not later than the date of first use.
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    \142\ Base prospectuses, preliminary prospectuses and 
prospectuses subject to completion that are permitted under our 
rules are statutory prospectuses that satisfy the requirements of 
Securities Act section 10 but are not prospectuses that satisfy the 
requirements of Securities Act section 10(a). Where a final 
prospectus satisfying the requirements of Securities Act section 
10(a) is sent or delivered prior to or with written offering 
materials, that communication would fall within the exception from 
the definition of prospectus in clause (a) of Securities Act section 
2(a)(10).
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    Where, however, the free writing prospectus is prepared by persons 
in the media business that are unaffiliated \143\ with and not paid for 
by the issuer or offering participants, our proposed rules would make 
certain accommodations that would, we believe, permit the publication 
by the media under the gun-jumping provisions.\144\ In those cases, the 
statutory prospectus would not be required to precede or accompany the 
media communication, although a filed registration statement and 
availability of a statutory prospectus would be conditions. Therefore, 
an interview or other media publication or broadcast where an issuer or 
offering participant participates (but does not prepare or pay for the 
event) could be a free writing prospectus, but because of the media 
intervention, we are prepared to conclude that its use should not be 
conditioned on prior or simultaneous delivery of the statutory 
prospectus. In addition, any such free writing prospectus would be 
subject to filing by the issuer or offering participant involved within 
one business day after first publication or first broadcast. Persons in 
the media would have no filing or other obligations under these 
provisions. For example, unlike today, an underwriter or issuer would 
be permitted to invite the press to a live road show or an electronic 
road show, but we would consider an article including information 
obtained at that road show to be a free writing prospectus of the 
issuer or underwriter and subject to the proposed rules.\145\ As 
another example, if a chief executive of a non-reporting issuer gave an 
interview to a financial news magazine without payment to the magazine 
for the article, the publication of the article after the filing of the 
registration statement would be a free writing prospectus of the issuer 
that would have to be filed by the issuer after publication. In that 
case, there would be no requirement that a statutory prospectus precede 
or accompany the article at the time of the publication.
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    \143\ The term ``affiliate'' is defined in Securities Act Rule 
405.
    \144\ See discussion in Section III.D.3. below under 
``Permissible Use of Free Writing Prospectuses.''
    \145\ Unlike an article published based on information obtained 
from a road show with a limited audience, an article published based 
on information provided at a readily accessible electronic road show 
open to an unrestricted audience would not be treated as a free 
writing prospectus of the issuer or offering participant due to the 
unrestricted and available nature of the electronic road show. See 
discussion in Section III.D.3 below under ``Electronic Road Shows.''
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Request for Comment

    <bullet> Does the proposed definition cover all the types of 
communications that issuers and other persons participating in the 
offer and sale of the issuer's securities would use outside the 
statutory prospectus?
    <bullet> Do our proposals regarding information provided to the 
media by or on behalf of the issuer or other offering participants 
provide enough guidance for issuers and other offering participants to 
determine when such a communication is a free writing prospectus?
    <bullet> Should the free writing prospectus be considered part of 
the registration statement?
    <bullet> Should the issuer have to approve every free writing 
prospectus before its use?
iii. Permitted Use of a Free Writing Prospectus After the Filing of a 
Registration Statement Under Proposed Rule 433
    Proposed Rule 164 would permit the use of a free writing prospectus 
where an eligible issuer has filed a registration statement and the 
conditions of proposed Rule 433 are satisfied.\146\ The proposed rules 
permitting the use of free writing prospectuses would not be available 
for any communication that, while in technical compliance with the 
rule, was part of a plan or scheme to evade the requirements of Section 
5 of the Act.
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    \146\ The discussion in this section relates to the use of free 
writing prospectuses after the filing of a registration statement. 
For a discussion of the use of free writing prospectuses by well-
known seasoned issuers prior to filing a registration statement, see 
the discussion in Section III.D.2 above under ``Permitted Pre-Filing 
Offers for Well-Known Seasoned Issuers''.
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(A) Conditions to Permitted Use of a Free Writing Prospectus
    Proposed Rule 164 provides that, after the filing of a registration 
statement, a free writing prospectus that satisfies the conditions of 
proposed Rule 433 would be a permitted prospectus under Section 10(b) 
for purposes of Securities Act Section 5(b)(1). Proposed Rule 433 sets 
out eligibility, information, legend, filing, and record retention 
conditions for the use of free writing prospectuses after the filing of 
the registration statement.
(1) Prospectus Delivery and/or Availability
    The ability of any person participating in the offer and sale of 
the securities to use free writing prospectuses under proposed Rules 
164 and 433 would be conditioned on availability of the issuer's most 
recently filed statutory prospectus (other than a summary prospectus) 
satisfying the requirements of Securities Act Section 10 and, in 
certain cases, on prior or concurrent delivery of the issuer's most 
recently filed statutory prospectus.
(a) Non-Reporting Issuers and Unseasoned Issuers
    In offerings of securities of an eligible non-reporting issuer, 
including initial public offerings, or offerings of securities of an 
eligible unseasoned issuer, use by offering participants of free 
writing prospectuses would be conditioned on filing of the registration 
statement for the offering. If the free writing prospectus was prepared 
by or on behalf of an issuer or offering participant, if consideration 
was or would be given by the issuer or an offering participant for the 
publication or broadcast (in any format) of any free writing prospectus 
(including any published article, publication or advertisement), or if 
Securities Act Section 17(b) \147\ required disclosure that 
consideration was or would be given by the issuer or an offering 
participant for any activity described therein, then the use of the 
free writing prospectus would be conditioned on its being accompanied 
or preceded by the most recent statutory prospectus that satisfied the 
requirements of Section 10.\148\ If a final prospectus satisfying the 
requirements of Section 10(a) is sent or given with or prior to the 
written offer, proposed Rules 164 and 433 would not apply, but the 
written offer is not a prospectus under the exception in clause (a) of 
Section 2(a)(10) and would be permitted.
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    \147\ For purposes of Rule 433, as well as for proposed Rule 
163, communications for which disclosure would be required under 
Securities Act Section 17(b) would be deemed a free writing 
prospectus. In these situations, we believe that an issuer's or 
offering participant's payment for or other consideration given for 
publications covered by Section 17(b) would raise the same types of 
concerns as an issuer or offering participant paid interview.
    \149\ Proposed Rule 433 would provide that a prospectus would be 
deemed to accompany an electronic free writing prospectus if the 
latter contained a hyperlink to the former. In initial public 
offerings, a preliminary prospectus that does not contain a price 
range does not satisfy our rules or, therefore, the requirements of 
Section 10.
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    The result of this framework would be that these categories of 
issuers and offering participants would have to

[[Page 67411]]

assure that the most recent statutory prospectus was actually provided 
to people who might receive a free writing prospectus. Thus, in the 
following situations, for example, use of the free writing prospectus 
would be conditioned on the most recent statutory prospectus preceding 
or accompanying the free writing prospectus or the communication could 
not be made in reliance on proposed Rules 164 and 433:
    <bullet> A direct written communication by an issuer or offering 
participant;
    <bullet> An interview in print or broadcast given or prepared by an 
issuer, its officers, directors or representatives or an offering 
participant, the publication or broadcast (in any format) of any free 
writing prospectus (including any published article, publication or 
advertisement) for which consideration was or would be given by the 
issuer or an offering participant, or for which Securities Act Section 
17(b) required disclosure of a payment made or consideration given by 
an issuer or other offering participant;
    <bullet> A press release disseminated by an issuer or offering 
participant and rebroadcast by the media; or
    <bullet> A paid advertisement, in any format, by an issuer or 
offering participant.\149\
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    \149\ We understand that using broadly disseminated free writing 
prospectuses in this category may not be feasible unless they are in 
electronic form and contain a hyperlink to the statutory prospectus. 
We believe that this is an appropriate result because additional 
assurance should exist that free writing prospectuses prepared by or 
paid for by non-reporting or unseasoned issuers or offering 
participants are considered by investors in the context of the 
statutory prospectus.
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    In these situations, following effectiveness of a registration 
statement, if a final prospectus meeting the requirements of Section 
10(a) was previously or at the same time sent or given to each person 
to whom the written offer was made, proposed Rules 164 and 433 would 
not apply, but, as is currently the case, a written offer is permitted.
    As we discuss above, in cases where a free writing prospectus is 
prepared by a person in the media business that is not affiliated with 
or paid by the issuer or an offering participant, the statutory 
prospectus would not be required to precede or accompany the media 
communication.\150\ The issuer or other offering participant would be 
required to file the article within one business day following 
publication or broadcast.
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    \150\ See discussion in Section III.D.3. above under ``Media 
Publications.''
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    In offerings of securities of eligible non-reporting or unseasoned 
issuers, where a free writing prospectus was prepared by or on behalf 
of, or paid for by, an issuer or offering participant, or Securities 
Act Section 17(b) required disclosure that a payment was made or 
consideration was given for distribution or publication of the free 
writing prospectus,\151\ we believe it is important to deliver the 
preliminary prospectus to the recipient of the free writing prospectus. 
Conditioning use of the free writing prospectus on the fact that a 
statutory prospectus precede or accompany the free writing prospectus 
will assure that an investor has a balanced disclosure document of an 
issuer with no or limited reporting history against which to evaluate 
the free writing prospectus and to place the statements made in 
context. Although unseasoned issuers are reporting issuers, we believe 
that there is less reason to assume that the issuer would be well 
followed and thoroughly scrutinized or that plentiful issuer 
information would exist. The existing statutory provisions of Section 
2(a)(10) would produce substantially the same result after 
effectiveness by requiring that the final prospectus meeting Securities 
Act Section 10(a) be sent or given prior to or at the same time as a 
written offer.
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    \151\ Our proposals would provide that materials for which 
Securities Act Section 17(b) [15 U.S.C. 77q(b)] requires disclosure 
would be treated as free writing prospectuses of the issuer or other 
offering participant on whose behalf the payment was made or 
consideration given.
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    The condition that the statutory prospectus accompany or precede 
the free writing prospectus would not require that it be provided 
through the same medium, so long as it was provided at the required 
time. Although the prospectus would not have to be sent by the same 
means (paper or electronic) as the free writing prospectus, merely 
referring to its availability would not satisfy this condition.
    Once the required statutory prospectus was sent or given to an 
investor, additional free writing prospectuses could be provided 
without having to send or give an additional statutory prospectus, 
unless there were material changes in the most recent statutory 
prospectus from the provided prospectus.\152\ For example, once an 
investor had been sent a preliminary prospectus, absent a material 
change, the proposed rule would permit subsequent e-mail communications 
by an offering participant that constitute free writing prospectuses 
without the user having to hyperlink to or otherwise redeliver a 
statutory prospectus with each communication. After effectiveness and 
availability of a final prospectus meeting the requirements of 
Securities Act Section 10(a), no earlier statutory prospectus may be 
provided, and such final prospectus must precede or accompany any free 
writing prospectus provided after such availability, whether or not an 
earlier statutory prospectus had been previously provided to the 
recipient.\153\
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    \152\ If there were material changes in a preliminary 
prospectus, or preliminary prospectus supplement, the issuer and 
offering participants would generally recirculate the revised 
preliminary prospectus or supplement to potential purchasers.
    \153\ If a final prospectus is given or sent prior to or with a 
written offer, under the exception in clause (a) of Securities Act 
Section 2(a)(10), the written offer is not a prospectus and 
therefore would not be a free writing prospectus and proposed Rules 
164 and 433 would not apply.
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    We believe that in a situation where a written communication is not 
prepared or paid for by an offering participant but rather by 
independent media, it still may be an offer and thus a free writing 
prospectus. There is less need in this situation, however, to have a 
statutory prospectus precede or accompany the free writing prospectus 
if a registration statement containing a statutory prospectus is on 
file with us and available.
(b) Seasoned Issuers and Well-Known Seasoned Issuers
    In offerings of securities of eligible seasoned issuers and 
eligible well-known seasoned issuers, we propose that issuers and other 
offering participants could use a free writing prospectus after the 
filing of a registration statement containing a statutory prospectus. 
For shelf offerings, this preliminary prospectus could be a base 
prospectus that satisfied our requirements.\154\ For offerings of 
securities of eligible seasoned issuers, we would not propose to 
condition use of the free writing prospectus on actual delivery of the 
preliminary prospectus. Instead, we would propose that the user of the 
free writing prospectus notify the recipient, through a required 
legend, of where the recipient can access or hyperlink to the 
preliminary or base prospectus by providing the URL for the 
prospectus.\155\
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    \154\ See proposed Rule 430B, described below, which is 
intended, among other things, to locate within one rule the 
information requirements for a base prospectus in a shelf 
registration statement.
    \155\ Our existing rules do not require delivery of preliminary 
prospectuses in offerings involving reporting issuers. Thus, 
notification of availability of the preliminary or base prospectus 
on our Electronic Data Gathering, Analysis, and Retrieval 
(``EDGAR'') system would allow recipients of the free writing 
prospectus the opportunity to evaluate the free writing prospectus 
against the filed materials.
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    In addition, in offerings of securities of eligible well-known 
seasoned issuers, we are proposing that free writing

[[Page 67412]]

prospectuses may be used by issuers at any time before or after the 
filing of a registration statement, and by any other offering 
participants after the filing of a registration statement containing a 
preliminary or base prospectus that satisfies our requirements, as 
detailed above.\156\
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    \156\ In the event that a well-known seasoned issuer did not 
have a registration statement on file, proposed Rule 163 would 
provide that an eligible well-known seasoned issuer's written offers 
would be exempt from Section 5(c). While it would be exempt from the 
requirements of Section 5(c), a written offer made under the 
exemption in proposed Rule 163 would fall within our proposed 
definition of ``free writing prospectus.'' Rule 163 would condition 
the Section 5(c) exemption for that free writing prospectus on the 
satisfaction of the conditions in the Rule including filing, legend, 
and record retention conditions.
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    Instead of relying on Rules 164 and 433, the issuer or offering 
participant can, as is currently the case, make a written offer in 
reliance on the exception to the definition of prospectus contained in 
clause (a) of Securities Act Section 2(a)(10) if a final prospectus 
meeting the requirements of Securities Act Section 10(a) is previously 
sent or given to the person receiving the written offer. If the 
provisions of Section 2(a)(10) are followed, the written offer is not a 
prospectus.

Request for Comment

    <bullet> Should the proposed rule make the proposed distinctions 
among the types of issuers?
    <bullet> Should the proposed rule's distinction in methods of 
providing the preliminary prospectus apply to different issuers?
    <bullet> For initial public offerings or offerings by unseasoned 
issuers, should the proposed rules provide as a condition to use of a 
free writing prospectus that a copy of the prospectus be delivered at 
or before access to a free writing prospectus, or should it suffice 
that the preliminary prospectus has been filed with us before then and 
is available?
    <bullet> For all other issuers, should availability of a prospectus 
on file with us be sufficient when a free writing prospectus is used or 
should there be a delivery obligation?
    <bullet> Rule 434 permits the use of term sheets together with 
prospectuses in certain types of offerings. Should we retain Rule 434 
in light of the free writing prospectus proposals? If so, how and when 
would the rule be used and for what types of offerings?
    <bullet> Should the proposed rule include additional limitations or 
restrictions for free writing prospectuses that are broadcast over 
television or radio?
(2) Ineligible Issuers
    For any offering participant to use free writing prospectuses the 
issuer may not be an ineligible issuer.\157\ As proposed, ineligible 
issuers are: \158\
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    \157\ Issuers or offerings falling within the described 
categories would also be considered ineligible for use of the 
communications safe harbors, exemptions, and exclusions and the 
automatic shelf registration statement procedure.
    \158\ We are proposing to include a waiver provision to allow us 
to waive a issuer's ineligibility if we find good cause to provide 
the waiver. Registered investment companies and business development 
companies would not be eligible for waivers of ineligibility.
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    <bullet> Reporting issuers who are not current in their Exchange 
Act reports;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) blank check issuers;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) shell companies;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) penny stock issuers;
    <bullet> Issuers who are limited partnerships offering and selling 
their securities other than in a firm commitment underwriting; \159\
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    \159\ These issuers are in the category of issuers that are 
subject to our interpretations in Limited Partnership 
Reorganizations and Public Offerings of Limited Partnership 
Interests, Release No. 33-6900 (June 17, 1991) [56 FR 28979].
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    <bullet> Issuers who have received a ``going concern'' opinion from 
their auditors for the most recent fiscal year;
    <bullet> Issuers who have filed for bankruptcy or insolvency during 
the past three years;
    <bullet> Issuers who have been or are the subject of refusal or 
stop orders under the Securities Act; or
    <bullet> Issuers who, or whose subsidiaries, have been found to 
have violated the federal securities laws, have entered into a 
settlement with any government agency involving allegations of 
violations of federal securities laws, or have been made the subject of 
a judicial or administrative decree or order prohibiting certain 
conduct or activities regarding the federal securities laws \160\ 
during the past three years.\161\
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    \160\ The covered decrees or orders would be prohibitions on 
future violations of the federal securities laws, orders requiring 
issuers to cease and desist from violating the federal securities 
laws, and determinations of violations of the federal securities 
laws. The settlements would include settlements in which the issuer 
or its subsidiary neither admits nor denies that it violated the 
federal securities laws.
    \161\ See proposed amendments to Securities Act Rule 405.
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    The proposed new rule also would not apply to offerings by 
registered investment companies or business development companies or 
offerings that are exchange offers or business combination transactions 
that are subject to Regulation M-A.
    The categories of ineligible issuers include issuers that are not 
compliant with their Exchange Act reporting obligations, issuers that 
may raise greater potential for abuse, and issuers that have violated 
the federal securities laws previously. Certain of these issuers have 
been viewed historically as unsuited for short-form registration or 
ineligible for disclosure-related relief. For instance, we have 
repeatedly stated our belief that penny stock and blank check offerings 
and shell companies may give rise to disclosure abuses.\162\ In 
addition, Congress determined not to extend the safe harbors for 
forward-looking statements to issuers of blank check and penny stock 
securities offerings, as well as issuers previously convicted of 
certain felonies and misdemeanors and issuers subject to a decree or 
order involving a violation of the securities laws.\163\
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    \162\ See, e.g., Penny Stock Definition for Purposes of Blank 
Check Rule, Release No. 33-7024 (Oct. 25, 1993) [58 FR 58099] (the 
Commission stated that Congress found blank check companies to be 
common vehicles for fraud and manipulation in the penny stock 
market, and concluded that the Commission's disclosure-based 
regulation and review of such offerings protects investors); Delayed 
Pricing for Certain Registrants, Release No. 33-7393 (Feb. 20, 1997) 
[62 FR 9276] (blank check and penny stock issuers would be 
ineligible to use proposed rule providing for delayed pricing 
because of ``prior substantial abuses''); and the Shell Companies 
Release note 73.
    \163\ See Securities Act Section 27A and Exchange Act Section 
21E [15 U.S.C. 78u-5].
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    We propose to exclude registered investment companies and business 
development companies from eligibility for use of proposed Rules 164 
and 433 because they are already subject to separate rules permitting 
use of a Section 10(b) prospectus. Securities Act Rule 482 \164\ 
permits investment companies to advertise investment performance data 
and other information, and Securities Act Rule 498 \165\ permits open-
end management investment companies to use a profile.
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    \164\ 17 CFR 230.482.
    \165\ 17 CFR 230.498.
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Request for Comment

    <bullet> Should other categories of issuers also be precluded from 
reliance on our communications and automatic shelf registration 
proposals? For example, is there any reason we should disqualify 
offerings by certain types of entities, such as limited partnerships or 
limited liability companies?
    <bullet> On the other hand, should any of the offerings we propose 
to disqualify instead be permitted to use our proposed communications 
and automatic shelf registration process if

[[Page 67413]]

they are otherwise eligible? For example, are there other ways to 
distinguish penny stock offerings that should be disqualified from 
those involving legitimate capital raising?
    <bullet> Should issuers be required to have filed their Exchange 
Act reports timely for the preceding 12 months as well as being current 
in their Exchange Act reports for purposes of relying on the new 
proposed communications rules?
    <bullet> Should we extend or shorten the look-back periods used to 
disqualify issuers in any category?
    <bullet> Would disqualification from our proposals on the basis of 
a ``going concern'' opinion from the issuer's independent auditor cause 
undue pressure to be placed on auditors not to issue those opinions? 
Should we replace that disqualification with one dependent on whether 
the issuer had: (1) Net losses or negative cash flows from operations 
for two or more of the past three annual fiscal periods; or (2) a 
deficit in net worth at the date of the most recent balance sheet?
    <bullet> Should an issuer's disclosure of a material weakness in 
its internal controls over financial reporting make an issuer 
ineligible for purposes of the proposals?
    <bullet> Should blank check companies, penny stock issuers or shell 
companies be able to rely on some aspect of our proposals for capital-
raising transactions?
    <bullet> Are there other types of offerings that also should be 
excluded from our proposals?
    <bullet> Should an issuer be considered an ineligible issuer if it 
or its subsidiary were found to have violated, entered into a 
settlement with a state agency or another governmental agency with 
regard to, or been made the subject of a judicial or administrative 
order or decree, for violating or allegedly violating state securities 
laws or any securities laws? Should an issuer be considered ineligible 
if an affiliate of an issuer were found to have violated, settled 
allegations of violations of, or been made the subject of a judicial or 
administrative order or decree for violating or alleged violations of 
securities laws?
    <bullet> Should registered investment companies or business 
development companies be able to rely on our proposed rules permitting 
use of a free-writing prospectus?
    <bullet> Certain of today's proposals regarding communications 
apply to certain types of communications made around the time of 
registered business combination transactions as defined in Rule 
165(f)(1), while others are not available to registered business 
combination transactions. As a result, the rules and regulations 
adopted pursuant to Regulation M-A will continue to apply to business 
combination transactions. We request comment as to whether the 
inclusions and exclusions of business combination transactions in the 
proposed amendments and rules are proper and whether such inclusions 
and exclusions are clear and unambiguous. Should we make any 
modifications to the Regulation M-A model in light of our proposals?
    <bullet> Should an issuer that undertakes a registered capital 
formation transactions at the same time as it engages in a business 
combination transaction be eligible to rely on our communications 
proposals for the capital formation transaction? If yes, should any 
limitations be placed on the communications or should the issuer, if 
otherwise eligible, be able to use the proposals for free writing 
prospectuses or our other proposals?
(3) Filing Conditions
(a) General Conditions
    Under our proposal, use of a free writing prospectus would be 
conditioned on filing of that prospectus or information contained in 
that prospectus in the following circumstances: \166\
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    \166\ See proposed Rule 433(d). Unlike Securities Act Rule 425 
applicable to business combination transactions which covers all 
communications, including Securities Act Rule 135 notices, under 
proposed Rule 433, Rule 135 notices and Securities Act Rule 134 
notices would not be considered free writing prospectuses and would, 
therefore, not be subject to the conditions to use in the proposed 
Rule. Electronic road shows would not be subject to the filing 
condition in certain circumstances. See Section III.D.3 below under 
``Electronic Road Shows''.
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    <bullet> Where a free writing prospectus is prepared by or on 
behalf of the issuer, known as an ``issuer free writing prospectus,'' 
and used by any person, the issuer shall file that free-writing 
prospectus; \167\
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    \167\ As we discuss above, under our proposed Rule 163, a well-
known seasoned issuer could use an issuer-prepared free writing 
prospectus before the shelf registration statement was filed or 
before a class of securities was included in the effective shelf 
registration statement. In this case, use of the free writing 
prospectus would be conditioned on filing when the registration 
statement was filed or amended to include the class not yet 
included.
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    <bullet> Where a free writing prospectus prepared by a party 
participating in the offering other than the issuer contains material 
information about the issuer or its securities that has been provided 
by or on behalf of an issuer, known as ``issuer information,'' that is 
not already contained or incorporated in the registration statement or 
a filed free writing prospectus, the issuer shall file that 
information;
    <bullet> Where a free writing prospectus is prepared by a party 
other than the issuer and is distributed in a manner reasonably 
designed by such party to lead to its broad unrestricted dissemination, 
the other party shall file the free writing prospectus, unless it has 
already been filed; and
    <bullet> Where a free writing prospectus prepared by any person 
contains only a description of the terms of the issuer's securities, 
the issuer must file the free writing prospectus that contains the 
final terms of the issuer's securities.\168\
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    \168\ The final terms of the issuer's securities would either be 
contained in an issuer free writing prospectus or, if contained in 
another party's free writing prospectus, would be issuer 
information.
---------------------------------------------------------------------------

    The conditions would provide that the issuer file the issuer-
prepared free writing prospectus or material issuer information on or 
before the date of first use, except in the case of final terms of 
securities. Because the free writing prospectus would be either that of 
the issuer or would contain material issuer information, we believe the 
proposed timing is appropriate. The issuer would have control over the 
use or would know that it provided the information for use. Issuer 
information contained in free writing prospectuses would be publicly 
available on our EDGAR system \169\ as a result of the proposed rule's 
filing condition.\170\
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    \169\ We maintain an Internet site at www.sec.gov that contains 
reports, proxy and information statements, and other information 
regarding issuers that file electronically with us through EDGAR.
    \170\ As today, oral communications would not be subject to any 
filing condition but would still be subject to liability under 
Securities Act Section 12(a)(2) and the anti-fraud provisions of the 
federal securities laws.
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    In most cases, there would be no condition that underwriters and 
participating dealers file the free writing prospectuses that they 
prepare. This would include information prepared by underwriters and 
others on the basis of, but not containing, issuer information.\171\ 
Examples of this information would include information prepared by 
underwriters that could be, but would not be limited to, information 
that is proprietary to an underwriter.
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    \171\ We are attempting to ensure that issuer information made 
available to any party in a written offer in connection with the 
registered offering would be filed and made publicly available. As 
we note earlier, the proposed exclusions from restrictions on free 
writing under proposed Rules 163 and 164 would not be available for 
any plan or scheme to evade the requirements of Section 5. This 
would include situations in which issuer provided information, such 
as issuer prepared projections or forward-looking information, is 
characterized as underwriter or participating dealer information in 
order for the issuer to avoid filing the information.

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[[Page 67414]]

    Our proposals contain an exception to the general principle that 
underwriter free writing prospectuses would not need to be filed. If 
any person, other than the issuer, participating in the offer or sale 
of the securities distributed a free writing prospectus in a manner 
that was reasonably designed to achieve broad unrestricted 
dissemination, such use would be conditioned on such person filing the 
free writing prospectus on or before the date of first use.\172\ For 
example, the filing condition would apply where: \173\
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    \172\ An underwriter, dealer, or other offering participant 
would be considered to have made such a distribution of a free 
writing prospectus if the dissemination was made by or on its 
behalf. As with an issuer free writing prospectus, ``by or on behalf 
of'' an underwriter, dealer, or other offering participant would 
mean that the particular underwriter, dealer, or other offering 
participant, its agent or representative authorized and approved the 
use of the free writing prospectus before its dissemination. Thus, 
an issuer, underwriter, dealer, or other offering participant could 
not indirectly disseminate information through the press or 
otherwise without complying with the conditions of proposed Rule 
433. In that case, the materials provided to the press would be a 
free writing prospectus of the underwriter, dealer, or other 
offering participant.
    \173\ Where an issuer distributed a free writing prospectus 
prepared by an underwriter, dealer or other offering participant, 
that free writing prospectus would be an issuer free writing 
prospectus for purposes of the filing condition.
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    <bullet> An underwriter included a free writing prospectus on an 
unrestricted Web site or hyperlinked from an unrestricted Web site to 
information that would be a free writing prospectus \174\ or if a 
dealer or other offering participant released or gave a copy of its 
free writing prospectus to a newspaper or other media; or
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    \174\ On the other hand, a Web site with access restricted to 
customers or a subset of customers would not require filing. 
(Neither would an e-mail by an underwriter to its customers, 
regardless of the number of customers.)
---------------------------------------------------------------------------

    <bullet> An underwriter or other offering participant sent out a 
press release regarding the issuer or the offering that would be a free 
writing prospectus.
    A free writing prospectus including information about the issuer, 
its securities, or the offering, provided by or on behalf of the issuer 
or an offering participant that is prepared by persons in the media 
business who are not affiliated with or paid by the issuer or an 
offering participant would be subject to filing by the issuer or 
offering participant involved within one business day after first 
publication or first broadcast. Persons in the media would have no 
filing or other obligations under these provisions.
    A free writing prospectus that contained only a description of the 
securities offered, regardless of whether the issuer or other offering 
participant prepared or used it, would be subject to filing only if it 
reflected the final terms of the securities being offered. The issuer 
would have to file the free writing prospectus within two days after 
the later of the date such terms became final or the date of first 
use.\175\ We believe this filing condition is appropriate for free 
writing prospectuses that contain only a description of the final terms 
of a security. Preliminary term sheets and other descriptive material 
containing only the terms of the securities that do not reflect final 
terms of securities or transactions would not be subject to filing. All 
such written offering materials, whether or not filed, would be free 
writing prospectuses.
---------------------------------------------------------------------------

    \175\ As proposed, the filing condition under this provision of 
proposed Rule 433 would not be satisfied by the timely filing of a 
prospectus supplement under Rule 424.
---------------------------------------------------------------------------

    The 1998 proposals would have required all free writing to be 
filed, regardless of whose communications were involved. This filing 
condition caused commenters to raise concerns that participants might 
be liable for communications they had not made or used.\176\ By 
providing that the filing condition applies only to an issuer free 
writing prospectus and issuer information, whether contained in an 
issuer free writing prospectus or in another participant's free writing 
prospectus, or to information in a free writing prospectus broadly 
disseminated, we believe we have addressed the concerns about cross-
liability under Securities Act Section 12(a)(2) for other participants' 
free writing materials.\177\ Comments regarding the 1998 proposals also 
expressed concern that the public filing would cause competitive harm 
to underwriters by making their confidential proprietary products 
public.\178\ The filing condition in proposed Rule 433 would not extend 
to a free writing prospectus prepared by an underwriter, including 
information prepared on the basis of issuer information that does not 
include issuer information, unless the free writing prospectus fell 
into the ``broad dissemination'' category. Free writing prospectuses 
sent directly to customers of an offering participant, without regard 
to number, would not be broadly disseminated.
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    \176\ See, e.g., comment letters in File No. S7-30-98 from the 
ABA; Ford Motor Credit Company; Investment Company Institute 
(``ICI''); Merrill Lynch; and Sullivan & Cromwell.
    \177\ Commenters were also concerned that underwriters and 
participating dealers would not be able to satisfy their suitability 
determination obligations if underwriter or participating dealer 
materials were publicly filed, because they might be considered to 
be offering the issuer's securities to a potentially anonymous group 
of investors. We believe that our proposal addresses these concerns 
as well by, among other things, providing that free writing 
prospectuses prepared and used by offering participants sent 
directly to their customers would not be considered broadly 
disseminated. See note 174.
    \178\ See comment letters in File No. S7-30-98 from Credit 
Suisse First Boston Corporation (``CSFB''); J.C. Bradford & Co.; and 
Morgan Stanley Dean Witter (``Morgan Stanley'').
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Request for Comment

    <bullet> Is it appropriate to distinguish between issuer 
information and information prepared by an underwriter on the basis of 
issuer information for purposes of filing? If not, why not? Should the 
proposed rule provide additional specificity regarding the 
determination of whether a free writing prospectus is prepared on the 
basis of issuer information but does not include issuer information? If 
so, please describe the manner in which the proposed rule should 
provide that specificity.
    <bullet> Should all offering participants free writing prospectuses 
be required to be filed?
    <bullet> Have the proposals to limit filing to issuer free writing 
prospectuses, issuer information in any other person's free writing 
prospectus and broadly disseminated free writing prospectuses of other 
participants alleviated concerns about cross-liability for free writing 
prospectuses used by other offering participants?
    <bullet> Is the phrase ``manner reasonably designed to lead to 
broad dissemination'' clear enough or should we consider a more precise 
definition? If yes, then what definition should be used?
    <bullet> Should we define issuer information differently? If yes, 
how should we define it?
    <bullet> Should we require free writing prospectuses that contain 
only preliminary terms of a securities offering to be filed? If yes, 
why?
(b) Electronic Road Shows
    Issuers and underwriters frequently conduct presentations known as 
``road shows'' to market their offerings to the public. These road 
shows are a primary means by which issuers are involved directly and 
actively with investors in the selling effort. Historically, these 
presentations were conducted in person and limited to institutional 
investors. Today, due to advances in electronic media, road shows also 
are being conducted or re-transmitted over the Internet or other 
electronic media.
    We intend to make clear that electronic communications, including 
electronic road shows, are graphic communications that fall within our 
proposed definition of written

[[Page 67415]]

communication.\179\ Thus, under our proposed rules, an electronic road 
show would be a written offer and a prospectus, but it would also be a 
free writing prospectus. It would therefore be permitted if the 
conditions of proposed Rule 433 were satisfied. Issuer involvement or 
participation in an electronic road show would make it an issuer free 
writing prospectus.\180\ Our proposals would apply to electronic road 
shows in all registered securities offerings, not just initial public 
offerings.\181\
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    \179\ All electronic communications would be written 
communications due to their character as graphic communications, not 
because they fall within the concept of broadcast. See proposed 
amendments to the definition of ``graphic communication'' in 
Securities Act Rule 405.
    \180\ Live road shows would continue to be considered oral 
communications.
    \181\ We recognize that road shows may be used in marketing the 
issuer's securities in certain private placement transactions, as 
well. Our proposals do not address those offerings, although the 
inclusion of electronic communications in the definition of written 
communication would apply to private placement transactions. For 
example, in an offering made in reliance on Securities Act Rule 505 
or Rule 506 of Regulation D [17 CFR 230.505 and 17 CFR 230.506], an 
electronic road show or other written communication would implicate 
the provisions of Securities Act Rule 502 [17 CFR 230.502] regarding 
information that must be provided to non-accredited investors and 
restrictions on general solicitation and general advertising.
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    Electronic road shows--those road shows transmitted electronically 
by the Internet, videos, e-mail, CD-ROM or any other medium--have to 
date proceeded in reliance on a series of no-action letters granted by 
the staff of the Division of Corporation Finance.\182\ Our proposals 
would permit the use of electronic road shows without many of the 
conditions in the electronic road show no-action letters,\183\ provided 
the issuer satisfies the conditions of Rule 433.\184\ We believe that, 
once we categorize electronic road shows as graphic communications and 
thus as written communications and free writing prospectuses, we should 
not subject them to additional conditions. Indeed, we believe broadly 
available electronic road shows treated as free writing prospectuses 
should be encouraged. Therefore, our proposals would provide that an 
electronic road show or its script would not be subject to filing, 
except for material issuer information not previously included 
(including by incorporation by reference) in the registration statement 
or in a free writing prospectus related to the offering, if the issuer 
does the following:
---------------------------------------------------------------------------

    \182\ See Staff no-action letters to Private Financial Network 
(Mar. 12, 1997); Net Roadshow, Inc. (July 30, 1997); Bloomberg L.P. 
(Oct. 22, 1997); Thompson Financial Services, Inc. (Sep. 4, 1998); 
Activate.net Corporation (June 3, 1999); Charles Schwab & Co., Inc. 
(Nov. 15, 1999); and Charles Schwab & Co., Inc. (Feb. 9, 2000).
    \183\ For example, the road show audience would not have to be 
limited in any way, and the road show need not be the re-
transmission of a live presentation in front of an audience. In 
addition, those distributing the road show would not have to limit 
viewers to seeing it either within a 24-hour period or twice. They 
could also allow viewers to copy, print or download the road show. 
Multiple versions of the electronic road show would be permitted. 
Each would be a separate free writing prospectus. If we adopt our 
proposals, the electronic road show no-action letters for registered 
public offerings would be withdrawn at that time. See discussion of 
Staff no-action letters in note 182.
    \184\ Electronic road shows would have to satisfy the legend 
condition discussed in Section III.D.3. above under ``Permitted Use 
of a Free Writing Prospectus After the Filing of a Registration 
Statement under Proposed Rule 433'' and, for road shows involving a 
non-reporting or unseasoned issuer, would be subject to the 
condition that the issuer's statutory prospectus accompany or 
precede the electronic road show. As such, those issuers would have 
to include in the electronic road show a hyperlink to the issuer's 
filed statutory prospectus in its registration statement.
---------------------------------------------------------------------------

    <bullet> Makes at least one version of a bona fide electronic road 
show \185\ readily available electronically to any potential investor 
at the same time as the electronic road show; and
---------------------------------------------------------------------------

    \185\ We propose to define ``bona fide electronic road show,'' 
for purposes of the proposed rule, as a version of an electronic 
road show (one that is provided or made available by means of 
graphic communication) that contains a presentation by some members 
of an issuer's management and that, where the issuer is using more 
than one version of an electronic road show, covers the same general 
areas regarding the issuer, its management, and the securities being 
offered as the other versions. To be bona fide, the version need not 
address all of the same subjects or provide the same information as 
the other versions of an electronic road show. It also need not 
provide an opportunity for questions and answers or other 
interaction, even if other versions of the electronic road show do 
provide such opportunities.
---------------------------------------------------------------------------

    <bullet> Files any issuer free writing prospectus or material 
issuer information used at an electronic road show (other than the road 
show itself).
    We believe that our proposed treatment of electronic road shows 
would strike the appropriate balance between the need to market an 
issuer's securities to institutional investors and the desires of 
retail and other investors to have access to issuer information, such 
as management presentations, that are normally available only at road 
shows that often have not been open to retail investors generally. We 
also believe that our proposal would address concerns that important 
information about an issuer or an offering can be communicated at 
electronic (as well as live) road shows, rather than in the statutory 
prospectus. In this regard, the Report and Recommendations of the NASD/
NYSE IPO Advisory Committee recommended that issuers be required to 
make a version of their IPO road show available electronically to 
unrestricted audiences.\186\ While we are not proposing to require that 
road shows be made available to unrestricted audiences, issuers and 
underwriters would be free to open road shows to all investors, and we 
believe that our proposal will encourage issuers to do so.
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    \186\ Report and Recommendations of a Committee Convened by the 
New York Stock Exchange, Inc. and NASD at the Request of the U.S. 
Securities and Exchange Commission, available at www.nasdr.com/pdf-text/iporeport.pdf (May 29, 2003). Consistent with the Committee's 
suggestion, different versions of electronic road shows would be 
permitted for different audiences under the filing exemption, so 
long as at least one version of a bona fide electronic road show was 
available to all potential investors.
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Request for Comment

    <bullet> Should we include a definition of road show to describe 
these activities? If so, what should the description cover? That the 
road show be made to more than a specified number of persons?
    <bullet> Will our proposal, if adopted, lead to more widespread use 
of electronic road shows? To such road shows being available to all 
potential investors? Should we make it a condition that electronic road 
shows be available to all potential investors?
    <bullet> Should we consider including any of the conditions in the 
electronic road show no-action letters that we are not including in our 
proposals? If so, which ones and why?
    <bullet> Is our proposed definition of what constitutes a ``bona 
fide electronic road show'' adequate? Is there any reason to discourage 
transmission of different versions of a road show? For example, could 
an issuer prepare a road show for some investors and a second, less-
informative version for others? Should we otherwise limit this 
possibility?
    <bullet> Should an issuer be permitted to edit a retransmitted road 
show? Should the rule expressly permit editing?
    <bullet> Should visual presentations such as slides or power point 
presentations used but not distributed at live road shows be considered 
free writing prospectuses? Should we consider the use of electronic 
media to transmit an otherwise oral presentation to an audience 
overflow room as a written communication and an electronic road show, 
even if the presentation to the overflow room is not interactive?
    <bullet> Should electronic road shows transmitted over the 
television or radio be treated differently from electronic road shows 
transmitted through the Internet?
    <bullet> Should electronic road shows in business combination 
transactions be treated in the same manner as proposed Rule 433? If so, 
should there be a filing obligation similar to that in Securities

[[Page 67416]]

Act Rule 425? If not, what filing and other disclosure requirements 
should apply?
(c) Unintentional Failures To File
    Comments in response to the 1998 proposals regarding free writing 
materials expressed the concern that the failure to file all free 
writing materials would result in a Section 5 violation. We propose to 
address this concern by providing the ability to cure any unintentional 
failure to file free writing materials.\187\ The proposal provides that 
the material must be filed as soon as practicable after discovery of 
the failure to file.
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    \187\ Such a ``cure'' provision is included in Regulation M-A. 
See Securities Act Rule 165(e) [17 CFR 230.165(e)]. See also the 
Campos Article, note 102, at Sec.  1:30.
---------------------------------------------------------------------------

    Proposed Rule 164 would allow an issuer and any other person 
relying on the proposed Rule the ability to cure any immaterial or 
unintentional failure to file or delay in filing the free writing 
prospectus, without losing the ability to rely on the Rule. This cure 
provision would be available if a good faith and reasonable effort was 
made to comply with the filing condition and the free writing 
prospectus was filed as soon as practicable after the discovery of the 
failure to file.\188\
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    \188\ Underwriter materials subject to the filing condition 
would need to be filed on or before the date of first use and would 
have to include the proposed Rule 433 legend.
---------------------------------------------------------------------------

    As in the business combination rules, we are proposing the cure 
provision to avoid potential chilling of communications due to 
uncertainty over a filing status. Any attempt to avoid complying with 
the filing conditions of Rule 433 as a plan or scheme to evade Section 
5 would make the proposed exclusion and permitted use unavailable.

Request for Comment

    <bullet> Is a cure provision on filing necessary?
    <bullet> Are there other concerns about the filing obligations not 
addressed by the cure provision? If yes, then what are they and how can 
they be remedied without eliminating a filing obligation?
    <bullet> Should we specify what persons at an issuer or offering 
participant, such as any senior officer, must discover the failure to 
file?
    <bullet> Should free writing prospectus filing obligations be part 
of an issuer's disclosure controls and procedures?
    <bullet> If there is a failure to file, should there be any cooling 
off period before which an issuer could complete a transaction?
(d) Filed Free Writing Prospectus Not Part of Registration Statement
    A free writing prospectus used after a registration statement is 
filed complying with Rule 433 would be governed by the provisions of 
Securities Act Section 10(b), which provides that a prospectus 
permitted under that section is filed as part of the registration 
statement, but is not subject to Section 11 liability. We are proposing 
to modify the Section 10(b) filing requirement to provide that a free 
writing prospectus filed pursuant to proposed Rule 433 shall identify 
the registration statement to which it relates, but would not have to 
be filed as part of the registration statement. We believe that the 
modified filing condition will enhance investor protection because it 
should facilitate filing of the free writing prospectus on a timely 
basis and more readily identify the filed information, whether an 
issuer or another party's free writing prospectus or issuer information 
in a free writing prospectus, as a free writing prospectus.\189\ Any 
free writing prospectus that is used, regardless of whether it is 
filed, would be subject to liability under Securities Act Section 
12(a)(2) and the anti-fraud provisions of the federal securities 
laws.\190\
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    \189\ The free writing prospectus could also be filed as part of 
the registration statement or, where permitted, included in an 
Exchange Act report incorporated by reference into the registration 
statement. In such case, the free writing prospectus would be 
subject to Securities Act Section 11 liability [15 U.S.C 77r].
    \190\ The treatment of a free writing prospectus as a permitted 
prospectus under Securities Act Section 10(b) would be the same as 
sales literature used by investment companies and business 
development companies under Securities Act Rule 482 [17 CFR 
230.482].
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Request for Comment

    <bullet> Should we require free writing prospectuses to be filed as 
part of the registration statement? If yes, would the filing obligation 
affect whether parties use free writing prospectuses?
(4) Information in a Free Writing Prospectus
    We are proposing to permit a free writing prospectus meeting the 
conditions of Rule 433 to be a Section 10(b) prospectus without having 
line item disclosure requirements or otherwise requiring that the free 
writing prospectus contain any particular information, other than the 
legend. The proposed rule would permit information in a free writing 
prospectus to go beyond information the substance of which is contained 
in the prospectus included in the registration statement. We believe 
that exempting free writing prospectuses meeting the conditions of the 
proposed rule from limitations on any particular content should not 
diminish investor protection. In that regard, we believe that the 
liability provisions applicable to free writing prospectuses, 
particularly Securities Act Section 12(a)(2) and the anti-fraud 
provisions of the federal securities laws, provide protection against 
material misstatements in and material omissions from information 
contained in a statutory prospectus.
    Treating a free writing prospectus satisfying the conditions of 
proposed Rule 433 as a Section 10(b) prospectus would provide for 
additional continuing Commission oversight and enforcement authority 
over the contents and use of the free writing prospectus. We would 
retain the ability to halt the use of any materially false or 
misleading free writing prospectus in accordance with Section 10(b). 
Under proposed amendments to Securities Act Rule 418, our staff would 
be able to request any free writing prospectus that had been used in 
connection with a securities offering to enable the staff to monitor 
its use.\191\ We believe that the proposals balance the expressed needs 
of issuers and market participants to communicate more freely during an 
offering while protecting investors and the market from offering 
communications that contain fraudulent or misleading statements.
---------------------------------------------------------------------------

    \191\ See proposed amendment to Securities Act Rule 418 [17 CFR 
230.418].
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Request for Comment

    <bullet> Should we require that free writing prospectuses contain 
particular information in addition to the legend? If yes, what 
information?
    <bullet> Should we limit the type of information that can be 
included in a free writing prospectus? If yes, what should the 
limitations be?
    <bullet> Should we require explicitly that a free writing 
prospectus contain a balanced presentation of the information or is the 
required legend recommending that potential investors read the 
prospectus, including the risk factors, sufficient?
    <bullet> Should we amend Rule 418 to permit the staff to request 
copies of all free writing prospectuses that are used, whether or not 
they are required to be filed? If no, why not?
(a) Legend Condition
    We are not proposing any content requirement for free writing 
prospectuses other than to condition the use of a free writing 
prospectus on inclusion of a legend indicating where a prospectus is 
available, recommending

[[Page 67417]]

that potential investors read the prospectus, including Exchange Act 
documents incorporated by reference, including risk factors, if any, 
and stating that the communication constitutes a written offer pursuant 
to a free writing prospectus.\192\ In addition, the legend also would 
advise investors that they can obtain the registration statement 
including the prospectus and any incorporated Exchange Act documents 
for free through the Commission's Web site at www.sec.gov, and that 
they may request the prospectus from the issuer, any underwriter or 
dealer by calling a toll-free number. The proposal also provides that 
the legend indicate that the free writing prospectus is part of a 
public offering. Because in most, if not all cases, the legend provided 
by the proposed rule would not be included in published articles, the 
filing of a published article with us as a free writing prospectus 
including the legend would satisfy the condition of proposed Rule 
164.\193\
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    \192\ See proposed Rule 433(c).
    \193\ See proposed Rule 433(d).
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    Proposed Rule 164 would permit a user to cure an unintentional 
failure to include the legend in any free writing prospectus, as long 
as a good faith and reasonable effort was made to comply with the 
condition and the free writing prospectus is amended to include the 
legend as soon as practicable after discovery of the omitted 
legend.\194\ In addition, if a free writing prospectus has been 
transmitted to potential investors without the legend, in order to fall 
under the cure provision, the free writing prospectus must be 
retransmitted, with the appropriate legend, to all investors who 
originally received it.\195\
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    \194\ See proposed Rule 164(c)(2).
    \195\ Proposed Rule 163 contains similar cure provisions.
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    Our proposed legend condition is intended to identify more clearly 
materials as free writing prospectuses used in connection with a 
registered offering. We believe that this legend would assist investors 
in evaluating the content and would provide a record of the free 
writing materials the issuer prepared and used or issuer information 
included in free writing prospectuses used in connection with the 
offering.
    We understand that issuers or other users of written communications 
that are permissible in connection with registered offerings may 
sometimes include legends or disclaimers in those materials. Several of 
these additional legends or disclaimers are inappropriate. In 
particular, disclaimers of responsibility or liability that would be 
impermissible in a statutory prospectus or registration statement also 
would be impermissible in free writing prospectuses. Examples of 
impermissible legends or disclaimers that would cause the materials to 
not be free writing prospectuses that could be used in reliance on the 
proposed exclusion include:
    <bullet> Disclaimers regarding accuracy or completeness;
    <bullet> Statements requiring investors to read or acknowledge that 
they have read any disclaimers or legends or the registration 
statement; and
    <bullet> Language indicating that the communication is neither a 
prospectus nor an offer to sell or a solicitation or an offer to 
buy.\196\
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    \196\ See proposed Rule 164. See also the Asset-Backed 
Securities Proposing Release at note 58.
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Request for Comment

    <bullet> Should the legend contain other information?
    <bullet> Are there any other legends that should be ineligible? 
Should the proposed rule include specific language regarding legends 
that are ineligible?
    <bullet> Should we require inclusion of the legend with published 
articles when they are filed by the issuer or other offering 
participants?
    <bullet> Should we specify who at an issuer or offering participant 
, such as any senior officer, must discover the failure to include the 
legend? If yes, why?
    <bullet> Securities Act Rule 425, which contains similar cure 
provisions, does not contain any more specificity than we are 
proposing. Should cure provisions in capital formation transactions 
contain different provisions? If so, why?
    <bullet> Instead of, or in addition to, the toll free number, 
should the legend provide an e-mail address to be contacted to request 
the prospectus?
(b) Proposed Amendment to Rule 408
    Finally, we are proposing to amend Securities Act Rule 408 to make 
clear that a failure to include information that is included in a free 
writing prospectus in a prospectus filed as part of a registration 
statement would not, solely by virtue of inclusion of the information 
in a free writing prospectus, be considered an omission of material 
information required to be included in the registration statement.\197\
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    \197\ The general anti-fraud provisions would of course apply to 
free writing prospectuses.
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Request for Comment

    <bullet> Should we amend Rule 408 as proposed?
(5) Record Retention Condition
    Proposed Rule 433 would condition the use of a free writing 
prospectus on issuers and offering participants retaining for three 
years any free writing prospectuses they have used from the date of the 
initial bona fide offering of the securities in question. This record 
retention condition would apply to all offering participants and would 
apply regardless of whether the free writing prospectus was filed.\198\ 
We are proposing a three-year retention period because that timeframe 
is consistent with retention periods for brokers and dealers to retain 
securities sale confirmations.
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    \198\ For example, the record retention policy would apply to 
free writing prospectuses prepared by underwriters and not 
containing issuer information and to electronic road shows and term 
sheets not reflecting final terms not required to be filed.
---------------------------------------------------------------------------

    We believe this record retention condition is appropriate for 
several reasons. First, it would give us the ability to review free 
writing prospectuses used in reliance on proposed Rules 164 and 433 
under our authority in Securities Act Section 10(b) and the proposed 
amendments to Rule 418, among other rules. Second, offering 
participants and purchasers would benefit from the availability of the 
free writing prospectuses.

Request for Comment

    <bullet> Should the record retention condition apply to all users, 
including issuers as well as brokers and dealers?
    <bullet> Should record retention be a condition for free writing 
prospectuses that are filed? If yes, then would it be difficult to 
determine when the retention condition would apply?
    <bullet> Should we have a record retention condition? If yes, is 
three years enough? Should it be shorter such as two years or longer 
such as five years?
    <bullet> For issuers, rather than conditioning the use of a free 
writing prospectus on specific record retention in proposed Rule 433, 
should retention of the free writing prospectus used by issuers be 
mandated as part of an issuer's disclosure controls and procedures?
(B) Treatment of Communications on Web Sites and Other Electronics 
Issues
(1) General
    The proposed communications rules would enable issuers and market 
participants to take significantly greater advantage of the Internet 
and other electronic media to communicate and deliver information to 
investors. We have addressed previously the

[[Page 67418]]

circumstances under which an issuer retains responsibility for 
information included on its Web site; \199\ however, today's proposals 
could raise new issues in this regard due to the ability to communicate 
outside the statutory prospectus, including posting information on Web 
sites that will be free writing prospectuses. As such, proposed Rule 
433 would make clear that an offer of an issuer's securities that is 
contained on an issuer's Web site or hyperlinked by the issuer from the 
issuer's Web site to a third party Web site is considered a written 
offer of such securities made by the issuer and, unless otherwise 
exempt, would be a free writing prospectus of the issuer.\200\ The same 
would be true of information contained on or hyperlinked to an offering 
participant's Web site. Accordingly, the requirements of Rule 433 would 
apply to these free writing prospectuses. For example, if an issuer or 
other offering participant included a hyperlink within a written 
communication used to offer the issuer's securities, such as an 
electronic free writing prospectus, to another Web site or to other 
information, the hyperlinked information would be considered part of 
that written communication.\201\
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    \199\ In our 2000 Electronics Release, we noted that the federal 
securities laws apply equally to information contained on an 
issuer's Web site as they do to other communications made by or 
attributed to the issuer. Web site content differs from traditional 
methods of distribution, however, in several important aspects. 
First, information that is placed on a Web site can be continuously 
accessed as long as the information remains posted. Second, issuers 
are able to hyperlink to other documents, information, and Web 
sites, thereby allowing instant access to such documents, 
information, and Web sites.
    \200\ The issuer would have to assess whether an available 
exemption for such offer existed under any other rule. This approach 
is consistent with our interpretations on the use of electronic 
media in our 2000 Electronics Release. See the 2000 Electronics 
Release at note 62. Hyperlinks from a third party Web site to an 
issuer's Web site may be a free writing prospectus of the third 
party with regard to the issuer's securities, depending on the facts 
and circumstances.
    \201\ For example, while a research report published or 
distributed by a broker or dealer may not be considered an offer by 
the broker or dealer under Rule 139, an issuer hyperlinking to that 
research report would not be able to rely on Rule 139 and the 
research report would be a free writing prospectus of the issuer, 
and the conditions of Rule 433, including the filing requirements, 
would have to be satisfied. See the 2000 Electronics Release note 62 
at II.B.2.
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(2) Historical Information on an Issuer Web Site
    We recognize the importance of an issuer's Web site as a means to 
communicate with the public, not just with potential investors, about 
their business. Commenters on our 2000 Electronics Release expressed 
concerns regarding the possibility that historical issuer information 
on an issuer's Web site that is accessed at a later time would be 
considered ``republished'' at that later date, with attendant 
securities law liability.\202\ Historical information that is not an 
offer, including for example, regularly released information that would 
fall within one of our proposed safe harbors, would not become an offer 
if accessed at a later time, unless it was updated or otherwise 
modified or used or referred to (by hyperlink or otherwise) in 
connection with the offering. We also believe that issuers in 
registration should be able to segregate historical information on 
their Web site so that it remains accessible to the public but will not 
be presumed to be reissued or republished for purposes of the 
Securities Act.
---------------------------------------------------------------------------

    \202\ See, e.g., comment letters in File No. S7-11-00 from the 
ACCA; The Council of Infrastructure Financing Authorities; and the 
Florida Division of Bond Finance.
---------------------------------------------------------------------------

    Proposed Rule 433 would not apply to historical issuer information 
that otherwise could be considered an offer but that is properly 
identified as such and located in a separate section of the issuer's 
Web site containing historical issuer information, sometimes known as 
archives, as that information would not be considered a current offer 
of the issuer's securities. This historical information could include, 
but would not be limited to, regularly released information that would 
fall within our proposed safe harbors.\203\
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    \203\ See discussion in Section III.D.1 above under ``Permitted 
Continuation of Ongoing Communications During an Offering'' 
regarding proposed Rules 168 and 169.
---------------------------------------------------------------------------

    The proposed exclusion in Rule 433 for historical archived 
information would cover information that could be demonstrated to be 
previously published (for example, by being dated). The information 
could not be incorporated or otherwise included in a prospectus or 
used, identified, updated or modified in connection with the offering 
or otherwise. We believe that the availability of historical issuer 
information also would provide investors with more readily accessible 
information about the issuer. Under our proposal, issuers would need to 
review information on their Web sites to determine, for example, 
whether information constituted an offer or was archived properly.

Request for Comment

    <bullet> Should any issuer hyperlink to a third party Web site be 
permitted for purposes of the exclusions for historical issuer 
information? If so, should the exclusion be limited to hyperlinks to an 
issuer's Exchange Act reports and other filings with us?
    <bullet> Are there circumstances under which a hyperlink embedded 
in a free writing prospectus or other material should not be deemed to 
have been adopted by, or be treated as part of the free writing 
prospectus of, the issuer?
c. Interaction of Communications Proposals With Regulation FD
    As a consequence of our proposals to liberalize communications 
during the offering process and encourage continuing ongoing regular 
communications by reporting issuers, we believe it is necessary to 
revisit the exclusions from Regulation FD for communications made 
during a registered offering of securities.\204\ The communications 
regime that we are proposing contemplates that certain material non-
public issuer information could be made public through the prospectus 
filed as part of a registration statement, the issuer's filing 
obligation for free writing prospectuses, or, in the case of reporting 
issuers, through the satisfaction of Regulation FD. Oral communications 
of an issuer made in connection with a registered offering would 
continue not to be subject to any filing or public disclosure 
requirement. We continue to believe that subjecting oral communications 
that occur as part of a registered offering process in a capital 
formation transaction to a public disclosure requirement could 
adversely affect the capital formation process.
---------------------------------------------------------------------------

    \204\ See 17 CFR 243.100(b)(2).
---------------------------------------------------------------------------

    We are proposing to amend Regulation FD to specify the 
circumstances, both in terms of the type of offering and the means of 
communication, in which issuer communications would be excluded from 
the operation of that Regulation in connection with a registered 
securities offering. The effect of our amendments would be to identify 
the types of communications that would continue to be excluded from the 
Regulation in connection with registered securities offerings.
    As amended, Regulation FD would not apply to disclosures made in 
the following communications in connection with a registered securities 
offering that is of the type excluded from the Regulation:
    <bullet> A registration statement filed under the Securities Act, 
including a prospectus contained therein;
    <bullet> A free writing prospectus used after filing of the 
registration statement for the offering and satisfying the requirements 
of proposed Rule 433, or to a communication falling within the

[[Page 67419]]

exception to the definition of prospectus contained in clause (a) of 
Securities Act Section 2(a)(10);
    <bullet> Any other Section 10(b) prospectus;
    <bullet> A notice permitted by Securities Act Rule 135;
    <bullet> A communication permitted by Securities Act Rule 134; and
    <bullet> An oral communication made in connection with the 
registered offering after filing of the registration statement for the 
offering under the Securities Act.
    The proposals also would narrow the types of registered offerings 
eligible for the exclusion to those involving capital formation for the 
account of the issuer and underwritten offerings that are both an 
issuer capital formation and a selling security holder offering, in 
addition to the existing exclusion for registered business combination 
transactions.\205\
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    \205\ Currently, Regulation FD excludes from its operation any 
disclosure made in connection with a securities offering under the 
Securities Act, whether oral or written, other than an offering of 
the type described in Securities Act Rule 415(a)(1)(i)-(vi) [17 CFR 
230.415(a)(1)(i)-(vi)]. As compared to our proposal, Regulation FD 
currently does not limit the exclusion based on the means of 
communication, nor does it limit the exclusion based on whether 
capital formation offerings are involved. The existing exclusion in 
Regulation FD for registered business combination transactions would 
not be affected by our proposed changes.
    We also have proposed inclusion of a proviso that would bring 
within Regulation FD any offering that includes an issuer capital 
formation offering if it is being registered for the purpose of 
evading the requirements of Regulation FD. This would cover the 
situation, for example, where a de minimis issuer participation was 
included in what was otherwise entirely a selling security holder 
offering in an attempt to exclude communications in the offering 
from the application of Regulation FD.
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    In view of our proposals to expand permissible communications, we 
believe it is appropriate to clarify that the communications excluded 
from the operation of Regulation FD are, in fact, those communications 
that are directly related to a registered capital raising securities 
offering. Communications made during or in connection with a registered 
offering and not contained in our enumerated list of exceptions from 
Regulation FD--for example, the publication of regularly released 
factual business information or regularly released forward-looking 
information or pre-filing communications--would be subject to 
Regulation FD.

Request for Comment

    <bullet> Are the proposed exclusions appropriate?
    <bullet> Are there other or different exclusions relating to 
registered securities offerings that would be appropriate?
    <bullet> Should we retain the exclusion from Regulation FD for oral 
communications made in connection with the registered offerings? For 
purposes of the exclusion, should we consider defining oral 
communications as relating to the registered securities offering? If 
yes, describe the types of oral communications in connection with 
registered offerings that should be subject to Regulation FD. If no, 
describe the effects, if any, on capital formation transactions if we 
were to eliminate the exclusion from Regulation FD of oral 
communications made in connection with certain registered offerings.
    <bullet> Should we continue to exclude from Regulation FD 
communications made in reliance on the exception to the definition of 
prospectus in clause (a) of Section 2(a)(10) where a final prospectus 
meeting the requirements of Section 10(a) is sent or given prior to or 
with the written communication? If such communications are in 
connection with the type of registered securities offering excluded 
from Regulation FD, discuss why such communications should now be made 
subject to the provisions of Regulation FD.
4. Use of Research Reports
a. Current Regulatory Treatment of Research Reports
    The veracity and reliability of research reports, particularly 
those issued by full service broker-dealers, have received tremendous 
attention in recent years. The Sarbanes-Oxley Act,\206\ our rules 
regarding analyst certification,\207\ the self-regulatory organization 
rules we approved,\208\ and the global research analyst settlement 
\209\ have addressed many of the abuses identified with analyst 
research and have required structural reforms and increased 
disclosures.\210\ As a direct result of these initiatives and actions, 
we expect that analyst research reports used by market participants 
will be more useful and will disclose conflicts of interest relating to 
research of which investors should be aware.
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    \206\ See Section 501 of the Sarbanes-Oxley Act [15 U.S.C. 78o-
6(a)(2)].
    \207\ See 17 CFR 242.500 through 505. Regulation Analyst 
Certification (``Regulation AC'') requires, among other things, that 
brokers, dealers and certain persons associated with a broker or 
dealer include in research reports certifications by the research 
analyst that the views expressed in the report accurately reflect 
his or her personal views, and disclose whether or not the analyst 
received compensation or other payments in connection with his or 
her specific recommendation or views. See Order Approving Proposed 
Rule Changes Relating to Research Analyst Conflicts of Interest, 
Release No. 34-48252 (Aug. 4, 2003) [68 FR 45875] (``SRO Rule 
Approval Order'').
    \208\ See Order Approving Proposed Rule Changes Regarding 
Analyst Conflicts of Interest, Release No. 34-45908 (May 16, 2002) 
[67 FR 34968]; SRO Rule Approval Order note 207.
    \209\ See Lit. Rel. 18438 (Oct. 31, 2003); Press Release 2004-
120 (August 26, 2004).
    \210\ The settlement, which involved twelve brokerage firms and 
two individuals, requires the settling firms to, among other things, 
adopt structural changes designed to ensure that there is a 
structural separation between the firm's analysts and investment 
bankers. The firms are required to include enhanced disclosures, 
including disclosure of potential conflicts of interests and 
disclosure of their analysts' quarterly performance. The firms are 
also required to pay for independent research for a five-year period 
and to make this research available to the firm's customers.
    The self regulatory organizations, the National Association of 
Securities Dealers and the New York Stock Exchange adopted rules 
requiring, among other things, separating analyst compensation from 
investment banking influence, prohibiting analysts from issuing 
research reports around the expiration of a lock-up agreement 
(sometimes called ``booster shot'' research reports), imposing quiet 
periods around the issuance of research reports for offering 
participants, prohibiting analysts from participating in ``pitches'' 
or other communications for the purpose of soliciting investment 
banking business, restricting prepublication review of research 
reports by non-research personnel, prohibiting retaliation by 
investment banking against analysts whose reports or public 
appearances may affect an investment banking relationship, requiring 
disclosure of any compensation from an issuer or other relationships 
with clients, and requiring additional registration, qualification, 
and continuing education requirements on research analysts. See SRO 
Rule Approval Order note 207.
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    The value of research reports in continuing to provide the market 
and investors with information about reporting issuers cannot be 
disputed. Research analysts study publicly traded issuers and provide 
information about the securities of those issuers, often through the 
issuance of research reports.
    Especially in light of the recent reforms and limitations on 
abusive conduct by analysts in connection with offerings, we believe it 
is appropriate to limit the restrictions on research as written offers 
under the Securities Act to those we believe are appropriate to avoid 
offering abuses. Given the ongoing flow of information into the market, 
particularly with respect to reporting issuers and the enhancements to 
the environment for research imposed by recent statutory, regulatory 
and enforcement developments, we believe it is appropriate to make 
measured revisions to the research rules that would not jeopardize 
investor protection but that would permit dissemination of research 
around the time of an offering under a broader range of circumstances 
than is currently the case. We also are cognizant of information 
suggesting declines in research coverage \211\ and seek to avoid 
Securities Act restrictions that discourage research coverage or

[[Page 67420]]

dissemination where they are not necessary to protect investors.
---------------------------------------------------------------------------

    \211\ See e.g., Analyst Stock Ownership, Declining Coverages, 
`Settlement' Consequences Outlined, FinancialWire, February 26, 
2004; Bob Tedeschi, Can the Dot-Coms Still Standing Reclaim the 
Attention of Analysts Still Employed? Stay Tuned, the N.Y. Times, 
Apr. 21, 2003 at C10.
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b. Proposals Amending Exemptions for Research
    Rules 137, 138, and 139 under the Securities Act describe 
circumstances in which a broker or dealer may publish research 
constituting an offer around the time of a registered offering without 
violating the Section 5 prohibition on pre-filing offers and 
impermissible prospectuses. We are proposing measured amendments that 
would make incremental modifications to these rules.\212\ Our proposed 
rules would also, for the first time, contain a definition of research 
report. The proposals would also expand the circumstances in which 
offering and non-offering participants could disseminate research 
reports during a registered offering.\213\
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    \212\ The safe harbor provisions of Securities Act Rules 137, 
138, and 139 would continue to be available only to brokers and 
dealers. Issuers could not use the safe harbor provisions or 
research reports prepared or distributed by brokers or dealers in 
reliance on the rules to directly or indirectly communicate with 
potential investors about an issuer's offering. For example, a 
hyperlink on an issuer's web site during its registered offering to 
a research report would raise these concerns. Issuers using research 
reports in this manner could be deemed to have adopted the contents 
of such reports and, under our proposals, the reports would be 
considered free writing prospectuses.
    \213\ The proposed changes to the rules would continue to permit 
the distribution of independent research within the safe harbor 
provisions. Our current research rules permit the distribution of 
independent research provided the distribution satisfies the 
conditions of the rules. For brokers and dealers subject to the 
global research analyst settlement, their ability to continue to 
distribute independent research during a registered securities 
offering would depend on whether the independent research 
distribution by the broker or dealer satisfied the conditions of the 
research rule at the time of the distribution. If a broker or dealer 
would not be able to rely on any of the research safe harbors for 
their own research, they similarly could not distribute independent 
research. For example, independent research that is prepared by an 
entity not participating in an offering but paid for by a broker or 
dealer participating in an offering would be distributed by an 
offering participant and thus would not satisfy the requirements of 
Securities Act Rule 137 and could not be used in reliance on the 
safe harbor. Such research could continue to be distributed by the 
entity not participating in the offering that prepared it, but such 
distribution could not be used to evade the prohibitions of the 
Securities Act. A research report constituting an offer and not 
falling within a safe harbor would be considered a free writing 
prospectus. Our research rules also do not supersede the 
requirements of any applicable rule of a self-regulatory 
organization regarding the timing of the distribution of research 
reports.
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    We proposed revisions to Rules 137, 138 and 139 in the 1998 
proposals and most commenters addressing that aspect of the 1998 
proposals expressed general approval for the proposals.\214\ Our 
current proposals take a similar approach, while being designed to 
ensure that appropriate investor protections are maintained. The 1998 
proposals also would have changed Rules 138 and 139 to provide that 
research provided under those safe harbors would no longer be excluded 
from the definition of ``prospectus'' in Section 2(a)(10). Many 
commenters opposed this change and believed that this would result in 
brokers and dealers being less likely to publish research even in 
situations where they would be permitted to do so under the Rules.\215\ 
We believe that this change is not necessary to protect investors and 
have, therefore, maintained our current approach with respect to 
liability for research, which includes general anti-fraud liability, 
used in reliance on these Rules.\216\
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    \214\ See, e.g., comment letters in File No. S7-30-98 from the 
ABA; ACCA; ACIC; Business Roundtable; Fried Frank; J.C. Bradford & 
Co.; Merrill Lynch; New York State Bar Association; Sullivan & 
Cromwell; the Securities Industry Association (``SIA''); and TMBA.
    \215\ See, e.g., comment letters in File No. S7-30-98 from the 
ABA; TBMA; Merrill Lynch; Morgan Stanley; Bar Association of the 
City of New York (``New York City Bar''); and Sullivan & Cromwell.
    \216\ Research reports published or distributed in reliance on 
Rules 138 and 139 are not offers for purposes of Securities Act 
Section 2(a)(10) and Section 5(c). Brokers or dealers publishing or 
distributing research in reliance on Rule 137 are not considered 
underwriters of the securities.
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i. Definition of Research Report
    To assure consistency between Regulation AC and the research safe 
harbors contained in Rules 137, 138, and 139, we are proposing to 
include a definition of research report that will be the same as the 
definition of ``research report'' in Regulation AC and would also 
include media broadcasts.\217\ Under our proposals, ``research report'' 
would be defined as a written communication, as defined in Securities 
Act Rule 405, that includes an analysis of a security or an issuer and 
provides information reasonably sufficient upon which to base an 
investment decision. This definition is intended to encompass all types 
of research reports, whether issuer specific or industry compendiums 
separately identifying the issuer.
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    \217\ As in Regulation AC and existing Rules 137, 138 and 139, 
communications considered research reports would not need to include 
recommendations. Regulation AC contains a separate definition for 
public appearance that includes research that is broadcast. Our new 
proposed definition of written communications, however, encompasses 
electronic (through the definition of graphic communication) as well 
as broadcast communications. Thus, because broadcast is already 
encompassed in the definition of research report, a separate 
definition for broadcast or public appearance would be unnecessary 
for purposes of relying on the safe harbors.
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    While we are generally proposing the same definition of ``research 
report'' as in Regulation AC, for purposes of Rule 139, it is possible 
that particular documents, such as industry reports, would be research 
reports under our proposal, even if they fall outside of Regulation 
AC.\218\ We believe that it is appropriate to maintain this distinction 
because of the different purposes of the rules. Industry reports that 
fall within the Rule 139 safe harbor provisions would be considered 
research reports under the proposed definition, even though Regulation 
AC may not require them to contain a certification. The proposed 
definition of research report would not include confirmations or 
account statements that contain rating information provided in 
accordance with the requirements of the global research analyst 
settlement.\219\
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    \218\ In the release adopting Regulation AC, we stated that it 
was not possible, for purposes of that rule, to provide a complete 
list of all types of communications that would or would not fall 
within the definition of ``research report,'' but that, in general, 
certain communications specified in the release would not be 
research reports for Regulation AC purposes. Because of the 
different purposes of the rules, including the fact that the 
Securities Act is aimed at addressing all communications, both 
written and oral, whether a communication is a research report would 
be a facts and circumstances determination.
    \219\ The twelve brokerage firms that were part of the global 
research analyst settlement agreed to disclose, on trade 
confirmations and on account statements, as well as on the firms' 
Web sites, their ratings, along with the ratings of the independent 
research providers who cover the security. We do not believe that 
the continued publication of these ratings on trade confirmations 
and on account statements, as required by the settlement, would 
raise concerns in that they would be provided in the ordinary 
course, and as to confirmations, after the sale of the securities. 
We would, however, as we note above, be concerned about the 
continued inclusion of ratings of either the firm or the independent 
research provider on the firms' Web sites if the conditions to the 
safe harbors in Rules 137, 138, or 139 were not available to the 
firm at that time.
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ii. Rule 137
    Rule 137 provides that a broker or dealer that is not an offering 
participant in a registered offering but publishes or distributes 
research will not be considered to be engaged in a distribution of the 
issuer's securities and would therefore not be an underwriter in the 
offering.\220\
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    \220\ 17 CFR 230.137.
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    We are proposing to expand the exemption to apply to securities of 
any issuer, including non-reporting issuers, with exceptions for blank 
check companies, shell companies, and penny stock issuers. Rule 137 
would continue to be available only to brokers and dealers who are not 
participating in the registered offering of the issuer's securities, 
have not received compensation from the issuer, its affiliates, 
participants in the securities

[[Page 67421]]

distribution, among others, and publish or distribute the research 
report in the regular course of business. Permitting research on non-
reporting issuers in reliance on Rule 137 would make clear when 
research can be provided on these issuers. These proposed provisions 
would not, due to the other limitations of the Rule, however, enable 
offering participants to rely on the Rule to publish research about the 
non-reporting issuer.

Request for Comment

    <bullet> Should the type of eligible issuer be expanded or limited 
beyond blank check companies, shell companies, and penny stock issuers?
    <bullet> Should Rule 137 be expanded to include research on issuers 
other than those eligible to use Forms S-2 or F-2 (which we propose to 
eliminate) or Forms S-3 or F-3? If not, why not?
    <bullet> Securities Act Section 4(3) affects the ability of dealers 
to publish research on non-reporting issuers following effectiveness of 
the registration statement. Are there reasons to discourage publication 
of research by non-participating dealers in the aftermarket of an IPO?
    <bullet> Would the publication of timely research by entities, 
including dealers, not involved in the initial offering enhance 
investor protection in the aftermarket? Would it have other effects? If 
so, what would those effects be?
iii. Rule 138
    Rule 138 permits a broker or dealer participating in a distribution 
of an issuer's common stock and similar securities to publish or 
distribute research that is confined, for example, to that issuer's 
fixed income securities, and vice versa, if it publishes or distributes 
the research in the regular course of its business.\221\ The underlying 
premise of Rule 138 is that there is less opportunity to condition the 
market when a broker or dealer is underwriting one type of security but 
providing regular course research on the other type (for example, 
underwriting an offering of equity securities while providing research 
on debt securities).
---------------------------------------------------------------------------

    \221\ 17 CFR 230.138.
---------------------------------------------------------------------------

    We are proposing to amend Rule 138 to expand the categories of 
eligible issuers. As proposed, the Rule generally would cover research 
reports on all reporting issuers that are current in their periodic 
Exchange Act reports on Forms 10-K, 10-KSB, 10-Q, 10-QSB and 20-F at 
the time of reliance on the exemptions, rather than only issuers who 
are Form S-3 or Form F-3 eligible, as is currently the case.\222\ As we 
note above, we believe it is appropriate to permit research on a 
broader group of reporting issuers under Rule 138 in view of the 
regulatory reforms and the role of independent research. We believe the 
current limitation on the type of issuers under this Rule is no longer 
necessary to protect investors due to the enhanced Exchange Act 
reporting obligations. Like the proposals regarding Rules 137 and 139, 
the Rule would exclude issuers that have historically posed certain 
risks of abuse, including blank check companies, shell companies and 
penny stock issuers.
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    \222\ In addition, Rule 138 requires that a foreign private 
issuer's securities be traded on a designated offshore securities 
market for at least twelve months. We are proposing to amend the 
Rule to specify that this requirement relates to the issuer's equity 
securities. Current Rule 138 covers issuers that are Form S-2 or 
Form F-2 eligible as well. We are proposing to eliminate these 
Forms, as discussed below.
---------------------------------------------------------------------------

    We also are proposing to require that as a condition to the 
exemption the broker or dealer have previously published or distributed 
research reports on the types of securities that are the subject of the 
reports in the regular course of its business.\223\ We believe that it 
is appropriate to include this condition, because it is important that 
the broker or dealer have a history of publishing or distributing a 
particular type of research. If a broker or dealer began publishing 
research about a different type of an issuer's security around the time 
of public offering of an issuer's security and did not have a history 
of publishing research of that type, we would be concerned that such 
publication or distribution might be a way to provide information about 
the publicly offered securities in order to circumvent the provisions 
of Section 5 and the proposed permissible free writing rules.
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    \223\ Current Rule 138 requires that the broker or dealer 
publish or distribute research in the regular course of business, 
but does not contain a condition that the broker or dealer have 
published or distributed research reports on the same types of 
securities.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should the type of eligible issuer be limited beyond blank 
check companies, shell companies, and penny stock issuers?
    <bullet> Is the requirement that the broker or dealer must have 
published or distributed research in the regular course of its business 
on the same types of securities appropriate?
    <bullet> Should the proposed rule contain a condition that the 
broker or dealer must have published or distributed research on the 
securities of the particular issuer? If yes, why?
    <bullet> Should the Rule 138 safe harbor be available if the issuer 
is a business development company filing periodic reports on Forms 10-K 
and 10-Q?
iv. Rule 139
    Rule 139 permits a broker or dealer participating in a distribution 
of securities by a seasoned issuer or a larger foreign private issuer 
publicly traded abroad to publish research concerning the issuer or any 
class of its securities, if that research is in a publication 
distributed with reasonable regularity in the normal course of its 
business.\224\ Rule 139 also provides a safe harbor in those situations 
for distributions by smaller seasoned issuers, if the broker or dealer 
complies with additional restrictions on the nature of the publication 
and the opinion or recommendation expressed in it.
---------------------------------------------------------------------------

    \224\ 17 CFR 230.139.
---------------------------------------------------------------------------

(A) Issuer Specific Reports
    Under the proposals, reports about a specific issuer could cover 
only issuers with at least a one year reporting history who are current 
and timely in their Exchange Act reports and are eligible to register a 
primary offering of securities on Forms S-3 or F-3,\225\ based on the 
$75 million minimum public float or investment grade securities 
provisions of those forms.\226\ Penny stock issuers, blank check 
companies, and shell companies would be excluded.
---------------------------------------------------------------------------

    \225\ As in the proposed changes to Rule 138, we are proposing 
that the foreign private issuer's equity securities be traded on a 
designated offshore securities market for at least twelve months. 
See proposed amendments to Rule 138.
    \226\ As is the case today, the eligibility determination would 
be made in the same manner as Form S-3 or Form F-3 eligibility at 
the time of reliance on the rule.
---------------------------------------------------------------------------

    We are retaining the requirement that the broker or dealer publish 
or distribute the research report in the regular course of its 
business, but not the requirement of publication with reasonable 
regularity. We do not believe that the reasonable regularity 
requirement has added any particular degree of investor protection and 
has raised concerns as to when the condition is satisfied. We are, 
however, proposing that the broker or dealer must, at the time of use, 
have distributed or published research reports about the issuer or its 
securities.\227\ This new proposed requirement, we believe, would 
retain the most important element of the ``reasonable regularity'' 
requirement, namely that the report initiating

[[Page 67422]]

coverage of an issuer not benefit from an exemption under Rule 139.
---------------------------------------------------------------------------

    \227\ See proposed amendments to Rule 139.
---------------------------------------------------------------------------

    We are not proposing a minimum time period for the broker or dealer 
to have distributed or published research reports. In addition, the 
proposal does not require that the previously published or distributed 
research report cover the same securities that are the subject of the 
registered offering. We believe that the recently adopted safeguards on 
publication of research, together with the limitation on such reports 
to issuers eligible to use Forms S-3 and F-3 for primary offerings, 
diminish any need to impose a minimum time period for prior publication 
or distribution or need for the previously published or distributed 
research to cover the same securities being sold in the registered 
offering.
(B) Industry-Related Reports
    Industry reports under the proposals could cover issuers required 
to file reports pursuant to Exchange Act Section 13 or Section 15(d) or 
satisfying the conditions to use by foreign private issuers. The safe 
harbor for industry reports is not available if the issuer is now or 
any predecessor of the issuer was during the last two years a blank 
check company, shell company, or penny stock issuer. The proposals 
extend the safe harbor for industry reports to registered offerings of 
any reporting issuer, not only reporting issuers eligible to register 
their securities on Form S-3 or Form F-3. Registered offerings by non-
reporting issuers would not benefit from the exemption.
    Our proposals would remove the prohibition on a broker or dealer 
making a more favorable recommendation than the one it made in the last 
publication. We are not proposing that the report include any prior 
recommendations. The proposals provide, however, that the research 
reports must contain similar type of information about the issuer or 
its securities as contained in prior reports.
    We believe that with the recently adopted safeguards regarding 
analyst recommendations, it is appropriate to remove the ``no more 
favorable'' recommendation conditions in current Rule 139. We believe 
the proposal would be consistent with our recent actions affecting 
research analysts and research reports and would result in enhanced 
opportunity to provide information to investors regarding issuers and 
their securities.

Request for Comment

    <bullet> Should the type of eligible issuer be limited beyond blank 
check companies, shell companies, and penny stock issuers?
    <bullet> The staff has previously declined to permit reliance on 
Rule 139 if the issuer is an open-end management investment 
company.\228\ Should reliance on proposed Rule 139 be permitted if the 
issuer is an open-end management investment company or other investment 
company (e.g., closed-end management investment company, unit 
investment trust, business development company)? If so, what additional 
conditions, if any, should be required for reliance on the rule? What 
advantages or disadvantages would Rule 139 offer as compared to Rule 
482, which was recently amended to permit investment company 
advertisements to contain information the ``substance of which'' is not 
contained in the investment company's prospectus?\229\
---------------------------------------------------------------------------

    \228\ See Staff no-action letter to Charles Schwab & Co., Inc. 
(Dec. 30, 1987).
    \229\ See Amendments to Investment Company Advertising Rules, 
Release No. 33-8294 (Sept. 29, 2003) [68 FR 57760].
---------------------------------------------------------------------------

    <bullet> Are there reasons that we should maintain the current 
requirement in Rule 139 that the broker or dealer publish reports with 
reasonable regularity? If yes, should we provide more specificity as to 
what reasonable regularity means?
    <bullet> Is the requirement in the proposed amendments to Rules 138 
and 139 that the broker or dealer, at the time of use, be publishing 
reports about the issuer or its securities appropriate?
    <bullet> Will our proposed approach lead to more research being 
published?
    <bullet> Are there reasons to maintain the ``no more favorable 
recommendation'' requirement in current Rule 139?
    <bullet> How many firms subject to the global research analyst 
settlement use their Web sites, rather than confirmations or account 
statements, to disclose security ratings of issuers provided by 
independent research providers along with the security ratings of the 
issuer provided by the firm?
v. Research Report Proposals in Connection With Regulation S and Rule 
144A Offerings
    The restrictions in Regulation S on directed selling efforts and 
offshore transactions \230\ and in Rule 144A on offers to non-QIBs and 
general solicitation \231\ have resulted in brokers and dealers 
withholding regularly published research that they have not prepared 
with a view towards promoting the offering to investors in those types 
of offerings.\232\
---------------------------------------------------------------------------

    \230\ Securities Act Regulation S [17 CFR 230.901 through 
230.905] provides a safe harbor from the registration requirements 
of the Securities Act for offshore offers and sales of securities. 
When a broker or dealer is acting as an underwriter on behalf of an 
issuer in connection with a Regulation S offering, questions arise 
regarding whether those actions would conflict with the prohibition 
against directed selling efforts or the offshore transaction 
condition. The concern stems from the fact that the distribution of 
research could be viewed as conditioning the market, which would 
constitute directed selling efforts, or offering the securities in 
the United States, which is prohibited under the ``offshore 
transaction'' requirement.
    \231\ Securities Act Rule 144A [17 CFR 230.144A] provides a safe 
harbor from the registration requirements of the Securities Act for 
resales of restricted securities to ``qualified institutional 
buyers'' (``QIBs''). When a broker or dealer is selling securities 
in reliance on Rule 144A, it is subject to the condition that it may 
not make offers to persons other than those it reasonably believes 
are QIBs. Where it distributes research about the issuer around the 
time of a Rule 144A transaction, it may be viewed as making offers 
to persons that receive it, including those who are not QIBs.
    \232\ We began to address some of these concerns in 1998. In the 
1998 proposals, we also expressed an interpretive view that brokers 
and dealers may publish and distribute research reports as described 
in current Rule 138 and 139 without such reports being deemed to 
constitute ``directed selling efforts.'' The proposed amendments 
would codify that view.
---------------------------------------------------------------------------

    We are proposing to provide that research reports meeting the 
conditions of Rules 138 and Rule 139 will not be considered offers or 
general solicitation or general advertising in connection with 
offerings relying on Rule 144A.\233\ The proposals also would provide 
that these research reports would not constitute directed selling 
efforts or be inconsistent with the offshore transaction requirements 
of Regulation S.\234\ As we indicated in the 1998 proposals, we do not 
believe that the publication of research in reliance on Rules 138 and 
139 would be used to circumvent Rule 144A and Regulation S. Limiting 
the ability to rely on these exemptions when research on the issuers 
may otherwise be available, in any case, could, we believe, negatively 
impair capital formation.
---------------------------------------------------------------------------

    \233\ See proposed amendments to Rule 138 and Rule 139.
    \234\ See proposed amendments to Regulation S.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we put any limitations on offerings relying on Rule 
144A or Regulation S if research is published or distributed in 
reliance on Rules 138 and 139? If yes, why?
vi. Research and Proxy Solicitations
    We also are proposing to codify a Commission staff position \235\ 
that the publication or distribution of research under the conditions 
set forth in Rules 138 and 139 is permitted in connection with a 
registered securities offering that is subject to the proxy rules under 
the

[[Page 67423]]

Exchange Act.\236\ The new rule would provide that distribution of 
research in accordance with Rule 138 or 139 would be a solicitation to 
which Rules 14a-3 through 14a-15 (other than Rule 14a-9) of the proxy 
rules \237\ would not apply.
---------------------------------------------------------------------------

    \235\ See Staff no-action letter to Merrill, Lynch, Pierce, 
Fenner & Smith, Inc. (Oct. 24, 1997).
    \236\ See proposed Exchange Act Rule 14a-2(b)(5).
    \237\ 17 CFR 240.14a-3 through 14a-15.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we codify the staff position that research 
published in reliance on Rules 138 and 139 would not be solicitations 
under Rule 14a-1(l)(2)? If not, why not?

IV. Liability Issues

A. Information Conveyed by the Time of Sale for Purposes of Section 
12(a)(2) and Section 17(a)(2) Liability

    Under the Securities Act, purchasers of an issuer's securities in a 
registered offering have private rights of action for materially 
deficient disclosure in registration statements under Section 11 and in 
prospectuses and oral communications under Section 12(a)(2). Section 11 
liability exists for untrue statements of material facts or omissions 
of material facts required to be included in a registration statement 
or necessary to make the statements in the registration statement not 
misleading at the time the registration statement became effective. 
Under Section 12(a)(2), sellers have liability to purchasers for offers 
or sales by means of a prospectus or oral communication that includes 
an untrue statement of material fact or omits to state a material fact 
that makes the statements made, based on the circumstances under which 
they were made, not misleading.\238\ Securities Act Section 17(a) is a 
general anti-fraud provision which provides, among other things, that 
it shall be unlawful for any person in the offer and sale of a security 
to obtain money or property by means of any untrue statement of a 
material fact or any omission to state a material fact necessary in 
order to make the statements made, in light of the circumstances under 
which they were made, not misleading.\239\
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    \238\ Whether any particular statement or omission is material 
will depend on the particular facts and circumstances. Information 
is material if ``there is a substantial likelihood that a reasonable 
shareholder would consider it important'' in making an investment 
decision. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 
(1976); see also Basic v. Levinson, 485 U.S. 224, 231 (1988). To 
fulfill the materiality requirement, there must be a substantial 
likelihood that a fact ``would have been viewed by the reasonable 
investor as having significantly altered the `total mix' of 
information made available.'' Id.
    Courts have analyzed materiality under Exchange Act Section 
10(b) and Exchange Act Rule 10b-5, and Securities Act Sections 11 
and 12(a)(2) in a similar fashion. See, e.g., In re Donald J. Trump 
Casino Sec. Litig., 7 F.3d 357, 368 n.10 (3d Cir. 1993) (noting that 
while there are substantial differences in the elements that a 
plaintiff must establish under these provisions, they all have a 
materiality requirement and this element is analyzed the same under 
all of the provisions).
    \239\ See Securities Act Section 17(a)(2) [15 U.S.C. 77q(a)(2)].
---------------------------------------------------------------------------

    The term ``sale'' under the Securities Act includes any contract of 
sale.\240\ We believe that we should address, at this time, the 
discrepancies in time between the time of the contract of sale for 
securities (when an investor makes the investment decision to purchase 
the securities) on the one hand, and the later time of availability of 
a prospectus (and perhaps other information) on the other hand. The 
Securities Act registration regime permits final prospectuses to become 
available after an investor has made the decision to purchase a 
security.\241\ This availability, therefore, does not necessarily 
address the receipt by investors of information at the time of an 
investment decision.
---------------------------------------------------------------------------

    \240\ See Securities Act Section 2(a)(3). Courts have held 
consistently that the date of a sale is the date when the investment 
decision is made, not the date that a confirmation is sent or 
received or payment is made. See, e.g., Radiation Dynamics, Inc. v. 
Goldmuntz, 464 F.2d 876, 891 (2d Cir. 1972) (holding that a purchase 
occurs at ``the time when the parties to the transaction are 
committed to one another''); In re Alliance Pharmaceutical Corp. 
Secs. Lit., 279 F. Supp. 2d 171, 186-187 (following the holding in 
Radiation Dynamics with respect to the timing of a contract of 
sale); Pahmer v. Greenberg, 926 F. Supp. 287, (citing Finkel v. 
Stratton Corp., 962 F.2d 169, 173 (2d Cir. 1992) (``[A] sale occurs 
for Section 12[(a)](2) purposes when the parties obligate themselves 
to perform what they have agreed to perform even if the formal 
performance of their agreement is to be after a lapse of time''); 
Adams v. Cavanaugh Communities Corp., 847 F. Supp. 1390, 1402 (N.D. 
Ill. 1994) (noting that the Seventh Circuit has followed the 
Radiation Dynamics decision). Also, as indicated in note 244, below, 
the Uniform Commercial Code no longer requires that a securities 
contract be in writing.
    \241\ For example, in a shelf offering our rules permit an 
issuer to file a final prospectus supplement not later than the 
second business day after a takedown from a shelf registration 
statement.
---------------------------------------------------------------------------

    We interpret Section 12(a)(2) and Section 17(a)(2) as reflecting a 
core concept of the Securities Act--that materially accurate and 
complete information regarding an issuer and the securities being sold 
should be available to investors at the time of the contract of sale, 
when they make their investment decisions.\242\ Under our 
interpretation, the time at which an investor enters into a contract of 
sale, and therefore becomes committed to purchase the securities, is 
one appropriate time \243\ to apply the liability standards of Section 
12(a)(2) and Section 17(a)(2).\244\
---------------------------------------------------------------------------

    \242\ Under our interpretation, the time of contract of sale can 
be the time the purchaser either enters into the contract (including 
by virtue of acceptance by the seller of an offer to purchase) or 
completes the sale, whichever comes first. The time of the contract 
of sale under our interpretation follows the statutory definition of 
sale in Securities Act Section 2(a)(3). Under Section 2(a)(3), sale 
includes ``every contract of sale.''
    The 1954 amendments to the Securities Act permitting the use of 
a preliminary prospectus recognized that the final prospectus would 
not always be available to investors at the time they made their 
investment decisions. See 1954 Amendments to the Securities Act of 
1933, Pub. L. No. 83-577 68 Stat. 683 (1954). Following the 1954 
amendments, the Commission adopted a number of rules that would 
ensure that preliminary prospectuses were sent to investors in 
initial public offerings at least 48 hours before the confirmation 
of the sale of the securities could be sent. Our proposals today do 
not affect this requirement. See Securities Act Rule 460 [17 CFR 
230.460], and Exchange Act Rule 15c2-8 [17 CFR 240.15c2-8].
    \243\ Our interpretation is not intended to affect any rights 
currently existing at any other time. Section 12(a)(2) would apply 
to oral communications and prospectuses (including final 
prospectuses) at other times. Section 17(a)(2) would similarly apply 
to statements at other times. In addition, both Securities Act 
Section 12(a)(2) and Section 17(a) assess liability for ``offers'' 
as well as for sales. Nothing in our interpretation or proposed rule 
would limit any ability to proceed under those sections based on 
statements made in offers.
    \244\ Article 8 of the Uniform Commercial Code was amended in 
1994 to eliminate the requirement that a contract for the purchase 
of a security be reflected in a writing. See UCC, 1994 official text 
with comments, Article 8-113 (West 1994). The official comment to 
the rule states that the requirement that a contract be in writing 
is unsuited to the realities of the securities business. Thus, under 
state law oral contracts for sales of securities are permitted.
---------------------------------------------------------------------------

    We interpret Section 12(a)(2) and Section 17(a)(2) as meaning that, 
for purposes of assessing whether information that is conveyed to an 
investor at the time of sale (including a contract of sale) by or on 
behalf of a seller (including an issuer, underwriter, participating 
dealer, or other offering participant) includes or represents a 
material misstatement or omits to state a material fact necessary in 
order to make the statements in light of the circumstances under which 
they were made, not misleading, information conveyed to the investor 
only after the time of the contract of sale should not be taken into 
account.\245\ For purposes of Section 12(a)(2) and 17(a)(2), whether or 
not information has been conveyed to an investor by a seller (including 
an issuer, underwriter, participating dealer or other offering 
participant) at or prior to the time of the contract of sale currently 
is a facts and circumstances determination, and our actions today do

[[Page 67424]]

not affect that determination.\246\ Such information could include 
information in the issuer's registration statement and prospectuses for 
the offering in question, the issuer's Exchange Act reports 
incorporated by reference therein or information otherwise disseminated 
by means reasonably designed to convey such information to investors. 
If our proposals today are adopted, such information also could include 
information contained in free writing prospectuses.
---------------------------------------------------------------------------

    \245\ As we discuss above, the basis for liability under Section 
12(a)(2) for statements in a prospectus (including a free-writing 
prospectus) or oral communication, and the basis for liability under 
Section 17(a)(2) for the statements to which the section applies, 
are that the statement cannot contain any misstatement of a material 
fact or omit to state a material fact necessary to make the 
statements made, in light of the circumstances under which they were 
made, not misleading.
    \246\ Direct communications could take various forms, including 
orally or through the use of electronic or other free writing 
prospectuses under the proposed communications regime.
---------------------------------------------------------------------------

    As noted above, liability under Section 12(a)(2) attaches to an 
oral communication or prospectus by means of which an offer or sale is 
made that contains a material misstatement or omits to state a material 
fact necessary to make the statements, in light of the circumstances in 
which they were made, not misleading. Liability under Section 17(a)(2) 
attaches to an untrue statement of a material fact or an omission to 
state a material fact necessary to make the statements made, in light 
of the circumstances in which they were made, not misleading, by means 
of which money or property is obtained. Our actions today also do not 
affect these requirements.
    Under our interpretation, the liability determination as to an oral 
communication, prospectus, or statement, as the case may be, would not 
take into account information conveyed only after the time of sale 
(including the contract of sale).\247\ Thus, evaluation of information 
at or prior to the time of sale (including contract of sale) would not 
take into account any modifications, corrections, or additions that are 
made available subsequent to the time of sale (including the contract 
of sale), including information contained in any final prospectus, 
prospectus supplement, or Exchange Act filing that is only filed or 
delivered subsequent to the time of sale (including the contract of 
sale).
---------------------------------------------------------------------------

    \247\ This interpretation would not, of course, affect the 
ability of the seller and the purchaser to consider subsequently 
provided facts or disclosure and by agreement revise their sale 
contract and by agreement enter into a new contract of sale with 
respect to the offered securities. In such case, for purposes of our 
interpretation and proposed rule, the time of the contract of sale 
to that purchaser would be the time of the new contract of sale.
---------------------------------------------------------------------------

    Our interpretation of Section 12(a)(2) and Section 17(a)(2) is 
independent of the information requirements for registration statements 
or final prospectuses or prospectus supplements and of the prospectus 
filing or delivery requirements,\248\ and is not intended to affect the 
information that must be contained in the prospectus filed as part of 
the registration statement. As today, the final prospectus would have 
to contain information necessary to satisfy a line item requirement or 
Securities Act Rule 408 and to meet the requirements of Securities Act 
Section 10(a).\249\ Section 12(a)(2) would also apply to material 
deficiencies in disclosure in final prospectuses.
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    \248\ When we use the term prospectus supplements, we refer to 
prospectuses or prospectus supplements filed pursuant to Rule 424.
    \249\ We remind issuers that, notwithstanding prior disclosure 
of information, issuers must still include required disclosures in 
their registration statements, either directly or through 
incorporation by reference (for those issuers eligible to use the 
registration forms that permit incorporation by reference).
---------------------------------------------------------------------------

    In furtherance of our interpretation discussed above, we are also 
proposing an interpretive rule, Rule 159, under Section 12(a)(2) and 
Section 17(a). We intend that the effect of our proposed interpretive 
rule would be the same as our interpretation. Our proposed rule would 
provide the following:

    <bullet> For purposes of Section 12(a)(2) and Section 17(a)(2) 
only, and without affecting any other rights under those sections, 
for purposes of determining at the time of sale (including the time 
of the contract of sale), whether a prospectus, oral statement, or a 
statement,\250\ includes an untrue statement of material fact or 
omits to state a material fact necessary in order to make the 
statements, in light of the circumstances under which they were 
made, not misleading,\251\ any information conveyed to the purchaser 
only after that time of sale will not be taken into account.
---------------------------------------------------------------------------

    \250\ These would include a prospectus or oral statement in the 
case of Section 12(a)(2), or a statement to which Section 17(a)(2) 
is applicable.
    \251\ Or, in the case of Section 17(a)(2), any omission to state 
a material fact necessary in order to make the statements made, in 
light of the circumstances under which they were made, not 
misleading.

    The proposed interpretive rule would also provide that for purposes 
of Section 12(a)(2) only, a purchaser's ``knowing of such untruth or 
omission'' in respect of a sale (including a contract of sale) would 
mean knowing at the time of such sale.
    We find that our interpretation and believe that our proposed 
interpretive rule are in furtherance of the objectives of Section 
12(a)(2) and Section 17(a) and are necessary for the protection of the 
rights of investors intended to be provided by those sections.
    Unlike our 1998 proposals, which were criticized for potentially 
harming the capital formation process by requiring actual delivery of a 
prospectus and term sheet in order to shift the liability determination 
date to the time of sale, we do not believe that our interpretation or 
proposed rule should result in ``speed bumps'' or otherwise slow down 
the offering process. In light of the proposed new rules regarding 
communications, issuers and underwriters should have sufficient 
flexibility to communicate information in a manner that does not slow 
the offering process. At the same time, in our view, the interpretation 
that the quality of information should be assessed at the time of the 
contract of sale is unassailable, and investors should have materially 
complete and accurate information at that time.
1. Rule 412
    Under current Rule 412, information contained in a prospectus 
supplement or Exchange Act filing incorporated by reference into a 
registration statement may modify or supersede other previously 
disclosed information that was contained in a document incorporated or 
deemed to be incorporated by reference in that registration statement. 
We are proposing to revise Rule 412 to make it consistent with our 
other proposals. The revisions would provide that:

    <bullet> Subsequently provided information deemed part of or 
incorporated by reference into a registration statement or 
prospectus would not modify or supersede any information conveyed to 
an investor at the time of sale (including the time of the contract 
of sale) for purposes of determining the information conveyed to an 
investor at or prior to that time; and
    <bullet> Information contained in a document that is deemed part 
of or incorporated by reference into a registration statement or 
prospectus would modify or supersede the information contained in 
the registration statement or prospectus itself.\252\
---------------------------------------------------------------------------

    \252\ See discussion in Section V.B.1 below under ``Date of 
Inclusion of Prospectus Supplements in Registration Statements and 
New Effective Dates of Registration Statements.''
---------------------------------------------------------------------------

Request for Comment

    We request comment with respect to our proposed interpretive rule, 
including on the following specific questions:

    <bullet> Would actual communication to an investor provide 
sufficient ability for offering participants to be able to advise 
investors of developments prior to the time of the contract of sale 
without creating speed bumps for an offering? Does the concept 
provide sufficient opportunity for investors to have information at 
the time of the contract of sale? Do actual communications to 
investors reflect market practices today? What other concepts, if 
any, regarding communications should we consider?
    <bullet> Should we provide more detailed guidance as to what is 
considered

[[Page 67425]]

information that is conveyed to an investor at or prior to the time 
of the contract of sale? If so, how should we define it and what 
information should be included? Should it include only information 
that is included in the issuer's registration statement including 
Exchange Act documents that are incorporated by reference? Should it 
include free writing prospectuses that have been filed? What other 
information should it include?
    <bullet> Should there be a concept of public dissemination 
similar to that in Regulation FD? If yes, how would an investor know 
to look for the information to be able to assess statements made in 
a prospectus or oral communication? Should there be any requirement 
that the registration forms disclose that information may be filed 
in an Exchange Act report of an issuer or otherwise disseminated in 
a manner to advise the investor? Should there be a requirement that 
information be conveyed directly to an investor in all cases? Would 
a concept of public dissemination provide sufficient opportunity for 
investors to be advised of and be able to access the information at 
or prior to the time of the contract of sale? What types of public 
dissemination of issuer information reflect market practices today? 
What other concepts, if any, of public dissemination of information 
should we consider?
    <bullet> Should we consider a rule that would require a passage 
of a specified time between an Exchange Act document filing or free 
writing prospectus filing on EDGAR and a time of contract of sale in 
order for the information to be considered part of the information 
against which statements would be evaluated? Should we address the 
method by which information should be made available to an investor 
to be considered conveyed to the investor for purposes of Section 
12(a)(2) and Section 17(a)(2)?
    <bullet> Do the proposed rules regarding communications and the 
interpretation regarding information that is conveyed to an investor 
lead to evidentiary issues that should be addressed?
    <bullet> As to any of the above requests for comment, are there 
any special considerations that apply to investment companies in 
general, or to particular types of investment companies (e.g., open-
end management investment companies, closed-end management 
investment companies, unit investment trusts, business development 
companies) that we should address? If yes, please describe.
    <bullet> Currently, Rule 412 only addresses information in 
subsequently filed Exchange Act reports incorporated by reference 
that modifies or supersedes information in previously filed Exchange 
Act reports. Because the proposed revisions to Rule 412 and proposed 
Rule 430B would permit issuers to use either Exchange Act reports 
incorporated by reference or prospectus supplements deemed part of 
registration statements to update information in the registration 
statement and prospectus, would it be clear to investors what 
information in the prospectus either directly (other than for 
Section 10(a)(3) updates to registration statements) or through 
filed Exchange Act reports or prospectus supplements was being 
updated?
    <bullet> Do the proposed revisions to Rule 412 provide issuers 
with greater ability than they have today to update information in 
the filed registration statement and prospectus in a timely manner?
2. Relationship of Interpretation and Proposed Rule to Section 11 
Liability
    Under our interpretations, information contained in a prospectus or 
prospectus supplement that is filed after the time of the contract of 
sale will be considered to be part of and included in a registration 
statement for purposes of liability under Section 11 at the time of 
effectiveness, which may be at or before the time of the contract of 
sale. \253\ The date and time that the information is deemed part of 
the registration statement preserves an investor's rights under Section 
11, but does not affect any rights assessed at the time of sale that 
the investor may have under Section 12(a)(2) or that we might enforce 
under Section 17(a). Thus, information that is deemed part of the 
registration statement as of the time of the contract of sale for shelf 
takedowns or as of effectiveness under Securities Act Rule 430A,\254\ 
would not, under our interpretation, be taken into account under 
Section 12(a)(2) or Section 17(a)(2), unless the information was 
conveyed to an investor at or prior to the time of the contract of 
sale.\255\ Similarly, an investor's rights under Section 11 would not 
be affected by information conveyed to an investor at or prior to the 
time of the contract of sale that is not in or deemed part of the 
registration statement at the time of the effectiveness of the 
registration statement for the securities sold to the investor.
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    \253\ Whether the time of sale occurs on the same date as the 
effective date of a registration statement would depend on the type 
of registered offering the issuer is undertaking. For example, for 
offerings not eligible to be registered on a delayed basis under 
Rule 415, the prospectus in the registration statement must contain 
all required information, other than that permitted to be omitted 
pursuant to Rule 430A. For these non-shelf offerings, the effective 
date of the registration statement would be on or before the sale 
date, but the registration statement at the effective date would be 
deemed, as today, to contain information that was not actually 
contained in the prospectus or registration statement at the date of 
effectiveness, but is included in the filed final prospectus under 
Rule 430A. For shelf offerings, based on our proposed amendment 
regarding the treatment of prospectus supplements, the effective 
date of the registration statement for liability purposes would be 
the earlier of the date of first use of certain prospectus 
supplements or the time of the contract of sale. See discussion 
regarding proposed Rule 430B in Section V.B.1. below under 
``Proposed Rule 430B.''
    \254\ Individual offerings under a shelf registration statement 
are sometimes referred to as a ``takedown off the shelf''.
    \255\ An investor could also pursue an action under Section 
12(a)(2) based on the final prospectus.
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B. Issuer as Seller

    We believe there currently is unwarranted uncertainty as to issuer 
liability under Section 12(a)(2) for issuer information in registered 
offerings using certain types of underwriting arrangements.\256\ As a 
result, there is a possibility that issuers may not be held liable 
under Section 12(a)(2) for information contained in the issuer's 
prospectus included in its registration statement. Therefore, as part 
of our proposals regarding Section 12(a)(2), we are proposing a rule 
providing that an issuer in a primary offering of securities, 
regardless of the form of the underwriting arrangement, be considered 
to offer or sell the securities to the purchaser, and therefore be a 
seller for purposes of Section 12(a)(2) as to any communications made 
by or on behalf of the issuer.\257\ Proposed Rule 159A provides that 
any of the following communications would be made by or on behalf of an 
issuer:
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    \256\ See e.g., Capri v. Murphy, 856 F.2d 473, 478 (2d Cir. 
1988); Lone Star Ladies Investment Club v. Schlotzsky's, Inc, 238 
F.3d 363, 370 (5th Cir. 2001); Rosenzweig v. Azurix Corp., 332 F.3d 
854 (5th Cir. 2003).
    \257\ We are not proposing to address the status of the issuer 
as a seller in a registered offering of transactions by selling 
security holders only.

    <bullet> An issuer's registration statement relating to the 
offering and any preliminary prospectus or prospectus supplement 
relating to the offering filed pursuant to Securities Act Rule 424 
or Rule 497;
    <bullet> Any free writing prospectus prepared by or on behalf of 
the issuer and, in the case of an issuer that is an open-end 
management investment company, any profile provided pursuant to 
Securities Act Rule 498;
    <bullet> Information about the issuer or its securities provided 
by or on behalf of the issuer and included in any other free writing 
prospectus, or, in the case of an issuer that is a registered 
investment company or business development company, in any 
advertisements pursuant to Securities Act Rule 482; and
    <bullet> Any other communication made by or on behalf of the 
issuer.

    A communication by an underwriter or dealer participating in an 
offering would not be on behalf of the issuer solely by virtue of that 
participation. However, depending on the facts and circumstances, a 
communication by an underwriter or dealer could be a communication on 
behalf of an issuer to the extent it contained issuer information. This 
definition of the issuer as a seller is not intended to affect whether 
any other person offers or sells a security by means of the same 
prospectus or oral communication for purposes of Section 12(a)(2).

[[Page 67426]]

Request for Comment

    <bullet> Should issuers always be considered sellers with regard to 
issuer information, regardless of who is communicating the information?
    <bullet> Should we condition issuer liability for issuer 
information contained in a free writing prospectus or other 
communication on the issuer giving the information to the other party 
for use? On whether the issuer gave the user of the free writing 
prospectus permission to include the issuer information or issuer free 
writing prospectus?
    <bullet> Should there be any particular level of issuer involvement 
in the communication in order for the issuer to be considered a seller 
of the securities for purposes of Section 12(a)(2)?
    <bullet> Should the proposed rule extend to entirely secondary 
offerings?
    <bullet> Should proposed Rule 159A apply to investment companies, 
and if so, to which types (e.g., open-end management investment 
companies, closed-end management investment companies, unit investment 
trusts, business development companies)?
    <bullet> Are the communications covered by proposed Rule 159A with 
respect to investment company issuers (e.g., profiles provided pursuant 
to Rule 498, issuer information included in advertisements pursuant to 
Rule 482) appropriate?

V. Securities Act Registration Proposals

A. Overview of Proposals

    As discussed above, enhanced requirements for reporting under the 
Exchange Act for public issuers and the shifting of the Division of 
Corporation Finance's resources toward reviewing Exchange Act reports 
are intended to improve the quality and currency of disclosure under 
the Exchange Act. Together with technological advances, these 
developments provide the basis for our proposals to modernize many 
procedural aspects of securities offerings registered under the 
Securities Act.
    Our proposals cover the registration procedures for seasoned and 
unseasoned issuers, and seek to streamline the registration process for 
most types of reporting issuers. These proposals include:
    <bullet> A more flexible automatic registration process for well-
known seasoned issuers;
    <bullet> Modifications that would clarify and expand how and when 
information could be included in registration statements;
    <bullet> A clarification of the Securities Act liability treatment 
of information provided in prospectus supplements and Exchange Act 
reports incorporated by reference;
    <bullet> Modification of the timing of effectiveness of shelf 
registration statements applicable to issuers to coordinate the timing 
of effectiveness with the timing of offerings and, therefore, more 
closely replicate the statutory liability framework intended under the 
Securities Act; and
    <bullet> Proposals related to non-shelf offerings of securities.

B. Procedural Proposals

1. Procedural Changes Regarding Shelf Offerings
a. Overview
    We are proposing changes to the operation of the shelf registration 
system under the Securities Act. These proposals involve:
    <bullet> Clarification and codification of the information to be 
included in and omitted from base prospectuses in shelf registration 
statements;
    <bullet> Codifying the manner of inclusion of information in the 
final prospectus;
    <bullet> The treatment of prospectus supplements; and
    <bullet> liberalization of requirements under Securities Act Rule 
415, including:
    [ctrcir] Elimination of the two year limitation for registered 
securities for a delayed offering;
    [ctrcir] Elimination of the ``at-the-market'' offering 
restrictions;
    [ctrcir] Elimination of the prohibition against immediate takedowns 
off delayed shelf registration statements; and
    [ctrcir] Conforming changes to Rule 424 regarding the filing of 
prospectus supplements.
b. Information in a Prospectus
i. Mechanics
(A) Proposed Rule 430B
    Rule 415 provides for continuous or delayed offerings and is, 
therefore, the foundation for shelf-registration.\258\ Primary 
offerings on a delayed basis may be registered by seasoned issuers 
only. A number of other delayed or continuous offerings may be 
undertaken or registered by any issuer, including offerings on a 
continuous basis of securities issued on exercise of outstanding 
options or warrants or conversion of other securities, offerings on a 
continuous basis under dividend reinvestment plans, offerings on a 
continuous basis under employee benefit plans and offerings solely on 
behalf of selling security holders (often referred to as ``secondary 
offerings''). Rule 415 also permits registration by any issuer of a 
continuous offering that will commence promptly and may continue for 
more than 30 days from the date of initial effectiveness.\259\
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    \258\ Securities Act Rule 415(a)(i) [17 CFR 230.415(a)(i)] 
currently reads as follows:
    (a) Securities may be registered for an offering to be made on a 
continuous or delayed basis in the future, Provided, That:
    (1) The registration statement pertains only to:
    (i) Securities which are to be offered or sold solely by or on 
behalf of a person or persons other than the registrant, a 
subsidiary of the registrant or a person of which the registrant is 
a subsidiary;
    (ii) Securities which are to be offered and sold pursuant to a 
dividend or interest reinvestment plan or an employee benefit plan 
of the registrant;
    (iii) Securities which are to be issued upon the exercise of 
outstanding options, warrants or rights;
    (iv) Securities which are to be issued upon conversion of other 
outstanding securities;
    (v) Securities which are pledged as collateral;
    (vi) Securities which are registered on Form F-6 (Sec.  239.36 
of this chapter);
    (vii) Mortgage related securities, including such securities as 
mortgage backed debt and mortgage participation or pass through 
certificates;
    (viii) Securities which are to be issued in connection with 
business combination transactions;
    (ix) Securities the offering of which will be commenced 
promptly, will be made on a continuous basis and may continue for a 
period in excess of 30 days from the date of initial effectiveness;
    (x) Securities registered (or qualified to be registered) on 
Form S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) 
which are to be offered and sold on a continuous or delayed basis by 
or on behalf of the registrant, a subsidiary of the registrant or a 
person of which the registrant is a subsidiary; or
    (xi) Shares of common stock which are to be offered and sold on 
a delayed or continuous basis by or on behalf of a registered 
closed-end management investment company or business development 
company that makes periodic repurchase offers pursuant to Sec.  
270.23c-3 of this chapter.
    \259\ See Securities Act Rule 415(a)(1)(ix) [17 CFR 
230.415(a)(1)(ix)].
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    Many of the types of offerings contemplated by Rule 415 can be 
accomplished using a prospectus that is complete at the time of 
effectiveness of the related registration statement and therefore may 
not require a supplement, because there may be no additional 
information to include in the prospectus.\260\ This is generally the 
case, for example, for offerings relating to most exercise or 
conversion transactions, for offerings involving employee benefit 
plans, offerings involving dividend reinvestment plans,

[[Page 67427]]

and many continuous offerings by selling security holders.
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    \260\ The terms of the securities being offered and the plan of 
distribution are often complete at the time of effectiveness and not 
subject to change. Where the issuer is not registered on Form S-3 or 
Form F-3, updating information regarding the issuer cannot be 
included in future periodic reports filed under the Exchange Act and 
incorporated by reference, and therefore must be included in the 
prospectus by a post-effective amendment. In that case, the new form 
of prospectus included in the amended registration statement is then 
complete at the new effective date and therefore also does not 
require a supplement.
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    However, other offerings, principally delayed and continuous 
offerings where the terms of securities offered and sold in different 
takedowns vary, as for example in underwritten offerings, and some 
offerings by selling security holders, such as underwritten offerings 
where terms also vary in different offerings, require that the 
prospectus included in the related registration statement at the time 
of effectiveness, usually referred to as a ``base prospectus,'' be 
supplemented to reflect the final terms of the security and offering 
for each particular offering of securities, as well as certain other 
updating information where necessary or appropriate. In addition, in 
all types of continuous or delayed offerings employing shelf 
registration under Rule 415, there may be circumstances where a 
prospectus will be supplemented with additional information other than 
at the time of a takedown.
    Each of these types of forms of prospectuses and prospectus 
supplements including omitted, updated, or supplemented information is 
filed with us under Rule 424, which provides a framework for prospectus 
filing and filing deadlines. There currently is, however, no rule that 
specifies the relationship between forms of base prospectuses and 
prospectus supplements and the information that may be omitted from or 
included in one or the other. We are proposing two new rules, Rules 
430B and 430C, which we intend to achieve that purpose by codifying 
existing practice in most respects and liberalizing the framework for 
the registration process in certain areas. We are also proposing 
conforming changes to Rule 424.
    We propose to codify, in a single rule, the prospectus requirement 
for shelf registration statements for registered primary securities 
offerings, other than business combination transactions and exchange 
offers. Proposed Rule 430B would be a shelf offering corollary to 
existing Rule 430A, in that it would describe the type of information 
that primary shelf eligible and automatic shelf issuers may omit from a 
base prospectus in delayed offerings and include instead in a 
prospectus supplement, Exchange Act report incorporated by reference, 
or a post-effective amendment.\261\ Rule 430B is intended to be largely 
consistent with current requirements and practice for shelf 
registration statements for delayed offerings on Forms S-3 and F-
3.\262\ Under proposed Rule 430B, a base prospectus in a shelf 
registration statement could continue to omit information that is 
unknown or not reasonably available to the registrant pursuant to Rule 
409.\263\
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    \261\ Our proposals regarding permissible omissions from a base 
prospectus in proposed Rule 430B apply to delayed offerings under 
Rule 415(a)(1)(x) made by issuers eligible to use Form S-3 or Form 
F-3 to register a primary offering of securities in reliance on 
General Instructions I.B.1 or I.B.2 of Form S-3 or Form F-3. Rule 
430B as proposed would also apply to offerings of mortgage-backed 
securities under Rule 415(a)(1)(vii). Issuers could not rely on 
proposed Rule 430B for offerings made in reliance on other 
provisions of Rule 415(a). For example, issuers not otherwise 
eligible to use Form S-3 or Form F-3 for primary offerings, but that 
are eligible to register securities for resale on behalf of selling 
security holders in reliance on General Instruction I.B.3 of Form S-
3 or register the issuance of securities on exercise or conversion 
of outstanding securities pursuant to General Instruction I.B.4, do 
not need to rely on this rule and would not be eligible do so. The 
information permitted by proposed Rule 430B to be omitted would not 
be relevant to these types of conversion or exercise transactions.
    \262\ While we intend proposed Rule 430B to be largely 
consistent with current requirements and practice for shelf 
registration statements, it also would significantly liberalize 
requirements for automatic shelf registration statements, as 
discussed below. Those changes, which are discussed in Section V.B.2 
below under ``Automatic Shelf Registration for Well-Known Seasoned 
Issuers,'' would permit issuers to omit information regarding 
whether the offering is a primary offering or an offering on behalf 
of persons other than the issuer, the plan of distribution for the 
securities, and the identification of other registrants unless 
known.
    \263\ See proposed Rule 430B and Rule 409 [17 CFR 230.409].
---------------------------------------------------------------------------

    Rule 430B would provide that a base prospectus that, as today, 
omitted information as provided in the Rule would be a permitted 
prospectus.\264\ Thus, after a registration statement is filed, 
offering participants could use a base prospectus that omitted 
information in accordance with the Rule. In addition, issuers could 
communicate using Rule 134 notices, and issuers and other offering 
participants could use free writing prospectuses under proposed Rules 
164 and 433.\265\
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    \264\ The proposal codifies that such a prospectus would satisfy 
the requirements of Section 10 for purposes of Section 5(b)(1).
    \265\ See proposed Rules 164 and 433(a)(1)(ii).
---------------------------------------------------------------------------

(B) Means for Providing Information
    As today, a base prospectus that omits information would not be 
considered a Securities Act Section 10(a) final prospectus.\266\ To 
satisfy the requirements of Securities Act Section 10(a), as is the 
case with shelf registration statements today, an issuer would have to 
include the information omitted from the base prospectus in a 
prospectus supplement, or, where permitted as described below, through 
its Exchange Act filings that were incorporated by reference into the 
registration statement and prospectus, and identified on the cover page 
of a prospectus supplement. Currently, information included in a base 
prospectus or in an Exchange Act periodic report that is incorporated 
into a base prospectus is included in the registration statement. 
Proposed Rule 430B would make clear that prospectus supplements and 
information in them also would be deemed to be part of and included in 
the registration statement.\267\
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    \266\ See Securities Act Section 5(b)(2).
    \267\ In the 1998 proposals, we expressed the position that 
information contained in a prospectus supplement is subject to 
liability under Section 11. Today's proposals would codify that 
position.
---------------------------------------------------------------------------

    Our proposals would provide shelf issuers with primary and 
automatic shelf registration statements the ability to add to a 
prospectus more additional or omitted information than is currently the 
case by means other than a post-effective amendment to the registration 
statement.\268\ We are proposing to amend Forms S-3 and F-3 to permit 
all information required in the prospectus about the issuer and its 
securities to be incorporated by reference from Exchange Act reports. 
Such information could also be contained in the prospectus or a 
prospectus supplement. For example, material changes in the plan of 
distribution, which currently are required to be included in post-
effective amendments, could be amended under our proposal by 
incorporated Exchange Act reports or prospectus supplements. Under our 
proposals, prospectus supplements would be deemed to be part of and 
included in the registration statement.\269\
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    \268\ Issuers would still have the flexibility to file post-
effective amendments to include the information.
    \269\ The proposed amendments would explicitly permit 
information required in the prospectus pursuant to Item 3 through 
Item 11 of Form S-3 and Form F-3 to be included in this manner.
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Request for Comment

    <bullet> Would the provisions of proposed Rule 430B provide shelf 
issuers more certainty regarding the provision of information in 
delayed offerings off of shelf registration statements?
    <bullet> Does proposed Rule 430B need to contain different or 
additional provisions in order to codify current practice in delayed 
shelf registered offerings? If so, what current practice is not 
addressed, what different or additional provisions should be 
considered, and what is the statutory or regulatory basis for the 
current practice that is not addressed in proposed Rule 430B?
    <bullet> Should shelf issuers, other than well-known seasoned 
issuers, be

[[Page 67428]]

allowed to amend their plans of distribution through incorporated 
Exchange Act reports or prospectus supplements, rather than only 
through post-effective amendments?
    <bullet> Should Rule 430B apply to additional categories of 
offerings permitted under Rule 415(a)(1)?
    <bullet> Should paragraph (vii) of Rule 415(a)(1) be eliminated, 
especially in the event that we adopt our proposed rules for asset-
backed securities?
    <bullet> Securities Act Rule 424 includes references to filing 
multiple copies. Should those references be revised to reflect 
electronic filing on EDGAR?
(C) Identification of Selling Security Holders Following Effectiveness
    Transfers of restricted securities can occur after a private 
placement is completed so that the identities of the holders of those 
restricted securities at the time of filing the resale registration 
statement may not be known to the issuer. Filing post-effective 
amendments to add new or previously unidentified security holders can 
impose delays. To alleviate the timing concern arising from an issuer's 
inability to identify selling security holders prior to effectiveness, 
we are proposing to allow seasoned issuers eligible to use Form S-3 or 
Form F-3 for primary offerings in reliance on General Instruction I.B.1 
to those Forms \270\ to identify selling security holders after 
effectiveness.
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    \270\ General Instruction I.B.1 to Form S-3 and Form F-3 permits 
reporting issuers that are current and timely in their periodic and 
current reporting obligations under the Exchange Act and that have 
$75 million in non-affiliate aggregate common equity market 
capitalization to register securities offerings for cash on Form S-3 
and Form F-3 for the benefit of the issuer or selling security 
holders. In addition, blank check companies, shell companies, and 
penny stock issuers would not be eligible to rely on this proposed 
rule.
    Currently, the staff in the Division of Corporation Finance 
requires all issuers registering securities for the benefit of 
selling security holders to include the names of selling security 
holders in the registration statement either prior to effectiveness 
or through a post-effective amendment to the registration statement, 
with limited exceptions for the identities of security holders 
owning a de minimis amount of the issuers securities (less than 1%) 
or receiving the securities as a result of a donative transfer.
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    The proposals would provide that the identities of the selling 
security holders, and all information about them, as required by Item 
507 of Regulation S-K,\271\ could be added to the registration 
statement covering the resale of their securities after effectiveness 
by either an amendment to that registration statement or a prospectus 
supplement which, under our proposals, would be part of the 
registration statement for which for liability purposes there would be 
a new effective date tied to the date of the transactions covered by 
the prospectus supplement. In either case, as a result of our proposals 
today, the information would be part of and included in the prospectus 
in the registration statement. This ability to identify security 
holders after effectiveness would be available under the proposals only 
if:
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    \271\ Item 507 of Regulation S-K [17 CFR 229.507].
---------------------------------------------------------------------------

    <bullet> The resale registration statement identified the specific 
private transaction or transactions pursuant to which the securities 
were sold; and
    <bullet> The private transaction was completed and the securities 
that were the subject of the registration statement were issued in the 
private transaction and outstanding prior to initial filing of the 
resale registration statement.
    We believe that it is important for issuers to be able to satisfy 
their contractual registration obligations to selling security holders 
in registering their resales, while also assuring that offerings are 
properly registered and the selling security holders and the securities 
to be sold by them are identified in the registration statement. The 
purpose of the proposed changes is to provide a more convenient method 
to identify selling security holders in registration statements, rather 
than to change the existing responsibilities and liabilities of issuers 
and these selling security holders under the federal securities laws.
    The proposals would require the registration statement to specify 
the particular private transaction in which the securities covered by 
the registration statement, on behalf of the to-be-named selling 
security holders, were acquired. The securities covered by the 
registration statement would have to be issued and outstanding and the 
private offering in which the securities were sold completed under 
Securities Act Rule 152 \272\ before the resale registration statement 
could be filed. Our proposed changes could not be used to offer or sell 
securities in the private offering or as a way to circumvent the 
provisions of Rule 152.
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    \272\ 17 CFR 230.152.
---------------------------------------------------------------------------

    An issuer registering the resale of securities sold in a private 
offering, in which the securities were not yet issued in the private 
offering, although the investors were contractually bound to acquire 
the securities, would not be able to rely on this provision to identify 
selling security holders who would be acquiring the securities directly 
from the issuer. The issuer could still register the resale of these 
securities, but must identify the selling security holders in the 
registration statement prior to effectiveness. In this case, the issuer 
would know the identities of the selling security holders who would 
acquire the securities from the issuer and would therefore be required 
to identify them in the resale registration statement prior to 
filing.\273\
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    \273\ See proposed Rule 430B. The proposals regarding automatic 
shelf registration statements would provide eligible well-known 
seasoned issuers with additional flexibility in this regard. See the 
discussion in Section V.B.2 below under ``Information that May be 
Omitted From the Base Prospectus.''
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    We would continue to limit the availability of resale registration 
statements for transactions that, although in technical compliance with 
the federal securities laws, are part of a plan or scheme to evade the 
registration requirements of the Securities Act.\274\
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    \274\ See proposed Rule 430B.
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Request for Comment

    <bullet> Will the conditions allowing the inclusion of the selling 
security holder information after the registration statement is 
effective enable issuers to satisfy their contractual obligations to 
the selling security holders?
    <bullet> Are there other situations in which selling security 
holders should be identified by prospectus supplement rather than by 
post-effective amendment?
    <bullet> Should the ability to identify selling security holders by 
prospectus supplement be limited to seasoned issuers? If so, why?
    <bullet> Should the proposal cover securities that are issuable 
upon conversion of outstanding securities? If yes, should there be any 
restrictions on the types of convertible securities that may be 
outstanding or the conversion terms of the outstanding convertible 
securities? For example, should the names of security holders holding 
convertible securities with fixed conversion terms be permitted to be 
included by prospectus supplement? Should the names of security holders 
holding convertible securities with variable conversion terms be 
permitted to be included by prospectus supplement? If yes, explain why 
with specificity.
ii. Information Deemed Part of Registration Statement
    We are proposing provisions in Rule 430B that will make clear that 
information contained in a prospectus supplement, whether filed in 
connection with a takedown or otherwise, will be deemed part of the 
registration statement containing the base prospectus to which the 
prospectus supplement relates. We also are proposing a new Rule 430C 
that would

[[Page 67429]]

have similar provisions regarding the treatment of prospectus 
supplements that would apply to offerings made in reliance on Rule 
415(a)(1)(i) and (ix).\275\ As a result of the proposed rules, 
prospectus supplements would, in all cases, be considered part of and 
included in registration statements for purposes of Securities Act 
Section 11.
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    \275\ Proposed Rule 430C, as discussed below, addresses only 
prospectus supplements filed pursuant to Securities Act Rule 
424(b)(3), and the filing of those prospectus supplements would not 
trigger new effective dates of the registration statement.
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iii. Date of Inclusion of Prospectus Supplements in Registration 
Statements and New Effective Dates of Registration Statements
    Proposed Rule 430B and proposed Rule 430C would deem information 
contained in prospectus supplements to be included in the registration 
statement as follows:
    <bullet> For a prospectus supplement filed other than in connection 
with a takedown (pursuant to Rule 424(b)(3) or Rule 497(c) or (e)) 
under proposed Rule 430B and Rule 430C, as applicable, all information 
contained in that prospectus supplement would be deemed part of the 
registration statement as of the date the prospectus supplement is 
first used;\276\ and
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    \276\ We have already made clear that the date of first use for 
purposes of Securities Act Rule 424 is not the date that the 
prospectus supplement is given to a purchaser in connection with a 
sale. Rather, it refers to the date that the prospectus is available 
to the managing underwriter, syndicate member or any prospective 
purchaser. See, Elimination of Certain Pricing Amendments and 
Revision of Prospectus Filing Procedures, Release No. 33-6714 (May 
27, 1987) [52 FR 21252].
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    <bullet> For a prospectus supplement filed in connection with a 
takedown (pursuant to Rule 424(b)(2), (b)(5), (b)(7) or proposed Rule 
424(b)(8)) under proposed Rule 430B, all information in that prospectus 
supplement would be deemed part of the registration statement as of the 
earlier of the date it is first used or the date and time of the first 
contract of sale of securities in the offering to which the prospectus 
supplement relates.\277\
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    \277\ These new provisions would determine when a prospectus 
supplement is deemed part of the registration statement for 
Securities Act Section 11 purposes. They would not affect the 
determination of when information was conveyed to a purchaser for 
Section 12(a)(2) liability purposes.
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    We have chosen the particular triggering dates for prospectus 
supplements to be deemed part of registration statements for a number 
of reasons. First, for a prospectus supplement filed other than in 
connection with a takedown, we have chosen the date of first use as the 
appropriate date for it to be deemed part of the registration statement 
because that is the date on which the prospectus supplement updates the 
information in the registration statement.\278\ Second, a prospectus 
supplement filed in connection with a takedown would be part of the 
registration statement the earlier of when it is first used or, to 
provide that the date for assessing Section 11 liability for both 
issuers and underwriters and generally all other persons having 
liability under Section 11, would be the same as the relevant time of 
sale, as discussed below.\279\
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    \278\ See proposed amendments to Securities Act Rule 412(a) [17 
CFR 230.412(a)].
    \279\ Our proposals also address the circumstance in which facts 
and information may change between the date the prospectus 
supplement is deemed part of the registration statement and the time 
of the contract of sale (if later) of securities to a purchaser. In 
that case, an issuer may have liability to a purchaser if, as of the 
first contract of sale of the securities, there were material 
misstatements or materials omissions such that the registration 
statement was misleading.
---------------------------------------------------------------------------

    Proposed Rule 430B also would establish a new effective date for a 
shelf registration statement for liability purposes for a takedown or 
takedowns.\280\ That new effective date would be the date a prospectus 
supplement filed in connection with the takedown or takedowns was 
deemed part of the relevant registration statement. The new effective 
date would not, however, be considered the filing of a new registration 
statement for purposes of Form eligibility.\281\ Such determination 
would remain, as today, to be made at the time of the Section 10(a)(3) 
update to the registration statement. As proposed, the new effective 
date would be for liability purposes only, would not, by itself, 
require the filing of additional consents of experts, and would not 
constitute an updating of the registration statement and prospectus for 
purposes of Securities Act Section 10(a)(3).\282\ For example, a 
prospectus supplement filed in connection with one or more takedowns of 
securities that did not include other disclosure for which the consent 
of an expert would be required pursuant to Securities Act Section 7 and 
Securities Act Rule 436\283\ would not require consents to be filed or 
be considered the filing of a new registration statement.
---------------------------------------------------------------------------

    \280\ We are also proposing to amend Rule 158 to include 
conforming changes to the effective date for purposes of Securities 
Act Section 11(a).
    \281\ See Securities Act Rule 144 and Rule 401 [17 CFR 230.144 
and 230.401].
    \282\ See the discussion in Section V.B.1. below under ``Issuer 
Undertakings.''
    \283\ Securities Act Section 7 [15 U.S.C. 77g] and Securities 
Act Rule 436 [17 CFR 230.436].
---------------------------------------------------------------------------

    The triggering of a new effective date for a takedown would not, 
under our proposals, affect the information that was in the 
registration statement at the time of any prior sale. We are revising 
Securities Act Rule 412 to make clear that information contained in a 
prospectus supplement deemed part of, or in an Exchange Act report that 
is incorporated by reference into, a registration statement or 
prospectus as of a new effective date for a takedown of securities 
would not modify or supersede any information that was contained in 
that registration statement or the prospectus for purposes of an 
earlier effective date with respect to a prior takedown of securities 
off that registration statement. Thus, the rights of an investor in a 
prior sale (with a previous effective date) would be unaffected by 
subsequently filed prospectus supplements or Exchange Act reports.
    Including information contained in prospectus supplements in 
registration statements and having prospectus supplements filed in 
connection with takedowns off shelf registration statements trigger new 
effective dates would provide and preserve important investor 
protections under the Securities Act. Under these provisions final 
prospectuses, including prospectus supplements, used in shelf offerings 
would in their entirety be part of the registration statement, as we 
believe was contemplated by and within the intent of the Securities 
Act. These provisions also would reconcile the effective date for shelf 
offerings with a comparable date for non-shelf offerings, as we believe 
was also within the intent of the Securities Act. We believe the 
proposals also would eliminate the unwarranted, disparate treatment of 
underwriters and issuers and others subject to liability under Section 
11.\284\ Today, new effective dates of shelf registration statements 
occur annually at the time of the Section 10(a)(3) updates, when 
takedowns occur periodically

[[Page 67430]]

throughout the year. Our proposals generally would not change the date 
at which disclosure is evaluated under Section 11 for underwriters but 
generally would move the effective date for the issuer and others 
subject to liability under Section 11 to the same date, or 
approximately the same date, as for underwriters for takedowns off 
shelf registration statements.
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    \284\ Currently, there can be a mismatch among offering 
participants in the time that liability is assessed. For example, in 
an offering from a shelf registration statement, an issuer could 
have its liability assessed as of the date of the registration 
statement's original effectiveness or the most recent updating 
required under Securities Act Section 10(a)(3), while the liability 
of an underwriter would be assessed at the later time when it became 
an underwriter. Thus, for example, underwriters in takedowns 
occurring after initial effectiveness or the Section 10(a)(3) update 
would be subject to liability under Section 11 for an issuer's 
Exchange Act reports incorporated by reference into the prospectus 
included in the registration statement after the Section 10(a)(3) 
update while issuers would not. We believe that the Securities Act 
contemplates that as a general matter, the date of effectiveness of 
a registration statement for an offering and the date on which an 
underwriter becomes an underwriter would be close in time and this 
proposed change would effect that.
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Request for Comment

    <bullet> Would prospectus supplements be filed any sooner than they 
are today as a result of proposals that would deem the prospectus 
supplement part of the registration statement and trigger new effective 
dates if the prospectus supplement relates to a takedown off a shelf 
registration statement? If so, how?
    <bullet> Would the ability to include information in an Exchange 
Act report that is otherwise required to be contained in a prospectus 
enable issuers to file the information reflecting the takedown prior to 
the end of the second business day after the takedown?
    <bullet> Would investors be able to locate the information that was 
included in the prospectus through incorporation by reference of an 
Exchange Act report through the proposed cover page disclosure?
    <bullet> In shelf takedowns, would investors be able to identify 
the effective dates for the securities sold in their particular 
takedown?
    <bullet> In light of the new effective date for liability purposes 
that would be imposed by proposed Rule 430B, will there be questions 
regarding the necessity of providing an auditor's consent or the letter 
regarding unaudited financial information (see Item 601(b)(15) of 
Regulation S-K) for interim period takedowns for prospectus supplements 
that did not contain disclosure for which a consent was required? If 
so, what would be the appropriate means to address this possible 
situation?
    <bullet> Would a new effective date for each takedown for liability 
purposes have any effect on liability for incorporated Exchange Act 
reports that have not been modified or superseded?
    <bullet> Should proposed Rule 430C apply to prospectus supplements 
filed by closed-end management investment companies under Rule 497?
iv. Proposed Amendments to Rule 415
(A) Elimination of Limitation on Amount of Securities Registered
    For offerings other than business combination transactions and 
continuous offerings, the proposals would eliminate the current 
provision in Securities Act Rule 415 that limits the amount of 
securities registered to an amount that are intended to be offered or 
sold within two years from the registration statement effective 
date.\285\ The two-year requirement was designed to ensure that the 
issuer had a bona fide intention to offer and sell securities in the 
proximate future.\286\ We are proposing to eliminate this requirement 
for registration statements for capital raising transactions, as we do 
not believe that imposing it on shelf issuers is necessary to permit 
shelf registration or provides any significant investor protection in 
view of how shelf registered offerings are effected today. We are 
proposing, however, that shelf registration statements could only be 
used for three years after the initial effective date of the 
registration statement.\287\ Under this proposal, new shelf 
registration statements would have to be filed every three years, with 
unsold securities and unused fees carried forward to the new 
registration statement.\288\ Continuous offerings begun prior to the 
end of the three years could continue on the old registration statement 
until the effective date of the new registration statement, at which 
point the continuous offerings could continue on the new registration 
statement. We believe that, especially with our liberalization of 
procedures for shelf registration, particularly automatic shelf 
registration as described below, the precise contents of shelf 
registration statements may become difficult to identify over time, and 
that markets would benefit from a periodic updating and consolidation 
requirement.\289\
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    \285\ See proposed amendments to Securities Act Rule 415(a)(2).
    \286\ See Securities Act Section 6(a) [15 U.S.C. 77f(a)] and 
Proposed Revision of Regulation S-K and Guides for the Preparation 
and Filing of Registration Statements and Reports, Release No. 33-
6276 at Part III.E (Dec. 23, 1980) [46 FR 78].
    \287\ Our proposal would not limit the amount that could be 
registered.
    \288\ For fee carry-forward provisions, see Securities Act Rule 
457(p) [17 CFR 230.457(p)].
    \289\ See, for example, our proposals to revise Securities Act 
Rule 412 to permit information in registration statements and 
prospectuses to be modified or superseded by subsequently filed 
Exchange Act reports and prospectus supplements and our proposals to 
revise Forms S-3 and F-3 to permit most information to be included 
in the prospectus through incorporation by reference.
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Request for Comment

    <bullet> Should we keep the two-year intention requirement for 
shelf registration issuers? If not, should we require shelf 
registration issuers to file new registration statements every three 
years? Should the period be longer, such as five years?
(B) Immediate Takedowns From a Shelf Registration Statement Filed Under 
Rule 415(a)(1)(x)
    We are proposing to amend Securities Act Rule 415 to allow primary 
offerings on Form S-3 or Form F-3 to occur promptly after effectiveness 
of a shelf registration statement.\290\ With respect to immediate 
offerings from an effective registration statement, our rules currently 
permit omission of information from the prospectus at the time of 
effectiveness only in reliance on Securities Act Rule 430A.\291\ Our 
proposed changes affecting the treatment of prospectus supplements 
would provide sufficient protection to investors to allow, in an 
immediate offering, omission of information under Rule 415 and proposed 
Rule 430B. To provide an alternative to issuers, Rule 430A would 
continue to be available for immediate takedowns.\292\
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    \290\ See proposed amendments to Securities Act Rule 
415(a)(1)(x).
    \291\ See Prospectus Delivery; Securities Transactions 
Settlement, Release No. 33-7168 (May 11, 1995) [60 FR 26604] at 
Section II.A.5.
    \292\ We also propose to amend Securities Act Rule 430A [17 CFR 
230.430A] to enable the rule to be relied on by issuers using 
automatic shelf registration statements that go effective 
automatically.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we permit immediate takedowns off shelf 
registration statements without requiring reliance on Rule 430A? If 
not, why not?
(C) Eliminating ``At-the-Market'' Offering Restrictions
    We are proposing to eliminate the restrictions on primary ``at-the-
market'' offerings of equity securities currently set forth in Rule 
415(a)(4),\293\ initially included to address concerns about the 
integrity of trading markets, \294\ because they no longer provide 
protection to markets or investors. The market today has greater 
information about issuers than it did at the adoption of the ``at the 
market'' limitations, due to enhanced Exchange Act reporting. Further, 
trading markets for issuers' securities have grown significantly since 
that time. Requiring the involvement of underwriters and limiting the 
amount of securities that can be sold imposes artificial limitations on 
this avenue for issuers to access capital in the markets. Once 
eliminated, an issuer eligible to conduct an offering pursuant to Rule 
415(a)(1)(x) could conduct an ``at-the-market'' offering of equity 
securities without requiring identification of an

[[Page 67431]]

underwriter in its registration statement \295\ and without a volume 
limitation.
---------------------------------------------------------------------------

    \293\ 17 CFR 230.415(a)(4).
    \294\ See Adoption of Integrated Disclosure System, Release No. 
33-6383 (Mar. 3, 1982) [47 FR 11380] at Section IV.B.2.d.
    \295\ Underwriters could, as in the case with other information, 
be included in the relevant prospectus supplement.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Would the continuous offering provisions of Rule 
415(a)(1)(ix), which require that an issuer must be ready and willing 
to sell those securities at all times, provide enough protection in the 
case of ongoing at-the-market offerings, or is there a concern that 
unseasoned and non-reporting issuers would use these provisions to 
conduct delayed offerings for which they were not eligible? If so, 
should the requirements contained in current Rule 415(a)(4) regarding 
the amount of securities to be offered apply to those offerings?
    <bullet> Are there other constraints or conditions we should impose 
on the types of offerings that can be conducted at-the-market?
    <bullet> Should we continue to impose Form S-3 or F-3 eligibility 
as a condition to conducting primary ``at-the-market'' offerings of 
equity securities? Should non-reporting and unseasoned issuers be 
permitted to do at-the-market offerings?
v. Rule 424 Amendments
    In conjunction with our other procedural proposals, we are 
proposing certain companion modifications to Securities Act Rule 424. 
First, we are proposing to amend Instruction 2 to require that any 
prospectus supplement filed pursuant to Securities Act Rule 434\296\ 
(which permits the use of term sheets) must be filed at the same time 
as other prospectus supplements for shelf registration statement 
takedowns. We do not believe that prospectus supplements used by 
issuers relying on Rule 434 should be treated differently than any 
other type of offering. The liability for the information would be the 
same in all cases. We are also proposing to amend Rule 434 to make 
similar changes to the timing of a prospectus supplement filing.
---------------------------------------------------------------------------

    \296\ 17 CFR 230.434.
---------------------------------------------------------------------------

    Second, we are proposing to add a requirement that in cases of 
offerings where information regarding the terms of the securities or 
the plan of distribution or other information related to the offering 
(including changes or additions to information previously provided) is 
included in Exchange Act reports incorporated by reference, the 
prospectus supplement filed pursuant to Rule 424 would be required to 
disclose on its cover page the Exchange Act report or reports 
containing such information. This cover page disclosure would assist 
investors and the markets in locating this offering-related 
information.

Request for Comment

    <bullet> Should we eliminate Rule 434, which we believe has only 
been very rarely used, in light of our other proposed procedural 
changes?
    <bullet> Would the requirement to include cover page references to 
where omitted information about the securities or plan of distribution 
may be located be helpful to investors and to issuers?
vi. Issuer Undertakings
    We are proposing conforming revisions to the issuer undertakings 
that are required in connection with a shelf registration statement. 
These revisions would reflect the issuer's agreement regarding the 
inclusion of information contained in prospectus supplements in 
registration statements and new effective dates of the registration 
statement.
(A) Treatment of Information in Prospectus Supplements
    Item 512(a) of Regulation S-K currently requires an issuer to 
undertake to file a post-effective amendment to a registration 
statement to:
    <bullet> Include in the registration statement any prospectus 
required by Securities Act Section 10(a)(3);
    <bullet> Reflect in a prospectus included in the registration 
statement any facts or events arising after the effective date of the 
registration statement (or the most recent post-effective amendment 
thereto) which, individually or in the aggregate, represent a 
fundamental change in the information set forth in the registration 
statement; and
    <bullet> Include in a prospectus included in the registration 
statement any material information with respect to the plan of 
distribution not previously disclosed in the registration statement or 
any material change in such information in the registration 
statement.\297\
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    \297\ In addition, Item 512(a)(4) contains a provision under 
which foreign private issuers are required to undertake to update 
the financial and other information in a shelf prospectus in 
accordance with the age of financial statements provisions under 
Item 8.A of Form 20-F. We are not proposing to modify this 
requirement. Foreign private issuers would continue to be subject to 
this updating requirement, by a post-effective amendment or by 
incorporation by reference, as currently provided for under Item 
512(a)(4).
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    Currently, shelf issuers can satisfy the first two of these 
obligations by filing Exchange Act periodic reports that are 
incorporated by reference into the registration statement. We are 
proposing to revise the Item 512(a) undertaking to clarify that for 
shelf registration statements filed on Forms S-3 and F-3 for primary 
offerings of securities in reliance on Rule 415(a)(1)(x),\298\ all the 
disclosures required by this undertaking can be contained in any filed 
prospectus supplement deemed part of and included in a registration 
statement or any Exchange Act report that an issuer files that is 
incorporated by reference into the registration statement, instead of 
only in periodic reports. This would permit an issuer to use an 
incorporated Form 8-K (or Form 6-K) to satisfy this undertaking. As 
discussed below, we also are proposing to revise the undertaking to 
allow automatic shelf issuers to include in this manner all other 
information that has been omitted from the base prospectus. In the 
event that satisfaction of any element of the undertaking requires the 
filing by any of the permitted methods of a consent of an expert, that 
consent may be filed by post-effective amendment to Part II of the 
registration statement only or by filing of an Exchange Act report, 
such as an annual report on Form 10-K or a report on Form 8-K or Form 
6-K, incorporated by reference into the registration statement.\299\
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    \298\ For automatic shelf registration statements, this 
provision would not apply. See discussion in Section V.B.1 below 
under ``Mechanics for Including Information.''
    \299\ See Securities Act Rule 436 [17 CFR 230.436].
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should issuers be able to incorporate by reference Form 8-
K or 6-K reports to satisfy their obligations to file post-effective 
amendments for certain items, in addition to those permitted today? If 
so, are there other disclosure and other registration statement 
requirements that should similarly be permitted to be satisfied through 
the incorporation by reference of current reports on Form 8-K or 6-K?
    <bullet> Are the proposed undertakings necessary?
    <bullet> Is there a method other than through undertakings to 
achieve our objectives effectively? What is it?
    <bullet> Foreign private issuers are required to undertake to 
update their financial statements under Item 512(a)(4) of Regulation S-
K. Should we modify this requirement? If so, how should we modify it to 
continue to require financial statements to be included in a 
registration statement within the required time?

[[Page 67432]]

(B) Prospectus Supplements Deemed Part of a Registration Statement and 
New Effective Dates
    To reflect the issuer's understanding of and agreement to the 
proposed changes described above, we are proposing to include a new 
undertaking in which the issuer would agree that information in filed 
prospectus supplements are deemed part of and included in registration 
statements and that new effective dates would occur.\300\ The new 
undertaking would provide that the issuer would acknowledge that a 
prospectus supplement, other than one filed in connection with a 
takedown,\301\ would be deemed part of and included in the relevant 
registration statement as of the date of its first use and that a 
prospectus supplement filed in connection with a takedown would be 
deemed part of and included in the relevant registration statement as 
of the earlier of the date it is first used after effectiveness or the 
date of the first contract of sale of securities in the offering 
described in the prospectus. The issuer would acknowledge that such 
date, in the case of a prospectus supplement filed in connection with a 
takedown, would also be deemed for purposes of liability to be a new 
effective date of the registration statement relating to the securities 
to which the prospectus supplement relates, and the offering of such 
securities at that time would be deemed to be the initial bona fide 
offering of the securities. The proposed undertaking would assure that 
the issuer would agree and other offering participants would be aware 
that they have liability for information that is included in or deemed 
part of the registration statement, that the liability of the issuer 
and other offering participants would be assessed as of the indicated 
date, and that the statute of limitations for Section 11 liability for 
securities sold in that takedown would commence at that time.
---------------------------------------------------------------------------

    \300\ See proposed Rules 430B and 430C.
    \301\ These supplements would be those filed pursuant to 
Securities Act Rule 424(b)(3).
---------------------------------------------------------------------------

    Because closed-end management investment companies use Securities 
Act Rule 415 to make shelf offerings under certain circumstances, and 
provide an undertaking similar to that required by Item 512(a) of 
Regulation S-K in their registration statements on Form N-2, we are 
proposing a new undertaking in Form N-2 similar to that which we are 
proposing in Item 512(a) of Regulation S-K.\302\ We are also proposing 
to amend Rule 415 to clarify that investment companies filing on Form 
N-2 that use the rule must provide the undertaking required by Form N-
2, rather than the undertaking required in Item 512(a) of Regulation S-
K.\303\
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    \302\ Proposed Item 34.4.d and e of Form N-2. Form N-2 is the 
registration form used by closed-end management investment companies 
to register under the Investment Company Act of 1940 and to offer 
their securities under the Securities Act.
    \303\ See proposed Rule 415(a)(3).
---------------------------------------------------------------------------

Request for Comment

    <bullet> Are the proposed undertakings clear as to when issuers 
would be liable for prospectus supplements?
    <bullet> Should we require an undertaking by closed-end management 
investment companies in Form N-2 acknowledging that a prospectus 
supplement would be deemed part of and included in the relevant 
registration statement as of the date of its first use, similar to the 
undertaking we are proposing to require in Regulation S-K? What 
modifications to the proposed undertaking would be appropriate for 
closed-end management investment companies?
c. Changes to Form S-3 and Form F-3
    In addition to the proposed changes that would allow additional 
Form S-3 or Form F-3 disclosures to be included through prospectus 
supplements and Exchange Act reports, we are proposing to amend Form S-
3 and Form F-3 to expand the categories of majority-owned subsidiaries 
that would be eligible to register their non-convertible securities or 
guarantees under proposed General Instruction I.C. of the respective 
forms. The permitted circumstances would be the same as those needed 
for majority-owned subsidiaries to be well-known seasoned issuers. The 
proposed revisions would expand the use of Form S-3 and Form F-3 to 
allow it to be used to register offerings of guarantees by majority-
owned subsidiaries of non-convertible securities of other majority-
owned subsidiaries or of the parent. We believe that this expansion is 
appropriate in that it recognizes the various types of subsidiary 
guarantees that may be employed in registered debt offerings of related 
entities. Whether information regarding the subsidiary would have to be 
included in the registration statement would depend, as today, on 
whether the subsidiary met the eligibility conditions of Rule 3-10 of 
Regulation S-X and Exchange Act Rule 12h-5.\304\
---------------------------------------------------------------------------

    \304\ See Rule 3-10 of Regulation S-X [17 CFR 210.3-10] and 
Exchange Act Rule 12h-5 [17 CFR 240.12h-5].
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we expand Forms S-3 and F-3 eligibility only for 
wholly-owned subsidiary guarantors, instead of majority-owned 
subsidiaries?
2. Automatic Shelf Registration for Well-Known Seasoned Issuers
a. Overview
    In addition to the updating of the shelf registration process 
described above, we are proposing to establish a significantly more 
flexible version of shelf registration for offerings by well-known 
seasoned issuers. This version of shelf registration, which we refer to 
in this release as ``automatic shelf registration,'' would involve 
filings on Form S-3 or Form F-3. The automatic shelf registration 
proposals would be in addition to the proposed communications 
exemptions and would allow eligible well-known seasoned issuers 
substantially greater latitude in registering and marketing securities. 
The automatic shelf registration process would continue to enable the 
issuer, as with other shelf registrants, to takedown securities off the 
shelf registration statement from time to time.\305\
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    \305\ As with other delayed shelf registration statements, the 
issuer would only be considered to be in registration or offering 
its securities when it offers securities in a takedown off its 
registration statement. See e.g., the 2000 Electronics Release at 
note 62.
---------------------------------------------------------------------------

    For well-known seasoned issuers, we believe that the proposed 
modifications would facilitate immediate market access and promote 
efficient capital formation, without at the same time diminishing 
investor protection. Most significantly, the proposals would provide 
the flexibility to take advantage of market windows, to structure 
securities on a real-time basis to accommodate issuer needs or investor 
demand, and to determine or change the plan of distribution of 
securities as issuers elect in response to changing market conditions. 
We hope that providing these automatic shelf issuers more flexibility 
for their registered offerings, coupled with the liberalized 
communications rules we have proposed, would encourage these issuers to 
raise their necessary capital through the registration process.\306\
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    \306\ The flexibility permitted under the proposed automatic 
shelf registration process would benefit issuers and investors by 
facilitating different types of offers that issuers currently may 
elect not to conduct on a registered basis. In particular, this 
process would facilitate the registration under the Securities Act 
of rights offers conducted by eligible foreign private issuers. At 
present, foreign private issuers frequently do not extend rights 
offers to their U.S. security holders because the current 
registration process under the Securities Act does not accommodate 
the timing mechanics of rights offers, which are typically announced 
and launched in a very short period of time. The ability of eligible 
foreign private issuers to use the automatic shelf registration 
process and to have a Securities Act registration statement become 
automatically effective so that sales in a rights offer can take 
place immediately after filing should encourage eligible foreign 
private issuers to extend rights offers to U.S. holders.

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[[Page 67433]]

    Under our proposed automatic shelf registration process, eligible 
well-known seasoned issuers could register unspecified amounts of 
different specified types of securities on automatically effective Form 
S-3 or Form F-3 registration statements. Unlike other issuers 
registering primary offerings on Form S-3 or Form F-3, the automatic 
shelf registration process would allow eligible issuers to add 
additional classes of securities and eligible majority-owned 
subsidiaries as additional registrants after an automatic shelf 
registration statement is effective. They would also be able to freely 
accommodate both primary and secondary offerings using automatic shelf 
registration. Thus, these issuers would have significant latitude in 
determining the types and amounts of their securities or those of their 
eligible subsidiaries that could be offered without any potential time 
delay or other obstacles imposed by the registration process.
    Issuers using an automatic shelf registration statement would be 
permitted to pay filing fees in advance or on a ``pay-as-you-go'' basis 
at the time of each takedown off the shelf registration statement in an 
amount calculated for that takedown. The proposals would permit more 
information to be excluded from the base prospectus in an automatic 
shelf registration statement than from a regular shelf registration 
statement. The omitted information would then be included at or before 
the time of filing a prospectus supplement. The automatic shelf 
registration process, together with the loosening of the restrictions 
on communications, would permit well-known seasoned issuers with 
maximum flexibility to use a free writing prospectus to structure 
transactions.
b. Automatic Shelf Registration Mechanics
i. Eligibility
    The automatic shelf registration statement could be used for all 
primary and secondary offerings of securities of eligible well-known 
seasoned issuers, other than those in connection with business 
combination transactions or exchange offers.\307\ We believe that, in 
introducing automatic shelf registration, we should limit availability 
to only well-known seasoned issuers.\308\
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    \307\ As today, business combination transactions and exchange 
offers could not be registered on Form S-3 or Form F-3.
    \308\ Certain subsidiaries of well-known seasoned issuers would 
also be permitted to be included on the parent's automatic shelf 
registration statement.
---------------------------------------------------------------------------

    As proposed, an issuer could file an automatic shelf registration 
statement if it met the eligibility criteria on the initial filing date 
and would reassess its eligibility at the time of each updated 
prospectus required by Section 10(a)(3).\309\ If an issuer were no 
longer eligible to use an automatic shelf registration statement at the 
time of its Section 10(a)(3) update, it would have to either post-
effectively amend its registration statement onto the form it was then 
eligible to use or file a new registration statement on such a form. 
Any offerings that were ongoing at that time, such as registered 
conversions of outstanding convertible securities, could continue on 
the automatic shelf registration statement until a post-effective 
amendment or new registration that was filed in a timely manner was 
declared effective.\310\ For example, a well-known seasoned issuer that 
was initially eligible for automatic shelf registration, that lost 
eligibility at the time of Section 10(a)(3) update, but that retained 
its eligibility to file a shelf registration statement under Rule 415 
on Form S-3, could file a post-effective amendment or a new 
registration statement on Form S-3 that designated an amount of 
securities to be registered and otherwise complied with requirements 
for seasoned issuers that are not well-known seasoned issuers.
---------------------------------------------------------------------------

    \309\ For shelf registration statements, the Section 10(a)(3) 
update usually occurs upon the filing of the issuer's Form 10-K or 
Form 20-F (or a post-effective amendment with similar updating of 
information) for the prior fiscal year.
    \310\ To be considered timely for this purpose, the post-
effective amendment or new registration statement would have to be 
filed within the period established by Securities Act Section 
10(a)(3), which is 120 days after the issuer's most recent fiscal 
year end.
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    In general, securities of majority-owned subsidiaries of well-known 
seasoned issuers could be included on the automatic shelf registration 
statement if the subsidiary satisfied the conditions for being 
considered a well-known seasoned issuer described above.\311\ Under 
automatic shelf registration, as proposed, a registration statement 
could be amended by post-effective amendment to add an eligible 
subsidiary as an issuer.\312\
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    \311\ See discussion in Section II above under ``Well-Known 
Seasoned Issuers; Other Categories of Issuers''.
    \312\ See discussion below at note 319.
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Request for Comment

    <bullet> Should eligibility for automatic shelf registration be 
limited to well-known seasoned issuers? If not, provide empirical and 
other information explaining why it should be available to a broader 
class of issuers, including the extent to which such issuers are 
followed by analysts and investors in the market.
ii. Information in a Registration Statement
(A) Information That May Be Omitted From the Base Prospectus
    Our proposals would allow automatic shelf issuers to omit more 
information from the base prospectus in an automatic shelf registration 
statement than is the case currently or than would be the case in a 
regular shelf offering registration statement. A base prospectus 
included in an automatic shelf registration statement could, as today, 
omit information pursuant to Securities Act Rule 409 \313\ that was 
unknown and not reasonably available and, as proposed, could omit the 
following additional information:
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    \313\ 17 CFR 230.409.
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    <bullet> Whether the offering is a primary or secondary offering;
    <bullet> The names of any selling security holders; and
    <bullet> Any plan of distribution for the offering securities.\314\
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    \314\ See proposed Rule 430B.
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Omitting this additional information from the base prospectus would not 
affect the information that an investor would be provided in connection 
with a particular sale.\315\
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    \315\ In shelf registration statements today, base prospectuses 
generally do not contain detailed information about particular 
securities offering takedowns. That information is communicated 
orally or through a preliminary prospectus and reflected in the 
final prospectus filed pursuant to Rule 424. The automatic shelf 
would expand the categories of information that may be omitted. In 
addition, the right to omit information from a base prospectus does 
not affect the fact that under our interpretation and proposed Rule 
159 whether there are material misstatements or material omissions 
is assessed on the basis of information conveyed at the time of 
sale.
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(B) Mechanics for Including Information
    We believe that our proposals to broaden the means by which issuers 
may include information in an automatic shelf registration statement 
would benefit both issuers and investors. Our proposals would provide 
issuers with automatic shelf registration statements the ability to add 
omitted information to a prospectus generally by means other than a 
post-effective amendment to the registration statement.\316\ As we 
discuss above, we

[[Page 67434]]

are proposing to amend Forms S-3 and F-3 to permit all information 
required in the prospectus about the issuer and its securities to be 
incorporated by reference from Exchange Act reports or be contained in 
the prospectus or a prospectus supplement that would be deemed to be 
part of and included in the registration statement.\317\ Examples of 
the types of information that could be added in this manner for 
automatic shelf registration statements would include the public 
offering price, detailed description of securities including 
information not contained or incorporated by reference in the base 
prospectus, the identity of underwriters and selling security holders, 
and the plan of distribution of the securities.
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    \316\ Issuers would still have the flexibility to file post-
effective amendments to include the information.
    \317\ The proposed amendments would permit any information 
required in the prospectus pursuant to Item 3 through Item 11 of 
Form S-3 and Form F-3 to be included in this manner.
    In addition to the other proposed changes to Rule 424 that would 
apply to all issuers, we are proposing to revise Rule 424 to address 
specifically prospectus supplements filed by shelf issuers that 
contain only transaction specific information, such as term sheets 
that have been used as free writing prospectuses.
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    The principal exceptions to this approach would be that an issuer 
desiring to add to the registration statement new types of securities 
\318\ or new eligible issuers, including guarantors, and the securities 
they intend to issue must do so by post-effective amendment.\319\ New 
issuers and their officers and directors would be required to be 
signatories to the post-effective amendment.\320\
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    \318\ See discussion in Section V.B.2 below under ``Registration 
of Securities to be Offered.''
    \319\ Adding the issuer by post-effective amendment, including 
necessary signatures and information and filings necessary for 
qualification under the Trust Indenture Act of 1939 where 
applicable, would ensure that the entity would be considered an 
issuer for purposes of Securities Act Section 11 for the securities 
covered by the registration statement. Information about the newly 
added subsidiary would be required in the amended registration 
statement, either in a prospectus that was part of the registration 
statement or through incorporation by reference, unless the 
subsidiary was exempt from reporting pursuant to Exchange Act Rule 
12h-5. The post-effective amendment also would need to include 
necessary opinions and consents. All disclosure items with regard to 
that new issuer could be incorporated by reference from the new 
issuer's Exchange Act reports or registration statement, or be 
included in a prospectus supplement or a post-effective amendment. A 
new effective date for Section 11 liability purposes would also 
occur at the time of a takedown off the registration statement, 
which would include that information.
    \320\ See Securities Act Section 6 [15 U.S.C. 77f], and the 
discussion in Section V.B.2 below under ``Registration of Securities 
to be Offered''.
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(C) Registration of Securities to be Offered
    An eligible issuer may register on an automatic shelf registration 
statement an unspecified amount of securities to be offered, without 
indicating whether the securities would be sold in primary offerings or 
secondary offerings on behalf of selling security holders. Well-known 
seasoned issuers that satisfy the definition based only on their 
aggregated registered debt issuances could register only non-
convertible obligations under General Instruction I.B.2. of Form S-3 
and Form F-3. The calculation of registration fee table in the initial 
registration statement also would not need to include a dollar amount 
or specific number of securities, but would specify each class of 
security registered. The issuer could specify the number or dollar 
amount of securities in a prospectus supplement for each offering.\321\
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    \321\ See proposed amendments to Securities Act Rules 413, 
456(b), and 457(r) [17 CFR 230.413; 230.456(b), and 230.457(r)]. See 
also, Form S-3--General Instruction I.D.1.(b)(5) and Instructions to 
the Calculation of Registration Fee Table.
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    The base prospectus in the initial registration statement would 
identify and describe, to the extent the information was available at 
that time, the classes of securities registered. As under current 
practice with shelf registration, the descriptions would not need to 
contain detailed information as to particular security terms and 
conditions. In addition, we are proposing to expand the unallocated 
shelf procedure to allow automatic shelf issuers to register classes of 
securities without allocating the mix of securities registered between 
the issuer, its eligible subsidiaries or selling security holders.\322\ 
Allowing registration without separately allocating the registered 
classes of securities would, we believe, provide greater flexibility to 
well-known seasoned issuers in conducting registered securities 
offerings.
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    \322\ See proposed General Instruction II.E. of Form S-3 and 
proposed General Instruction II.F. of Form F-3. Currently, an issuer 
offering securities on Form S-3 or Form F-3 is not required to 
specify the amount of each class of securities that it will offer, 
but it is required to separately register and designate the amount 
and classes of securities that may be offered and sold by eligible 
subsidiaries and selling security holders. Under our current rules, 
offerings for selling security holders are not considered delayed 
offerings under Rule 415(a)(1)(x) and thus must be separately 
registered or designated prior to effectiveness of the registration 
statement. Issuers cannot currently offer and sell securities of 
selling security holders using an unallocated shelf registration 
statement.
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    We propose to remove the current restriction that would prevent 
well-known seasoned issuers from adding classes of securities to an 
automatic shelf registration statement after effectiveness.\323\ Under 
the proposals, a well-known seasoned issuer could add new classes of 
securities or securities of an eligible subsidiary to an automatic 
shelf registration statement at any time before the sale of those 
securities. In order to add new classes of securities, an issuer would 
file a post-effective amendment to register an unspecified amount of 
securities of the new class of security.\324\ This requirement would 
make the registration statement cover each new class of securities to 
be offered. An issuer could provide the disclosure about the new class 
of securities of the issuer in the post-effective amendment to, in a 
prospectus supplement deemed part of and included in, or in an Exchange 
Act report that was incorporated by reference into the registration 
statement.\325\
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    \323\ See proposed amendments to Securities Act Rule 413.
    \324\ If an issuer using automatic shelf registration determined 
after effectiveness to add a class of debt securities or guarantees 
of securities to its registration statement, in addition to filing a 
post-effective amendment to the registration statement to register 
the class of debt securities or guarantees, it also would need to 
qualify the indenture or guarantee under the Trust Indenture Act of 
1939 [15 U.S.C. 77aaa-77bbbb]. The Division of Corporation Finance 
has long taken the position that the indenture covering the 
securities to be sold pursuant to a registration statement must be 
qualified when that registration statement becomes effective and not 
at the time of any post-effective amendment to that registration 
statement. See Division of Corporation Finance letter to Donald P. 
Spencer (available September 24, 1982). This position is consistent 
with the existing registration process and Securities Act Rule 413, 
which provides that an issuer must register an offering of 
additional securities through the use of a separate registration 
statement. In the automatic shelf registration process we propose 
today, however, an issuer would be permitted to add securities to a 
shelf registration statement by means of a post-effective amendment. 
As such, unlike in the existing registration statement process, the 
effectiveness of an automatic shelf registration post-effective 
amendment that adds securities to a shelf registration statement 
would be the time ``when registration becomes effective as to such 
securit(ies),'' as that term is used in Trust Indenture Act Section 
309(a)(1). Accordingly, under the proposed automatic shelf 
procedure, the Trust Indenture Act qualification requirement would 
be satisfied in the following manner: (1) For debt securities or 
guarantees included in the registration statement at original 
effectiveness, the trust indenture would be required to be included 
in the registration statement at the time that registration 
statement became effective; and (2) for debt securities or 
guarantees added to the registration statement through a post-
effective amendment, the trust indenture would be required to be 
included in the registration statement at the time that post-
effective amendment became effective.
    \325\ This disclosure would become part of the registration 
statement regardless of the method chosen to provide it.
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(D) Pay-as-You-Go Registration Fees
    We are proposing to permit issuers using automatic shelf 
registration statements to pay filing fees at the time of a securities 
offering--commonly known as ``pay-as-you-go''--or prior to

[[Page 67435]]

that time. Under this proposal, the issuer would pay a small initial 
filing fee at the time of filing the initial registration 
statement.\326\ The triggering event for a required fee payment under 
our proposals would be a takedown off a shelf registration statement. 
For each takedown, the issuer could file a prospectus supplement for 
the takedown that would include a calculation of registration fee table 
or could file a post-effective amendment including the same 
information. The issuer would pay the appropriate fee calculated in 
accordance with Securities Act Rule 457 at the time of the filing of 
the prospectus supplement. The proposals would require that the issuer 
file the prospectus supplement in accordance with the due date for the 
prospectus supplement under Rule 424(b)(2), (b)(5), (b)(7) or (b)(8). 
In addition, at any time before one or more takedowns in the future 
(for example, in the case of a medium-term note program), the issuer 
could pay the appropriate fee and file such a prospectus supplement. 
Our proposals would amend Rule 424 to require an issuer using automatic 
shelf registration and the pay-as-you-go registration fee payment 
procedure to include on the cover page of the prospectus supplement a 
fee table calculating the registration fee for the current or future 
takedowns for which it is paying the required fee.
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    \326\ The initial filing fee would be applied against the fees 
payable in connection with the first takedown off the registration 
statement.
    Because an issuer also would have the ability to pay any filing 
fee in advance of a takedown, the proposals would provide 
flexibility in the timing of the fee payment if the issuer satisfied 
the conditions to the delayed payment. We are providing this 
flexibility for issuers, such as those with medium term note 
programs, to determine the fee payment approach most appropriate for 
them.
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(E) Registration Under Securities Act Sections 5 and 6
    Compliance with Securities Act Sections 5 and 6 would depend on the 
timing of the necessary filings and the content of the automatic shelf 
registration statement (including, as we have described, amendments, 
incorporated documents and prospectus supplements). Securities Act 
Section 5 requires registration of each securities offering unless an 
exemption is available. Securities Act Section 6 governs how securities 
may be registered, including the filing of registration statements and 
the payment of filing fees. For purposes of Securities Act Section 5, 
any securities offered and sold off an effective automatic shelf 
registration statement would be deemed to satisfy the requirements of 
Securities Act Section 5(c) if the registration statement, or any 
amendment thereto, included that class of securities prior to the offer 
and sale. If the class of securities was included on the registration 
statement, the amendment, incorporated Exchange Act document or 
prospectus supplement reflecting the transaction and the fee table was 
filed on a timely basis, and the appropriate fee was timely paid at or 
before the time of filing, the securities sold in the takedown would be 
deemed to be registered for purposes of Securities Act Section 6. Thus, 
Securities Act Section 5(a) would be deemed satisfied if the automatic 
shelf registration statement included the class of securities sold and 
the filing fee was timely paid. If, however, the filing and fee payment 
were not made on a timely basis, the sale of the securities would not 
be considered registered for purposes of the Securities Act.
(F) Automatic Effectiveness
    As proposed, all automatic shelf registration statements and post-
effective amendments thereto would become effective automatically upon 
filing, without staff review.\327\ In addition, we are proposing to 
amend Securities Act Rule 401(g) to provide that an automatic shelf 
registration statement would be deemed to be filed on the proper form 
unless we notified the issuer after filing of our objection to the use 
of such form. Therefore, if an issuer had not been notified by us, it 
could conduct offerings with certainty that it had registered the 
securities on the proper form. After we notified an issuer of our 
objection, the issuer could not proceed with subsequent offerings 
(those offerings not in progress), unless it amended the registration 
statement to the proper form, or otherwise resolved the issue with 
us.\328\ In that case, even if we were to notify an issuer that it was 
ineligible to use an automatic shelf registration statement, securities 
sold prior to our notification would not have been sold in violation of 
Section 5. In the 1998 proposals, we proposed to eliminate the 
presumption that an effective Securities Act registration statement is 
on the appropriate form. Many commenters opposed that proposal due to 
concerns about liability for a Section 5 violation. We believe our 
proposals address those concerns and appropriately protect the 
integrity of the registration process.\329\
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    \327\ See proposed Rule 462(e) and (f).
    \328\ For ongoing offerings, such as registered exercises of 
outstanding warrants or options, the issuer, if it is eligible for a 
primary offering on Form S-3 or Form F-3, once notified by us, would 
have to amend the registration statement to reflect that it is not 
an automatic shelf registration statement. Pending effectiveness of 
the post-effective amendment or a new registration statement, 
conversions could continue.
    \329\ See, e.g., comment letters in File No. S7-30-98 from the 
ABA; ACIC; CSFB; Merck & Co, Inc.; SIA; and William J. Williams, Jr.
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    Automatic effectiveness of automatic shelf registration statement 
would not, we believe, raise investor protection concerns. As with 
shelf registration statements today, most, if not all, information 
about the issuer is included in shelf registration statements through 
incorporation by reference of Exchange Act reports. Such shelf 
registration statements permit issuers to sell securities off the shelf 
registration statement without previous staff review of each 
offering.\330\ With automatic effectiveness of the automatic shelf 
registration statements, we would expect issuers to evaluate whether 
there are unresolved disclosure or accounting issues that the 
Commission staff has raised on the issuer's Exchange Act filings before 
filing the automatic shelf registration statement or at the time of its 
Section 10(a)(3) update to such registration statement. Our 1998 
proposals would have disqualified an issuer from short-form 
registration if the issuer's Exchange Act reports were subject to 
unresolved comments issued by Commission staff. Many commenters opposed 
that disqualification.\331\ We are not proposing a similar 
disqualification. However, because we believe it is important that 
issuers address unresolved comments, as we discuss below, we are 
proposing to require disclosure by accelerated filers, which include 
well-known seasoned issuers, of written staff comments received 180 
days before an issuer's fiscal year end that the issuer believes are 
material and that have remained unresolved at the time of filing of the 
Form 10-K or Form 20-F, for a lengthy period of time.\332\
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    \330\ The staff of the Division of Corporation Finance would 
continue to review prospectus supplements that involve novel and 
unique securities offerings that are submitted to them prior to the 
issuer undertaking the offering.
    \331\ See, e.g., comment letter in File No. S7-30-98 from the 
Business Roundtable; Citigroup; Jack Coffee et al.; Fried Frank; 
Morgan Stanley; New York City Bar; PricewaterhouseCoopers LLP; SIA; 
Sullivan & Cromwell; and William J. Williams, Jr.
    \332\ See proposed amendments to Form 10-K and Form 20-F. We 
recently announced a new policy to publicly release staff comment 
letters and response letters relating to disclosure filings made 
after August 1, 2004 that are selected for review not less than 45 
days after the staff has completed a filing review. See SEC Press 
Release 2004-89 (Jun. 24, 2004). See discussion in Section VII.B 
below under ``Disclosure of Unresolved Staff Comments.''
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Request for Comment

    <bullet> Should we permit omission of additional information from 
the base

[[Page 67436]]

prospectus under automatic shelf registration? For example, should we 
permit omission of all information regarding the description of 
securities other than the identification of the classes of securities 
registered?
    <bullet> Should we permit omission of less information in the base 
prospectus under automatic shelf registration? What additional 
information should we require?
    <bullet> Should we make automatic effectiveness optional for 
automatic shelf registration statements? If so, why?
    <bullet> If a well-known seasoned issuer did not want automatic 
effectiveness of its automatic shelf registration statement, should 
they still be able to use the automatic shelf registration statement 
process?
    <bullet> Should we permit well-known seasoned issuers to elect to 
include a delaying amendment under Securities Act Section 8(a)? If so, 
in what circumstances?
    <bullet> Should we condition automatic effectiveness on resolution 
of staff comments? Why or why not?
    <bullet> In view of the recent changes affecting reporting issuers 
with respect to their Exchange Act reports, including among other 
things, accelerated filing deadlines for periodic reports for 
accelerated issuers, and issuer certifications of periodic reports and 
evaluation of disclosure controls and procedures and internal controls 
over financial reporting, as well as changes in the listing standards 
intended to improve corporate governance and enhance the role of the 
issuer's audit committee, should we consider whether to reevaluate the 
factors discussed in Securities Act Rule 176 \333\ regarding what 
constitutes a reasonable investigation and reasonable grounds under 
Securities Act Section 11(c)? If so, please explain specifically what 
changes should be made and how each of those changes would work in the 
context of each type of registered securities offering.
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    \333\ 17 CFR 230.176.
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(G) Duration
    An automatic shelf registration statement would become effective 
automatically and would cover an unspecified amount of securities. The 
open-ended nature of such registration statements could result in a 
large number of post-effective amendments. We are, therefore, proposing 
to require issuers to file new automatic shelf registration statements 
every three years that would, in effect, restate their then-current 
registration statement and amend it, as they deem appropriate. Under 
our proposals, issuers would be prohibited from issuing securities off 
an automatic shelf registration statement that is more than three years 
old. Our proposals provide, however, that, so long as eligibility for 
automatic shelf registration is maintained, the new registration 
statement would be effective immediately and would carry forward the 
securities registered and any fee paid on the old registration 
statement. As a result, an issuer's securities offerings under the 
registration statement would be uninterrupted.\334\
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    \334\ We are proposing a similar three-year requirement for non-
automatic shelf issuers. See discussion in Section V.B.1. above 
under ``Elimination of Limitation on Amount of Securities 
Registered.''
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Request for Comment

    <bullet> Should automatic shelf registration for well-known 
seasoned issuers be optional, as proposed, or mandatory? Would 
mandatory automatic shelf registration eliminate any market overhang 
effect? Would it create any uncertainty?
    <bullet> Should we treat automatic shelf registration statements 
the same as non-automatic shelf registration statements and require 
that a new automatic shelf registration statement be filed every three 
years? If so, is three years appropriate or should we increase the 
requirement to five years or reduce it to two years?
    <bullet> Is the pay-as-you-go filing fee procedure workable? Could 
it be made more workable? If so, how?
    <bullet> What advantages or disadvantages would result from 
mandatory automatic registration in terms of the inability to undertake 
unregistered private offerings or other unregistered offerings?
    <bullet> Should we provide by rule or interpretation guidance 
regarding the ability of issuers to undertake private offerings while 
they have automatic shelf registration statements on file?
    <bullet> Should we adopt a less stringent presumption of proper 
form that would allow the Commission to object within some period of 
time after the initial filing (and automatic effectiveness) instead of 
on a prospective basis? What would be an appropriate period of time? 10 
days? 15 days?
3. Unseasoned Issuers and Non-Reporting Issuers
a. Overview
    We are proposing a number of procedural changes that would affect 
reporting issuers, that are not seasoned issuers. These include:
    <bullet> Expanding the circumstances under which issuers may 
incorporate information from their Exchange Act reports into their 
Securities Act registration statements; \335\ and
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    \335\ See proposed amendments to Form S-3 and Form F-3.
---------------------------------------------------------------------------

    <bullet> Eliminating Form S-2 and Form F-2.
    The provisions of proposed Rule 430C discussed above regarding 
prospectus supplements used in continuous offerings also would affect 
offerings by non-reporting issuers and reporting issuers that are not 
seasoned issuers.\336\
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    \336\ See discussion in Section V.B.1 above under ``Information 
Deemed Part of Registration Statement.''
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b. Proposed Amendments to Form S-1 and Form F-1--Expanded Use of 
Incorporation by Reference
i. Eligibility
    As part of our initiatives to integrate further the Exchange Act 
and the Securities Act, we are proposing to amend Form S-1 and Form F-1 
to permit a reporting issuer that has filed at least one annual report 
and that is current in its reporting obligation to incorporate by 
reference into its Form S-1 or Form F-1 information from its previously 
filed Exchange Act reports and documents.\337\ Successor registrants 
could incorporate by reference if their predecessors were 
eligible.\338\ The ability to incorporate by reference into a Form S-1 
or Form F-1 would not be available to those issuers who are in the 
category of ``ineligible issuers.'' As we discuss above, ineligible 
issuers include:
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    \337\ As with Form S-3, under the proposal, to be current, at 
the time of filing the registration statement, the issuer must have 
filed all materials required to be filed pursuant to Exchange Act 
Sections 13, 14 or 15(d) [15 U.S.C. 78m, 78n, or 78o(d)] during the 
preceding 12 calendar months (or for such shorter period that the 
issuer was required to file such materials).
    \338\ This is the same as for Form S-2 today. The succession 
would either have to be primarily for the purpose of changing the 
state of incorporation of the issuer or because all of the 
predecessor issuers were eligible at the time of the succession and 
the issuer continues to be eligible.
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    <bullet> Reporting issuers who are not current in their Exchange 
Act reports;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) blank check issuers;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) shell companies;
    <bullet> Issuers who are (or were, or their predecessors were, in 
the past three years) penny stock issuers;
    <bullet> Issuers who have received a ``going concern'' opinion from 
their auditors for the most recent fiscal year;
    <bullet> Issuers who have filed for bankruptcy or insolvency during 
the past three years;

[[Page 67437]]

    <bullet> Issuers who have been or are the subject of refusal or 
stop orders under the Securities Act; or
    <bullet> Issuers who have been found to have violated the federal 
securities laws, have entered into a settlement with any government 
agency involving allegations of violations of federal securities laws, 
or have been made the subject of a judicial or administrative decree or 
order prohibiting certain conduct or activities regarding the federal 
securities laws \339\ during the past three years.\340\
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    \339\ The covered decrees or orders would be prohibitions on 
future violations of the federal securities laws, orders requiring 
issuers to cease and desist from violating the federal securities 
laws, and determinations of violations of the federal securities 
laws.
    \340\ See proposed amendments to Form S-1 and Form F-1.
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    In addition, the ability to incorporate by reference would be 
further conditioned on the issuer making its Exchange Act reports and 
other documents readily accessible on the issuer's web site. Today, all 
information must be included directly in the prospectus included in the 
registration statement. By conditioning the ability to incorporate by 
reference on the ready accessibility of an issuer's Exchange Act 
reports and documents on its web site, we are providing investors the 
ability to obtain the information from those reports and documents at 
the same time that they would have been able to obtain the information 
if it was set forth directly in the registration statement.
ii. Proposed Procedural Requirements
    As proposed, the prospectus in the registration statement at 
effectiveness would identify all Exchange Act reports and documents, 
such as proxy and information statements, that are incorporated by 
reference. There would be no incorporation by reference of Exchange Act 
reports and documents not identified in and filed after the 
registration statement was effective--known as ``forward 
incorporation.'' Under the proposals, an issuer eligible to incorporate 
by reference its Exchange Act reports and other documents into its 
Securities Act registration statement would list the incorporated 
reports and documents, state that it would provide copies of any 
incorporated reports or documents on request, and indicate that the 
reports and documents are available from us through our EDGAR system or 
our public reference room. The Form S-1 or Form F-1 would have to 
include material changes in or updates to the information that is 
incorporated by reference from an Exchange Act report or document.

Request for Comment

    <bullet> Should we require as a condition to incorporation by 
reference that all Exchange Act reports within a 12-month period (or 
such shorter period that the issuer was required to file such 
materials) have been timely filed?
    <bullet> Should there be other eligibility conditions? If so, what 
should they be?
    <bullet> Should we have the same ineligibility conditions as we 
have for the use of a free writing prospectus? Should there be other 
ineligibility provisions for financially troubled issuers?
    <bullet> Should there be ineligibility provisions for issuers that 
have disclosed a material weakness in their internal controls over 
financial reporting?
    <bullet> Should we consider allowing forward incorporation by 
reference in Form S-1 and Form F-1? If so, what conditions should we 
impose on such use?
    <bullet> Should we require that issuer's maintain their own web 
sites as a condition to incorporation by reference or should the issuer 
be able to provide a uniform resource locator (URL) to the particular 
location on another web site, such as the Commission's, where the 
issuer's Exchange Act reports would be located? How long should the 
issuer be required to include the information on its web site or 
provide the URL to where the reports are located?
c. Elimination of Form S-2 and Form F-2
    The purposes underlying the disclosure and delivery requirements of 
Form S-2 and Form F-2 are to minimize duplicative reporting, while 
still requiring that the incorporated information be delivered with the 
prospectus. It appears that the premises underlying Form S-2 and Form 
F-2 have become outdated in view of the introduction of EDGAR, other 
technological developments, and the rapid dissemination of information 
in the market. Also, these forms have not been widely used, 
particularly for the purposes they were intended.\341\ Expanding the 
types of issuers that may incorporate by reference through our proposed 
amendments to Form S-1 and Form F-1, without requiring delivery of the 
incorporated documents, would make Form S-2 and Form F-2 superfluous. 
We are, therefore, proposing to rescind Form S-2 and Form F-2.\342\
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    \341\ According to data obtained from our internal Filing 
Activity Tracking System (``FACTS''), over the last three years, a 
total of 10 Form F-2s have been filed by 9 different issuers and a 
total of 253 Form S-2s have been filed by 153 different issuers.
    \342\ We are proposing to amend Forms S-4 and F-4 to delete the 
references to Forms S-2 and F-2.
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Request for Comment

    <bullet> Should we eliminate Forms S-2 and F-2? If not, why not? 
What types of reporting issuers would continue to use Form S-2 and Form 
F-2 if the proposed amendments to Form S-1 and Form F-1 regarding 
incorporation by reference are adopted?

VI. Prospectus Delivery Reforms

A. Current Prospectus Delivery Requirements

    The Securities Act requires delivery of a prospectus meeting the 
requirements of Securities Act Section 10(a), known as a ``final 
prospectus,'' to each investor in a registered offering.\343\ After the 
effective date of a registration statement, a written communication 
that offers a security for sale or confirms the sale of a security may 
be provided if a final prospectus is sent or given previously or at the 
same time.\344\ Otherwise, such a communication is a prospectus and may 
not be provided unless it meets the requirements of Securities Act 
Section 10(a). A written confirmation is not designed to meet these 
requirements. Therefore, a final prospectus must accompany or precede a 
written confirmation. In addition, Securities Act Section 5(b)(2) makes 
it unlawful to deliver a security ``unless accompanied or preceded'' by 
a final prospectus.
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    \343\ Congress intended that the prospectus provide investors 
with ``the means of understanding the intricacies of the 
transaction. * * *'' H.R. Rep. No. 85, 73rd Cong., 1st Sess. 8 
(1933).
    \344\ The term ``prospectus,'' as defined in Securities Act 
Section 2(a)(10), includes any written communication that ``offers a 
security for sale or confirms the sale of any security; except that 
* * * a communication provided after the effective date of the 
registration statement * * * shall not be deemed a prospectus if it 
is proved that prior to or at the same time with such communication 
a written prospectus meeting the requirements of subsection (a) of 
section 10'' is sent or given.
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    Under these requirements, in the current system, if no preliminary 
prospectus or written selling materials are distributed, the final 
prospectus is the only prospectus received by investors.\345\ However, 
an investor's investment decision and the sale of securities to the 
investor in the offering generally occur before the final prospectus is 
required to be delivered under the Securities Act. Moreover, for sales 
occurring in the aftermarket, as a result of our rules, investors in 
securities of reporting issuers are not

[[Page 67438]]

delivered a final prospectus.\346\ Accordingly, the greatest utility of 
a final prospectus may be as a document that informs and memorializes 
the information for the aftermarket. Actual delivery to purchasers is 
not necessary to satisfy this purpose.\347\
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    \345\ See Securities Act Rule 174(b) [17 CFR 230.174(b)].
    \346\ For non-reporting issuers who are listed, as of the 
offering date, on a national securities exchange or automated 
quotation system, we only require that prospectuses be delivered for 
25 days after the offering date. See Securities Act Rule 174(d) [17 
CFR 230.174(d)].
    \347\ Professor Louis Loss has noted that ``[a] prospectus that 
comes with the security does not tell the investor whether or not he 
or she should buy; it tells the investor whether he has acquired a 
security or a lawsuit.'' L. Loss & J. Seligman, Securities 
Regulation, section 2-b-3 (3d ed. 2001). See also Cohen, Truth in 
Securities Revisited, 79 Harv. L. Rev., note 15 at 1386 (1966) 
(criticizing the requirement that a final prospectus be delivered 
after an investment decision is made and noting that information 
essential to a transaction should, to the extent practicable, be 
required be provided in time for use in an investment decision). The 
final prospectus also can be a basis for liability claims under 
Securities Act Section 12(a)(2).
    Our proposed Rule 159 would also provide that liability under 
Section 12(a)(2) would be assessed based on the information conveyed 
at the time of the contract of sale, independent of the contents of 
the final prospectus filed after the time of sale.
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    We have previously adopted a number of other rules to address 
prospectus delivery in primary offerings and secondary market 
transactions. Securities Act Rule 153 addresses delivery of final 
prospectuses in transactions between brokers taking place over a 
national securities exchange.\348\ Securities Act Rule 434 was intended 
to ease the burden of prospectus delivery within the T+3 settlement 
cycle by permitting delivery of a final prospectus to be made in 
multiple documents at different intervals in the offering process.\349\
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    \348\ See Securities Act Rule 153 [17 CFR 230.153].
    \349\ Securities Act Rule 434 allows issuers and other offering 
participants to meet their prospectus delivery requirement by 
delivering a preliminary prospectus and a term sheet or abbreviated 
term sheet before or at the time of sale. The information contained 
in the preliminary prospectus, confirmation and term sheet or 
abbreviated term sheet must, in the aggregate, meet the 
informational requirements of Securities Act Section 10(a).
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    Many of our recent rulemakings to improve the content and timing of 
a reporting issuer's Exchange Act filings, together with the 
communications and procedural changes we are proposing today, are aimed 
at providing more information to investors when they need it to make 
informed investment decisions. The increase in the flow of current 
information about a reporting issuer and the proposed ability of 
offering participants to use free writing prospectuses in connection 
with offerings would give offering participants a greater ability to 
provide information to investors about the securities before they make 
their investment decisions. Further, rapid technological advances in 
the area of information delivery have resulted in greater access to 
information. For example, prospectuses and other filings now are 
available through EDGAR and other electronic sources, including the 
Internet, immediately upon filing.\350\
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    \350\ Paper copies also remain available through our public 
reference room.
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B. Prospectus Delivery Proposals

    We are proposing changes to the prospectus delivery requirements. 
Our proposals are intended to facilitate effective access to 
information, while taking into account advancements in technology and 
the practicalities of the offering process. These changes are intended 
to alleviate timing difficulties that may arise under the current 
securities clearance and settlement system, and also to facilitate the 
successful delivery of, and payment for, securities in a registered 
offering.
    We have attempted to address the goal of ensuring that investors 
have materially complete and accurate information at the time of their 
investment decision through other aspects of our proposals and believe 
it is also appropriate at this time to modify the prospectus delivery 
provisions. Given that the final prospectus delivery obligations 
generally affect investors only after they have made their investment 
decisions and that investors and the market have access to the final 
prospectus upon its filing, we believe that the obligation could be 
satisfied through a means other than physical delivery. Because the 
contract of sale has already occurred, we also believe that delivery of 
a confirmation and the delivery of the final prospectus need not be 
linked.\351\
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    \351\ Courts have consistently held that the date of a sale is 
the date when the investment decision is made, not the date that a 
confirmation is sent. See discussion at note 240 above.
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    Many commenters and market participants have encouraged us to adopt 
an ``access equals delivery'' model for prospectus delivery.\352\ Under 
an ``access equals delivery'' model, investors are presumed to have 
access to the Internet, and issuers and intermediaries can satisfy 
their delivery requirements if the filings or documents are posted on a 
Web site. The access concept is premised on the information or filings 
being readily available.
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    \352\ Commenters on prospectus delivery aspects of the 2000 
Release indicated support for some sort of ``access equals 
delivery'' model. See comment letters in File No. S7-11-00 from 
ACCA; New York City Bar; SIA; and TBMA.
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    At this time, we believe that Internet usage has increased 
sufficiently to allow us to propose a prospectus delivery model for 
issuers and their intermediaries that relies on timely access to filed 
information and documents.\353\ Under this model, issuers, brokers, or 
dealers can satisfy their final prospectus delivery obligations if a 
final prospectus is on file with the Commission within the required 
time.
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    \353\ Internet usage in the United States has grown considerably 
since 2000 when we published our most recent interpretive guidance 
on the use of electronic media in securities offerings, including 
with regard to prospectus delivery by electronic means. For example, 
recent data indicates that 75% of Americans have access to the 
Internet in their homes, and that those numbers are increasing 
steadily among all age groups. See, Three out of Four Americans Have 
Access to the Internet, Nielsen//NetRatings, March 18, 2004; Robyn 
Greenspan, Senior Surfing Surges, ClickZNetwork, Nov. 20, 2003 
(citing statistics from Neilsen/NetRatings and Jupiter Research). In 
addition, there is evidence suggesting that the ``digital divide'' 
is diminishing. See, for example, Kristen Fountain, Antennas Sprout, 
and a Bronx Neighborhood Goes Online, The N.Y. Times, June 10, 2004 
at G8; Steve Lohr, Libraries Wired, and Reborn, The N.Y. Times, Apr. 
22, 2004 at G1.
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    Our proposals would:
    <bullet> Eliminate the existing link between delivery of the final 
prospectus and the delivery of a confirmation of sale;
    <bullet> Provide that the obligation to have a final prospectus 
precede or accompany a security for sale could be satisfied by filing 
the final prospectus with us within the required time;
    <bullet> Permit written notices of allocations; and
    <bullet> Permit the prospectus delivery obligations in dealer 
transactions during any prospectus delivery period and registered 
resale transactions in securities that are trading to be satisfied if 
the final prospectus has been filed with us or will be filed with us 
within the required time.
1. Access Equals Delivery
a. Proposals
    We are proposing new Rule 172 \354\ to implement our access equals 
delivery model.\355\ Under the proposed rule, a final prospectus would 
be deemed to precede or accompany a security for sale for purposes of 
Securities Act Section 5(b)(2) as long as the final prospectus meeting 
the requirements of Securities Act Section 10(a) is filed with us as 
part of the registration statement by the

[[Page 67439]]

required Rule 424 prospectus filing date.\356\
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    \354\ See proposed Rule 172.
    \355\ This proposed prospectus delivery model would be in 
addition to Rules 153 and 174, as we propose to amend those rules. 
See discussion in Section VI.B.3 under the heading ``Transactions 
Taking Place on an Exchange or Through a Registered Trading 
Facility--Rule 153'' and in Section VI.B.4 under the heading 
``Aftermarket Prospectus Delivery--Rule 174''.
    \356\ Rule 424, which we propose to amend, governs when final 
prospectuses must be filed with the Commission.
    A final prospectus only filed as provided in proposed Rule 172 
would not be considered to be sent or given prior to or with a 
written offer within the meaning of clause (a) of Securities Act 
Section 2(a)(10). Written offers prepared or paid for by non-
reporting and unseasoned issuers after availability of the final 
prospectus could be used only if the final prospectus preceded or 
accompanied the written offer. For those issuers, filing under 
proposed Rule 172 would not satisfy this requirement to provide the 
final prospectus under proposed Rule 433.
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    Our proposed ``access equals delivery'' model would continue to 
satisfy the principal statutory purposes of prospectus delivery while 
recognizing the need to modernize the obligations in view of 
technological and market structure developments.\357\
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    \357\ We are not proposing to amend Exchange Act Rule 15c2-8(d) 
[16 CFR 15c2-8(d)], which requires broker-dealers to take reasonable 
steps to comply promptly with written requests for copies of the 
final prospectus.
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b. Exceptions to the Proposals
    We have excluded certain types of offerings from the proposed rule 
because either they do not raise the same issues as in corporate 
capital formation transactions or they are already subject to rules 
unique to their offerings. For example, in offerings made pursuant to 
Form S-8, the final prospectus is never filed with us and thus, these 
offerings do not raise the same types of issues as other capital 
formation transactions. Business combination transactions and exchange 
offers also differ from other types of offerings registered under the 
Securities Act because the proxy rules and tender offer rules in 
conjunction with state law impose informational and delivery 
requirements in those transactions. The information contained in the 
final prospectus therefore would be delivered regardless of the 
Securities Act's requirements. Moreover, it is important to retain 
consistency among the various rules and regulations applicable to these 
business combinations and exchange offers.\358\
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    \358\ Securities Act Rule 162 [17 CFR 230.162] provides, 
however, a final prospectus delivery exemption in certain registered 
exchange offers subject to Exchange Act Rules 13e-4(e) [17 CFR 
240.13e-4(e)] or 14d-4(b) [17 CFR 240.14d-4(b)].
---------------------------------------------------------------------------

    Finally, registered investment companies and business development 
companies would not be able to rely on the proposed rule. These 
entities are subject to a separate framework governing communications 
with investors, and we believe that it would be more appropriate to 
consider any changes to our prospectus delivery requirements as they 
apply to registered investment companies and business development 
companies in the context of a broader reconsideration of this 
framework.
c. Notification
    In addition to providing access to information, prospectus delivery 
can serve the function of informing investors that they purchased 
securities in a registered transaction. To preserve this function, we 
are proposing Rule 173, which provides that for each transaction 
involving a sale by an issuer or underwriter to a purchaser or a sale 
in which the final prospectus delivery requirements apply, each 
underwriter, broker or dealer participating in a registered offering 
(or, if the sale was effected by the issuer and not an underwriter, 
broker or dealer, then the issuer) may send to each purchaser from it, 
not later than two business days after the completion of the sale, in 
lieu of the final prospectus, a notice providing that the sale was made 
pursuant to a registration statement or a final prospectus pursuant to 
a registration statement.
    The proposed Rule also would provide that an investor could request 
a final prospectus. Under the proposed rule, a requested final 
prospectus would not have to be provided before settlement.\359\
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    \359\ The final prospectus also could, as today with regard to 
offerings relying on Securities Act Rule 434, be comprised of a set 
of documents which, taken together, satisfy the information 
requirements of Securities Act Section 10(a). See discussion in 
Section V.B.1 above under ``Information Deemed Part of Registration 
Statement.''
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    We propose to exempt compliance with proposed Rule 173 from being a 
condition to the exemption from final prospectus delivery under 
proposed Rule 172 and non-compliance with proposed Rule 173 would not 
result in a violation of Securities Act Section 5. The same offerings 
excluded pursuant to proposed Rule 172, as discussed above, would also 
be excluded from this notification provision.\360\
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    \360\ In addition, as a result of the operation of proposed Rule 
172 and Rule 173, if a current final prospectus has been filed with 
us, final prospectuses would no longer be required to be delivered 
in connection with market making transactions by dealers affiliated 
with issuers.
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Request for Comment

    <bullet> Would the adoption of the proposed condition that the 
final prospectus be on file within the required filing time period of 
Rule 424 affect either the timing of filing of final prospectuses or 
the use of the proposed rule?
    <bullet> Should we consider any cure provisions in the event that 
the final prospectus is not filed within the required timeframe? Or 
notice inadvertently not included?
    <bullet> Would the cost of receiving a final prospectus shift to an 
investor so that the investor would not access the final prospectus?
    <bullet> Should investors be able to request a copy of a prospectus 
in all cases?
    <bullet> Should we restrict the operation of the provisions only to 
capital formation transactions?
    <bullet> Should we limit the operation of the new proposed rule 
regarding prospectuses only to offerings made in reliance on Rules 430 
and 430A, and proposed Rule 430B?
    <bullet> Should the proposed rules be available for continuous and 
best efforts offerings, where the final prospectus may be used by the 
issuer and underwriters or placement agents to offer and sell the 
securities?
    <bullet> Should we consider extending an access equals delivery 
concept to the obligation in Exchange Act Rule 15c2-8 to deliver 
preliminary prospectuses?
    <bullet> Commenters and others have recommended that we amend our 
rules to provide that confirmations incorporate by reference the final 
prospectus.\361\ Given our broad exemptive authority to address the 
issue more directly, we have not proposed such an approach. Would it be 
more appropriate to provide that confirmations incorporate by reference 
the final prospectus? If so, why?
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    \361\ Joseph McLaughlin, ``Ten Easy Pieces for the SEC,'' 18 
Rev. Secs. & Comms. Reg. 200 (1985); ``Report of the Task Force on 
Disclosure Simplification,'' www.sec.gov/news/studies/smpl.htm (Mar. 
5, 1996), ``Report of the Advisory Committee on the Capital 
Formation and Regulatory Process,'' www.sec.gov/news/studies/capform.htm (July 24, 1996); comment letters in File No. S7-30-98 
from the ABA and Gerald S. Backman, et.al.
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    <bullet> Should we condition the availability of proposed Rule 172 
on an issuer either posting the final prospectus on its web site or 
providing a hyperlink directly to the final prospectus on EDGAR? 
Alternatively, should we require issuers to disclose whether or not 
their final prospectuses will be available on an issuer's web site, if 
it has one, after the final prospectus is filed on EDGAR?
    <bullet> Is the notice requirement of proposed Rule 173 
appropriate? What should be the timeframe for the notice proposed to be 
required under proposed Rule 173? Should it be longer than the two 
business days?
    <bullet> Should we amend the rules regarding record making and 
keeping by registered brokers and dealers to clarify any obligation 
arising under this proposal if we adopt this proposal?

[[Page 67440]]

2. Confirmations and Notices of Allocations
    We are proposing an exemption from Securities Act Section 5(b)(1) 
to allow written confirmations and notices of allocation to be sent 
after effectiveness of a registration statement without being 
accompanied or preceded by a final prospectus.\362\ The exemption would 
be conditioned on the registration statement being effective and the 
final prospectus meeting the requirements of Securities Act Section 
10(a) being filed with us within the required timeframe. The exemption 
would permit:
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    \362\ See proposed Rule 172.
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    <bullet> Confirmations containing information limited to that 
called for in Exchange Act Rule 10b-10 \363\ and other information 
customarily included in confirmations; and
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    \363\ 17 CFR 240.10b-10.
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    <bullet> Written communications from a broker-dealer to a customer 
or from an underwriter to participating dealers in the selling group 
notifying them of the basic terms of the transaction or their 
allocations of securities in a registered offering.
    Under the proposed exemption, for example, broker-dealers could 
send e-mail notices after effectiveness to inform investors in a public 
offering of their allocations. Under the proposed rule, the notices of 
allocations could include the name of the securities, the amount 
allocated to the customer, the price of the securities, and the date or 
expected date of settlement and incidental information. Similar 
information would be required for notices to participating dealers. The 
exemption would not be available for the same offerings excluded from 
the access equals delivery proposal discussed above.

Request for Comment

    <bullet> Should the notice of allocation include other information? 
If so, what type of information should be included in these 
communications?
    <bullet> Should the notice of allocation to participating dealers 
be required to contain any particular information?
    <bullet> Should any information be restricted or prohibited in the 
notices?
    <bullet> Should we amend the record making and keeping rules by 
registered brokers and dealers if adopt this proposal?
3. Transactions Taking Place on an Exchange or Through a Registered 
Trading Facility--Rule 153
    Securities Act Rule 153 \364\ addresses delivery of final 
prospectuses in transactions taking place between brokers over a 
national securities exchange; it does not currently apply to 
transactions on an automated quotation system such as the Nasdaq Stock 
Market. Rule 153 provides that where members of the exchange are on 
both sides of the transaction and the transaction is effected on that 
exchange, the Section 5 delivery obligation of a final prospectus 
before or with a security will be satisfied if the issuer or 
underwriter delivers copies of the final prospectus to the 
exchange.\365\ Rule 153 has limited utility today because it may be 
relied on only for transactions between brokers on an exchange. The 
difficulty in prospectus delivery that Rule 153 was designed to 
address--the difficulty or inability to identify the ultimate buyer--
has expanded since 1936 with the rise in transactions effected on 
markets other than national securities exchanges such as the Nasdaq 
stock market and alternative trading systems, the growth of the book 
entry system and street name holdings.\366\ In addition, the paper 
based system upon which Rule 153 is premised is outmoded and 
unnecessary due to electronic filings of final prospectuses on EDGAR 
and the technological resources of market members. There is currently 
effectively no significance to the paper copies of prospectuses 
delivered to national securities exchanges.
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    \364\ 17 CFR 230.153.
    \365\ Securities Act Rule 153 is an interpretive rule defining 
the phrase ``preceded by a prospectus'' as used in Securities Act 
Section 5(b)(2).
    \366\ In connection with a proposed rulemaking in 1976, we 
solicited comment on extending the procedures available under 
Securities Act Rule 153 to transactions effected on the automated 
quotation system of a national securities association registered 
under Exchange Act Section 15A, at least initially for Form S-8 
transactions. See Effective Date of Amendments to Registration 
Statement and Possible Expansion of Definitional Rule, Release No. 
33-5768 (Nov. 22, 1976) [41 FR 52701]. Two years later, these plans 
were deferred for further consideration due to lack of public 
interest and input at the time. See Effective Date of Amendments to 
Registration Statement and Expansion of Definition Rule, Release No. 
33-5978 (Sep. 18, 1978) [43 FR 43725]. Many trading markets allow 
market participants to preserve their anonymity, thus making it 
difficult or impossible to identify the ultimate buyer. The growth 
in the book entry system and the fact that most securities are held 
in street name exacerbates the problem.
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    We believe it is important, therefore, to amend Rule 153.\367\ 
Under our proposed amendments, brokers or dealers effecting 
transactions on an exchange or through any trading facility registered 
with us \368\ would be deemed to satisfy their prospectus delivery 
obligations under Securities Act Section 5(b)(2) with regard to 
transactions in securities that are already trading on the market or 
through the trading facility if:
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    \367\ The proposed amendment would not supersede the exemption 
in Securities Act Rule 174 for transactions in securities of 
reporting issuers.
    \368\ This would include national securities exchanges, trading 
facilities of a national securities association and alternative 
trading systems.
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    <bullet> The final prospectus is on file with us or will be on file 
with us by the applicable prospectus filing date;
    <bullet> Securities of the same class are trading on an exchange or 
through any trading facility registered with us; and
    <bullet> The registration statement relating to the offering is 
effective and not the subject of a stop order issued under Securities 
Act Section 8.
    These changes would eliminate the difficulties for prospectus 
delivery in registered resales and other sales into existing trading 
markets where securities of the same class already are trading. We 
would not require as part of the rule that physical copies of the 
prospectus are sent to the exchange or a market maker and the exchange 
and the market maker no longer would need to keep track of any 
prospectuses.\369\
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    \369\ If we adopt the proposed changes to Rule 153, our 
interpretation in Question 11 in Use of Electronic Media For 
Delivery Purposes, Release No. 33-7233 (Oct. 6, 1995) [60 FR 53458] 
would no longer be effective.
---------------------------------------------------------------------------

    Our 1998 proposals recommended eliminating Rule 153. Commenters on 
that proposal were concerned that elimination of the Rule would cause 
difficulty because of the inability to identify buyers in exchange and 
other market transactions. Because the 1998 proposals would have taken 
another approach to prospectus delivery than we are proposing, we 
believe that our proposed modifications to Rule 153 would address 
commenters' concerns.

Request for Comment

    <bullet> Are our beliefs accurate regarding the current use of Rule 
153 and the additional impracticalities caused by transactions through 
other markets or on other trading facilities?
    <bullet> Is there a reason why continued delivery to an exchange or 
to a market maker would be helpful?
    <bullet> Should there be a requirement for the issuer, broker or 
dealer to notify the exchange or trading facility that the final 
prospectus is or will be on file with us?
    <bullet> Should our new proposals apply to all transactions 
effected through a national securities exchange or through a facility 
of a national securities association or an alternative trading system?
    <bullet> Is there a reason to repeal Rule 153 in its entirety in 
view of proposed Rule 172?
    <bullet> How are prospectus delivery obligations of selling 
security holders satisfied today?

[[Page 67441]]

    <bullet> Should the rule be available to primary offerings of 
securities by issuers? Such as issuer sales of securities into an 
existing trading market?
4. Aftermarket Prospectus Delivery--Rule 174
    Unless our rules provide otherwise, all dealers are required to 
deliver a final prospectus for a specified period after a registration 
statement becomes effective to persons who buy the securities in the 
aftermarket.\370\ Securities Act Rule 174 exempts from aftermarket 
prospectus delivery any transaction relating to securities of a 
reporting issuer. The rule applies only to dealers and does not apply 
to underwriters or dealers continuing to act as such with regard to any 
unsold allotment. If the transaction relates to securities of a non-
reporting issuer that will be listed on a national securities exchange 
or quoted on an electronic inter-dealer quotation system, current Rule 
174 sets an aftermarket delivery period of 25 days. For offerings of 
securities of non-reporting issuers that will not be so listed or 
quoted and offerings by blank check companies, Rule 174 sets an 
aftermarket prospectus delivery period of 90 days after effectiveness 
or after the funds are released from the escrow or trust account, as 
the case may be. Where a registration statement relates to offerings to 
be made from time to time, Rule 174 provides that there is no 
aftermarket delivery requirement once the initial period expires. The 
underlying purpose of aftermarket prospectus delivery was to assure 
wide dissemination of information about the issuer in the market. For 
reporting issuers, the Rule assumes that the information is already 
disseminated and so eliminates the prospectus delivery requirement for 
these issuers. We believe that, where information regarding all issuers 
is largely disseminated other than through physical delivery, including 
through EDGAR, physical delivery of a final prospectus in the 
aftermarket is of limited utility and necessity.
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    \370\ Securities Act Section 4(3), which provides an exemption 
from Section 5 for transactions by dealers, is not available for the 
later of either 40 days or 90 days after the later date of the 
effectiveness of the registration statement or the first bona fide 
offer of the security. The 90-day period applies to securities of 
issuers who have not previously registered under the Securities Act. 
The 40-day period applies to securities of issuers who have 
previously registered under the Securities Act.
---------------------------------------------------------------------------

    We are, therefore, proposing to revise Rule 174 to provide that 
during the aftermarket period, dealers can rely on proposed Rule 172 to 
satisfy any aftermarket delivery obligations (other than for blank 
check companies).

Request for Comment

    <bullet> Should proposed Rule 172 be made available to aftermarket 
delivery obligations as proposed?
    <bullet> Are there other changes that should be made to Rule 174 
that would assist dealers in satisfying their aftermarket delivery 
obligations?
    <bullet> As proposed, consistent with existing Rule 174(g), we 
propose to retain specific prospectus delivery obligations for blank 
check companies. Should blank check companies be excluded from proposed 
Rule 172 or proposed Rule 174 or, if not, should there be additional 
requirements in proposed Rule 172 or proposed Rule 174 for blank check 
companies? Should shell companies and penny stock issuers be eligible 
to use proposed Rule 172 and proposed Rule 174?

VII. Additional Exchange Act Disclosure Proposals

A. Risk Factor Disclosure

    Many Securities Act registration statements require an analysis of 
the risks associated with an investment in an issuer's securities. 
Items 503(c) of Regulation S-K and Regulation S-B \371\ describe that 
required disclosure as a ``discussion of the most significant factors 
that make the offering speculative or risky.'' The risk factor section 
is intended to provide investors with a clear and concise summary of 
the material risks to an investment in the issuer's securities.
---------------------------------------------------------------------------

    \371\ See Item 503(c) of Regulation S-K [17 CFR 229.503(c)] and 
Item 503(c) of Regulation S-B [17 CFR 228.503(c)].
---------------------------------------------------------------------------

    We propose to extend risk factor disclosure to annual reports on 
Forms 10-K and registration statements on Form 10.\372\ We are not 
proposing to extend this requirement to Forms 10-KSB or Form 10-SB. As 
with risk factor disclosure that is required in Securities Act 
registration statements, risk disclosure in Exchange Act registration 
statements and annual reports would describe the most significant 
factors that may adversely affect the issuer's business, operations, 
industry or financial position, or its future financial performance. 
Risk factor disclosure under the Exchange Act would be the same type of 
Item 503 disclosure as in a Securities Act registration statement, 
other than information about a particular securities offering. We also 
are proposing that the risk factor disclosure in Exchange Act reports 
be written in accordance with the same ``plain English'' standards as 
apply to risk factor disclosure in Securities Act registration 
statements.\373\ Our proposals would also require quarterly updates to 
the risk factors disclosure to reflect any material changes from risks 
previously disclosed in Exchange Act reports. They would not otherwise 
require a restatement or repetition of risk factors in quarterly 
reports.
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    \372\ See proposed amendments to Form 10-K and Form 10. Form 20-
F (the form used for annual reports and Exchange Act registrations 
for foreign private issuers) already requires risk factor 
disclosure. See Item 3.D. of Form 20-F. The 1998 proposals also 
proposed risk factor disclosure in annual reports. The Advisory 
Committee Report contained similar recommendations. See the Advisory 
Committee Report note 20 at Section II.B.4.
    \373\ Securities Act Rule 421 requires issuers to write and 
design their risk factor disclosure in registration statements using 
plain English principles. See also Updated Staff Legal Bulletin No. 
7 (June 7, 1999), question no. 3. The plain English rules applicable 
to Securities Act registration statements already apply to risk 
factor disclosure in Exchange Act reports incorporated by reference 
into Securities Act registration statements.
---------------------------------------------------------------------------

    The proposed requirement to include risk factor disclosure in 
Exchange Act filings would, we believe, further enhance the contents of 
Exchange Act reports and their value in informing investors and the 
markets. Further, requiring risk factor disclosure in Exhange Act 
registration statements and annual reports, would enhance the ability 
of reporting issuers to incorporate risk factor disclosure from 
Exchange Act reports into Securities Act registration statements to 
satisfy the risk factor disclosure requirements.\374\
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    \374\ We note that many issuers have included risk factor 
disclosure in their Exchange Act reports for a number of years. See 
comment letter in File No. S7-30-98 from the Business Roundtable.
    Issuers may already include risk factor disclosure in their 
Exchange Act reports for varying reasons, including to take 
advantage of the safe harbor for forward looking statements in 
Securities Act Section 27A and the bespeaks caution defense 
developed through case law. See, e.g., In re Donald Trump Sec. 
Litig., 7 F.3d at 371; P. Stolz Family P'ship L.P. v. Daum, 355 F.3d 
92, 97 (2d Cir., 2004); In re Sprint Corp. Sec. Litig., 232 F. Supp. 
2d 1193 (D. Kan. Sept. 30, 2002).
---------------------------------------------------------------------------

    We are proposing to require updated risk factor disclosure in 
quarterly reports because we believe that issuers who are required to 
file quarterly reports already need to undertake a review of changes in 
their operations, financial results and conditions and other 
circumstances in order to prepare the other portions of the quarterly 
report, including the financial statements and MD&A.\375\ Therefore, we 
believe that issuers should be able to, on a quarterly basis, identify 
changes to risk factors affecting them.
---------------------------------------------------------------------------

    \375\ Moreover, issuers will already have in place disclosure 
controls and procedures and internal controls over financial 
reporting that should alert them to new or changing material risks 
affecting the issuer.
---------------------------------------------------------------------------

    We proposed including risk factor disclosure in the 1998 proposals, 
and

[[Page 67442]]

many commenters supported this requirement.\376\ Other commenters 
opposed any risk factor disclosure requirement for Exchange Act 
reports, for varying reasons, including that the information is already 
included elsewhere in the reports, an increased burden on issuers, and 
possible increased litigation arising from the risk disclosure.\377\ 
Commenters also suggested that the risk factor disclosure standard 
should be similar to that contained in Securities Act Section 27A--
``important factors that could cause actual results to differ 
materially from those in forward-looking statements''--rather than the 
standard reflected in Item 503 of Regulation S-K. \378\ Because one of 
our goals is to further integrate the Securities Act and the Exchange 
Act, we believe it is important to establish consistent disclosure 
standards. We, therefore, are proposing to require compliance with Item 
503, i.e. the most significant risks facing an issuer. We also note 
that the Section 27A provisions are aimed at providing protections 
where forward-looking statements are included, rather than providing 
protections for all discussions of the risks facing an issuer, but 
observe that issuers could appropriately use risk factor disclosure to 
identify a number of the factors referenced in Section 27A.
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    \376\ See, e.g., comment letters in File No. S7-30-98 from the 
ABA; ACCA; Ernst & Young LLP; New York City Bar; NASAA; the 
Philadelphia Bar Association; and Sullivan & Cromwell.
    \377\ See, e.g., comment letters in File No. S7-30-98 from the 
CIT Group, Inc.; Joseph Grundfest; Intel Corporation; and Navistar 
International Corporation.
    \378\ See, e.g., comment letters in File No. S7-30-98 from the 
American Society of Corporate Secretaries; and the Business 
Roundtable.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we require risk factor disclosure about specific 
matters that are in addition to those referred to in Item 503 of 
Regulation S-K? If so, what are they?
    <bullet> Are there ways, in addition to those we have used in Item 
503 and our plain English rules and our guidance on MD&A,\379\ to 
ensure that issuers include meaningful, rather than boilerplate, risk 
factor disclosure?
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    \379\ See the 2003 MD&A Release note 33; Commission Statement 
About Management's Discussion and Analysis of Financial Condition 
and Results of Operations, Release No. 33-8056, (Jan. 22, 2002) [67 
FR 3746]; Interpretive Release: Management's Discussion and Analysis 
of Financial Condition and Results of Operations; Certain Investment 
Company Disclosures, Release No. 33-6835 (May 18, 1989) [54 FR 
22427].
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    <bullet> Should we extend risk factor disclosure requirements to 
Forms 10-KSB and 10-SB?

B. Disclosure of Unresolved Staff Comments

    Because enhanced Exchange Act reporting provides a principal 
element of support for, and is at the core of, today's proposals, it is 
important that issuers timely resolve any staff comments on their 
Exchange Act reports. It is possible, however, that the procedural 
changes we are proposing would eliminate some of the incentives issuers 
have to respond to comments on their Exchange Act reports in a timely 
manner. In particular, with automatic effectiveness, well-known 
seasoned issuers would not be subject to the possibility that 
effectiveness of a Securities Act registration statement could be 
delayed while comments are resolved. In addition, all shelf eligible 
issuers would have to file new registration statements only every three 
years. Staff in the Division of Corporation Finance has begun to review 
more Exchange Act reports and will continue to do so in keeping with 
the mandate in the Sarbanes-Oxley Act as well as our view of the 
importance of the role of an issuer's Exchange Act reports. Under the 
circumstances and with the greater flexibility given in our proposals 
to communications outside the statutory prospectus and offering 
procedures, we think it is necessary to establish added incentives for 
accelerated filers to timely resolve outstanding staff comments on 
their Exchange Act reports.
    We are proposing to require all accelerated filers to disclose, in 
their annual reports on Forms 10-K or 20-F, written comments our staff 
made in connection with review of Exchange Act reports that the issuer 
believes are material that were issued more than 180 days before the 
end of the fiscal year covered by the annual report and which remain 
unresolved as of the date of the filing of the Form 10-K or Form 20-F. 
The disclosure would be required to be sufficient to disclose the 
substance of the comments. Staff comments that have been resolved, 
including those that the staff and issuer have agreed would be 
addressed in future Exchange Act reports, would not need to be 
disclosed. Issuers would be able to include their position regarding 
any such unresolved comments.
    Through the Form 10-K and Form 20-F disclosure, accelerated filers 
(including those issuers eligible for shelf registration and automatic 
shelf registration) would disclose long unresolved comments. This is 
designed to compensate for immediate effectiveness for well-known 
seasoned issuers, elimination of the two year limitation, and for 
increased emphasis by the staff of Exchange Act reports for all shelf 
registrants.\380\
---------------------------------------------------------------------------

    \380\ Shelf registration statements allow an issuer to take down 
securities at any time during the year, even when staff comments on 
its Exchange Act reports may be pending.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Should we require disclosure of unresolved staff comments 
in quarterly reports as well?
    <bullet> Is 180 days the right timeframe to resolve outstanding 
staff comments? Is it too short? Is it too long?
    <bullet> Should the 180 days be calculated from the date of the 
initial written comment letter from the staff, regardless of comments 
received after that date that relate to or arise from the original 
comments or issuer responses to the original comments?
    <bullet> Should we require the proposed disclosure of unresolved 
comments to also appear in Form 10-KSB reports filed by small business 
issuers?
    <bullet> Should we require the proposed disclosure of unresolved 
comments to also appear in Form 40-F?
    <bullet> Should we require issuers to list each outstanding comment 
in its disclosure by repeating the comment verbatim as issued by the 
staff? Should we permit issuers to paraphrase or summarize the 
outstanding staff comments?
    <bullet> Are there more appropriate means to provide incentives to 
timely resolve staff comments?
    <bullet> Should issuers have to disclose comments that have been 
resolved and will be addressed in future Exchange Act reports?
    <bullet> Should we require disclosure of all unresolved comments 
without regard to a materiality assessment by the issuer?
    <bullet> Should the staff have a role in determining which 
unresolved comments should be disclosed?
    <bullet> Should the staff have to address issuer responses to 
outstanding written comment on Exchange Act reports within a particular 
timeframe after the response has been submitted by the issuer on EDGAR? 
If yes, what timeframe?

C. Disclosure of Status as Voluntary Filer Under the Exchange Act

    Our filing system does not prohibit issuers that are otherwise not 
required to file Exchange Act reports with us from filing those reports 
voluntarily. In most cases, voluntary filers are issuers who have, at 
some point, completed a registered offering under the Securities Act 
and have continued to file Exchange Act reports even after their 
reporting

[[Page 67443]]

obligation under Exchange Act Section 15(d) has been suspended.\381\
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    \381\ Exchange Act Section 15(d) suspends automatically its 
application to any issuer that would be subject to the filing 
requirements of that section where, if other conditions are met, on 
the first day of the issuer's fiscal year, it has fewer than 300 
holders of record of the class of securities that created the 
Section 15(d) obligation.
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    We are proposing to include a box on the cover page of Forms 10-K, 
10-KSB, and 20-F for an issuer to check if it is filing reports 
voluntarily. The box would be for informational purposes only. An 
issuer's filing obligation would be unaffected by an incorrectly 
checked box.
    We believe that it is important that investors and other market 
participants are aware that an issuer is a voluntary filer and thus, 
may cease to file its Exchange Act reports at any time and for any 
reason without notice. In addition, our communications and procedural 
proposals do not permit voluntary filers to become seasoned issuers. 
Identification of voluntary filers would enable us to monitor their use 
of our proposed communications rules as well as our other regulatory 
requirements.

Request for Comment

    <bullet> Are there alternative means of addressing the issues posed 
by voluntary filers? Should we stop accepting voluntary filings and 
instead allow voluntary filers to register under Section 12(g) of the 
Exchange Act on a basis where they are exempted from certain provisions 
of the Exchange Act that do not apply to them? If so, should we limit 
any possible exclusions only to voluntary filers that have only issued 
debt in registered offerings? Should there be any other limitations?
    <bullet> Should we require disclosure of voluntary filer status on 
Form 40-F? If not, why not?

VIII. Application of Proposals to Asset-Backed Securities

    In April, we proposed new Regulation AB and other new and amended 
rules and forms to address comprehensively the registration, 
disclosure, and reporting requirements for asset-backed securities 
(``ABS'') under the Securities Act and the Exchange Act (the ``ABS 
Proposal'').\382\ This section describes how ABS offerings and the ABS 
Proposal would fit within the proposals we are making today.
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    \382\ See Asset-Backed Securities Proposing Release, note 58.
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    ABS issuers offering securities registered on Form S-1 would be 
non-reporting issuers. ABS issuers offering securities registered on 
Form S-3 would be considered seasoned issuers. Today's proposal would 
provide that no ABS issuer would be a well-known seasoned issuer. As a 
result, automatic shelf registration would not be available to issuers 
of ABS. The general content of ABS registration statements under 
current practice and under the ABS proposals would not change under 
today's proposal.
    We would anticipate that the communications proposals that we make 
today would, if adopted, apply to ABS offerings. Therefore, safe harbor 
exclusions from the definition of offer for purposes of the gun-jumping 
provisions would apply. Many of these proposals would have only limited 
application in respect of ABS. Certain of them, however, could be 
applicable. For example, the proposals regarding regularly released 
information for reporting issuers could apply, depending on the facts 
and circumstances, to information conveyed to investors in outstanding 
ABS, such as static pool information provided with respect to pools 
underlying outstanding ABS, either in Exchange Act reports or other 
communications, where the conditions of the proposed rule are 
satisfied.
    In addition, under today's proposals regarding free writing 
prospectuses, the permitted use of free writing materials would change 
for ABS issuers from that contained in the ABS proposals. Following a 
series of staff no-action letters from the mid-1990s, certain ABS 
issuers have been permitted to use written offering related 
communications outside of the prospectus in connection with offerings 
registered on Form S-3.\383\ Under the ABS Proposal, we have proposed 
codifying the use of these informational and computational materials 
for these issuers in accordance with the existing no-action letters. 
Under the ABS Proposal, these materials would all be filed on Form 8-K 
and incorporated by reference into the registration statement, 
regardless of who prepared the materials.
---------------------------------------------------------------------------

    \383\ See note 31 of the Asset-Backed Securities Proposing 
Release, note 58 above.
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    Under our proposal today, these materials would be considered free 
writing prospectuses, and their use would be conditioned on satisfying 
the conditions of proposed Rule 164 and proposed Rule 433. The 
conditions of proposed Rule 433 would permit use of free writing 
prospectuses by non-reporting issuers, including ABS issuers using Form 
S-1, if a registration statement containing a statutory prospectus 
complying with our requirements was filed and, in the case of free 
writing prospectuses prepared by or involving payments made or 
compensation given by issuers or other offering participants, the free 
writing prospectus was preceded or accompanied by the most recent 
statutory prospectus. Under our proposals, ABS issuers eligible to use 
Form S-3 would be seasoned issuers. Proposed Rule 433 would condition 
use of free writing prospectuses in offerings registered on Form S-3 on 
filing of a registration statement containing a statutory prospectus 
complying with our requirements, but not on actual delivery of that 
prospectus. Underwriters that use informational and computational 
materials would not be required to file the free writing prospectuses 
that they prepare. Including information prepared by the underwriters 
on the basis of, but not containing, issuer information, such as 
computational materials based on pool data provided by the issuer, 
would not trigger a filing requirement for an underwriter's free 
writing prospectus. However, an issuer would be required to file such 
materials prepared by it, as well as issuer information included in an 
underwriter's free writing prospectus unless it was already filed or 
part of a registration statement or previously filed free writing 
prospectus or issuer information. In addition, as is the case today, 
any final term sheet would need to be filed.\384\ A free writing 
prospectus in an ABS offering, like any free writing prospectus, would 
not be automatically incorporated by reference into the registration 
statement under today's proposals.\385\ Whether filed or not, all free 
writing prospectuses would be subject to Section 12(a)(2) liability 
under today's proposals.
---------------------------------------------------------------------------

    \384\ See proposed Rule 433.
    \385\ Issuers could, of course, choose to include this 
information or incorporate it by reference (for example, by filing a 
report on Form 8-K that is incorporated by reference) into a 
registration statement and prospectus.
---------------------------------------------------------------------------

    Today's proposal would also address some of the concerns that were 
expressed in comments on the ABS Proposal regarding discrepancies 
between the time an investor makes an investment decision and the time 
of availability of a prospectus supplement.\386\ Under today's 
proposals, information conveyed to investors by or on behalf of an 
issuer or other offering participant after the time of contract of sale 
would not be used to evaluate liability under Section 12(a)(2). For 
example, if a prospectus (including a free writing prospectus) provided

[[Page 67444]]

prior to the time of the contract of sale failed to disclose material 
information about the asset pool and the omission caused the 
information conveyed to the investor to be misleading, then the 
omission could not be corrected by conveying the information 
subsequently, including in a subsequently available prospectus or 
prospectus supplement.
---------------------------------------------------------------------------

    \386\ See comment letters in File No. S7-21-04 from Investment 
Company Institute and Fidelity Management and Research Company.
---------------------------------------------------------------------------

    Today's proposal would also address some comments we received on 
the ABS Proposal requesting that we amend Rule 134 for ABS offerings. 
Our proposals broaden this rule and would permit a number of the items 
commenters requested. However, as is the case with offerings generally, 
we have not proposed to amend Rule 134 in a manner that would permit 
detailed term sheets for ABS offerings under the rule. Under today's 
proposals such information in ABS offerings, including informational 
and computational materials, could be provided in free-writing 
prospectuses or included in or incorporated by reference into 
registration statements and prospectuses.
    As we noted in the ABS Proposal, we proposed codifying an existing 
staff no-action letter that provided a tailored research report safe 
harbor for Form S-3 ABS, which proceeded from the existing research 
report safe harbors in Rules 137, 138 and 139. As discussed above, we 
are proposing revisions today to the safe harbors in Rules 137, 138 and 
139. To the extent these existing safe harbors are modified, we also 
will consider similar modifications to the proposed ABS safe harbor, if 
adopted.

Request for Comment

    <bullet> How should ABS issues be treated under the current 
proposal? Is our proposal that S-1 ABS would be considered non-
reporting issuers and S-3 ABS would be considered seasoned issuers 
appropriate?
    <bullet> Should automatic shelf registration or other elements of 
today's proposals that would be available to well-known seasoned 
issuers also be made available to ABS issuers?
    <bullet> Should computational materials prepared by an underwriter 
based on but not including asset data received from the issuer be 
considered issuer prepared free writing prospectus so that it must be 
filed?
    <bullet> Should we be more restrictive regarding the use of free 
writing by ABS issuers and, as is the case today, only permit it for 
ABS issuers eligible to use Form S-3?
    <bullet> Are further changes needed to revise Rule 134 for ABS 
issuers?
    <bullet> Would it be helpful for us to explain how any other parts 
of today's proposal apply to ABS offerings?
    <bullet> If the ABS Proposal is adopted, would it be appropriate to 
delete Securities Act Rule 415(a)(1)(viii)? If not, why not?

IX. General Request for Comment

    We request comment on the proposals in this release, suggestions 
for additions to the proposals, and comment on other matters that might 
have an effect on the proposals contained in this release.

X. Paperwork Reduction Act

A. Background

    The proposed rules and amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995.\387\ We are submitting these to the Office of 
Management and Budget for review and approval in accordance with the 
PRA.\388\ The titles for the collections of information are: \389\
---------------------------------------------------------------------------

    \387\ 44 U.S.C. 3501 et seq.
    \388\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \389\ The paperwork burden from Regulations S-K, S-B, and C are 
imposed through the forms that are subject to the requirements in 
those Regulations and reflected in the analysis of those forms. To 
avoid a Paperwork Reduction Act inventory reflecting duplicative 
burdens, for administrative convenience we estimate the burdens 
imposed by Regulations S-K, S-B and C to be a total of one hour.
---------------------------------------------------------------------------

    (1) ``Form 10'' (OMB Control No. 3235-0064);
    (2) ``Form 20-F'' (OMB Control No. 3235-0288);
    (3) ``Form 10-K'' (OMB Control No. 3235-0063);
    (4) ``Form 10-Q'' (OMB Control No. 3235-0070);
    (5) ``Regulation S-K'' (OMB Control No. 3235-0071);
    (6) ``Regulation S-B'' (OMB Control No. 3235-0417);
    (7) ``Regulation C'' (OMB Control No. 3235-0074);
    (8) ``Form S-1'' (OMB Control No. 3235-0065);
    (9) ``Form F-1'' (OMB Control No. 3235-0258);
    (10) ``Form S-2'' (OMB Control Number 3235-0072);
    (11) ``Form F-2'' (OMB Control Number 3235-0257);
    (12) ``Form S-3'' (OMB Control Number 3235-0073);
    (13) ``Form F-3'' (OMB Control Number 3235-0256);
    (14) ``Form S-4'' (OMB Control Number 3235-0324);
    (15) ``Form F-4'' (OMB Control Number 3235-0325);
    (16) ``Form N-2'' (OMB Control Number 3235-0026);
    (17) ``Rule 173'' (OMB Control Number to be determined);
    (18) ``Rule 163'' (OMB Control Number to be determined); and
    (19) ``Rule 433'' (OMB Control Number to be determined).
    We adopted all of the existing regulations and forms pursuant to 
the Securities Act of 1933 and the Securities Exchange Act of 1934. 
They set forth the disclosure requirements for annual and quarterly 
reports, registration statements, and prospectuses that are prepared by 
issuers to ensure that investors have the information they need to make 
informed investment decisions in registered offerings and in secondary 
market transactions. We also are proposing for adoption new Securities 
Act Rules 163, 173, and 433 and eliminating Securities Act Forms S-2 
and F-2.
    The proposed amendments to existing forms and regulations and new 
requirements would modify and advance the Commission's regulatory 
system for offerings under the Securities Act, enhance communications 
between public issuers and investors, and promote investor protection. 
Our proposals involve three main areas:
    <bullet> Communications related to registered securities offerings;
    <bullet> Procedural restrictions in the offering and capital 
formation processes; and
    <bullet> Delivery of information to investors.
    The hours and costs associated with preparing disclosure, filing 
forms, and retaining records constitute reporting and cost burdens 
imposed by the collections of information. The estimates of reporting 
and cost burdens provided in this PRA analysis address the time, 
effort, and financial resources necessary to provide the proposed 
collections of information and are not intended to represent the full 
economic cost of complying with the proposals. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number.
    The information collection requirements related to registration 
statements and periodic reports would be mandatory. For registration 
statements and periodic reports, there would be no mandatory retention 
period for the information disclosed, and the information gathered 
would be made publicly available. The information collection 
requirements related to the communications and prospectus delivery 
proposals would apply only to issuers and other offering participants 
choosing to rely on them. There would be a mandatory record retention 
period

[[Page 67445]]

with respect to the communications and prospectus delivery provisions 
in the proposals. Moreover, communications covered by the proposals 
that are made by or on behalf of an issuer, and communications that are 
broadly disseminated by another offering participant, would have to be 
filed and would be publicly available on the EDGAR filing system, 
whereas communications by or on behalf of other parties would not have 
to be filed.

B. Summary of Information Collections

    The proposals would add the following disclosure requirements to 
Exchange Act periodic reports and registration statements:
    <bullet> Risk factor disclosure;
    <bullet> Disclosure by accelerated filers, in their annual reports 
on Forms 10-K or 20-F, of any written staff comments regarding their 
Exchange Act periodic reports issued more than 180 days before the end 
of the fiscal year covered by the annual report that the issuer 
believes to be material and that remain unresolved as of the date of 
the filing of the annual report; and
    <bullet> A ``check box'' that would appear on the cover page of the 
report or registration statement to indicate whether the registrant is 
filing Exchange Act reports on a voluntary basis.\390\
---------------------------------------------------------------------------

    \390\ We believe that the burden associated with checking a box 
on the cover page of an Exchange Act report or registration 
statement is so minimal that we are unable to quantify the burden.
---------------------------------------------------------------------------

    The proposals would impose the following new disclosure 
requirements and filing or publication conditions in connection with 
registered offerings under the Securities Act:
    <bullet> A brief notice to purchasers in a registered offering 
providing that the sale was made pursuant to a registration statement; 
\391\
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    \391\ Under proposed Securities Act Rule 173, this new 
requirement would be imposed where the proposed amendment to 
Securities Act Rule 172 would eliminate the more burdensome 
requirement of delivery of a final prospectus.
---------------------------------------------------------------------------

    <bullet> A brief legend in ``free writing prospectuses'' \392\ that 
refers investors to the statutory prospectus;
---------------------------------------------------------------------------

    \392\ ``Free writing prospectuses'' are written communications 
that constitute offers to sell or solicitations of offers to buy 
securities.
---------------------------------------------------------------------------

    <bullet> ``Check boxes'' on registration statement cover pages 
indicating whether the registration statement is being used for 
``automatic shelf registration'' or post-effective registration of 
additional securities; \393\
---------------------------------------------------------------------------

    \393\ In this regard, see note 390 regarding the burden 
associated with checking a box on the cover page.
---------------------------------------------------------------------------

    <bullet> Additional disclosure in the undertakings required to be 
included in a registration statement for securities to be offered 
pursuant to Rule 415; \394\
---------------------------------------------------------------------------

    \394\ We also are proposing to require similar undertaking 
language in Form N-2, the registration statement form for closed-end 
management investment companies.
---------------------------------------------------------------------------

    <bullet> A filing condition in connection with the use of certain 
free writing prospectuses; \395\ and
---------------------------------------------------------------------------

    \395\ See the discussion in Section III above under 
``Permissible Use of Free Writing Prospectuses'' under ``Filing 
Conditions.''
---------------------------------------------------------------------------

    <bullet> Making a version of an electronic road show readily 
available to the public.
    The proposals would decrease existing disclosure requirements by:
    <bullet> Reducing the need to repeat previously disclosed 
information by permitting any reporting issuer that has filed at least 
one annual report and that is current in its reporting obligation to 
incorporate information by reference into its registration statement on 
Forms S-1 or F-1; and
    <bullet> Reducing the number of registration statements filed 
because the automatic shelf registration proposals likely would 
eliminate the need to file multiple registration statements.

C. Paperwork Reduction Act Burden Estimates

    For purposes of the PRA, we estimate the annual incremental 
reduction in the paperwork burden for registrants to comply with our 
proposed collection of information requirements to be approximately 
40,393 hours of in-house issuer personnel time and the reduction in 
cost to be approximately $70,797,000 for the services of outside 
professionals.\396\ For broker-dealers, we estimate the annual 
incremental paperwork burden to comply with our proposed collection of 
information requirements to be approximately 3,874,133 hours of in-
house issuer personnel time.\397\ Those estimates include the time and 
the cost of preparing and reviewing disclosure, filing documents or 
otherwise publicizing information, and retaining records. Our 
methodologies for deriving the above estimates are discussed below.
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    \396\ For administrative convenience, the presentation of the 
totals related to the paperwork burden hours have been rounded to 
the nearest whole number and the cost totals have been rounded to 
the nearest thousand.
    \397\ We assume that brokers and dealers would not use outside 
professionals to comply with the proposed collection of information 
requirements.
---------------------------------------------------------------------------

    Our estimates represent the average burden for all issuers, both 
large and small. We expect that the burdens and costs could be greater 
for larger issuers and lower for smaller issuers. For Exchange Act 
periodic reports, we estimate that 75% of the burden of preparation is 
carried by the issuer internally and that 25% of the burden is carried 
by outside professionals retained by the issuer at an average cost of 
$300 per hour.\398\ For Securities Act registration statements, 
Exchange Act registration statements, all filings by foreign private 
issuers, and the free writing prospectus rules, we estimate that 25% of 
the burden of preparation is carried by the issuer internally and that 
75% of the burden is carried by outside professionals retained by the 
issuer at an average cost of $300 per hour. The portion of the burden 
carried by outside professionals is reflected as a cost, while the 
portion of the burden carried by the issuer internally is reflected in 
hours.
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    \398\ In connection with other recent rulemakings, we have had 
discussions with several private law firms to estimate an hourly 
rate of $300 as the average cost of outside professionals that 
assist issuers in preparing disclosures and conducting registered 
offerings.
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1. Exchange Act Periodic Reports and Registration Statements
    For purposes of the PRA, we estimate the annual incremental 
paperwork burden for all issuers to prepare the disclosure required in 
Exchange Act periodic reports and registration statements under our 
proposals to be approximately 43,245 hours of issuer personnel time and 
the cost to be approximately $4,477,000 for the services of outside 
professionals. Those estimates include the time and the cost of 
preparing and reviewing the proposed disclosure. Our estimates reflect 
our belief that, because our current disclosure requirements for 
Exchange Act reports (such as Management's Discussion and Analysis of 
Financial Condition and Results of Operations) \399\ already require 
issuers to obtain information necessary to evaluate their material 
risks, and because disclosure by accelerated filers describing 
unresolved written staff comments on previous filings that the issuer 
believes to be material will be simply a summary of comments provided 
to the issuer by the staff of the Commission, the proposed disclosure 
that issuers would have to make in their Exchange Act periodic reports 
and registration statements should not impose significant new burdens.
---------------------------------------------------------------------------

    \399\ Item 303 of Regulation S-K [17 CFR 229.303].
---------------------------------------------------------------------------

    We estimate that, over a three-year time period,\400\ the annual 
incremental disclosure burden imposed by the proposed new disclosure 
requirements

[[Page 67446]]

would average 6.43 hours per Form 10-K (consisting of risk factor 
disclosure and disclosure by accelerated filers of outstanding 
comments), 0.23 hours per Form 10-Q (consisting of disclosure of 
material changes to risk factors), 0.05 hours per Form 20-F (consisting 
of disclosure by accelerated filers of outstanding comments), and 12 
hours per Form 10 (consisting of risk factor disclosure).\401\ These 
estimates were based on the following assumptions:
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    \400\ We calculated an annual average over a three-year period 
because OMB approval of PRA submissions covers a three-year period.
    \401\ We obtained data from our internal Filing Activity 
Tracking System database (``FACTS''). We calculated the average 
incremental increase in the burden for each Form 10-K by adding the 
average time per form that it will take to prepare the risk factor 
disclosures ([(970 Forms 10-K involving issuers who have recently 
prepared risk factors multiplied by 4 hours) plus (7,250 other Forms 
10-K multiplied by 6.64)]/8,220 Forms 10-K = 6.33 hours per Form 10-
K), and the average time per form that it will take to prepare 
disclosure of outstanding comments [796 Forms 10-K involving issuers 
with outstanding comments multiplied by 1 hour/8,220 Form 10-Ks = .1 
hours], which equals 6.43 hours per Form 10-K. The calculation for 
Form 10-Q is as follows: [(20,264 Forms 10-Q multiplied by 15% 
frequency of disclosure multiplied by 1.5 hours)]/20,264 Forms 10-Q 
= .23 hours per Form 10-Q. The calculation for Form 20-F is: [(52 
Forms 20-F involving disclosure of outstanding comments multiplied 
by 1 hour)/1,036 Forms 20-F = .05 hours per Form 20-F]. Because Form 
10 filers generally are new entrants to the Exchange Act reporting 
system, they will be preparing risk factor disclosure for the first 
time. Based on our estimate that it will take first time filers 12 
hours to prepare this disclosure, the average incremental increase 
in the burden will be 12 hours per Form 10. See also notes 402 and 
403 and accompanying text.
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    <bullet> 970 reporting issuers would have been required to prepare 
risk factor disclosure within the past year for a Securities Act 
registration statement; \402\
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    \402\ We assume that the paperwork burden associated with 
preparing risk factor disclosure is significantly reduced when an 
issuer already has prepared risk factor disclosure for a previous 
Securities Act registration statement. This number does not include 
registration statements on Form S-3 because many of those 
registration statements are for delayed offerings, and issuers often 
do not include risk factors in the base registration statement for 
these offerings. We used FACTS as our source.
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    <bullet> Issuers who have not recently prepared risk factor 
disclosure will spend a greater amount of time preparing the disclosure 
in year 1 and will become more efficient in preparing the disclosure in 
years 2 and 3; \403\
---------------------------------------------------------------------------

    \403\ We estimate that it will take issuers who have not 
recently prepared this disclosure 12 hours in year one and 4 hours 
in years two and three, which comes to an average of 6.64 hours over 
the three-year period. Because Form 10 registration statements are 
filed by issuers who generally would not have previously prepared 
this disclosure, we estimate that these issuers will take 12 hours 
to prepare this disclosure.
---------------------------------------------------------------------------

    <bullet> Issuers would include disclosure of new or material 
changes to risk factors in 15% of all 10-Qs filed; and
    <bullet> 796 domestic and 52 foreign accelerated filers would have 
unresolved written staff comments that the issuer believes to be 
material each year, and, therefore, would need to disclose this 
fact.\404\
---------------------------------------------------------------------------

    \404\ We obtained data from our FACTS database that indicates 
that 848 accelerated fliers had outstanding comments as of September 
27, 2004. We estimate that it will take issuers an average of 1 hour 
to comply with this disclosure requirement.
---------------------------------------------------------------------------

    Tables 1 and 2 below illustrate the incremental annual compliance 
burden of the collection of information in hours and cost for periodic 
reports and registration statements under the Exchange Act.

                               Table 1.--Calculation of Incremental PRA Burden Estimates for Exchange Act Periodic Reports
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Incremental      Incremental
                                                  Annual        hours/form          burden           75% issuer     25%  professional   $300  prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.75       (E)=(C)*0.25       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K........................................           8,220            6.43           52,854.6          39,640.95          13,213.65         $3,964,095
10-Q........................................          20,264            0.23           4,660.72           3,495.54           1,165.18            349,554
                                             -----------------
    Total...................................  ..............  ..............  .................          43,136.49  .................          4,313,649
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Table 2.--Calculation of Incremental PRA Burden Estimates for Exchange Act Registration Statements and Foreign Private Issuer Exchange Act Annual
                                                                         Reports
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Incremental      Incremental
                                                  Annual        hours/form          burden           25% issuer     75%  professional   $300  prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
10..........................................              56           12                 672               168                504              $151,200
20-F........................................           1,036             .05               51.8              12.95              38.85             11,655
                                             -----------------
    Total...................................  ..............  ..............  .................             180.95  .................            162,855
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Communications and Prospectus Delivery
    For purposes of the PRA, we estimate that the annual paperwork 
burden for issuers that choose to comply with our communications 
proposal would be approximately 1,532 hours of issuer personnel time 
and a cost of approximately $1,379,000 for the services of outside 
professionals. Those estimates reflect the burden hours and costs 
associated with the proposed disclosure, filing, and record retention 
conditions. We estimate that, over a three-year period, the annual 
burden for the information collection and record retention conditions 
set forth in proposed Securities Act Rules 163 and 433 would be an 
average of 2.11 hours per issuer (including the burden for offering 
participants that may need to file free writing prospectuses with 
respect to the issuer's offering),\405\ and 3,874,133 hours total for 
all respondents to comply with proposed Rule 173.\406\

[[Page 67447]]

These estimates were based on the following assumptions:
---------------------------------------------------------------------------

    \405\ See also notes 407-409, and accompanying text, for an 
explanation of the underlying assumptions and calculations used. The 
calculation for the burden hours issuers would spend under Rule 433 
is: (3,650 free writing prospectuses in connection with filings 
multiplied by 0.25 hours per filing) plus (4,002 free writing 
prospectuses in connection with electronic road shows multiplied by 
0.25 hours per filing) plus (2,001 electronic road shows multiplied 
by 0.25 hours to make each road show available) plus (3,703 filings 
multiplied by 1 hour per filing for record retention) = 6,116.25 
hours. The calculation for the burden hours issuers would spend 
under Rule 163 is: (53 free writing prospectuses in connection with 
filings multiplied by 0.25 hours per filing) = 13.25 hours. 
Accordingly, the calculation for the burden hours per issuer imposed 
by Rules 433 and 163 is: (6,116.25 hours for Rule 433 plus 13.25 
hours for Rule 163)/2,906 issuers = 2.11 hours.
    \406\ See also notes 410 and 411 for an explanation of the 
underlying assumptions and calculations used. This is based on the 
estimate that broker dealers would deliver 232.448 million 
prospectuses, and spend 1 minute per prospectus preparing the Rule 
173 notice (232.448 million multiplied by (1/60 hours) = 3,874,133 
hours).
---------------------------------------------------------------------------

    <bullet> Filing a free writing prospectus or making a version of an 
electronic road show readily available each would require about 0.25 
burden hours; \407\
---------------------------------------------------------------------------

    \407\ Aside from a brief legend, we do not propose to specify 
the type of information that could be in a free writing prospectus. 
Accordingly, we are not estimating a paperwork burden for the 
specific information included in a free writing prospectus, other 
than the legend condition and the filing or dissemination condition, 
as applicable.
---------------------------------------------------------------------------

    <bullet> Issuers would make readily available to the public 2,001 
electronic road shows per year; \408\
---------------------------------------------------------------------------

    \408\ For the period from August 1, 2003 to July 31, 2004, 
approximately 2,906 issuers filed 3,703 offerings, approximately 299 
of which were initial public offerings by issuers that are not small 
business issuers. We estimate that close to 100% of the 299 initial 
public offerings filed involved an electronic road show, and 
approximately 50% of the 3,404 non-initial public offerings filed 
involved an electronic road show. Accordingly, the calculation for 
the number of road shows that will be made available per year is: 
[(299 IPOs) multiplied by (100%)] plus [(3,404 non-IPOs) multiplied 
by (50%)] = 2,001 electronic road shows available per year.
---------------------------------------------------------------------------

    <bullet> 7,705 free writing prospectuses per year would be filed in 
connection with 3,703 offerings by 2,906 issuers; \409\
---------------------------------------------------------------------------

    \409\ We estimate that issuers, on average, would file two free 
writing prospectuses for each electronic road show under Rule 433. 
Based on the calculation in note , above, we estimate that, in 
connection with 2,001 electronic road shows, issuers would file 
4,002 free writing prospectuses per year.
---------------------------------------------------------------------------

    We also estimate that issues, on average, would file one free 
writing prospectus in connection with electronic road shows). We 
estimate that most well-known seasoned issuers would have an automatic 
shelf registration statement on file and would therefore not rely on 
the exemption provided in proposed Rule 163. Therefore, we estimate 
that 3,650 free writing prospectuses would be filed under Rule 433 and 
53 free writing prospectuses would be filed under Rule 163 (in addition 
to any filings made in connection with electronic road shows).
    Accordingly, the calculation for the number of free writing 
prospectuses filed per year is: (3,650 filed under Rule 433) plus (53 
filed under Rule 163) plus (4,002 filed with road shows) = 7,705.
    <bullet> The burden to retain free writing prospectuses would be no 
more than one hour per year for all free writing prospectuses 
associated with each offering;
    <bullet> There would be approximately 232.45 million individual 
responses to proposed Rule 173 annually; \410\ and
---------------------------------------------------------------------------

    \410\ In a recent release relating to confirmation requirements, 
we estimated that approximately 2.54 billion confirmations will be 
sent to customers annually in connection with transactions not 
involving mutual funds, unit investment trusts interests, and plan 
securities. Confirmation Requirements and Point of Sale Disclosure 
Requirements for Transactions in Certain Mutual Funds and Other 
Securities, and Other Confirmation Requirement Amendments, and 
Amendments to the Registration Form for Mutual Funds, Release No. 
33-8358 (Jan. 29, 2004) [69 FR 6438] at Section VIII.C.4. These 
confirmations are sent for transactions in primary registered 
offerings as well as for transactions in the secondary market.
    According to data obtained from the databases provided by the 
Center for Research in Securities Prices at the University of 
Chicago and the Securities Data Corporation, we estimated that, in 
2002, the dollar amount of equity issued in the primary markets was 
11.4% of the size of the total dollar amount of all the equity 
trades that year.
    Accordingly, the calculation for confirmations sent annually in 
connection with transactions in primary registered offerings is: 
(2.54 billion confirmations) multiplied by (11.4% in the primary 
markets) = 289.56 million confirmations. This indicates that 289.56 
million transactions are conducted annually in connection with 
primary registered offerings, for which prospectuses are required to 
be delivered.
    In addition, Securities Act Rule 174 requires delivery of a 
prospectus for 25 calendar days following an IPO. We estimate that 1 
million prospectuses are delivered annually pursuant to this 
requirement.
    We further estimate that in 80% of instances where issuers and 
markets participants are required to deliver prospectuses, they 
would use the Rule 173 notice rather than delivering final 
prospectuses. Accordingly, the calculation for annual responses to 
proposed Rule 173 is: (289.56 million + 1 million) multiplied by 80% 
= 232.448 million.
---------------------------------------------------------------------------

    <bullet> The burden of the proposed Rule 173 notice requirement 
would be one minute per response.\411\
---------------------------------------------------------------------------

    \411\ We have previously estimated that it takes one minute to 
generate and send a confirmation because the process of generating a 
confirmation is automated. See Confirmation Requirements for 
Transactions of Security Futures Products Effected in Futures 
Accounts, Release No. 34-46471 (Jun. 10, 2002) [67 FR 39647]. We 
believe that the incremental burden of Rule 173 would be a similar 
burden.
---------------------------------------------------------------------------

Table 3, below, illustrates the incremental annual compliance burden of 
the collection of information in hours and in cost for the 
communication and prospectus delivery proposals.

                                         Table 3.--Calculation of PRA Burden Estimates for Communications \412\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Incremental      Incremental
                                                  Annual        hours/form          burden           25% issuer      75% professional   $300 prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rule 433 filing.............................           7,652            0.25              1,913             478.25           1,434.75           $430,425
Make available electronic road show.........           2,001            0.25             500.25             125.06             375.19            112,556
Rule 433 record retention...................           3,703               1              3,703             925.75           2,777.25            833,175
Rule 163 filing.............................              53            0.25              13.25               3.31               9.94              2,981
                                             -----------------
    Total...................................  ..............  ..............  .................              1,532  .................         1,379,137
--------------------------------------------------------------------------------------------------------------------------------------------------------
\412\ This table does not include the incremental burden estimate of 3,874,133 hours for proposed Rule 173, which is discussed above.

3. Securities Act Registration Statements
    For purposes of the PRA, we estimate that the proposals affecting 
the collection of information requirements related to Securities Act 
registration statements would reduce incrementally the annual paperwork 
burden by approximately 85,170 hours of issuer personnel time and by a 
cost of approximately $76,653,000 for the services of outside 
professionals. That estimate reflects changes to the number of filings 
that could result from our proposals, as well as the decrease in 
disclosure preparation time resulting from our proposed expansion of 
incorporation by reference. These estimates were based on the following 
assumptions:
    <bullet> 95 additional Forms S-1 and 5 additional Forms F-1 would 
be filed per year as a result of our proposed elimination of Forms S-2 
and F-2; \413\
---------------------------------------------------------------------------

    \413\ Source: EDGAR--Forms S-2 and F-2 filed from October 1, 
2003 to September 30, 2004.
---------------------------------------------------------------------------

    <bullet> Each year, 277 Forms S-1 and 8 Forms F-1 would incorporate 
information by reference; \414\
---------------------------------------------------------------------------

    \414\ We estimate that repeat issuers that would be eligible to 
incorporate by reference under the proposals filed 277 Forms S-1 and 
8 Forms F-1. Source: FACTS, from Aug. 1, 2003 to July 31, 2004.
---------------------------------------------------------------------------

    <bullet> Incorporating information by reference would reduce the 
paperwork burden in Forms S-1 by 374,227

[[Page 67448]]

hours \415\ and Forms F-1 by 15,680 hours;\416\
---------------------------------------------------------------------------

    \415\ We estimate that the burden to complete a Form S-1 that 
incorporates information by reference would be the same as the 
burden currently imposed by Form S-3 (398 hours). Therefore, the 
amount of time eliminated for each Form S-1 that incorporates 
information by reference would be 1,351 hours per form (1,749 hours 
for a Form S-1 that does not incorporate information by reference 
minus 398 hours for a Form S-1 that incorporates information by 
reference). Therefore, the total amount of time saved for the 277 
issuers that would be able to incorporate by reference would be 
374,227 (277 issuers multiplied by 1,351 hours per form).
    \416\ We estimate that the burden to complete a Form F-1 that 
incorporates information by reference would be the same as the 
burden currently imposed by Form F-3 (167 hours). Therefore, the 
amount of time eliminated for each Form F-1 that incorporates 
information by reference would be 1,960 hours per form (2,127 hours 
for a Form F-1 that does not incorporate information by reference 
minus 167 hours for a Form F-1 that incorporates information by 
reference). Therefore the total amount of time saved for the 8 
issuers that would be able to incorporate by reference would be 
15,680 (8 issuers multiplied by 1,960 hours per form).
---------------------------------------------------------------------------

    <bullet> Each year, 38 Forms S-4 and 3 Forms F-4 would no longer 
incorporate information by reference about either the acquiring issuer 
or the issuer being acquired as a result of our proposed changes to 
Forms S-4 and F-4 and elimination of Forms S-2 and F-2; \417\
---------------------------------------------------------------------------

    \417\ From filings on EDGAR from 10/1/2003 to 9/30/2004, we 
estimate that Forms S-2 represent 3.6% of registration statements 
filed on Form S-1, S-2, or S-3. Because many Forms S-4 include 
information about two different issuers, we estimate that 5% of 
Forms S-4 will include information about an issuer that is eligible 
to use Form S-2. Therefore, we estimate that 38 Forms S-4 (751 Forms 
S-4 filed from 10/1/2003 to 9/30/3004 multiplied by 5%) would have 
incorporated information by reference as a result of an issuer being 
eligible to use Form S-2. We also estimate that Forms F-2 represent 
3.4% of registration statements filed on Form F-1, F-2, or F-3. 
Because many Forms F-4 include information about two different 
issuers, we estimate that 5% of Forms F-4 will include information 
about an issuer that is eligible to use Form F-2. Therefore, we 
estimate that 3 Forms F-4 (68 Forms F-4 filed from 10/1/2003 to 9/
30/2004 multiplied by 5%) would have incorporated information by 
reference as a result of and issuer being eligible to use Form F-2.
---------------------------------------------------------------------------

    <bullet> Including additional information in Forms S-4 and F-4 as a 
result of not being eligible to incorporate by reference would increase 
the paperwork burden in Form S-4 by 51,338 hours \418\ and Form F-4 by 
5,880 hours; \419\
---------------------------------------------------------------------------

    \418\ We estimate that the burden for each issuer involved to 
complete a Form S-4 without incorporating information by reference 
would be the same as the burden currently imposed by Form S-1 (1,749 
hours). We also estimate that the burden for each issuer involved to 
complete a Form S-4 where the issuer is eligible to incorporate 
information by reference would be the same as the burden currently 
imposed by Form S-3 (398 hours). Therefore, the amount of time added 
to each Form S-4 that no longer includes information incorporated by 
reference would be 1,351 hours per form (1,749 hours to complete 
disclosure without incorporating by reference minus 398 hours to 
complete disclosure with incorporation by reference). The 
calculation for the burden including additional information in Forms 
S-4 as a result of not being eligible to incorporate by reference is 
(38 Forms S-4 that would have incorporated information by reference 
as a result of an issuer being able to use Form S-2) multiplied by 
1,351 hours per form = 51,338 hours.
    \419\ We estimate that the burden for each issuer involved to 
complete a Form F-4 without incorporating information by reference 
would be the same as the burden currently imposed by Form F-1 (2,127 
hours). We also estimate that the burden for each issuer involved to 
complete a Form F-4 where the issuer is eligible to incorporate 
information by reference would be the same as the burden currently 
imposed by Form F-3 (167 hours). Therefore, the amount of time added 
to each Form F-4 that no longer includes information incorporated by 
reference would be 1,960 hours per form (2,127 hours to complete 
disclosure without incorporating by reference minus 167 hours to 
complete disclosure with incorporation by reference). The 
calculation for the burden including additional information in Form 
F-4 as a result of not being eligible to incorporate by reference 
is: (3 Forms F-4 that would have incorporated information by 
reference as a result of being an issuer eligible to use Form S-2) 
multiplied by 1,960 hours per form = 5,880 hours.
---------------------------------------------------------------------------

    <bullet> 1,883 Forms S-3, 99 Forms F-3, and 65 initial registration 
statements or post-effective amendments on Form N-2 filed for an 
offering of securities pursuant to Rule 415 would each require one 
minute to include the additional Item 512 undertakings in the 
proposals; \420\
---------------------------------------------------------------------------

    \420\ We estimate that 1,883 Forms S-3 (1,999 Forms S-3 filed on 
EDGAR from 10/1/2003 to 9/30/2004 minus 121 Forms S-3 due to 
automatic shelf registration proposals plus 5 new majority-owned 
subsidiaries) and 99 Forms F-3 (102 Forms F-3 filed on EDGAR from 
10/1/2003 to 9/30/2004 minus 4 Forms F-3 due to automatic shelf 
registration proposals plus 1 new majority-owned subsidiary) would 
require the additional undertakings. We further estimate that 40 
initial registration statements and 25 post-effective amendments by 
closed-end management investment companies on Form N-2 would require 
the additional undertakings.
---------------------------------------------------------------------------

    <bullet> The number of Forms S-3 and Forms F-3 filed per year would 
be reduced by 121 and 4 per year, respectively, as a result of 
automatic shelf registration proposals; \421\ and
---------------------------------------------------------------------------

    \421\ From data derived from our FACTS database, we estimate 
that 418 registrants each filed approximately 2 Forms S-3 or F-3 per 
year (covering both primary and secondary offerings). We estimate 
that 30% of these registrants would be ``well-known seasoned 
issuers'' that are eligible to use automatic shelf registration. 
Because automatic shelf registration would eliminate the need for 
multiple registration statements, we estimate that 125 registrants 
(418 registrants multiplied by 30% = 125.4) would file only one Form 
S-3 or F-3. Therefore, the number of Forms would be reduced by 125 
(121 Forms S-3 and 4 Forms F-3).
---------------------------------------------------------------------------

    <bullet> Five additional Forms S-3 and one additional Form F-3 
would be filed per year as a result of our amendments to form 
eligibility for majority-owned subsidiaries.\422\
---------------------------------------------------------------------------

    \422\ A search in EDGAR from 8/1/2003 to 7/31/2004 for 
registered guaranteed debt securities yielded about 25 Forms S-3 and 
no Form F-3 registration statements. We are assuming that the 
proposals to allow more majority-owned subsidiaries to be eligible 
to use short-form registration would increase the number of 
registered guarantee offerings by 20% (25 multiplied by 20% = 5). 
While our search yielded no majority-owned subsidiaries registered 
guarantees on Form F-3 during the time period in question, we are 
assuming that at least one additional registration statement would 
be filed under the proposals.
---------------------------------------------------------------------------

    Table 4 through Table 8, below, illustrate the incremental annual 
compliance burdens of the collection of information in hours and in 
cost for registration statements under the Securities Act.

            Table 4.--Calculation of Incremental PRA Burden Estimates for Forms S-1, S-4, F-1 and F-4 Due to Elimination of Forms S-2 and F-2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Incremental     Incremental      Incremental                                            $300 prof.
                                                       annual        hours/form          burden           25% issuer      75% professional      cost
                                                   responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75    (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1.........................................              95             398             37,810           9,452.5           28,357.5   $8,507,250
Form F-1.........................................               5             167                835             208.75             626.25  187,875
Form S-4.........................................              38           1,351             51,338          12,834.5           38,503.5   11,551,050
Form F-4.........................................               3           1,960              5,880           1,470              4,410     1,323,000
                                                  -----------------
    Total........................................  ..............  ..............  .................          23,965.75  .................  21,569,175
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 67449]]


         Table 5.--Calculation of Incremental PRA Burden Estimates for Forms S-1 and F-1 to Reflect Issuers Eligible to Incorporate by Reference
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Incremental     Incremental      Incremental
                                                  annual        hours/form          burden           25% issuer      75% professional   $300 prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1....................................             277         (1,351)          (374,227)        (93,556.75)       (280,670.25)      ($84,201,075)
Form F-1....................................               8         (1,960)           (15,680)         (3,920.00)        (11,760.00)        (3,528,000)
                                             -----------------
    Total...................................  ..............  ..............  .................        (97,476.75)  .................       (87,729,075)
--------------------------------------------------------------------------------------------------------------------------------------------------------


                Table 6.--Calculation of Incremental PRA Burden Estimates for Forms S-3, F-3 and N-2 to Reflect New Item 512 Undertakings
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Incremental     Incremental      Incremental
                                                  annual        hours/form          burden           25% issuer      75% professional   $300 prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-3....................................           1,883    \423\ 0.0167              31.38               7.85              23.54          $7,061.25
Form F-3....................................              99          0.0167               1.65               0.41               1.24             371.25
Form N-2 \424\..............................              65          0.0167              1.083               1.08               0.00               0.00
                                             -----------------
    Total...................................  ..............  ..............  .................               9.34  .................          7,432.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
\423\ \1/60\ of an hour, or 1 minute.
\424\ In the case of Form N-2, we are assuming that all of the incremental burden will be borne in-house by company professionals.


      Table 7.--Calculation of Incremental PRA Burden Estimates for Reduction in Multiple Forms S-3 and F-3 to Due to Automatic Shelf Registration
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Incremental     Incremental      Incremental
                                                  annual        hours/form          burden        25% issuer  (D)=   75% professional   $300 prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)          (C)*0.25         (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-3....................................           (121)             398           (48,158)        (12,039.50)        (36,118.50)      ($10,835,550)
Form F-3....................................             (4)             167              (668)           (167.00)           (501.00)          (150,300)
                                             -----------------
    Total...................................  ..............  ..............  .................        (12,206.50)  .................       (10,985,850)
--------------------------------------------------------------------------------------------------------------------------------------------------------


        Table 8.--Calculation of Incremental PRA Burden Estimates for Expanding the Majority-Owned Subsidiaries Eligible to Use Forms S-3 or F-3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Incremental     Incremental      Incremental
                                                  annual        hours/form          burden           25% issuer      75% professional   $300 prof. cost
                                              responses  (A)        (B)          (C)=(A)*(B)        (D)=(C)*0.25       (E)=(C)*0.75       (F)=(E)*$300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-3....................................               5             398              1,990             497.50           1,492.50           $447,750
Form F-3....................................               1             167                167              41.75             125.25             37,575
                                             -----------------
    Total...................................  ..............  ..............  .................             539.25  .................            485,325
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Request for Comment

    We request comment in order to (a) evaluate whether the collections 
of information are necessary for the proper performance of our 
functions, including whether the information will have practical 
utility, (b) evaluate the accuracy of our estimate of the burden of the 
collections of information, (c) determine whether there are ways to 
enhance the quality, utility, and clarity of the information to be 
collected, and (d) evaluate whether there are ways to minimize the 
burden of the collections of information on those who respond, 
including through the use of automated collection techniques or other 
forms of information technology.\425\
---------------------------------------------------------------------------

    \425\ Comments are requested pursuant to 44 U.S.C. 
3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons who desire to submit comments on the collection 
of information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Jonathan G. Katz, Secretary, Securities 
and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549, 
with reference to File No. S7-38-04. Requests for materials submitted 
to the OMB by us with regard to this collection of information should 
be in writing, refer to File No. S7-38-04, and be submitted to the 
Securities and Exchange Commission, Office of Filings and Information 
Services, Branch of Records

[[Page 67450]]

Management, 450 Fifth Street, NW., Washington, DC 20549. Because the 
OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication, your comments are 
best assured of having their full effect if the OMB receives them 
within 30 days of publication.

XI. Cost Benefit Analysis

A. Background

    We are proposing revisions to the registration, communications, and 
offering processes under the Securities Act. Our proposals involve 
three main areas:
    <bullet> Communications related to registered securities offerings;
    <bullet> Procedural restrictions in the offering and capital 
formation processes; and
    <bullet> Delivery of information to investors.
    The overall goal of the proposed reforms is to make the 
registration system more workable for issuers and underwriters and more 
effective for investors in today's capital markets. We believe that the 
gun-jumping provisions of the Securities Act impose substantial and 
increasingly unworkable restrictions on useful communications that 
would be beneficial to investors and markets and consistent with 
investor protection. Today's proposals reflect our view that revisions 
to the Securities Act registration and offering processes are 
appropriate in light of significant developments in the offering and 
capital formation processes and can provide enhanced protection of 
investors under the statute. This view is based on our belief that 
today's proposals would:
    <bullet> Facilitate greater availability of information to 
investors and the market with regard to all issuers;
    <bullet> Eliminate barriers to open communications that have been 
made increasingly outmoded by technological advances;
    <bullet> Reflect the increased importance of electronic 
dissemination of information, including the use of the Internet;
    <bullet> Make the capital formation process more efficient; and
    <bullet> Define more clearly both the information and the 
timeliness of the availability of information against which a seller's 
statements are evaluated for liability purposes.

B. Summary of Proposals

    The amount of flexibility granted to issuers under our proposed 
revisions to the registration, communications, and offering processes 
is contingent on the characteristics of the issuer. We believe that the 
most far-reaching revisions of our communications rules and 
registration processes should be considered for issuers that have a 
reporting history under the Exchange Act and are presumptively the most 
widely followed in the marketplace. We believe that these issuers have 
an Exchange Act record, a broad following of their Exchange Act 
filings, and the contemplated attention directed to their Exchange Act 
reports by the staff of the Division of Corporation Finance that will 
produce the greatest likelihood of Exchange Act reports that not only 
are reliable but also are broadly scrutinized by investors and the 
markets.
    For purposes of the proposals, we would categorize issuers into 
tiers, consisting of non-reporting issuers, unseasoned issuers, 
seasoned issuers, and well-known seasoned issuers. The first three 
tiers of issuers would be identified by pre-existing criteria under the 
existing federal securities laws. A non-reporting issuer would be an 
issuer that is not required to file reports pursuant to Sections 13 or 
15(d) of the Exchange Act. An unseasoned issuer would be an issuer that 
is required to file reports pursuant to Sections 13 or 15(d) of the 
Exchange Act, but does not satisfy the requirements of Form S-3 or Form 
F-3 for a primary offering of its securities.\426\ A seasoned issuer 
would be an issuer that is eligible to use Form S-3 or Form F-3 to 
register offerings of securities to be sold by or on its behalf, on 
behalf of its subsidiary, or on behalf of a person of which it is the 
subsidiary. Our longstanding experience with these categories of 
issuers provides us with a basis for determining the amount of 
flexibility provided by the proposals.
---------------------------------------------------------------------------

    \426\ Under the proposals, an issuer that is voluntarily filing 
Exchange Act reports, but is not required to do so, would be an 
unseasoned issuer for purposes of the communications and procedural 
proposals.
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    The characteristics of the last tier of issuer, called well-known 
seasoned issuers in the proposals, would be easily measurable and 
readily available so that issuers and market participants can determine 
eligibility easily. For issuers with publicly traded equity, we believe 
that market capitalization provides a sufficient proxy for determining 
whether or not an issuer is well followed. For issuers of fixed income 
securities, we believe that the amount of fixed income securities sold 
in registered offerings in the past three years provides sufficient 
proxy.\427\
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    \427\ For further discussion of the characteristics of well-
known seasoned issuers, see Section II above.
---------------------------------------------------------------------------

    Under the proposals, a well-known seasoned issuer would have the 
greatest flexibility. The largest issuers are followed by sophisticated 
institutional and retail investors, members of the financial press, and 
numerous sell-side and buy-side analysts that actively seek new 
information on a continual basis. Unlike smaller or less mature 
issuers, large, seasoned public issuers tend to have a more regular 
dialogue with investors and market participants through the press and 
other media. The communications of these well-known seasoned issuers 
are subject to scrutiny by investors, the financial press, analysts, 
and others who evaluate disclosure when it is made.
1. Communications
    We are proposing communications rules that recognize the value of 
ongoing communications as well as the importance of avoiding 
unnecessary restrictions on offers during a registered offering. The 
proposed rules and amendments are designed to improve investors' access 
to information, to promote communications between offering participants 
and investors, and to maintain adequate investor protection. The 
proposals would operate in the following manner:
    <bullet> There would be two separate safe harbors from the gun-
jumping provisions for ongoing communications at any time--
    [cir] A safe harbor for a reporting issuer's continued publication 
or dissemination at any time of regularly released factual business and 
forward-looking information; and
    [cir] A safe harbor for a non-reporting issuer's continued 
publication or dissemination at any time of factual business 
information that is regularly released to persons other than investors 
or potential investors.
    <bullet> There would be two separate exclusions from the gun-
jumping provisions for communications not encompassed in the proposals 
above that occur prior to the filing of a registration statement:
    [cir] An exclusion from the definition of offer for purposes of 
Securities Act Section 5(c) for all issuers for all communications made 
by or on behalf of issuers 30 days prior to filing a registration 
statement; and
    [cir] An exemption from the prohibition on offers for purposes of 
Securities Act Section 5(c) before the filing of a registration 
statement for offers made by or on behalf of eligible well-known 
seasoned issuers.
    <bullet> Certain written offering related communications, such as 
communications about the schedule for an offering or communications 
about account-opening procedures, would be permitted in connection with 
an

[[Page 67451]]

offering and would be excluded from the definition of ``prospectus.''
    <bullet> Issuers and other offering participants would be permitted 
to use free writing prospectuses after the filing of the registration 
statement, subject to enumerated conditions (including, in specified 
cases, filing with the Commission).
    <bullet> The safe harbors for research reports would be expanded.
2. Securities Act Registration Amendments
    As part of our proposals to modernize the regulatory regime for 
registered securities offerings, we are proposing to streamline the 
registration process for most types of reporting issuers. The proposals 
recognize the role that technology and improved Exchange Act reporting 
procedures have on informing the marketplace. Our proposals address the 
registration procedures for seasoned and unseasoned issuers. These 
proposals include:
    <bullet> Modifications that would clarify and expand how and when 
information could be included in registration statements;
    <bullet> A clarification of the Securities Act liability treatment 
of information provided in a prospectus supplement and Exchange Act 
reports incorporated by reference;
    <bullet> A more flexible automatic registration process for well-
known seasoned issuers, including automatic effectiveness and pay-as-
you-go registration fee payment; and
    <bullet> Proposals related to non-shelf offerings of securities.
3. Prospectus Delivery
    We are proposing an ``access equals delivery'' prospectus delivery 
model, where final prospectus delivery obligations for purposes of 
Securities Act Section 5(b)(2) would be satisfied if the issuer filed 
the final prospectus with the Commission within the required time 
frame. Our proposals would:
    <bullet> Eliminate the existing link between delivery of the final 
prospectus and the delivery of confirmations of sale;
    <bullet> Provide that the obligation to have a final prospectus 
precede or accompany a security for delivery after sale be satisfied by 
filing a final prospectus with us within the required time;
    <bullet> Permit written notices of allocations; and
    <bullet> Permit the prospectus delivery obligations in dealer 
transactions during any prospectus delivery period and registered 
resale transactions in securities that are trading to be satisfied if 
the final prospectus was filed within the required time.
4. Exchange Act Reports
    A public issuer's Exchange Act record provides the most detailed 
source of information to the market and to potential purchasers 
regarding the issuer, its business, its financial condition, and its 
prospects. We are proposing several reforms to Exchange Act reporting 
requirements related to our proposed reforms to the Securities Act 
offering process. We propose to:
    <bullet> Extend risk factor disclosure requirements to annual 
reports on Exchange Act Form 10-K and registration statements on 
Exchange Act Form 10;
    <bullet> Require updates to risk factor disclosure in quarterly 
reports on Exchange Act Form 10-Q;
    <bullet> Require accelerated filers to disclose in their annual 
reports on Exchange Act Form 10-K any written staff comments issued 
more than 180 days before the end of the fiscal year covered by the 
report that the issuer believes to be material and that remain 
unresolved as of the filing date of the report; and
    <bullet> Include a box on the cover page of Exchange Act annual 
report forms for an issuer to check if it is filing reports 
voluntarily.

C. Benefits

    As discussed, the overall goal of the proposed reforms is to make 
the registration system more workable for issuers and underwriters and 
more effective for investors in today's capital markets. We believe 
that the proposed reforms will achieve this goal and consequently 
result in significant benefits in a number of areas, including by 
increasing the flow of information available to investors during a 
registered offering while maintaining investor protection against 
misleading or inaccurate disclosures. We also anticipate that our 
proposals will improve access to the public capital markets and 
possibly lower the cost of capital by, among other things, modifying, 
and in some cases clarifying, the federal securities laws related to 
communications, liability, shelf registration, and the use of 
electronic media during a registered offering. We also believe that our 
proposals will provide cost-saving options to issuers and underwriters.
1. Increased Information Flow
    The primary benefit that our proposals seek to achieve is an 
increased flow of information to investors during a registered 
offering. The proposals regarding communications, registration, and 
liability would operate harmoniously to increase the amount of valuable 
information that could be provided to investors before they make 
investment decisions. We believe that more information would be 
provided on a more timely basis because the proposals would eliminate 
regulatory barriers to the dissemination of that information and the 
markets may provide incentives for issuers, underwriters, or broker 
dealers to produce additional information.
    Increased information flow would promote efficient capital markets 
because the market may be able to value securities more accurately. 
Under the proposals, underwriters could communicate with potential 
investors during an offering to better gauge investor interest, thus 
facilitating greater discourse among investors and underwriters.
    Another benefit of increasing the information flow is that 
investors may become better informed in making portfolio allocation 
decisions in accordance with their particular risk-return profiles. The 
ability of offering participants to use free writing prospectuses in 
connection with offerings would impart a greater ability to provide 
information to investors about securities before they make investment 
decisions. For example, issuers and underwriters would be able to 
provide proprietary analytical material that is specifically tailored 
to address the particular asset allocation considerations of different 
investors. In addition, we are proposing amendments to permit research 
to be distributed about more issuers that are making registered 
offerings. Having access to these reports may facilitate additional 
security analysis among investors.
    By reducing the restrictions on the contents of written 
communications, we anticipate that investors will demand more 
information and issuers, underwriters, and other offering participants 
will be more willing to provide it. Significant technological advances 
have increased both the market's demand for more timely corporate 
disclosure and the ability of issuers to capture, process, and 
disseminate information. The proposals would enable issuers and market 
participants to take greater advantage of the Internet and other 
electronic media to communicate and deliver information to investors. 
As discussed in greater detail below, reducing regulatory and liability 
uncertainty with respect to the treatment of written communications may 
make issuers more comfortable in

[[Page 67452]]

supplying information without worrying about violating the gun-jumping 
provisions. Accordingly, investor demand for information could be 
satisfied through relatively inexpensive mass dissemination of the 
information through electronic means.
2. Investor Protection
    Another benefit of the proposals is that they would maintain 
investor protection against misleading or inaccurate disclosures. 
Investor protection is of paramount importance in maintaining fair, 
orderly, and efficient capital markets. The proposals regarding 
liability and disclosure in Exchange Act periodic reports, as well as 
the filing and record retention conditions for free writing 
prospectuses, would maintain and enhance investor protection in 
connection with registered securities offerings.
    A central premise underlying our liability proposals, which is 
reflective of the conceptual basis for the Securities Act, is that 
materially accurate and complete information regarding an issuer and 
the securities being sold should be available to investors at the time 
of sale (including the time of the contract of sale), when they make 
their investment decisions (not at the time of settlement or 
thereafter).\428\ We believe that our proposals would provide issuers 
and underwriters with greater flexibility to communicate information in 
a manner that does not slow the offering process unduly. At the same 
time, investors should be in a better position to have materially 
complete and accurate information at the time of the sale of the 
securities to them (including the time of the contract of sale). These 
measures should encourage the disclosure of fair and accurate 
information about transactions.\429\
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    \428\ See, e.g., Release No. 33-3519 (Oct. 11, 1954) [19 FR 
6727]; Release No. 33-4968 (Apr. 24, 1969) [34 FR 7235]; Adoption of 
Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 
FR 11380].
    \429\ Recent research has examined the effect of securities laws 
on stock market development in 49 countries and found strong 
evidence that laws facilitating private enforcement through 
disclosure and liability rules are positively correlated with more 
developed stock markets. See, La Porta, Lopez de Silanes, and 
Shleifer, ``What Works in Securities Laws?'' (July 16, 2003), Tuck 
School of Business Working Paper No. 03-22.
---------------------------------------------------------------------------

    The free writing prospectus proposals would promote investor 
protection by requiring issuers to file issuer-prepared free writing 
prospectuses and issuer information in free writing prospectuses. We 
believe that conditioning the use of written issuer-provided 
information on filing would improve investor protection. On the one 
hand, the proposed filing requirement is designed to assure that 
written issuer information is publicly available. On the other hand, 
requiring underwriters to publicize their propriety analysis may cause 
them unjustifiable competitive harm and liability exposure. Moreover, 
our proposals to require a version of an issuer's electronic road show 
presentations to be either filed or publicly available provide 
appropriately for the availability of information to all 
investors.\430\
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    \430\ The proposals would not affect the application of the 
Securities Act to oral road show presentations for their 
institutional investor clients.
---------------------------------------------------------------------------

    Our proposals to allow certain registration statements to become 
effective automatically will allow the Commission to shift its 
resources more toward the review of issuers' Exchange Act reports. 
Because we believe that an issuer's Exchange Act record provides the 
most detailed source of information to the market and to potential 
purchasers regarding the issuer, its business, its financial condition, 
and its prospects, we believe that investors will benefit from the 
staff's ability to review Exchange Act reports more frequently.
    The proposals to include additional disclosures in Exchange Act 
periodic reports also would promote investor protection. We believe 
that the disclosure by accelerated filers of unresolved written staff 
comments that the issuer believes to be material will benefit investors 
because they will be able to ascertain the nature of the staff comments 
and decide if those comments raise particular concerns that would 
affect their decision to invest in the securities. We believe that the 
disclosure of risk factors will help investors in assessing the risks 
that an issuer currently faces or may face in the future. Many issuers 
currently provide this risk factor disclosure in their Exchange Act 
reports voluntarily. However, for other issuers, investors have access 
to this information only if the issuer has recently conducted a 
registered offering under the Securities Act, in which case the issuer 
would be subject to risk factor disclosure requirements in its 
Securities Act registration statement.
3. Facilitating Capital Formation
    We anticipate that our proposals would facilitate capital 
formation, and possibly lower the cost of capital, by improving access 
to the public capital markets. The proposals are designed to eliminate 
unnecessary regulatory impediments to capital formation and provide 
more flexibility to issuers to conduct registered securities offerings. 
The amount of flexibility accorded by the proposals would depend on the 
characteristics of the issuer. We propose to grant the most flexibility 
under the automatic shelf registration system to eligible well-known 
seasoned issuers. Other issuers also would benefit, albeit to a lesser 
degree, from our other proposed amendments to the registration process.
    The proposals may lower the cost of capital because they would 
provide significant flexibility to issuers and underwriters in 
marketing their securities. For example, automatic shelf registration 
would enable well-known seasoned issuers to take advantage of market 
windows more effectively for the following reasons. First, issuers 
would have more control over the timing of their public offerings and 
would be able to complete an offering more quickly. Second, 
underwriters would have more latitude to make changes to the plan of 
distribution of the issuer's securities in response to changing market 
conditions. Finally, freeing issuers from the constraint of having to 
initially register a particular class or amount of securities would 
permit issuers to structure securities on a real-time basis to 
accommodate investor demand.
    The other amendments to the shelf registration procedures and 
expansion of incorporation by reference also will provide flexibility 
to issuers to enable them to access the capital markets at a lower 
cost. For example, removing the current restrictions on at-the-market 
offerings of equity securities would allow issuers to offer securities 
directly to the marketplace, without using the underwriting or 
syndication process. Under our proposals to expand Form S-3 eligibility 
to cover additional majority-owned subsidiaries, issuers would have 
greater flexibility to structure offerings of guaranteed securities 
without losing the benefits of shelf registration. In addition, our 
proposals to expand incorporation by reference will enable eligible 
issuers to use their Exchange Act filings to satisfy their disclosure 
requirements without having to incur costs to replicate information in 
the prospectus.
    Providing flexibility for registered offerings may encourage 
issuers to raise capital through the registration process instead of 
through private placements. Typically, registered securities enjoy more 
liquid markets than unregistered securities. Therefore, registered 
securities would not be subject to a liquidity discount. In addition, 
registered securities offerings provide a larger investor base than 
that available to those who participate in private placements. 
Accordingly, issuers may

[[Page 67453]]

incur lower transaction costs when raising capital because they would 
have access to a much deeper market for their securities and would not 
have to expend additional resources to locate investors.
    The prospectus delivery proposals are designed to facilitate 
effective access to information, while taking into account advancements 
in technology and the practicalities of the offering process. These 
changes are intended to alleviate timing difficulties that may arise 
under the current securities clearance and settlement system, and also 
to facilitate the successful delivery of, and payment for, securities 
in a registered offering. Given that the final prospectus delivery 
obligations generally affect investors only after they have made their 
investment decisions and that investors and the market have access to 
the final prospectus upon its filing, we believe that the obligation 
could be satisfied through a means other than physical delivery. 
Because the contract of sale would have already occurred by the time 
the final prospectus was filed, we also believe that delivery of a 
confirmation and the delivery of the final prospectus need not be 
linked. Receiving confirmations earlier in the settlement process would 
enable investors to review the confirmation and verify trade data 
closer to the time of the investment decision.
4. Reduced Regulatory Uncertainty
    The proposals modify the federal securities laws related to 
communications, liability, shelf registration, and the use of 
electronic media during a registered offering. The proposals, by 
enhancing issuers' certainty about the regulatory treatment of and 
liability provisions attached to the publication of information to the 
marketplace, could encourage issuers to increase the dissemination of 
readily available information useful to investors, such as management's 
plans and objectives for future operations. The proposed 30-day bright 
line exclusion and the proposed exemption from the prohibition on 
offers prior to filing for well-known seasoned issuers would provide 
issuers with comfort in communicating information without risk of 
violating the gun-jumping provisions. Moreover, as a result of the 
proposed safe harbors for regularly released factual business 
information and forward-looking information, issuers, brokers, and 
dealers would be able to avoid disruption in their ordinary 
communications with the investment community. At the same time, those 
communications could benefit all investors because there would be more 
current information and analysis available upon which to make 
investment decisions.
    The proposals to amend the shelf registration procedures would 
codify in a single location rules for permissible omissions from shelf 
registration statements under the Securities Act and the permissible 
methods to include the omitted information. This would promote 
efficiency by providing certainty about the content of base 
prospectuses in shelf registration statements and the methods by which 
required information may be included, thereby reducing divergent 
practices and eliminating possible inadvertent mistakes. In addition, 
we believe the proposals would address the disparate treatment of 
underwriters from a liability standpoint by establishing a new 
effective date for liability purposes for issuers and other offering 
participants in connection with takedowns off shelf registration 
statements, as reflected in prospectus supplements filed for such 
takedowns.
5. Lower Costs
    The prospectus delivery proposals and our proposals related to the 
registered securities offering process would provide cost-saving 
options to issuers, underwriters and participating broker-dealers. For 
purposes of our PRA analysis, we have estimated that our proposed 
amendments to the registered securities offering processes would reduce 
the current compliance costs by approximately $87,299,000.\431\ In 
addition, we believe that issuers and underwriters will benefit from 
not having to print and deliver final prospectuses. We estimate that 
the cost savings per prospectus would be approximately $0.75 per 
prospectus. For purposes of the PRA, we have estimated 232.45 million 
instances in which broker dealers will be able to rely on our ``access 
equals delivery'' proposals. Investors may request the final 
prospectus, and we estimate that they will do so 25% of the time. 
Therefore, we estimate the annual cost savings will be approximately 
$130,753,000.\432\
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    \431\ For purposes of monetizing the cost of issuer personnel 
time, we estimate the average hourly cost of issuer personnel time 
to be $125. The calculation for total cost is: (85,170 hours of 
issuer personnel time multiplied by $125 per hour) plus ($76,652,993 
professional costs) = $87,299,000. See also notes 413 through 424 
and accompanying text.
    \432\ ($0.75 per prospectus) multiplied by (232.45 million 
prospectuses multiplied by 75% frequency of relying on proposed Rule 
172) = $130,753,125.
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D. Costs

    While the overall goal of the proposed reforms is to make the 
registration system more workable for issuers and underwriters and more 
effective for investors in today's capital markets, we do believe that 
there may be potential costs to our proposal. These include costs for 
compliance with the new rules, potential behavioral changes resulting 
from our liability proposals, and certain other costs.
1. Compliance Costs
    One potential cost of the proposals is that issuers may incur 
increased filing costs associated with issuer free writing prospectuses 
or making a version of an electronic road show publicly available. For 
purposes of our PRA analysis, we have estimated that these costs will 
be approximately $621,800.\433\ These costs should be mitigated 
somewhat by the fact that free writing prospectuses are not required to 
be filed as part of the registration statement and therefore will not 
have to be conformed to meet all the requirements for an amendment to 
the registration statement. In addition, because oral communications 
are not written and, therefore, not free writing prospectuses, our 
proposals should not result in significant incremental costs from 
existing regulations. We also are conditioning the use of free writing 
prospectuses on the inclusion of a legend that notifies investors that 
they can receive a copy of the prospectus by calling a toll-free 
number. Accordingly, there may be some costs for issuers and offering 
participants associated with establishing a toll-free number for 
investors.
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    \433\ We estimate the average hourly cost of issuer personnel 
time to be $125. The calculation for total filing cost is: (478.25 
issuer hours to make filings under Rule 433 plus (3.31 issuer hours 
to make filings under Rule 163) plus (125.06 issuer hours to make 
available electronic road show) multiplied by ($125 per hour) plus 
($430,425.00 professional costs to make filings under Rule 433) plus 
($2,981.25 professional costs to make filings under Rule 163) plus 
($112,556 professional costs to make available electronic road show) 
= $621,789.75. See also Table 3 in Section X above under ``Paperwork 
Reduction Act.''
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    Another potential compliance cost is the additional expenditures 
that issuers and offering participants may incur in storing and 
archiving information to satisfy the proposed record retention 
conditions. Especially when the communication has been transmitted 
electronically or is contained on Web sites, parties will need to 
implement appropriate mechanisms to ensure that they retain for three 
years adequate records of any free writing prospectuses used. For 
purposes of our PRA analysis, we have estimated that these costs will 
be approximately $948,900.\434\
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    \434\ The calculation for total record retention cost is: 
(925.75 issuer hours) multiplied by ($125 per hour) plus $833,175.00 
professional cost = $948,893.75. See also Table 3 in Section X above 
under ``Paperwork Reduction Act.''

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[[Page 67454]]

    The proposed disclosures may increase the cost to issuers of 
preparing their Exchange Act reports. We do not expect the costs to 
accelerated filers of including disclosure of certain unresolved staff 
comments to be significant, because, even when an accelerated filer 
would have to include that disclosure, the information would be readily 
available to the issuer. For purposes of our PRA analysis, we have 
estimated that these additional disclosures will cost a total of 
$138,713 per year.\435\
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    \435\ For purposes of the PRA, we estimated that issuers would 
spend a total of $61,650 on outside professionals to prepare this 
disclosure. We also estimated that issuers would spend a total of 
616.5 hours of issuer personnel time preparing this disclosure. We 
estimate the average hourly cost of issuer personnel time to be 
$125, resulting in a total cost of $77,062.50 for issuer personnel 
time. This results in a total cost of $138,712.50 for all issuers.
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    Including risk factor disclosure will require extra effort for 
issuers who do not already include this disclosure in their Exchange 
Act reports for other reasons. For purposes of the PRA, we have 
estimated that these additional disclosures will result in additional 
costs of $9,743,417 to prepare, review, and file the proposed 
disclosure.\436\ Because issuers already are required to prepare 
financial statements and other information about their business, 
financial condition, and prospects in their quarterly and annual 
reports, some of which will include these risk factors, we believe that 
issuers will have the information available to create their risk factor 
disclosure. In addition, issuers may already include risk factor 
disclosure in their Exchange Act reports for varying reasons, including 
to take advantage of the safe harbor for forward-looking statements in 
Securities Act Section 27A of the Securities Act \437\ and the 
``bespeaks caution'' defense developed through case law. We recognize, 
however, that issuers will incur costs in preparing, reviewing, filing, 
printing, and disseminating this information. In particular, in 
addition to involving in-house preparers, in-house legal and accounting 
staff, and senior management, issuers may consult with outside legal 
counsel in preparing this disclosure. We believe, however, that the 
potential compliance costs for the risk factor disclosure should be 
considered in light of the fact that requiring risk factor disclosure 
in Exchange Act registration statements and annual reports will enhance 
the ability of reporting issuers to incorporate risk factor disclosure 
from Exchange Act reports into Securities Act registration statements 
to satisfy the risk factor disclosure requirements.
---------------------------------------------------------------------------

    \436\ For purposes of the PRA, we estimated that issuers would 
spend a total of $4,414,854 on outside professionals to prepare this 
disclosure. We also estimated that issuers would spend a total of 
42,628.5 hours of issuer personnel time per year on risk factor 
disclosures. We estimate the average hourly cost of issuer personnel 
time to be $125 per year, resulting in a total cost of $5,328,563 
for issuer personnel time. This results in a total cost of 
$9,743,416.50 for all issuers.
    \437\ 17 U.S.C. 77z-2.
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    Parties also may incur additional costs due to the requirement to 
notify investors that they have purchased in a registered offering. In 
addition, these same parties will incur costs to establish procedures 
for receiving and complying with requests for final prospectuses. We 
believe that providing the notice to investors would not impose a 
significant incremental costs because the notice could consist of a 
pre-printed message that is automatically delivered with the 
confirmation required by Exchange Act Rule 10b-10. Accordingly, we 
estimate that the cost for complying with proposed Rule 173 prospectus 
would be approximately $0.05 per notice. We estimate the annual cost of 
providing the notifications would be approximately $11,622,500.\438\ 
The cost savings resulting from the elimination of the requirement to 
supply a final prospectus to each investor would offset these costs, 
however.
---------------------------------------------------------------------------

    \438\ ($0.05 per notice) multiplied by (232.45 million 
confirmations) = $11,622,500. See also note 410 and accompanying 
text.
---------------------------------------------------------------------------

2. Potential for Increased Liability
    Our proposals to deem prospectus supplements to be part of and 
included in effective registration statements, and to modify, for 
liability purposes, the effective date of shelf registration statements 
to link them to individual offerings or takedowns off the shelf 
registration statement may cause issuers to evaluate more carefully the 
information contained in the prospectus supplements and the information 
conveyed to investors.
    With respect to the risk factor disclosure, a potential cost might 
be that issuers may be concerned about increased liability for a 
material misstatement or omission in their disclosure. In particular, 
some commenters on the 1998 proposals expressed concern that issuers 
might be liable for failure to disclose, or for failure to disclose 
prominently enough, a particular risk that in hindsight should have 
been emphasized. In addition, issuers were particularly concerned about 
liability for information that may be forward-looking in nature.
    In view of existing liability for information in registration 
statements and Exchange Act reports, as well as existing safe-harbors 
for forward-looking information, in drafting the current proposal, 
however, we were sensitive to potential additional costs that the 
proposed disclosure requirement might impose. For example, for 
liability purposes, we are not proposing to treat risk factor 
disclosure any differently than other disclosures in Exchange Act 
reports that may be incorporated by reference into Securities Act 
registration statements. We also note that the safe harbor for forward-
looking statements contained in Securities Act Section 27A and Exchange 
Act Section 21E would apply to this disclosure for eligible issuers. In 
addition, the risk factor disclosure is based on an evaluation of the 
material risks facing an issuer due to its business, operations, or 
other matters. Issuers currently disclose significant information about 
themselves in their Exchange Act reports, including in management's 
discussion and analysis of financial condition and results of 
operations \439\ and, as a result, already analyze their business and 
operations. Moreover, we note that issuers already are subject to 
disclosure requirements regarding this information in Securities Act 
registration statements.
---------------------------------------------------------------------------

    \439\ See e.g., Item 503 of Regulation S-K [17 CFR 229.503].
---------------------------------------------------------------------------

3. Research Reports
    While the proposed rules expand, to some extent, the circumstances 
under which brokers and dealers can publish research reports on an 
issuer or its securities while the issuer is engaging in a registered 
offering, they also contain revised conditions to the availability of 
the safe harbors. For example, while we are expanding the categories of 
eligible issuers for purposes of Securities Act Rule 138, we also are 
revising the requirement that the broker or dealer have an established 
history of publishing or distributing research to provide that the 
research must be on the type of securities being offered. This could 
act as a barrier to brokers or dealers with no established history of 
publishing particular types of research from publishing research while 
they are participating in an offering. In addition, we are proposing to 
exclude from Securities Act Rules 137, 138, and 139 research reports 
relating to issuers who are, or their predecessors in the prior three 
years were, blank check companies, shell companies, or penny stock 
issuers. This could preclude certain issuers from being covered by 
brokers or dealers that are participating

[[Page 67455]]

in one of these issuers' registered offerings.
4. Other Potential Costs
    We are proposing to allow registration statements by well-known 
seasoned issuers to become effective automatically, rather than being 
subject to review by the staff of the Division of Corporation Finance. 
As a result, registrants may not have the same incentive to remedy 
deficient disclosure in Exchange Act reports or in the registration 
statement itself than they would if their registration statements were 
subject to pre-effective staff review. We have sought to minimize this 
possibility by proposing to require accelerated filers to disclose, on 
an annual basis, written staff comments on their periodic report 
disclosures, that were issued more than 180 days prior to the fiscal 
year end covered by the report, that the issuer believes to be 
material, and that remain unresolved at the time of the filing of the 
annual report.
    The proposed rules also could impose certain costs on underwriters. 
For example, removing the restrictions on at-the-market offerings could 
affect underwriters negatively because issuers may decide not to hire 
an underwriter to conduct an offering.
    We also recognize that relaxing restrictions on communications may 
impose an analytical burden on investors. For example, today, for some 
offerings, such as those on Form S-1, much of the relevant information 
regarding an offering is required to be contained in one document 
comprising the registration statement. Under our proposals, some 
offerings would require an investor to assemble and assimilate 
information from various free writing prospectuses, Exchange Act 
reports, and the Securities Act registration statement in order to get 
the relevant information regarding an offering. Investors would have to 
compile the information integrated into the registration statement or 
delivered by means outside of the prospectus. We note, however, that 
Securities Act Forms S-3 and F-3 have long permitted incorporation by 
reference from the issuer's Exchange Act reports and investors have not 
complained they are unduly burdened when investing in offerings 
registered on these Forms.

E. Request for Comment

    <bullet> Will our proposals result in investors receiving more 
timely and accurate information upon which to base an investment 
decision?
    <bullet> Is our definition of ``well-known seasoned issuer'' 
appropriate for the purposes of the proposal?
    <bullet> If we were to remove restrictions on at-the-market 
offerings, would issuers be inclined to conduct at-the-market offerings 
without the services of an underwriter?
    <bullet> We request data to quantify the costs of filing issuer 
free writing prospectuses, even if they are not required to meet our 
statutory prospectus requirements. In addition, how many free writing 
prospectuses would an issuer expect to file on average in connection 
with each offering? How many other free writing prospectuses are 
offering participants likely to file in connection with each offering?
    <bullet> We request comment on the costs of implementing and 
maintaining any storage systems and capabilities that issuers and 
offering participants will need to retain for three years adequate 
records of any free writing prospectuses used. Please provide any 
quantitative data on which you rely in formulating your comments.
    <bullet> We request comment on whether investors would benefit 
overall from issuers communicating with investors outside of the 
statutory prospectus. Does the benefit of greater freedom in 
communications outweigh the cost to security holders of obtaining and 
analyzing the additional information?
    <bullet> We request comment or data on any other costs that would 
be associated with the proposed relaxation of the communications 
restrictions and the amendments to the filing requirements.
    <bullet> We request comment on the additional costs that issuers 
and underwriters may incur in complying with the proposed notification 
requirement for investors who purchased in a registered offering.
    <bullet> We request comment as to whether the proposals regarding 
delivery of final prospectuses would negatively impact investors and, 
if so, how.
    <bullet> We request comment on the assumptions and quantitative 
data underlying the costs to investors of acquiring final prospectuses. 
What percentage of investors would contact issuers for copies of 
prospectuses? What percentage of investors would obtain prospectuses 
through the Internet? How much would it cost investors in terms of 
paper, printer ink, Internet connection costs, and time to download 
information and print prospectuses?
    <bullet> What are the costs to issuers and underwriters of printing 
and delivering prospectuses?
    <bullet> Would issuers and underwriters incur additional 
incremental costs if they needed to print extra prospectuses due to 
demand for paper copies?
    <bullet> We request comment on the number of prospectuses that 
issuers and underwriters would no longer need to print and deliver to 
investors and the size of the resulting cost savings.
    <bullet> We request comment (especially quantitative data) as to 
whether having access to research reports will enhance investors' 
ability to evaluate securities and help ensure that the market will 
properly value securities.
    <bullet> We request comment on the quantification of the benefits 
to investors of determining liability as to a statement or 
communication in a manner that does not take into account information 
conveyed only after the time of the contract of sale.
    <bullet> We request comment on the costs and benefits of our 
proposal that an issuer in a primary offering of securities, regardless 
of the form of underwriting, be considered a seller for purposes of 
Securities Act Section 12(a)(2).
    <bullet> We request comment on whether, and how, investors would 
benefit from the disclosure regarding unresolved comments in Exchange 
Act periodic reports, including any quantifiable benefits of having 
this additional disclosure.
    <bullet> We request comment on whether, and how, investors would 
benefit from the disclosure regarding risk factors, including any 
quantifiable benefits of having this additional disclosure.
    <bullet> We request comment on the potential liability costs of 
including the disclosure requirements in Exchange Act periodic reports, 
including a quantification of the costs of preparing the risk factor 
and unresolved staff comment disclosures and of the potential 
litigation costs.
    <bullet> We request comment on whether it would be difficult or 
costly for investors to compile materials that are incorporated by 
reference into prospectuses.

XII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation

    Exchange Act Section 23(a)(2) \440\ requires us, when adopting 
rules under the Exchange Act, to consider the impact that any new rule 
would have on competition. In addition, Section 23(a)(2) prohibits us 
from adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. Furthermore, Securities Act Section

[[Page 67456]]

2(b) \441\ and Exchange Act Section 3(f) \442\ require us, when 
engaging in rulemaking where we are required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \440\ 15 U.S.C. 78w(a)(2).
    \441\ 15 U.S.C. 77b(b).
    \442\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The proposed amendments are intended to modify and advance the 
Commission's regulatory system for offerings under the Securities Act 
of 1933, enhance communications between public issuers and investors, 
and promote investor protection. We anticipate these proposals will 
improve investors' ability to make informed investment decisions and, 
therefore, lead to increased efficiency and competitiveness of the U.S. 
capital markets. We anticipate that this increased market efficiency 
and investor confidence also may encourage more efficient capital 
formation. Specifically, we believe that the proposals will:
    <bullet> Facilitate greater availability of information to 
investors and the market with regard to all issuers;
    <bullet> Eliminate barriers to open communications that have been 
made increasingly outmoded by technological advances;
    <bullet> Reflect the increased importance of electronic 
dissemination of information, including the use of the Internet;
    <bullet> Make the capital formation process more efficient; and
    <bullet> Define more clearly both the information and the 
timeliness of the availability of information against which a seller's 
statements are evaluated for liability purposes.
    To the extent that some of these reforms will be available to well-
known seasoned issuers, smaller issuers may not be able to use all of 
the reforms. In addition, it is possible that investors will favor 
issuers that are able to take advantage of the reforms. We believe, 
however, that these potential unequal effects are justified in order to 
ensure that investors have appropriate access to required information 
about all issuers.
    We request comment on whether the proposals, if adopted, would 
promote efficiency, competition, and capital formation or have an 
impact or burden on competition. Commenters are requested to provide 
empirical data and other factual support for their views, if possible.

XIII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared 
in accordance with 5 U.S.C. 603. It relates to proposed revisions to 
the rules and forms under the Securities Act and the Exchange Act that 
would (1) alter shelf registration procedures; (2) allow more 
communications between offering participants than currently permitted; 
and (3) enable offering participants to satisfy their prospectus 
delivery obligations through means other than actual physical delivery. 
These proposals are intended to modify and advance the Commission's 
regulatory system for offerings under the Securities Act of 1933, 
enhance communications between public issuers and investors, and 
promote investor protection.

A. Reasons for the Proposed Action

    In 1998, the Commission proposed new rules under the Securities Act 
that were intended to modernize the securities offering process to 
recognize the evolution of the securities markets and securities 
products since the Securities Act's adoption and to enable market 
participants to capitalize on new technologies.\443\ The underlying 
premise of those proposals--the need to modernize the securities 
offering and communications processes--was supported by commenters at 
the time. However, commenters indicated dissatisfaction with a number 
of the specifics in the 1998 proposals. We believe that the objectives 
of the 1998 proposals in reforming the offering process continue to be 
supported, and merit our attention still.
---------------------------------------------------------------------------

    \443\ See The Regulation of Securities Offerings, Release No. 
33-7606A (Nov. 13, 1998 [63 FR 67174] (the ``1998 proposals'').
    The National Securities Markets Improvement Act of 1996 (NSMIA) 
provided the Commission with general authority to adopt exemptive 
rules under the Securities Act to the extent that such exemptive 
action is ``necessary or appropriate in the public interest and 
consistent with the protection of investors.'' See Securities Act 
Section 28 [15 U.S.C. 77z-3]. This authority permitted a number of 
the proposals put forth in our 1998 proposals to go beyond previous 
modernization efforts.
---------------------------------------------------------------------------

    The 1998 proposals were a step in an evaluation of the offering 
process under the Securities Act that began as far back as 1966, when 
Milton Cohen noted the anomaly of the structure of the disclosure rules 
under the Securities Act and the Exchange Act and suggested the 
integration of the requirements under the two statutes.\444\ Mr. 
Cohen's article was followed by a 1969 study led by Commissioner 
Francis Wheat \445\ and the Commission's Advisory Committee on 
Corporate Disclosure in 1977.\446\ These studies eventually led to the 
Commission's adoption of the integrated disclosure system, short-form 
registration under the Securities Act, and Securities Act Rule 415 
permitting shelf registration of continuous offerings and delayed 
offerings.\447\
---------------------------------------------------------------------------

    \444\ Milton H. Cohen, Truth in Securities Revisited, 79 Harv. 
L. Rev. 1340 (1966). (``It is my thesis that the combined disclosure 
requirements of these statutes would have been quite different if 
the 1933 and 1934 Acts * * * had been enacted in opposite order, or 
had been enacted as a single, integrated statute--that is, if the 
starting point had been a statutory scheme of continuous disclosures 
covering issuers of actively traded securities and the question of 
special disclosures in connection with public offerings had then 
been faced in this setting. Accordingly, it is my plea that there 
now be created a new coordinated disclosure system having as its 
basis the continuous disclosure system of the 1934 Act and treating 
the ``1933 Act'' disclosure needs on this foundation.'')
    \445\ See Disclosure to Investors--a Reappraisal of Federal 
Administrative Policies under the '33 and `34 Acts, Policy Study 
(the ``Wheat Report''), www.sechistorical.org/museum/Museum_Papers/museum_Papers_Chron.php#1960 (Mar. 27, 1969).
    \446\ See Report of the Advisory Committee on Corporate 
Disclosure, Cmte. Print 95-29, House Cmte. On Interstate and Foreign 
Commerce, 95th Cong., 1st. Sess., Nov. 3, 1977 (Nov. 3, 1977). In 
addition, beginning in 1968, the American Law Institute (``ALI'') 
began its work on a Federal Securities Code, which was approved in 
1978 by the ALI membership. The ALI Federal Securities Code included 
company registration as a central component. See American L. Inst., 
Federal Securities Code (1980).
    \447\ See Adoption of Integrated Disclosure System, Release No. 
33-6383 (Mar. 16, 1982) [47 FR 11380], Delayed or Continuous 
Offering and Sale of Securities, Release No. 33-6423 (Sept. 10, 
1982) [47 FR 39799], and Shelf Registration, Release No. 33-6499 
(Nov. 17, 1983) [48 FR 52889].
---------------------------------------------------------------------------

    The Commission's attention to the offering and communications 
processes under the Securities Act has continued more recently. In 
particular, in March 1996, members of the Commission staff delivered 
the Report of the Task Force on Disclosure Simplification to the 
Commission.\448\ It recommended a number of areas where simplification 
and modernization of the registration and offering process could be 
accomplished. In July 1996, the Advisory Committee on the Capital 
Formation and Regulatory Processes delivered its report to the 
Commission.\449\ Its principal recommendation was that the Securities 
Act registration and disclosure processes be more directly tied to the 
philosophy and structure of the Exchange Act through the adoption of a 
system of ``company registration.'' Under company registration, the 
focus of Securities Act and Exchange Act

[[Page 67457]]

registration and disclosure would move from transactions to issuers and 
corollary steps would be taken to provide for disclosure and 
registration of individual offerings within the company registration 
framework.
---------------------------------------------------------------------------

    \448\ Report of the Task Force on Disclosure Simplification, 
available at www.sec.gov/news/studies/smpl.htm (Mar. 5, 1996).
    \449\ Report of the Advisory Committee on the Capital Formation 
and Regulatory Process, available at www.sec.gov/news/studies/capform.htm (July 24, 1996) (the ``Advisory Committee Report'').
---------------------------------------------------------------------------

    Promptly after the Advisory Committee delivered its report, the 
Commission issued a concept release regarding regulation of the 
offering process.\450\ The release sought input on a number of 
significant issues, including the concept of company registration, 
integration of the Securities Act and Exchange Act, enhanced Exchange 
Act reporting, whether information was properly and timely made 
available in the offering process, and whether the review of filings of 
issuers by the staff of the Division of Corporation Finance should be 
modified, at least for some category of large seasoned issuers.
---------------------------------------------------------------------------

    \450\ Securities Act Concepts and Their Effects on Capital 
Formation, Concept Release, Release No. 33-7314 (July 25, 1996) [61 
FR 40044].
---------------------------------------------------------------------------

    While many of the issues cited above remain valid matters for 
consideration, much of the comment in response to our 1998 proposals 
suggested that the existing system of regulating capital formation in 
the registered offering market provides a number of advantages that 
should be carefully considered and retained if we are to make other 
changes. In putting forward proposed rules today, we have focused 
primarily on constructive, incremental changes in our regulatory 
structure and the offering process rather than the introduction of a 
far-reaching new system, as we believe that we can best achieve further 
integration of Securities Act and Exchange Act disclosure and processes 
by making adjustments in the current integrated disclosure and shelf 
registration systems. Further, consistent with our belief that 
investors and the securities markets will benefit from greater 
permissible communications by issuers while retaining appropriate 
liability for these communications, we have sought to address the need 
for timeliness of information for investors by building on current 
rules and processes without mandating delays in the offering process 
that we believe would be inconsistent with the needs of issuers for 
timely access to the securities markets and capital.
    We are proposing revisions to the registration, communications, and 
offering processes under the Securities Act that we believe, while 
limited in scope, properly address the areas that are in need of 
modernization. Our proposals involve three main areas:
    <bullet> Communications related to registered securities offerings;
    <bullet> Procedural restrictions in the offering and capital 
formation processes; and
    <bullet> Delivery of information to investors.

B. Objectives

    The overall goal of the proposed reforms is to make the 
registration system more workable for issuers and underwriters and more 
effective for investors in today's capital markets. The proposals 
reflect our view that revisions to the Securities Act registration and 
offering processes are not only appropriate in light of significant 
developments in the offering and capital formation processes, but also 
are necessary for the proper protection of investors under the statute. 
This view is based on our belief that today's proposals would:
    <bullet> Facilitate greater availability of information to 
investors and the market with regard to all issuers;
    <bullet> Eliminate barriers to open communications that have been 
made increasingly outmoded by technological advances;
    <bullet> Reflect the increased importance of electronic 
dissemination of information, including the use of the Internet;
    <bullet> Make the capital formation process more efficient; and
    <bullet> Define more clearly both the information and the 
timeliness of the availability of information against which a seller's 
statements are evaluated for liability purposes.

C. Legal Basis

    We are proposing amendments to the forms and rules under the 
authority set forth in Sections 7, 10, 19, 27A, and 28 of the 
Securities Act of 1933, as amended, Sections 3, 10, 12, 13, 15, 17, 
21E, 23, and 36 of the Securities Exchange Act of 1934, as amended, and 
Sections 8, 24(a), 30, and 38 of the Investment Company Act of 1940.

D. Small Entities Subject to the Proposed Rules

    The proposals would affect issuers that are small entities. 
Securities Act Rule 157 \451\ and Exchange Act Rule 0-10(a) \452\ 
define a issuer to be a ``small business'' or ``small organization'' 
for purposes of the Regulatory Flexibility Act if it had total assets 
of $5 million or less on the last day of its most recent fiscal 
year.\453\ We estimate that there were approximately 2,500 public 
issuers, other than investment companies, that may be considered small 
entities. We estimate that there are approximately 233 investment 
companies that may be considered small entities.
---------------------------------------------------------------------------

    \451\ 17 CFR 230.157.
    \452\ 17 CFR 240.0-10(a).
    \453\ An investment company is a small entity if it, together 
with other investment companies in the same group of related 
investment companies, has net assets of $50 million or less as of 
the end of its most recent fiscal year. 17 CFR 270.0-10.
---------------------------------------------------------------------------

    In addition to small issuers, small broker-dealers may be affected 
by the rules. Paragraph (c)(1) of Rule 0-10 \454\ states that the term 
``small business'' or ``small organization,'' when referring to a 
broker-dealer, means a broker or dealer that had total capital (net 
worth plus subordinated liabilities) of less than $500,000 on the date 
in the prior fiscal year as of which its audited financial statements 
were prepared pursuant to Sec.  240.17a-5(d); and is not affiliated 
with any person (other than a natural person) that is not a small 
business or small organization. As of 2003, the Commission estimates 
that there were approximately 900 broker-dealers that qualified as 
small entities as defined above. To the extent a small broker-dealer 
participates in a securities offering or prepares research reports, it 
may be affected by our proposals. Generally, we believe larger broker-
dealers engage in these activities, but we request comment on whether 
and how these proposals will affect small broker-dealers.
---------------------------------------------------------------------------

    \454\ 17 CFR 240.0-10(c)(1).
---------------------------------------------------------------------------

    For purposes of the proposals, we would categorize issuers into 
tiers, consisting of non-reporting issuers, unseasoned issuers, 
seasoned issuers, and well-known seasoned issuers. The first three 
tiers of issuers would be identified by pre-existing criteria under the 
existing federal securities laws. A non-reporting issuer would be an 
issuer that is not required to file reports pursuant to Sections 13 or 
15(d) of the Exchange Act. An unseasoned issuer would be an issuer that 
is required to file reports pursuant to Sections 13 or 15(d) of the 
Exchange Act, but does not satisfy the requirements of Form S-3 or Form 
F-3 for a primary offering of its securities.\455\ A seasoned issuer 
would be an issuer that is eligible to use Form S-3 or Form F-3 to 
register offerings of securities to be sold by or on its behalf, on 
behalf of its subsidiary, or on behalf of a person of which it is the 
subsidiary. Our longstanding experience with these categories of 
issuers provides us with a basis for determining the amount of 
flexibility provided by the proposals.
---------------------------------------------------------------------------

    \455\ Under the proposals, an issuer that is voluntarily filing 
Exchange Act reports, but is not required to do so, would be an 
unseasoned issuer for purposes of the communications and procedural 
proposals.
---------------------------------------------------------------------------

    The characteristics of the last tier of issuer, called well-known 
seasoned issuers in the proposals, would be easily

[[Page 67458]]

measurable and readily available so that issuers and market 
participants can determine eligibility easily. For issuers with 
publicly traded equity, we believe that market capitalization provides 
a sufficient proxy for determining whether or not an issuer is well 
followed. For issuers of fixed income securities, we believe that the 
amount of fixed income securities sold in registered offerings in the 
past three years provides sufficient proxy.\456\
---------------------------------------------------------------------------

    \456\ For further discussion of the characteristics of well-
known seasoned issuers, see Section II above.
---------------------------------------------------------------------------

    Under the proposals, a well-known seasoned issuer would have the 
greatest flexibility. The largest issuers are followed by sophisticated 
institutional and retail investors, members of the financial press, and 
numerous sell-side and buy-side analysts that actively seek new 
information on a continual basis. Unlike smaller or less mature 
issuers, large, seasoned public issuers tend to have a more regular 
dialogue with investors and market participants through the press and 
other media. The communications of these well-known seasoned issuers 
are subject to scrutiny by investors, the financial press, analysts, 
and others who evaluate disclosure when it is made.
    To the extent that some of these reforms are designed for well-
known seasoned issuers, smaller issuers may not benefit from all of the 
reforms to the registration process. We believe, however, that these 
potential unequal effects are justified in order to ensure that 
investors have access to required information about all issuers. 
Therefore, allowing smaller entities to take advantage of all of the 
reforms to the registration process may not address issues of investor 
protection. We have proposed that the reforms not be available to 
offerings by a blank check company, offerings by a shell company, and 
offerings of penny stock by an issuer. These offerings are more likely 
to be made by issuers that are small issuers. We have proposed to 
exclude these offerings from the reforms because they pose the greatest 
risk of abuse of the reforms.
    To the extent the proposals are not available to smaller issuers, 
the establishment of any differing compliance or reporting requirements 
or timetables or any exemptions for small business issuers may not be 
in keeping with the objectives of the proposed rules. We believe that 
the current proposals are a cost-effective initial approach to address 
specific concerns related to small entities.
    We request comment on the number of small entities that would be 
impacted by our proposals, including any available empirical data.

E. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments are expected to impact all issuers raising 
capital and selling security holder transactions that are registered 
under the Securities Act, as well as all issuers that file annual 
reports on Exchange Act Form 10-K or Form 20-F.
    For smaller issuers, we are not proposing any new restrictions on 
communications. In fact, small issuers will be able to take advantage 
of the new bright-line rule permitting communications more than 30 days 
before filing a registration statement and the clarification that they 
can continue to make factual business communications. Small issuers, 
like larger issuers, will have to file any free writing prospectus they 
use. We are not proposing to require issuers that file on Form 10-KSB, 
who tend to be smaller issuers, to disclose risk factors. Unlike larger 
companies that are ``accelerated filers,'' smaller issuers will not be 
required to disclose outstanding staff comments in their annual 
reports.
    The proposals also would affect broker-dealers participating in a 
registered offering, as they would no longer be required to delivery a 
final prospectus, but would be able to send a notice of allocation and 
notice of prospectus availability. They also would be permitted to 
prepare and use free writing prospectuses. The broker-dealer would have 
to retain copies of the free writing prospectus for three years. 
Finally, the broker-dealer would be permitted to issue research reports 
with respect to a broader class of issuers and securities than 
currently permitted.
    We encourage written comments regarding this analysis. We solicit 
comments as to whether the proposed amendments could have an effect 
that we have not considered. We request that commenters describe the 
nature of any impact on small entities and provide empirical data to 
support the extent of the impact.

F. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no rules that conflict with or completely 
duplicate the proposed rules.

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objective, while 
minimizing any significant adverse impact on small entities. In 
connection with the proposals, we considered the following 
alternatives:

    1. Establishing different compliance or reporting requirements 
that take into account the resources of small entities;
    2. The clarification, consolidation, or simplification of 
disclosure for small entities;
    3. Use of performance standards rather than design standards; 
and
    4. Including smaller entities in some of the reforms.

    The Commission has considered a variety of reforms to achieve its 
regulatory objectives. We are not proposing to require small business 
issuers to include disclosure of risk factors or unresolved staff 
comments in their Exchange Act periodic reports. We are proposing to 
liberalize generally the restrictions regarding communications around 
the time of a Securities Act registered offering of securities. As 
discussed above, the proposed flexibility will be greatest for larger, 
more seasoned issuers; however, the proposals would provide greater 
flexibility for all issuers, including small entities. As we implement 
these changes, we will consider the available information to determine 
whether greater flexibility is warranted, consistent with investor 
protections.

H. Solicitation of Comment

    We encourage comments with respect to any aspect of this Initial 
Regulatory Flexibility Analysis. Commenters are asked to describe the 
nature of any impact and provide empirical data supporting the extent 
of the impact. In particular, we request comments regarding:

    1. The number of small entities that may be affected by the 
proposals;
    2. The existence or nature of the potential impact of the 
proposals on small entities discussed in the analysis; and
    3. How to quantify the impact of the proposed rules.

    Such comments will be considered in the preparation of the Final 
Regulatory Flexibility Analysis, or, in the alternative, a 
certification under Section 605(b) of the Regulatory Flexibility 
Analysis, if the proposals are adopted, and will be placed in the same 
public file as comments on the proposed amendments themselves.

XIV. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\457\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \457\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).

    <bullet> An annual effect on the U.S. economy of $100 million or 
more;

[[Page 67459]]

    <bullet> A major increase in costs or prices for consumers or 
individual industries; or
    <bullet> Significant adverse effects on competition, investment or 
innovation.
    We request comment on whether our proposals would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on: (a) The potential effect on the U.S. economy on an annual basis; 
(b) any potential increase in costs or prices for consumers or 
individual industries; and (c) any potential effect on competition, 
investment or innovation.

XV. Statutory Basis--Text of the Proposed Amendments

    We are proposing the new rules and amendments pursuant to Sections 
7, 10, 19, 27A and 28 of the Securities Act, as amended, Sections 3, 
10, 12, 13, 15, 17, 21E, 23 and 36 of the Securities Exchange Act, as 
amended, and Sections 8, 24(a), 30, and 38 of the Investment Company 
Act of 1940, as amended.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Parts 229, 230, 239, 240, and 243

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For the reasons set out in the preamble, title 17, chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

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

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29, 
80a-30, 80a-37, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *
    2. Amend Sec.  228.512 as follows:
    a. Add paragraph (a)(4);
    b. Add paragraph (a)(5); and
    c. Add paragraph (g).
    The additions read as follows:


Sec.  228.512  (Item 512) Undertakings.

* * * * *
    (a) * * *
* * * * *
    (4) For determining liability under the Securities Act of 1933 to 
any purchaser, each prospectus filed by the small business issuer 
pursuant to Rule 424(b)(3) (Sec.  230.424(b)(3) of this chapter) shall 
be deemed to be part of the registration statement as of the date it is 
first used after effectiveness.
    (5) For determining liability of the small business issuer under 
the Securities Act of 1933 to any purchaser, the small business issuer 
undertakes that in a primary offering for the benefit of the small 
business issuer pursuant to this registration statement, regardless of 
the underwriting method used to sell the securities to the purchaser, 
the small business issuer will be considered to offer or sell the 
securities by means of any of the following communications:
    (i) A small business issuer's registration statement relating to 
the offering and any preliminary prospectus and prospectus supplement 
relating to the offering filed pursuant to Rule 424 (Sec.  230.424 of 
this chapter);
    (ii) Any free writing prospectus prepared by or on behalf of the 
undersigned small business issuer;
    (iii) Information about the small business issuer or its securities 
(A) provided by or on behalf of the undersigned small business issuer 
and (B) included in any other free writing prospectus; and
    (iv) Any other communication made by or on behalf of undersigned 
small business issuer.
* * * * *
    (g) If the small business issuer is relying on Rule 430C (Sec.  
230.430C of this chapter), include the following:

    Each prospectus filed pursuant to Rule 424(b)(3) (Sec.  
230.424(b)(3) of this chapter) as part of a registration statement 
in reliance on Rule 430C (Sec.  230.430C of this chapter) relating 
to an offering made pursuant to Rule 415(a)(1)(i) or (ix) (Sec.  
230.415(a)(1)(i) or (ix) of this chapter), other than registration 
statements relying on Rule 430A (Sec.  230.430A of this chapter), 
shall be deemed to be part of and included in the registration 
statement as of the date it is first used after effectiveness. 
Provided, however, that no statement in a document incorporated or 
deemed incorporated by reference or in a prospectus deemed part of 
and included in a registration statement or the prospectus will 
supersede or modify any statement that was in a document 
incorporated or deemed incorporated by reference or in a prospectus 
deemed part of and included in the registration statement or the 
prospectus as to any purchaser who had a date and time of contract 
of sale prior to the date the filed prospectus was deemed part of 
and included in the registration statement.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    3. The authority citation for part 229 continues to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 79e, 79j, 79n, 79t, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *
    4. Amend Sec.  229.512 as follows:
    a. Revise the proviso immediately following paragraph (a)(1)(iii);
    b. Add paragraph (a)(5); and
    c. Add paragraph (a)(6).
    The revision and additions read as follows:


Sec.  229.512   (Item 512) Undertakings.

    (a) * * *
    (1) * * *
    (iii) * * *
    Provided, however, That: (A) paragraphs (a)(1)(i) and (a)(1)(ii) of 
this section do not apply if the registration statement is on Form S-8 
(Sec.  239.16b of this chapter), and the information required to be 
included in a post-effective amendment by those paragraphs is contained 
in reports filed with or furnished to the Commission by the registrant 
pursuant to section 13 or section 15(d) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78m and 78o(d)) that are incorporated by reference 
in the registration statement; and (B) paragraphs (a)(1)(i), (a)(1)(ii) 
and (a)(1)(iii) of this section do not apply if the registration 
statement is on Form S-3 (Sec.  239.13 of this chapter) or Form F-3 
(Sec.  239.33 of this chapter) and the information required to be 
included in a post-effective amendment by those paragraphs is contained 
in reports filed with or furnished to the Commission by the registrant 
pursuant to section 13 or section 15(d) of the Securities Exchange Act 
of 1934 that are incorporated by reference in the registration 
statement, or is contained in a prospectus supplement filed pursuant to 
Rule 424(b) (Sec.  230.424(b) of this chapter).
* * * * *
    (5) That, for the purpose of determining liability under the 
Securities Act of 1933 to any purchaser, except as provided in 
(a)(5)(ii) or (a)(5)(iii) of this section:
    (i) Each prospectus filed by the registrant pursuant to Rule 
424(b)(3)

[[Page 67460]]

(Sec.  230.424(b)(3) of this chapter) shall be deemed to be part of the 
registration statement as of the date the filed prospectus was deemed 
part of and included in the registration statement; and
    (ii) If the registrant is relying on Rule 430B (Sec.  230.430B of 
this chapter): Each prospectus filed pursuant to Rule 424(b)(2), 
(b)(5), (b)(7) or (b)(8) (Sec.  230.424(b)(2), (b)(5), (b)(7), or 
(b)(8) of this chapter) as part of a registration statement in reliance 
on Rule 430B (Sec.  230.430B of this chapter) or otherwise relating to 
an offering made pursuant to Rule 415(a)(1)(i) or (x) (Sec.  
230.415(a)(1)(i) or (x) of this chapter), for the purpose of providing 
the information required by section 10(a) of the Securities Act of 1933 
shall be deemed to be part of and included in the registration 
statement as of the earlier of the date it is first used after 
effectiveness or the date of the first contract of sale of securities 
in the offering described in the prospectus. Such date shall be deemed 
to be a new effective date of the registration statement for liability 
purposes as provided in Rule 430B (Sec.  230.430B of this chapter) 
relating to the securities in the registration statement to which that 
prospectus relates, and the offering of such securities at that time 
shall be deemed to be the initial bona fide offering thereof. Provided, 
however, that no statement in a document incorporated or deemed 
incorporated by reference or in a prospectus deemed part of and 
included in a registration statement or the prospectus will supersede 
or modify any statement that was in a document incorporated or deemed 
incorporated by reference or in a prospectus deemed part of and 
included in the registration statement or the prospectus as to any 
purchaser who had a date and time of contract of sale prior to the date 
the filed prospectus was deemed part of and included in the 
registration statement; or
    (iii) If the registrant is relying on Rule 430C (Sec.  230.430C of 
this chapter): Each prospectus filed pursuant to Rule 424(b)(3) (Sec.  
230.424(b)(3) of this chapter) as part of a registration statement in 
reliance on Rule 430C (Sec.  230.430C of this chapter) relating to an 
offering made pursuant to Rule 415(a)(1)(i) or (ix) (Sec.  
230.415(a)(1)(i) or (ix) of this chapter), other than registration 
statements relying on Rule 430A (Sec.  230.430A of this chapter) shall 
be deemed to be part of and included in the registration statement as 
of the date it is first used after effectiveness. Provided, however, 
that no statement in a document incorporated or deemed incorporated by 
reference or in a prospectus deemed part of and included in a 
registration statement or the prospectus will supersede or modify any 
statement that was in a document incorporated or deemed incorporated by 
reference or in a prospectus deemed part of and included in the 
registration statement or the prospectus as to any purchaser who had a 
date and time of contract of sale prior to the date the filed 
prospectus was deemed part of and included in the registration 
statement.
    (6) That, for the purpose of determining liability of the 
registrant under the Securities Act of 1933 to any purchaser:
    The undersigned registrant undertakes that in a primary offering 
for the benefit of the undersigned registrant pursuant to this 
registration statement, regardless of the underwriting method used to 
sell the securities to the purchaser, it will be considered to offer or 
sell the securities by means of any of the following communications:
    (i) A registrant's registration statement relating to the offering 
and any preliminary prospectus and prospectus supplement relating to 
the offering filed pursuant to Rule 424 (Sec.  230.424 of this 
chapter);
    (ii) Any free writing prospectus prepared by or on behalf of the 
undersigned registrant;
    (iii) Information about the registrant or its securities (A) 
provided by or on behalf of the undersigned registrant and (B) included 
in any other free writing prospectus; and
    (iv) Any other communication made by or on behalf of undersigned 
registrant.
* * * * *

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

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

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 79t, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-
37, unless otherwise noted.
* * * * *
    6. Revise Sec.  230.134 to read as follows:


Sec.  230.134  Communications not deemed a prospectus.

    Except as provided in paragraph (f) of this section, the terms 
``prospectus'' as defined in section 2(a)(10) of the Act or ``free 
writing prospectus'' as defined in Rule 405 (Sec.  230.405) shall not 
include a communication limited to the statements required or permitted 
by this section, provided that the communication is published or 
transmitted to any person only after a registration statement (which 
includes a prospectus satisfying the requirements of section 10 of the 
Act, including a price range where required) has been filed.
    (a) Such communication may include any one or more of the following 
items of information, which need not follow the numerical sequence of 
this paragraph:
    (1) Factual information about the legal identity and business 
location of the issuer limited to the following: the name of the issuer 
of the security, the address, phone number and e-mail address of the 
issuer's principal offices and contact for investors, the issuer's 
country of organization, and the geographic areas in which it conducts 
business;
    (2) The title of the security or securities and the amount or 
amounts being offered;
    (3) A brief indication of the general type of business of the 
issuer, limited to the following:
    (i) In the case of a manufacturing company, the general type of 
manufacturing, the principal products or classes of products 
manufactured, and the segments in which the company conducts business;
    (ii) In the case of a public utility company, the general type of 
services rendered, a brief indication of the area served, and the 
segments in which the company conducts business;
    (iii) In the case of an asset-backed issuer, the identity of key 
parties, such as sponsor, depositor, issuing entity, servicer, and 
trustee, the asset class of the transaction, and the identity of any 
credit enhancement or other support; and
    (iv) In the case of any other type of company, a corresponding 
statement;
    (4) The price of the security, or if the price is not known, the 
method of its determination or the bona fide estimate of the price 
range as specified by the issuer or the managing underwriter or 
underwriters;
    (5) In the case of a fixed income security, the final maturity and 
interest rate provisions or, if the final maturity or interest rate 
provisions are not known, the probable final maturity or interest rate 
provisions, as specified by the issuer or the managing underwriter or 
underwriters;
    (6) In the case of a fixed income security with a fixed (non-
contingent) interest rate provision, the yield or, if the yield is not 
known, the probable yield range, as specified by the issuer or the 
managing underwriter or underwriters and the yield of fixed income 
securities with comparable maturity and security rating as referred to 
in paragraph (a)(15) of this section;

[[Page 67461]]

    (7) The name and address of the sender of the communication and the 
fact that it is participating, or expects to participate, in the 
distribution of the security;
    (8) The names of underwriters participating in the offering of the 
securities, and their additional roles, if any, within the underwriting 
syndicate;
    (9) The anticipated schedule for the offering (including the 
approximate date upon which the proposed sale to the public will begin) 
and a description of marketing events (including the dates, times, 
locations, and procedures for attending or otherwise accessing them);
    (10) A description of the procedures by which the underwriters will 
conduct the offering and the procedures for transactions in connection 
with the offering with an underwriter or participating dealer 
(including procedures regarding account-opening and submitting 
indications of interest and conditional offers to buy);
    (11) Whether, in the opinion of counsel, the security is a legal 
investment for savings banks, fiduciaries, insurance companies, or 
similar investors under the laws of any State or Territory or the 
District of Columbia;
    (12) Whether, in the opinion of counsel, the security is exempt 
from specified taxes, or the extent to which the issuer has agreed to 
pay any tax with respect to the security or measured by the income 
therefrom;
    (13) Whether the security is being offered through rights issued to 
security holders, and, if so, the class of securities the holders of 
which will be entitled to subscribe, the subscription ratio, the actual 
or proposed record date, the date upon which the rights were issued or 
are expected to be issued, the actual or anticipated date upon which 
they will expire, and the approximate subscription price, or any of the 
foregoing;
    (14) Any statement or legend required by any state law or 
administrative authority;
    (15) With respect to the securities being offered:
    (i) Any security rating assigned, or reasonably expected to be 
assigned, by a nationally recognized statistical rating organization as 
defined in Rule 15c3-1(c)(2)(vi)(F) of the Securities Exchange Act of 
1934 (Sec.  240.15c3-1(c)(2)(vi)(F) of this chapter) and the name or 
names of the nationally recognized statistical rating organization(s) 
that assigned or is or are reasonably expected to assign the rating(s); 
and
    (ii) If registered on Form F-9 (Sec.  239.39 of this chapter), any 
security rating assigned, or reasonably expected to be assigned, by any 
other rating organization specified in the Instruction to paragraph 
A.(2) of General Instruction I of Form F-9;
    (16) The names of selling security holders (if included in the 
prospectus filed at the time of the communication);
    (17) The names of securities exchanges or other securities markets 
where any class of the issuer's securities are, or will be, listed;
    (18) The ticker symbols, or proposed ticker symbols, of the 
issuer's securities; and
    (19) Information disclosed in order to correct inaccuracies 
previously contained in a communication made pursuant to this section.
    (b) Except as provided in paragraph (c) of this section, every 
communication used pursuant to this section shall contain the 
following:
    (1) If the registration statement has not yet become effective, the 
following statement:

    ``A registration statement relating to these securities has been 
filed with the Securities and Exchange Commission but has not yet 
become effective. These securities may not be sold nor may offers to 
buy be accepted prior to the time the registration statement becomes 
effective''; and

    (2) The name and address of a person or persons from whom a written 
prospectus for the offering meeting the requirements of section 10 of 
the Act, including a price range where required, may be obtained.
    (c) Any of the statements or information specified in paragraph (b) 
of this section may, but need not, be contained in a communication:
    (1) Which does no more than state from whom a written prospectus 
meeting the requirements of section 10 of the Act, including a price 
range where required, may be obtained, identify the security, state the 
price thereof and state by whom orders will be executed; or
    (2) Which is accompanied or preceded by a prospectus or a summary 
prospectus, other than a free writing prospectus as defined in Rule 405 
(Sec.  230.405), which meets the requirements of section 10 of the Act, 
including a price range where required, at the date of such preliminary 
communication.
    (d) A communication sent or delivered to any person pursuant to 
this section which is accompanied or preceded by a prospectus (other 
than a free writing prospectus as defined in Rule 405 (Sec.  230.405)) 
which meets the requirements of section 10 of the Act, including a 
price range where required, at the date of such communication, may 
solicit from the recipient of the communication an offer to buy the 
security or request the recipient to indicate whether he might be 
interested in the security, if the communication contains substantially 
the following statement:

    ``No offer to buy the securities can be accepted and no part of 
the purchase price can be received until the registration statement 
has become effective, and any such offer may be withdrawn or 
revoked, without obligation or commitment of any kind, at any time 
prior to notice of its acceptance given after the effective date.''


Provided, that such statement need not be included in such a 
communication to a dealer.
    (e) This section does not apply to a notice, circular, 
advertisement, letter, or other communication relating to an investment 
company registered under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.) or a business development company as defined in section 
2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(48)).
    (f) A section 10 prospectus included in any communication pursuant 
to this section shall remain a prospectus for all purposes under the 
Act.
    7. Revise Sec.  230.137 to read as follows:


Sec.  230.137  Publications or distributions of research reports by 
brokers or dealers that are not participating in an issuer's registered 
distribution of securities.

    Under the following conditions, the terms ``offers,'' 
``participates'', or ``participation'' in section 2(a)(11) of the Act 
shall not be deemed to apply to the publication or distribution of 
research reports with respect to the securities of an issuer which is 
the subject of an offering pursuant to a registration statement that 
the issuer proposes to file or has filed, or that is effective:
    (a) The broker or dealer (and any affiliate) that has distributed 
the report and, if different, the person (and any affiliate) that has 
published the report have not participated, are not participating, and 
do not propose to participate in the distribution of the securities 
that are or will be the subject of the registered offering;
    (b) In connection with the publication or distribution of any 
research report, the broker or dealer (and any affiliate) that has 
distributed the report and, if different, the person (and any 
affiliate) that has published the report are not receiving and have not 
received consideration directly or indirectly from, and are not acting 
under any direct or indirect arrangement or understanding with:

[[Page 67462]]

    (1) The issuer of the securities;
    (2) A selling security holder;
    (3) Any participant in the distribution of the securities that are 
or will be the subject of the registration statement; or
    (4) Any other person interested in the securities that are or will 
be the subject of the registration statement;
    (c) The broker or dealer publishes or distributes the research 
report in the regular course of its business; and
    (d) The issuer is not and any predecessor of the issuer during the 
past three years was not:
    (1) A blank check company as defined in Rule 419(a)(2) (Sec.  
230.419(a)(2));
    (2) A shell company as defined in Rule 405 (Sec.  230.405); or
    (3) An issuer for an offering of penny stock as defined in Rule 
3a51-1 of the Securities Exchange Act of 1934 (Sec.  240.3a51-1 of this 
chapter).
    Instructions to Sec.  230.137.
    1. Definition of research report. For purposes of this section, 
research report means a written communication as defined in Rule 405 
(Sec.  230.405) that includes an analysis of a security or an issuer 
and provides information reasonably sufficient upon which to base an 
investment decision.
    2. Paragraph (b) of this section does not preclude payment of the 
regular price being paid by the broker or dealer for independent 
research, so long as the conditions of paragraph (b) of this section 
are satisfied.
    3. Paragraph (b) of this section does not preclude payment of the 
regular subscription or purchase price for the research report.
    8. Revise Sec.  230.138 to read as follows:


Sec.  230.138  Publications or distributions of research reports by 
brokers or dealers about securities other than those they are 
distributing.

    (a) Registered offerings. Under the following conditions, a 
broker's or dealer's publication or distribution of research reports 
about securities of an issuer shall be deemed for purposes of sections 
2(a)(10) and 5(c) of the Act not to constitute an offer for sale or 
offer to sell a security which is the subject of an offering pursuant 
to a registration statement that the issuer proposes to file, or has 
filed, or that is effective, even if the broker or dealer is 
participating or will participate in the registered offering of the 
issuer's securities:
    (1)(i) The research report relates solely to the issuer's common 
stock, or debt securities or preferred stock convertible into its 
common stock, and the offering involves solely the issuer's non-
convertible debt securities or non-convertible, nonparticipating 
preferred stock; or
    (ii) The research report relates solely to the issuer's non-
convertible debt securities or non-convertible, nonparticipating 
preferred stock, and the offering involves solely the issuer's common 
stock, or debt securities or preferred stock convertible into its 
common stock;
    Instruction to paragraph (a)(1): If the issuer has filed a shelf 
registration statement under Rule 415(a)(1)(x) (Sec.  230.415(a)(1)(x)) 
or pursuant to General Instruction I.D. of Form S-3 or General 
Instruction I.C. of Form F-3 (Sec.  239.13 or Sec.  239.33 of this 
chapter) with respect to multiple classes of securities, the conditions 
of paragraph (a)(1) of this section must be satisfied for the offering 
in which the broker or dealer is participating or will participate.
    (2) The issuer:
    (i) Is required to file reports, and has filed all required 
periodic reports on Forms 10-K (Sec.  249.310 of this chapter), 10-KSB 
(Sec.  249.310b of this chapter), 10-Q (Sec.  249.308a of this 
chapter), 10-QSB (Sec.  249.308b of this chapter), and 20-F (Sec.  
249.220f of this chapter) pursuant to section 13 or section 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); or
    (ii) Is a foreign private issuer that:
    (A) Meets all of the registrant requirements of Form F-3 other than 
the reporting history provisions of General Instructions I.A.1. and 
I.A.2.(a) of Form F-3;
    (B) Either satisfies the public float threshold in General 
Instruction I.B.1. of Form F-3 or is issuing non-convertible investment 
grade securities as defined in General Instruction I.B.2. of Form F-3; 
and
    (C) Has its equity securities trading on a designated offshore 
securities market as defined in Rule 902(b) (Sec.  230.902(b)) and has 
had them so traded for at least 12 months;
    (3) The broker or dealer publishes or distributes research reports 
on the types of securities in question in the regular course of its 
business; and
    (4) The issuer is not and any predecessor of the issuer during the 
past three years was not:
    (i) A blank check company as defined in Rule 419(a)(2) (Sec.  
230.419(a)(2));
    (ii) A shell company as defined in Rule 405 (Sec.  230.405); or
    (iii) An issuer for an offering of penny stock as defined in Rule 
3a51-1 of the Securities Exchange Act of 1934 (Sec.  240.3a51-1 of this 
chapter).
    (b) Rule 144A offerings. If the conditions in paragraphs (a)(1), 
(a)(2), (a)(3) and (a)(4) of this section are satisfied, a broker's or 
dealer's publication or distribution of a research report shall not be 
considered an offer for sale or an offer to sell a security or general 
solicitation or general advertising, in connection with an offering 
relying on Rule 144A (Sec.  230.144A).
    (c) Regulation S offerings. If the conditions in paragraphs (a)(1), 
(a)(2), (a)(3), and (a)(4) of this section are satisfied, a broker's or 
dealer's publication or distribution of a research report shall not:
    (1) Constitute directed selling efforts as defined in Rule 902(c) 
(Sec.  230.902(c)) for offerings under Regulation S (Sec. Sec.  230.901 
through 230.905); or
    (2) Be inconsistent with the offshore transaction requirement in 
Rule 902(h) (Sec.  230.902(h)) for offerings under Regulation S.
    Instruction to Sec.  230.138.
    Definition of research report. For purposes of this section, 
research report means a written communication as defined in Rule 405 
(Sec.  230.405) that includes an analysis of a security or an issuer 
and provides information reasonably sufficient upon which to base an 
investment decision.
    9. Revise Sec.  230.139 to read as follows:


Sec.  230.139  Publications or distributions of research reports by 
brokers or dealers distributing securities.

    (a) Registered offerings. Under the conditions of paragraph (a)(1) 
or (a)(2) of this section, a broker's or dealer's publication or 
distribution of a research report about an issuer or any of its 
securities shall be deemed for purposes of sections 2(a)(10) and 5(c) 
of the Act not to constitute an offer for sale or offer to sell a 
security that is the subject of an offering pursuant to a registration 
statement that the issuer proposes to file, or has filed, or that is 
effective, even if the broker or dealer is participating or will 
participate in the registered offering of the issuer's securities:
    (1) Research reports of any type.
    (i) The issuer:
    (A) Meets the registrant requirements of Form S-3 (Sec.  239.13 of 
this chapter) or Form F-3 (Sec.  239.33 of this chapter) and the 
minimum float or investment grade securities provisions of either 
paragraph (B)(1) or (2) of General Instruction I of the respective 
form; or
    (B) Is a foreign private issuer that:
    (1) Meets the registrant requirements of Form F-3 other than the 
reporting history provisions of General Instructions I.A.1. and 
I.A.2.(a);
    (2) Either satisfies the public float threshold in General 
Instruction I.B.1.of Form F-3 or is issuing non-convertible investment 
grade securities pursuant to General Instruction I.B.2. of Form F-3; 
and

[[Page 67463]]

    (3) Has its equity securities trading on a designated offshore 
securities market as defined in Rule 902(b) (Sec.  230.902(b)) and has 
had them so traded for at least 12 months;
    (ii) The issuer is not and any predecessor of the issuer during the 
past two years was not:
    (A) A blank check company as defined in Rule 419(a)(2) (Sec.  
230.419(a)(2));
    (B) A shell company as defined in Rule 405 (Sec.  230.405); or
    (C) An issuer for an offering of penny stock as defined in Rule 
3a51-1 of the Securities Exchange Act of 1934 (Sec.  240.3a51-1 of this 
chapter); and
    (iii) The broker or dealer publishes or distributes research 
reports in the regular course of its business and is, at the time of 
publication or distribution, publishing or distributing research 
reports about the issuer or its securities.
    (2) Industry reports.
    (i) The issuer is required to file reports pursuant to section 13 
or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m 
or 78o(d) or satisfies the conditions in paragraph (a)(1)(i)(B) of this 
section;
    (ii) The condition in paragraph (a)(1)(ii) of this section is 
satisfied;
    (iii) The research report includes similar information with respect 
to a substantial number of issuers in the issuer's industry or sub-
industry, or contains a comprehensive list of securities currently 
recommended by the broker or dealer;
    (iv) The analysis regarding the issuer or its securities is given 
no materially greater space or prominence in the publication than that 
given to other securities or issuers; and
    (v) The broker or dealer publishes or distributes research reports 
in the regular course of its business and, at the time of the 
publication or distribution of the research report, is including 
similar information about the issuer or its securities in similar 
reports.
    (b) Rule 144A offerings. If the conditions in paragraph (a)(1) or 
(a)(2) of this section are satisfied, a broker's or dealer's 
publication or distribution of a research report shall not be 
considered an offer for sale or an offer to sell a security or general 
solicitation or general advertising, in connection with an offering 
relying on Rule 144A (Sec.  230.144A).
    (c) Regulation S offerings. If the conditions in paragraph (a)(1) 
or (a)(2) of this section are satisfied, a broker's or dealer's 
publication or distribution of a research report shall not:
    (1) Constitute directed selling efforts as defined in Rule 902(c) 
(Sec.  230.902(c)) for offerings under Regulation S (Sec. Sec.  230.901 
through 230.905); or
    (2) Be inconsistent with the offshore transaction requirement in 
Rule 902(h) (Sec.  230.902(h)) for offerings under Regulation S.
    Instructions to Sec.  230.139.
    1. Definition of research report. For purposes of this section, 
research report means a written communication as defined in Rule 405 
(Sec.  230.405) that includes an analysis of a security or an issuer 
and provides information reasonably sufficient upon which to base an 
investment decision.
    2. Projections. A projection constitutes an analysis or information 
falling within the definition of research report. When a broker or 
dealer publishes or distributes projections of an issuer's sales or 
earnings in reliance on paragraph (a)(2) of this section, it must:
    (i) Have previously published or distributed projections on a 
regular basis in order to satisfy the ``regular course of its 
business'' condition;
    (ii) At the time of publishing or disseminating a research report, 
be publishing or distributing projections with respect to that issuer; 
and
    (iii) For purposes of paragraph (a)(2)(iii) of this section, 
include projections covering the same or similar periods with respect 
to either a substantial number of issuers in the issuer's industry or 
sub-industry or all issuers represented in the comprehensive list of 
securities contained in the research report.
    10. Revise Sec.  230.153 to read as follows:


Sec.  230.153  Definition of ``preceded by a prospectus'' as used in 
section 5(b)(2) of the Act, in relation to certain transactions.

    (a) Definition of preceded by a prospectus. The term preceded by a 
prospectus as used in section 5(b)(2) of the Act, regarding any 
requirement of a broker or dealer to deliver a prospectus to a broker 
or dealer as a result of a transaction effected on or through a 
national securities exchange or facility thereof, trading facility of a 
national securities association, or an alternative trading system 
registered pursuant to Rule 301 of Regulation ATS under the Securities 
Exchange Act of 1934 (Sec.  242.301 of this chapter), shall mean the 
filing of the final prospectus for the securities that are the subject 
of the transaction with the Commission by the applicable filing date 
under Rule 424 (Sec.  230.424) if the conditions in paragraph (b) of 
this section are satisfied.
    (b) Conditions. A broker or dealer may rely on paragraph (a) of 
this section with regard to any requirement to deliver a prospectus for 
transactions covered by that paragraph if:
    (1) Securities of the same class are trading on that national 
securities exchange or facility thereof, trading facility of a national 
securities association, or alternative trading system;
    (2) The registration statement relating to the offering is 
effective and is not the subject of any pending proceeding or 
examination under section 8(d) or 8(e) of the Act;
    (3) Neither the issuer, nor any underwriter or participating dealer 
is the subject of a pending proceeding under section 8A of the Act in 
connection with the offering; and
    (4) The issuer has filed with the Commission a prospectus that 
satisfies the requirements of section 10(a) of the Act, other than 
omitting price-related information under Rule 430A (Sec.  230.430A), or 
for offerings relying on Rule 430B (Sec.  230.430B) or Rule 430C (Sec.  
230.430C), the issuer has filed or will file such a prospectus within 
the time required under Rule 424 (Sec.  230.424).
    (c) Definitions.
    (1) The term national securities exchange, as used in this section, 
shall mean a securities exchange registered as a national securities 
exchange under section 6 of the Securities Exchange Act of 1934 (15 
U.S.C. 78f).
    (2) The term trading facility shall mean a trading facility 
sponsored and governed by the rules of a registered securities 
association or a national securities exchange.
    (3) The term alternative trading system shall mean an alternative 
trading system as defined in Rule 300(a) of Regulation ATS under the 
Securities Exchange Act of 1934 (Sec.  242.300(a) of this chapter).
    11. Amend Sec.  230.158 to revise paragraph (c) to read as follows:


Sec.  230.158  Definition of certain terms in the last paragraph of 
section 11(a).

* * * * *
    (c) For purposes of the last paragraph of section 11(a) of the Act 
only, the effective date of the registration statement is deemed to be 
the date of the latest to occur of:
    (1) The effective date of the registration statement;
    (2) The effective date of the last post-effective amendment to the 
registration statement, next preceding a particular sale by the issuer 
of registered securities to the public filed for the purposes of:
    (i) Including any prospectus required by section 10(a)(3) of the 
Act;
    (ii) Reflecting in the prospectus any facts or events arising after 
the effective

[[Page 67464]]

date of the registration statement (or the most recent post-effective 
amendment thereof) which, individually or in the aggregate, represent a 
fundamental change in the information set forth in the registration 
statement; or
    (iii) Including any material information with respect to the plan 
of distribution not previously disclosed in the registration statement 
or any material change to such information in the registration 
statement;
    (3) The date of filing of the last report of the issuer 
incorporated by reference into the prospectus, and relied upon in lieu 
of filing a post-effective amendment for purposes of paragraphs 
(c)(2)(i), (ii) and (iii) of this section, next preceding a particular 
sale by the issuer of registered securities to the public; or
    (4) The most recent effective date of the registration statement 
for liability purposes determined pursuant to Rule 430B (Sec.  
230.430B) next preceding a particular sale by the issuer of registered 
securities to the public.
* * * * *
    12. Add Sec.  230.159 to read as follows:


Sec.  230.159  Information available to purchaser at time of contract 
of sale.

    (a) For purposes of section 12(a)(2) of the Act only, and without 
affecting any other rights a purchaser may have, for purposes of 
determining whether a prospectus or oral statement included an untrue 
statement of a material fact or omitted to state a material fact 
necessary in order to make the statements, in the light of the 
circumstances under which they were made, not misleading at the time of 
sale (including, without limitation, a contract of sale), any 
information conveyed to the purchaser only after such time of sale 
(including such contract of sale) will not be taken into account.
    (b) For purposes of section 17(a)(2) of the Act only, and without 
affecting any other rights the Commission may have to enforce that 
section, for purposes of determining whether a statement includes or 
represents any untrue statement of a material fact or any omission to 
state a material fact necessary in order to make the statements made, 
in light of the circumstances under which they were made, not 
misleading at the time of sale (including, without limitation, a 
contract of sale), any information conveyed to the purchaser only after 
such time of sale (including such contract of sale) will not be taken 
into account.
    (c) For purposes of section 12(a)(2) of the Act only, knowing of 
such untruth or omission in respect of a sale (including, without 
limitation, a contract of sale), means knowing at the time of such sale 
(including such contract of sale).
    13. Add Sec.  230.159A to read as follows:


Sec.  230.159A  Definition of ``seller'' for purposes of section 
12(a)(2) of the Act.

    For purposes of section 12(a)(2) of the Act only, seller shall 
include the issuer of the securities with regard to, and the issuer 
shall be considered to offer or sell the securities by means of, any of 
the following communications made by or on behalf of the issuer in 
connection with primary offerings of securities of the issuer, 
regardless of the underwriting method used to sell the issuer's 
securities:
    (a) An issuer's registration statement relating to the offering and 
any preliminary prospectus and prospectus supplement relating to the 
offering filed pursuant to Rule 424 (Sec.  230.424) or Rule 497 (Sec.  
230.497);
    (b) Any free writing prospectus as defined in Rule 405(Sec.  
230.405) prepared by or on behalf of the issuer and, in the case of an 
issuer that is an open-end management company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), any profile 
provided pursuant to Rule 498 (Sec.  230.498);
    (c) Information about the issuer or its securities (1) provided by 
or on behalf of the issuer and (2) included in any other free writing 
prospectus or, in the case of an issuer that is an investment company 
registered under the Investment Company Act of 1940 or a business 
development company as defined in section 2(a)(48) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), in any advertisement 
pursuant to Rule 482 (Sec.  230.482); and
    (d) Any other communication made by or on behalf of the issuer.

    Notes to Sec.  230.159A:
    1. For purposes of this section, information is provided or a 
communication is made by or on behalf of an issuer if the issuer or 
an agent or representative authorizes the information or 
communication and approves the information or communication before 
its provision or use.

    2. This rule shall not affect in any respect the determination of 
whether any other person is a ``seller'' for purposes of section 
12(a)(2) of the Act.
    14. Add Sec.  230.163 to read as follows:


Sec.  230.163  Exemption from section 5(c) of the Act for certain 
communications by or on behalf of well-known seasoned issuers.

    Preliminary Note to Sec.  230.163.
    Because of the objectives of this section and the policies 
underlying the Act, the exemption is not available for any 
communication that, although in technical compliance with the section, 
is part of a plan or scheme to evade the requirements of section 5 of 
the Act.
    (a) In an offering by a well-known seasoned issuer as defined in 
Rule 405 (Sec.  230.405), that will be registered under the Act, an 
offer by or on behalf of such issuer is exempt from the prohibitions in 
section 5(c) of the Act on offers to sell, offers for sale or offers to 
buy its securities before a registration statement has been filed, 
provided that any written offer made in reliance on this exemption will 
be a prospectus under section 2(a)(10) of the Act and a free writing 
prospectus as defined in Rule 405 (Sec.  230.405) relating to a public 
offering of securities to be covered by the registration statement to 
be filed and the exemption from section 5(c) provided in this section 
for such written offer shall be conditioned on satisfying the 
conditions in paragraph (b) of this section.
    (b) Conditions. (1) Legend. (i) Every written offer made in 
reliance on this exemption shall contain the following legend:

    [Issuer's name] may file a registration statement (including a 
prospectus) with the SEC for this offering. Before you invest, you 
should read the prospectus in it and other documents the issuer has 
filed with the SEC for more complete information about [issuer's 
name], including any risks affecting the issuer or its securities, 
and this offering. You may get these documents for free by visiting 
EDGAR on the SEC Web site at www.sec.gov. Alternatively, the company 
will arrange to send you the prospectus after filing if you request 
it by calling toll-free 1-8[xx-xxx-xxxx]. This document is a written 
communication that is an offer pursuant to a free writing 
prospectus.''

    (ii) The legend may indicate that the documents also are available 
by accessing the issuer's Web site, and provide the Internet address 
and the particular location of the documents on the Web site.
    (iii) An unintentional failure to include the legend in a free 
writing prospectus required by this section will not result in a 
violation of section 5(c) of the Act or the loss of the ability to rely 
on this section so long as:
    (A) A good faith and reasonable effort was made to comply with the 
legend condition;
    (B) The free writing prospectus is amended to include the legend as 
soon as practicable after discovery of the omitted legend; and
    (C) If the free writing prospectus has been transmitted without the 
legend, the free writing prospectus must be retransmitted with the 
legend to all prospective purchasers to whom, or by

[[Page 67465]]

the same means as, the free writing prospectus was originally 
transmitted.
    (2) Filing condition.
    (i) Every written communication made pursuant to this exemption 
shall be filed with the Commission promptly upon the filing of the 
registration statement or amendment covering the securities that are 
being offered in reliance on this exemption.
    (ii) An immaterial or unintentional failure to file or delay in 
filing a free writing prospectus to the extent as provided in this 
section will not result in a violation of section 5(c) of the Act or 
the loss of the ability to rely on this section so long as:
    (A) A good faith and reasonable effort was made to comply with the 
filing condition, and
    (B) The free writing prospectus is filed as soon as practicable 
after discovery of the failure to file.
    (3) Ineligible offerings. The exemption in paragraph (a) of this 
section shall not be available to the following communications:
    (i) Communications subject to Rule 166 (Sec.  230.166) for business 
combination transactions;
    (ii) Communications made in connection with offerings registered on 
Form S-8 (Sec.  239.16b); or
    (iii) Communications in offerings of securities of ineligible 
issuers as defined in Rule 405 (Sec.  230.405).
    (c) For purposes of this section, a communication is made by or on 
behalf of an issuer if the issuer or an agent or representative 
authorizes the communication and approves the communication before its 
use.
    (d) For purposes of this section, a written communication for which 
disclosure would be required under section 17(b) of the Act as a result 
of consideration given or to be given, directly or indirectly, by an 
issuer is deemed a written offer by the issuer and a free writing 
prospectus of the issuer.
    (e) A communication exempt pursuant to this section will not be 
considered to be in connection with a securities offering registered 
under the Securities Act for purposes of Rule 100(b)(2)(iv) of 
Regulation FD under the Securities Exchange Act of 1934 (Sec.  
243.100(b)(2)(iv) of this chapter).
    15. Add Sec.  230.163A to read as follows:


Sec.  230.163A  Exemption from section 5(c) of the Act for certain 
communications made by or on behalf of issuers more than 30 days before 
a registration statement is filed.

    Preliminary Note to Sec.  230.163A.
    Because of the objectives of this section and the policies 
underlying the Act, the exemption is not available for any 
communication that, although in technical compliance with the section, 
is part of a plan or scheme to evade the requirements of section 5 of 
the Act.
    (a) Except as excluded pursuant to paragraph (b) of this section, 
in all registered offerings by issuers, any communication made by or on 
behalf of an issuer more than 30 days before the date of the filing of 
the registration statement that does not reference a securities 
offering shall not constitute an offer to sell, offer for sale, or 
offer to buy the securities being offered under the registration 
statement for purposes of section 5(c) of the Act, provided that the 
issuer takes reasonable steps within its control to prevent further 
distribution or publication of such communication during the 30 days 
immediately preceding the date of filing the registration statement. 
Communications satisfying the requirements of Rule 168 (Sec.  230.168) 
or Rule 169 (Sec.  230.169) or other safe harbors or exemptions from 
the definition of offer or the requirements of section 5(c) of the Act 
are not subject to the restriction of this section on distribution or 
publication during the 30 days immediately preceding the date of filing 
the registration statement.
    (b) The exemption in paragraph (a) of this section shall not be 
available to the following communications:
    (1) Communications subject to Rule 166 (Sec.  230.166) for business 
combination transactions;
    (2) Communications made in connection with offerings registered on 
Form S-8 (Sec.  239.16b of this chapter); or
    (3) Communications in offerings of securities of ineligible issuers 
as defined in Rule 405 (Sec.  230.405).
    (c) For purposes of this section, a communication is made by or on 
behalf of an issuer if the issuer or an agent or representative 
authorizes the communication and approves the communication before its 
use.
    (d) A communication exempt pursuant to this section will not be 
considered to be in connection with a securities offering registered 
under the Securities Act for purposes of Rule 100(b)(2)(iv) of 
Regulation FD under the Securities Exchange Act of 1934 (Sec.  
243.100(b)(2)(iv) of this chapter).
    16. Add Sec.  230.164 to read as follows:


Sec.  230.164  Post-filing free writing prospectuses in connection with 
certain registered offerings.

    Preliminary Note to Sec.  230.164.
    Because of the objectives of this section and the policies 
underlying the Act, this section is not available for any communication 
that, although in technical compliance with this section, is part of a 
plan or scheme to evade the requirements of section 5 of the Act.
    (a) In connection with a registered offering, a free writing 
prospectus as defined in Rule 405 (Sec.  230.405) used by an issuer, 
underwriter or participating dealer after the filing of the 
registration statement will be a section 10(b) prospectus for purposes 
of section 5(b)(1) of the Act provided that the conditions set forth in 
Rule 433 (Sec.  230.433) are satisfied.
    (b) An immaterial or unintentional failure to file or delay in 
filing a free writing prospectus as necessary to satisfy the filing 
condition contained in Rule 433 (Sec.  230.433) will not result in a 
violation of section 5(b)(1) of the Act or the loss of the ability to 
rely on this section so long as:
    (1) A good faith and reasonable effort was made to comply with the 
filing requirement; and
    (2) The free writing prospectus is filed as soon as practicable 
after discovery of the failure to file.
    (c) An unintentional failure to include the legend in a free 
writing prospectus as necessary to satisfy the legend condition 
contained in Rule 433 (Sec.  230.433) will not result in a violation of 
section 5(b)(1) of the Act or the loss of the ability to rely on this 
section so long as:
    (1) A good faith and reasonable effort was made to comply with the 
legend condition;
    (2) The free writing prospectus is amended to include the legend as 
soon as practicable after discovery of the omitted legend; and
    (3) If the free writing prospectus has been transmitted without the 
legend, the free writing prospectus must be retransmitted with the 
legend to all prospective purchasers to whom, or by the same means as, 
the free writing prospectus was originally transmitted.
    17. Add Sec.  230.168 to read as follows:


Sec.  230.168  Factual business information and forward-looking 
information regularly released by a reporting issuer.

    Preliminary Note to Sec.  230.168.
    This section is only available for factual business information and 
forward-looking information released or disseminated as provided in 
this section. This section is not available for any communication that 
may be in technical compliance with this section but is part of a plan 
or scheme to evade the requirements of section 5 of the Act.
    (a) In the case of an issuer that is required to file reports 
pursuant to Section 13 or section 15(d) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78m or 78o(d)), and that is not an investment 
company registered under

[[Page 67466]]

the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a 
business development company as defined in section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), for purposes 
of sections 2(a)(10) and 5(c) of the Act, the continued regular release 
or dissemination by or on behalf of the issuer of factual business 
information and forward-looking information shall be deemed not to 
constitute an offer to sell or offer for sale of a security which is 
the subject of an offering pursuant to a registration statement that 
the issuer proposes to file, or has filed, or that is effective, if the 
conditions of this section are satisfied.
    (b) Definitions. Except as provided in paragraph (c) of this 
section, factual business information is limited to some or all of the 
following information that is released or disseminated under the 
conditions in paragraph (d) of this section:
    (i) Factual information about the issuer or some aspect of its 
business;
    (ii) Advertisements of, or other information about, the issuer's 
products or services;
    (iii) Factual information about business or financial developments 
with respect to the issuer;
    (iv) Dividend notices; and
    (v) Factual information set forth in any report that the issuer 
files pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.).
    (2) Except as provided in paragraph (c) of this section, forward-
looking information is limited to some or all of the following 
information that is released or disseminated under the conditions in 
paragraph (d) of this section:
    (i) Projections of the issuer's revenues, income (loss), earnings 
(loss) per share, capital expenditures, dividends, capital structure or 
other financial items;
    (ii) Statements about the issuer management's plans and objectives 
for future operations, including plans or objectives relating to the 
products or services of the issuer;
    (iii) Statements about the issuer's future economic performance, 
including statements of the type contemplated by the management's 
discussion and analysis of financial condition and results of operation 
described in Item 303 of Regulations S-B and S-K (Sec.  228.303 and 
Sec.  229.303 of this chapter) or the operating and financial review 
and prospects described in Item 5 of Form 20-F (Sec.  249.220f of this 
chapter); and
    (iv) Assumptions underlying or relating to any of the information 
described in paragraphs (b)(2)(i), (b)(2)(ii) and (b)(2)(iii) of this 
section.
    (3) For purposes of this section, information is released or 
disseminated on behalf of the issuer if the issuer or an agent or 
representative authorizes the communication and approves the 
communication before its use.
    (c) Exclusions. (1) For purposes of this section, factual business 
information does not include information about the registered offering 
or information released or disseminated as part of the offering 
activities in the registered offering; and
    (2) For purposes of this section, forward-looking information does 
not include information about the registered offering or information 
released or disseminated as part of the offering activities in the 
registered offering.
    (d) Conditions to exemption. The following conditions must be 
satisfied with respect to the information:
    (1) The issuer has previously released or disseminated information 
of the type described in this section in the ordinary course of its 
business; and
    (2) The information is released or disseminated in the ordinary 
course of the issuer's business and the timing, manner and form in 
which the information is released or disseminated is materially 
consistent with similar past disclosures.
    18. Add Sec.  230.169 to read as follows:


Sec.  230.169  Factual business information regularly released by a 
non-reporting issuer.

    Preliminary Note to Sec.  230.169.
    This section is only available for factual business information 
released or disseminated as provided in this section. This section is 
not available for any communication that may be in technical compliance 
with this section but is part of a plan or scheme to evade the 
requirements of section 5 of the Act.
    (a) In the case of an issuer that is not required to file reports 
pursuant to section 13 or section 15(d) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78m or 78o(d)) and that is not an investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.) or a business development company as defined in section 2(a)(48) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), for 
purposes of sections 2(a)(10) and 5(c) of the Act, the continued 
regular release or dissemination by or on behalf of the issuer of 
factual business information shall be deemed not to constitute an offer 
to sell or offer for sale of a security which is the subject of an 
offering pursuant to a registration statement that the issuer proposes 
to file, or has filed, or that is effective, if the conditions of this 
section are satisfied.
    (b) Definitions.
    (1) Except as provided in paragraph (c) of this section, factual 
business information is limited to some or all of the following 
information that is released or disseminated under the conditions in 
paragraph (d) of this section:
    (i) Factual information about the issuer or some aspect of its 
business;
    (ii) Advertisements of, or other information about, the issuer's 
products or services; and
    (iii) Factual information about business or financial developments 
with respect to the issuer.
    (2) For purposes of this section, information is released or 
disseminated on behalf of the issuer if the issuer or an agent or 
representative authorizes the communication and approves the 
communication before its use.
    (c) Exclusions. For purposes of this section, factual business 
information does not include:
    (1) Information about the registered offering or information 
released or disseminated as part of the offering activities in the 
registered offering; or
    (2) Forward-looking information.
    (d) Conditions to exemption. The following conditions must be 
satisfied with respect to the information:
    (1) The issuer has previously released or disseminated information 
of this type in the ordinary course of its business;
    (2) The information is released or disseminated in the ordinary 
course of the issuer's business and the timing, manner and form in 
which the information is released or disseminated is materially 
consistent with similar past disclosures; and
    (3) The information is released or disseminated to persons, such as 
customers and suppliers, other than in their capacities as investors or 
potential investors in the issuer's securities, by the issuer's 
employees or agents who regularly and historically have provided such 
information to such persons.
    19. Add Sec.  230.172 to read as follows:


Sec.  230.172  Delivery of prospectuses.

    (a) Sending confirmations and notices of allocations. After the 
effective date of a registration statement, written confirmations of 
sales of securities in an offering pursuant to a registration statement 
that contain information limited to that called for in Rule 10b-10 
under the Securities Exchange Act of 1934 (Sec.  240.10b-10 of this 
chapter) and other information customarily included in written 
confirmations of sales of securities and notices of allocation of

[[Page 67467]]

securities sold or to be sold in an offering pursuant to a registration 
statement that identify the securities and information which is 
otherwise limited to information regarding pricing, allocation and 
settlement, and information incidental thereto are exempt from the 
provisions of section 5(b)(1) of the Act if the conditions set forth in 
paragraph (c) of this section are satisfied.
    (b) Transfer of the security. Any obligation under section 5(b)(2) 
of the Act to have a prospectus that satisfies the requirements of 
section 10(a) of the Act precede or accompany the carrying or delivery 
of a security in a registered offering is satisfied if the conditions 
in paragraph (c) of this section are met.
    (c) Conditions. (1) The registration statement relating to the 
offering is effective and is not the subject of any pending proceeding 
or examination under section 8(d) or 8(e) of the Act;
    (2) Neither the issuer, nor an underwriter or participating dealer 
is the subject of a pending proceeding under section 8A of the Act in 
connection with the offering; and
    (3) The issuer has filed with the Commission a prospectus with 
respect to the offering that satisfies the requirements of section 
10(a) of the Act, other than omitting price-related information under 
Rule 430A (Sec.  230.430A), or for offerings relying on Rule 430B 
(Sec.  230.430B) or Rule 430C (Sec.  230.430C), the issuer has filed or 
will file such a prospectus within the time required under Rule 424 
(Sec.  230.424).
    (d) Exclusions. This section shall not apply to any:
    (1) Offering of any investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.);
    (2) Offering of any business development company as defined in 
section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(48));
    (3) A business combination transaction as defined in Rule 165(f)(1) 
(Sec.  230.165(f)(1); or
    (4) Offering registered on Form S-8 (Sec.  239.16b of this 
chapter).
    20. Add Sec.  230.173 to read as follows:


Sec.  230.173  Notice of registration.

    (a) Each underwriter or broker or dealer participating in an 
offering pursuant to a registration statement shall provide to each 
purchaser from it in a transaction that represents: (1) A sale by the 
issuer or an underwriter, or (2) a sale where a final prospectus 
meeting the requirements of section 10(a) of the Act is not exempt 
pursuant to section 4(3) of the Act and Rule 174 (Sec.  230.174), from 
a requirement to be delivered, not later than two business days 
following the completion of such sale, a copy of the final prospectus 
or, in lieu of such prospectus, a notice to the effect that the sale 
was made pursuant to a registration statement or in a transaction in 
which a final prospectus would have been required to have been 
delivered in the absence of Rule 172 (Sec.  230.172).
    (b) If the sale was by the issuer and was not effected by an 
underwriter, broker, or dealer, the responsibility to send a 
prospectus, or in lieu of such prospectus, such notice as set forth in 
paragraph (a) of this section, shall be the issuer's.
    (c) Compliance with the requirements of this section is exempt from 
and not a requirement for compliance with Rule 172 (Sec.  230.172).
    (d) A purchaser may request from the person responsible for sending 
a notice a copy of the final prospectus if one has not been sent.
    (e) After the effective date of the registration statement with 
respect to an offering, including pursuant to Rule 430B (Sec.  
230.430B), notices as set forth in paragraph (a) are exempt from the 
provisions of section 5(b)(1) of the Act.
    (f) Exclusions. This section shall not apply to any:
    (1) Offering of any investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.);
    (2) Offering of any business development company as defined in 
section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(48));
    (3) A business combination transaction as defined in Rule 165(f)(1) 
(Sec.  230.165(f)(1)); or
    (4) Offering registered on Form S-8 (Sec.  239.16b of this 
chapter).
    21. Amend Sec.  230.174 by removing the authority citations 
following the section and adding paragraph (h) to read as follows:


Sec.  230.174  Delivery of prospectus by dealers; exemptions under 
section 4(3) of the Act.

* * * * *
    (h) Any obligation pursuant to this section to deliver a 
prospectus, other than pursuant to paragraph (g) of this section, may 
be satisfied by compliance with the provisions of Rule 172 (Sec.  
230.172).
    22. Amend Sec.  230.401 by removing the authority citations 
following the section and revising paragraph (g) to read as follows:


Sec.  230.401  Requirements as to proper form.

* * * * *
    (g)(1) Subject to paragraph (g)(2) of this section, except for 
registration statements and post-effective amendments that become 
effective automatically pursuant to Rule 462 and Rule 464 (Sec.  
230.462 and Sec.  230.464), a registration statement or any amendment 
thereto is deemed filed on the proper registration form unless the 
Commission objects to the registration form before the effective date.
    (2) An automatic shelf registration statement as defined in Rule 
405 (Sec.  230.405) and any post-effective amendment thereto that 
becomes effective automatically pursuant to Rule 462 (Sec.  230.462) is 
deemed filed on the proper registration form unless and until the 
Commission notifies the issuer of its objection to the use of such 
form. Following any such notification, the issuer must amend its 
automatic shelf registration statement onto the registration form it is 
then eligible to use, provided, however, that any continuous offering 
of securities pursuant to Rule 415 (Sec.  230.415) the issuer has 
commenced pursuant to the registration statement before the Commission 
has notified the issuer of its ineligibility may continue until the 
effective date of a new registration statement or post-effective 
amendment to the registration statement that the issuer has filed on 
the proper registration form, if the issuer files promptly after 
notification the new registration statement or post-effective amendment 
relying on General Instructions I.B.1 or I.B.2 of Form S-3 or Form F-3 
(Sec.  239.13 or Sec.  239.33 of this chapter) for primary offerings of 
its securities.
    23. Amend Sec.  230.405 as follows:
    a. Add new definitions of ``automatic shelf registration 
statement'', ``free writing prospectus'', ``ineligible issuer'', 
``shell company'', ``well-known seasoned issuer'', and ``written 
communication'', in alphabetical order; and
    b. Revise the definition of ``graphic communication''.
    The revision and additions read as follows:


Sec.  230.405.  Definition of terms.

* * * * *
    Automatic shelf registration statement. The term automatic shelf 
registration statement means a registration statement filed on Forms S-
3 or F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) by a well-known 
seasoned issuer pursuant to General Instruction I.D. or I.C. of such 
forms, respectively.
* * * * *
    Free writing prospectus. Except as otherwise specifically provided 
or the

[[Page 67468]]

context otherwise requires, a free writing prospectus is any written 
communication as defined in Rule 405 (Sec.  230.405) that constitutes 
an offer to sell or a solicitation of an offer to buy the securities 
relating to a registered offering that is used after the registration 
statement in respect of the offering is filed (or, in the case of a 
well-known seasoned issuer, whether or not such registration statement 
is filed) and is made by means other than
    (1) A prospectus satisfying the requirements of section 10(a) of 
the Act, Rule 430 (Sec.  230.430), Rule 430A (Sec.  230.430A), Rule 
430B (Sec.  230.430B), or Rule 431 (Sec.  230.431); or
    (2) A written communication that constitutes an offer to sell or 
solicitation of an offer to buy such securities that falls within the 
exception from the definition of prospectus in clause (a) of section 
2(a)(10) of the Act.
    Graphic communication. The term graphic communication, which 
appears in the definition of ``write, written'' in section 2(a)(9) of 
the Act and the definition written communication in Rule 405 (Sec.  
230.405) shall include all forms of electronic media, including, but 
not limited to, audiotapes, videotapes, facsimiles, CD-ROM, electronic 
mail, Internet Web sites, substantially similar messages widely 
distributed (rather than individually distributed) on telephone 
answering or voice mail systems, computers, computer networks and other 
forms of computer data compilation.
    Ineligible issuer. (1)An ineligible issuer is an issuer with 
respect to which any of the following is true:
    (i) Any issuer that is required to file reports pursuant to 
sections 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78m or 78o(d)) that has not filed all materials required by sections 
13, 14 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 
78n, or 78o(d)), including any certifications required by any reports;
    (ii) Within the past three years, the issuer or its predecessor was 
a blank check company as defined in Rule 419(a)(2) (Sec.  
230.419(a)(2));
    (iii) Within the past three years, the issuer or its predecessor 
was a shell company as defined in Rule 405 (Sec.  230.405);
    (iv) The issuer is registering an offering of penny stock as 
defined in Rule 3a51-1 of the Securities Exchange Act of 1934 (Sec.  
240.3a51-1 of this chapter) or it or its predecessor has issued penny 
stock in the last three years;
    (v) The issuer is a limited partnership that is offering and 
selling its securities other than through a firm commitment 
underwriting;
    (vi) The independent registered public accountant that examined the 
issuer's financial statements for the most recent fiscal year expressed 
in its report substantial doubt about the issuer's ability to continue 
as a going concern;
    (vii) Within the past three years, a petition under the federal 
bankruptcy laws or any state insolvency law was filed by or against the 
issuer, or a court appointed a receiver, fiscal agent or similar 
officer with respect to the business or property of the issuer; 
provided, however, that this would not make the issuer ineligible if it 
has filed an annual report with audited financial statements subsequent 
to its emergence from that bankruptcy, insolvency or receivership 
process;
    (viii) Within the past three years, the issuer or any of its 
subsidiaries was convicted of any felony or misdemeanor described in 
paragraphs (i) through (iv) of section 15(b)(4)(B) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(b)(4)(B)(i) through (iv));
    (ix) Within the past three years, the issuer or any of its 
subsidiaries entered into a settlement with any government agency 
involving allegations of violations of the federal securities laws or 
regulations;
    (x) Within the past three years, the issuer or any of its 
subsidiaries was made the subject of any judicial or administrative 
decree or order arising out of a governmental action that:
    (A) Prohibits certain conduct or activities regarding, including 
future violations of, the federal securities laws;
    (B) Requires that the person cease and desist from violating any 
provision of the federal securities laws; or
    (C) Determines that the person violated any provision of the 
federal securities laws;
    (xi) The issuer has filed a registration statement that is the 
subject of any pending proceeding or examination under section 8 of the 
Act or has been the subject of any refusal order or stop order under 
section 8 of the Act within the past three years; or
    (xii) The issuer is the subject of any pending proceeding under 
section 8A of the Act in connection with an offering.
    (2) The following issuers shall also be deemed to be ineligible 
issuers:
    (i) The issuer is an investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.);
    (ii) The issuer is a business development company as defined in 
section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(48)); or
    (iii) The issuer is registering an offering relating to a business 
combination transaction as defined in Rule 165(f)(1)(Sec.  
230.165(f)(1)), but only for purposes of such offerings.
    (3) An issuer, other than an issuer described in paragraph (2)(i) 
or (2)(ii) of this section shall not be an ineligible issuer if the 
Commission determines, upon a showing of good cause, that it is not 
necessary under the circumstances that the issuer be considered an 
ineligible issuer. Any such determination shall be without prejudice to 
any other action by the Commission in any other proceeding or matter 
with respect to the issuer or any other person.
* * * * *
    Shell company. The term shell company means a registrant with no or 
nominal operations and with:
    (1) No or nominal assets; or
    (2) Assets consisting solely of cash and cash equivalents.
* * * * *
    Well-known seasoned issuer. A well-known seasoned issuer is any 
issuer that as of the last business day of its most recently completed 
second fiscal quarter prior to the date of filing its Form 10-K or Form 
20-F (Sec.  249.310 or Sec.  249.220f of this chapter) or amendment to 
its registration statement for purposes of complying with section 
10(a)(3) of the Act:
    (1)(i) Is eligible to file a registration statement on Form S-3 or 
Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) for primary 
offerings of its securities relying on General Instruction I.B.1, I.B.2 
(for issuers satisfying the requirements of paragraph (1)(i)(A) of this 
section), or I.D. of Form S-3 or General Instruction I.B.I, I.B.2 (for 
issuers satisfying the requirements of paragraph (1)(i)(B) of this 
section) or I.C. of Form F-3 and:
    (ii) Has either:
    (A) A market value of its outstanding common equity held by non-
affiliates of $700 million or more; or
    (B) Has issued in the last three years at least $1 billion 
aggregate amount of debt securities in offerings registered under the 
Act and will register only debt securities;
    (2) Is a majority-owned subsidiary of a well-known seasoned issuer 
and, as to the subsidiaries' securities that are being or may be 
offered:
    (i) The well-known seasoned issuer parent has fully and 
unconditionally guaranteed, as defined in Rule 3-10 of Regulation S-X 
(Sec.  210.3-10 of this chapter), the payment obligations on the 
subsidiary's securities and the securities are non-convertible 
obligations;

[[Page 67469]]

    (ii) Are guarantees of:
    (A) Non-convertible obligations of its parent; or
    (B) Non-convertible obligations of another majority-owned 
subsidiary where such non-convertible obligations are fully and 
unconditionally guaranteed, as defined in Rule 3-10 of Regulation S-X 
(Sec.  210.3-10 of this chapter), by the parent; or
    (iii) Are non-convertible obligations fully and unconditionally 
guaranteed, as defined in Rule 3-10 of Regulation S-X (Sec.  210.3-10 
of this chapter), by another majority-owned subsidiary of the same 
well-known seasoned issuer parent that itself is a well-known seasoned 
issuer, other than pursuant to this paragraph (2) of this section.
    (3) Is required to file reports pursuant to sections 13 or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and has 
been required to file reports pursuant to those sections for at least 
the last 12 calendar months;
    (4) Has filed all materials it was required to file during the last 
12 calendar months under section 13, 14 or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m, 78n or 78o(d));
    (5) Has filed in a timely manner all materials required to be filed 
during the 12 calendar months and any portion of a month immediately 
preceding the date of determination, other than a report that is 
required solely pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 or 
4.02(a) of Form 8-K (Sec.  249.308 of this chapter), and if the issuer 
has used (during the 12 calendar months and any portion of a month 
immediately preceding the date of determination) Rule 12b-25(b) of the 
Securities Exchange Act of 1934 (Sec.  240.12b-25(b) of this chapter) 
with respect to a report or a portion of a report, it has actually 
filed that report or portion thereof within the time period prescribed 
by that section;
    (6) Is not an ineligible issuer as defined in Rule 405 (Sec.  
230.405); and
    (7) Is not an asset-backed issuer as defined in Rule 405 (Sec.  
230.405).
* * * * *
    Written communication. Except as otherwise specifically provided or 
the context otherwise requires, a written communication is any 
communication that is written, printed, broadcast, or a graphic 
communication as defined in Rule 405 (Sec.  230.405).
    24. Amend Sec.  230.408 as follows:
    a. Designate the current text as paragraph (a); and
    b. Add paragraph (b).
    The addition reads as follows:


Sec.  230.408  Additional information.

    (a) * * *
    (b) Notwithstanding paragraph (a) of this section, unless otherwise 
required to be included in the registration statement, the failure to 
include in a registration statement information included in a free 
writing prospectus will not, solely by virtue of inclusion of the 
information in a free writing prospectus (as defined in Rule 405 (Sec.  
230.405)), be considered an omission of material information required 
to be included in the registration statement.
    25. Amend Sec.  230.412 as follows:
    a. Remove the authority citation following the section;
    b. Revise paragraph (a); and
    c. Add paragraph (d).
    The revision and addition read as follows:


Sec.  230.412  Modified or superseded documents.

    (a) Any statement contained in a document incorporated or deemed to 
be incorporated by reference or deemed to be part of a registration 
statement or the prospectus shall be deemed to be modified or 
superseded for purposes of the registration statement or the prospectus 
to the extent that a statement contained in the prospectus or in any 
other subsequently filed document which also is or is deemed to be 
incorporated by reference or deemed to be part of the registration 
statement or prospectus modifies or replaces such statement. Any 
statement contained in a document that is deemed to be incorporated by 
reference or deemed to be part of a registration statement or the 
prospectus after the most recent effective date or after the date of 
the most recent prospectus may modify or replace existing statements 
contained in the registration statement or the prospectus.
* * * * *
    (d) Notwithstanding paragraph (a) of this section, any statement 
contained in a document that is deemed to be incorporated by reference 
or deemed to be part of, or any statement contained in a registration 
statement or the prospectus after the most recent effective date of the 
registration statement for liability purposes deemed to have occurred 
pursuant to Rule 430B (Sec.  230.430B), will not modify or supersede 
any statement contained in the registration statement or the prospectus 
or contained in a document that is incorporated or deemed to be 
incorporated by reference or deemed to be part of a registration 
statement or the prospectus immediately before the most recent deemed 
effective date pursuant to Rule 430B (Sec.  230.430B).
    26. Revise Sec.  230.413 to read as follows:


Sec.  230.413  Registration of additional securities and additional 
classes of securities.

    (a) Except as provided in sections 24(e)(1) and 24(f) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-24(e)(1) and 80a-24(f)) 
and in paragraph (b) of this section, where a registration statement is 
already in effect, the registration of additional securities shall only 
be effected through a separate registration statement relating to the 
additional securities.
    (b) Notwithstanding paragraph (a) of this section, the following 
additional classes of securities may be added to an automatic shelf 
registration statement already in effect by filing a post-effective 
amendment to that automatic shelf registration statement. The 
provisions of Rule 401 (Sec.  230.401), other than Rule 401(g)(2) 
(Sec.  230.401(g)(2)), do not apply to any post-effective amendment 
filed in reliance on this section:
    (1) Securities of a class different than those registered on the 
effective automatic shelf registration statement, provided that the 
information required by Item 202 of Regulation S-K (Sec.  229.202 of 
this chapter) is contained either in the post-effective amendment, a 
report on Form 10-K (Sec.  249.310 of this chapter), Form 20-F (Sec.  
249.220f of this chapter), Form 10-Q (Sec.  249.308a of this chapter), 
Form 8-K (Sec.  249.308 of this chapter), or Form 6-K (Sec.  249.306 of 
this chapter) under the Securities Exchange Act of 1934 that is 
incorporated by reference into the registration statement, or a 
prospectus filed pursuant to Rule 424 (Sec.  230.424) deemed to be part 
of and included in the registration statement; or
    (2) Securities of a subsidiary that are permitted to be included in 
an automatic shelf registration statement, provided that the subsidiary 
is identified as and satisfies the signature requirements of an issuer 
in the post-effective amendment and the provisions of paragraph (b)(1) 
of this section are satisfied.
    27. Amend Sec.  230.415 as follows:
    a. Remove the authority citations following the section;
    b. Revise paragraph (a)(1)(x);
    a. Revise paragraph (a)(2);
    b. Revise paragraph (a)(3);
    e. Revise paragraph (a)(4) including the undesignated paragraph; 
and
    f. Add paragraph (a)(5).
    The revisions and addition read as follows:


Sec.  230.415  Delayed or continuous offering and sale of securities.

    (a) * * *
    (1) * * *

[[Page 67470]]

    (x) Securities registered (or qualified to be registered) on Form 
S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) which 
are to be offered and sold on an immediate, continuous or delayed basis 
by or on behalf of the issuer, a subsidiary of the issuer or a person 
of which the issuer is a subsidiary.
* * * * *
    (2) Securities in paragraphs (a)(1)(viii) and (ix) of this section 
not registered on Form S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of 
this chapter) may only be registered in an amount which, at the time 
the registration statement becomes effective, is reasonably expected to 
be offered and sold within two years from the initial effective date of 
the registration.
    (3) The registrant furnishes the undertakings required by Item 
512(a) of Regulation S-K (Sec.  229.512(a) of this chapter), except 
that a registrant that is an investment company filing on Form N-2 
(Sec. Sec.  239.14 and 274.11a-1 of this chapter) must furnish the 
undertakings required by Item 34.4 of Form N-2.
    (4) Securities in paragraph (a)(1)(i) or (x) of this section 
registered on a Form S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of 
this chapter) may be offered and sold only if not more than three years 
have elapsed since the initial effective date of the registration 
statement. Provided, however, that continuous offerings of securities 
covered by the registration statement that commenced within the three 
years of the initial effective date may continue until the effective 
date of the new registration statement filed pursuant to paragraph 
(a)(5) of this section.
    (5) Prior to the end of the three-year period described in 
paragraph (a)(4) of this section, an issuer may file a new registration 
statement and prospectus. The new registration statement and prospectus 
must include all the information that would be required at that time in 
a prospectus relating to all offering(s) that it covers. Upon the 
effective date of the new registration statement, any unsold securities 
covered by the earlier registration statement and any ongoing 
continuous offerings of securities pursuant to Rule 415 (Sec.  230.415) 
covered by the earlier registration statement would be deemed to be 
included in the new registration statement and any filing fee paid in 
connection with the earlier registration statement with regard to those 
securities may be used, pursuant to Rule 457(p) (Sec.  230.457(p)), to 
offset the filing fee due for the new registration statement. For 
purposes of Rule 457(p) (Sec.  230.457(p)), other than continuous 
offerings of securities that commenced prior to the expiration of the 
three year period described in paragraph (a)(4) of this section, the 
offering of securities on the earlier registration statement will be 
deemed terminated as of the date of effectiveness of the new 
registration statement. For automatic shelf registration statements, in 
addition to ongoing continuous offerings referenced in paragraph (a)(4) 
of this section, any offers of securities covered by the earlier 
registration statement also will be deemed included on the new 
registration statement as of the effective date of the new registration 
statement.
* * * * *
    28. Amend Sec.  230.418 as follows:
    a. Revise the introductory text of paragraph (a)(3);
    b. Remove the word ``and'' at the end of paragraph (a)(6);
    c. Remove the period at the end of the paragraph (a)(7) and in its 
place add ``; and'';
    d. Add paragraph (a)(8); and
    e. Revise the introductory text of paragraph (b).
    The addition and revisions read as follows:


Sec.  230.418  Supplemental information.

    (a) * * *
    (3) Except in the case of a issuer eligible to use Form S-3 (Sec.  
239.13 of this chapter), any engineering, management or similar reports 
or memoranda relating to broad aspects of the business, operations or 
products of the issuer, which have been prepared within the past twelve 
months for or by the issuer and any affiliate of the registrant or any 
principal underwriter, as defined in Rule 405 (Sec.  230.405), of the 
securities being registered except for:
* * * * *
    (8) Any free writing prospectuses prepared or used by the issuer, 
any underwriter or any participating dealer.
* * * * *
    (b) Supplemental information described in paragraph (a) of this 
section shall not be required to be filed with or deemed part of and 
included in the registration statement, unless otherwise required. The 
information shall be returned to the issuer upon request, provided 
that:
* * * * *
    29. Amend Sec.  230.424 as follows:
    a. Revise the introductory text of paragraph (b);
    b. Revise paragraph (b)(2);
    c. Revise Instruction 2 following paragraph (b)(7);
    d. Add paragraph (b)(8); and
    e. Add paragraph (g).
    The additions and revisions read as follows:


Sec.  230.424  Filing of prospectuses, number of copies.

* * * * *
    (b) Ten copies of each form of prospectus purporting to comply with 
section 10 of the Act, except for documents constituting a prospectus 
pursuant to Rule 428(a) (Sec.  230.428(a)) or free writing prospectuses 
filed pursuant to Rule 433(d) (Sec.  230.433(d)), shall be filed with 
the Commission in the form in which it is used after the effectiveness 
of the registration statement and identified as required by paragraph 
(e) of this section; Provided, however, that only a form of prospectus 
that contains substantive changes from or additions to a previously 
filed prospectus is required to be filed; Provided, further, that this 
paragraph (b) shall not apply in respect of a form of prospectus 
contained in a registration statement and relating solely to securities 
offered at competitive bidding, which prospectus is intended for use 
prior to the opening of bids. The ten copies shall be filed or 
transmitted for filing as follows:
* * * * *
    (2) A form of prospectus used in connection with a primary offering 
of securities pursuant to Rule 415(a)(1)(x) (Sec.  230.415(a)(1)(x)) or 
securities registered for issuance on a delayed basis pursuant to Rule 
415(a)(1)(i), (vii) or (viii) (Sec.  230.415(a)(1)(i), (vii) or 
(viii)), or that discloses information previously omitted from the 
prospectus filed as part of an effective registration statement in 
reliance on Rule 430B (Sec.  230.430B) shall be filed with the 
Commission no later than the second business day following the earlier 
of the date of the determination of the offering price or 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.
* * * * *
    (7) * * *
    Instruction 2: A form of prospectus sent or given in reliance on 
Rule 434(c) (Sec.  230.434(c)) with respect to securities registered on 
Form S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter), 
other than an abbreviated term sheet filed pursuant to paragraph (b)(7) 
of this section, shall be filed with the Commission in the time 
required by paragraph (b)(1) or (b)(2) of this section, as applicable.
    (8) A form of prospectus that identifies selling security holders 
and the amounts to be sold by them that was previously omitted from the 
registration statement and the prospectus in reliance

[[Page 67471]]

upon Rule 430B (Sec.  230.430B) shall be filed with the Commission no 
later than the second business day following the earlier of the date of 
sale or the date of first use or transmitted by a means reasonably 
calculated to result in filing with the Commission by that date.
* * * * *
    (g) A form of prospectus filed pursuant to paragraph (b)(2) or 
(b)(5) of this section that (1) operates to reflect the payment of the 
filing fee for the offering pursuant to Rule 456 (Sec.  230.456) or (2) 
does not include disclosure of omitted information regarding the terms 
of the offering, the securities, or the plan of distribution because 
such omitted information has been included in periodic or current 
reports filed pursuant to section 13 or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) incorporated or deemed 
incorporated by reference into the prospectus, must include on its 
cover page the calculation of registration fee table reflecting the 
payment of the filing fee for the securities that are the subject of 
the form of the prospectus filed pursuant to paragraph (b)(2) or (b)(5) 
of this section or the identification of the periodic or current 
reports that are incorporated or deemed incorporated by reference into 
the prospectus that contain the omitted information as specified in 
this paragraph.
    30. Amend Sec.  230.430A to add paragraph (f) following the note to 
read as follows:


Sec.  230.430A  Prospectus in a registration statement at the time of 
effectiveness.

* * * * *
    (f) This section shall apply to registration statements that are 
automatically effective pursuant to Rule 462(e) and (f) (Sec.  
230.462(e) and (f)).
    31. Add Sec.  230.430B to read as follows:


Sec.  230.430B  Prospectus in a registration statement after effective 
date.

    (a) A form of prospectus filed as part of a registration statement 
for offerings pursuant to Rule 415(a)(1) (viii) or (x) (Sec.  
230.415(a)(1) (viii) or (x)) may omit information that is unknown or 
not reasonably available to the issuer pursuant to Rule 409 (Sec.  
230.409). A form of prospectus filed as part of an automatic shelf 
registration statement for offerings pursuant to Rule 415(a)(1)(Sec.  
230.415(a)(1)), other than Rule 415(a)(1)(vii) (Sec.  
230.415(a)(1)(vii)), may also omit information as to whether the 
offering is a primary offering or an offering on behalf of persons 
other than the issuer, the plan of distribution for the securities, and 
the identification of other issuers unless known. Each such form of 
prospectus shall be deemed to have been filed as part of the 
registration statement for the purpose of section 7 of the Act.
    (b) A form of prospectus filed as part of a registration statement, 
for offerings pursuant to Rule 415(a)(1)(i) (Sec.  230.415(a)(1)(i)) by 
an issuer eligible to use Form S-3 or Form F-3 (Sec.  239.13 or Sec.  
239.33 of this chapter) for primary offerings pursuant to General 
Instruction I.B.1 of such forms, may omit, in addition to the 
information omitted pursuant to paragraph (a) of this section, the 
identities of selling security holders and amounts of securities to be 
registered on their behalf if:
    (1) The registration statement is an automatic shelf registration 
statement as defined in Rule 405 (Sec.  230.405); or
    (2) All of the following conditions are satisfied:
    (i) The offering in which the selling security holders acquired the 
securities being registered on their behalf was completed;
    (ii) The securities were issued and outstanding prior to the 
original date of filing the registration statement covering the resale 
of the securities; and
    (iii) The registration statement refers to any unnamed selling 
security holders in a generic manner by identifying the transaction in 
which the securities were acquired.
    (c) A form of prospectus that is part of a registration statement 
that omits information in reliance upon paragraph (a) or (b) of this 
section meets the requirements of section 10 of the Act for the purpose 
of section 5(b)(1) thereof. This provision shall not limit the 
information required to be contained in a form of prospectus in order 
to meet the requirements of section 10(a) of the Act for the purposes 
of section 5(b)(2) thereof or exception (a) of section 2(a)(10) 
thereof.
    (d) Information omitted from a form of prospectus that is part of 
an effective registration statement in reliance on paragraph (a) or (b) 
of this section may be included in the prospectus by a post-effective 
amendment to the registration statement, a prospectus filed pursuant to 
Rule 424 (Sec.  230.424), or, if the applicable form permits, by 
including the information in the issuer's periodic or current reports 
filed pursuant to section 13 or 15(d) of the Securities Exchange Act of 
1934 (15 U.S.C. 78m or 78o(d)) that are incorporated or deemed 
incorporated by reference into the prospectus in accordance with 
applicable requirements.
    (e) Information omitted from a form of prospectus that is part of 
an effective registration statement in reliance on paragraph (a) or (b) 
of this section, that is contained in a form of prospectus filed with 
the Commission pursuant to Rule 424(b)(3) (Sec.  230.424(b)(3)), shall 
be deemed part of and included in the registration statement as of the 
date it is first used after effectiveness.
    (f) Information omitted from a form of prospectus that is part of 
an effective registration statement in reliance on paragraph (a) or (b) 
of this section, that is contained in a form of prospectus filed with 
the Commission pursuant to Rule 424(b)(2), (b)(5), (b)(7) or (b)(8) 
(Sec.  230.424(b)(2), (b)(5), (b)(7) or (b)(8)), shall be deemed to be 
part of and included in the registration statement on the earlier of 
the date such form of prospectus is first used or the date and time of 
the first contract of sale of securities to which such subsequent form 
of prospectus relates. Such date shall be deemed, for liability 
purposes only, to be a new effective date of the registration statement 
relating to the securities to which such subsequent form of prospectus 
relates and the offering of such securities at that time shall be 
deemed to be the initial bona fide offering thereof. Provided, however, 
that, except for any prospectus filed for purposes of including 
information required by section 10(a)(3) of the Act, the provisions of 
Rule 401 (Sec.  230.401) do not apply when prospectuses are deemed part 
of or included in registration statements.
    (g) Notwithstanding paragraph (e) or (f) of this section, no 
statement in a document incorporated or deemed incorporated by 
reference or a prospectus deemed part of and included in a registration 
statement or the prospectus will supersede or modify any statement that 
was in a document incorporated or deemed incorporated by reference or a 
prospectus deemed part of and included in a registration statement or 
the prospectus as to any purchaser who had a date and time of contract 
of sale prior to the effective date occurring based on the filed 
prospectus.
    (h) Issuers relying on this section shall furnish the undertakings 
required by Item 512(a) of Regulation S-K (Sec.  229.512(a) of this 
chapter).
    32. Add Sec.  230.430C to read as follows:


Sec.  230.430C  Prospectus in a registration statement pertaining to an 
offering pursuant to Rule 415(a)(1)(i) or (ix) after effective date.

    (a) In offerings pursuant to Rule 415(a)(1)(i) or (ix) (Sec.  
230.415(a)(1)(i) or (ix)) by issuers not subject to the reporting 
requirements of section 13 or section 15(d) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78m or 78o(d)) or not eligible to register a 
primary offering of its securities on Form S-3

[[Page 67472]]

(Sec.  239.13 of this chapter) pursuant to General Instructions I.B.1, 
I.B.2, I.C. or I.D. or Form F-3 (Sec.  239.33 of this chapter) pursuant 
to General Instructions I.A.5, I.B.1, I.B.2 or I.C., information 
contained in a form of prospectus filed with the Commission pursuant to 
(i) Rule 424(b)(3) (Sec.  230.424(b)(3)) for the purpose of providing 
the information required by section 10(a) of the Act, other than 
section 10(a)(3) of the Act, or for the purpose of providing 
information relating to the issuer or identified selling security 
holders that constitutes a substantive change from or addition to the 
information in the last form of prospectus filed; or (ii) Rule 497(c) 
or (e) (Sec.  230.497(c) or (e)), shall be deemed to be part of and 
included in the registration statement on the date it is first used 
after effectiveness.
    (b) Notwithstanding paragraph (a) of this section, no statement in 
a prospectus deemed part of and included in a registration statement or 
the prospectus will supersede or modify any statement that was in a 
prospectus deemed part of and included in a registration statement or 
the prospectus as to any purchaser who had a date and time of contract 
of sale prior to the date the filed prospectus was deemed part of the 
registration statement.
    (c) Nothing in this section shall affect the information required 
to be included in an issuer's registration statement and prospectus.
    (d) In offerings subject to paragraph (a) of this section, the 
issuer shall furnish the undertakings required by Item 512(a) of 
Regulation S-K (Sec.  229.512(a) of this chapter), Item 512(a) and/or 
(g) of Regulation S-B (Sec.  229.512(a) and (g) of this chapter), or 
Item 34.4 of Form N-2 (Sec. Sec.  239.14 and 274.11a-1 of this 
chapter), as applicable.
    33. Add Sec.  230.433 to read as follows:


Sec.  230.433  Conditions to permissible post-filing free writing 
prospectuses.

    (a) Scope of section. This section applies to any free writing 
prospectus with respect to securities of any issuer (except as set 
forth in this section) that are the subject of a registration statement 
that has been filed under the Act. A free writing prospectus that 
satisfies the conditions of this section and which may include 
information the substance of which is not included in the registration 
statement, will be a prospectus permitted under section 10(b) of the 
Act for purposes of sections 2(a)(10), 5(b)(1), and 5(b)(2) of the Act 
and will be deemed to be public, without regard to its method of use or 
distribution, because it is related to the public offering of 
securities that are the subject of a filed registration statement.
    (b) Permitted use of free writing prospectus. Subject to the 
conditions of this section and satisfaction of the conditions set forth 
in paragraphs (c) through (g) of this section, a free writing 
prospectus may be used under this section and Rule 164 (Sec.  230.164) 
in connection with a registered offering of securities:
    (1) Eligibility and prospectus conditions for non-reporting and 
unseasoned issuers. If at the time of the filing of the registration 
statement, the issuer of the securities that are the subject of the 
registration statement is not required to file reports pursuant to 
section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78m or 78o(d)) or does not satisfy the requirements to use Form S-3 or 
Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) for a primary 
offering of securities pursuant to General Instructions I.B.1, I.B.2, 
I.C. or I.D. of Form S-3 or General Instructions I.A.5, I.B.1, I.B.2 or 
I.C. of Form F-3, then any person participating in the offer or sale of 
the securities may use a free writing prospectus after the registration 
statement is filed as follows:
    (i) If the free writing prospectus was prepared by or on behalf of 
an issuer or any other person participating in the offer or sale of the 
securities, if consideration has been or will be given by the issuer or 
an offering participant for the publication or broadcast (in any 
format) of any free writing prospectus (including any published 
article, publication or advertisement), or if Securities Act section 
17(b) requires disclosure that consideration has been or will be given 
by the issuer or any offering participant for any activity described 
therein, then the free writing prospectus shall be accompanied or 
preceded by the most recent prospectus that, other than by reason of 
this section or Rule 431 (Sec.  230.431), satisfies the requirements of 
section 10 of the Act, including a price range where required; 
provided, however, that use of the free writing prospectus is not 
conditioned on providing the most recent statutory prospectus if a 
prior statutory prospectus has been provided and there is no material 
change from the prior statutory prospectus reflected in the most recent 
statutory prospectus; provided, further, that after effectiveness and 
availability of a final prospectus meeting the requirements of section 
10(a) of the Act, no earlier statutory prospectus may be provided, and 
such final prospectus must precede or accompany any free writing 
prospectus provided after such availability, whether or not an earlier 
statutory prospectus had been previously provided:
    (A) The condition in paragraph (b)(1)(i) of this section would be 
satisfied if an electronic free writing prospectus contained a 
hyperlink to the issuer's most recent preliminary prospectus; and
    (B) For purposes of this section, a written communication for which 
disclosure would be required under section 17(b) of the Act as a result 
of consideration given or to be given, directly or indirectly, by an 
issuer, underwriter, or participating dealer is deemed a written offer 
by such person and free writing prospectus of such person.
    (ii) Where paragraph (b)(1)(i) of this section does not apply, the 
issuer shall have previously filed as part of its registration 
statement a statutory prospectus that, other than by reason of this 
section or Rule 431 (Sec.  230.431), satisfies the requirements of 
section 10 of the Act.
    (2) Eligibility and prospectus conditions for seasoned issuers and 
well-known seasoned issuers. If at the time of the filing of the 
registration statement and at the time of an amendment to the 
registration statement for purposes of complying with section 10(a)(3) 
of the Act, the issuer of the securities that are the subject of the 
registration statement is a well-known seasoned issuer as defined in 
Rule 405 (Sec.  230.405), or if not a well-known seasoned issuer, is an 
issuer eligible to use Form S-3 or Form F-3 (Sec.  239.13 or Sec.  
239.33 of this chapter) to register securities to be offered and sold 
by or on its behalf, on behalf of its subsidiary or on behalf of a 
person of which it is the subsidiary pursuant to General Instructions 
I.B.1, I.B.2, or I.C. of Form S-3 or General Instruction I.A.5, I.B.1. 
or I.B.2 of Form F-3, then the issuer or any other person participating 
in the offer or sale of the securities may use a free writing 
prospectus if the issuer shall have previously filed as part of its 
registration statement a statutory prospectus covering the securities 
that satisfies the requirements of section 10 of the Act (other than 
pursuant to Rule 431 (Sec.  230.431)), which could be a base prospectus 
satisfying the conditions of Rule 430B (Sec.  230.430B).
    (3) Successors. A successor issuer will be considered to satisfy 
the applicable provisions of paragraph (b)(2) of this section if:
    (i) Its predecessor and it, taken together, satisfy the conditions, 
provided that the succession was primarily for the purpose of changing 
the state of incorporation of the predecessor or forming a holding

[[Page 67473]]

company and the assets and liabilities of the successor at the time of 
succession were substantially the same as those of the predecessor; or
    (ii) All predecessors met the conditions at the time of succession 
and the issuer has continued to do so since the succession.
    (4) Ineligible issuers. This section is not available if the issuer 
is an ineligible issuer as defined in Rule 405 (Sec.  230.405).
    (c) Information in a free writing prospectus.
    (1) A free writing prospectus used in reliance on this section 
shall not contain information inconsistent with information contained 
in any prospectus or prospectus supplement included in the registration 
statement or otherwise filed and not superseded or modified or 
information contained in the issuer's periodic and current reports 
filed or furnished to the Commission pursuant to section 13 or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and not 
superseded or modified.
    (2) A free writing prospectus used in reliance on this section 
shall contain a prominent legend in the following form:

    ``[Issuer's name] has filed a registration statement (including 
a prospectus) with the SEC for this offering. Before you invest, you 
should read the prospectus in it and other documents the issuer has 
filed with the SEC for more complete information about [issuer's 
name], including any risks affecting the issuer or its securities, 
and this offering. You may get these documents for free by visiting 
EDGAR on the SEC Web site at www.sec.gov and clicking on------. 
Alternatively, the company, any underwriter or any dealer 
participating in the offering will arrange to send you the 
prospectus if you request it by calling toll-free 1-8[xx-xxx-xxxx]. 
This document is a written communication that is an offer pursuant 
to a free writing prospectus.''

    (3) The legend may indicate that the documents are also available 
by accessing the issuer's Web site and provide the Internet address and 
the particular location of the documents on the Web site.
    (d) Filing conditions. (1) Except as provided in paragraphs (d)(3), 
(d)(4), (d)(5), (d)(6) and (f) of this section, the following shall be 
filed with the Commission under this section by a means reasonably 
calculated to result in filing no later than the date of first use. The 
filing shall constitute a free writing prospectus for purposes of this 
section and the Act but will not be filed as part of the registration 
statement:
    (i) The issuer shall file:
    (A) Any issuer free writing prospectus used by any person;
    (B) Any free writing prospectus of any person used by the issuer;
    (C) Any issuer information that is contained in a free writing 
prospectus prepared by any other person (but not information prepared 
by a person other than the issuer on the basis of that issuer 
information); and
    (D) Any free writing prospectus prepared by any person that 
contains only a description of the final terms of the issuer's 
securities.
    (ii) Any person other than the issuer participating in the offer 
and sale of the securities shall file any free writing prospectus that 
is distributed by such person in a manner reasonably designed to lead 
to its broad unrestricted dissemination, unless such free writing 
prospectus has previously been filed under this section.
    (2) Each free writing prospectus or issuer information contained in 
a free writing prospectus filed under this section shall identify on 
the cover page the Commission file number for the related registration 
statement or, if that file number is unknown, a description sufficient 
to identify the related registration statement.
    (3) The condition to file a free writing prospectus under paragraph 
(d)(1) of this section shall not apply if the free writing prospectus 
is substantially the same as, and does not contain substantive changes 
from or additions to, a free writing prospectus already filed.
    (4) The condition to file issuer information contained in a free 
writing prospectus of a person other than the issuer shall not apply if 
such information is included (including through incorporation by 
reference) in a prospectus or free writing prospectus previously filed 
that relates to the offering that is the subject of the issuer's 
registration statement.
    (5) Notwithstanding the provisions of paragraph (d)(1) of this 
section, a free writing prospectus that contains only a description of 
the final terms of the securities being offered for sale in a 
registered offering shall be filed by the issuer within two days of the 
later of the date such terms have become final and the date of first 
use.
    (6) Notwithstanding any other provision of this paragraph (d), road 
shows transmitted or made available by means of graphic communication 
are free writing prospectuses provided that the condition to file a 
road show transmitted or made available by means of graphic 
communication, including any script for such road show, pursuant to 
this section shall not apply if:
    (i) The issuer of the securities makes at least one version of a 
bona fide electronic road show available without restriction by means 
of graphic communication to any person, including any potential 
investor in the securities (and if there is more than one version of a 
road show transmitted or made available by means of graphic 
communication, the version available without restriction is made 
available no later than the other versions); and
    (ii) The issuer complies with the filing conditions of paragraph 
(d)(1)(i)(C) of this section for issuer information provided at an 
electronic road show, except where paragraph (d)(4) of this section 
does not require such filing.
    (e) Treatment of information on, or hyperlinked from, an issuer's 
web site.
    (1) Except as provided otherwise in paragraph (e)(2) of this 
section, an offer of an issuer's securities that is contained on an 
issuer's Web site or hyperlinked by the issuer from the issuer's Web 
site to a third party's Web site is a written offer of such securities 
by the issuer and, unless otherwise exempt from the requirements of 
section 5(b)(1) of the Act, the filing conditions of paragraph (d) of 
this section apply to such offer.
    (2) Historical issuer information that is identified as such and 
located in a separate section of the issuer's Web site containing 
historical issuer information will not be considered a current offer of 
the issuer's securities and therefore not a free writing prospectus 
unless such information has been incorporated by reference into or 
otherwise included in a prospectus of the issuer for the offering or is 
otherwise used or identified in connection with the offering.
    (f) Free writing prospectuses published or distributed by media. 
Any written communication about an issuer or its securities for which 
an issuer or any person participating in the offer or sale of the 
securities or any person acting on their behalf provided information 
that is published or disseminated by a person unaffiliated with the 
issuer or any person participating in the offer or sale of the 
securities that is in the business of publishing, broadcasting or 
otherwise disseminating written communications would be considered to 
be a free writing prospectus prepared by or on behalf of the issuer or 
a person participating in the offer or sale of the securities for 
purposes of this section. Provided, however, the conditions of 
paragraphs (b)(1)(i), (c), and (d) of this section will not apply if:
    (1) No payment is made or consideration given by or on behalf of 
the issuer or any person participating in the offer or sale of the 
securities for the written communication; and

[[Page 67474]]

    (2) The issuer or any other person participating in the offer or 
sale of the securities files the written communication with the 
Commission with the legend required by paragraph (c) of this section 
within one business day after the publication or dissemination of the 
written communication.
    (g) Record retention. Issuers and offering participants, including 
underwriters and participating dealers, shall retain all free writing 
prospectuses they have used for three years following the initial bona 
fide offering of the securities in question.
    (h) Definitions.
    (1) For purposes of this section, an issuer free writing prospectus 
means a free writing prospectus prepared by or on behalf of the issuer.
    (2) For purposes of this section, issuer information means material 
information about the issuer or its securities that has been provided 
by or on behalf of the issuer.
    (3) For purposes of this section, a written communication or 
information is prepared or provided by or on behalf of a person if the 
person or an agent or representative of the person authorizes the 
communication or information and approves the communication or 
information before its use.
    (4) For purposes of this section, a bona fide electronic road show 
means a version of a road show that contains a presentation by some 
officers of an issuer or other person in an issuer's management and, if 
an issuer is using or conducting more than one road show transmitted or 
made available by means of graphic communication, includes discussion 
of the same general areas of information regarding the issuer, its 
management, and the securities being offered as such other issuer road 
show or shows for the same offering.
    Instructions to Sec.  230.433.
    1. An issuer eligible to file information with the Commission on 
paper must file five copies of the information required by paragraph 
(d) of this section.
    2. This section does not apply to communications that are not 
written communications at road shows that are not transmitted or made 
available by means of graphic communication.
    3. This section does not affect in any way the operation of the 
provisions of clause (a) of section 2(a)(10) of the Act providing an 
exception from the definition of ``prospectus.''
    34. Amend Sec.  230.434 as follows:
    a. Revise paragraph (d) before the Instruction; and
    b. Revise paragraph (g).
    The revisions read as follows:


Sec.  230.434  Prospectus delivery requirements in firm commitment 
underwritten offerings of securities for cash.

* * * * *
    (d) Except in the case of offerings pursuant to Rule 415(a)(1)(x) 
(Sec.  230.415(a)(1)(x)), the information contained in any term sheet 
or abbreviated term sheet described under this section shall be deemed 
to be part of the registration statement as of the time such 
registration statement was declared effective. In the case of offerings 
pursuant to Rule 415(a)(1)(x) (Sec.  230.415(a)(1)(x)), the information 
contained in any term sheet or abbreviated term sheet described under 
this section shall be deemed to be part of the registration statement 
as of the earlier of the date it is first used after effectiveness or 
the date and time of the first contract of sale of the securities 
described in the term sheet or the abbreviated term sheet.
* * * * *
    (g) For purposes of this section, prospectus subject to completion 
shall mean any prospectus that is either a preliminary prospectus used 
in reliance on Rule 430 (Sec.  230.430), a prospectus omitting 
information in reliance on Rule 430A (Sec.  230.430A), or a prospectus 
omitting information in reliance on Rule 430B (Sec.  230.430B) that is 
contained in a registration statement at the time of effectiveness or 
as subsequently revised.
    35. Amend Sec.  230.439 by revising paragraph (b) to read as 
follows:


Sec.  230.439  Consent to use of material incorporated by reference.

* * * * *
    (b) Notwithstanding paragraph (a) of this section, any required 
consent may be incorporated by reference into a registration statement 
filed pursuant to Rule 462(b) (Sec.  230.462(b)) or a post-effective 
amendment filed pursuant to Rule 462(e) (Sec.  230.462(e)) from a 
previously filed registration statement relating to that offering, 
provided that the consent contained in the previously filed 
registration statement expressly provides for such incorporation.
    36. Amend Sec.  230.456 as follows:
    a. Revise the section heading;
    b. Designate the current text as paragraph (a); and
    c. Add paragraphs (b) and (c).
    The revisions and additions read as follows:


Sec.  230.456  Date of filing, timing of fee payment.

    (a) * * *
    (b)(1) Notwithstanding paragraph (a) of this section, a well-known 
seasoned issuer that registers securities offerings on an automatic 
shelf registration statement, or registers additional classes of 
securities pursuant to Rule 413(b) (Sec.  230.413(b)), may defer 
payment of the registration fee to the Commission required by section 
6(b)(2) of the Act on the following conditions:
    (i) The issuer pays an initial registration fee calculated in 
accordance with Rule 457(r) (Sec.  230.457(r)) at the time of the 
initial filing of the registration statement which will be credited 
against any fee subsequently due pursuant to this section;
    (ii) The issuer pays the registration fees (pay-as-you-go 
registration fees) calculated in accordance with Rule 457(r) (Sec.  
230.457(r)) in connection with an offering of securities from the 
registration statement at the time of or before the filing of the 
prospectus supplement pursuant to Rule 424(b)(2), (5) or (8) (Sec.  
230.424(b)(2), (5) or (8)) within the time required by such section, in 
connection with a sale of securities in a particular offering; and
    (iii) At the time the issuer pays a pay-as-you-go registration fee 
it reflects the payment of a pay-as-you-go registration fee by updating 
the ``Calculation of Registration Fee'' table to indicate the class and 
aggregate offering price of securities offered and the amount of 
registration fee paid in connection with the offering either in a post-
effective amendment filed at the time of the fee payment or on the 
cover page of the prospectus reflecting the terms of the securities 
filed in a timely manner pursuant to Rule 424(b) (Sec.  230.424(b)).
    (2) A registration statement filed relying on the pay-as-you-go 
registration fee payment provisions of paragraph (b)(1) of this section 
will be considered filed as to the classes of securities identified in 
the registration statement for purposes of this section and section 5 
of the Act when it is received by the Commission, if it complies with 
all other requirements of the Act and the rules with respect to it.
    (c) The securities sold pursuant to a registration statement will 
be considered registered, for purposes of section 6(a) of the Act, if 
the pay-as-you-go registration fee has been paid and the post-effective 
amendment or prospectus including the amended ``Calculation of 
Registration Fee'' table is timely filed as required in paragraph 
(b)(1) of this section.
    37. Amend Sec.  230.457 by adding paragraph (r) to read as follows:


Sec.  230.457  Computation of fee.

* * * * *
    (r) Where securities are to be offered pursuant to an automatic 
shelf registration statement, the registration

[[Page 67475]]

fee is to be calculated in accordance with this section. When the 
issuer pays an initial registration fee of $100 at the time of initial 
filing of the registration statement, the ``Calculation of Registration 
Fee'' table in the registration statement does not need to include the 
number of shares or units of securities or the maximum aggregate 
offering price of any securities until the issuer updates the 
``Calculation of Registration Fee'' table to reflect payment of the 
pay-as-you-go registration fee in accordance with Rule 456(b) (Sec.  
230.456(b)).
    38. Amend Sec.  230.462 by adding paragraphs (e) and (f) to read as 
follows:


Sec.  230.462  Immediate effectiveness of certain registration 
statements and post-effective amendments

* * * * *
    (e) An automatic shelf registration statement and any post-
effective amendment thereto, including a post-effective amendment filed 
to register additional classes of securities pursuant to Rule 413(b) 
(Sec.  230.413(b)) shall become effective upon filing with the 
Commission.
    (f) A post-effective amendment filed pursuant to paragraph (e) of 
this section for purposes of adding a new issuer and its securities as 
permitted by Rule 413(b) (Sec.  230.413(b)) that satisfies the 
requirements of Form S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of 
this chapter), as applicable, including the signatures required by Rule 
402(e) (Sec.  230.402(e)), and contains a prospectus satisfying the 
requirements of Rule 430B (Sec.  230.430B), shall become effective upon 
filing with the Commission.
    39. Amend Sec.  230.473 by revising paragraph (d) to read as 
follows:


Sec.  230.473  Delaying amendments.

* * * * *
    (d) No amendments pursuant to paragraph (a) of this section may be 
filed with a registration statement on Form F-7, F-8 or F-80 (Sec.  
239.37, Sec.  239.38 or Sec.  239.41 of this chapter); on Form F-9 or 
F-10 (Sec.  239.39 or Sec.  239.40 of this chapter) relating to an 
offering being made contemporaneously in the United States and the 
issuer's home jurisdiction; on Form S-8 (Sec.  239.16b of this 
chapter); on Form S-3 or F-3 (Sec.  239.13 or Sec.  239.33 of this 
chapter) relating to a dividend or interest reinvestment plan; on Form 
S-3 or Form F-3 (Sec.  239.13 or Sec.  239.33 of this chapter) relating 
to an automatic shelf registration statement; or on Form S-4 (Sec.  
239.25 of this chapter) complying with General Instruction G of that 
Form.
    40. Amend Sec.  230.902 as follows:
    a. Remove the word ``and'' at the end of paragraph (c)(3)(v)(B);
    b. Remove the period at the end of paragraph (c)(3)(vi) and add in 
its place a semi-colon;
    c. Remove the period at the end of paragraph (c)(3)(vii) and add in 
its place ``; and''; and
    d. Add paragraphs (c)(3)(viii) and (h)(4).
    The amendments and additions read as follows:


Sec.  230.902  Definitions.

* * * * *
    (c) Directed selling efforts.
* * * * *
    (3) * * *
    (viii) Publication or distribution of information, an opinion or 
arecommendation by a broker or dealer in accordance with Rule 138(c) 
(Sec.  230.138(c)) or rule 139(b) (Sec.  230.139(b)).
* * * * *
    (h) Offshore transaction.
* * * * *
    (4) Notwithstanding paragraph (h)(1) of this section, publication 
or distribution of information, an opinion or a recommendation in 
accordance with Rule 138(c) (Sec.  230.138(c)) or Rule 139(b) (Sec.  
230.139(b)) by a broker or dealer at or around the time of an offering 
in reliance on Regulation S (Sec. Sec.  230.901 through 230.905) will 
not cause the transaction to fail to be an offshore transaction as 
defined in this section.
* * * * *

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

    41. The general authority citation for part 230 is revised to read 
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll(d), 78mm, 79e, 79f, 
79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-2(a), 80a-3, 80a-8, 80a-9, 
80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37, unless 
otherwise noted.
* * * * *
    42. Remove the authority citation following Sec.  239.11.
    43. Amend Form S-1 (referenced in Sec.  239.11) as follows:
    a. Add General Instruction VI;
    b. Add Item 11A;
    c. Redesignate Item 12 as Item 12A; and
    d. Add new Item 12.
    The additions read as follows:


    Note: The text of Form S-1 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form S-1--Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

* * * * *

VI. Eligibility To Use Incorporation by Reference

    If a registrant meets the following requirements immediately prior 
to the time of filing a registration statement on this Form, it may 
elect to provide information required by Items 3 through 11 of this 
Form in accordance with Item 11A and Item 12 of this Form:
    A. The registrant is subject to the requirement to file reports 
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
(``Exchange Act'');
    B. The registrant has filed all reports and other materials 
required to be filed by Section 13(a), 14 or 15(d) of the Exchange Act 
during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports and materials);
    C. The registrant has filed an annual report required under Section 
13(a) or 15(d) of the Exchange Act for its most recently completed 
fiscal year;
    D. The registrant is not an ineligible issuer;
    E. If a registrant is a successor registrant it shall be deemed to 
have met conditions A., B., C., and D. above if:
    1. Its predecessor and it, taken together, do so, provided that the 
succession was primarily for the purpose of changing the state of 
incorporation of the predecessor or forming a holding company and that 
the assets and liabilities of the successor at the time of succession 
were substantially the same as those of the predecessor, or
    2. All predecessors met the conditions at the time of succession 
and the registrant has continued to do so since the succession; and
    F. The registrant makes its periodic and current reports filed 
pursuant to Section 13 or 15(d) of the Exchange Act readily available 
and accessible on a Web site maintained by or for the issuer and 
containing information about the issuer.
* * * * *
Item 11A. Material Changes
    If the registrant elects to incorporate information by reference 
pursuant to General Instruction VI., describe any and all material 
changes in the registrant's affairs which have occurred since the end 
of the latest fiscal year for which audited financial statements were 
included in the latest Form 10-K or Form 10-KSB and which have not been 
described in a Form 10-Q, Form 10-QSB or Form 8-K filed under the 
Exchange Act.

[[Page 67476]]

Item 12. Incorporation of Certain Information by Reference
    If the registrant elects to incorporate information by reference 
pursuant to General Instruction VI.:
    (a) It must specifically incorporate by reference into the 
prospectus the following documents by means of a statement to that 
effect in the prospectus listing all such documents:
    (1) The registrant's latest annual report on Form 10-K or Form 10-
KSB filed pursuant to Section 13(a) or 15(d) of the Exchange Act which 
contains financial statements for the registrant's latest fiscal year 
for which a Form 10-K or Form 10-KSB was required to have been filed; 
and
    (2) All other reports filed pursuant to Section 13(a) or 15(d) of 
the Exchange Act or proxy or information statements filed pursuant to 
Section 14 of the Exchange Act since the end of the fiscal year covered 
by the annual report referred to in paragraph (a)(1) above.


    Note to Item 12(a). Attention is directed to Rule 439 (Sec.  
230.439) regarding consent to use of material incorporated by 
reference.


    (b)(1) The registrant must state:
    (i) That it will provide to each person, including any beneficial 
owner, to whom a prospectus is delivered, a copy of any or all of the 
reports or documents that have been incorporated by reference in the 
prospectus but not delivered with the prospectus;
    (ii) That it will provide these reports or documents upon written 
or oral request;
    (iii) That it will provide these reports or documents at no cost to 
the requester;
    (iv) The name, address, telephone number, and e-mail address, if 
any, to which the request for these reports or documents must be made; 
and
    (v) The registrant's Web Site address, including the uniform 
resource locator (URL) where the reports and other documents may be 
accessed.

    Note to Item 12(b)(1). If the registrant sends any of the 
information that is incorporated by reference in the prospectus to 
security holders, it also must send any exhibits that are 
specifically incorporated by reference in that information.


    (2) The registrant must:
    (i) Identify the reports and other information that it files with 
the SEC; and
    (ii) State that the public may read and copy any materials it files 
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, 
NW., Washington, DC 20549. State that the public may obtain information 
on the operation of the Public Reference Room by calling the SEC at 1-
800-SEC-0330. If the registrant is an electronic filer, state that the 
SEC maintains an Internet site that contains reports, proxy and 
information statements, and other information regarding issuers that 
file electronically with the SEC and state the address of that site 
(http://www.sec.gov).
* * * * *
    44. Remove and reserve Sec.  239.12 and remove Form S-2 referenced 
in that section.
    45. Amend Sec.  239.13 as follows:
    a. Remove the word ``or'' at the end of paragraph (c)(2);
    b. Revise paragraph (c)(3);
    c. Add paragraphs (c)(4), (c)(5) and (c)(6);
    d. Redesignate paragraph (d) as paragraph (e); and
    e. Add new paragraph (d).
    The revision and additions read as follows:


Sec.  239.13  Form S-3, for registration under the Securities Act of 
1933 of securities of certain issuers offered pursuant to certain types 
of transactions.

* * * * *
    (c) * * *
    (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;
    (4) The parent of the registrant-subsidiary meets the Registrant 
Requirements and the applicable Transaction Requirement, and the 
registrant-subsidiary fully and unconditionally guarantees the payment 
obligations on the parent's securities being registered;
    (5) The registrant-subsidiary fully and unconditionally guarantees 
the payment obligations on non-convertible obligations being registered 
by another majority-owned subsidiary in accordance with the 
requirements of paragraph (c)(1), (c)(2), or (c)(3) of this section; or
    (6) The securities of the registrant-subsidiary are non-convertible 
obligations that are fully and unconditionally guaranteed by another 
majority-owned subsidiary of the parent registrant that itself meets 
the Registrant Requirements and the applicable Transaction Requirement 
by virtue of paragraphs (c)(1) or (c)(2) of this section.


    Note to paragraph (c): With regard to paragraphs (c)(3), (c)(4), 
(c)(5), and (c)(6) of this section, the guarantor is the issuer of a 
separate security consisting of the guarantee, which must be 
concurrently registered, but may be registered on the same 
registration statement as are the guaranteed securities.


    (d) Automatic shelf offerings by well-known seasoned issuers.
    Any registrant that, immediately prior to the filing of a 
registration statement on this Form, is a well-known seasoned issuer 
may use this Form for registration under the Act of securities 
offerings pursuant to Rule 415 (Sec.  230.415 of this chapter), other 
than Rule 415(a)(1)(vii) or (viii) (Sec.  230.415(a)(1)(vii) or (viii) 
of this chapter), as follows:
    (1) The securities to be offered are:
    (i) Securities of the registrant to be offered pursuant to Rule 
415, Rule 430A, and Rule 430B (Sec.  230.415, Sec.  230.430A, and Sec.  
230.430B of this chapter) provided, however, that a registrant that is 
a well-known seasoned issuer only by reason of paragraph (1)(i)(B) of 
the definition in Rule 405 (Sec.  230.405 of this chapter) may register 
only non-convertible obligations satisfying the conditions of General 
Instruction I.B.2. of this Form.
    (ii) Securities of majority-owned subsidiaries to be offered 
pursuant to Rule 415 and Rule 430B (Sec.  239.415 and Sec.  230.430B of 
this chapter) if the parent registrant is a well-known seasoned issuer 
and the subsidiary meets the following requirements:
    (A) Securities of a subsidiary that is a well-known seasoned issuer 
at the time it becomes a registrant, other than by virtue of paragraph 
(2) of the definition of well-known seasoned issuer in Rule 405 (Sec.  
230.405 of this chapter);
    (B) Securities of a subsidiary that are non-convertible obligations 
and are fully and unconditionally guaranteed by the parent registrant;
    (C) Securities of a subsidiary that are a guarantee of
    (1) Obligations of the parent registrant; or
    (2) Non-convertible obligations of another majority-owned 
subsidiary where such obligations are fully and unconditionally 
guaranteed by the parent registrant;
    (D) Securities of a subsidiary that are non-convertible obligations 
and are fully and unconditionally guaranteed by another majority-owned 
subsidiary of the parent registrant that itself is a well-known 
seasoned issuer at the time it becomes a registrant, other than by 
virtue of paragraph (2) of the definition of well-known seasoned issuer 
in Rule 405 (Sec.  230.405 of this chapter); or
    (E) Securities of a subsidiary that meet the conditions of 
Transaction Requirement set forth in paragraph (b)(2) (Primary 
Offerings of Non-Convertible Investment Grade Securities); or
    (iii) Securities to be offered for the account of any person other 
than the

[[Page 67477]]

issuer (``selling security holders'') pursuant to paragraph (b)(1) or 
(b)(3) of this section, provided that the registration statement and 
the prospectus are not required to separately identify the securities 
to be sold by selling security holders until the filing of a 
prospectus, prospectus supplement, post-effective amendment to the 
registration statement or current report under the Exchange Act 
identifying the selling security holders and the amount of securities 
to be sold by each of them;
    (2) The registrant requirements of paragraph (a) of this section 
and transaction requirements of paragraph (b)(1), (b)(2), (b)(3) or 
(b)(4) of this section are satisfied;
    (3) The registrant pays the registration fee either on a pay-as-
you-go basis pursuant to Rule 456(b) (Sec.  230.456(b) of this chapter) 
and Rule 457(r) (Sec.  230.457(r) of this chapter) or in accordance 
with Rule 456(a) (Sec.  230.456(a) of this chapter);
    (4) If the registrant is a majority-owned subsidiary, it is 
required to file reports pursuant to section 13 or 15(d) of the 
Exchange Act (15 U.S.C. 78m or 78o(d)) and satisfies the requirements 
of this Form with regard to incorporation by reference or information 
about the majority-owned subsidiary is included in the registration 
statement (or a post effective amendment to the registration 
statement);
    (5) An automatic shelf registration statement and post-effective 
amendment will become effective automatically (Rule 462 (Sec.  230.462) 
of this chapter) upon filing. All filings made on or in connection with 
automatic shelf registration statements on this Form become public upon 
filing with the Commission; and
    (6) The registrant may register additional classes of its or its 
subsidiary's securities on a post-effective amendment pursuant to Rule 
413(b) (Sec.  230.413(b) of this chapter).
* * * * *
    46. Amend Form S-3 (referenced in Sec.  239.13) as follows:
    a. Add two check boxes to the cover page immediately before 
``Calculation of Registration Fee'' table;
    b. Revise the Note to the ``Calculation of Registration Fee'' 
Table;
    c. Remove the word ``or'' at the end of General Instruction I.C.2.;
    d. Revise paragraph 3. and add paragraph 4, 5, and 6 to General 
Instruction I.C.;
    e. Add paragraph D. to General Instruction I.;
    f. Revise paragraph D. of General Instruction II.;
    g. Add paragraphs E., F., and G. to General Instruction II.;
    h. Revise the heading of General Instruction IV;
    i. Designate the current text under General Instruction IV as 
paragraph A;
    j. Add a heading to paragraph A.;
    k. Add paragraph B. to General Instruction IV; and
    l. Add paragraph (d) of Item 12 to Part I.
    The revisions and additions read as follows:


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

Form S-3--Registration Statement Under the Securities Act of 1933

* * * * *
    If this Form is a registration statement pursuant to General 
Instruction I.D. or a post-effective amendment thereto that shall 
become effective upon filing with the Commission pursuant to Rule 
462(e) under the Securities Act, check the following box. [ballot]
    If this Form is a post-effective amendment to a registration 
statement filed pursuant to General Instruction I.D. filed to register 
additional securities or additional classes of securities pursuant to 
Rule 413(b) under the Securities Act, check the following box. [ballot]
* * * * *

Notes to the ``Calculation of Registration Fee'' Table (``Fee Table'')

    1. Specific details relating to the fee calculation shall be 
furnished in notes to the Fee Table, including references to provisions 
of Rule 457 (Sec.  230.457) relied upon, if the basis of the 
calculation is not otherwise evident from the information presented in 
the Fee Table.
    2. If the filing fee is calculated pursuant to Rule 457(o) under 
the Securities Act, only the title of the class of securities to be 
registered, the proposed maximum aggregate offering price for that 
class of securities, and the amount of registration fee need to appear 
in the Fee Table. Where two or more classes of securities are being 
registered pursuant to General Instruction II.D., however, the Fee 
Table need only specify the maximum aggregate offering price for all 
classes; the Fee Table need not specify by each class the proposed 
maximum aggregate offering price (see General Instruction II.D.).
    3. If the filing fee is calculated pursuant to Rule 457(r) under 
the Securities Act, the Fee Table must state that it registers an 
unspecified amount of securities of each identified class of securities 
and the initial filing fee. If the Fee Table is amended in a post-
effective amendment to the registration statement or in a prospectus 
filed in accordance with Rule 456(b)(1)(iii) (Sec.  230.456(b)(1)(iii)) 
deemed part of and included in the registration statement, the Fee 
Table must specify the aggregate offering price for all classes of 
securities in the referenced offering and the applicable registration 
fee.
    4. Any difference between the dollar amount of securities 
registered for such offerings and the dollar amount of securities sold 
may be carried forward on a future registration statement pursuant to 
Rule 457 under the Securities Act.

General Instructions

I. Eligibility Requirements for Use of Form S-3

* * * * *

C. Majority-Owned Subsidiaries

    If a registrant is a majority-owned subsidiary, security offerings 
may be registered on this Form if:
* * * * *
    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;
    4. The parent of the registrant-subsidiary meets the Registrant 
Requirements and the applicable Transaction Requirement, and the 
registrant-subsidiary fully and unconditionally guarantees the payment 
obligations on the parent's securities being registered;
    5. The registrant-subsidiary fully and unconditionally guarantees 
the payment obligations on the non-convertible obligations being 
registered by another majority-owned subsidiary in accordance with the 
requirements of I.C.1, I.C.2, or I.C.3 above; or
    6. The securities of the registrant-subsidiary are non-convertible 
obligations that are fully and unconditionally guaranteed by another 
majority-owned subsidiary of the parent registrant that itself meets 
the Registrant Requirements and the applicable Transaction Requirement 
by virtue of I.C.1 or I.C.2 above.


    Note to General Instruction I.C.: With regard to paragraphs 
I.C.3, I.C.4, I.C.5, and I.C.6 above, the guarantor is the issuer of 
a separate security consisting of the guarantee, which must be 
concurrently registered, but

[[Page 67478]]

may be registered on the same registration statement as are the 
guaranteed securities.

* * * * *

D. Automatic Shelf Offerings by Well-Known Seasoned Issuers

    Any registrant that, immediately prior to the filing of a 
registration statement on this Form, is a well-known seasoned issuer 
may use this Form for registration under the Securities Act of 
securities offerings pursuant to Rule 415 (Sec.  230.415), other than 
Rule 415(a)(1)(vii) or (viii) (Sec.  230.415(a)(1)(vii) or (viii)), as 
follows:
    1. The securities to be offered are:
    (a) Securities of the registrant to be offered pursuant to Rule 
415, Rule 430A, and Rule 430B (Sec.  230.415, Sec.  230.430A, and Sec.  
230.430B);
    (b) Securities of majority-owned subsidiaries to be offered 
pursuant to Rule 415 and Rule 430B if the parent registrant is a well-
known seasoned issuer and the subsidiary meets the following 
requirements:
    (i) Securities of a subsidiary that is a well-known seasoned issuer 
at the time it becomes a registrant, other than by virtue of paragraph 
(2) of the definition of well-known seasoned issuer in Rule 405 (Sec.  
230.405);
    (ii) Securities of a subsidiary that are non-convertible 
obligations and are fully and unconditionally guaranteed by the parent 
registrant;
    (iii) Securities of a subsidiary that are a guarantee of:
    (A) Obligations of the parent registrant; or
    (B) Non-convertible obligations of another majority-owned 
subsidiary where such obligations are fully and unconditionally 
guaranteed by the parent registrant;
    (iv) Securities of a subsidiary that are non-convertible 
obligations and are fully and unconditionally guaranteed by another 
majority-owned subsidiary of the parent registrant that itself is a 
well-known seasoned issuer at the time it becomes a registrant, other 
than by virtue of paragraph (2) of the definition of well-known 
seasoned issuer in Rule 405; or
    (v) Securities of a subsidiary that meet the conditions of 
Transaction Requirement I.B.2. (Primary Offerings of Non-Convertible 
Investment Grade Securities).
    (c) Securities to be offered for the account of any person other 
than the issuer (``selling security holders'') pursuant to General 
Instruction I.B.1. or I.B.3. of this Form, provided that the 
registration statement and the prospectus are not required to 
separately identify the securities to be sold by selling security 
holders until the filing of a prospectus, prospectus supplement, post-
effective amendment to the registration statement, or periodic or 
current report under the Exchange Act identifying the selling security 
holders and the amount of securities to be sold by each of them;
    2. The registrant requirements of General Instruction I.A.and 
transaction requirements of General Instruction I.B.1, I.B.2, I.B.3, or 
I.B.4 of this Form are satisfied;
    3. The registrant pays the registration fee either on a pay-as-you-
go basis pursuant to Rules 456(b) (Sec.  230.456(b)) and 457(r) (Sec.  
230.457(r)) or in accordance with Rule 456(a) (Sec.  230.456(a));
    4. If the registrant is a majority-owned subsidiary, it is required 
to file reports pursuant to Section 13 or 15(d) of the Exchange Act and 
satisfies the requirements of the Form with regard to incorporation by 
reference or information about the majority-owned subsidiary is 
included in the registration statement (or a post effective amendment 
to the registration statement);
    5. An automatic shelf registration statement and post-effective 
amendment will become effective automatically (Rule 462, Sec.  230.462) 
upon filing. All filings made on or in connection with automatic shelf 
registration statements on this Form become public upon filing with the 
Commission; and
    6. The registrant may register additional classes of its or its 
subsidiaries securities on a post-effective amendment pursuant to Rule 
413(b) (Sec.  203.413(b)).

II. Application of General Rules and Regulations

* * * * *

D. Non-Automatic Shelf Registration Statements

    Where two or more classes of securities being registered on this 
Form pursuant to General Instruction I.B.1. or I.B.2. are to be offered 
pursuant to Rule 415(a)(1)(x) (Sec.  230.415(a)(1)(x)), and where this 
Form is not an automatic shelf registration statement, Rule 457(o) 
(Sec.  230.457(o)) permits the registration fee to be calculated on the 
basis of the maximum offering price of all the securities listed in the 
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 Fee 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.

E. Automatic Shelf Registration Statements

    Where securities are being registered on this Form pursuant to 
General Instruction I.D., Rule 456(b) (Sec.  230.456(b)) permits the 
registrant to pay the registration fee on a pay-as-you-go basis and 
Rule 457(r) (Sec.  230.457(r)) permits the registration fee to be 
calculated on the basis of the aggregate offering price of the 
securities to be offered in a particular offering off the registration 
statement. In this event, the Fee Table in the initial filing must 
identify the classes of securities being registered and the initial 
filing fee, but the Fee Table does not need to specify any other 
information. When the registrant amends the Fee Table in accordance 
with Rule 456(b)(1)(iii) (Sec.  230.456(b)(1)(iii)), the amended Fee 
Table must include the aggregate offering price for all classes of 
securities referenced in the offering and the applicable registration 
fee.

F. Information in Automatic and Non-Automatic Shelf Registration 
Statements

    Where securities are being registered on this Form pursuant to 
General Instruction I.B.1, I.B.2, I.C., or I.D., information in is only 
required to be furnished as of the date of initial effectiveness of the 
registration statement to the extent required by Rule 430A (Sec.  
230.430A) or Rule 430B (Sec.  230.430B). Required information about a 
specific transaction must be included in the prospectus in the 
registration statement by means of a prospectus that is deemed to be 
part of and included in the registration statement pursuant to Rule 
430B, a post-effective amendment to the registration statement, or a 
periodic or current report under the Exchange Act incorporated by 
reference into the registration statement and the prospectus and 
identified in a prospectus filed pursuant to Rule 424(b) (Sec.  
230.424(b).

G. Selling Security Holder Offerings

    Where a registrant eligible to register primary offerings on this 
Form pursuant to General Instruction I.B.1 registers securities 
offerings on this Form pursuant to General Instruction I.B.1 or I.B.3 
for the account of persons other than the registrant, if the offering 
of securities being registered for resale on behalf of such persons was 
completed and the securities issued prior to filing the resale 
registration statement, the registrant may, in lieu of identifying all 
selling security holders prior to

[[Page 67479]]

effectiveness of the resale registration statement, identify any known 
selling security holders and the amounts of securities to be sold by 
them and refer to any unnamed selling security holders in a generic 
manner by identifying the transaction in which the securities were 
acquired. Following effectiveness, the registrant must file a 
prospectus, a prospectus supplement or a post-effective amendment to 
the registration statement to add the names of the previously 
unidentified selling security holders and amounts of securities that 
they intend to sell. If this Form is being filed pursuant to General 
Instruction I.D., for offerings pursuant to General Instruction I.B.1 
or I.B.3 for the account of persons other than the issuer, the 
registration statement and the prospectus included in the registration 
statement does not need to designate the securities that will be 
offered for the account of such persons, identify them, or identify the 
transactions in which they acquired their securities until the 
registrant files a post-effective amendment to the registration 
statement or a prospectus pursuant to Rule 424(b) (Sec.  230.424(b)) 
containing information for the offering on behalf of such persons.
* * * * *

IV. Registration of Additional Securities and Additional Classes of 
Securities

A. Registration of Additional Securities Pursuant to Rule 462(b)

* * * * *

B. Registration of Additional Classes of Securities After Effectiveness

    A registrant relying on General Instruction I.D. of this Form may 
register additional classes of securities, pursuant to Rule 413(b) 
(Sec.  230.413(b)) by filing a post-effective amendment to the 
effective registration statement. The registrant may add majority-owned 
subsidiaries as additional registrants whose securities are eligible to 
be sold as part of the automatic shelf registration statement by filing 
a post-effective amendment identifying the additional registrants and 
the registrant and the additional registrants and other persons 
required to sign the registration statement must sign the post-
effective amendment. The post-effective amendment, if filed, must 
consist of the facing page; any disclosure required by this Form that 
is necessary to update the registration statement to reflect the 
additional securities, additional classes of securities or additional 
registrants; any required opinions and consents; and the signature 
page. Such information, consents or opinions may be included in the 
prospectus and the registration statement through a post-effective 
amendment or may be provided through a document incorporated or deemed 
incorporated by reference into the registration statement and the 
prospectus, or, as to the information only, contained in a prospectus 
filed pursuant to Rule 424(b) (Sec.  230.424(b)) that is deemed part of 
and included in the registration statement and prospectus.
* * * * *

Part I.--Information Required in Prospectus

* * * * *

Item 12. Incorporation of Certain Information by Reference

* * * * *
    (d) Any information required in the prospectus in response to Item 
3 through Item 11 of this Form may be included in the prospectus 
through documents filed pursuant to Section 13(a), 14 or 15(d) of the 
Exchange Act that are incorporated or deemed incorporated by reference 
into the prospectus.
* * * * *
    47. Amend Form S-4 (referenced in Sec.  239.25) as follows:
    a. Revise paragraphs B.1.b., B.1.c., C.1.b. and C.1.c. to the 
General Instructions;
    b. Revise the heading and introductory text of Item 12;
    c. Revise the introductory text of Item 13;
    d. Revise the heading and introductory text of Item 14;
    e. Revise the heading and paragraph (a) of Item 16;
    f. Revise the heading and introductory text of Item 17;
    g. Revise paragraph (b) of Item 18; and h. Revise paragraph (c) of 
Item 19.
    The revisions read as follows:


    Note: The text of Form S-4 does not and the amendments will not 
appear in the Code of Federal Regulations.

Form S-4--Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

* * * * *

B. Information With Respect to the Registrant

* * * * *
    1. * * *
    b. Items 12 and 13 of this Form, if the registrant meets the 
requirements for use of Form S-3 and elects this alternative; or
    c. Item 14 of this Form, if the registrant does not meet the 
requirements for use of Form S-3, or if it otherwise elects to use this 
alternative.
* * * * *

C. Information With Respect to the Company Being Acquired

* * * * *
    1. * * *
    b. Item 16 of this Form, if the company being acquired meets the 
requirements for use of Form S-3 and this alternative is elected; or
    c. Item 17 of this Form, if the company being acquired does not 
meet the requirements for use of Form S-3, or if this alternative is 
otherwise elected.
* * * * *

Part I.--Information Required in Prospectus

* * * * *

B. Information About the Registrant

* * * * *
Item 12. Information With Respect to S-3 Registrants
    If the registrant meets the requirements for use of Form S-3 and 
elects to comply with this Item, furnish the information required by 
either paragraph (a) or paragraph (b) of this Item. The information 
required by paragraph (b) shall be furnished if the registrant 
satisfies the conditions of paragraph (c) of this Item.
* * * * *
Item 13. Incorporation of Certain Information by Reference
    If the registrant meets the requirements for use of Form S-3 and 
elects to furnish information in accordance with the provisions of Item 
12 of this Form:
* * * * *
Item 14. Information With Respect to Registrants Other Than S-3 
Registrants
    If the registrant does not meet the requirements for use of Form S-
3, or otherwise elects to comply with this Item in lieu of Item 10 or 
12, furnish the information required by:
* * * * *

C. Information About the Company Being Acquired

* * * * *
Item 16. Information With Respect to S-3 Companies
    (a) If the company being acquired meets the requirements for use of 
Form S-3 and elects to comply with this Item,

[[Page 67480]]

furnish the information that would be required by Items 12 or 13 of 
this Form if securities of such company were being registered.
* * * * *
Item 17. Information With Respect to Companies Other Than S-3 Companies
    If the company being acquired does not meet the requirements for 
use of Form S-3, or compliance with this Item is otherwise elected in 
lieu of Item 15 or 16, furnish the information required by paragraph 
(a) or (b) of this Item, whichever is applicable.
* * * * *

D. Voting and Management Information

Item 18. Information if Proxies, Consents or Authorizations Are To Be 
Solicited
* * * * *
    (b) If the registrant or the company being acquired meets the 
requirements for use of Form S-3, any information required by 
paragraphs (a)(5)(ii) and (7) of this Item with respect to such company 
may be incorporated by reference from its latest annual report on Form 
10-K.
* * * * *
Item 19. Information if Proxies, Consents or Authorizations Are Not To 
Be Solicited or in an Exchange Offer
* * * * *
    (c) If the registrant or the company being acquired meets the 
requirements for use of Form S-3, any information required by 
paragraphs (a)(5) and (7) of this Item with respect to such company may 
be incorporated by reference from its latest annual report on Form 10-
K.
* * * * *
    48. Amend Form F-1 (referenced in Sec.  239.31) as follows:
    a. Add General Instruction VI;
    b. Add Item 4A;
    c. Redesignate Item 5 as Item 5A; and
    d. Add new Item 5.
    The additions read as follows:

    Note: The text of Form F-1 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form F-1--Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

* * * * *

VI. Eligibility To Use Incorporation by Reference

    If a registrant meets the following requirements immediately prior 
to the time of filing a registration statement on this Form, it may 
elect to provide information required by Item 4 of this Form in 
accordance with Item 4 and Item 5 of this Form:
    A. The registrant is subject to the requirement to file reports 
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
(``Exchange Act'');
    B. The registrant has filed all reports and other materials 
required to be filed by Section 13(a) or 15(d) of the Exchange Act 
during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports and materials);
    C. The registrant has filed an annual report required under Section 
13(a) or 15(d) of the Exchange Act for its most recently completed 
fiscal year;
    D. The registrant is not an ineligible issuer;
    E. If a registrant is a successor registrant it shall be deemed to 
have met conditions A., B., C., and D. above if:
    1. Its predecessor and it, taken together, do so, provided that the 
succession was primarily for the purpose of changing the jurisdiction 
of incorporation of the predecessor or forming a holding company and 
that the assets and liabilities of the successor at the time of 
succession were substantially the same as those of the predecessor; or
    2. All predecessors met the conditions at the time of succession 
and the registrant has continued to do so since the succession;
    F. The registrant makes its periodic and current reports filed 
pursuant to Sections 13 or 15(d) of the Exchange Act readily available 
and accessible on a Web site maintained by or for the issuer and 
containing information about the issuer.
* * * * *

Item 4A. Material Changes

    a. If the registrant elects to incorporate information by reference 
pursuant to General Instruction VI., describe any and all material 
changes in the registrant's affairs which have occurred since the end 
of the latest fiscal year for which audited financial statements were 
included in accordance with Item 5 of this Form and which have not been 
described in a report on Form 6-K, Form 10-Q or Form 8-K filed under 
the Exchange Act and incorporated by reference pursuant to Item 5 of 
this Form.
    b.1. Include in the prospectus, if not included in the reports 
filed under the Exchange Act which are incorporated by reference into 
the prospectus pursuant to Item 5:
    i. Information required by Rule 3-05 and Article 11 of Regulation 
S-X;
    ii. Restated financial statements if there has been a change in 
accounting principles or a correction of an error where such change or 
correction requires material retroactive restatement of financial 
statements;
    iii. Restated financial statements where one or more business 
combinations accounted for by the pooling of interest method of 
accounting have been consummated subsequent to the most recent fiscal 
year and the acquired businesses, considered in the aggregate, are 
significant under Rule 11-01(b); or
    iv. Any financial information required because of a material 
disposition of assets outside the normal course of business.
    2. If the financial statements included in this registration 
statement in accordance with Item 6 are not sufficiently current to 
comply with the requirements of Item 8.A of Form 20-F, financial 
statements necessary to comply with that Item shall be presented:
    i. Directly in the prospectus;
    ii. Through incorporation by reference and delivery of a Form 6-K 
identified in the prospectus as containing such financial statements; 
or
    iii. Through incorporation by reference of an amended Form 20-F, 
Form 40-F, or Form 10-K, in which case the prospectus shall disclose 
that the Form 20-F, Form 40-F, or Form 10-K has been so amended.
    Instruction. Financial statements or information required to be 
furnished by this Item shall be reconciled pursuant to either Item 17 
or 18 of Form 20-F, whichever is applicable to the primary financial 
statements.

Item 5. Incorporation of Certain Information by Reference

    If the registrant elects to incorporate information by reference 
pursuant to General Instruction VI.:
    a. It must specifically incorporate by reference into the 
prospectus the following documents by means of a statement to that 
effect in the prospectus listing all such documents:
    1. The registrant's latest annual report on Form 20-F, Form 40-F or 
Form 10-K filed under the Exchange Act shall be incorporated by 
reference.
    2. Any report on Form 10-Q or Form 8-K filed since the date of 
filing of the annual report shall also be incorporated by reference. 
The registrant may also incorporate by reference any Form 6-K meeting 
the requirements of this Form.

    Note to Item 5.a. Attention is directed to Rule 439 (Sec.  
230.439) regarding consent to use of material incorporated by 
reference.

    b.1. The registrant must state:

[[Page 67481]]

    i. That it will provide to each person, including any beneficial 
owner, to whom a prospectus is delivered, a copy of any or all of the 
reports or documents that have been incorporated by reference in the 
prospectus but not delivered with the prospectus;
    ii. That it will provide these reports or documents upon written or 
oral request;
    iii. That it will provide these reports or documents at no cost to 
the requester;
    iv. The name, address, telephone number, and e-mail address to 
which the request for these reports or documents must be made; and
    v. The registrant's Web site address, including the uniform 
resource locator (URL) where the reports and other documents may be 
accessed.


    Note to Item 5.b.1. If the registrant sends any of the 
information that is incorporated by reference in the prospectus to 
security holders, it also must send any exhibits that are 
specifically incorporated by reference in that information.


    2. The registrant must:
    i. Identify the reports and other information that it files with 
the SEC; and
    ii. State that the public may read and copy any materials it files 
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, 
NW., Washington, DC 20549. State that the public may obtain information 
on the operation of the Public Reference Room by calling the SEC at 1-
800-SEC-0330. If the registrant is an electronic filer, state that the 
SEC maintains an Internet site that contains reports, proxy and 
information statements, and other information regarding issuers that 
file electronically with the SEC and state the address of that site 
(http://www.sec.gov).
* * * * *
    49. Remove and reserve Sec.  239.32 and remove Form F-2 referenced 
in that section.
    50. Amend Sec.  239.33 as follows:
    a. Remove the word ``or'' at the end of paragraph (a)(5)(ii);
    b. Revise paragraph (a)(5)(iii);
    c. Add paragraphs (a)(5)(iv), (a)(5)(v), and (a)(5)(vi); and
    d. Add paragraph (c).
    The revisions and additions read as follows:


Sec.  239.33  Form F-3, for registration under the Securities Act of 
1933 of securities of certain foreign private issuers offered pursuant 
to certain types of transactions.

* * * * *
    (a) * * *
    (5) * * *
    (iii) 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;
    (iv) The parent of the registrant-subsidiary meets the Registrant 
Requirements and the applicable Transaction Requirement, and the 
registrant-subsidiary fully and unconditionally guarantees the payment 
obligations on the parent's securities being registered;
    (v) The registrant-subsidiary fully and unconditionally guarantees 
the payment obligations on the non-convertible obligations being 
registered by another majority-owned subsidiary in accordance with the 
requirements of paragraph (a)(5)(i), (a)(5)(ii), or (a)(5)(iii) of this 
section; or
    (vi) The securities of the registrant-subsidiary are non-
convertible obligations that are fully and unconditionally guaranteed 
by another majority-owned subsidiary of the parent registrant that 
itself meets the Registrant Requirements and the applicable Transaction 
Requirement by virtue of paragraph (a)(5)(i) or (a)(5)(ii) of this 
section.


    Note to paragraphs (a)(5)(iii), (a)(5)(iv), (a)(5)(v), and 
(a)(5)(vi): In the situation described in paragraphs (a)(5)(iii), 
(a)(5)(iv), (a)(5)(v), and (a)(5)(vi) of this section, the parent or 
subsidiary guarantor is the issuer of a separate security consisting 
of the guarantee, which must be concurrently registered, but may be 
registered on the same registration statement as are the guaranteed 
securities. Both the parent or subsidiary guarantor and the 
majority-owned subsidiary shall each disclose the information 
required by this Form as if each were the only registrant except 
that if the subsidiary will not be eligible to file annual reports 
on Form 20-F or Form 40-F (Sec. Sec.  249.220f or 249.240f of this 
chapter) after the effective date of the registration statement, 
then it shall disclose the information specified in Form S-3 (Sec.  
239.13). Rule 3-10 of Regulation S-X (Sec.  210.3-10 of this 
chapter) specifies the financial statements required.

* * * * *
    (c) Automatic shelf offerings by well-known seasoned issuers.
    Any registrant that, immediately prior to the filing of a 
registration statement on this Form, is a well-known seasoned issuer 
may use this Form for registration under the Securities Act of 
securities offerings pursuant to Rule 415 (Sec.  230.415 of this 
chapter), other than Rule 415(a)(1)(vii) (Sec.  230.415(a)(1)(vii) of 
this chapter), as follows:
    (1) The securities to be offered are:
    (i) Securities of the registrant to be offered pursuant to Rule 
415, Rule 430A and Rule 430B (Sec.  230.415, Sec.  230.430A, and Sec.  
230.430B of this chapter);
    (ii) Securities of majority-owned subsidiaries to be offered 
pursuant to Rule 415 and Rule 430B (Sec.  230.415 and Sec.  230.430B of 
this chapter) if the parent registrant is a well-known seasoned issuer 
and the subsidiary meets the following requirements:
    (A) Securities of a subsidiary that is a well-known seasoned issuer 
at the time it becomes a registrant, other than by virtue of paragraph 
(2) of the definition of well-known seasoned issuer in Rule 405 (Sec.  
230.405 of this chapter);
    (B) Securities of a subsidiary that are non-convertible obligations 
and are fully and unconditionally guaranteed by the parent registrant;
    (C) Securities of a subsidiary that are a guarantee of:
    (1) Obligations of the parent registrant; or
    (2) Non-convertible obligations of another majority-owned 
subsidiary where such obligations are fully and unconditionally 
guaranteed by the parent registrant;
    (D) Securities of a subsidiary that are non-convertible obligations 
and are fully and unconditionally guaranteed by another majority-owned 
subsidiary of the parent registrant that itself is a well-known 
seasoned issuer at the time it becomes a registrant, other than by 
virtue of paragraph (2) of the definition of well-known seasoned issuer 
in Rule 405 (Sec.  230.405 of this chapter); or
    (E) Securities of a subsidiary that meet the conditions of the 
Transaction Requirement set forth in paragraph (b)(2) (Primary 
Offerings of Non-Convertible Investment Grade Securities); or
    (iii) Securities to be offered for the account of any person other 
than the issuer (``selling security holders'') pursuant to paragraph 
(b)(1) or (b)(3) of this Form, provided that the registration statement 
and the prospectus are not required to separately identify the 
securities to be sold by selling security holders until the filing of a 
prospectus, prospectus supplement, post-effective amendment to the 
registration statement or Form 8-K or Form 6-K incorporated by 
reference (Sec. Sec.  249.308 or 249.306 of this chapter) identifying 
the selling security holders and the amount of securities to be sold by 
each of them.
    (2) The registrant requirements of paragraph (a) of this section 
and transaction requirements of paragraph (b)(1), (b)(2), (b)(3) or 
(b)(4) of this section are satisfied;
    (3) The registrant pays the registration fee either on a pay-as-
you-go basis pursuant to Rules 456(b) (Sec.  230.456(b) of

[[Page 67482]]

this chapter) and 457(r) (Sec.  230.457(r) of this chapter) or in 
accordance with Rule 456(a) (Sec.  230.456(a) of this chapter);
    (4) If the registrant is a majority-owned subsidiary, it is 
required to file reports pursuant to section 13 or 15(d) of the 
Exchange Act (15 U.S.C. 78m and 78o(d)) and satisfies the requirements 
of this Form with regard to incorporation by reference or information 
about the subsidiary is included in the registration statement (or a 
post effective amendment to the registration statement);
    (5) An automatic shelf registration statement and post-effective 
amendment will become effective automatically pursuant to Rule 462 
(Sec.  230.462) upon filing. All filings made on or in connection with 
automatic shelf registration statements on this Form become public upon 
filing with the Commission; and
    (6) The registrant may register additional classes of its or its 
subsidiaries securities on a post-effective amendment pursuant to Rule 
413(b) (Sec.  230.413(b)).
    51. Amend Form F-3 (referenced in Sec.  239.33) as follows:
    a. Add two check boxes to the cover page immediately before 
``Calculation of Registration Fee'' table;
    b. Revise the Note to the ``Calculation of Registration Fee'' 
Table;
    c. Remove the word ``or'' at the end of paragraph (ii), revise 
paragraph (iii) and add paragraph (iv), (v), and (vi) to General 
Instruction I.A.5.;
    d. Add paragraph C. to General Instruction I.;
    e. Revise paragraph C. of General Instruction II.;
    f. Add paragraphs F., G., and H. to General Instruction II.;
    g. Revise the heading of General Instruction IV and designate the 
current text under General Instruction IV as paragraph A;
    h. Add a heading to paragraph A.;
    i. Add paragraph B. to General Instruction IV; and
    j. Add paragraph (f) of Item 6 to Part I.
    The revisions and additions read as follows:


    Note: The text of Form F-3 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form F-3--Registration Statement Under the Securities Act of 1933

* * * * *
    If this Form is a registration statement pursuant to General 
Instruction I.C. or a post-effective amendment thereto that shall 
become effective upon filing with the Commission pursuant to Rule 
462(e) under the Securities Act, check the following box. [ballot]
    If this Form is a post-effective amendment to a registration 
statement filed pursuant to General Instruction I.C. filed to register 
additional securities or additional classes of securities pursuant to 
Rule 413(b) under the Securities Act, check the following box. [ballot]
* * * * *

Notes to the ``Calculation of Registration Fee'' Table (``Fee Table'')

    1. Specific details relating to the fee calculation shall be 
furnished in notes to the Fee Table, including references to provisions 
of Rule 457 (Sec.  230.457 ) relied upon, if the basis of the 
calculation is not otherwise evident from the information presented in 
the Fee Table.
    2. If the filing fee is calculated pursuant to Rule 457(o) under 
the Securities Act, only the title of the class of securities to be 
registered, the proposed maximum aggregate offering price for that 
class of securities, and the amount of registration fee need to appear 
in the Fee Table. Where two or more classes of securities are being 
registered pursuant to General Instruction II.C., however, the Fee 
Table need only specify the maximum aggregate offering price for all 
classes; the Fee Table need not specify by each class the proposed 
maximum aggregate offering price (see General Instruction II.C.).
    3. If the filing fee is calculated pursuant to Rule 457(r) under 
the Securities Act, the Fee Table must state that it registers an 
unspecified amount of securities of each identified class of securities 
and the initial filing fee. If the Fee Table is amended in a post-
effective amendment to the registration statement or in a prospectus 
filed in accordance with Rule 456(b)(1)(iii) (Sec.  230.456(b)(1)(iii)) 
deemed part of and included in the registration statement, the Fee 
Table must specify the aggregate offering price for all classes of 
securities in the referenced offering and the applicable registration 
fee.
    4. Any difference between the dollar amount of securities 
registered for such offerings and the dollar amount of securities sold 
may be carried forward on a future registration statement pursuant to 
Rule 457 under the Securities Act.

General Instructions

I. Eligibility Requirements for Use of Form F-3

* * * * *

A. Registrant Requirements

* * * * *
5. Majority-Owned Subsidiaries
    If a registrant is a majority-owned subsidiary, security offerings 
may be registered on this Form if:
* * * * *
    (iii) 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;
    (iv) The parent of the registrant-subsidiary meets the Registrant 
Requirements and the applicable Transaction Requirement, and the 
registrant-subsidiary fully and unconditionally guarantees the payment 
obligations on the parent's securities being registered;
    (v) The registrant-subsidiary fully and unconditionally guarantees 
the payment obligations on the non-convertible obligations being 
registered by another majority-owned subsidiary in accordance with the 
requirements of paragraph I.A.5(i), (ii), or (iii) above; or
    (vi) The securities of the registrant-subsidiary are non-
convertible obligations that are fully and unconditionally guaranteed 
by another majority-owned subsidiary of the parent registrant that 
itself meets the Registrant Requirements and the applicable Transaction 
Requirement by virtue of paragraph I.A.5(i), or I.A.5(ii) above.


    Note: In the situation described in paragraphs I.A.5(iii), 
I.A.5(iv), I.A.5(v), and I.A.5(vi) above, the parent or subsidiary 
guarantor is the issuer of a separate security consisting of the 
guarantee, which must be concurrently registered, but may be 
registered on the same registration statement as are the guaranteed 
securities. Both the parent or subsidiary guarantor and the 
majority-owned subsidiary shall each disclose the information 
required by this Form as if each were the only registrant except 
that if the subsidiary will not be eligible to file annual reports 
on Form 10-F or Form 40-F after the effective date of the 
registration statement, then it shall disclose the information 
specified in Form S-3. Rule 3-10 of Regulation X (Sec.  210.3-10) 
specifies the financial statements required.

* * * * *

C. Automatic Shelf Offerings by Well-Known Seasoned Issuers

    Any registrant that, immediately prior to the filing of a 
registration statement on this Form, is a well-known seasoned issuer 
may use this Form for registration under the Securities Act of 
securities offerings pursuant to Rule 415

[[Page 67483]]

(Sec.  230.415), other than Rule 415(a)(1)(vii) or (viii) (Sec.  
230.415(a)(1)(vii) or (viii)) as follows:
    1. The securities to be offered are:
    (a) Securities of the registrant to be offered pursuant to Rule 
415, Rule 430A and Rule 430B (Sec.  230.415, Sec.  230.430A and Sec.  
230.430B);
    (b) Securities of majority-owned subsidiaries to be offered 
pursuant to Rule 415 and Rule 430B if the parent registrant is a well-
known seasoned issuer and the subsidiary meets the following 
requirements:
    (i) Securities of a subsidiary that is a well-known seasoned issuer 
at the time it becomes a registrant, other than by virtue of paragraph 
(2) of the definition of well-known seasoned issuer in Rule 405 (Sec.  
230.405);
    (ii) Securities of a subsidiary that are non-convertible 
obligations and are fully and unconditionally guaranteed by the parent 
registrant;
    (iii) Securities of a subsidiary that are a guarantee of (A) 
obligations of the parent registrant or (B) non-convertible obligations 
of another majority-owned subsidiary where such obligations are fully 
and unconditionally guaranteed by the parent registrant;
    (iv) Securities of a subsidiary that are non-convertible 
obligations and are fully and unconditionally guaranteed by another 
majority-owned subsidiary of the parent registrant that itself is a 
well-known seasoned issuer at the time it becomes a registrant, other 
than by virtue of paragraph (2) of the definition of well-known 
seasoned issuer in Rule 405 (Sec.  230.405); or
    (v) Securities of a subsidiary that meet the conditions of 
Transaction Requirement I.B.2. (Primary Offerings of Non-Convertible 
Investment Grade Securities).
    (c) Securities to be offered for the account of any person other 
than the issuer (``selling security holders'') pursuant to General 
Instruction I.B.1. or I.B.3. of this Form, provided that the 
registration statement and the prospectus are not required to 
separately identify the securities to be sold by selling security 
holders until the filing of a prospectus, prospectus supplement, post-
effective amendment to the registration statement or report under the 
Exchange Act identifying the selling security holders and the amount of 
securities to be sold by each of them.
    2. The registrant requirements of General Instruction I.A. and 
transaction requirements of General Instruction I.B.1, I.B.2, I.B.3, or 
I.B.4 of this Form are satisfied.
    3. The registrant pays the registration fee either on a pay-as-you-
go basis pursuant to Rules 456(b) (Sec.  230.456(b)) and 457(r) (Sec.  
230.457(r)) or in accordance with Rule 456(a) (Sec.  230.456(a)).
    4. If the registrant is a majority-owned subsidiary, it is required 
to file reports pursuant to Section 13 or 15(d) of the Exchange Act and 
satisfies the requirements of the Form with regard to incorporation by 
reference or information about the subsidiary is included in the 
registration statement (or a post effective amendment to the 
registration statement).
    5. An automatic shelf registration statement and post-effective 
amendment will become effective automatically (Rule 462, Sec.  230.462) 
upon filing. All filings made on or in connection with automatic shelf 
registration statements on this Form become public upon filing with the 
Commission.
    6. The registrant may register additional classes of its or its 
subsidiaries securities on a post-effective amendment pursuant to Rule 
413(b) (Sec.  203.413(b)).

II. Application of General Rules and Regulations

* * * * *

C. Non-Automatic Shelf Registration Statements

    Where two or more classes of securities being registered on this 
Form pursuant to General Instruction I.B.1.or I.B.2. are to be offered 
pursuant to Rule 415(a)(1)(x) (Sec.  230.415(a)(1)(x)), and where this 
Form is not an automatic shelf registration statement, Rule 457(o) 
(Sec.  230.457(o)) permits the registration fee to be calculated on the 
basis of the maximum offering price of all the securities listed in the 
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 Fee 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.
* * * * *

F. Automatic Shelf Registration Statements

    Where securities are being registered on this Form pursuant to 
General Instruction I.C., Rule 456(b) (Sec.  230.456(b)) permits the 
registrant to pay the registration fee on a pay-as-you-go basis and 
Rule 457(r) (Sec.  230.457(r)) permits the registration fee to be 
calculated on the basis of the aggregate offering price of the 
securities to be offered in a particular offering off the registration 
statement. In this event, the Fee Table in the initial filing must 
identify the classes of securities being registered and the initial 
filing fee, but the Fee Table does not need to specify any other 
information. When the registrant amends the Fee Table in accordance 
with Rule 456(b)(1)(iii) (Sec.  230.456(b)(1)(iii)), the amended Fee 
Table must include the aggregate offering price for all classes of 
securities referenced in the offering and the applicable registration 
fee.

G. Information in Automatic and Non-Automatic Shelf Registration 
Statements

    Where securities are being registered on this Form pursuant to 
General Instruction I.A.5, I.B.1, I.B.2, or I.C., information is only 
required to be furnished as of the date of initial effectiveness of the 
registration statement to the extent required by Rule 430B (Sec.  
230.430B). Required information about a specific transaction must be 
included in the prospectus in the registration statement by means of a 
prospectus that is deemed to be part of and included in the 
registration statement pursuant to Rule 430A or 430B (Sec.  230.430A or 
Sec.  230.430B), a post-effective amendment to the registration 
statement, or a periodic or current report under the Exchange Act 
incorporated by reference into the registration statement and the 
prospectus and identified in a prospectus filed pursuant to Rule 424(b) 
(Sec.  230.424(b)).

H. Selling Security Holder Offerings

    Where a registrant eligible to register primary offerings on this 
Form pursuant to General Instruction I.B.1 registers securities 
offerings on this Form pursuant to General Instruction I.B.1 or I.B.3 
for the account of persons other than the registrant, if the offering 
of securities being registered for resale on behalf of such persons was 
completed and the securities issued prior to filing the resale 
registration statement, the registrant may, in lieu of identifying all 
selling security holders prior to effectiveness of the resale 
registration statement, identify any known selling security holders and 
the amounts of securities to be sold by them and refer to any unnamed 
selling security holders in a generic manner by identifying the 
transaction in which the securities were acquired. Following 
effectiveness, the registrant must file a prospectus, a prospectus 
supplement or a post-effective amendment to the registration statement 
to add the names of the previously unidentified selling security 
holders and amounts of securities that they intend to sell. If this 
Form is being filed pursuant to General Instruction I.C., for offerings 
pursuant to General

[[Page 67484]]

Instruction I.B.1 or I.B.3 for the account of persons other than the 
issuer, the registration statement and the prospectus included in the 
registration statement does not need to designate the securities that 
will be offered for the account of such persons, identify them, or 
identify the transactions in which they acquired their securities until 
the registrant files a post-effective amendment to the registration 
statement or a prospectus pursuant to Rule 424(b) (Sec.  230.424(b)) 
containing information for the offering on behalf of such persons.
* * * * *

IV. Registration of Additional Securities and Additional Classes of 
Securities

A. Registration of Additional Securities Pursuant to Rule 462(b)

* * * * *

B. Registration of Additional Classes of Securities After Effectiveness

    A registrant relying on General Instruction I.C. of this Form may 
register additional classes of securities, pursuant to Rule 413(b) 
(Sec.  230.413(b)) by filing a post-effective amendment to the 
effective registration statement. The registrant may add majority-owned 
subsidiaries as additional registrants whose securities are eligible to 
be sold as part of the automatic shelf registration statement by filing 
a post-effective amendment identifying the additional registrants and 
the registrant and the additional registrants and other persons 
required to sign the registration statement must sign the post-
effective amendment. The post-effective amendment, if filed, must 
consist of the facing page; any disclosure required by this Form that 
is necessary to update the registration statement to reflect the 
additional securities, additional classes of securities or additional 
registrants; any required opinions and consents; and the signature 
page. Such information, consents or opinions may be included in the 
prospectus and the registration statement through a post-effective 
amendment or may be provided through a document incorporated or deemed 
incorporated by reference into the registration statement and the 
prospectus, or, as to the information only, contained in a prospectus 
filed pursuant to Rule 424(b) (Sec.  230.424(b)) that is deemed part of 
and included in the registration statement and prospectus.
* * * * *

Part I.--Information Required in Prospectus

* * * * *

Item 6. Incorporation of Certain Information by Reference

* * * * *
    (f) Any information required in the prospectus in response to Item 
3 through Item 5 of this Form may be included in the prospectus through 
documents filed pursuant to Sections 13(a), 14, or 15(d) of the 
Exchange Act that are incorporated or deemed incorporated by reference 
into the prospectus.
* * * * *
    52. Amend Form F-4 (referenced in Sec.  239.34) as follows:
    a. Revise paragraph B.1.(b), B.1.(c), C.1.(b) and C.1.(c) to the 
General Instructions;
    b. Revise the heading, introductory text, and the introductory text 
of paragraphs (b)(2) and (b)(3)(vii) to Item 12 in Part I.;
    c. Revise Instructions 1. and 3. to Item 13;
    d. Revise the heading and introductory text of Item 14;
    e. Revise the heading and text of Item 16;
    f. Revise the heading and introductory text of Item 17;
    g. Revise paragraph (b) of Item 18; and
    h. Revise the heading and paragraph (c) of Item 19.
    The revisions read as follows:


    Note: The text of Form F-4 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form F-4--Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

* * * * *

B. Information With Respect to the Registrant

* * * * *
    1. * * *
    (b) Items 12 and 13 of this Form, if the registrant meets the 
requirements for use of Form F-3 and elects this alternative; or
    (c) Item 14 of this Form, if the registrant does not meet the 
requirements for use of Form F-3, or if it otherwise elects this 
alternative.
* * * * *

C. Information With Respect to the Company Being Acquired

    1. * * *
    (b) Item 16 of this Form, if the company being acquired meets the 
requirements for use of Form F-3 and this alternative is elected; or
    (c) Item 17 of this Form, if the company being acquired does not 
meet the requirements for use of Form F-3, or if this alternative is 
otherwise elected.
* * * * *

Part I.--Information Required in Prospectus

* * * * *

B. Information About the Registrant

* * * * *
Item 12. Information With Respect to F-3 Registrants
    If the registrant meets the requirements use of Form F-3 or Form S-
3 and elects to comply with this Item, furnish the information required 
by either paragraph (a) or (b) of this Item. However, the registrant 
shall not provide prospectus information in the manner allowed by 
paragraph (a) of this Item if the financial statements incorporated by 
reference pursuant to Item 13 reflect:
* * * * *
    (b) * * *
    (2) Include financial statements and information as required by 
Item 18 of Form 20-F, except that financial statements of the 
registrant may comply with Item 17 of Form 20-F if the only securities 
being registered are investment grade securities as defined in the 
General Instructions to Form F-3. In addition, provide:
* * * * *
    (3) * * *
    (vii) Financial statements required by Item 18 of Form 20-F, except 
that financial statements of the registrant may comply with Item 17 of 
Form 20-F if the only securities being registered are investment grade 
securities as defined in the General Instructions to Form F-3, and 
financial information required by Rule 3-05 and Article 11 of 
Regulation S-X with respect to transactions other than that pursuant to 
which the securities being registered are to be issued (Schedules 
required under Regulation S-X shall be filed as ``Financial Statement 
Schedules'' pursuant to Item 21 of this Form, but need not be provided 
with respect to the company being acquired if information is being 
furnished pursuant to Item 17(a) of this Form); and
* * * * *
Item 13. Incorporation of Certain Information by Reference
* * * * *
    Instructions.
    1. All annual reports incorporated by reference pursuant to Item 13 
of this Form shall contain financial statements that comply with Item 
18 of Form 20-F, except that financial statements of the

[[Page 67485]]

registrant may comply with Item 17 of Form 20-F if the only securities 
being registered are investment grade securities as defined in the 
General Instructions to Form F-3.
* * * * *
    3. The registrant may incorporate by reference and deliver with the 
prospectus any Form 6-K, Form 10-Q or Form 8-K containing information 
eligible to be incorporated by reference into Form F-1. See Rules 4-
01(a)(2) and 10-01 of Regulation S-X and Item 18 of Form 20-F.
* * * * *
Item 14. Information With Respect to Registrants Other Than F-3 
Registrants
    If the registrant does not meet the requirements for use of Form F-
3, or otherwise elects to comply with this Item in lieu of Items 10 and 
11 or Items 12 and 13, furnish the following information:
* * * * *

C. Information About the Company Being Acquired

* * * * *
Item 16. Information With Respect to F-3 Companies
    a. If the company being acquired meets the requirements for use of 
Form F-3 and compliance with this Item is elected, furnish the 
information that would be required by Items 12 and 13 of this Form if 
securities of such company were being registered.
* * * * *
Item 17. Information With Respect to Foreign Companies Other Than F-3 
Companies
    If the company being acquired does not meet the requirements for 
use of Form F-3 or compliance with this Item is otherwise elected in 
lieu of Item 15 or 16, furnish the information required by paragraph 
(a) or (b) of this Item, whichever is applicable.
* * * * *

D. Voting and Management Information

Item 18. Information if Proxies, Consents or Authorizations Are To Be 
Solicited
* * * * *
    (b) If the registrant or the company being acquired meets the 
requirements for use of Form F-3, any information required by 
paragraphs (a)(5)(ii) and (7) of this Item with respect to such company 
may be incorporated by reference from its latest annual report on Form 
20-F.
Item 19. Information if Proxies, Consents or Authorizations Are Not To 
Be Solicited or in an Exchange Offer
* * * * *
    (c) If the registrant or the company being acquired meets the 
requirements for use of Form F-3, any information required by 
paragraphs (a)(5) and (7) of this Item with respect to such company may 
be incorporated by reference from its latest annual report on Form 20-
F.
* * * * *

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

    53. The authority citation for part 240 continues to read in part 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *
    54. Amend Sec.  240.14a-2 as follows:
    a. Remove the authority citation following the section; and
    b. Add paragraph (b)(5).
    The addition reads as follows:


Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (5) Publication or distribution by a broker or a dealer of a 
research report in accordance with Rule 138 (Sec.  230.138 of this 
chapter) or Rule 139 (Sec.  230.139 of this chapter) during a 
transaction registered under the Securities Act of 1933 in which the 
broker or dealer or its affiliate participates or acts in an advisory 
role.

PART 243--REGULATION FD

    55. The authority citation for part 243 continues to read as 
follows:

    Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 
80a-29, unless otherwise noted.

    56. Amend Sec.  243.100 by revising paragraph (b)(2)(iv) to read as 
follows:


Sec.  243.100  General rule regarding selective disclosure.

* * * * *
    (b) * * *
    (2) * * *
    (iv) By any of the following means in connection with a securities 
offering registered under the Securities Act, other than an offering of 
the type described in any of Rule 415(a)(1)(i) through (vi) under the 
Securities Act (Sec.  230.415(a)(1)(i) through (vi) of this chapter) 
that does not also involve a registered offering for capital formation 
purposes for the account of the issuer, including an underwritten 
offering that is both for the account of the issuer and selling 
security holders (unless the issuer's offering is being registered for 
the purpose of evading the requirements of this section):
    (A) A registration statement filed under the Securities Act, 
including a prospectus contained therein;
    (B) A free writing prospectus used after filing of the registration 
statement for the offering and satisfying the requirements of Rule 433 
under the Securities Act (Sec.  230.433 of this chapter), or a 
communication falling within the exception to the definition of 
prospectus contained in clause (a) of section 2(a)(10) of the 
Securities Act;
    (C) Any other Section 10(b) prospectus;
    (D) A notice permitted by Rule 135 under the Securities Act (Sec.  
230.135 of this chapter);
    (E) A communication permitted by Rule 134 under the Securities Act 
(Sec.  230.134 of this chapter); and
    (F) An oral communication made in connection with the registered 
securities offering after filing of the registration statement for the 
offering under the Securities Act.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350 et seq., unless otherwise noted.
* * * * *
    58. Amend Form 10 (referenced in Sec.  249.210) by adding Item 1A. 
to read as follows:


    Note: The text of Form 10 does not, and this amendment will not, 
appear in the Code of Federal Regulations.

Form 10

* * * * *

Item 1A. Risk Factors

    Set forth, under the caption ``Risk Factors'', the risk factors 
described in Item 503(c) of Regulation S-K (Sec.  229.503(c)) 
applicable to the registrant, including the most significant factors 
with respect to the registrant's business, operations, industry, or 
financial position that may have a negative impact on the registrant's 
future financial performance. Provide the discussion of risk factors in 
plain English in accordance with Rule 421(d)

[[Page 67486]]

of the Securities Act of 1933 (Sec.  230.421(d) of this chapter).
* * * * *
    59. Amend Form 20-F (referenced in Sec.  249.220f) as follows:
    a. Add the a check box to the cover page before the paragraph that 
starts ``Indicate by check mark whether the registrant (1) has filed 
all reports required to be filed by Section 13 or 15(d) of the 
Securities Exchange Act of 1934 during the preceding 12 months * * *'';
    b. Revise paragraph (c) to General Instruction E; and
    c. Add Item 4A.
    The revision and additions read as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *
    Check the following box if the registrant is not required to file 
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 
of 1934.

    Note: Checking the box above will not relieve any registrant 
required to file reports pursuant to Section 13 or 15(d) of the 
Securities Exchange Act of 1934 from their obligations under those 
Sections.

* * * * *

General Instructions

* * * * *

E. Which Items To Respond to in Registration Statements and Annual 
Reports

* * * * *
    (c) Financial Statements. An Exchange Act registration statement or 
annual report filed on this Form must contain the financial statements 
and related information specified in Item 17 of this Form. We encourage 
you to provide the financial statements and related information 
specified in Item 18 of this Form in lieu of Item 17, but the Item 18 
statements and information are not required. In certain circumstances, 
Forms F-1, F-3 or F-4 for the registration of securities under the 
Securities Act require that you provide the financial statements and 
related information specified in Item 18 in your annual report on Form 
20-F. Consult those Securities Act forms for the specific requirements 
and consider the potential advantages of complying with Item 18 instead 
of Item 17 of this Form. Note that Items 17 and 18 may require you to 
file financial statements of other entities in certain circumstances. 
These circumstances are described in Regulation S-X.
    The financial statements must be audited in accordance with U.S. 
generally accepted auditing standards, and the auditor must comply with 
the U.S. standards for auditor independence. If you have any questions 
about these requirements, contact the Office of Chief Accountant in the 
Division of Corporation Finance at (202) 942-2960.
* * * * *
Item 4. * * *
Item 4A. Unresolved Staff Comments
    If the registrant is an accelerated filer and has received written 
comments from the Commission staff regarding its periodic filings under 
the Exchange Act not less than 180 days before the end of its fiscal 
year to which the annual report relates, and such comments remain 
unresolved, disclose the substance of any such unresolved comments that 
the registrant believes are material. Such disclosure may include the 
position of the registrant with respect to any such comment.
* * * * *
    60. Amend Form 10-K (referenced in Sec.  249.310) as follows:
    a. Add a check box to the cover page before the paragraph that 
starts ``Indicate by check mark whether the registrant (1) has filed 
all reports required to be filed by Section 13 or 15(d) of the 
Securities Exchange Act of 1934 during the preceding 12 months * * *'';
    b. Add Item 1A. to Part I; and
    c. Add Item 1B. to Part I.
    The additions read as follows:


    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-K

* * * * *
    Check the following box if the registrant is not required to file 
reports pursuant to Section 13 or 15(d) of the Act. [ballot]


    Note: Checking the box above will not relieve any registrant 
required to file reports pursuant to Section 13 or 15(d) of the Act 
from their obligations under those Sections.

* * * * *

Part I

* * * * *

Item 1. * * *

Item 1A. Risk Factors

    Set forth, under the caption ``Risk Factors,'' the risk factors 
described in Item 503(c) of Regulation S-K (Sec.  229.503(c)) 
applicable to the registrant, including the most significant factors 
with respect to the registrant's business, operations, industry, or 
financial position that may have a negative impact on the registrant's 
future financial performance. Provide the discussion of risk factors in 
plain English in accordance with Rule 421(d) of the Securities Act of 
1933 (Sec.  230.421(d) of this chapter).

Item 1B. Unresolved Staff Comments

    If the registrant is an accelerated filer and has received written 
comments from the Commission staff regarding its periodic filings under 
the Act not less than 180 days before the end of its fiscal year to 
which the annual report relates, and such comments remain unresolved, 
disclose the substance of any such unresolved comments that the 
registrant believes are material. Such disclosure may include the 
position of the registrant with respect to any such comment.
* * * * *
    61. Amend Form 10-KSB (referenced in Sec.  249.310b) by adding a 
check box to the cover page before the paragraph that starts ``Indicate 
by check mark whether the registrant (1) has filed all reports required 
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months * * *'' to read as follows:


    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-KSB

* * * * *
    Check the following box if the registrant is not required to file 
reports pursuant to Section 13 or 15(d) of the Exchange Act. [ballot]


    Note: Checking the box above will not relieve any registrant 
required to file reports pursuant to Section 13 or 15(d) of the 
Exchange Act from their obligations under those Sections.

* * * * *
    62. Amend Form 10-Q (referenced in Sec.  249.308a) by adding Item 
1A to Part II to read as follows:

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-Q

* * * * *

Part II. Other Information

* * * * *

[[Page 67487]]

Item 1. * * *

Item 1A. Risk Factors

    Set forth any material changes from previously disclosed risk 
factors contained in the registrant's Form 10-K in response to Item 1A 
to part I of Form 10-K.
* * * * *

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

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

    63. The authority citation for Part 274 continues to read in part 
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.
* * * * *
    64. Amend Form N-2 (referenced in Sec.  239.14 and Sec.  274.11a-1) 
by adding paragraphs 4.d and 4.e to Item 34, to read as follows:

    Note: The text of Form N-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *

Item 34. Undertakings

* * * * *
    4. * * *
    d. that, for the purpose of determining liability under the 1933 
Act to any purchaser, except as provided in paragraph 4.d.2 of these 
undertakings:
    (1) Each prospectus filed by the registrant pursuant to Rule 497(c) 
or (e) under the 1933 Act [17 CFR 230.497(c) or (e)] shall be deemed to 
be part of the registration statement as of the date it is first used 
after effectiveness; and
    (2) Each prospectus filed pursuant to Rule 497(c) or (e) under the 
1933 Act [17 CFR 230.497(c) or (e)] as part of a registration statement 
in reliance on Rule 430C [17 CFR 230.430C] relating to an offering made 
pursuant to Rule 415(a)(1)(i) or (ix) [17 CFR 230.415(a)(1)(i) or 
(ix)], other than registration statements relying on Rule 430A under 
the 1933 Act [17 CFR 230.430A], shall be deemed to be part of and 
included in the registration statement as of the date it is first used 
after effectiveness. Provided, however, that no statement in a document 
incorporated or deemed incorporated by reference or in a prospectus 
deemed part of and included in a registration statement or the 
prospectus will supersede or modify any statement that was in a 
document incorporated or deemed incorporated by reference or in a 
prospectus deemed part of and included in the registration statement or 
the prospectus as to any purchaser who had a date and time of contract 
of sale prior to the date the filed prospectus was deemed part of and 
included in the registration statement.
    e. That for the purpose of determining liability of the Registrant 
under the 1933 Act to any purchaser:
    The undersigned Registrant undertakes that in a primary offering 
for the benefit of the undersigned Registrant pursuant to this 
registration statement, regardless of the underwriting method used to 
sell the securities to the purchaser, it will be considered to offer or 
sell the securities by means of any of the following communications:
    (1) A Registrant's registration statement relating to the offering 
and any preliminary prospectus and prospectus supplement relating to 
the offering filed pursuant to Rule 497 [17 CFR 230.497];
    (2) Any information about the Registrant or its securities:
    (A) Provided by or on behalf of the undersigned Registrant; and
    (B) Included in any advertisement pursuant to Rule 482 under the 
1933 Act [17 CFR 230.482]; and
    (3) Any other communication made by or on behalf of the undersigned 
Registrant.
* * * * *

    Dated: November 3, 2004.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-24910 Filed 11-16-04; 8:45 am]
BILLING CODE 8010-01-P


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