67392 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

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.

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 longterm 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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–38–04 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• 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

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 WellKnown 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67393

14See 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.

15Milton 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.’’)

(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 WellKnown 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 AssetBacked 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.

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 

67394 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

16See 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).

17See 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).

18See 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].

19Report of the Task Force on Disclosure 

Simplification, available at www.sec.gov/news/

studies/smpl.htm (Mar. 5, 1996).

20Report 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).

21Securities Act Concepts and Their Effects on 

Capital Formation, Release No. 33–7314 (July 25, 

1996) [61 FR 40044] (the ‘‘1996 Concept Release’’).

22 17 CFR 230.144A.

23 17 CFR 230.144.

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-themarket’’ 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.

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

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.

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:

• Whether the concept of company 

registration should be pursued; 

• Whether other methods of 

increasing the integration of Securities 

Act and Exchange Act disclosure and 

other processes should be considered; 

• Whether existing or further reliance 

on Exchange Act filings should be 

accompanied by enhancements to 

Exchange Act reporting; 

• Whether companies make 

information about their public securities 

offerings available to investors in an 

appropriate and timely manner, 

including: 

Æ 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; 

Æ Whether prospectus supplements 

in shelf offerings should be made part 

of the registration statement;

Æ 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 

Æ Whether restrictions on written 

offers under the Securities Act should 

be liberalized and the liability standards 

that should attach to such 

communications; 

• 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; 

• Whether changes should be made to 

address evolution in the relationships 

between the public and private offering 

processes, including: 

Æ Whether changes in Rules 144A 22

and 144 23 under the Securities Act 

should be considered; and

Æ Whether there should be any 

relaxation in our prohibition against 

general solicitations of interest or offers 

in unregistered private offerings; and 

• 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

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: 

• Communications related to 

registered securities offerings; 

• Registration and other procedures 

in the offering and capital formation 

processes; and 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67395

25While 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.

26Pub. L. 107–204, 116 Stat. 745 (2002).

27See 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’’).

28See Certification of Disclosure in Companies’’

Quarterly and Annual Reports, Release No. 33–8124 

(Aug. 28, 2002) [67 FR 57276] (‘‘Certification 

Release’’).

29See 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.

30See Form 8–K Releases note 27.

31See Acceleration of Periodic Report Filing 

Dates and Disclosure Concerning Web Site Access 

to Reports, Release No. 33–8128 (Sept. 5, 2002) [67 

FR 58480].

32See Standards Relating to Listed Company 

Audit Committees, Release No. 33–8220 (Apr. 9, 

2003) [68 FR 18788].

33See 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’’).

• Delivery of information to investors, 

including delivery through access and 

notice, and timeliness of that delivery.25

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: 

• Facilitate greater availability of 

information to investors and the market 

with regard to all issuers; 

• Eliminate barriers to open 

communications that have been made 

increasingly outmoded by technological 

advances; 

• Reflect the increased importance of 

electronic dissemination of information, 

including the use of the Internet; 

• Make the capital formation process 

more efficient; and 

• 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

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 SarbanesOxley 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: 

• Requiring the establishment of 

disclosure controls and procedures; 28

• 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

• 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

• Shortening the timeframe for filing 

annual reports and quarterly reports by 

accelerated filers; 31

• 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

• 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

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. 

67396 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

34Enhanced Exchange Act reporting was also 

central to the recommendations of the Advisory 

Committee. See note 20.

35Our proposals would provide a class of wellknown 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.’’

36Our proposals would not change the existing 

eligibility standards for the use of Form S–3 and 

Form F–3.

37See 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 wellknown seasoned issuers.

38See proposed definition of ‘‘ineligible issuers’’

in Securities Act Rule 405 as discussed in Section 

III.D.3 below under ‘‘Ineligible Issuers.’’

39Whether 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.

40See proposed amendment to Securities Act 

Rule 405.

41The 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).

42Form 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.

43Public float is also one of the key determinants 

for eligibility for current short-form registration on 

Forms S–3 and F–3.

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.

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 farreaching 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.

Today, the largest issuers are followed 

by sophisticated institutional and retail 

investors, members of the financial 

press, and numerous sell-side and buyside 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

• 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;

• The issuer must be eligible to 

register a primary offering of its 

securities on Form S–3 or Form F–3; 

• The issuer either: 

• Must have outstanding a minimum 

$700 million of common equity market 

capitalization held by non-affiliates; or 

• Must have issued $1 billion 

aggregate amount of debt securities in 

registered offerings during the past three 

years and register only debt securities; 

and 

• Neither the offering nor the issuer 

may be of a type that falls within the 

category of ineligible issuers or 

offerings.38

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: 

• The majority-owned subsidiary 

itself meets the conditions for eligibility; 

• A parent of the majority-owned 

subsidiary is a well-known seasoned 

issuer and fully and unconditionally 

guarantees the subsidiary’s nonconvertible obligations; 39

• 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 wellknown seasoned issuer and the 

obligations are non-convertible; or 

• 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

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

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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67397

44OEA compiled and analyzed the supporting 

data for the public float (using market 

capitalization) and outstanding debt thresholds.

45See 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.

47These 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.’’

48See Gordon J. Alexander, William F. Sharpe, 

and Jeffrey V. Bailey, Fundamentals of Investments

(2001 ed.) at 530.

49Eligibility 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.

more. We have used market 

capitalization as a proxy for public float 

in evaluating this threshold and its 

implications.

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.

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:

OFFERING PROCEEDS, BY ISSUER CAPITALIZATION PRIMARY SEASONED OFFERINGS, 1997–2003* 

[$Billions (%) proceeds from offerings, by issuer capitalization] 

Market capitalization of issuers 

>$700mm >$0 (All 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

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

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 

67398 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

50We 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 majorityowned subsidiaries would be well-known seasoned 

issuers. For example, see General Instruction I.C. to 

Form S–3.

51See Simplification of Registration Procedures 

for Primary Securities Offerings, Release No. 33–

6943 (July 16, 1992) [57 FR 32461].

52See 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].

53See Securities Act Section 5(b)(1) [15 U.S.C. 

77e(b)(1)] and Securities Act Section 10 [15 

U.S.C.77j].

also would be considered seasoned 

issuers.50

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 nonreporting 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 

• Should we raise the proposed 

public float test of $700 million (e.g., to 

$800 million)? If so, why? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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?

• 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? 

• Should we permit majority-owned 

subsidiaries to be considered wellknown 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? 

• 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.

• 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? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67399

54See Securities Act Section 2(a)(10) [15 U.S.C. 

77b(a)(10)] and Section 5(b)(1).

55For 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.

56Other 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 OffBalance Sheet Arrangements and Aggregate 

Contractual Obligations, Release No. 34–47264 (Jan. 

28, 2003) [68 FR 5982] (the ‘‘Off-Balance Sheet 

Disclosure Release’’).

57See, 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).

58The 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).

59Commenters 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.

60We 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 AssetBacked 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’’).

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.

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 nondiscriminatory, current and ongoing 

basis. Thus, while the investor 

protection concerns remain, the gunjumping 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.

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: 

• 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

• 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; 

• 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

• 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

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. 

67400 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

61Written 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.

62The 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’’).

63All 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’’.

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.

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, emails and other electronic and webbased communications, electronic 

postings on web sites—including 

electronic road shows—would be 

written communications within the 

scope of the definition.63

Request for Comment 

• Does the proposed definition of 

graphic communication provide a 

workable framework within which to 

analyze electronic communications? 

• 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? 

• 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: 

• Regularly released factual business 

information;

• Regularly released forward-looking 

information; 

• Communications made more than 

30 days before filing a registration 

statement; 

• Communications by well-known 

seasoned issuers during the 30 days 

before filing a registration statement; 

• Written communications made in 

accordance with the safe harbor in 

Securities Act Rule 134; and 

• 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.

Could it be an ‘‘offer’’ as 

defined in Section 2(a)(3)? 

Is it a ‘‘prospectus’’ as defined in Section 2(a)(10)? 

Is it a in prohibited pre-filing offer for purposes of 

Section 5(c)? 

Is it a prohibited prospectus for purposes of 

Section 5(b)(1)? 

Regularly Released Factual Business Information.Yes .................................... No ...................................... Rule would define it as not 

an offer for Section 5(c) 

purposes.

Section 5(b)(1) relates only 

to ‘‘prospectuses’’—it 

would not be applicable. 

Regularly Released Forward-Looking Information.Yes .................................... No ...................................... Rule would define it as not 

an offer for Section 5(c) 

purposes.

Section 5(b)(1) relates only 

to ‘‘prospectuses’’—it 

would not be applicable. 

Communications Made 

More Than 30 Days Before Filing of Registration Statement.

Yes .................................... No ...................................... Rule would define it as not 

an offer for Section 5(c) 

purposes.

Section 5(b)(1) does not 

apply in the pre-filing period—it would not be applicable. 

Well-Known Seasoned 

Issuers—Oral Offers 

Made Within 30 Days of 

Filing of Registration 

Statement.

Yes .................................... No ...................................... Would be exempted from 

prohibition of Section 

5(c).

Section 5(b)(1) would not 

be applicable. 

Well-Known Seasoned 

Issuers—Free Writing 

Prospectuses Used Before Filing of Registration Statement.

Yes .................................... Yes .................................... Would be exempted from 

prohibition of Section 

5(c).

Section 5(b)(1) does not 

apply in the pre-filing period—it would not be applicable. 

Identifying Statements in 

Accordance with Rule 

134.

Yes .................................... No ...................................... Section 5(c) is not applicable, as Rule 134 relates 

only to the period after 

the filing of a registration 

statement.

Section 5(b)(1) relates only 

to ‘‘prospectuses’’—it 

would not be applicable. 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67401

64See, 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].

65A ‘‘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.’’

66See proposed Rule 163.

67See proposed Rule 168.

68See proposed Rule 169.

69See proposed Rule 163A.

70See proposed Rules 164 and 433.

71See proposed amendments to Securities Act 

Rule 134.

72See proposed amendments to Securities Act 

Rules 137, 138, and 139.

73We 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.

74These 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].

75See Securities Act Section 2(a)(10).

76See, e.g., Securities Act Section 17(a), Exchange 

Act Section 10(b) and Exchange Act Rule 10b–5.

77These 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.

78See proposed Rule 168.

Could it be an ‘‘offer’’ as 

defined in Section 2(a)(3)? 

Is it a ‘‘prospectus’’ as defined in Section 2(a)(10)? 

Is it a in prohibited pre-filing offer for purposes of 

Section 5(c)? 

Is it a prohibited prospectus for purposes of 

Section 5(b)(1)? 

All Eligible Issuers—Free 

Writing Prospectuses 

Used After Filing of Registration Statement.

Yes .................................... Yes .................................... Section 5(c) would not be 

applicable, as it does 

not apply in the post-filing period.

Section 5(b)(1) would be 

satisfied, as the free 

writing prospectus would 

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

The cumulative effect of the proposals 

under the gun-jumping provisions 

would be the following:

• 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

• All reporting issuers would, at any 

time, be permitted to continue to 

publish regularly released factual 

business information and forwardlooking information.67

• 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

• 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

• 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

• 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

• The exemptions for research reports 

would be expanded.72

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

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

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 

67402 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

79See proposed Rule 169.

80Business 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’’).

81See, 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].

82See proposed Rule 168.

83Our 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 prefiling ‘‘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.

84Regularly 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.

85Factual 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.

86Until 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}. 

See also, the Wheat Report, note 16 at 94.

87See 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, forwardlooking information is required in connection with 

the disclosure in MD&A regarding off-balance sheet 

arrangements. 89See 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 OffBalance 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 forwardlooking statements contained in documents filed 

with us, including in registration statements and 

periodic reports.

90As 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.

91Our proposed Rule 168 would be a safe harbor 

from the definition of ‘‘prospectus’’ in Securities 

in their capacity as investors or 

potential investors.79

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 forwardlooking information.80 These issuers are 

subject to a separate framework 

governing communications with 

investors.81

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

i. Factual Business Information 

We believe it is important to provide 

certainty regarding when the gunjumping 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

• Factual information about the issuer 

or some aspect of its business; 

• Advertisements of, or other 

information about, the issuer’s products 

or services; 

• Factual information about business 

or financial developments with respect 

to the issuer; 

• Dividend notices; and 

• Factual information set forth in the 

issuer’s Exchange Act reports.85

ii. Forward-Looking Information 

Our view of the value of forwardlooking 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

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.

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

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67403

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.

92See Exchange Act Form 8–K. In addition, 

through the operation of Regulation FD, forwardlooking information, such as company earnings 

guidance, provided to persons enumerated in that 

Regulation must be made public.

93We are using the same definition as contained 

in Securities Act Rule 146 [17 CFR 230.146].

94Our 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.

• Projections of the issuer’s revenues, 

income (loss), earnings (loss) per share, 

capital expenditures, dividends, capital 

structure, or other financial items; 

• 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; 

• 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 

• 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.

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.

Request for Comment 

• Is the definition of ‘‘by or on behalf 

of an issuer’’ clear? If not, why not? 

• 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.

• 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? 

• 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 forwardlooking 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 forwardlooking 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

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 

67404 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

95 In those situations, the earnings release would 

be considered a free writing prospectus as used by 

the underwriter or dealer, as discussed below.

96The 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.

97See proposed Rule 169.

98The 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.

99Our 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).

100These 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.

participating in distribution of the 

issuer’s securities in the registered 

offering would be outside the scope of 

the proposed safe harbor.95

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

Request for Comment 

• 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? 

• 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?

• 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? 

• 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? 

• 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? 

• Should there be a specified history 

of releasing information for only certain 

categories of forward-looking 

information, such as financial 

projections? 

• Is the proposal regarding forwardlooking 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? 

• Should there be a distinction 

between releasing such information in 

the pre-filing and post-filing periods? 

• Should the safe harbor identify the 

specific conditions under which 

communications would constitute 

ordinary course communications? 

• Should we consider defining what 

‘‘part of the offering activities’’ means 

for purposes of the safe harbors? 

• 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? 

• Should registered investment 

companies and business development 

companies be eligible to use the 

proposed safe harbors for factual 

business information and forwardlooking 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

Under the proposed safe harbor, 

factual business communications would 

be defined as: 

• Factual information about the issuer 

or some aspect of its business;

• Advertisements of, or other 

information about, the issuer’s products 

or services; and 

• 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.

Request for Comment 

• We request comment on the same 

issues regarding the regularly released 

concept as in the safe harbor for 

reporting issuers. 

• Should the factual business 

information safe harbor permit some 

related forward-looking information so 

long as the information is not 

projections? 

• In initial public offerings by nonreporting issuers, should we consider 

using our authority, including our 

exemptive authority in Section 27A, to 

propose a projections and forwardlooking 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? 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67405

101 In this regard, see Sections 210 and 316 of the 

AICPA Guide for Prospective Financial Statements.

102While 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—De ́ja` Vu All Over 

Again,’’ Commissioner Roel C. Campos (the 

‘‘Campos Article’’) at § 1:28.

103As 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].

104Securities 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.

105As 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’’.

106See, 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.

• 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? 

• 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

• 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

As proposed, the 30-day bright line 

exclusion from the gun-jumping 

provisions would be subject to the 

following conditions: 

• Communications made in reliance 

on the proposed rule could not 

reference a securities offering; 104

• Communications made in reliance 

on the proposed rule would have to be 

made ‘‘by or on behalf of the issuer’’; 105

and

• 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 

67406 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

107Communications 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)].

108See 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.

109See 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.

110Registered investment companies and 

business development companies are subject to 

separate rules regarding their communications.

111See Securities Act Section 5(c). 112See proposed Rule 163. 113Any 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. 114Communications 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)].

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.

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: 

• Offerings by a blank check 

company; 

• Offerings by a shell company; or 

• Offerings of penny stock by an 

issuer.108

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

Request for Comment 

• 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? 

• Is the 30-day timeframe sufficient? 

Should it be longer? Should it be 

shorter? 

• Would issuers engage in 

communications using the exclusion 

prior to the 30-day period before 

registration? 

• Would issuers be able to establish 

appropriate procedures to ensure 

compliance with the ‘‘reasonable steps’’

requirement? 

• 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? 

• 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? 

• 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? 

• Are the classes of ineligible issuers 

and offerings appropriate? Should the 

exclusion not be available to any other 

type of issuers or offerings? 

• Should the exclusion apply to 

offerings registered on Form S–8? 

• Should the exclusion be available 

for non-reporting issuers? Would there 

be greater potential for abuse with this 

category of issuers? 

• Should there be a restriction on 

inclusion of securities offering-related 

information in view of Securities Act 

Rule 135? 

• Should we limit the condition 

restricting any reference to securities 

offering only to references to registered 

securities offerings?

• Should communications in 

offerings relying on Rule 155 be 

permitted during the 30-day period 

without further conditions? 

• Should Regulation FD continue to 

apply to these communications, as we 

propose? If not, why not? 

b. Permitted Pre-Filing Offers for WellKnown 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 gunjumping 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67407

115As 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.

116See the discussion in Section V.B.2 below 

under ‘‘Automatic Shelf Registration for WellKnown Seasoned Issuers,’’ with regard to the 

proposed availability of an ‘‘automatic shelf’’

registration process for these issuers.

117See 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.

118The 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.

119See 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.

120As 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.

121The 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).

122Rule 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.

124For 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.

125The 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.

126For example, a broker or dealer could inform 

investors of the procedural aspects of an auction or 

Continued

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.

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

Request for Comment 

• Should we permit any written or 

oral offer to be made by a well-known 

seasoned issuer before a registration 

statement is filed? 

• 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?

• 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? 

• 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? 

• Should there be other exclusions 

from the filing requirement? 

• 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.

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

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: 

• Permit increased information about 

an issuer and its business, including 

where to contact the issuer; 

• Permit more information about the 

terms of the securities being offered; 124

• 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

• Allow more factual information 

about procedures for account opening 

and submitting indications of interest 

and conditional offers to buy the offered 

securities; 126 and

67408 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

127See paragraphs (a)(11) and (a)(14) of our 

proposed amendments to Rule 134.

128For 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.

129See Securities Act Section 2(a)(10).

130We are proposing to include this definition in 

Securities Act Rule 405.

131See Securities Act Section 2(a)(10).

132As 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).

133Our 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).

134As 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.

135Our 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 crossborder tender and exchange offers, business 

combinations, and rights offerings relating to the 

securities of foreign issuers).

• 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

Request for Comment 

• 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? 

• 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. 

• 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? 

• Should we permit more information 

about allocations and auction 

mechanics? 

• 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? 

• 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.

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

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

As proposed, a free writing 

prospectus that satisfies specified 

conditions could be used by a wellknown 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

The issuer and any other offering 

participant satisfying the conditions of 

our proposed rules could use a free 

writing prospectus after a registration 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67409

136Prior 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. 137After 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).

138The definition would include free writing 

prospectuses used pursuant to proposed Rule 433 

and Rule 163 because these would not be summary 

prospectuses.

139Under 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.

140Written 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.

141Except 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.

142Base 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).

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 gunjumping 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

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

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 gunjumping 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

(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

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 nonreporting 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 

67410 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

143The term ‘‘affiliate’’ is defined in Securities 

Act Rule 405.

144See discussion in Section III.D.3. below under 

‘‘Permissible Use of Free Writing Prospectuses.’’

145Unlike 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.’’

146The 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 WellKnown Seasoned Issuers’’.

147For 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.

149Proposed 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.

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.

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 gunjumping 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.

Request for Comment 

• 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? 

• 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? 

• Should the free writing prospectus 

be considered part of the registration 

statement? 

• 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.

(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.

The result of this framework would be 

that these categories of issuers and 

offering participants would have to 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67411

149We 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.

150See discussion in Section III.D.3. above under 

‘‘Media Publications.’’

151Our 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.

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.

154See 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.

155Our 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.

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: 

• A direct written communication by 

an issuer or offering participant; 

• 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; 

• A press release disseminated by an 

issuer or offering participant and 

rebroadcast by the media; or 

• A paid advertisement, in any 

format, by an issuer or offering 

participant.149

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.

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.

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

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 wellknown 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

In addition, in offerings of securities 

of eligible well-known seasoned issuers, 

we are proposing that free writing 

67412 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

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.

158We 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.

159These 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].

160The 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.

161See proposed amendments to Securities Act 

Rule 405.

162See, 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.

163See Securities Act Section 27A and Exchange 

Act Section 21E [15 U.S.C. 78u–5].

164 17 CFR 230.482.

165 17 CFR 230.498.

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

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 

• Should the proposed rule make the 

proposed distinctions among the types 

of issuers? 

• Should the proposed rule’s 

distinction in methods of providing the 

preliminary prospectus apply to 

different issuers? 

• 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? 

• 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? 

• 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? 

• 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

• Reporting issuers who are not 

current in their Exchange Act reports; 

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) blank check issuers; 

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) shell companies; 

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) penny stock issuers; 

• Issuers who are limited 

partnerships offering and selling their 

securities other than in a firm 

commitment underwriting; 159

• Issuers who have received a ‘‘going 

concern’’ opinion from their auditors for 

the most recent fiscal year; 

• Issuers who have filed for 

bankruptcy or insolvency during the 

past three years; 

• Issuers who have been or are the 

subject of refusal or stop orders under 

the Securities Act; or 

• 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

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 forwardlooking 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

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.

Request for Comment 

• 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? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67413

166See 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’’.

167As 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.

168The 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.

169We 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.

170As 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.

171We 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.

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? 

• 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? 

• Should we extend or shorten the 

look-back periods used to disqualify 

issuers in any category? 

• 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?

• 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? 

• Should blank check companies, 

penny stock issuers or shell companies 

be able to rely on some aspect of our 

proposals for capital-raising 

transactions? 

• Are there other types of offerings 

that also should be excluded from our 

proposals? 

• 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? 

• Should registered investment 

companies or business development 

companies be able to rely on our 

proposed rules permitting use of a freewriting prospectus? 

• 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? 

• 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

• 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

• 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; 

• 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 

• 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

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

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.

67414 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

172An 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.

173Where 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.

174On 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.)

175As 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.

176See, 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.

177Commenters 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.

178See 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’’).

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

• 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

• 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.

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 crossliability 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.

Request for Comment 

• 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. 

• Should all offering participants free 

writing prospectuses be required to be 

filed? 

• 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?

• 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? 

• Should we define issuer 

information differently? If yes, how 

should we define it? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67415

179All 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.

180Live road shows would continue to be 

considered oral communications.

181We 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 nonaccredited investors and restrictions on general 

solicitation and general advertising.

182See 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).

183For 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.

184Electronic 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.

185We 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.

186Report 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.

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

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:

• 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

• 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.

Request for Comment 

• 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? 

• 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? 

• 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?

• 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, lessinformative version for others? Should 

we otherwise limit this possibility? 

• Should an issuer be permitted to 

edit a retransmitted road show? Should 

the rule expressly permit editing? 

• 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? 

• Should electronic road shows 

transmitted over the television or radio 

be treated differently from electronic 

road shows transmitted through the 

Internet? 

• 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 

67416 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

187Such 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 § 1:30.

188Underwriter 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.

189The 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].

190The 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].

191See proposed amendment to Securities Act 

Rule 418 [17 CFR 230.418].

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.

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

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 

• Is a cure provision on filing 

necessary? 

• 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? 

• Should we specify what persons at 

an issuer or offering participant, such as 

any senior officer, must discover the 

failure to file? 

• Should free writing prospectus 

filing obligations be part of an issuer’s 

disclosure controls and procedures? 

• 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

Request for Comment 

• 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.

Request for Comment 

• Should we require that free writing 

prospectuses contain particular 

information in addition to the legend? If 

yes, what information? 

• Should we limit the type of 

information that can be included in a 

free writing prospectus? If yes, what 

should the limitations be?

• 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? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67417

192See proposed Rule 433(c).

193See proposed Rule 433(d).

194See proposed Rule 164(c)(2).

195Proposed Rule 163 contains similar cure 

provisions.

196See proposed Rule 164. See also the AssetBacked Securities Proposing Release at note 58.

197The general anti-fraud provisions would of 

course apply to free writing prospectuses.

198For 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.

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

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

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: 

• Disclaimers regarding accuracy or 

completeness; 

• Statements requiring investors to 

read or acknowledge that they have read 

any disclaimers or legends or the 

registration statement; and 

• Language indicating that the 

communication is neither a prospectus 

nor an offer to sell or a solicitation or 

an offer to buy.196

Request for Comment 

• Should the legend contain other 

information? 

• Are there any other legends that 

should be ineligible? Should the 

proposed rule include specific language 

regarding legends that are ineligible? 

• Should we require inclusion of the 

legend with published articles when 

they are filed by the issuer or other 

offering participants? 

• 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? 

• 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? 

• 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

Request for Comment 

• 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.

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 

• Should the record retention 

condition apply to all users, including 

issuers as well as brokers and dealers? 

• 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? 

• 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? 

• 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 

67418 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

200The 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.

201For 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.

202See, 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.

203See discussion in Section III.D.1 above under 

‘‘Permitted Continuation of Ongoing 

Communications During an Offering’’ regarding 

proposed Rules 168 and 169. 204See 17 CFR 243.100(b)(2).

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

(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.

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

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 

• 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? 

• 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.

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: 

• A registration statement filed under 

the Securities Act, including a 

prospectus contained therein; 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67419

205Currently, 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.

206See Section 501 of the Sarbanes-Oxley Act [15 

U.S.C. 78o–6(a)(2)].

207See 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’’).

208See 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.

209See Lit. Rel. 18438 (Oct. 31, 2003); Press 

Release 2004–120 (August 26, 2004).

210The 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.

211See 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.

exception to the definition of prospectus 

contained in clause (a) of Securities Act 

Section 2(a)(10); 

• Any other Section 10(b) prospectus; 

• A notice permitted by Securities 

Act Rule 135; 

• A communication permitted by 

Securities Act Rule 134; and 

• 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

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 

• Are the proposed exclusions 

appropriate? 

• Are there other or different 

exclusions relating to registered 

securities offerings that would be 

appropriate? 

• 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. 

• 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.

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 

67420 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

212The 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.

213The 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.

214See, 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.

215See, 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.

216Research 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.

217As 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.

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.

219The 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.

220 17 CFR 230.137.

dissemination where they are not 

necessary to protect investors.

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

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 antifraud liability, used in reliance on these 

Rules.216

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.

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

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

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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67421

221 17 CFR 230.138.

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.

223Current 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.

224 17 CFR 230.139.

225As 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.

226As 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.

227See proposed amendments to Rule 139.

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 nonreporting issuer. 

Request for Comment 

• Should the type of eligible issuer be 

expanded or limited beyond blank 

check companies, shell companies, and 

penny stock issuers? 

• 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? 

• 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? 

• 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).

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.

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.

Request for Comment 

• Should the type of eligible issuer be 

limited beyond blank check companies, 

shell companies, and penny stock 

issuers? 

• 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? 

• 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? 

• 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.

(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.

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 

67422 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

228See Staff no-action letter to Charles Schwab & 

Co., Inc. (Dec. 30, 1987).

229See Amendments to Investment Company 

Advertising Rules, Release No. 33–8294 (Sept. 29, 

2003) [68 FR 57760].

230Securities 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.

231Securities 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.

232We 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.

233See proposed amendments to Rule 138 and 

Rule 139.

234See proposed amendments to Regulation S.

235See Staff no-action letter to Merrill, Lynch, 

Pierce, Fenner & Smith, Inc. (Oct. 24, 1997).

coverage of an issuer not benefit from an 

exemption under 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 

• Should the type of eligible issuer be 

limited beyond blank check companies, 

shell companies, and penny stock 

issuers? 

• 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

• 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? 

• 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? 

• Will our proposed approach lead to 

more research being published? 

• Are there reasons to maintain the 

‘‘no more favorable recommendation’’

requirement in current Rule 139?

• 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

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.

Request for Comment 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67423

236See proposed Exchange Act Rule 14a–2(b)(5).

237 17 CFR 240.14a–3 through 14a–15.

238Whether 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).

239See Securities Act Section 17(a)(2) [15 U.S.C. 

77q(a)(2)].

240See 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.

241For 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.

242Under 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].

243Our 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.

244Article 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.

245As 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.

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.

Request for Comment 

• 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

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.

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

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 

67424 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

247This 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.

248When we use the term prospectus 

supplements, we refer to prospectuses or 

prospectus supplements filed pursuant to Rule 424.

249We 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).

250These 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.

251Or, 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.

252See discussion in Section V.B.1 below under 

‘‘Date of Inclusion of Prospectus Supplements in 

Registration Statements and New Effective Dates of 

Registration Statements.’’

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.

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).

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.

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:

• 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.

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:

• 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

• 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

Request for Comment 

We request comment with respect to 

our proposed interpretive rule, 

including on the following specific 

questions:

• 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? 

• Should we provide more detailed 

guidance as to what is considered 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67425

253Whether 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’’.

255An investor could also pursue an action under 

Section 12(a)(2) based on the final prospectus.

256See 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).

257We are not proposing to address the status of 

the issuer as a seller in a registered offering of 

transactions by selling security holders only.

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? 

• 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? 

• 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)? 

• 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? 

• 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, closedend management investment companies, unit 

investment trusts, business development 

companies) that we should address? If yes, 

please describe. 

• 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? 

• 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.

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:

• 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; 

• 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; 

• 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 

• 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). 

67426 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

258Securities 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 (§ 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 (§ 239.13 or 

§ 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 § 270.23c–3 of this 

chapter.

259See Securities Act Rule 415(a)(1)(ix) [17 CFR 

230.415(a)(1)(ix)].

260The 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.

Request for Comment 

• Should issuers always be 

considered sellers with regard to issuer 

information, regardless of who is 

communicating the information? 

• 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? 

• 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)? 

• Should the proposed rule extend to 

entirely secondary offerings? 

• 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)? 

• 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: 

• A more flexible automatic 

registration process for well-known 

seasoned issuers; 

• Modifications that would clarify 

and expand how and when information 

could be included in registration 

statements; 

• A clarification of the Securities Act 

liability treatment of information 

provided in prospectus supplements 

and Exchange Act reports incorporated 

by reference; 

• 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 

• 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: 

• Clarification and codification of the 

information to be included in and 

omitted from base prospectuses in shelf 

registration statements; 

• Codifying the manner of inclusion 

of information in the final prospectus; 

• The treatment of prospectus 

supplements; and 

• liberalization of requirements under 

Securities Act Rule 415, including: 

» Elimination of the two year 

limitation for registered securities for a 

delayed offering;

» Elimination of the ‘‘at-the-market’’

offering restrictions; 

» Elimination of the prohibition 

against immediate takedowns off 

delayed shelf registration statements; 

and 

» 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

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, 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67427

261Our 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 mortgagebacked 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.

262While 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.

263See proposed Rule 430B and Rule 409 [17 CFR 

230.409].

264The proposal codifies that such a prospectus 

would satisfy the requirements of Section 10 for 

purposes of Section 5(b)(1).

265See proposed Rules 164 and 433(a)(1)(ii).

266See 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.

268 Issuers would still have the flexibility to file 

post-effective amendments to include the 

information.

269The 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.

and many continuous offerings by 

selling security holders.

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 posteffective 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

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

(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

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 posteffective 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

Request for Comment 

• 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? 

• 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?

• Should shelf issuers, other than 

well-known seasoned issuers, be 

67428 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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.

271 Item 507 of Regulation S–K [17 CFR 229.507]. 272 17 CFR 230.152.

273See 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.’’

274See proposed Rule 430B.

allowed to amend their plans of 

distribution through incorporated 

Exchange Act reports or prospectus 

supplements, rather than only through 

post-effective amendments? 

• Should Rule 430B apply to 

additional categories of offerings 

permitted under Rule 415(a)(1)? 

• Should paragraph (vii) of Rule 

415(a)(1) be eliminated, especially in 

the event that we adopt our proposed 

rules for asset-backed securities? 

• 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.

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:

• The resale registration statement 

identified the specific private 

transaction or transactions pursuant to 

which the securities were sold; and 

• 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.

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

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

Request for Comment 

• 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? 

• Are there other situations in which 

selling security holders should be 

identified by prospectus supplement 

rather than by post-effective 

amendment? 

• Should the ability to identify selling 

security holders by prospectus 

supplement be limited to seasoned 

issuers? If so, why? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67429

275Proposed 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.

276We 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].

277These 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.

278See proposed amendments to Securities Act 

Rule 412(a) [17 CFR 230.412(a)].

279Our 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.

280We are also proposing to amend Rule 158 to 

include conforming changes to the effective date for 

purposes of Securities Act Section 11(a).

281See Securities Act Rule 144 and Rule 401 [17 

CFR 230.144 and 230.401].

282See the discussion in Section V.B.1. below 

under ‘‘Issuer Undertakings.’’

283Securities Act Section 7 [15 U.S.C. 77g] and 

Securities Act Rule 436 [17 CFR 230.436].

284Currently, 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.

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.

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: 

• 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

• 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

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

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 436283 would not 

require consents to be filed or be 

considered the filing of a new 

registration statement.

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 

67430 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

285See proposed amendments to Securities Act 

Rule 415(a)(2).

286See 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].

287Our proposal would not limit the amount that 

could be registered.

288For fee carry-forward provisions, see 

Securities Act Rule 457(p) [17 CFR 230.457(p)].

289See, 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.

290See proposed amendments to Securities Act 

Rule 415(a)(1)(x).

291See Prospectus Delivery; Securities 

Transactions Settlement, Release No. 33–7168 (May 

11, 1995) [60 FR 26604] at Section II.A.5.

292We 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.

293 17 CFR 230.415(a)(4).

294See Adoption of Integrated Disclosure System,

Release No. 33–6383 (Mar. 3, 1982) [47 FR 11380] 

at Section IV.B.2.d.

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.

Request for Comment 

• 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?

• 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? 

• 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? 

• In shelf takedowns, would investors 

be able to identify the effective dates for 

the securities sold in their particular 

takedown? 

• 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? 

• 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? 

• 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

Request for Comment 

• 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

Request for Comment 

• 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-themarket’’ offering of equity securities 

without requiring identification of an 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67431

295Underwriters could, as in the case with other 

information, be included in the relevant prospectus 

supplement.

296 17 CFR 230.434.

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).

298For automatic shelf registration statements, 

this provision would not apply. See discussion in 

Section V.B.1 below under ‘‘Mechanics for 

Including Information.’’

299See Securities Act Rule 436 [17 CFR 230.436].

underwriter in its registration 

statement 295 and without a volume 

limitation.

Request for Comment 

• 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? 

• Are there other constraints or 

conditions we should impose on the 

types of offerings that can be conducted 

at-the-market? 

• Should we continue to impose 

Form S–3 or F–3 eligibility as a 

condition to conducting primary ‘‘atthe-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 

434296 (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.

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 

• Should we eliminate Rule 434, 

which we believe has only been very 

rarely used, in light of our other 

proposed procedural changes? 

• 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: 

• Include in the registration statement 

any prospectus required by Securities 

Act Section 10(a)(3); 

• 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 

• 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

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

Request for Comment 

• 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? 

• Are the proposed undertakings 

necessary? 

• Is there a method other than 

through undertakings to achieve our 

objectives effectively? What is it? 

• 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? 

67432 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

300See proposed Rules 430B and 430C.

301These supplements would be those filed 

pursuant to Securities Act Rule 424(b)(3).

302Proposed 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.

303See proposed Rule 415(a)(3).

304See Rule 3–10 of Regulation S–X [17 CFR 

210.3–10] and Exchange Act Rule 12h–5 [17 CFR 

240.12h–5].

305As 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.

306The 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 

(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.

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

Request for Comment 

• Are the proposed undertakings 

clear as to when issuers would be liable 

for prospectus supplements? 

• 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 majorityowned 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 nonconvertible securities of other majorityowned 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

Request for Comment 

• 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 wellknown 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

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

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67433

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.

307As today, business combination transactions 

and exchange offers could not be registered on 

Form S–3 or Form F–3.

308Certain subsidiaries of well-known seasoned 

issuers would also be permitted to be included on 

the parent’s automatic shelf registration statement.

309For 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 posteffective amendment with similar updating of 

information) for the prior fiscal year.

310To 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.

311See discussion in Section II above under 

‘‘Well-Known Seasoned Issuers; Other Categories of 

Issuers’’.

312See discussion below at note 319.

313 17 CFR 230.409.

314See proposed Rule 430B.

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.

316 Issuers would still have the flexibility to file 

post-effective amendments to include the 

information.

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 wellknown 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

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 posteffective 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.

In general, securities of majorityowned 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 wellknown seasoned issuer described 

above.311 Under automatic shelf 

registration, as proposed, a registration 

statement could be amended by posteffective amendment to add an eligible 

subsidiary as an issuer.312

Request for Comment 

• Should eligibility for automatic 

shelf registration be limited to wellknown 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:

• Whether the offering is a primary or 

secondary offering; 

• The names of any selling security 

holders; and 

• Any plan of distribution for the 

offering securities.314

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

(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 

67434 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

317The 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.

318See discussion in Section V.B.2 below under 

‘‘Registration of Securities to be Offered.’’

319Adding 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 posteffective 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 posteffective 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.

320See 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’’.

321See 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.

322See 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.

323See 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 posteffective 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 posteffective amendment. As such, unlike in the 

existing registration statement process, the 

effectiveness of an automatic shelf registration posteffective 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 posteffective amendment became effective.

325This disclosure would become part of the 

registration statement regardless of the method 

chosen to provide it.

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.

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 posteffective amendment.319 New issuers 

and their officers and directors would 

be required to be signatories to the posteffective amendment.320

(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. Wellknown 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

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.

We propose to remove the current 

restriction that would prevent wellknown 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 posteffective 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

(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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67435

326The 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.

327See proposed Rule 462(e) and (f).

328For 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.

329See, e.g., comment letters in File No. S7–30–

98 from the ABA; ACIC; CSFB; Merck & Co, Inc.; 

SIA; and William J. Williams, Jr.

330The 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.

331See, 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.

332See 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.’’

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.

(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 posteffective 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

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

Request for Comment 

• Should we permit omission of 

additional information from the base 

67436 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

333 17 CFR 230.176.

334We 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.’’

335See proposed amendments to Form S–3 and 

Form F–3.

336See discussion in Section V.B.1 above under 

‘‘Information Deemed Part of Registration 

Statement.’’

337As 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).

338This 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.

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? 

• Should we permit omission of less 

information in the base prospectus 

under automatic shelf registration? 

What additional information should we 

require? 

• Should we make automatic 

effectiveness optional for automatic 

shelf registration statements? If so, why?

• 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? 

• 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? 

• Should we condition automatic 

effectiveness on resolution of staff 

comments? Why or why not? 

• 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.

(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 thencurrent 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

Request for Comment 

• 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? 

• Should we treat automatic shelf 

registration statements the same as nonautomatic 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? 

• Is the pay-as-you-go filing fee 

procedure workable? Could it be made 

more workable? If so, how? 

• What advantages or disadvantages 

would result from mandatory automatic 

registration in terms of the inability to 

undertake unregistered private offerings 

or other unregistered offerings? 

• 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? 

• 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 NonReporting Issuers 

a. Overview 

We are proposing a number of 

procedural changes that would affect 

reporting issuers, that are not seasoned 

issuers. These include: 

• Expanding the circumstances under 

which issuers may incorporate 

information from their Exchange Act 

reports into their Securities Act 

registration statements; 335 and

• 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

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:

• Reporting issuers who are not 

current in their Exchange Act reports;

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) blank check issuers; 

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) shell companies; 

• Issuers who are (or were, or their 

predecessors were, in the past three 

years) penny stock issuers; 

• Issuers who have received a ‘‘going 

concern’’ opinion from their auditors for 

the most recent fiscal year; 

• Issuers who have filed for 

bankruptcy or insolvency during the 

past three years; 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67437

339The 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.

340See proposed amendments to Form S–1 and 

Form F–1.

341According 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.

342We are proposing to amend Forms S–4 and F–

4 to delete the references to Forms S–2 and F–2.

343Congress 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).

344The 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.

345See Securities Act Rule 174(b) [17 CFR 

230.174(b)].

• Issuers who have been or are the 

subject of refusal or stop orders under 

the Securities Act; or 

• 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

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 

• 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? 

• Should there be other eligibility 

conditions? If so, what should they be? 

• 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? 

• Should there be ineligibility 

provisions for issuers that have 

disclosed a material weakness in their 

internal controls over financial 

reporting? 

• 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? 

• 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

Request for Comment 

• 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.

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 

67438 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

346For 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)].

347Professor 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.

348See Securities Act Rule 153 [17 CFR 230.153].

349Securities 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).

350Paper copies also remain available through our 

public reference room.

351Courts 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.

352Commenters 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.

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.

354See proposed Rule 172.

355This 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’’.

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

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

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

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

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.

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.

Our proposals would: 

• Eliminate the existing link between 

delivery of the final prospectus and the 

delivery of a confirmation of sale; 

• 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; 

• Permit written notices of 

allocations; and 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67439

356Rule 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 nonreporting 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.

357We 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.

358Securities 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)].

359The 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.’’

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.

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.

required Rule 424 prospectus filing 

date.356

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

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

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

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

Request for Comment 

• 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? 

• 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? 

• Would the cost of receiving a final 

prospectus shift to an investor so that 

the investor would not access the final 

prospectus? 

• Should investors be able to request 

a copy of a prospectus in all cases? 

• Should we restrict the operation of 

the provisions only to capital formation 

transactions? 

• 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? 

• 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? 

• Should we consider extending an 

access equals delivery concept to the 

obligation in Exchange Act Rule 15c2–

8 to deliver preliminary prospectuses? 

• 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?

• 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? 

• 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? 

• 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? 

67440 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

362See proposed Rule 172.

363 17 CFR 240.10b–10.

364 17 CFR 230.153.

365Securities 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.

367The proposed amendment would not 

supersede the exemption in Securities Act Rule 174 

for transactions in securities of reporting issuers.

368This would include national securities 

exchanges, trading facilities of a national securities 

association and alternative trading systems.

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.

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:

• Confirmations containing 

information limited to that called for in 

Exchange Act Rule 10b–10 363 and other 

information customarily included in 

confirmations; and

• 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 email 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 

• Should the notice of allocation 

include other information? If so, what 

type of information should be included 

in these communications? 

• Should the notice of allocation to 

participating dealers be required to 

contain any particular information? 

• Should any information be 

restricted or prohibited in the notices? 

• 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.

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:

• The final prospectus is on file with 

us or will be on file with us by the 

applicable prospectus filing date; 

• Securities of the same class are 

trading on an exchange or through any 

trading facility registered with us; and 

• 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

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 

• 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? 

• Is there a reason why continued 

delivery to an exchange or to a market 

maker would be helpful? 

• 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? 

• 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? 

• Is there a reason to repeal Rule 153 

in its entirety in view of proposed Rule 

172? 

• How are prospectus delivery 

obligations of selling security holders 

satisfied today? 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67441

370Securities 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.

371See 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)].

372See 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.

373Securities 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.

374We 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).

375Moreover, 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.

• 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.

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 

• Should proposed Rule 172 be made 

available to aftermarket delivery 

obligations as proposed? 

• Are there other changes that should 

be made to Rule 174 that would assist 

dealers in satisfying their aftermarket 

delivery obligations? 

• 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–B371

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.

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.

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

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.

We proposed including risk factor 

disclosure in the 1998 proposals, and 

67442 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

376See, 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.

377See, e.g., comment letters in File No. S7–30–

98 from the CIT Group, Inc.; Joseph Grundfest; Intel 

Corporation; and Navistar International 

Corporation.

378See, e.g., comment letters in File No. S7–30–

98 from the American Society of Corporate 

Secretaries; and the Business Roundtable.

379See 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].

380Shelf 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.

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 forwardlooking 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.

Request for Comment 

• 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? 

• 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?

• 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

Request for Comment 

• Should we require disclosure of 

unresolved staff comments in quarterly 

reports as well? 

• Is 180 days the right timeframe to 

resolve outstanding staff comments? Is it 

too short? Is it too long? 

• 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? 

• Should we require the proposed 

disclosure of unresolved comments to 

also appear in Form 10–KSB reports 

filed by small business issuers? 

• Should we require the proposed 

disclosure of unresolved comments to 

also appear in Form 40–F? 

• 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?

• Are there more appropriate means 

to provide incentives to timely resolve 

staff comments? 

• Should issuers have to disclose 

comments that have been resolved and 

will be addressed in future Exchange 

Act reports? 

• Should we require disclosure of all 

unresolved comments without regard to 

a materiality assessment by the issuer? 

• Should the staff have a role in 

determining which unresolved 

comments should be disclosed? 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67443

381Exchange 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.

382See Asset-Backed Securities Proposing 

Release, note 58.

383See note 31 of the Asset-Backed Securities 

Proposing Release, note 58 above.

384See 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.

386See comment letters in File No. S7–21–04 

from Investment Company Institute and Fidelity 

Management and Research Company.

obligation under Exchange Act Section 

15(d) has been suspended.381

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 

• 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? 

• Should we require disclosure of 

voluntary filer status on Form 40–F? If 

not, why not? 

VIII. Application of Proposals to AssetBacked 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.

ABS issuers offering securities 

registered on Form S–1 would be nonreporting 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.

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 nonreporting 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.

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 

67444 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

387 44 U.S.C. 3501 et seq.

388 44 U.S.C. 3507(d) and 5 CFR 1320.11.

389The 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.

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.

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 freewriting 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 noaction 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 

• 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? 

• 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? 

• 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? 

• 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? 

• Are further changes needed to 

revise Rule 134 for ABS issuers? 

• Would it be helpful for us to 

explain how any other parts of today’s 

proposal apply to ABS offerings? 

• 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

(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: 

• Communications related to 

registered securities offerings; 

• Procedural restrictions in the 

offering and capital formation processes; 

and 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67445

390We 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.

391Under 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.

392 ‘‘Free writing prospectuses’’ are written 

communications that constitute offers to sell or 

solicitations of offers to buy securities.

393 In this regard, see note 390 regarding the 

burden associated with checking a box on the cover 

page.

394We also are proposing to require similar 

undertaking language in Form N–2, the registration 

statement form for closed-end management 

investment companies.

395See the discussion in Section III above under 

‘‘Permissible Use of Free Writing Prospectuses’’

under ‘‘Filing Conditions.’’

396For 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.

397We assume that brokers and dealers would not 

use outside professionals to comply with the 

proposed collection of information requirements.

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.

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

400We calculated an annual average over a threeyear period because OMB approval of PRA 

submissions covers a three-year period.

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: 

• Risk factor disclosure; 

• 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 

• 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

The proposals would impose the 

following new disclosure requirements 

and filing or publication conditions in 

connection with registered offerings 

under the Securities Act: 

• A brief notice to purchasers in a 

registered offering providing that the 

sale was made pursuant to a registration 

statement; 391

• A brief legend in ‘‘free writing 

prospectuses’’ 392 that refers investors to 

the statutory prospectus;

• ‘‘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

• Additional disclosure in the 

undertakings required to be included in 

a registration statement for securities to 

be offered pursuant to Rule 415; 394

• A filing condition in connection 

with the use of certain free writing 

prospectuses; 395 and

• Making a version of an electronic 

road show readily available to the 

public. 

The proposals would decrease 

existing disclosure requirements by: 

• 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 

• 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.

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.

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.

We estimate that, over a three-year 

time period,400 the annual incremental 

disclosure burden imposed by the 

proposed new disclosure requirements 

67446 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

401We 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. 402We 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. 403We 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 threeyear 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. 404We 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.

405See 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.

406See 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 

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:

• 970 reporting issuers would have 

been required to prepare risk factor 

disclosure within the past year for a 

Securities Act registration statement; 402

• 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

• Issuers would include disclosure of 

new or material changes to risk factors 

in 15% of all 10–Qs filed; and 

• 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

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

Annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

75% issuer

(D)=(C)*0.75 

25%

professional

(E)=(C)*0.25 

$300

prof. cost

(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

Annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75%

professional

(E)=(C)*0.75 

$300

prof. cost

(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

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67447

preparing the Rule 173 notice (232.448 million 

multiplied by (1/60 hours) = 3,874,133 hours).

407Aside 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.

408For 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.

409We 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.

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.

411We 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.

413Source: EDGAR—Forms S–2 and F–2 filed 

from October 1, 2003 to September 30, 2004.

414We 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.

These estimates were based on the 

following assumptions:

• 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

• Issuers would make readily 

available to the public 2,001 electronic 

road shows per year; 408

• 7,705 free writing prospectuses per 

year would be filed in connection with 

3,703 offerings by 2,906 issuers; 409

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. 

• 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; 

• There would be approximately 

232.45 million individual responses to 

proposed Rule 173 annually; 410 and

• The burden of the proposed Rule 

173 notice requirement would be one 

minute per response.411

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

Annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. cost

(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 

412This 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: 

• 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

• Each year, 277 Forms S–1 and 8 

Forms F–1 would incorporate 

information by reference; 414

• Incorporating information by 

reference would reduce the paperwork 

burden in Forms S–1 by 374,227 

67448 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

415We 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).

416We 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).

417From 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.

418We 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.

419We 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.

420We 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 majorityowned 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.

421From 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).

422A 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.

hours 415 and Forms F–1 by 15,680 

hours;416

• 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

• 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

• 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

• 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

• 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

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

annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. 

cost

(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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67449

425Comments are requested pursuant to 44 U.S.C. 

3506(c)(2)(B).

TABLE 5.—CALCULATION OF INCREMENTAL PRA BURDEN ESTIMATES FOR FORMS S–1 AND F–1 TO REFLECT ISSUERS

ELIGIBLE TO INCORPORATE BY REFERENCE

Incremental

annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. cost

(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

annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. cost

(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

annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=

(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. cost

(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

annual

responses

(A) 

Incremental

hours/form

(B) 

Incremental

burden

(C)=(A)*(B) 

25% issuer

(D)=(C)*0.25 

75% professional

(E)=(C)*0.75 

$300 prof. cost

(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

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 

67450 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

426Under 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.

427For further discussion of the characteristics of 

well-known seasoned issuers, see Section II above.

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: 

• Communications related to 

registered securities offerings; 

• Procedural restrictions in the 

offering and capital formation processes; 

and 

• 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:

• Facilitate greater availability of 

information to investors and the market 

with regard to all issuers; 

• Eliminate barriers to open 

communications that have been made 

increasingly outmoded by technological 

advances; 

• Reflect the increased importance of 

electronic dissemination of information, 

including the use of the Internet; 

• Make the capital formation process 

more efficient; and 

• 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.

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

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: 

• There would be two separate safe 

harbors from the gun-jumping 

provisions for ongoing communications 

at any time—

Æ A safe harbor for a reporting 

issuer’s continued publication or 

dissemination at any time of regularly 

released factual business and forwardlooking information; and 

Æ 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. 

• 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:

Æ 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 

Æ 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. 

• 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67451

offering and would be excluded from 

the definition of ‘‘prospectus.’’

• 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). 

• 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: 

• Modifications that would clarify 

and expand how and when information 

could be included in registration 

statements; 

• A clarification of the Securities Act 

liability treatment of information 

provided in a prospectus supplement 

and Exchange Act reports incorporated 

by reference; 

• A more flexible automatic 

registration process for well-known 

seasoned issuers, including automatic 

effectiveness and pay-as-you-go 

registration fee payment; and 

• 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: 

• Eliminate the existing link between 

delivery of the final prospectus and the 

delivery of confirmations of sale; 

• 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; 

• Permit written notices of 

allocations; and 

• 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: 

• Extend risk factor disclosure 

requirements to annual reports on 

Exchange Act Form 10–K and 

registration statements on Exchange Act 

Form 10; 

• Require updates to risk factor 

disclosure in quarterly reports on 

Exchange Act Form 10–Q; 

• 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 

• 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 riskreturn 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 

67452 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

428See, 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].

429Recent 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.

430The proposals would not affect the application 

of the Securities Act to oral road show 

presentations for their institutional investor clients.

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

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 issuerprovided 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

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 majorityowned 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67453

431For 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.

433We 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.’’

434The calculation for total record retention cost 

is: (925.75 issuer hours) multiplied by ($125 per 

hour) plus $833,175.00 professional cost = 

Continued

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

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.

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

67454 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

$948,893.75. See also Table 3 in Section X above 

under ‘‘Paperwork Reduction Act.’’ 435For 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.

436For 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.

438 ($0.05 per notice) multiplied by (232.45 

million confirmations) = $11,622,500. See also note 

410 and accompanying text.

439See e.g., Item 503 of Regulation S–K [17 CFR 

229.503].

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

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 forwardlooking 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.

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.

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.

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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67455

440 15 U.S.C. 78w(a)(2).

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 

• Will our proposals result in 

investors receiving more timely and 

accurate information upon which to 

base an investment decision? 

• Is our definition of ‘‘well-known 

seasoned issuer’’ appropriate for the 

purposes of the proposal? 

• 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? 

• 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? 

• 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. 

• 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? 

• 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.

• 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. 

• We request comment as to whether 

the proposals regarding delivery of final 

prospectuses would negatively impact 

investors and, if so, how. 

• 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? 

• What are the costs to issuers and 

underwriters of printing and delivering 

prospectuses? 

• Would issuers and underwriters 

incur additional incremental costs if 

they needed to print extra prospectuses 

due to demand for paper copies? 

• 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. 

• 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. 

• 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. 

• 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). 

• 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. 

• 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. 

• 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. 

• 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 

67456 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

441 15 U.S.C. 77b(b).

442 15 U.S.C. 78c(f).

443See 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.

444Milton 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.’’)

445See 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).

446See 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).

447See 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].

448Report of the Task Force on Disclosure 

Simplification, available at www.sec.gov/news/

studies/smpl.htm (Mar. 5, 1996).

449Report 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’’).

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.

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:

• Facilitate greater availability of 

information to investors and the market 

with regard to all issuers; 

• Eliminate barriers to open 

communications that have been made 

increasingly outmoded by technological 

advances; 

• Reflect the increased importance of 

electronic dissemination of information, 

including the use of the Internet; 

• Make the capital formation process 

more efficient; and 

• 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.

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

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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67457

450Securities Act Concepts and Their Effects on 

Capital Formation, Concept Release, Release No. 

33–7314 (July 25, 1996) [61 FR 40044].

451 17 CFR 230.157.

452 17 CFR 240.0–10(a).

453An 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.

454 17 CFR 240.0–10(c)(1).

455Under 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.

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.

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.

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: 

• Communications related to 

registered securities offerings; 

• Procedural restrictions in the 

offering and capital formation processes; 

and 

• 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: 

• Facilitate greater availability of 

information to investors and the market 

with regard to all issuers; 

• Eliminate barriers to open 

communications that have been made 

increasingly outmoded by technological 

advances; 

• Reflect the increased importance of 

electronic dissemination of information, 

including the use of the Internet; 

• Make the capital formation process 

more efficient; and 

• 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.

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 § 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 brokerdealers 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 brokerdealers engage in these activities, but we 

request comment on whether and how 

these proposals will affect small brokerdealers.

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.

The characteristics of the last tier of 

issuer, called well-known seasoned 

issuers in the proposals, would be easily 

67458 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

456For further discussion of the characteristics of 

well-known seasoned issuers, see Section II above. 457Pub. L. 104–121, Title II, 110 Stat. 857 (1996).

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

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:

• An annual effect on the U.S. 

economy of $100 million or more; 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67459

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• 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 § 228.512 as follows: 

a. Add paragraph (a)(4); 

b. Add paragraph (a)(5); and 

c. Add paragraph (g). 

The additions read as follows:

§ 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) (§ 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 

(§ 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 (§ 230.430C of this 

chapter), include the following:

Each prospectus filed pursuant to Rule 

424(b)(3) (§ 230.424(b)(3) of this chapter) as 

part of a registration statement in reliance on 

Rule 430C (§ 230.430C of this chapter) 

relating to an offering made pursuant to Rule 

415(a)(1)(i) or (ix) (§ 230.415(a)(1)(i) or (ix) of 

this chapter), other than registration 

statements relying on Rule 430A (§ 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 § 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:

§ 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 (§ 239.16b of 

this chapter), and the information 

required to be included in a posteffective 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 (§ 239.13 of this chapter) or Form F–

3 (§ 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) (§ 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) 

67460 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

(§ 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 (§ 230.430B of this chapter): Each 

prospectus filed pursuant to Rule 

424(b)(2), (b)(5), (b)(7) or (b)(8) 

(§ 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 

(§ 230.430B of this chapter) or otherwise 

relating to an offering made pursuant to 

Rule 415(a)(1)(i) or (x) (§ 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 (§ 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 (§ 230.430C of this chapter): Each 

prospectus filed pursuant to Rule 

424(b)(3) (§ 230.424(b)(3) of this 

chapter) as part of a registration 

statement in reliance on Rule 430C 

(§ 230.430C of this chapter) relating to 

an offering made pursuant to Rule 

415(a)(1)(i) or (ix) (§ 230.415(a)(1)(i) or 

(ix) of this chapter), other than 

registration statements relying on Rule 

430A (§ 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 (§ 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 § 230.134 to read as follows:

§ 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 (§ 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; 

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

(§ 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 (§ 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 § 230.137 to read as follows:

§ 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: 

67462 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

(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) (§ 230.419(a)(2)); 

(2) A shell company as defined in 

Rule 405 (§ 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 

(§ 240.3a51–1 of this chapter). 

Instructions to § 230.137.

1. Definition of research report. For 

purposes of this section, research report

means a written communication as 

defined in Rule 405 (§ 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 § 230.138 to read as follows:

§ 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 nonconvertible, 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) 

(§ 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 

(§ 239.13 or § 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 (§ 249.310 of this chapter), 

10–KSB (§ 249.310b of this chapter), 10–

Q (§ 249.308a of this chapter), 10–QSB 

(§ 249.308b of this chapter), and 20–F 

(§ 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) (§ 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) (§ 230.419(a)(2)); 

(ii) A shell company as defined in 

Rule 405 (§ 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 

(§ 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 

(§ 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) (§ 230.902(c)) 

for offerings under Regulation S 

(§§ 230.901 through 230.905); or 

(2) Be inconsistent with the offshore 

transaction requirement in Rule 902(h) 

(§ 230.902(h)) for offerings under 

Regulation S. 

Instruction to § 230.138.

Definition of research report. For 

purposes of this section, research report

means a written communication as 

defined in Rule 405 (§ 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 § 230.139 to read as follows:

§ 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 (§ 239.13 of this chapter) or 

Form F–3 (§ 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67463

(3) Has its equity securities trading on 

a designated offshore securities market 

as defined in Rule 902(b) (§ 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) 

(§ 230.419(a)(2)); 

(B) A shell company as defined in 

Rule 405 (§ 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 

(§ 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 

(§ 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) (§ 230.902(c)) 

for offerings under Regulation S 

(§§ 230.901 through 230.905); or

(2) Be inconsistent with the offshore 

transaction requirement in Rule 902(h) 

(§ 230.902(h)) for offerings under 

Regulation S. 

Instructions to § 230.139.

1. Definition of research report. For 

purposes of this section, research report 

means a written communication as 

defined in Rule 405 (§ 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 § 230.153 to read as 

follows:

§ 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 

(§ 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 

(§ 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 

(§ 230.430A), or for offerings relying on 

Rule 430B (§ 230.430B) or Rule 430C 

(§ 230.430C), the issuer has filed or will 

file such a prospectus within the time 

required under Rule 424 (§ 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 (§ 242.300(a) of 

this chapter). 

11. Amend § 230.158 to revise 

paragraph (c) to read as follows:

§ 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 posteffective 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 

67464 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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 (§ 230.430B) next preceding a 

particular sale by the issuer of registered 

securities to the public.

* * * * *

12. Add § 230.159 to read as follows:

§ 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 § 230.159A to read as follows:

§ 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 (§ 230.424) or Rule 

497 (§ 230.497); 

(b) Any free writing prospectus as 

defined in Rule 405(§ 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 

(§ 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 

(§ 230.482); and 

(d) Any other communication made 

by or on behalf of the issuer.

Notes to § 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 § 230.163 to read as follows:

§ 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 § 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 

(§ 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 (§ 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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 (§ 230.166) for business 

combination transactions; 

(ii) Communications made in 

connection with offerings registered on 

Form S–8 (§ 239.16b); or 

(iii) Communications in offerings of 

securities of ineligible issuers as defined 

in Rule 405 (§ 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 

(§ 243.100(b)(2)(iv) of this chapter). 

15. Add § 230.163A to read as follows:

§ 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 § 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 (§ 230.168) or 

Rule 169 (§ 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 (§ 230.166) for business 

combination transactions; 

(2) Communications made in 

connection with offerings registered on 

Form S–8 (§ 239.16b of this chapter); or 

(3) Communications in offerings of 

securities of ineligible issuers as defined 

in Rule 405 (§ 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 

(§ 243.100(b)(2)(iv) of this chapter). 

16. Add § 230.164 to read as follows:

§ 230.164 Post-filing free writing 

prospectuses in connection with certain 

registered offerings. 

Preliminary Note to § 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 (§ 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 

(§ 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 (§ 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 

(§ 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 § 230.168 to read as follows:

§ 230.168 Factual business information 

and forward-looking information regularly 

released by a reporting issuer. 

Preliminary Note to § 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 

67466 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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 

(§ 228.303 and § 229.303 of this chapter) 

or the operating and financial review 

and prospects described in Item 5 of 

Form 20–F (§ 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 § 230.169 to read as follows:

§ 230.169 Factual business information 

regularly released by a non-reporting 

issuer. 

Preliminary Note to § 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 § 230.172 to read as follows:

§ 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 (§ 240.10b–10 of this chapter) and 

other information customarily included 

in written confirmations of sales of 

securities and notices of allocation of 

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

(§ 230.430A), or for offerings relying on 

Rule 430B (§ 230.430B) or Rule 430C 

(§ 230.430C), the issuer has filed or will 

file such a prospectus within the time 

required under Rule 424 (§ 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) 

(§ 230.165(f)(1); or 

(4) Offering registered on Form S–8 

(§ 239.16b of this chapter). 

20. Add § 230.173 to read as follows:

§ 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 

(§ 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 (§ 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 (§ 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 (§ 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) 

(§ 230.165(f)(1)); or 

(4) Offering registered on Form S–8 

(§ 239.16b of this chapter). 

21. Amend § 230.174 by removing the 

authority citations following the section 

and adding paragraph (h) to read as 

follows:

§ 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 

(§ 230.172). 

22. Amend § 230.401 by removing the 

authority citations following the section 

and revising paragraph (g) to read as 

follows:

§ 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 (§ 230.462 and § 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 

(§ 230.405) and any post-effective 

amendment thereto that becomes 

effective automatically pursuant to Rule 

462 (§ 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 (§ 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 (§ 239.13 or § 239.33 of this 

chapter) for primary offerings of its 

securities. 

23. Amend § 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:

§ 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 (§ 239.13 or § 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 

67468 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

context otherwise requires, a free 

writing prospectus is any written 

communication as defined in Rule 405 

(§ 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 (§ 230.430), Rule 430A 

(§ 230.430A), Rule 430B (§ 230.430B), or 

Rule 431 (§ 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 (§ 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) (§ 230.419(a)(2)); 

(iii) Within the past three years, the 

issuer or its predecessor was a shell 

company as defined in Rule 405 

(§ 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 (§ 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)(§ 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 wellknown 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 (§ 249.310 or § 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 

(§ 239.13 or § 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 (§ 210.3–10 of this 

chapter), the payment obligations on the 

subsidiary’s securities and the securities 

are non-convertible obligations; 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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 (§ 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 (§ 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 (§ 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 (§ 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 (§ 230.405); and 

(7) Is not an asset-backed issuer as 

defined in Rule 405 (§ 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 (§ 230.405). 

24. Amend § 230.408 as follows: 

a. Designate the current text as 

paragraph (a); and 

b. Add paragraph (b). 

The addition reads as follows:

§ 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 

(§ 230.405)), be considered an omission 

of material information required to be 

included in the registration statement. 

25. Amend § 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:

§ 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 

(§ 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 (§ 230.430B). 

26. Revise § 230.413 to read as 

follows:

§ 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 posteffective amendment to that automatic 

shelf registration statement. The 

provisions of Rule 401 (§ 230.401), other 

than Rule 401(g)(2) (§ 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 

(§ 229.202 of this chapter) is contained 

either in the post-effective amendment, 

a report on Form 10–K (§ 249.310 of this 

chapter), Form 20–F (§ 249.220f of this 

chapter), Form 10–Q (§ 249.308a of this 

chapter), Form 8–K (§ 249.308 of this 

chapter), or Form 6–K (§ 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 (§ 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 posteffective amendment and the provisions 

of paragraph (b)(1) of this section are 

satisfied. 

27. Amend § 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:

§ 230.415 Delayed or continuous offering 

and sale of securities. 

(a) * * * 

(1) * * * 

67470 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

(x) Securities registered (or qualified 

to be registered) on Form S–3 or Form 

F–3 (§ 239.13 or § 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 (§ 239.13 or 

§ 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 (§ 229.512(a) of this 

chapter), except that a registrant that is 

an investment company filing on Form 

N–2 (§§ 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 (§ 239.13 or § 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 

(§ 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) 

(§ 230.457(p)), to offset the filing fee due 

for the new registration statement. For 

purposes of Rule 457(p) (§ 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 § 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:

§ 230.418 Supplemental information. 

(a) * * * 

(3) Except in the case of a issuer 

eligible to use Form S–3 (§ 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 (§ 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 § 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:

§ 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) (§ 230.428(a)) or 

free writing prospectuses filed pursuant 

to Rule 433(d) (§ 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) 

(§ 230.415(a)(1)(x)) or securities 

registered for issuance on a delayed 

basis pursuant to Rule 415(a)(1)(i), (vii) 

or (viii) (§ 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 

(§ 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) 

(§ 230.434(c)) with respect to securities 

registered on Form S–3 or Form F–3 

(§ 239.13 or § 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67471

upon Rule 430B (§ 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 

(§ 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 § 230.430A to add 

paragraph (f) following the note to read 

as follows:

§ 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) (§ 230.462(e) and (f)). 

31. Add § 230.430B to read as follows:

§ 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) 

(§ 230.415(a)(1) (viii) or (x)) may omit 

information that is unknown or not 

reasonably available to the issuer 

pursuant to Rule 409 (§ 230.409). A form 

of prospectus filed as part of an 

automatic shelf registration statement 

for offerings pursuant to Rule 

415(a)(1)(§ 230.415(a)(1)), other than 

Rule 415(a)(1)(vii) (§ 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) 

(§ 230.415(a)(1)(i)) by an issuer eligible 

to use Form S–3 or Form F–3 (§ 239.13 

or § 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 (§ 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 posteffective amendment to the registration 

statement, a prospectus filed pursuant 

to Rule 424 (§ 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) (§ 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) 

(§ 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 (§ 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 

(§ 229.512(a) of this chapter). 

32. Add § 230.430C to read as follows:

§ 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) (§ 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 

67472 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

(§ 239.13 of this chapter) pursuant to 

General Instructions I.B.1, I.B.2, I.C. or 

I.D. or Form F–3 (§ 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) 

(§ 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) 

(§ 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 

(§ 229.512(a) of this chapter), Item 

512(a) and/or (g) of Regulation S–B 

(§ 229.512(a) and (g) of this chapter), or 

Item 34.4 of Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), as 

applicable. 

33. Add § 230.433 to read as follows:

§ 230.433 Conditions to permissible postfiling 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 (§ 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 (§ 239.13 or § 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 (§ 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 (§ 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 

(§ 230.405), or if not a well-known 

seasoned issuer, is an issuer eligible to 

use Form S–3 or Form F–3 (§ 239.13 or 

§ 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 (§ 230.431)), which could be a base 

prospectus satisfying the conditions of 

Rule 430B (§ 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 

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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 

(§ 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 onlll. 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

67474 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

(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 § 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 § 230.434 as follows: 

a. Revise paragraph (d) before the 

Instruction; and 

b. Revise paragraph (g). 

The revisions read as follows:

§ 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) 

(§ 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) 

(§ 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 (§ 230.430), a prospectus 

omitting information in reliance on Rule 

430A (§ 230.430A), or a prospectus 

omitting information in reliance on Rule 

430B (§ 230.430B) that is contained in a 

registration statement at the time of 

effectiveness or as subsequently revised. 

35. Amend § 230.439 by revising 

paragraph (b) to read as follows:

§ 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) (§ 230.462(b)) or a posteffective amendment filed pursuant to 

Rule 462(e) (§ 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 § 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:

§ 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) 

(§ 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) (§ 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) (§ 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) (§ 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 payas-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) (§ 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-yougo 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 § 230.457 by adding 

paragraph (r) to read as follows:

§ 230.457 Computation of fee.

* * * * *

(r) Where securities are to be offered 

pursuant to an automatic shelf 

registration statement, the registration 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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) (§ 230.456(b)). 

38. Amend § 230.462 by adding 

paragraphs (e) and (f) to read as follows:

§ 230.462 Immediate effectiveness of 

certain registration statements and posteffective amendments

* * * * *

(e) An automatic shelf registration 

statement and any post-effective 

amendment thereto, including a posteffective amendment filed to register 

additional classes of securities pursuant 

to Rule 413(b) (§ 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) (§ 230.413(b)) that satisfies the 

requirements of Form S–3 or Form F–3 

(§ 239.13 or § 239.33 of this chapter), as 

applicable, including the signatures 

required by Rule 402(e) (§ 230.402(e)), 

and contains a prospectus satisfying the 

requirements of Rule 430B (§ 230.430B), 

shall become effective upon filing with 

the Commission. 

39. Amend § 230.473 by revising 

paragraph (d) to read as follows:

§ 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 (§ 239.37, 

§ 239.38 or § 239.41 of this chapter); on 

Form F–9 or F–10 (§ 239.39 or § 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 (§ 239.16b of 

this chapter); on Form S–3 or F–3 

(§ 239.13 or § 239.33 of this chapter) 

relating to a dividend or interest 

reinvestment plan; on Form S–3 or 

Form F–3 (§ 239.13 or § 239.33 of this 

chapter) relating to an automatic shelf 

registration statement; or on Form S–4 

(§ 239.25 of this chapter) complying 

with General Instruction G of that Form. 

40. Amend § 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:

§ 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) 

(§ 230.138(c)) or rule 139(b) 

(§ 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) (§ 230.138(c)) or Rule 

139(b) (§ 230.139(b)) by a broker or 

dealer at or around the time of an 

offering in reliance on Regulation S 

(§§ 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 § 239.11. 

43. Amend Form S–1 (referenced in 

§ 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. 

67476 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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 (§ 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 § 239.12 and 

remove Form S–2 referenced in that 

section. 

45. Amend § 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:

§ 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 registrantsubsidiary 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 registrantsubsidiary 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 registrantsubsidiary 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 wellknown 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 (§ 230.415 of this 

chapter), other than Rule 415(a)(1)(vii) 

or (viii) (§ 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 (§ 230.415, 

§ 230.430A, and § 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 

(§ 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 (§ 239.415 and 

§ 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 (§ 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 wellknown 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 (§ 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 NonConvertible Investment Grade 

Securities); or 

(iii) Securities to be offered for the 

account of any person other than the 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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) (§ 230.456(b) of 

this chapter) and Rule 457(r) 

(§ 230.457(r) of this chapter) or in 

accordance with Rule 456(a) 

(§ 230.456(a) of this chapter);

(4) If the registrant is a majorityowned 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 (§ 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 posteffective amendment pursuant to Rule 

413(b) (§ 230.413(b) of this chapter).

* * * * *

46. Amend Form S–3 (referenced in 

§ 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. b

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. 

b

* * * * *

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 (§ 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) 

(§ 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 registrantsubsidiary 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 registrantsubsidiary 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 registrantsubsidiary 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 

67478 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

may be registered on the same registration 

statement as are the guaranteed securities.

* * * * *

D. Automatic Shelf Offerings by WellKnown 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 

(§ 230.415), other than Rule 

415(a)(1)(vii) or (viii) 

(§ 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 (§ 230.415, 

§ 230.430A, and § 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 (§ 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 wellknown 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) (§ 230.456(b)) 

and 457(r) (§ 230.457(r)) or in 

accordance with Rule 456(a) 

(§ 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, § 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 posteffective amendment pursuant to Rule 

413(b) (§ 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) (§ 230.415(a)(1)(x)), and 

where this Form is not an automatic 

shelf registration statement, Rule 457(o) 

(§ 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) 

(§ 230.456(b)) permits the registrant to 

pay the registration fee on a pay-as-yougo basis and Rule 457(r) (§ 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) 

(§ 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 NonAutomatic 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 (§ 230.430A) or Rule 430B 

(§ 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 posteffective 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) 

(§ 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 

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

(§ 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) (§ 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 posteffective 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 posteffective 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) 

(§ 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 

§ 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, 

67480 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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 

§ 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 (§ 230.439) regarding consent to use 

of material incorporated by reference.

b.1. The registrant must state:

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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 § 239.32 and 

remove Form F–2 referenced in that 

section. 

50. Amend § 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:

§ 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 registrantsubsidiary 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 registrantsubsidiary 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 registrantsubsidiary 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 (§§ 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 

(§ 239.13). Rule 3–10 of Regulation S–X 

(§ 210.3–10 of this chapter) specifies the 

financial statements required.

* * * * *

(c) Automatic shelf offerings by wellknown 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 

(§ 230.415 of this chapter), other than 

Rule 415(a)(1)(vii) (§ 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 (§ 230.415, § 230.430A, 

and § 230.430B of this chapter); 

(ii) Securities of majority-owned 

subsidiaries to be offered pursuant to 

Rule 415 and Rule 430B (§ 230.415 and 

§ 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 (§ 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 wellknown 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 (§ 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 NonConvertible 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 (§§ 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) (§ 230.456(b) of 

67482 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

this chapter) and 457(r) (§ 230.457(r) of 

this chapter) or in accordance with Rule 

456(a) (§ 230.456(a) of this chapter); 

(4) If the registrant is a majorityowned 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 (§ 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 posteffective amendment pursuant to Rule 

413(b) (§ 230.413(b)). 

51. Amend Form F–3 (referenced in 

§ 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. b

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. b

* * * * *

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 (§ 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) 

(§ 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 registrantsubsidiary 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 registrantsubsidiary 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 registrantsubsidiary 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 (§ 210.3–10) specifies 

the financial statements required.

* * * * *

C. Automatic Shelf Offerings by WellKnown 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 67483

(§ 230.415), other than Rule 

415(a)(1)(vii) or (viii) 

(§ 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 (§ 230.415, § 230.430A 

and § 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 (§ 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 wellknown 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 (§ 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) (§ 230.456(b)) 

and 457(r) (§ 230.457(r)) or in 

accordance with Rule 456(a) 

(§ 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, § 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 posteffective amendment pursuant to Rule 

413(b) (§ 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) (§ 230.415(a)(1)(x)), and 

where this Form is not an automatic 

shelf registration statement, Rule 457(o) 

(§ 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) 

(§ 230.456(b)) permits the registrant to 

pay the registration fee on a pay-as-yougo basis and Rule 457(r) (§ 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) 

(§ 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 NonAutomatic 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 (§ 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 (§ 230.430A or § 230.430B), a posteffective 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) 

(§ 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 posteffective 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 

67484 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

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) 

(§ 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) (§ 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 posteffective 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 posteffective 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) 

(§ 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 

§ 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 

Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 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 § 240.14a–2 as follows: 

a. Remove the authority citation 

following the section; and 

b. Add paragraph (b)(5).

The addition reads as follows:

§ 240.14a–2 Solicitations to which 

§ 240.14a–3 to § 240.14a–15 apply.

* * * * *

(b) * * * 

(5) Publication or distribution by a 

broker or a dealer of a research report 

in accordance with Rule 138 (§ 230.138 

of this chapter) or Rule 139 (§ 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 § 243.100 by revising 

paragraph (b)(2)(iv) to read as follows:

§ 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 

(§ 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 (§ 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 (§ 230.135 of 

this chapter); 

(E) A communication permitted by 

Rule 134 under the Securities Act 

(§ 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 

§ 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 

(§ 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) 

67486 Federal Register / Vol. 69, No. 221 / Wednesday, November 17, 2004 / Proposed Rules 

of the Securities Act of 1933 

(§ 230.421(d) of this chapter).

* * * * *

59. Amend Form 20–F (referenced in 

§ 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 

§ 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. b

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 

(§ 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 

(§ 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 § 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. b

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 

§ 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

* * * * *

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

§ 239.14 and § 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