SEC Adopts Public
Securities Offering Reforms
August 2005
Written by:
Lorraine Massaro
212-536-4043
lmassaro@klng.com
Katherine J. Blair
310-552-5017
kblair@klng.com
Nanette Heide
212-536-4813
nheide@klng.com
BOSTON • DALLAS • HARRISBURG • LONDON • LOS ANGELES • MIAMI • NEWARK
NEW YORK • PALO ALTO • PITTSBURGH • SAN FRANCISCO • WASHINGTON
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.
TABLE OF CONTENTS
Page
Overview ........................................................................................................................ 1
Communications ................................................................................................... 2
Shelf Registration .................................................................................................. 5
Forms S-1 and F-1 ................................................................................................ 6
Prospectus Delivery .............................................................................................. 7
Miscellaneous........................................................................................................ 7
Detailed Discussion of the Reforms ............................................................................ 8
I.
Categories of Issuers ............................................................................................ 8
II.
Broadened Communications Around the Time of a Registered Offering ............ 11
New Definitions for “Written” and “Graphic” Communications............................. 12
New Definition – “Free Writing Prospectus” ........................................................ 13
Communications Made at Any Time While “In Registration” ............................... 14
Communications Made Prior to Filing a Registration Statement ......................... 18
Communications Made More Than 30 Days Prior to Filing – All Issuers ............ 19
Communications Made at Any Time Prior to Filing – Available Only to WellKnown Seasoned Issuers.................................................................................... 20
Communications Between Filing and Effectiveness of a Registration
Statement ............................................................................................................ 21
Communications After Effectiveness of a Registration Statement ...................... 29
Amendments to Regulation FD ........................................................................... 29
Research Reports ............................................................................................... 30
III.
Securities Act Registration Reforms.................................................................... 36
Shelf Registrations .............................................................................................. 36
Automatically Effective Shelf Registration Statements for Well-Known
Seasoned Issuers................................................................................................ 40
Increased Flexibility for Unseasoned Issuers - Incorporation by Reference
in Forms S-1/F-1 ................................................................................................. 43
IV.
Prospectus Delivery Reforms .............................................................................. 45
V.
Exchange Act Disclosure Expanded ................................................................... 48
Risk Factor Disclosure Added to Form 10-K and Form 10.................................. 48
Disclosure of Unresolved Staff Comments.......................................................... 48
Disclosure of Status as Voluntary Filer Under the Exchange Act or WellKnown Seasoned Issuer ..................................................................................... 48
VI.
Liability Issues ..................................................................................................... 49
Liability for Contents of Free Writing Prospectuses............................................. 49
Timing of Other Disclosure Liabilities .................................................................. 50
Prospectus Supplements – Liability Dates in Shelf Offerings Changed .............. 53
VII.
Asset-Backed Securities ..................................................................................... 56
- ii -
SEC Adopts Public Securities Offering
Reforms
August 5, 2005
Overview
On June 29, 2005, the Securities and Exchange Commission adopted landmark changes to the
registered securities offering regime under the Securities Act of 1933 which become effective on
December 1, 2005. The final Rules bear relatively minor changes from the Proposed Rules
released by the Commission in November 2004 made in order to address certain comments
received by the Staff.1 As in the Proposal, different types of issuers are treated differently under
the final Rules with the most benefits accruing to a new category of issuer, the “Well-Known
Seasoned Issuer.”
The Reforms also provide benefits to other categories of issuers, such as “seasoned” Exchange
Act-reporting issuers (which do not qualify as Well-Known Seasoned Issuers because they do
not satisfy a specified public equity float or public debt requirements but which nevertheless are
Form S-3 or F-3 eligible for primary offerings of securities) over non-seasoned Exchange Actreporting issuers and non-reporting issuers.
In addition, there is a category of Ineligible Issuers, such as reporting companies that are not
current in their filings with the Commission, companies that voluntarily file reports under the
Exchange Act but are not required to do so, companies in bankruptcy or insolvency, companies
that have violated the anti-fraud provisions of the securities laws, blank check companies,
business development companies, shell companies and penny stock issuers, as to which the
current Reforms provide no benefit.
The most fundamental changes effected in the Reforms primarily relate to:
■
Communications
■
Shelf Registration
and Other Public
Offering Processes –
■
1
–
Prospectus Delivery –
expanding permissible communications prior to and during a
registered offering of securities
streamlining the procedure for most issuers and clarifying the
related liability provisions
expanding the means of delivering prospectuses to investors
from the current requirement of physical delivery to delivery
through “access” (e.g., Internet postings and publicly-available
filings with the Commission) and notice
In connection with the new Reforms, the following are revised: (a) Securities Act of 1933 Rules 134, 137, 138,
139, 153, 158, 174, 401, 405, 408, 412, 413, 415, 418, 424, 430A, 439, 456, 457, 462, 473, 497 and 902 and
Item 512 of Regulations S-B and S-K; (b) Forms S-1, F-1, S-3, F-3 and, to a minor degree, S-4 and F-4 (business
combination transactions and exchange offers are not covered by the new Rules, however); (c) Securities and
Exchange Act of 1934 Rule 14a-2 and Regulation FD; and (d) Forms 10, 10-K, 10-KSB, 20-F, 10-Q and N-2.
Forms S-2 and F-2 and Rule 434 under the Securities Act are eliminated. The following rules under the
Securities Act are added: Rules 159, 159A, 163, 163A, 164, 168, 169, 172, 173, 430B, 430C and 433.
NY-381143 v1
►
Communications
Prior to effectiveness of the Reforms, the regulation of communications around the time of a
registered offering developed through a combination of statutory prohibitions, case law
interpretations and best practices. The statutory framework prohibits “gun-jumping” which is
(i) the making of any offers (oral or written) of securities prior to the filing of the registration
statement, (ii) the making of written offers after the filing of the registration statement other than
by statutory prospectus meeting the requirements of Section 10(b) of the Securities Act and
(iii) the distribution of written material other than a statutory prospectus after effectiveness of the
registration statement unless such material is accompanied by a statutory final prospectus
meeting the requirements of Section 10(a) of the Securities Act.
While simple to articulate, compliance with this regulatory framework in reality has never been
simple and has been made more difficult in recent years as a result of both (i) the Commission’s
move to requiring public companies to make continuous “real time” disclosures about their
businesses and (ii) technological advances making available to large groups of people
communications via electronic means (and therefore blurring the statutory distinction between
written and oral communications). In fact, the term offer is very broadly defined under the
existing securities laws.2 Moreover, any offer in writing would be deemed a “prospectus,” raising
the question of whether it complied with Section 10 of the Securities Act.
The Rule changes are intended to (i) bring more clarity as to the kind of ongoing ordinary
business course disclosures that would not constitute “gun-jumping” and (ii) permit greater use
of written communications outside of the “statutory prospectus” around the time of a registered
offering of securities. Among other things, the Commission has introduced a new form of
permitted communication – the “Free Writing Prospectus” and has clarified which
communications will not be deemed offers under certain circumstances.
Generally, the changes include:
Non-Exclusive Safe Harbors from Deemed “Offers” and “Prospectuses”
■
a 30-day safe harbor which allows any communication by any issuer that is made more
than 30 days before the filing of a registration statement which does not refer to a
securities offering, so long as the issuer takes reasonable precautions to prevent the
further distribution of the information during the 30-day period prior to filing the
registration statement (these communications will be excluded from being deemed offers
for purposes of the Securities Act but will be subject to Regulation FD and their content
regulated under the general anti-fraud provisions of the securities laws)
■
two safe harbors allowing ordinary course business disclosures (not containing
information about the registered offering) any time before and after the filing of the
registration statement by:
•
2
Reporting Issuers (whether “seasoned” or not, but not voluntary filers) of
regularly released factual business and forward-looking information
The determination of what constitutes an offer involves a fact and circumstances analysis. Almost any
communication by the issuer that could remotely be characterized as promoting the offering could be considered
an offer (for example, media interviews, product advertising and website content).
-2-
•
Non-Reporting Issuers (including voluntary filers) of factual business
information of a type that has been regularly released in the past to noninvestors (forward-looking information is excluded due to the lack of
information about these issuers in the marketplace)
(these communications will be excluded from being categorized as offers under the
Securities Act)
■
expanding the existing Rule 134 safe harbor, which allows limited public notice about an
offering after the filing of the registration statement, to include more information about
the offering such as the timetable, brokerage account opening process, the submission
of conditional offers to buy the securities or indications of interest and any expected
security rating of the securities, so long as there is no detailed description of the
securities or the equivalent of a term sheet (these notices are excluded from being
deemed “prospectuses”)
■
allowing any communication (including oral and written communications and including
offers) by the new category of certain widely-followed, large-cap Reporting Issuers
(“Well-Known Seasoned Issuers”) made within the 30-day period prior to the filing of a
registration statement or at any time after the filing; however, any such communications
made in writing will be treated as permitted Free Writing Prospectuses and must be filed
with the Commission and otherwise comply with new Rule 433
New Free Writings Outside a Prospectus
■
allowing, after the filing of the registration statement, any written communication outside
the statutory prospectus so long as such communication is promptly filed (a cure period
is provided) with the Commission as a Free Writing Prospectus and so long as:
•
for Non-Reporting Issuers or Reporting (though not voluntarily) Issuers that
do not satisfy the requirements for use of Form S-3 or F-3 in a primary
offering, the Free Writing Prospectus is preceded or accompanied by the
most recent statutory prospectus (in the case of an electronic
communication, a hyperlink to the statutory prospectus will satisfy the
accompaniment requirement; and for an initial public offering, the statutory
prospectus must contain a price range)
•
for Reporting (though not voluntarily) Seasoned Issuers that satisfy the
requirements for use of Form S-3 or F-3 in a primary offering, and for WellKnown Seasoned Issuers, in lieu of being preceded or accompanied by a
statutory prospectus, the Free Writing Prospectus must contain a prescribed
legend indicating how to access the statutory prospectus
As a result of this liberalization in permitted communications, the exception to Regulation FD for
communications made in connection with a registered offering has been narrowed.
These Reforms are generally not available to issuers that are not required to but voluntarily file
reports under the Exchange Act or to a class of issuers defined as Ineligible Issuers (which
includes, among others, issuers that are not current in their Exchange Act report filings, are or
were the subject of a bankruptcy or insolvency or who have violated the anti-fraud provisions of
the securities laws).
In addition, Free Writing Prospectuses are not available for exchange offers or business
combination transactions subject to Regulation M-A. Subject to certain conditions regarding
-3-
whether or not the issuer has participated in their preparation, underwriters generally are not
required to file Free Writing Prospectuses prepared by them. Publication of research reports
around the time of a registered offering has also been liberalized.
Free Writing Prospectuses, though they are in many cases required to be filed, are not deemed
to be part of the registration statement and therefore are not subject to liability under Section 11
of the Securities Act. They will, however, be subject to liability under Section 12(a)(2) and the
general anti-fraud provisions of the Securities Act.
The Commission has created a definition for “written communications.” All methods of
communication, other than oral communications, are defined as “written.” The Commission also
makes clear that all electronic communications (other than telephone and other live, in real-time
communications to a live audience) are “written.” Electronic roadshows are specifically
addressed. The new Rules permit the use of electronic roadshows without many of the
conditions imposed in the no-action letters issued by the Commission to date on the subject
provided the issuer satisfies the conditions of new Rule 433. For example, live roadshows,
even though they may be transmitted to a live audience via an electronic medium, are not
considered “written” material. Special rules also apply to communications with and by the
media.
Summary of Permitted Communications
More Than 30
Days Before Filing
Between Filing and
During 30-Day
Period Before Filing Effectiveness
Post-Effectiveness
Well-Known ■Regularly released factual business information and forward-looking information (Rule 168)------------------Seasoned ■Free Writing Prospectuses (Rules 163, 174, 433) (including all media publications)------------------------------■Any communications (including oral and written offers) by the issuer (Rule 163) (must be filed as Free
Issuers*
Seasoned
Reporting
Issuers*
UnSeasoned
Reporting
Issuers*
Writing Prospectus if in writing)---------------------------------------------------------------------------------------------------■Current Rule 135 notice of a registered offering---------------------------------------------------------------------------■Expanded notices re: the filing (amended Rule 134)■Oral offers (current law)------------------------------------■Statutory preliminary prospectus (written offer)-------■Statutory final prospectus-■Sales may be made
(Section 5 (a))----------------■Regularly released factual business information and forward looking information (Rule 168)-------------------■Any communications by the issuer that do not refer to a securities offering (Rules 163, 163A)-----------------■Current Rule 135 notice of an offering-----------------------------------------------------------------------------------------■Expanded notices re: the filing (amended Rule 134)-■Free Writing Prospectuses after a statutory
Prospectus is filed (Rules 164, 433))----------------------■Oral offers (current law)-------------------------------------■Media publications (not paid for) without delivery of a
statutory prospectus (Rules 164, 433(b)(1))------------■Statutory preliminary prospectus (written offer)-------■ Statutory final prospectus■Sales may be made -------■Regularly released factual business information and forward-looking information (Rule 168)-------------------■Any communications by the issuer that do not refer to a securities offering (Rules 163, 163A)-----------------■Current Rule 135 notice of an offering-----------------------------------------------------------------------------------------■Expanded notices re the filing (amended Rule 134)--■Free Writing Prospectuses after a statutory
prospectus is filed; if issuer-sponsored, must be
acompanied or preceded by statutory prospectus
(Rules 164, 433) -----------------------------------------------■Media publications (not paid for) without delivery of a
statutory prospectus (Rules 164, 433(b)(1))-------------■Oral offers (current law)---------------------------------------
-4-
■Statutory preliminary
prospectus (written offer)---■Statutory final prospectus■Sales may be made--------
NonReporting
Issuers and
“Voluntary”
Filers
►
■Regularly released factual business information, except to investors or potential investors (Rule 169)-----■Statutory preliminary prospectus (written offer)--------the issuer that do not refer to
■Oral offers (current law)----------------------- ---------------a securities offering
■Expanded notices (amended Rule 134)------------------(Rule 163A)------------------■Current Rule 135 notice of an offering --------------■Free Writing Prospectuses after a statutory
prospectus is filed, if issuer-sponsored, must be
accompanied or preceded by statutory prospectus
(including a price range if IPO)(Rules 164, 433)--------■Media publications (not paid for) without
delivery of a statutory prospectus (Rules 164,
433)---------------------------------------------------------------■Statutory final prospectus
■Sales may be made--------
■Any communications by
Shelf Registration
Further relaxation of the registration process will now apply to all issuers eligible to file a shelf
registration statement on Form S-3 or F-3. However, the greatest benefit will accrue to WellKnown Seasoned Issuers.
■
Shelf Reforms for All Seasoned Issuers (including Well-Known Seasoned Issuers)
•
Shelf Available for Three Years. The shelf registration statement would expire
after three years. Any existing blackout period beginning when an existing
registration statement has expired but a new registration statement is not yet
declared effective by the Commission is eliminated because the effectiveness of
the old registration statement will be permitted to extend for up to six months
pending effectiveness of the new registration statement. The new registration
statement may carry forward from the old registration statement any unused
registered securities and their attendant unused filing fees. Well-Known
Seasoned Issuers do not need to avail themselves of the overlap provision
because of the automatic effectiveness of their registration statements.
•
Elimination of Limit on Amount of Securities Registered to What Is
Intended to Be Offered or Sold Within Two Years. The current limitation on
the amount of securities registrable on a shelf registration statement will no
longer be limited to the amount intended to be offered or sold over a two year
period; instead, unlimited amounts of specified types of securities will be
permitted to be registered.
•
Omission of Information From the Base Prospectus. The types of
information that may be omitted from the base prospectus of a shelf registration
statement at the time of effectiveness and added later via incorporation from
Exchange Act reports or a prospectus supplement (as opposed to via a post-
-5-
effective amendment) generally have been expanded. Well-Known Seasoned
Issuers may omit the most information from the base prospectus.3
■
►
•
Information Contained in Prospectus Supplements Will Be Deemed Filed as
Part of the Registration Statement.
•
The Prohibition Against Immediate Takedowns off Shelf Registrations
Statements Is Eliminated.
•
Limits on At-The-Market Equity Offerings Eliminated.
Shelf Reforms for Well-Known Seasoned Issuers
•
Automatic Effectiveness Upon Filing of Registration Statements and PostEffective Amendments. Well-Known Seasoned Issuers can take advantage of
the immediate effectiveness (upon filing) of their primary and secondary shelf
registration statements, with no review or comment by the Commission’s Staff
(except that Well-Known Seasoned Issuers that only fall within the second tier of
the definition (re: debt securities) can only achieve automatic effectiveness for
offerings of non-convertible debt and preferred securities unless the issuer also
satisfies the criteria for use of Form S-3 or F-3 for a primary offering because it
has a public float of at least $75 million). Post-effective amendments also would
become automatically effective. As a practical matter, this will sharply reduce the
need for such issuers to use unregistered Rule 144A offerings in order to quickly
access the debt markets.
•
May Omit the Greatest Amount of Information From the Base Prospectus.
Well-Known Seasoned Issuers may omit from the base prospectus the offering
price, the description of the securities offered, other than the name or class (but a
new type of security not so named would have to be added via an automatically
effective post-effective amendment), the identity of the underwriters, the identity
of selling securityholders (but not the identity of a new issuer, such as a
subsidiary, which must be added by post-effective amendment) and the plan of
distribution.
•
May Choose to Remit Registration Fees on a Pay-As-You-Go Basis.
•
Can Register Unspecified Amounts of Securities Without Allocating to a
Primary or Secondary Offering.
Forms S-1 and F-1
These forms will now permit expanded use of incorporation by reference to past (not future)
Exchange Act filings for all issuers (other than the defined class of “Ineligible Issuer” and
voluntary filers) that (i) have filed at least one annual report and are current in their reporting
obligations and (ii) make their Exchange Act reports readily accessible on their websites.
Consequently, additional disclosure in Exchange Act periodic reports (for example, risk factors
3
For example, today the filing of a post-effective amendment would be required to identify selling stockholders or
changes to a plan of distribution after effectiveness of the registration statement. Under the new Rules,
Seasoned Reporting Issuers can effect this disclosure via a prospectus supplement.
-6-
and disclosure of unresolved Staff comments) will be required. As a result of the changes to
Forms S-1 and F-1, Forms S-2 and F-2 have been eliminated.
►
Prospectus Delivery
■
Access Equals Delivery
Prompted by technological advances and the widespread use of the Internet, the
Reforms adopt an “access equals delivery” model for the delivery of final prospectuses
to investors. The Securities Act currently requires that a final prospectus precede or
accompany a security delivered upon sale to an investor. This obligation will now be
satisfied for issuers, brokers and dealers by the filing of the final prospectus in
accordance with Rule 424 under the Securities Act within the requisite filing period.
Written confirmations and notices of allocations may be sent after the effectiveness of
the registration statement without being preceded or accompanied by the final
prospectus. The rules for delivery of preliminary prospectuses in initial public offerings
have not changed.
►
Miscellaneous
The Commission has adopted a new Interpretive Rule (Rule 159) concerning timing anomalies
related to liability determinations under the Securities Act in respect of different offering
participants. The existing framework provides that a final prospectus may be delivered to
investors after they have entered into a binding contract to purchase securities. Issues have
arisen as to what information should be taken into account for purposes of determining whether
a prospectus is materially misleading, the information in the prospectus the investor saw before
committing to purchase the securities (but before payment for the securities) or the information
(perhaps including new or changed facts) in the final prospectus which the investor receives
after such commitment. The Commission has clarified that where new or changed material
information about the issuer or the offering is produced after the date a contract of sale is made
with a purchaser, the issuer is not protected from liability by simply including such information in
the final prospectus. New Rule159 clarifies that the only way to avoid such potential liability is
for the issuer to cancel the contract of sale with the investor and enter into a new contract of
sale once the new information is properly disclosed to the investor.
The Commission did not address in the new Rules the effect of the new regulatory framework
on private offerings or the relationship between the public and private offering process but the
Director of the Division of Corporation Finance stated recently that exempt offerings, such as
private placements under Regulation D and Rule 144A transactions, are still under
consideration for a future proposal.
Certain disclosures in Exchange Act reports also have been expanded, including (a) disclosure
in a Form 10-K and 20-F as to (i) whether the issuer is a Well-Known Seasoned Issuer or a
voluntary filer under the Exchange Act, and (ii) if the issuer is an “accelerated filer” under the
Sarbanes-Oxley rules or a Well-Known Seasoned Issuer, any unresolved written comments of
the Commission (and, if desired, the issuer’s position vis a vis such comments) on the issuer’s
Exchange Act reports that the issuer believes are material and that were issued more than 180
days before the end of the fiscal year covered by the new Form 10-K or 20-F, and (b) disclosure
in Forms 10-K and 10 of “Risk Factors” with material updates in Form 10-Q filings.
-7-
Detailed Discussion of the Reforms
I.
Categories of Issuers
Under the Reforms, the degree of freedom and flexibility afforded issuers in connection with
communications and the registration and offering processes is based on the characteristics of
the issuer, including the type of company it is, its Exchange Act reporting history, its worldwide
voting and non-voting common equity market capitalization and its registered non-convertible
debt and preferred securities offering history.
The type of issuer that is intended to benefit the most under the Reforms is the “Well-Known
Seasoned Issuer”. This type of issuer is generally comprised of large Exchange Act reporting
companies that are widely followed by sophisticated institutional and retail investors, members
of the financial press and numerous buy-side and sell-side analysts that actively seek new
information on a continual basis. Consequently, the Commission feels that these companies
are most likely to produce Exchange Act reports and other communications that not only are
reliable but also are scrutinized by a broad group of sophisticated people. In the Commission’s
view, these attributes are not present for all Form S-3/F-3 eligible companies. Rather than raise
the Form S-3/F-3 eligibility requirements for all issuers, the Commission created this new
category, which is, in effect, a step toward the “company registration” concept it introduced in
connection with its 1998 Securities Offering Reforms Proposal (dubbed the “Aircraft Carrier”
because of its scope and length) without the baggage of the accompanying wholesale changes
to the disclosure system contained in the Aircraft Carrier Release.
The Reforms divide issuers into five categories:
■
Well-Known Seasoned Issuer. A company qualifies as a Well-Known Seasoned
Issuer if, as of the relevant date of determination,4 it:
•
is required to file reports under Section 13(a) or 15(d) of the Exchange Act; and
•
meets the registrant requirements of Form S-3 or F-3, including having timely
filed its Exchange Act reports for the preceding 12 calendar month period; and
•
is eligible to register a primary offering of its securities on Form S-3 or F-3; and
•
has, as of a date within 60 days of the eligibility determination date, either:
– at least $700 million in worldwide public market value of voting and non-voting
common equity held by non-affiliates,5 or
4
The date of determination is generally (a) the later of (i) the filing date of the issuer’s most recent shelf registration
statement and (ii) the time of the most recent annual amendment (by means of post-effective amendment or
incorporation by reference to an Exchange Act report) to the shelf registration statement for purposes of
complying with Section 10(a) of the Securities Act, which typically occurs at the time of filing the issuer’s most
recent annual report on Form 10-K or 20-F (if the amendment is not timely filed, the reference date is the date
such amendment was required to be filed under Section 10(a)(3)); or (b) if the issuer has not filed or amended a
shelf registration statement within the prior 16 months, the time of filing of the issuer’s most recent Form 10-K or
20-F (or the due date if not timely filed).
5
This is the same public float test that currently is used to determine if a public company is an “accelerated filer”
that is required to file its Exchange Act reports in the shorter time frames being phased in under the SarbanesOxley rules but is much higher than the $75 million public float test used to determine eligibility to use Form S-3 or
-8-
– issued at least $1 billion in aggregate principal amount of non-convertible
securities other than common equity in registered primary offerings for cash
(and not in exchange offers) over the past three years and is currently
registering on an Automatic Shelf Registration Statement (as defined below)
only such types of securities and certain guarantees6 (provided, however, that
if the issuer also satisfies the $75 million public float test of Form S-3 or F-3, it
is not limited to issuing under this category only the non-convertible securities
and guarantees referred to above); and
•
is not an “Ineligible Issuer” (as defined below); and
•
is not an issuer of “asset-backed securities”; and
•
is not an issuer that is not required to but nevertheless voluntarily files Exchange
Act reports; and
•
is not a registered investment company or a business development company.
A Well-Known Seasoned Issuer also includes a majority-owned subsidiary under certain
conditions.7
■
■
■
Seasoned Issuer. This is a company (including an issuer of asset-backed securities)
that is:
•
required to file reports under Section 13 or 15(d) of the Exchange Act; and
•
eligible to use Form S-3 or F-3 to register a primary offering of securities; and
•
not an “Ineligible Issuer.”
Unseasoned Issuer. This is a company that is:
•
required to file reports under Section 13 or 15(d) of the Exchange Act but not
eligible to use Form S-3 or F-3 to register a primary offering of securities; and
•
not an “Ineligible Issuer.”
Non-Reporting Issuer. This is a company that is:
•
not required to file reports under Section 13 or 15(d) of the Exchange Act
(whether or not it does so voluntarily); and
•
not an “Ineligible Issuer.”
F-3. Certain participating preferred stock of foreign private issuers that is substantially the economic equivalent of
common equity may also be included in the calculation.
6
For purposes of calculating the aggregate principal amount of outstanding non-convertible securities, a parent
issuer may include the aggregate principal amount of non-convertible securities of its majority-owned subsidiaries
issued in registered primary offerings for cash over the prior three years that it has fully and unconditionally
guaranteed.
7
A majority-owned subsidiary of a parent that is a Well-Known Seasoned Issuer that does not itself meet the
conditions for eligibility will be deemed a Well-Known Seasoned Issuer so long as the subsidiary’s securities
being registered (i) consist of non-convertible securities (other than common equity), that are fully and
unconditionally guaranteed by the parent, or (ii) consist of guarantees of non-convertible securities (other than
common equity) of the parent or of another majority-owned subsidiary (whose securities are also guaranteed by
the parent) or (iii) are “investment grade” and meet the requirements of Form S-3 or F-3.
-9-
■
Ineligible Issuer.8 Unless otherwise determined by the Commission on a showing of
good cause, a company is an Ineligible Issuer if, at the relevant date of determination:
•
it has been the subject of a bankruptcy or insolvency proceeding or receivership
within the past three years (though this ineligibility is terminable upon the
occurrence of certain events); or
•
it has been the subject of any proceeding or examination or the subject of a
refusal or stop order under Section 8 of the Securities Act within the past three
years; or
•
it or any entity that at the time of determination of eligibility was a subsidiary was,
within the past three years, convicted of a felony or misdemeanor involving
certain violations of the anti-fraud provisions of the federal securities laws, or was
the subject of a judicial or administrative decree or order prohibiting certain
conduct or activities regarding the anti-fraud provisions of the federal securities
laws9; or
•
it or any of its predecessors is or was within the past three years, a blank check
company, a shell company (other than a business combination shell company) or
an issuer of penny stock; or
•
it is a limited partnership selling securities in a non-firm commitment underwriting;
or
•
it is either an investment company or a business development company as
defined in the Investment Company Act of 1940; or
•
with respect to its ability to use Free-Writing Prospectuses only, it is required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act but has not filed
all reports (other than certain Form 8-Ks) and other materials (like certifications)
required to be filed during the preceding 12-month period.10
8
These issuers are generally ineligible to use the new communications safe harbors, exemptions and exclusions
and the simplified or automatic shelf registration procedure.
9
Judicial decrees or orders agreed to in settlements are included only after effectiveness of the Reforms.
10
Untimely filings alone do not lead to Ineligible Issuer status.
- 10 -
II.
Broadened Communications Around the Time of a Registered
Offering
The existing rules concerning impermissible communications in connection with a registered
offering (“gun-jumping”) derive from the statutory proscriptions and interpretations of Section 5
of the Securities Act. The prohibition is easy to articulate generally – all written and oral
communications that may be considered to constitute offers of securities are prohibited in the
period prior to the filing of a registration statement; written offers other than those contained in a
statutory prospectus that complies with Section 10 of the Securities Act are prohibited after filing
of the registration statement; and written communications constituting offers are prohibited posteffectiveness unless they are preceded or accompanied by a final prospectus satisfying the
requirements of Section 10(a) of the Securities Act.
Practical application of these principles is extremely difficult, however, and often leads to
unnecessary conservatism on the part of issuers. The term offer has been interpreted very
broadly and includes the publication of information and statements, 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. As a result, questions frequently have
arisen concerning what material might be considered an offer, what kind of ordinary business
communications (media interviews, advertising, industry conferences, etc.) might be viewed in
hindsight to fall into a prohibited class of communication and what kind of third-party
communications, such as research reports or newspaper articles, could be deemed to be
“conditioning the market” and thereby constituting impermissible offers or non-compliant
prospectuses.
The consequences for a violation of the restrictions against gun-jumping can be severe.
Violation of the restrictions can cause the Commission to impose a significant delay in the
registered offering or the purchasers of the securities in the offering may acquire a one-year
rescission right. Consequently, in the Commission’s view, the surrounding uncertainty has in
practice forced many issuers to be much more restrictive in their communications while they are
“in registration” than was ever intended by the Securities Act. This result also is directly at odds
with the Commission’s push in recent years for reporting companies to make ongoing real-time
public disclosures of material information concerning their businesses. The Reforms are
intended to accommodate this principle around the time of a registered offering as well as to
accommodate modern communications technology.
Under the Reforms, all existing limitations on communications disseminated at any time during
the offering process by Well-Known Seasoned Issuers have been eliminated, although
communications that represent a Free Writing Prospectus must in some cases be filed. Other
eligible issuers are permitted to disseminate communications that constitute a Free Writing
Prospectus after filing a registration statement, subject to filing and other conditions. The new
Rules also include a new safe harbor allowing most forms of communication made more than
30 days prior to the filing of a registration statement. Communications during the 30-day period
prior to the filing of the registration statement will continue to be restricted (except for WellKnown Seasoned Issuers) to certain factual business information and, for reporting issuers,
certain forward-looking information. As mentioned above, the Commission has not modified the
definition of offer, which remains subject to existing broad interpretation.
- 11 -
►
New Definitions for “Written” and “Graphic” Communications
The Reforms define all methods of communication, other than oral communications, as written
communications for purposes of the Securities Act. The new Rules make clear that
communications that are broadcast (such as television and radio) are written communications
regardless of the means of transmission (e.g., via traditional means, cable or the Internet) and
that all electronic communications (other than telephone and other live, in real-time
communications to a live audience, as discussed below) are graphic and, therefore, written
communications for purposes of the Securities Act.
The Commission has adopted new definitions of “graphic communication” and “written
communication” to promote consistent understanding of what constitutes such a communication
in view of the technological developments since the enactment of the Securities Act and to
reduce uncertainty regarding the permitted means for delivery of information under the
Securities Act.
“Graphic communication” is expanded in the new Rules to include 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. It does not
include a communication that originates live, in real-time, to a live audience and not in recorded
form or otherwise as a graphic communication. Any such communication is not a graphic
communication even if it is transmitted through a means of graphic communication.
Communications that are graphic communications when they are transmitted are treated as
graphic communications under the definition and communications that are live, in real-time
communications to a live audience when they are transmitted are not treated as graphic
communications.
“Written communication” is clarified in the new Rules to mean any communication that is written,
printed, or televised or radio broadcast (regardless of the transmission means), or a graphic
communication.
All communications that fall outside this definition of written communication are oral
communications, including for purposes of Section 12(a)(2) of the Securities Act. Oral
communications would include live telephone calls (through whatever means by which they are
transmitted, including the Internet) and other live, in real-time communications to a live audience
transmitted by graphic means.11
The definitions as adopted clarify that television or radio broadcasts will be covered regardless
of the transmission means, thus making a clearer distinction between communications that are
broadcast and those that are graphic communications. For example, a cable television show
will be considered a television broadcast that is a written communication, and a television show
or radio program that may be seen or heard through the Internet on a computer will also be
considered a television or radio broadcast that is a written communication. A communication
may fall outside the definition of graphic communication because it originates live, in real-time to
a live audience but such communication (for example, a live business news program broadcast
by traditional means or on cable) may be a television or radio broadcast and, therefore,
“written.” On the other hand, a live, in real-time communication that is transmitted by graphic
means to a live audience would be an oral communication. Given the potentially unlimited and
11
These defined terms also apply to road shows connected with private placements.
- 12 -
uncontrolled nature of dissemination of broadcast communications and the language of the
Securities Act, the Commission believes that this is an appropriate distinction.
The following are examples of the application of these definitions given by the Commission:
– a live telephone call is not a written communication
– a live telephone call that is recorded by the recipient is not a written
communication
– e-mails, facsimiles, and electronic postings on web sites originate in graphic
form and, therefore, are graphic communications
– a live, in-person road show to a live audience is not a written communication
– a live, in real-time road show to a live audience that is transmitted graphically
is not a graphic communication
– a live, in real-time road show to a live audience that is transmitted to an
“overflow room” is not a graphic communication
– a webcast or video conference that originates live and in real-time at the time
of transmission and is transmitted through videoconferencing facilities or is
webcast in real-time to a live audience is not a graphic communication
– the ability of a member of the audience to record a webcast or
videoconference that is presented live and in real-time to a live audience
would not affect the status of that webcast or videoconference
– a live telephone call or video or webcast conference that is recorded by or on
behalf of the originating party or parties and then transmitted, or is otherwise
transmitted other than live and in real-time, will be a graphic communication
and therefore a written communication
– a live telephone call or video or webcast conference that is recorded by the
recipient and then re-transmitted by the recipient is a graphic communication
by the recipient when it is re-transmitted
– an interview with an issuer’s chief executive officer conducted live as part of a
television program is a written communication regardless of how the television
signal is transmitted (whether over the airwaves, or through cable, satellite, or
Internet) and regardless of how it is received by the recipient (whether a
television set or a computer)
With respect to road shows, the Commission also added a Note to Rule 433 that states that a
communication that is provided (such as slides) or transmitted simultaneously with a road show
and is provided or transmitted in a manner designed to make the communication available only
as part of the road show and not subsequently is deemed to be part of the road show.
►
New Definition – “Free Writing Prospectus”
The new Rules define a “Free Writing Prospectus” as generally any written communication
representing an offer to sell or a solicitation of an offer to buy securities that is or will be the
subject of a registration statement and is not:
- 13 -
•
a prospectus satisfying the requirements of Section 10(a) of the Securities Act;
•
a prospectus satisfying the rules permitting the use of preliminary or summary
prospectuses or prospectuses subject to completion;
•
already permitted as a communication made in reliance on the special rules for
asset-backed issuers permitting the use of ABS informational and computational
materials; or
•
already permitted to be used because a final prospectus meeting the
requirements of Section 10(a) of the Securities Act was delivered with or prior to
the written communication.12
In order for a communication to be considered a Free Writing Prospectus it must constitute an
offer. Whether or not a particular communication is an offer will be determined, as is currently
the case, based on the particular facts and circumstances, and not all communications related
to an offering will be deemed to constitute offers.13
If the Free Writing Prospectus is prepared by or on behalf of, or used or referred to by, the
issuer, the new Rules define it as an “Issuer Free Writing Prospectus.” Written communications
constituting offers that are circulated at the same time as or after delivery of a final prospectus
do not constitute a prospectus under the Securities Act. These communications are not subject
to the rules governing Free Writing Prospectuses. In addition, Rule 134 notices, Rule 135
communications, Regularly Released Factual Business Information and Forward-Looking
Information falling within new Rules 168 and 169, and research reports satisfying the
requirements of Rule 137, Rule 138 or Rule 139, do not constitute Free Writing Prospectuses
because they are not considered to be offers or prospectuses for purposes of the gun-jumping
provisions.
►
Communications Made at Any Time While “In Registration”
The Reforms establish two new non-exclusive safe harbors from the gun-jumping provisions for
ongoing communications of Regularly-Released Factual Business Information by or on behalf of
the issuer during the pre-filing, post-filing and post-effective periods, essentially codifying
existing practice.
12
After effectiveness of a registration statement, 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) will continue to be permitted without having to satisfy the requirements of any safe harbor or
Rule 433. 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 delivered 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).
13
The gun-jumping provisions have been administered in a manner that excludes from categorization as an offer a
media publication or television or radio broadcast that is based solely on information that is filed with the
Commission or available on an unrestricted basis or on other information the dissemination of which does not
represent an offer by an issuer or other offering participant and where there is no other involvement or
participation by the issuer or an offering participant. On that basis, for example, a newspaper article about an IPO
that is based on the filed registration statement, a press release that is filed with or furnished to the Commission,
a filed Free Writing Prospectus, or filed Issuer Information where the issuer and other offering participants have
refused to comment and not otherwise been involved, would not be categorized as an offer under the gunjumping provisions.
- 14 -
The safe harbor provided by new Rule 169 (discussed below) applies to Non-Reporting Issuers
(including voluntary filers but excluding registered investment companies and business
development companies).
The safe harbor provided by new Rule168 (discussed below) is available to all Exchange Actreporting issuers (excluding voluntary filers, registered investment companies and business
development companies14) and certain Non-Reporting foreign private issuers. This safe harbor
also permits the publication of forward-looking information (such as projections of financial
results and other forward-looking information such as the type called for by MD&A disclosure
requirements in Exchange Act reports).
These permitted communications, unlike the additional forms of communication that would
constitute Free Writing Prospectuses, would not be deemed to be offers for purposes of Section
5 and, consequently, would not be subject to liability under Section 12(a)(2) and Section 17(a)
of the Securities Act.15
The following are the definitions of the key terms used in the two new Rules.
Factual Business Information.16
This term includes:
– factual information about the issuer, its business or financial developments
(for Reporting and Non-Reporting Issuers)
– advertisements of, or other information about, the issuer’s products or
services (for Reporting and Non-Reporting Issuers)
– dividend notices and information contained in Exchange Act reports (only for
Reporting Issuers)
but specifically excludes:
– information about the registered offering or information released as part of
offering activities
– Forward-Looking Information
14
Registered investment companies and business development companies have an existing separate regulatory
framework for communications.
15
Well-Known Seasoned Issuers may rely on either the Rule 168 safe harbor or the Free Writing Prospectus
exemption during this period. However, the permitted communications under Rule 168, unlike a Free Writing
Prospectus, would not be deemed to constitute prospectuses and therefore would not be subject to liability under
Section 12(a)(2) or 17(a) under the Securities Act or Section 10(b) or Rule 10b-5 under the Exchange Act and
would not need to be filed. Although the discussion in the Adopting Release makes clear that permissible
communications made before the 30-day period prior to filing (discussed below) by all issuers would not be offers
for purposes of Section 5(c), the Commission explicitly chose not to exclude such communications from the
definition of offer for other purposes under the Securities Act, including the definition of “prospectus” in
Section 2(a)(10) of the Securities Act. In comparison, Rules 168 and 169 also exclude the release of permissible
factual business information and forward-looking information from the definition of “prospectus” under Section
2(a)(10). Therefore, communications falling within the bright line 30-day safe harbor prior to filing could be subject
to liability under Section 12(a)(2).
16
Factual Business Information would continue to be subject to the provisions of Regulation FD, Regulation G,
Regulation S-K¸ Item 10 and Item 2.02 of Form 8-K.
- 15 -
Factual Business Information includes information in any report or material filed with, furnished
or submitted to the Commission.
Forward-Looking Information.17
This term includes:
– projections of the issuer’s revenues, income (loss), earnings (loss) per share,
capital expenditures, dividends, capital structure, or other financial items
– statements about management’s plans and objectives for future operations,
including plans or objectives relating to products or services
– statements about the issuer’s future economic performance, including
statements of the type contemplated by MD&A
– assumptions underlying or relating to any of the foregoing information
Regularly Released Information.
Information will be considered regularly released or disseminated if:
– the information is intended for use by persons (such as customers or
suppliers) other than in their capacities as investors or potential investors and
is released or disseminated by the same employees or agents of the issuer
who have historically provided such information; and
– the issuer has previously released or disseminated the same type of
information in the ordinary course of its business; and
– the timing, manner and form in which the information is released or
disseminated is materially consistent with the issuer’s similar past releases or
disseminations.
The Commission did not set forth any guideline regarding the length of an issuer’s track record
of releasing the particular type of information.18 There are some commonsense guideposts
however, which are used by practitioners even today. For example, an issuer’s release of new
types of projections just before or during a registered offering would likely prevent a conclusion
that the issuer regularly released that type of Forward-Looking Information in the ordinary
course of its business. If an issuer has consistently released such types of projections on a
quarterly basis through ordinary course press releases, it could not satisfy the condition if it
instituted an accelerated media campaign just before or during an offering to release that type of
Information on a different basis or with different timing.
However, there are circumstances in which communications outside a predetermined schedule
or not at regular intervals would be covered by the safe harbors. For example, the safe harbors
include episodic or unscheduled product advertising or changes in earnings guidance so long as
such communications have been provided before in like manner. That is, the nature of the
17
The premise for this prong of the safe harbor is that Regulation FD encourages release of earnings guidance and
similar information, and Item 2.02 of Form 8-K reflects the Commission’s intention of making such guidance and
similar information public.
18
The Commission noted that even one prior release could establish a track record.
- 16 -
event triggering the release will be taken into account. Also, the use of new or different
technology to disseminate the communication would be relevant if it makes a material difference
in the breadth of the dissemination.
Non-Offering Related Information.
As noted above, new Rule 168 does not permit communications about the securities offering
itself. For the most part, publication of information about an offering outside the registration
statement will continue to be limited to statements allowed under Rule 134 (which has been
expanded), Rule 13519 and other exemptions or safe harbors, or, in respect of Well-Known
Seasoned Issuers,20 contained in a Free Writing Prospectus. Information released as part of
offering activities also would be excluded from the proposed safe harbor. The release of
information outside the safe harbor will not affect the availability of the safe harbor for any other
release or dissemination of a communication containing the same information that is (or was)
within the scope of the safe harbor.
The safe harbor is unavailable, for example, for a copy of a press release that originally had
been regularly released in accordance with the safe harbor but that was specifically provided to
investors or potential investors as part of offering activities. An issuer would be able to rely on
the proposed safe harbor for the publication of an earnings release consistent with past practice
subject to compliance with the “Regularly Released” condition, or for posting and maintaining
the earnings release on its web site, whether or not located in a separate section of the web site
set aside for historical information only. However, the use of that earnings release (or its
contents) by an underwriter or dealer participating in the distribution, for example, by providing it
to potential investors as part of the marketing activities, would be outside the scope of the
proposed safe harbor.
By or on Behalf of the Issuer.
This term means that the issuer, an agent of the issuer or a representative of the issuer, other
than an offering participant who is an underwriter or dealer, must have authorized the
communication or approved its release or dissemination before such release or dissemination.
■
New Rule 168 – Non-Exclusive Safe Harbor for Regularly Released Factual
Business Information and Regularly Released Forward-Looking Statements for
Use by Reporting Issuers
Under new Rule 168, communications involving Regularly Released Factual Business
Information and Regularly Released Forward-Looking Information may be communicated by or
19
Rule 135 permits written notice of a proposed registered offering, which, for purposes of Section 5 of the
Securities Act, will not be deemed to constitute a prohibited offer provided that the notice includes a statement to
the effect that it does not constitute an offer of any securities for sale and otherwise includes no more than the
following information: the name of the issuer; the title, amount and basic terms of the securities offered; the
amount of the offering, if any, to be made by selling securityholders; the anticipated timing of the offering; a
summary of the manner and the purpose of the offering, without naming the underwriters; whether the issuer is
directing its offering to only a particular class of purchasers; any statements or legends required by the laws of
any state or foreign country or administrative authority; and certain other information if the offering will involve a
rights offering to existing securityholders, an offering only to employees, an exchange offer or a Rule 145(a)
offering.
20 The
limitation to Well-known Seasoned Issuers derives from the fact that these are communications permitted at
“any time” while in registration.
- 17 -
on behalf of Exchange Act-Reporting Issuers (including asset-backed issuers but excluding
voluntary filers) and certain Non-Reporting foreign private issuers at any time.21 The Rule
codifies a long-standing position of the Commission which at times was complex to apply in
practice and the new safe harbor attempts to provide greater clarity. The Rule 168 safe harbor,
however, does not permit the communication of any information about the registered offering
itself. In addition, underwriters may not rely on this safe harbor. The safe harbor for ForwardLooking Information is subject to the same conditions regarding consistency with past practice
as apply to the safe harbor for Factual Business Information.22 According to the Adopting
Release, the Commission did not propose a safe harbor for Forward-Looking Information for
Non-Reporting Issuers because the lack of information or history for these issuers in the market
provides the potential for abuse.
■
New Rule 169 – Non-Exclusive Safe Harbor for Factual Business Information That
Is Regularly Released to Audiences Other Than Investors or Potential Investors
for Use by Non-Reporting Issuers
This information may be communicated at any time before the filing of the registration statement
(provided the release or dissemination is not made in connection with an Ineligible Offering).
This is a much narrower safe harbor than that provided by Rule 168. Given that this category of
issuer would most likely be conducting an initial public offering, the Commission is more
concerned about the potential for abuse in using the information as a way to condition the
market for the issuer’s offering.
Similar to Rule 168, new Rule 169 provides a safe harbor for a Non-Reporting Issuer’s or
Voluntary Filer’s release or dissemination of Regularly-Released ordinary course Factual
Business Information to persons such as customers and suppliers (i.e., persons other than in
their capacity as investors or potential investors). Because the condition 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 any information provided in reliance on this safe harbor. Unlike the safe harbor of
Rule 168, however, the safe harbor for Non-Reporting Issuers does not cover Forward-Looking
Information or dividend notices.
►
Communications Made Prior to Filing a Registration Statement
■
Prior to Effectiveness of New Rules
All offers, oral and in writing, are prohibited under Section 5(c) of the Securities Act from the
date an issuer is “in registration” (a question of fact which typically is viewed as commencing
with the date the issuer has an “organizational meeting” for its securities offering) until the filing
of a registration statement covering the securities.23 The question of what kind of
21
Rule 168 exempts communications permitted by it from being deemed impermissible prospectuses or prohibited
pre-filing offers. Non-reporting foreign private issuers may rely on the safe harbor if they meet all the
requirements of Form F-3 other than the reporting provisions, satisfy the public float requirements for a primary
offering on Form F-3 and have securities trading on a designated offshore securities market or a worldwide
market value of outstanding common equity held by non-affiliates of at least $700 million.
22
Regulation FD, Regulation G, Item 10 of Regulation S-K and Item 2.02 of Form 8-K will continue to apply to the
dissemination of the Forward-Looking Information.
23
Currently, the Staff follows an informal rule of thumb that would allow standard communications made prior to a
45-day period before an issuer is “in registration” to be exempt from gun-jumping issues.
- 18 -
communication may be deemed by the Commission to constitute a prohibited offer is a question
of fact and circumstance.
■
New Rules
The new Rules provide two bright line exclusions from the definition of offer for purposes of the
gun-jumping prohibitions in the Pre-Filing Period:
– communications made by any issuer (other than an Ineligible Issuer) more
than 30 days prior to filing the registration statement; and
– communications made by a Well-Known Seasoned Issuer at any time prior to
filing the registration statement.
►
Communications Made More Than 30 Days Prior to Filing – All Issuers24
■
New Rule 163A: Bright Line 30-Day Non-Exclusive Safe Harbor
All written and oral communications by all but Ineligible Issuers made more than 30 days prior to
the filing of a registration statement and that satisfy certain conditions will not constitute
prohibited offers under Section 5(c).25
•
Conditions for Use of the Bright Line 30-Day Safe Harbor
– the communication must not reference a securities offering that is or will be
the subject of a registration statement
– the communication must be made by or on behalf of the issuer
– the issuer must take reasonable steps within its control to prevent further
distribution or publication of the communication during the 30-day period
covered by the safe harbor (an example noted by the Commission - 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 this safe harbor if the interview was
published during the 30-day period)
– the offering may not be an “Ineligible Offering”26
These communications are not deemed to be in connection with a securities offering for
purposes of Regulation FD.
24
Pre-existing exemptions, such as Rule 135 notices, continue to be available and the existing industry practice of
trying to assess what business-related communications are not prohibited offers or prospectuses based on facts
and circumstances endures.
25
The 30-day period is intended to be consistent with the 30-day time period used in Rule 155 relating to integration
of abandoned offerings.
26
For this purpose, Ineligible Offerings are those involving business combinations, offerings registered on Form S-8
(other than by Well-Known Seasoned Issuers) and offerings by Ineligible Issuers within the categories of
registered investment companies or business development companies, blank check companies, penny stock
issuers or shell companies.
- 19 -
►
Communications Made at Any Time Prior to Filing – Available Only to WellKnown Seasoned Issuers
■
New Rule 163 – Use of Free Writing Prospectuses
Any oral or written communication by Well-Known Seasoned Issuers no matter what the
content, may be made at any time (including during the 30-day period) before the filing of the
registration statement, subject to satisfaction of the following conditions:
●
Conditions for Use
– written communications must be made by or on behalf of the issuer
– written communications must contain a Legend27 which, among other things,
alerts prospective investors to the availability and location of a statutory
prospectus (failure to satisfy this condition has the benefit of a cure provision)
– the communication must be filed by the issuer with the Commission if, and
promptly after, the issuer files the registration statement or an amendment
thereto (subject to cure)28
– the communication must be retained by the issuer in its records for a period of
three years from the initial bona fide offering of the securities in question if the
communication has not been filed
– the communication may not be made in connection with an Ineligible Offering
The filing condition will also be satisfied if the filing conditions of Rule 433 are satisfied. As a
result, the Rule 433 provisions regarding media publications are also available under Rule 163.
● Liability
Written communications under the Free Writing Prospectus provisions of Rule 163 would not be
considered offers for purposes of Section 5 under the Securities Act but would be considered
prospectuses (and offers) for purposes of determining any liability that may attach to the content
of such communications under other provisions of the federal securities laws. The other
Conditions discussed below (see new Rules 164 and 433) for use of a Free Writing Prospectus
would not apply in the pre-filing period. The content of oral and written communications would
continue to be subject to liability under Sections 12(a)(2) and 17(a) under the Securities Act
and Section 10(b) and Rule 10b-5 under the Exchange Act.
27
The Legend is as follows: “The issuer may file a registration statement (including a prospectus) with the SEC
for the offering to which this communication relates. Before you invest, you should read the prospectus in that
registration statement and other documents the issuer has filed with the SEC for more complete information about
the issuer 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-xxxxxxx].”
The Legend also may provide an e-mail address at which the documents can be requested and 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.
28
A filing is not required if the communication has already been filed or if filing would not be required under Rule 433
for communications that are Free Writing Prospectuses used after the filing of a registration statement.
- 20 -
Rule 163 provides that an “immaterial” or unintentional omission of the Legend may be cured if
the Free Writing Prospectus is retransmitted with the Legend to substantially all the same
prospective purchasers to whom, and by the same means as, the Free Writing Prospectus was
originally transmitted and the unintentional failure to file the communication may be cured by
filing the Free Writing Prospectus as soon as practicable after discovery of the failure to file, in
each case avoiding a retroactive violation of Section 5. An immaterial or unintentional failure to
file or a delay in filing will not result in a retroactive violation of Section 5 if a good faith,
reasonable effort was made to effect the filing and the filing is made as soon as practicable after
the discovery of the failure to file. These communications also are not deemed to be in
connection with a securities offering for purposes of Regulation FD.
►
Communications Between Filing and Effectiveness of a Registration
Statement
■
Prior to Effectiveness of New Rules
A written offer in this post-filing period is limited to a “statutory prospectus” conforming to the
information requirements of Section 10 of the Securities Act, in effect limiting written material to
a preliminary prospectus or “red herring” meeting the requirements of Section 10 which must be
filed with the Commission. There is no prohibition on oral offers but statutory and common law
fraud constraints apply to their content.
■
New Rules
The amount and types of written communications that may be used by issuers and other
offering participants in the post-filing, pre-effective period have been expanded by (i) allowing
more information in a Rule 134 notice and (ii) by the permitted use of Free Writing Prospectuses
pursuant to new Rule 164.29
■
Amended Non-Exclusive Safe Harbor of Rule 134
Rule 134 applies to all issuers30 and provides a safe harbor from the gun-jumping provisions for
limited public notices about an offering in the post-filing period. The Rule 134 notice has been
modified to:
•
allow more factual information about the issuer and its business, including where
to contact the issuer
•
allow more factual information about the terms of the securities being offered, the
offering itself, including the identity of any underwriters, more details regarding
the mechanics of and procedures for transactions in connection with the offering
process, the anticipated schedule for the offering and a description of marketing
events such as road show schedules
29
Section 5(b)(1) of the Securities Act limits the means by which written offers may be made following the filing of
the registration statement; it does not limit oral offers. Rule 134 provides a safe harbor from the gun-jumping
provisions of Section 5 for limited written notices about an offering made post-filing.
30
All issuers, including Well-Known Seasoned Issuers, are precluded from using Rule 134 notices until a
registration statement is on file. This has little practical effect for Well-Known Seasoned Issuers since they can
instead rely on new Rule 163 which exempts their pre-filing offers from the gun-jumping provisions so long as the
communication is treated as a Free Writing Prospectus and complies with the conditions for its use.
- 21 -
•
allow more factual information about procedures for account opening and
submitting indications of interest and conditional offers to buy (such as auctions)
•
permit other information, such as the identities of selling securityholders, so long
as such information is disclosed in the registration statement on file at the time
•
permit the correction of inaccuracies in information previously disclosed under
the Rule
•
permit the inclusion of an URL address or an active hyperlink that alerts investors
to where they can obtain a statutory prospectus
•
allow more factual information regarding procedures for directed share plans and
other participation in offerings by directors, officers and employees
•
allow disclosure regarding the credit rating, if any, that is reasonably expected to
be assigned to the security being offered
•
eliminate the current reference to state securities laws and the statement as to
whether the financing is a new financing or a refunding
Rule 134 as amended would not permit, however, the kind of detailed information typically
included in a term sheet or notices of allocation of the securities. In addition, Rule 134 would be
expressly conditioned on there being a Section 10(b) statutory prospectus on file with the
Commission (containing a preliminary prospectus or a base prospectus - a final prospectus
satisfying Section 10(a) is not required). However, in the case of an IPO, in order to satisfy
Section 10(b), the statutory prospectus is required to contain a bona fide estimate of a price
range and the maximum amount of securities to be offered. The Commission has expressly
preempted this requirement by allowing much of the information permitted under Rule 134 to be
disclosed before the inclusion of a bona fide price range in the registration statement.
■
New Rule 164 – Free Writing Prospectuses
If a written communication is an offer outside of a statutory prospectus and satisfies the
Conditions for a Free Writing Prospectus contained in new Rules 164 and 433, the
communication may be freely disseminated in the post-filing, pre-effective period.31 See below
under “New Rule 433 - Conditions to Permitted Use of a Free Writing Prospectus.”
The Commission has determined that a Free Writing Prospectus:
31
•
is not required to contain any prescribed language (other than the Legend) and
may include information different from or in addition to the information in the
prospectus that is on file
•
will not, solely by virtue of containing information that is not included in the
prospectus filed as part of the registration statement, result in the registration
statement being deemed to omit to state material facts - however, the Free
Writing Prospectus must not contain information that is inconsistent with the
(i) information contained in any prospectus or prospectus supplement included in
The Conditions include (i) a prescribed Legend in the communication; (ii) the filing of the Free Writing Prospectus
on or prior to the date of its first use, and in some cases, having the Free Writing Prospectus preceded or
accompanied by delivery of a statutory prospectus; and (iii) retention of the Free Writing Prospectus. These
conditions also depend in part on the type of issuer involved.
- 22 -
the registration statement or otherwise filed and not superseded or modified or
(ii) information contained in the issuer’s Exchange Act reports filed or furnished
pursuant to Section 13 or 15(d) and not superseded or modified
Web Sites
Information contained on an issuer’s web site or hyperlinked by the issuer from its web site
to a third party web site could be considered a written offer of securities and, unless
otherwise exempt, would be an Issuer Free Writing Prospectus and would be subject to
satisfying the Conditions for use of a Free Writing Prospectus. Information contained on or
hyperlinked from an offering participant’s web site would be similarly treated. For example,
if a written communication used to offer the issuer’s securities contained a hyperlink to a
research report on a broker/dealer’s web site, the research report would be considered part
of the issuer’s written communication.32
■
New Rule 433 - Conditions to Permitted Use of a Free Writing Prospectus
All issuers are permitted to use a Free Writing Prospectus in the post-filing, pre-effective period
subject to satisfaction of certain Conditions. These Conditions vary depending on the type of
issuer involved. While Ineligible Issuers generally may not take advantage of the new Rules,
the Commission has modified the definition of Ineligible Issuer for purposes of Free Writing
Prospectuses to permit such issuers, other than blank check companies, shell companies and
penny stock issuers, to use a Free Writing Prospectus that is limited to a description of the
securities offered and the offering. Issuers involved in Ineligible Offerings would not have the
benefit of the new Rules.
The Rule 433 Conditions on the use of Free Writing Prospectuses relate to
−
the delivery or availability of the statutory prospectus at the time the Free Writing
Prospectus is used
−
the information contained in the Free Writing Prospectus
−
the Legend that is to be included in the Free Writing Prospectus
−
filing of the Free Writing Prospectus
−
record retention for the Free Writing Prospectus
Availability or Delivery Condition
The ability of any person participating in the offer and sale of securities to use a Free Writing
Prospectus under new Rules 164 and 433 is conditioned (i) on the availability of the issuer’s
most recently filed statutory prospectus (other than a summary prospectus) satisfying the
requirements of Section 10 and (ii) with respect to certain issuers, on the prior or concurrent
32
“Historical Issuer Information” that is properly identified and located in a separate section of the issuer’s web site
containing historical issuer information, would not be deemed under the Rules to be an offer of the issuer’s
securities. This historical information could include, but would not be limited to, Regularly Released information
that could fall within one of the proposed safe harbors described above. The historical information could include
information shown to have been previously published (for example, by bearing a date). To remain classified as
“Historical Issuer Information” the information could not, however, be incorporated or otherwise included in a
prospectus or used, identified, updated or modified in connection with the offering or otherwise.
- 23 -
delivery of the issuer’s most recently filed statutory prospectus. 33 Well-Known Seasoned
Issuers and Seasoned Issuers have the most flexibility under these provisions of the
Reforms.
Well-Known Seasoned Issuers and Seasoned Issuers
Availability of Prospectus and Legend Required, Not Delivery of Prospectus
There is no requirement that the preliminary prospectus on file be delivered to recipients of
the Free Writing Prospectus by these issuers. Instead, only a registration statement
containing a Section 10 preliminary prospectus must be on file with the Commission, thus
enabling prospective investors to have access to its contents. For shelf offerings, this
preliminary prospectus could be a base prospectus that satisfies the requirements of new
Rule 430B.
The Free Writing Prospectus must contain the required Legend, which serves to notify the
recipient as to where he can access or hyperlink to the preliminary or base prospectus by
providing the URL for the prospectus. (For example, electronic road shows would need to
include the language of the Legend.)
Unseasoned Issuers and Non-Reporting Issuers
Availability of Prospectus and Legend Required
Same as above.
Delivery of Prospectus Required Only if Communication Is Prepared or Paid for by the
Issuer or Another Offering Participant
If:
– the Free Writing Prospectus is prepared by or on behalf of or used or referred
to by the issuer (Issuer Free Writing Prospectus) or prepared by or on behalf
of or used or referred to by other offering participants;
– consideration has been or will be given by the issuer or another offering
participant for the dissemination (in any format) of the Free Writing Prospectus
(including any published article, publication, or advertisement); or
– Securities Act Section 17(b) requires disclosure that consideration has been
or will be given by the issuer or another offering participant for any activity
described in such section in connection with the Free Writing Prospectus,
then the Free Writing Prospectus must be accompanied or preceded by the most recent
Section 10 statutory prospectus.
New Rule 433 specifically provides that a statutory prospectus would be deemed to
accompany an electronic Free Writing Prospectus if the latter contained a hyperlink to the
former.34
33
Existing rules do not require the delivery of preliminary prospectuses in offerings involving Reporting Issuers.
34
Use of a broadly disseminated Free Writing Prospectus by an issuer in this category may not be feasible unless,
for example, it is in electronic form and contains a hyperlink to the statutory prospectus.
- 24 -
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 statutory 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 is sent or given to an investor, additional Free
Writing Prospectuses can be provided without having to provide an additional copy of the
statutory prospectus, unless there are material changes in the most recent statutory
prospectus from that previously provided.35 For example, electronic road shows undertaken
by these issuers would be subject to the condition that the issuer’s statutory prospectus
accompany or precede the electronic road show. This could be satisfied by including in the
electronic road show a hyperlink to the issuer’s filed statutory prospectus in its registration
statement on file with the Commission.
●
Record Retention Condition
Issuers and offering participants, including underwriters and participating dealers, must
retain all Free Writing Prospectuses they have used for a period of three years following the
initial bona fide offering of the subject securities if these materials have not been filed with
the Commission. An immaterial or unintentional failure to retain a Free Writing Prospectus
will not result in a loss of the safe harbor so long as a good faith and reasonable effort was
made to comply with this provision.
●
Content
Beyond the Legend, there are no limitations on any other content for a Free Writing
Prospectus other than:
– the information not conflict with the information in the registration statement;
– not permitting language that deems an investor to have read or have
knowledge of the content of other documents incorporated in or referred to in
the Free Writing Prospectus;
– not permitting language that disclaims the accuracy or completeness of the
information in the Free Writing Prospectus or reliance thereon; and
– not permitting language to the effect that the Free Writing Prospectus is not a
prospectus or an offer.
●
Filing Condition
The specific filing requirement is triggered by the issuer’s connection to the material in the
communication. Most underwriter or dealer material need not be filed. There are different
time frames for filing the Free Writing Prospectus. The same cure provisions as apply to a
failure to file in the pre-filing period apply here.
35
For example, once an investor had been sent a preliminary prospectus, absent a material change, new Rule 433
would permit subsequent e -mail communications by an offering participant that constitute Free Writing
Prospectuses without having to hyperlink to or otherwise redeliver a statutory prospectus with each
communication. After effectiveness of the registration statement and the availability of a final prospectus meeting
the requirements of 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 (preliminary) prospectus had been provided to the recipient.
- 25 -
Filing the Free Writing Prospectus or information contained therein is required as follows:36
– where the Free Writing Prospectus is an Issuer Free Writing Prospectus, it
must be filed by the issuer on or before the date of its first use
– where the Free Writing Prospectus is prepared by a party participating in the
offering other than the issuer (e.g., selling securityholders, underwriters and
dealers) and contains material information about the issuer or its securities
that has been provided by or on behalf of the issuer (Issuer Information) but
which is not already contained or incorporated in the registration statement or
a filed Free Writing Prospectus, that information must be filed by the issuer on
or before the date of its first use
– where the Free Writing Prospectus is prepared by an offering participant other
than the issuer (and where no Issuer Information is included) and is distributed
in a manner designed to lead to its broad unrestricted dissemination, such
offering participant must file the Free Writing Prospectus on or before the date
of its first use37
– where the Free Writing Prospectus contains only a description of the final
terms of the securities being offered or of the offering, regardless of whether
the issuer or another offering participant prepared or used it, it must be filed by
the issuer within two days after the later of the date such terms became final
for all classes of securities in the offering or the date of its first use −
preliminary term sheets and other descriptive material containing only the
terms of the securities that do not reflect the final terms of the securities or the
transaction would not be subject to filing
Other than as noted above, there is generally no requirement that underwriters or
participating dealers file the Free Writing Prospectuses that they prepare, including Free
Writing Prospectuses prepared by them on the basis of, but not containing, Issuer
Information.38 Oral communications are not subject to any filing conditions.
●
Special Filing Situations
Electronic Road Shows
An electronic communication, including an electronic road show, that falls within the
definition of a graphic communication (that is, it does not originate live, in real-time to a
live audience) would constitute a written offer, prospectus and Free Writing
Prospectus39 and must satisfy the new Rules for Free Writing Prospectuses. Electronic
road shows can be transmitted via the Internet, videos, e-mail, CD-ROM or any other
36
Rule 134 and Rule 135 notices would not be considered Free Writing Prospectuses under the new Rules and
would, therefore, not be subject to these conditions. Electronic road shows would not be subject to the filing
condition in certain circumstances (see “Special Filing Situations” below).
37
An issuer, underwriter, dealer, or other offering participant may not indirectly disseminate information through the
press or otherwise without complying with the Conditions of new Rule 433.
38
Examples of this information would include information prepared by an underwriter that is proprietary to the
underwriter.
39
Issuer involvement or participation in an electronic road show would make it an Issuer Free Writing Prospectus.
- 26 -
medium. To date these have proceeded in reliance on a series of no-action letters
granted by the Commission’s Staff.
The new Rules permit the use of electronic road shows without many of the conditions
imposed in the electronic road show no-action letters, provided the issuer satisfies the
Conditions of new Rule 433.40 The Commission is not proposing to require that
electronic road shows be made available to unrestricted audiences, though issuers and
underwriters would be free to open road shows to all prospective investors.
Electronic road shows must contain the Legend discussed above and, for road shows
involving a Non-Reporting Issuer or Unseasoned Issuer, are subject to the Condition
that the issuer’s statutory prospectus accompany or precede the electronic road show.
(As a result, those issuers would have to include in the electronic road show a hyperlink
to the issuer’s filed statutory prospectus in its registration statement.)
The electronic road show or its script is not subject to filing, with one exception. If the
issuer, at the time of filing the registration statement for the offering, is a Non-Reporting
Issuer registering common equity or convertible equity securities, the filing condition
applies unless the issuer makes at least one version of a “bona fide electronic road
show”41 readily available without restriction electronically to any potential investor at the
same time as the electronic road show.
Media
Currently, interviews given by an officer or other representative of the issuer that are
published around the time of a registered offering run the risk of being deemed by the
Commission or courts in hindsight as impermissible written offers. The new Rules
permit these communications as Free Writing Prospectuses as long as the Conditions of
Rule 433 are satisfied. These Conditions vary depending on whether the issuer or other
offering participant prepared the communication or paid for or provided other
consideration for the communication. 42
40
For example, the road show audience does 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 do not
have to limit viewers to seeing it either within a 24-hour period or twice. They can also allow viewers to copy, print
or download the road show. Multiple versions of the electronic road show are permitted. Each would be a
separate Free Writing Prospectus. Upon the effectiveness of the new Rules the Staff’s electronic road show noaction letters for registered public offerings will be withdrawn.
41
“Bona fide electronic road show,” for purposes of the Reforms, is a version of the electronic road show that
contains a presentation by one or more members of an issuer’s management and, 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.
42
In these examples the member of the media must be unaffiliated with the issuer and other offering participants.
There is also provision in the Reforms for issuers in the media business to rely on the unaffiliated media exclusion
under certain conditions.
- 27 -
•
Media Communication Prepared or Paid for by Issuer or Other Offering
Participant. The Conditions to the use of this type of Free Writing Prospectus
must be satisfied at the time of the publication or broadcast. For example:
– For Non-Reporting Issuers (including voluntary filers), a statutory prospectus
satisfying Section 10(a) of the Securities Act (a final prospectus as opposed to
a preliminary prospectus, base prospectus or prospectus subject to
completion) would have to precede or accompany the media communication the practical result of this would be that such issuers and their offering
participants will not be able to prepare or pay for published or broadcast
written advertisements, “infomercials” or broadcast spots about the issuer and
the securities offering during the marketing phase of the offering beyond the
information permitted by Rule 134.
– For Seasoned Issuers that are not Well-Known Seasoned Issuers and their
offering participants, the most recent statutory prospectus (for purposes of
Section 10(b) only; which includes a preliminary prospectus, base prospectus
or prospectus subject to completion) would have to be on file and the Free
Writing Prospectus (the media communication) would have to be filed with the
Commission not later than the date of its first publication or broadcast.
– For Well-Known Seasoned Issuers, Seasoned Issuers and their offering
participants, only the other applicable Conditions for Free Writing
Prospectuses need to be complied with.
•
Media Communication Not Prepared or Paid for by Issuer or Other Offering
Participant. An interview or other media publication or broadcast in which an
issuer or other offering participant participates (but does not prepare the
information used in or pay for the event) could be a Free Writing Prospectus.
Such Free Writing Prospectus must be filed by the issuer or other offering
participant involved within four business days after the issuer or offering
participant becomes aware of its first publication or broadcast. However,
because of the media intervention, the Commission has stated that no statutory
prospectus would be required to precede or accompany the media
communication, although a filed registration statement and availability of a
statutory prospectus is required (except in the case of Well-Known Seasoned
Issuers). Persons in the media would have no filing or other obligations under
the new Rules.
For example, if an issuer or underwriter invited the press to attend a live or electronic
road show, in most cases, any article that contains information obtained at that road
show would be a Free Writing Prospectus of the issuer or underwriter and its use would
be subject to satisfaction of the applicable Conditions under Proposed Rule 433;
however, if the electronic road show is readily accessible and open to an unrestricted
audience the article would not be treated as a Free Writing Prospectus of the issuer or
other offering participant due to the unrestricted and available nature of the electronic
road show.
If a chief executive of an Unseasoned Issuer or a Non-Reporting Issuer gave an
interview to a financial news magazine that is unaffiliated with the issuer or other offering
participants, 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; there is no requirement
- 28 -
that a statutory prospectus precede or accompany the article at the time of the
publication.
If the substance of the written communication has been previously filed, the media
publication does not have to be filed.
Issuers and other offering participants may satisfy the filing condition by filing the media
publication, all of the information provided by them to the media in lieu of filing the media
publication or a transcript of the interview, if any, containing the information published.
Information the issuer reasonably believes is necessary to correct information in the
media publication may also be filed.
In general, the Commission has administered the gun-jumping provisions so that where
there is no other involvement of an issuer or other offering participant, media
publications based on information filed with the Commission or available on an
unrestricted basis are not offers of the issuer or other offering participant. This should
substantially eliminate the need for an issuer to monitor media publications unless
offering participants are directly communicating offering information or otherwise
involved with the media in connection with the offering. Further, the Rule only applies to
written offers prepared, published, or disseminated by the media where an issuer or
offering participant provides, authorizes, or approves the information.
►
Communications After Effectiveness of a Registration Statement
■
Currently
Written offers may be made only through a statutory prospectus complying with Section 10(a) of
the Securities Act but additional written material may be used if a final prospectus that meets
the requirements of Section 10(a) is delivered to the offeree prior to or with that material.43
There is no prohibition on oral offers but statutory and common law fraud concerns apply to their
content.
■
New Rules
The only difference under the new Rules is the concept of Access Equals Delivery discussed
below, whereby the requirement for the delivery of a statutory prospectus may be satisfied in
certain circumstances merely by having a compliant prospectus on file with the Commission.
►
Amendments to Regulation FD
Certain material nonpublic Issuer Information may now be made public either through the
prospectus filed as part of a registration statement, filed Free Writing Prospectuses or, in the
case of Reporting Issuers, through the operation of Regulation FD.44
43
Base prospectuses, preliminary prospectuses and prospectuses subject to completion that are permitted under
Securities Act rules are statutory prospectuses under Section 10 but are not prospectuses that satisfy the
requirements of Section 10(a).
44
Oral communications of an issuer made in connection with a registered offering would, as today, not be subject to
any filing or public disclosure requirement. The existing exclusion in Regulation FD for registered business
combination transactions also would not be affected.
- 29 -
Currently, Regulation FD generally excludes from its operation any oral or written
communication made in connection with any registered securities offering.45
Because the Reforms have expanded the types of permissible communications around the time
of a public offering, the types of registered securities offerings eligible for this exclusion have
been narrowed to those involving a capital formation transaction for the account of the issuer
and registered offerings that involve an issuer capital formation transaction and a selling
securityholder offering and only if the disclosures are made in the following types of
transactions:
•
a registration statement filed under the Securities Act, including a prospectus
contained therein
•
a Free Writing Prospectus satisfying the requirements of proposed Rule 433 (i)
used after the filing of the registration statement or (ii) accompanied or preceded
by the final prospectus post-effectiveness
•
any other Section 10(b) prospectus
•
a notice permitted by Rule 135
•
a communication permitted by Rule 134
•
an oral communication made in connection with the registered offering after filing
of the registration statement
Communications made during or in connection with a registered offering and not contained in
the 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.
►
Research Reports
■
Expanded Use of Research Reports Permitted (Amendments to Rules 137, 138 and
139)
The Commission believes that the recent reforms46 relating to research analyst scandals have
addressed many past abuses and that analyst information provides important information to the
45
Regulation FD does not exclude from its provisions, however, communications made around the time of a
securities offering 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; a securities offering pursuant to a dividend or interest
reinvestment plan or an employee benefit plan of the registrant; securities registered on Form F-6; transactions
involving securities pledged as collateral; or a securities offering in connection with the exercise of outstanding
options, warrants or rights or the conversion of other outstanding securities.
46
The 2002 Global Research Settlement on Research Analysts Conflicts of Interest, which involved twelve
brokerage firms, requires the settling firms to, among other things, adopt 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 their customers. The National Association of Securities Dealers and the New York
Stock Exchange have 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
- 30 -
markets and potential investors. The Commission is reducing current restrictions on the use of
research reports and will permit the communication of research around the time of a public
offering under a broader range of circumstances than is currently the case.
Rules 137, 138 and 139 are safe harbors under the Securities Act which describe the instances
in which a broker or dealer may publish research in the pre-filing, post-filing and post-effective
periods without having the communication deemed an offer or prospectus in violation of Section
5 of the Securities Act. Modest changes have been made to these Rules, including for the first
time, the addition of a definition of “research report.”
The safe harbor provisions of Rules 137, 138 and 139 will continue to be available only to
brokers and dealers. Issuers cannot use these safe harbor provisions or research reports
prepared or distributed by brokers or dealers to directly or indirectly communicate with potential
investors about the offering (for example, a hyperlink on an issuer’s web site to a research
report). Issuers using research reports in this manner could be deemed to have adopted the
contents of such reports and, under the Reforms, the reports will be considered Free Writing
Prospectuses and would have to satisfy the related Conditions at the time of first use in order to
avoid a violation of Section 5 of the Securities Act. The issuer would of course then be liable for
the contents of the research report. 47
■
Definition of Research Report Added
To assure consistency between Regulation AC requiring analyst certifications and the research
safe harbors contained in Rules 137, 138 and 139, the new Rules define “research report” for
purposes of the safe harbors in the same manner as the definition of “research report” in
Regulation AC but also include media broadcasts. A “research report” for purposes of the safe
harbors is defined as a written communication that includes research, including information,
opinions, recommendations or an analysis of securities of the issuer. For purposes of Rules
137, 138 and 139, the research report does not have to contain 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.
communications for the purpose of soliciting investment banking business, restricting prepublication review of
research reports by non-research personnel, prohibiting retaliation by investment banking personnel against
analysts whose reports or public appearances may adversely affect an investment banking client relationship,
requiring disclosure of any compensation from an issuer or other relationships with clients, and requiring
additional registration, qualification, and continuing education requirements for research analysts.
47
The distribution of independent research continues to be permitted within the safe harbor provisions. Pre-existing
rules permit the distribution of independent research subject to certain conditions. For brokers and dealers
subject to the Global Research Analyst Settlement, the ability to distribute independent research during a
registered securities offering depends on whether the broker or dealer is able to rely on any of the research safe
harbors for its own research. For example, independent research that is prepared by an analyst not participating
in an offering but that is paid for by a broker or dealer participating in the offering would be considered to be
distributed by an offering participant and thus would not satisfy the requirements of the Rule 137 safe harbor.
Such research may continue to be distributed by the non-offering participating analyst. A research report
constituting an offer and not falling within a safe harbor is considered a Free Writing Prospectus. The Rules do
not supersede any applicable rules of a self-regulatory organization regarding the timing of the distribution of
research reports.
- 31 -
■
Research Reports in Connection with Regulation S and Rule 144A Offerings and
Proxy Solicitations
The restrictions in Regulation S on directed selling efforts and offshore transactions and in Rule
144A on offers to non-QIBs and general solicitation have caused many brokers and dealers to
withhold regularly-published research. The Reforms provide that research reports meeting the
conditions of Rules 138 and 139 will not be considered offers, general solicitations or general
advertising in connection with offerings relying on Rule 144A, or constitute directed selling
efforts for purposes of, or be otherwise inconsistent with, the offshore transaction requirements
of Regulation S. The Commission noted in the Adopting Release, however, that the new Rules
do not apply to private placements under Regulation D.
The Commission also codified the current Staff position 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 Exchange Act.
■
Expanded Rule 137 – Analyst (Affiliate) Not Participating in the Offering
Prior to the effectiveness of the Reforms, a broker or dealer that does not participate in an
issuer’s public offering but who publishes or distributes research about such issuer’s securities
is not considered to be engaged in a distribution of the issuer’s securities and would therefore
not be deemed to be an underwriter in the offering.
This Rule 137 safe harbor is being expanded to apply to securities under registration of
any issuer, including Non-Reporting Issuers (with exceptions for blank check companies, shell
companies and penny stock issuers). Rule 137 continues to be available only to brokers and
dealers (and their affiliates) and, if different, the person (and any affiliate) that has published the
report who:
■
•
is not participating and does not propose to participate in the registered offering
of the issuer’s securities;
•
is not receiving and has not received consideration48 in connection with the
research report directly or indirectly from, and is not acting under any direct or
indirect arrangement or understanding with the issuer of the securities, a selling
securityholder, any participant in the distribution of the securities or any other
person interested in any of such securities; and
•
publishes or distributes the research report in the regular course of its business.
Rule 138 – Analyst (Affiliate) Participating in the Securities Offering Where the
Research Report Covers a Different Security From the Security Being Registered
Current Rule 138.
– permits a broker or dealer participating in a distribution of an issuer's
securities (for example, common stock) to publish or distribute research that is
48
The consideration prohibited by the Rule does not include payment of (i) the regular price being paid by the
broker or dealer for independent research, so long as the other conditions above are satisfied or (ii) payment of
the regular subscription or purchase price for the research report.
- 32 -
confined to another type of security of that issuer (for example, fixed income
securities), and vice versa49
– applies only to brokers and dealers that publish or distribute the research in
the regular course of their business
– applies to offerings of domestic issuers that are eligible to use Form S-350
Amended Rule 138.
– retains the current provisions in all major respects
– expands the categories of offerings covered to 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 exemption
– requires that the broker or dealer must have previously published or
distributed research reports on the same types of securities that are the
subject of the report in the regular course of its business
– applies to brokers and dealers publishing or distributing research reports
regarding Non-Reporting foreign private issuers that have had equity
securities traded on a designated offshore market for at least 12 months or
have a $700 million worldwide common equity public float
Upon satisfaction of the conditions set forth in amended Rule 138, a broker/dealer’s publication
or distribution of research reports about securities of an issuer in registration will not be deemed
for purposes of Sections 2(a)(10) and 5(c) of the Securities Act to constitute an offer even if the
broker or dealer is participating or will participate in the registered offering of the issuer’s
securities.
■
Rule 139 – Analyst (Affiliate) Participating in Offering – Regularly Distributed
Research Report Covering the Issuer or Any of its Securities, Including the Same
Securities as the Securities Being Registered
Current Rule 139.
Currently, this Rule permits a broker or dealer participating in a distribution of securities by a
Seasoned Issuer or by a large foreign private issuer (that satisfies either the $75 million public
float test or is issuing only non-convertible investment grade securities and whose equity
securities have been publicly traded abroad for at least 12 months) to publish research
concerning the issuer or any class of its securities, so long as that research is contained in a
publication that is distributed with reasonable regularity in the normal course of the
broker/dealer’s business.
49
According to the Commission, the underlying premise of Rule 138 is that there is less opportunity to condition the
market when a broker or dealer is involved in underwriting one type of security but providing regular course
research on another type (as, in the example given above, underwriting an offering of equity securities while
providing research on debt securities).
50
It has also been available to foreign private issuers that meet the eligibility requirements of Form F-3 (other than
the reporting history) and that either satisfy the $75 million public float test or are issuing non-convertible
investment grade securities and have equity securities that have been publicly trading abroad for at least 12
months.
- 33 -
Amended Rule 139.
Under the amendments to Rule 139, the issuer eligibility requirements for reliance on the issuerspecific research safe harbor remain the same except that, like the amendments to Rule 138,
they have been expanded to include any foreign private issuer that either has had its equity
securities trading on a designated offshore securities market for at least 12 months or has a
worldwide market value of its outstanding common equity held by non-affiliates of $700 million
or more. Although the amended rule continues to require that the broker/dealer publish or
distribute the research in the regular course of its business, the requirement that the research
publication be distributed with reasonable regularity has been eliminated (except in connection
with research regarding asset-backed securities).
Amended Rule 139 also permits a broker or dealer participating in a distribution of securities to
initiate coverage on a new class of an issuer’s securities as long as research reports about the
issuer or its securities have been published or distributed previously or at least one such report
has been distributed or published following any discontinuation of coverage. This requirement
precludes a report initiating coverage on an issuer from benefiting from the amended Rule 139
safe harbor.
In summary:
•
Issuer-Specific Research Reports
– may only cover issuers with at least a one year reporting history that have filed
all Exchange Act reports for the preceding 12 months and are eligible to
register a primary offering of securities on Forms S-3 or F-3, and at the date of
determination either satisfy the $75 million minimum public float or investment
grade securities provisions of those forms (voluntary filers, penny stock
issuers, blank check companies, and shell companies are, as usual, excluded)
– must be published or distributed in the regular course of the broker/dealer’s
business; however, the requirement of publication with reasonable regularity
has been eliminated and the Commission has not imposed any minimum time
period for the broker/dealer to have distributed or published research51
– may not represent the initiation of publication about the issuer or its securities
or the re-initiation of coverage following a discontinuance
There is no requirement that the previously published or distributed research report
cover the same securities that are the subject of the registered offering.
•
Industry-Related Reports
– may only 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 as are contained in the provisions for issuer-specific research
51
The broker or dealer must, at the time of reliance on the Rule, also have distributed or published at least one
research report about the issuer or its securities ─ this retains the most important element of the “reasonable
regularity” requirement, namely that a report initiating coverage of an issuer not benefit from an exemption under
Rule 139.
- 34 -
reports (voluntary filers, penny stock issuers, blank check companies, and
shell companies are, as usual, excluded)
– cover registered offerings of any Reporting Issuer, not only Reporting Issuers
eligible to register securities on Form S-3 or F-3
– are not precluded from containing a more favorable recommendation than the
one made in the last publication by such broker/dealer
– must contain similar types of information about the issuer or its securities as
was contained in prior reports
– must include a substantial number of companies in the issuer’s industry or a
comprehensive list of securities of such companies recommended by the
broker/dealer
– are produced by a broker or dealer that publishes or distributes research
reports in the regular course of its business
- 35 -
III.
Securities Act Registration Reforms
As noted earlier, the Commission has adopted much of the concept of “company registration”
first introduced in its “Aircraft Carrier” Proposal without the baggage of the accompanying
wholesale changes to the disclosure system contained in that Proposal that ultimately resulted
in the shelving of the Proposal.
The Commission has streamlined the registration process for most types of Reporting Issuers
by adopting new Rules 430B and 430C, codifying existing practice and amending Rules 415,
418, 424 and 430A and Forms S-3 and F-3.
The Reforms:
– clarify and expand how and when information may be included in or omitted
from a base prospectus in a registration statement
– codify the manner of adding information to a final prospectus and provide for
the treatment of prospectus supplements
– modify the timing of effectiveness of shelf and non-shelf registration
statements
– establish an Automatic Shelf Registration process for Well-Known Seasoned
Issuers
– liberalize the requirements under Rule 415, including
o
eliminating the 2 year limit for offerings on a delayed basis
o
eliminating the prohibition against immediate takedowns off delayed
offering shelfs
o
eliminating “at the market” offering restrictions for issuers registering
primary offerings on Form S-3 or F-3
►
Shelf Registrations
■
Information in a Prospectus ─ New Rule 430B - Means of Adding Information to a
Base Prospectus in a Shelf Registration Statement After the Effective Date
New Rule 430B is intended to be a shelf offering corollary to current Rule 430A under the
Securities Act and is largely consistent with current practice for delayed offerings.52 Currently,
primary offerings by an issuer on a delayed basis under Rule 415 may be registered only by
issuers eligible to use Form S-3 or F-3 (essentially Well-Known Seasoned Issuers and
52
Many of the offerings contemplated by Rule 415 involve the use of prospectuses that are complete at the time of
effectiveness of the related registration statement and therefore may not need to be supplemented for additional
information about the offering. For example, the terms of the securities and the plan of distribution are often
complete at the time of effectiveness and not subject to change. Other offerings, though, such as delayed and
continuous offerings where the securities offered and sold in various takedowns vary in their terms, methods of
sale and the identity of sellers (such as selling securityholders), require that the base prospectus included in the
registration statement at the time of effectiveness be supplemented via post-effective amendment only to reflect
these features. Rule 424 governs the manner and timing of the filing of these prospectuses and prospectus
supplements with the Commission.
- 36 -
Seasoned Issuers under the new Rules). Where the issuer is not eligible to use Form S-3 or F3, updating information regarding the issuer or the terms of the delayed or continuous offering
cannot be included by means of incorporating later Exchange Act reports and therefore must be
added to the prospectus by means of a post-effective amendment. In such case, the form of
prospectus then included in the amended registration statement is complete at the new effective
date (of the post-effective amendment).
However, up to now, there has been no rule that establishes the relationship between the forms
of base prospectus and prospectus supplements and the information that may be omitted from
or included in one or the other in such offerings. New Rule 430B is intended, among other
things, to remedy the foregoing. It liberalizes current requirements in some respects for all
registrations by primary shelf offering eligible issuers and significantly liberalizes the
requirements for Automatic Shelf Registration Statements.
Rule 430B covers the following types of offerings:
– offerings by Well-Known Seasoned Issuers registered on Automatic Shelf
Registration Statements
– immediate, delayed and continuous primary offerings by primary offering shelf
eligible issuers pursuant to Rule 415(a)(1)(x), including asset-backed issuers
eligible to register their offerings on Form S-3
– secondary offerings by certain primary offering shelf eligible issuers, including
for the purpose of adding information regarding the identities of and amounts
of securities to be sold by selling securityholders
– offerings of mortgage-backed securities permitted by Rule 415(a)(1)(vii) that
generally are registered on Form S-11
In addition, Rule 430B:
– contains all the prospectus requirements for shelf registration statements for
registered primary securities offerings by issuers eligible to use Form S-3 or F3 (other than in connection with business combination transactions and
exchange offers)
– provides that the base prospectus in a shelf registration statement can
continue to omit information that is unknown or not reasonably available to the
registrant as permitted by Rule 409 and be included later in a prospectus
supplement, an Exchange Act report incorporated by reference or a posteffective amendment
– is intended to facilitate the ability of issuers to add to a prospectus more
information than is currently the case and to do so by means other than a
post-effective amendment to the registration statement and describes the type
of information that primary shelf eligible issuers and automatic shelf eligible
issuers may omit from a base prospectus in delayed offerings and include
instead in a prospectus supplement, Exchange Act report incorporated by
reference into the registration statement or a post-effective amendment to the
registration statement
– clarifies that prospectus supplements and the information contained in them,
like information included in a base prospectus or in an Exchange Act periodic
- 37 -
report that is incorporated by reference into a base prospectus, are deemed to
be part of and included in the registration statement and therefore subject to
Section 11 liability
– confirms that, as is the practice today, a base prospectus that omits
information is not considered a Section 10(a) final prospectus - to satisfy the
requirements of Section 10(a), an issuer must include the information omitted
from the base prospectus in a prospectus supplement, or, where permitted,
through its Exchange Act filings incorporated by reference into the base
prospectus (but the base prospectus nevertheless will be deemed a permitted
prospectus for purposes of Section 5(b)(1))
Thus, after a registration statement is filed, offering participants can use a base prospectus,
issuers can communicate by means of Rule 134 notices and issuers and other offering
participants can communicate via Free Writing Prospectuses under new Rules 164 and 433.
■
Amendments to Rule 415
•
Elimination of Two-Year Limitation on Amount of Securities Registered and
Creation of New Three-Year Shelf Life
For continuous and delayed offerings (Rules 415(a)(1)(ix) and (x)) that are registered on
Form S-3 or F-3, the provision in Rule 415 that limits the amount of securities registered
to an amount that is intended to be offered or sold within two years from the registration
statement effective date has been eliminated. (The two-year limitation was designed to
ensure that the issuer had a bona fide intention to offer and sell securities in the
proximate future.) Seasoned Issuers (other than Well-Known Seasoned Issuers) must
nevertheless register a specific amount of securities but that amount can be large.
Under the revised Rule, new shelf registration statements must be filed every three
years, in which case unsold securities and unused fees paid thereon may be carried
forward to a new registration statement if it is (i) an Automatic Shelf Registration
Statement or (ii) related to mortgage related securities or (iii) related to continuous or
delayed offerings.
For eligible issuers other than Well-Known Seasoned Issuers, continuous offerings
begun prior to the end of the three years can continue on the old registration statement
for six months after the end of the three-year period if a new registration statement has
been filed but is not yet effective, at which point the continuous offerings can continue
on the new registration statement. Well-Known Seasoned Issuers will rarely need to
utilize this provision because they have the ability to use Automatically Effective Shelf
Registration Statements as a result of the Reforms.
Currently, an issuer offering securities on Form S-3 or 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 securityholders. Under current rules, offerings for selling
securityholders 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. Except under the new rules for Well-Known Seasoned Issuers, issuers
cannot offer and sell securities of selling securityholders without allocating the number
of securities registered among the issuer and selling subsidiaries or securityholders.
- 38 -
•
Immediate Takedowns From a Shelf Registration Statement Filed Under Rule
415(a)(1)(x)
Primary offerings on Form S-3 or F-3 may occur promptly after effectiveness of a shelf
registration statement. Current rules permit the omission of information from the
prospectus at the time of effectiveness only in reliance on Rule 430A with respect to
immediate offerings from an effective registration statement. The new Rules permit a
great deal more information to be left for inclusion by means of a prospectus
supplement after effectiveness. The rules in effect prior to the Reforms also only
allowed the omission of certain information in an immediate offering from an effective
registration statement under Rule 430A, not in shelf offerings, resulting in the inability of
shelf issuers to conduct takedowns immediately after effectiveness. This amendment
allows the same omission of information for offerings made under Rule 415 and Rule
430B as is currently permitted under Rule 430A. (Rule 430A will continue to be
available for immediate takedowns in non-shelf offerings.)
•
Elimination of “At-the-Market” Offering Restrictions
Any issuer eligible to conduct a primary offering pursuant to Rule 415 (using Form S-3
or F-3) can register an “at-the-market” offering of equity securities without identifying an
underwriter in its registration statement and without a volume limitation.
■
Amendments to Rule 424
In conjunction with other procedural proposals, Rule 424 has been modified to:
■
•
require that, in 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 in the registration statement, the
prospectus supplement filed pursuant to Rule 424 must disclose on its cover the
Exchange Act report or reports where an investor can find such information
•
require that final prospectuses not filed within the required time frame under Rule
424 must be filed under new subsection (b)(8)
•
require that new subsection (b)(7) be used to file prospectuses identifying selling
securityholders no later than the second business day after the earlier of the date
of sale or the date of first use
Corresponding Amendments to Forms S-3 and F-3
The Reforms amend Forms S-3 and F-3 to expand the categories or majority-owned
subsidiaries eligible to register their non-convertible securities or guarantees on the forms. The
amended forms can also be used to register offerings of guarantees by certain majority-owned
subsidiaries of non-convertible securities of other majority-owned subsidiaries or of the parent.
The circumstances under which this is permitted are the same as those provided for majorityowned subsidiaries to qualify as Well-Known Seasoned Issuers.
The Commission also has amended Forms S-3 and F-3 to permit all information about the
issuer and its securities that would be required in the base prospectus included in the
registration statement at the time of effectiveness to instead be incorporated by reference from
- 39 -
Exchange Act reports or provided in a prospectus supplement filed with the Commission
pursuant to Rule 424(b). For example:
•
material changes in the plan of distribution, which previously could be added only
by means of post-effective amendment, may be made by use of prospectus
supplements or incorporated Exchange Act reports
•
in connection with a resale registration statement filed by an issuer that is eligible
to use Form S-3 or F-3 for primary offerings, the identity of selling securityholders
and all other required information about them may be added after the
effectiveness of the registration statement by means of a prospectus supplement
or incorporated Exchange Act report in addition to the current means of filing a
post-effective amendment to the registration statement but only if53:
– the registration statement is an Automatic Shelf Registration Statement; or
– all of the following are satisfied:
o
the resale registration statement identifies the initial offering
transaction or transactions pursuant to which the securities, or
securities convertible into such securities, were sold
o
the initial offering of the securities, or securities convertible into such
securities (typically a private placement) is completed
o
the securities, or securities convertible into such securities, that are
the subject of the registration statement are issued and outstanding
prior to the initial filing of the resale registration statement.
For example, in the resale registration statement for a PIPES offering by a Well-Known
Seasoned Issuer in which the privately placed securities were not yet issued even though the
investors were contractually bound to purchase them, the issuer could not rely on this provision
to identify selling securityholders. The issuer must, as today, identify them in the registration
statement prior to effectiveness or by post-effective amendment.
■
Rule 434 has been deleted in its entirety since the new rules regarding Free Writing
Prospectuses permit the use of written descriptions of the terms of the issuer’s securities
or the offering, such as term sheets, under more flexible circumstances.
►
Automatically Effective Shelf Registration Statements for Well-Known
Seasoned Issuers
The Reforms allow Well-Known Seasoned Issuers to use a much more flexible procedure for
shelf registration than is described above. Shelf registration statements and post-effective
53
Up until the new amendments, the Staff of the Division of Corporation Finance has required all issuers registering
securities for the benefit of selling securityholders to include the names of selling securityholders in the
registration statement either prior to effectiveness or through a post-effective amendment to the registration
statement, with limited exceptions. Often, however, transfers of restricted securities occur after the 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 securityholders, as opposed to identifying the selling securityholders in a prospectus
supplement at the time of their resale offering has imposed significant delays in the offering process for many
issuers.
- 40 -
amendments of such issuers will become effective immediately upon filing, without Staff
review.54 In this connection, Well-Known Seasoned Issuers can
•
register unspecified amounts of different specified types or classes of securities
without allocating between primary and secondary offerings55
•
add additional classes of securities after the Automatic Shelf Registration
Statement is effective, via filing an automatically effective post-effective
amendment
•
choose 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
•
exclude more information from the base prospectus than from a regular shelf
registration statement - the omitted information can then be included in a
prospectus supplement or an automatically effective post-effective amendment or
incorporated by reference from Exchange Act reports
•
use a Free Writing Prospectus to structure transactions
•
add securities of a majority-owned subsidiary that satisfies the conditions for
being considered a Well-Known Seasoned Issuer on its own by post-effective
amendment that becomes effective upon filing
Automatic Shelf Registration cannot be used in connection with business combination
transactions or exchange offers on Form S-4 or F-4. In addition, if the issuer satisfies the
definition of Well-Known Seasoned Issuer based only on its aggregated registered debt
issuances it may register only non-convertible obligations on the Automatic Shelf Registration
Statement.
•
Eligibility Reassessment. An issuer may file an Automatic Shelf Registration
Statement if it meets the eligibility criteria for Well-Known Seasoned Issuers on the
initial filing date of the registration statement. The issuer must reassess its eligibility at
the time the prospectus contained in the registration statement must be updated
pursuant to Section 10(a)(3) of the Exchange Act (e.g., upon the filing of a Form 10-K or
Form 20-F).
If the issuer becomes ineligible to use an Automatic Shelf Registration Statement at the
time of a Section 10(a)(3) update, it would have to either post-effectively amend (without
benefit of automatic effectiveness) its registration statement using the form it was then
eligible to use or file a new registration statement on such other 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 statement is filed (within 120 days after the
issuer’s most recent fiscal year end) and declared effective.
54
Well-Known Seasoned Issuers are not precluded from requesting that the registration statement not become
automatically effective or from requesting that the Staff review it, for example, in respect of new types of securities
that may raise significant regulatory issues.
55
Non-Well-Known Seasoned Issuers who do not have access to Automatic Shelf Registration, however, must
continue to allocate the securities being registered between primary and secondary offerings.
- 41 -
Ongoing offerings may continue pending effectiveness of a post-effective amendment or
a new registration statement, provided that such offering is permitted by the posteffective amendment or new registration statement.
Rule 401(g) provides that an Automatic Shelf Registration Statement is deemed to be
filed on the proper form unless the Staff notifies the issuer after filing of its objection to
the use of such form. If the Staff notifies an issuer of its objection, the issuer may not
proceed with subsequent offerings (not already in progress), unless it amends the
registration statement to the proper form, or otherwise resolves the issue. In that case,
even if the Staff were to notify an issuer that it was ineligible to use an Automatic Shelf
Registration Statement, securities sold prior to notification would not be deemed to have
been sold in violation of Section 5.
Mechanics of Automatic Effectiveness. Because under Rule 462(e) and (f), all
Automatic Shelf Registration Statements and post-effective amendments thereto
become effective automatically upon filing, without Staff review, the Staff expects
issuers to evaluate whether there are unresolved disclosure or accounting issues that
have been 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. However, because the Commission believes it is important that issuers
address unresolved comments, accelerated filers under the Sarbanes-Oxley rules,
which include Well-Known Seasoned Issuers, are required to disclose written Staff
comments received 180 days before the 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.
•
Duration of Shelf. As is the case with other shelf registrations, issuers are required
under the new Rules to file new Automatic Shelf Registration Statements every three
years which would, in effect, amend and restate their then-effective registration
statement. The new registration statement likewise would be effective immediately and
would carry forward the securities registered and any fees paid on the prior registration
statement, provided the issuer is, at the time of the new filing, eligible for Automatic
Shelf Registration. In effect then, the issuer’s securities offerings under the prior
registration statement could proceed uninterrupted.
●
More Information May be Omitted From the Base Prospectus. A base prospectus
included in an Automatic Shelf Registration Statement can, as permitted for other shelf
registrations today, omit information pursuant to Rule 409 that was unknown and not
reasonably available. As noted above, in addition to the information that may now be
omitted pursuant to Rule 430B for all eligible issuers, Well-Known Seasoned Issuers
can omit the following information:
– a statement as to whether the offering is a primary or secondary offering and
an allocation of securities to each
– the description of securities to be offered, other than the name or class
– the names of any selling securityholders
– a description of the plan of distribution for the offered securities
The omitted information may be added to the prospectus generally by means other than
a post-effective amendment. Forms S-3 and F-3 have been amended to permit all
information required in the prospectus about the issuer and its securities to be
- 42 -
incorporated by reference from Exchange Act reports or contained in the prospectus
supplement related to each takedown that will be deemed to be part of and included in
the registration statement.
However, if the issuer wishes to add to the registration statement new types or classes
of securities or new eligible issuers and the securities they intend to issue, it must do so
by registering them via an automatically-effective post-effective amendment at any time
before the sale of those securities, but it may provide the detailed disclosure about the
new class of securities or new registrants either in a post-effective amendment (which is
effective upon filing), a prospectus supplement or in an Exchange Act report
incorporated by reference in the registration statement. 56
Omitting this additional information from the base prospectus does not affect the
information that an investor would be provided in connection with a particular sale of
securities. The right to omit information from a base prospectus also does not affect the
fact that under Staff interpretations and new Rule 159, whether there are material
misstatements or material omissions is assessed on the basis of information conveyed
to the investor at the time of sale.
•
Registration Fees. Under the Reforms, Well-Known Seasoned Issuers may choose to
pay filing fees for their Automatic Shelf Registrations either in advance or on a pay-asyou-go basis at the time of each takedown from the shelf (for example, when the
prospectus supplement is filed).57 In addition:
– for each takedown in the future, the issuer can file a prospectus supplement or
an automatically effective post-effective amendment that includes on the cover
page the calculation of registration fee table for that takedown
– the issuer must pay the appropriate fee calculated in accordance with
Securities Act Rule 457 within the time required to file the prospectus
supplement pursuant to Rule 424, but with an ability to cure a failure to pay
►
Increased Flexibility for Unseasoned Issuers - Incorporation by Reference
in Forms S-1/F-1
The new Rules permit an eligible Reporting Issuer that has filed at least one annual report and
that is current in its reporting obligation under the Exchange Act to incorporate by reference into
its Form S-1 or F-1 registration statements information from its previously filed Exchange Act
reports and documents, provided the issuer makes its Exchange Act filings and other
documents readily accessible on its web site (the issuer need not effect any other type of
“delivery” of the reports and documents). Issuers that are not current in their Exchange Act
filings and any issuers that are (or were, or their predecessors were, in the past three years),
56
Requiring post-effective amendments for these additions is intended to cause the new issuers and their officers
and directors to sign the registration statement and that all information, opinions and consents are provided in the
registration statement, as well as to qualify any debt securities being added for purposes of the Trust Indenture
Act of 1939. The Commission will permit qualification of a trust indenture at the time of filing of a post-effective
amendment adding the related debt securities to the Automatic Shelf Registration Statement, whereas for other
shelf registration statements the Staff will continue to take the view that an indenture must be qualified when the
related registration statement first becomes effective.
57
Issuers using “pay-as-you-go” can deposit funds in a lockbox account with the Commission for the withdrawal by
the Commission of filing fees when due.
- 43 -
blank check companies, shell companies or issuers of penny stock are not eligible to
incorporate by reference into a Form S-1 or F-1.
The prospectus in the registration statement at the time of effectiveness must identify all
previously filed Exchange Act reports and documents that are incorporated by reference.
Exchange Act reports and documents not identified in the registration statement or that are filed
after the registration statement becomes effective may not be incorporated by reference
(“forward incorporation by reference”). Any material changes in or updates to the information
that is incorporated by reference from an Exchange Act report or document must be included in
the Form S-1 or F-1.
■
Elimination of Forms S-2 and F-2.
The Reforms have expanded the types of issuers that may incorporate information by reference
through the amendments to Forms S-1 and F-1, without requiring delivery of the incorporated
documents. This has made Forms S-2 and F-2 superfluous. The Commission, therefore, is
eliminating these two forms.
- 44 -
IV.
Prospectus Delivery Reforms
Currently, an investor’s investment decision and the sale of securities to such investor in a
registered offering generally occur before the final prospectus is required to be delivered under
the Securities Act. For sales occurring in the aftermarket, investors in securities of Reporting
Issuers are not delivered a final prospectus.
The Reforms:
■
•
eliminate the existing requirement that a final prospectus be physically delivered
to purchasers prior to or with the delivery of a confirmation of sale
•
provide that the obligation to have a final prospectus precede or accompany a
security for sale may be satisfied by filing the final prospectus with the
Commission within the required time period
•
permit written notices of allocations to be sent by e-mail
•
permit the prospectus delivery obligations in dealer transactions during any
prospectus delivery period and in broker or dealer transactions on exchanges or
registered trading facilities to be satisfied if the final prospectus has been filed or
will be filed with the Commission
Access Equals Delivery – New Rule 172
Under new Rule 172, a final prospectus is deemed to precede or accompany a security for sale
for purposes of Section 5(b)(2) of the Securities Act as long as the final prospectus meeting the
requirements of Section 10(a) is filed or the issuer has made a good faith and reasonable effort
to file it as part of the registration statement by the required Rule 424 filing date.58
Rule 172 also covers transactions involving unsold allotment securities and market-making.
■
Notice of Sale in Lieu of Delivery – New Rule 173
New Rule 173 provides that:
•
58
59
for each transaction involving a sale by an issuer or underwriter 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 provide 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 stating that the sale was made
pursuant to a registration statement or in a transaction in which a final prospectus
would not have been required to have been delivered in the absence of Rule
17259
Offerings by registered investment companies or business development companies, offerings related to business
combination transactions and offerings registered on Form S-8 are excluded from Rule 172.
The same offerings excluded pursuant to Rule 172, as discussed above, would also be excluded from this
notification provision.
- 45 -
■
•
an investor may request a physical copy of the final prospectus but such
prospectus would not have to be provided before settlement
•
compliance with new Rule 173 would not, in and of itself, be a condition to the
exemption from final prospectus delivery under Proposed Rule 172 and noncompliance with new Rule 173 would not result in a violation of Section 5
Confirmations and Notices of Allocations of Shares
Written confirmations60 and notices of allocation of shares offered also may be sent after the
effectiveness of a registration statement without being accompanied or preceded by a final
prospectus. Written communication from a broker-dealer to a customer or from an underwriter
to participating dealers in the selling group may notify them of the basic terms of the transaction
or their allocations of the securities.
The notice of allocations may include the name of the securities, the CUSIP number, the
amount allocated to the customer, the price of the securities, the date or expected date of
settlement and incidental information. This exemption from prospectus delivery requirements
would be conditioned on the registration statement being effective and the final prospectus
meeting the requirements of Section 10(a) being filed within the required time frame.
■
Exchange or Registered Trading Facility Transactions – Amended Rule 153
Currently, Rule 153 addresses the delivery of final prospectuses in transactions taking place
between brokers over a national securities exchange; it does not apply to transactions on an
automated quotation system such as the Nasdaq Stock Market.
Rule 153 now has been expanded to apply to any trading facility registered with the
Commission. Broker/dealers will be deemed to satisfy their prospectus delivery obligations
under Section 5(b)(2) of the Securities Act if the final prospectus is on file or will be on file by the
applicable filing date; securities of the same class are trading on an exchange or through the
eligible trading facility or alternative trading system; the registration statement relating to the
offering remains effective and is not the subject of a stop order issued under Section 8; and
neither the issuer nor any underwriter or participating dealer is subject to a cease and desist
order pursuant to Section 8A of the Securities Act in connection with the offering.
■
Aftermarket Prospectus Delivery – Amended Rule 174
Currently, all dealers are required to deliver a final prospectus for a specified period (generally
25 days) after a registration statement for an IPO becomes effective to persons who buy the
securities in the aftermarket. Rule 174 exempts from aftermarket prospectus delivery
requirements any transaction relating to securities of any 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 in the offering. Under the Reforms, Rule 174 is being revised to provide
that during the aftermarket period, dealers can rely on new Rule 172 (Access Equals Delivery)
to satisfy any aftermarket delivery obligations (other than in respect of blank check companies).
Dealers making aftermarket sales within the Section 4(3) and Rule 174 dealer prospectus
delivery periods, however, will have to deliver a Rule 173 notice to investors no later than two
60
Confirmations must be limited to information called for in Exchange Act Rule 10b-10 and other information
customarily included in confirmations.
- 46 -
business days after completion of the sale. This is earlier than a prospectus is currently required
to be delivered in connection with aftermarket sales.
- 47 -
V.
Exchange Act Disclosure Expanded
►
Risk Factor Disclosure Added to Form 10-K and Form 10
Risk factor disclosure now must be included in annual reports on Form 10-K and Exchange Act
registration statements on Form 10 “where appropriate”. This disclosure is essentially the same
type of Regulation S-K Item 503 disclosure as required for a Securities Act registration
statement, other than, obviously, information about a particular securities offering, and will have
to be written in accordance with the same “plain English” standards that apply to Securities Act
registration statements. Material changes from risks previously disclosed in Exchange Act
reports must be reflected in the Form 10-Q Quarterly Reports. However, a restatement or
repetition of risk factors in the Form 10-Q Quarterly Reports is not required and is in fact
discouraged by the Commission.
►
Disclosure of Unresolved Staff Comments
The Commission is concerned that some of the procedural changes will eliminate certain
incentives issuers currently have to respond to Staff comments on their Exchange Act reports in
a timely manner. As a result, the new Rules require accelerated filers under the SarbanesOxley rules and Well-Known Seasoned Issuers to disclose in their annual reports on Forms 10K or 20-F written Staff comments (made in connection with the Staff’s review of prior Exchange
Act reports) issued more than 180 days before the end of the fiscal year covered by the annual
report and that remain unresolved as of the date of the filing of the Form 10-K or 20-F that the
issuer believes are material. Staff comments that have been resolved, including those that the
Staff and the issuer have agreed would be addressed in future Exchange Act reports, will not
need to be disclosed. Issuers will be permitted to state their position regarding any such
unresolved comments in the annual report.
►
Disclosure of Status as Voluntary Filer Under the Exchange Act or WellKnown Seasoned Issuer
The Commission believes 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. As a result, a box is being added to 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
will be for informational purposes only and the issuer’s filing obligation will be unaffected by an
incorrectly checked box. Identification of voluntary filers also will enable the Commission to
monitor their use of the new communications rules as well as the other regulatory requirements.
In addition, Well-Known Seasoned Issuers must indicate this status in their Form 10-K or 20-F
filings.
- 48 -
VI.
Liability Issues
Purchasers of securities in a registered offering have a private right of action under Section 11
of the Securities Act for materially misleading disclosure in registration statements and under
Section 12(a)(2) of the Securities Act for materially misleading disclosure in prospectuses and
oral communications. Section 17(a)(2) of the Securities Act is a general anti-fraud provision
relating to materially misleading disclosure in connection with the offer or sale of a security.61
►
Liability for Contents of Free Writing Prospectuses
Regardless of whether a Free Writing Prospectus is filed, any person offering or selling
securities by means of the Free Writing Prospectus will be subject to liability under Section
12(a)(2) of the Securities Act and under the general anti-fraud provisions of the securities laws.
Section 11 liability applies to anything contained in a registration statement whether or not it
constitutes an offer.
However, a Free Writing Prospectus used in the Post-Filing Period that complies with new Rule
433 will be governed by Section 10(b) of the Securities Act and, therefore, will not, even if it is
required under that Rule to be filed with the Commission, be subject to Section 11 liability
unless the issuer elects to file it as part of the registration statement (which can be done directly
by post-effective amendment, in a Rule 424(b) filing or by means of inclusion in an Exchange
Act report that is incorporated by reference into the registration statement). A Free Writing
Prospectus used other than in accordance with the new Rules, however, would continue to
constitute a prospectus for purposes of Section 12(a)(2) liability and the antifraud provisions of
the federal securities laws, and its use would violate Section 5.
■
Cross Liability Issues
As discussed earlier, Free Writing Prospectuses prepared by underwriters, even if they contain
information prepared on the basis of or derived from information provided by the issuer but that
do not directly include such Issuer Information need not be filed under Rule 433 unless they are
“broadly disseminated” (which term does not encompass materials sent directly to customers of
an offering participant no matter how large the group).
For liability purposes, new Rule 159A provides that an offering participant other than the issuer
(such as the underwriters) will not be considered to offer or sell securities to a person by means
of a Free Writing Prospectus unless:
61
•
the offering participant used or referred to the Free Writing Prospectus in offering
or selling securities to that person;
•
the offering participant offered or sold the securities to that person and
participated in planning for the use of that Free Writing Prospectus by other
offering participants and such Free Writing Prospectus was used or referred to in
offering or selling securities to that person by one or more of such other offering
participants; or
Section 17(a)(2) does not provide a private right of action. Section 11 liability applies to anything contained in a
registration statement whether or not it constitutes an offer.
- 49 -
•
the offering participant is required to file the Free Writing Prospectus with the
Commission pursuant to Rule 433 (however, even though an offering participant
may have filed such Free Writing Prospectus, other offering participants will not
as a result of such filing alone be liable for the contents of that Free Writing
Prospectus).
►
Timing of Other Disclosure Liabilities
■
Commission Interpretation of Section 12(a)(2) and Section 17(a)(2) Liability – New
Rule 159
Rule 159 codifies the Commission’s view that information conveyed to an investor after the time
of sale of securities to it should not be taken into account for purposes of determining whether
the information conveyed to the investor at the time of sale by or on behalf of the seller
(including issuers, underwriters and dealers) was materially misleading under Section 12(a)(2)
or 17(a)(2) of the Securities Act. The Commission has stated that under the securities laws the
date of a “sale” (and a “contract of sale62”) of securities is the time the investor makes the
investment decision to purchase the securities. The Interpretation in Rule 159 addresses the
discrepancy between the time of the contract of sale for the securities and the later times of the
delivery to a purchaser of a final prospectus (and perhaps other information) and when a
confirmation is sent or received or a payment is made, for purposes of determining what
information has been conveyed to the purchaser in assessing liability against the seller. For
example, the Securities Act registration regime permits final prospectuses to become available
after an investor has made his decision to purchase a security (this is especially true in shelf
offerings). Therefore, the contract of sale could occur well before the delivery of a final
prospectus, and liability would be based solely on the contents of any preliminary prospectus,
Free Writing Prospectus or other information delivered or otherwise conveyed or made available
to the purchaser at the time of or prior to his investment decision. Any subsequent
modifications, corrections or additions reflected in Free Writing Prospectuses, incorporated
Exchange Act reports, prospectus supplements or the final prospectus would be ineffective for
purposes of determining the seller’s liability under Sections 12(a)(2) and 17(a)(2).63
The Interpretation is not intended to affect any of the existing liabilities that may arise under the
securities laws in respect of any other point in time. Section 12(a)(2) applies to oral
communications and prospectuses (including final prospectuses) at other times; Section
17(a)(2) similarly applies to statements at other times; and both Securities Act Section 12(a)(2)
and Section 17(a) continue to assess liability for offers as well as for sales. The interpretation
clarifies that the time an investor enters into a contract of sale and becomes committed to
purchase the securities is merely another appropriate time to apply the liability standards of
Sections 12(a)(2) and 17(a)(2).64
62
Contracts for securities purchases may be oral. Under the 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.
63
Whether or not information has been conveyed to an investor at or prior to the time of the contract of sale is a
facts and circumstances determination.
64
The Commission emphasized that it interprets Section 12(a)(2) as requiring only that the disclosures contain no
material misstatements and no material omissions that would cause them to be misleading in light of the
circumstances in which they were made, not that it include all information required in a registration statement.
- 50 -
Currently, changes from information available in a preliminary prospectus to be made in the final
prospectus are routinely scrutinized by the issuer to determine whether or not the changes may
safely be made in the final prospectus or are so material as to necessitate that an amended or
supplemented preliminary prospectus be prepared and “recirculated” to prospective investors.
However, given the immense liberalization in the types of communications that may be made to
prospective investors and investors under the Reforms, as a practical matter, this Interpretation
will likely cause offering participants to pay very close attention to tracking the varying points in
time at which investors received information and what information reached which investor at the
time the investor made his investment decision.
The Commission recognized in the Adopting Release that there may be circumstances where a
seller wishes to convey information to a purchaser after the time of a contract of sale that had
not been conveyed before that time. To accomplish this, sellers should convey additional or
changed information after the time of the contract of sale, terminate the old contract by
agreement with the purchaser, and enter into a new contract of sale based on the new
information. Any rights to damages with respect to material defects in information in respect of
the original contract of sale would cease to exist as a result of the termination and formation of a
new contract.
Because commenters on the Proposing Release expressed uncertainty regarding how this
renegotiation and new contract would be effected, the Commission added guidance on the
circumstances under which purchasers and sellers can reassess their purchase commitment
based on new or changed information and enter into a new contract of sale, consistent with the
purchaser’s rights, including under Section 12(a)(2), under the original contract and the antiwaiver provisions of the federal securities laws. In the Commission’s view, any such procedure
must be the “substantive equivalent” of the termination by mutual agreement of the prior
contract of sale and the entering into a new contract of sale. It follows from this position that
any such procedure would conflict with federal law unless:
•
the investor is provided adequate disclosure of the contractual arrangement;
•
the investor is provided with adequate disclosure of its rights under the existing
contract at the time termination is sought;
•
the investor is provided with adequate disclosure of the new information that the
seller seeks to convey; and
•
the investor is provided with a meaningful ability to elect to terminate or not
terminate the prior contract and to elect to enter into or not enter into the new
contract.
Whether the investor is given such adequate disclosure and meaningful ability will depend on
the particular facts and circumstances. An evaluation of the facts and circumstances would
include but not be limited to the following:
The manner and prominence of the disclosure of the contractual arrangements and the
investor’s rights under the old contract. Insufficient disclosure as to the provisions would
not necessarily put the purchaser on notice of the arrangement and of its rights, and thus
may be viewed as an unaccepted anticipatory waiver of the purchaser’s substantive
rights.
The process by which the new or changed material information will be conveyed to the
purchaser. As noted above, whether information is conveyed at a particular time is a
- 51 -
facts and circumstances determination. However, in the Commission’s view, in the
context of providing new information following a contract of sale, factors to consider in
determining whether the new information has been conveyed could include whether it is
identified as new or changed or is otherwise sufficiently prominent.
The method by which the purchaser is required to make or communicate its decisions.
For the contractual provisions to be consistent with the anti-waiver provisions of the
federal securities laws, the purchaser must knowingly terminate the prior contract if it
chooses to do so. Similarly, the investor must knowingly enter into the new contract if it
chooses to do so.65
The method chosen should give the purchaser a meaningful ability to make its
contractual decisions in light of the new or changed material information.
It is important to note, however, that:
■
•
any contractual provisions to the effect that the seller is deemed to have
communicated information to the purchaser would be a violation of the antiwaiver provisions of the federal securities laws; and
•
a non-conditional contract that moves the time of sale forward to a different time
would effectively act as a waiver of substantive rights under the federal securities
laws and is a violation of the anti-waiver provisions of the federal securities laws.
Relationship of Interpretation to Section 11 Liability
Under the Interpretation, information contained in a prospectus or prospectus supplement that is
filed after the time of a 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. 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 the Commission 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, would not 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. Similarly, an investor’s
rights under Section 11 would not be affected by information conveyed to the 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.
An investor could also pursue an action under Section 12(a)(2) based on the final prospectus.
■
Amendment to 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
65
While the Commission refrained from saying that the method chosen requires an affirmative communication rather
than acquiescence by silence after the lapse of a specified period of time, the concept of reaffirmation is one that
earlier Commissions and Congress have struggled with since the 1940s.
- 52 -
be incorporated by reference in that registration statement. Rule 412 has been revised to make
it consistent with Interpretive Rule 159. The revision provides 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 the contract of sale for purposes of determining the information conveyed to an investor at or
prior to that time.
►
Prospectus Supplements – Liability Dates in Shelf Offerings Changed
New Rules 430B and 430C make clear that a prospectus supplement would, in all cases, be
considered part of and included in a shelf registration statement for purposes of determining
liability under Section 11 of the Securities Act.
■
Date of Inclusion of Prospectus Supplements in Registration Statements After the
Effective Date
Under current rules there can be a mismatch in the date at which the liability of different offering
participants for Section 11 purposes is assessed. (Section 11 assesses liabilities only as of the
effective date of a registration statement.) The Commission has now specifically addressed the
dating of the information in a prospectus supplement for liability purposes.
•
Under new Rule 430B and new Rule 430C, all information in a prospectus
supplement filed other than in connection with a shelf takedown would be
deemed part of the registration statement as of the date the prospectus
supplement is first used.
•
Under new Rule 430B only, all information in a prospectus supplement filed in
connection with a shelf takedown (pursuant to Rule 424(b)(2), (b)(5) or (b)(7)) to
add information omitted from the base prospectus that relates to the issuer or the
identity of selling shareholders and the amounts to be sold by them and that
constitutes a substantive change from or in addition to the information in the base
prospectus, would be deemed part of the registration statement as of the earlier
of the date the prospectus supplement is first used or the date/time of the first
contract of sale of securities in the offering to which the prospectus supplement
relates.
(The date of first use for purposes of Rule 424 is not the date the prospectus supplement is
given to a purchaser; it is the date that the prospectus is available to the managing underwriter,
syndicate member or any prospective purchaser.)
For purposes of Section 11 liability for a shelf registration statement, the new Rules create a
new effective date for each takedown from the shelf. This is the same date a filed prospectus
supplement used in connection with the takedown is deemed part of the relevant registration
statement pursuant to new Rules 430B and 430C, as applicable (see above). However, the
new effective date would not:
•
be considered the filing of a new registration statement for purposes of Form
eligibility - the determination of an issuer’s eligibility to use Form S-3 or F-3
would, as today, be made at the time of the Section 10(a)(3) update to the
registration statement;
•
in and of itself, require the filing of additional consents of experts;
- 53 -
•
in and of itself, result in a duty to update the registration statement; or
•
modify or supersede any information contained in the registration statement for
purposes of an earlier effective date with respect to a prior takedown (thus, the
rights of an investor in a prior sale (with a previous effective date) would be
unaffected by subsequently filed information).
These provisions also would reconcile the effective date for shelf offerings with a comparable
date for non-shelf offerings and would eliminate the disparate treatment of underwriters and
issuers and others subject to liability under Section 11. Today, new effective dates of shelf
registration statements for purposes of Section 11 occur annually at the time of (a) the filing of a
post-effective amendment to reflect Section 10(a)(3) updates or to reflect fundamental changes
in the content of the registration statement or (b) the date of the last incorporated Exchange Act
report filed by the issuer and relied upon in lieu of filing a post-effective amendment to effect a
Section 10(a)(3) annual update or a fundamental change just prior to a particular sale of
securities, while takedowns can occur periodically throughout the year. There can be a
mismatch among offering participants in the time that liability is assessed; for example, in a
shelf takedown, 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 is assessed at the time when it became an
underwriter, which could be a later time than the issuer’s; thus, for example, underwriters in
takedowns occurring after the 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 prior to any Section 10(a)(3)
update while issuers would not.
The new Rules do not change the date at which disclosure is evaluated under Section 11 for
underwriters but do 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
of shelf registration statements.
However, the Commission determined that under Rule 430B (except for a new effective date
resulting from the filing of an annual update of the prospectus under Section 10(a)(3) or
reflecting fundamental changes in the content of the registration statement pursuant to the
issuer’s undertakings) the prospectus filing will not create a new effective date for directors or
signing officers of the issuer, nor will it create a new effective date or require new consents of
auditors or other experts unless a new report or opinion is included in connection with the
updated prospectus and a new consent filed.
■
Issuer as Seller – New Rule 159A
The Commission believes that there is unwarranted uncertainty as to issuer liability under
Section 12(a)(2) for issuer information in registered offerings using certain types of underwriting
arrangements. As a result, 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, new Rule 159A provides that an issuer in a primary offering of securities, regardless
of the form of the underwriting arrangement, is considered to offer or sell the securities to a
purchaser as part of the initial distribution of the securities (and not in the aftermarket), and thus
is a seller for purposes of Section 12(a)(2), if the securities are offered or sold to such person by
means of any of the following communications:
- 54 -
•
any preliminary prospectus or prospectus of the issuer relating to the offering
required to be filed pursuant to Securities Act Rule 424 or Rule 497;
•
any Free Writing Prospectus relating to the offering prepared by or on behalf of
the issuer or used or referred to by the issuer (where by or on behalf of is
deemed to exist if the issuer or its representative approves or authorizes the
information before its use; an offering participant such as an underwriter or dealer
is not a representative of the issuer solely by virtue of its acting as an offering
participant);
•
the portion of any other Free Writing Prospectus, any advertisement pursuant to
Rule 482 relating to the offering containing material information about the issuer
or its securities provided by or on behalf of the issuer; and
•
any other communication that constitutes an offer in the offering made by the
issuer.
A communication by an underwriter or dealer participating in an offering would not be by or 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 by or 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 also offers or sells a security by means
of the same prospectus or oral communication for purposes of Section 12(a)(2).
- 55 -
VII.
Asset-Backed Securities
Regulation AB addresses comprehensively the registration, disclosure, and reporting
requirements for asset-backed securities (ABS) under the Securities Act and the Exchange Act.
The communications reforms in the new Rules generally apply to ABS offerings though many
would have only limited application in such context. For example, safe harbor exclusions from
the definition of offer for purposes of the gun-jumping provisions would apply; and the RegularlyReleased Information safe harbor for Reporting Issuers could apply, depending on the facts and
circumstances, to information conveyed to investors in ABS, such as static pool information
provided with respect to pools underlying ABS, either in Exchange Act reports or other
communications.
For purposes of the new Rules, ABS issuers offering securities registered on Form S-1 would
be considered Non-Reporting Issuers. ABS issuers offering securities registered on Form S-3
would be considered Seasoned Issuers. No ABS issuer would be a Well-Known Seasoned
Issuer. Consequently, Automatic Shelf Registration would not be available to issuers of ABS.
The general content of ABS registration statements under current practice and under Regulation
AB would not change.
Following a series of staff no-action letters from the mid-1990’s, certain ABS issuers have been
permitted to use written offering-related communications outside of the statutory prospectus in
connection with offerings registered on Form S-3. Regulation AB codified the use of these
informational and computational materials for ABS issuers in accordance with existing no-action
letters; 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 the new Rules, these materials would be considered Free Writing Prospectuses and their
use would be conditioned on satisfying the conditions of Rules 164 and 433. The conditions of
Rule 433 would permit use of Free Writing Prospectuses:
•
by ABS issuers using Form S-1, if
– a registration statement containing a statutory prospectus was filed; or
– in the case of a Free Writing Prospectus 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.
•
by ABS issuers eligible to use Form S-3, if
– a registration statement containing a statutory prospectus is on file (but the
statutory prospectus need not be delivered).
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
- 56 -
part of a registration statement or previously-filed Free Writing Prospectus. In addition, as is the
case today, any final term sheet would need to be filed. A Free Writing Prospectus in an ABS
offering, like any Free Writing Prospectus, would not be automatically incorporated by reference
into the registration statement though it nevertheless would be subject to Section 12(a)(2)
liability.
FOR MORE INFORMATION about our securities capabilities, please contact one of the lawyers listed below. We also invite you to
visit our website at www.klng.com for more information on our Securities practice.
Boston
Stephen L. Palmer
617.951.9211
spalmer@klng.com
Dallas
Norman R. Miller
214.939.4906
nmiller@klng.com
Los Angeles
Katherine J. Blair
310.552.5017
kblair@klng.com
Mark A. Klein
310.552.5033
mklein@klng.com
Thomas J. Poletti
310.552.5045
tpoletti@klng.com
Miami
Clayton E. Parker
305.539.3306
cparker@klng.com
Newark
Stephen A. Timoni
973.848.4020
stimoni@klng.com
New York
Stephen R. Connoni
212.536.4040
sconnoni@klng.com
Lorraine Massaro
212.536.4043
lmassaro@klng.com
John D. Vaughan
212.536.4006
jvaughan@klng.com
Janice C. Hartman
412.355.6444
jhartman@klng.com
Michael C. McLean
412.355.6458
mmclean@klng.com
Kristen L. Stewart
412.355.8975
kstewart@klng.com
San Francisco
Peter W. Sheats
415.249.1030
psheats@klng.com
Washington
Diane E. Ambler
202.778.9886
dambler@klng.com
Alan J. Berkeley
202.778.9050
aberkeley@klng.com
Cary J. Meer
202.778.9107
cmeer@klng.com
Pittsburgh
Special thanks to Timothy Bennett and Austin Ozawa for their contributions to this White Paper.
Kirkpatrick & Lockhart Nicholson Graham LLP (K&LNG) has approximately 1,000 lawyers and represents entrepreneurs, growth and
middle market, capital markets participants, companies and leading FORTUNE 100 and FTSE 100 global corporations nationally
and internationally.
K&LNG is a combination of two limited liability partnerships, each named Kirkpatrick & Lockhart Nicholson Graham LLP, one
qualified in Delaware, U.S.A. and practicing from offices in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Palo
Alto, Pittsburgh, San Francisco and Washington, and one incorporated in England, practicing from the London office.
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should
not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
Data Protection Act 1988 - We may contact you from time to time with information on Kirkpatrick & Lockhart Nicholson Graham LLP
seminars and with our regular newsletters, which may be of interest to you. We will not provide your details to any third parties.
Please e-mail cgregory@klng.com if you would prefer not to receive this information.
© 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.
- 57 -