98-31045. The Regulation of Securities Offerings

[Federal Register Volume 63, Number 233 (Friday, December 4, 1998)]
[Proposed Rules]
[Pages 67174-67331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31045]

[[Page 67173]]

_______________________________________________________________________

Part II

Securities and Exchange Commission

_______________________________________________________________________

17 CFR Part 200, et al.

The Regulation of Securities Offerings and of Takeovers and Security
Holder Communications; Proposed Rules

Federal Register / Vol. 63, No. 233 / Friday, December 4, 1998 /
Proposed Rules

[[Page 67174]]

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 202, 210, 228, 229, 230, 232, 239, 240 and 249

[Release No. 33-7606A; 34-40632A; IC-23519A; International Series
Release No. 1167A; File No. S7-30-98]
RIN 3235-AG83

The Regulation of Securities Offerings

AGENCY: Securities and Exchange Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Commission is proposing to modernize and clarify the
regulatory structure for offerings under the Securities Act of 1933
while maintaining investor protection. The proposals cover five major
topics: Registration system reform; communications around the time of
an offering; prospectus delivery requirements; integration of private
and public offerings; and periodic reporting under the Securities
Exchange Act of 1934.
Under the proposals, larger seasoned issuers could offer securities
at any time as long as they file a registration statement before sale.
Other seasoned issuers could do the same when they make offerings to
relatively sophisticated or informed investors. The Commission staff
would not review these registration statements before effectiveness.
Those issuers and their underwriters would designate the effective
dates and have complete control over when they offer and sell in those
registered offerings. Their communications to the market and to
investors, while governed by antifraud and civil liability provisions,
would no longer be limited based on the filing or effectiveness of
their registration statements.
The proposals also would provide predictability to medium-sized
seasoned issuers that register offerings. The registration statements
they file to raise capital would become effective when they designate.
Those registration statements would not be subject to pre-effective
review by the Commission staff. Seasoned companies of any size would
benefit from the proposals as well. We would allow them to incorporate
Exchange Act disclosure in registration statements earlier than the
current rules permit. To provide greater certainty to small and medium-
sized issuers planning a registered offering, we also are proposing new
communication rules. One rule would provide that communications made by
or for such an issuer more than 30 days before the registration
statement is filed would not be treated as offers. Other proposed rules
would guide those issuers as to the types of communications that we
permit within that 30-day period.
Our proposals also would give issuers of all sizes and their
underwriters greater freedom to communicate with investors in writing
during the offering process. The proposed exemptive rules would allow
use of any document (not just the traditional prospectus) at any time
during an offering by a larger seasoned issuer or an offering to
sophisticated or informed investors by a smaller seasoned issuer. Those
``free writing'' communications would be subject to antifraud and civil
liability provisions. In all other offerings, the proposed exemptions
would allow an issuer and underwriter the same flexibility after the
issuer has filed a registration statement. The free writing proposals
would allow use of documents tailored specifically for the investors
reading them. Other proposed revisions would increase investor access
to analyst research reports. We would allow their distribution around
the time of an offering in more cases than permitted today.
The proposals affecting prospectus delivery in registered offerings
would re-focus those requirements for the benefit of investors.
Delivery of a prospectus or a term sheet would be required before
investors make their investment decisions rather than at the time a
sale is confirmed.
The proposals addressing the integration of offerings would provide
flexibility for issuers that have difficulty assessing the extent of
market interest in a planned offering. Those revisions would enable an
issuer to change an unregistered private offering into a registered
public offering, or vice versa, after it commences the offering. Small
companies that begin a registered public offering would still have the
option to make an unregistered, exempt offering to qualified buyers
even though they broadly solicited potential investors.
Finally, we are proposing various revisions to expedite and expand
some of the disclosure required in periodic reports filed under the
Exchange Act. Investors would have more timely access to company
disclosure.

DATES: You should send us your comments so that they arrive at the
Commission by April 5, 1999.

ADDRESSES: You should send 3 copies of your comments to Jonathan G.
Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth
Street, N.W., Stop 6-9, Washington, D.C., 20549. You also may submit
your comments electronically to the following electronic mail address:
rule-comments@sec.gov. All comment letters should refer to File No. S7-
30-98; this file number should be included in the subject line if you
use electronic mail. Comment letters will be available for public
inspection and copying at the Commission's Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549. We will post electronically
submitted comment letters on the Commission's Internet Web site (http:/
/www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Anita Klein at (202) 942-2980, Julie
Hoffman, Joseph Babits, Patricia Miller or Rani Doyle at (202) 942-
2900, or, with respect to small business issuer aspects, John Reynolds
at (202) 942-2950, Division of Corporation Finance, U.S. Securities and
Exchange Commission, Washington, D.C. 20549.¹
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\1\ The Commission also wishes to recognize the contributions to
this release of Jennifer Bethel.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary
A. Registration System Reforms
1. Contents of Prospectuses
2. Timing of Registration
3. Underwriter Guidance
4. Small Business Issuers
B. Easing Restrictions on Communications
1. Issuer Communications
2. Safe Harbors for Research Reports
C. Prospectus Delivery Reforms
D. Public and Private Offering Flexibility
E. Periodic Reporting
II. History of Registration Under the Securities Act
A. Evolution of the Registration System
B. Review of the Capital Formation Process
III. Recent Reform Initiatives
A. Task Force Report
B. The Advisory Committee on Capital Formation
C. The Commission's Concept Release
D. The National Securities Markets Improvement Act
IV. Scope of the Proposals
V. Proposals Altering the Securities Act Registration Process
A. Form B Offerings
1. How Form B Works
a. Registration Statement Contents
i. Company Disclosure
ii. Transactional Disclosure
b. Free Writing Materials
c. Time of Filing
d. Becoming Effective
e. Delayed Shelf Offerings and Form B
2. Offerings Eligible for Registration on Form B
a. Offerings by Larger Seasoned Issuers
b. Offerings to QIBs
i. Advantages of Registered Offerings
ii. Limitations on QIB Purchases
iii. QIB Definition
iv. Other Reporting and Non-Reporting Issuers

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c. Offerings to Certain Existing Security Holders
i. Dividend or Interest Reinvestment Plans
ii. Offerings to Existing Common Stock Holders
iii. Convertible Securities, Transferable Warrants and Rights
Offerings
iv. Exercise of Outstanding Transferable Options
d. Non-convertible Investment Grade Securities
e. Market Making Transactions by Affiliated Broker-Dealers
f. Small Business Issuers
g. Form B Disqualifications
h. Secondary Offerings
B. Form A Offerings
1. Structure of Form A
a. Part I--Information Required in the Prospectus
i. Cover Pages
ii. Transactional Information
iii. Company Information
(A) ``Seasoned'' Form A Issuers
(B) ``Unseasoned'' Issuers
b. Part II--Information Not in the Prospectus
2. Timing of Form A Offerings
a. Seasoned Issuers
b. Unseasoned Issuers
3. Solicitation of Comments on Definition of Form A Seasoned
Issuer
4. Disqualification for Seasoned Form A Companies
5. Real Estate Companies
C. Applicability of Civil Liability Provisions to Offerings
Registered on Proposed Forms A and B
1. Form A Offerings
2. Form B Offerings
a. Section 11
b. Section 12(a)(2)
c. Section 17(a) and Exchange Act Section 10(b)
D. Form C Offerings
1. Use of Form C
2. Relationship with Exchange Act Rules
3. Timing of Form C
4. Structure of Form C
a. Part I--Information Required in the Prospectus
i. Information About the Transaction
ii. Information About the Registrant
(A) Form B Eligible Registrants
(B) Seasoned Form A Registrants
(C) All Other Registrants
iii. Information About the Company Being Acquired
iv. Voting and Management Information
b. Part II--Information Not Required in the Prospectus
5. General Instruction G. of Form S-4
6. Small Business--Business Combinations
E. Small Business Issuers
1. Small Business Issuers' System
2. Re-defining ``Small Business Issuer''
3. Proposed Changes to Form SB-2
a. Conditions for Using Incorporation by Reference
b. How to Incorporate by Reference
c. Delivery of Exchange Act Reports
d. Other Changes to the Forms
4. Form SB-3
a. Use and Timing of Form SB-3
b. Structure of Form SB-3
i. Part I--Information Required in the Prospectus
(A) Information About the Transaction
(B) Information About the Registrant
(1) Transitional Small Business Issuers
(2) Seasoned Small Business Issuers
(3) All Other Small Business Issuers
(C) Information About the Company Being Acquired
(D) Voting and Management Information
ii. Part II--Information Not Required in the Prospectus
c. Request for Comments
5. Small Business Issuers that Become Reporting Companies
6. Small Business Issuer Registration Fees
F. MJDS Issuers
G. Foreign Government Issuers
H. Exxon Capital Transactions
I. The Offset of Filing Fees and Other Technical Changes to the
Calculation of Filing Fees
J. Solicitation of Comments Regarding Offerings Asset-Backed
Securities Offerings
VI. Concurrent Exchange Act Registration
VII. Communications During the Offering Process
A. Issuer Communications Relating to a Registered Offering
1. The Pre-Filing Period
a. Form B Registrants
b. Foreign Governments
c. All Other Registrants
i. Bright Line Communications Safe Harbor
ii. Communications Safe Harbor
(A) Factual Business Communications
(B) Regularly Released Forward-Looking Information
(C) Notice of Proposed Offerings
2. Communications During the Waiting Period
B. Filing Under EDGAR
C. Technology Implications of the Communications Proposals
D. Research Reports
1. Proposals in Connection With Registered Offerings
a. Rule 137
b. Rule 138
c. Rule 139
i. Form B and Schedule B Offerings
ii. All Other Offerings
iii. Focused Reports
iv. Consideration to Expand Rule 139 to IPOs and Offerings by
Unseasoned Issuers
v. Industry-Related Reports
vi. Section 17(b)
2. Proposals and Interpretation in Connection With Regulation S
and Rule 144A Offerings
3. Research and Proxy Solicitation
VIII. Prospectus Delivery
A. Congressional History
B. Commission History
C. Prospectus Delivery Proposals
1. Adequacy of Current Rules
2. Prospectus Delivery and Developments in Communications
3. Final Prospectus Delivery Exemption
a. Conditions to the Exemption
b. Business Combination and Exchange Offers
c. Rule 434 Final Prospectus Delivery Method
4. Delivery of Preliminary Prospectus Information
a. Form B Offerings
b. Offerings by Small or Unseasoned Issuers
c. Foreign Government Issuers
d. Canadian MJDS Issuers
e. Effectiveness and Prospectus Delivery
f. Secondary Offerings
5. Aftermarket Prospectus Delivery
a. Background of Aftermarket Prospectus Delivery
b. Aftermarket Underwriter Activities
c. Recent Case Law Relating to Aftermarket Delivery Obligations
d. Aftermarket Prospectus Delivery Proposals
6. Proposed Repeal of Rule 153
7. Record Keeping of Prospectus Delivery
IX. The Role of Underwriters
A. Legislative Shaping of the Underwriters' Role
B. Case Law Interpretation of the Underwriter's Role
C. Commission Interpretation of the Underwriters' Role
D. Proposed Guidance on Underwriter Due Diligence
1. Proposed Practices Reflect Current Practice
2. The Role of Analysts
3. Other Due Diligence Practices
a. Disclosure Review by an Issuer's Independent Accountants
b. Disclosure Review by an Independent Qualified Professional
E. Interpretation of the Guidance
F. Investment Grade Debt Offerings
G. Requests for Comment on the Proposed Guidance
H. Liability Safe Harbor
X. Integration of Registered and Unregistered Offerings
A. The Integration Doctrine
B. Rule 152
C. Proposed Safe Harbors for Completed and Abandoned Offerings;
Related Rule Proposals
1. Completed Offerings
a. Issuer Transactions
b. Resale Transactions
c. Lock-up Agreements
2. Abandoned Offerings
a. Private to Public
b. Public to Private
3. Definition of Private Offering
D. Proposed Changes to Rule 477
XI. Proposals Relating to Exchange Act Disclosure
A. Annual and Quarterly Reports
1. Risk Factor Disclosure
2. Due Dates for Annual Reports of Foreign Private Issuers
3. Treating Quarterly Information as ``Filed''
4. Request for Comment on Management Report to Audit Committee
B. Interim Reports on Form 8-K
1. Timely Disclosure of Annual and Quarterly Results of Domestic
Companies
a. Form 8-K Requirement for Item 301 Information
b. Solicitation of Comment on Whether Accelerate Due Dates
2. Other Reporting Events
a. Material Modifications to the Rights of Security Holders

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b. Departure of the CEO, CFO, COO or President
c. Material Defaults on Senior Securities
d. Reliance on Prior Audit
e. Name Changes
f. Due Dates for Reporting Events
C. Signatures
1. Exchange Act Reports and Registration Statements
2. Securities Act Filings
D. Form 6-K Submissions
E. Solicitation of Comment Regarding Plain English in Exchange
Act Reports
XII. Staff Review Policy
A. Notification of Selection for Review
B. Voluntary Pre-Review of Filings
XIII. Request for Comments About Investment Company
Issuers and Market Value Adjustment Contracts
A. Investment Company Issuers
B. Market Value Adjustment Contracts
XIV. Cost-Benefit Analysis
A. Impact on Investors
B. Impact on Issuers
C. Impact on Other Parties
XV. Initial Regulatory Flexibility Analysis
A. Reasons and Objectives for Proposed Action
B. Objectives and Legal Basis
C. Small Entities Subject to the Rules
D. Reporting, Recordkeeping and Other Compliance Requests
E. Significant Alternatives
F. Overlapping or Conflicting Federal Rules
XVI. Paperwork Reduction Act
XVII. General Request for Comments
XVIII. Statutory Basis

I. Executive Summary

Through the Securities Act registration system, issuers and
underwriters reach out to the public and sell securities. The
registration system provides investors with the dual benefits of: full
and fair disclosure (or effective remedies if there is faulty
disclosure), and freely tradeable securities. Registration also
benefits the markets at large by providing everyone with access to the
most up-to-date information about the company making the offering. This
disclosure is significant both to the market, for accuracy in pricing,
and to the individual investor, for determining the suitability of the
investment. Today's proposals are based on a recognition that investors
will receive these benefits of registration only if the Commission
continues to make the registration system flexible enough to be a
viable alternative in the capital markets of today and the future.

A. Registration System Reforms

Our reforms to the registration system are designed to make
registration more attractive to issuers without compromising investor
protection. We believe that registration benefits all participants:
issuers, by lowering their cost of capital; investors, by enhancing
disclosure and providing remedies; and the marketplace, by increasing
depth and liquidity.
In 1990, the Commission adopted Rule 144A which permits
unregistered sales to and by qualified institutional buyers
(``QIBs'').² Since then, this institutional market, which
exists virtually side-by-side with the public market, has expanded
significantly. Recent data illustrates the size of this parallel
market: in 1997, Rule 144A offerings comprised 17% of all offerings on
a dollar basis, including 21% of all equity and 16% of all
debt.³ In some types of securities, the Rule 144A market has
become predominant. In 1997, 76% of the high-yield debt, 72% of the
convertible investment grade debt, and 10% of the non-convertible
investment grade debt were issued for the Rule 144A market.⁴
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\2\ ``Qualified institutional buyers'' is defined in Securities
Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1). Even though some
proportion of the Rule 144A securities are eventually registered,
the investor benefits of registration are not maximized. It is not
uncommon for securities sold in Rule 144A transactions to end up in
the public market because they are registered for resale or
exchanged for registered securities in ``Exxon Capital''
transactions (named after the Commission staff interpretive letter
sanctioning the practice).
\3\ Securities Data Corp's New Issues Database. Virtually all of
that market share has moved to the Rule 144A market in the last 5
years. Rule 144A is not available for securities listed on a
national securities exchange or quoted on a U.S. automated inter-
dealer quotation system.
\4\ Non-convertible investment grade debt is eligible for short-
form registration under our current system, whereas the other two
categories are not.
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Our proposed reforms seek to apply the issuer advantages of
offering securities in the private and Rule 144A markets--timing and
disclosure flexibility--to the public market. We believe that, as a
result, more offerings will be registered.
We propose to create a three-tiered registration system for
offerings consisting of: Form A, Form B and Form C. Form A offerings
generally would be those made by smaller or unseasoned companies. Form
B offerings would be those made by larger, seasoned, well-followed
issuers and those made to relatively informed or sophisticated
investors. Form C offerings would relate to business combinations or
exchange offers. Today the Commission also is publishing a companion
release regarding the regulation of takeovers, including tender offers,
mergers and other extraordinary transactions. You should read that
release for a detailed discussion of the regulation of business
combinations and exchange offers registered on Form C.⁵
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\5\ Exchange Act Release No. 40633 (Nov. 3, 1998).
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1. Contents of Prospectuses
Current requirements strictly mandate the content of an offering
prospectus. Because we believe that larger seasoned issuers attract a
large market following and operate in an efficient market, we are
considering providing them with a larger measure of flexibility to
craft disclosure about their offerings. We are asking for comment on
two alternative proposals for Form B offerings. The first, while
requiring all material transactional disclosure, would limit the
itemized requirements for such disclosure. The second would continue to
require all itemized transactional disclosure. Under both proposals, we
would continue to mandate that issuers incorporate by reference the
current itemized company information in their periodic reports. Thus,
we would maintain the same standards for information about the company
while we seek comment on the level of freedom to allow the issuer and
the underwriter when crafting information about the offering itself.
Where the issuer or its representative uses disclosure to promote
sales in the offering, it would have to file that disclosure, which
would be subject to civil liability provisions prohibiting material
misstatements and omissions. This ``inclusive prospectus'' approach
would reflect the reality that investment decisions in these offerings
would be based on more than the information contained in a single
disclosure document.
By shifting some itemized disclosure requirements to materiality-
based requirements, as one of our proposals would permit, we seek to
discourage drafters from just routinely providing the boilerplate
transactional disclosure that some have suggested the standardized
disclosure items have evoked. This alternative would re-focus drafters
on analyzing and including the information particular to that deal that
is material to investors. More focused disclosure could result.
On the other hand, under our alternative proposal, all current
transactional disclosure requirements specified in Regulation S-K that
are in Form S-3 and/or Form F-3 would continue to apply. This
alternative would provide investors with more certain core
transactional information.
Under either proposal, issuers and third party participants such as
underwriters and auditors would continue to ensure the quality of
disclosure due to both market pressures and their legal responsibility
to do so. We believe that analysts and the financial press, among
others, also will

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test the accuracy of disclosure by larger, seasoned
issuers.⁶ By allowing issuers some more freedom to craft
their transactional disclosure and communicate with investors in Form B
offerings for which there is evidence of an efficient market, we also
hope to reduce selective disclosure by allowing access to more
information.
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\6\ We recognize that analysts, especially so-called ``sell-
side'' analysts, have inherent conflicts of interest. There is a
risk that impartiality may be compromised when their firms seek to
participate in the issuers' distributions. We believe, nevertheless,
that analysts in general, and the expanding ``buy side'' analysts in
particular, are in a unique position to gather and analyze
information about issuers. They represent an undeniably significant
method of corporate disclosure and dissemination.
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We are considering the same alternative approaches to disclosure in
offerings limited to sophisticated investors and in offerings to
investors with a pre-established relationship with the issuer.
Historically, we have given issuers more flexibility in these types of
offerings on the theory that these purchasers are able to fend for
themselves.
For smaller issuers or unseasoned issuers of any size, we believe
that the current strict itemization of transactional information in the
prospectus remains important to the dissemination of adequate offering
information. Some of those issuers would have little experience with
crafting offering disclosure and the same market scrutiny is not
present. We would therefore maintain all current itemized offering
disclosure requirements in Form A. We would, however, allow more
freedom for seasoned smaller issuers to rely on their periodic reports
for disclosure about their companies in an offering. In the case of
business combinations and exchange offers on Form C, we would maintain
the itemized requirements for transactional disclosure.
2. Timing of Registration
Under the revised registration system, issuers would have complete
flexibility in timing the registration of Form B offerings. By
operation of rule, those registration statements would become effective
at the issuer's discretion, either immediately upon filing or at
whatever later date and time the issuer chooses. The staff would not
review these registration statements before the offering or take action
to make the registration statement effective. Form B registration
statements would be screened by the Commission staff shortly after
receipt by the Commission to determine whether the offering was
eligible for registration on Form B and whether the disclosure raises
any ``red flags'' concerning the antifraud provisions of the federal
securities laws. Therefore, the only timing constraint for Form B
offerings would be the statutory requirement that the registration
statement must be effective before the first sale. We are not proposing
to exempt issuers from that requirement because, among other reasons,
filing of a final prospectus would ensure prompt disclosure to the
market about the offering.
We would continue to require that issuers registering offerings on
Form A file a registration statement before making their first offer.
The Commission staff would continue to review all initial public
offerings and selectively review repeat offerings by smaller,
unseasoned issuers. We would, however, allow seasoned medium-sized
issuers to control the timing of registration in their Form A
offerings. We also would allow certain other Form A issuers that
incorporate recent Exchange Act reports that have been fully reviewed
by the Commission staff to control the timing of their offerings. Those
filings, like Form B offerings, would be screened (but not reviewed) by
the staff shortly after receipt.
We believe that this increased flexibility in the timing of
registration will encourage issuers to register more offerings and thus
extend the investor protection benefits of registration to more
purchasers. Further, although offerings by these issuers that we would
not review under the proposed system are currently subject to staff
review, these reforms essentially mirror current practice with respect
to review of what would be Form B-type filings and recently examined
Form A-type filings.
3. Underwriter Guidance
In connection with the proposed registration system, we would add a
new provision to the Securities Act rule concerning due diligence. That
rule currently lists circumstances to consider in deciding whether a
person has met the ``reasonable investigation'' and ``reasonable ground
for belief'' standards that apply in defending against liability under
Section 11 of the Securities Act. The new provision would cover only
certain Form B offerings completed on an expedited basis and would
expand upon the existing guidance in the rule to reflect current
practices.
4. Small Business Issuers
For purposes of registration and reporting, we are proposing to
revise the definition of ``small business issuer'' to increase the
number of companies qualifying as small business issuers. We would
raise the annual revenues ceiling from $25 to $50 million and remove
the public float limitation. We propose to update the definition to
reflect significant economic and market changes that have occurred in
the six years since we adopted the definition. Also, our successful
experience with the small business disclosure system indicates that we
could classify companies with higher revenues as small business issuers
while at the same time maintaining investor protection. To provide
small businesses with greater flexibility in raising capital, we also
propose to delay the time at which they must pay registration fees,
allow earlier incorporation by reference of their Exchange Act reports
and allow increases in the size of their offerings in an expedited
fashion.

B. Easing Restrictions on Communications

Our proposals would loosen the strict controls that exist today on
communications to investors and the market around the time of an
offering. Our intent in proposing the communications reforms is to
ensure that investors and the market have greater access to more timely
information, which we believe is the foundation of investor protection.
We are not proposing any diminution in the remedies that would be
available to investors in the event of defective disclosure made by or
on behalf of an issuer around the time of an offering.
1. Issuer Communications
The extent to which we would ease communications by the issuer or
deal participants depends on the type of offering. For Form B
offerings, we would allow oral and written communications in any format
at any time regardless of whether the offering is imminent or ongoing.
Of course, the antifraud provisions and civil liability provisions of
the securities laws would apply to those communications and provide the
necessary investor protections.
In Form A offerings on the whole, we have less reason to assume
that plentiful, thoroughly scrutinized issuer information is available.
A barrage of sales-related communications could affect prospective
investors, especially if those communications are the only ones
publicly available. The greatest need for investor protection in that
case would occur before the investor has access to reliable, balanced
prospectus disclosure. Thus, for these offerings, we propose to
maintain the prohibition on offers prior to filing a registration
statement. Once the issuer's prospectus is on file with

[[Page 67178]]

the Commission, however, our proposals would lift existing restrictions
on written communications for Form A offerings because an investor
would be able to test the sales materials against the registration
statement. Moreover, our proposals on prospectus delivery would ensure
timely delivery, not just access, to this more balanced information.
For the period before filing the registration statement, we propose
to create greater certainty about the timing and scope of remaining
restrictions on communications. We are aware that the restrictions on
communications before a filing have been criticized as unclear. This is
especially true due to the recent increased use of the Internet.
Consequently, we are proposing a bright-line rule that would define the
30 days immediately before filing the registration statement as the
period during which communications would be limited due to the upcoming
offering. In addition, our proposed rules provide that, even during
that 30-day limited communications period, issuers could disclose
factual business information and regularly released forward-looking
information. Our proposals also would permit issuers to announce
limited offering information during the 30-day period without
indicating whether the offering will be registered or exempt.
2. Safe Harbors for Research Reports
For Form B offerings and many Schedule B offerings by foreign
governments, the proposals would allow analysts to publish research
reports without any interruption due to the registered offering. For
other offerings, we propose expanded safe harbors to make it easier for
analysts to report about foreign government issuers and smaller,
unseasoned companies. We also are proposing to expand those safe
harbors to address the distribution of research reports in connection
with Regulation S and Rule 144A offerings.

C. Prospectus Delivery Reforms

To provide investors with the maximum benefit from prospectus
disclosure, the proposals re-focus prospectus delivery requirements on
when the prospectus is needed most: before investors make an investment
decision. Where we would require that offering participants deliver
prospectus information earlier, we would allow them to decide whether
or not to deliver a final prospectus. Where they do not deliver a final
prospectus, we would require that they tell investors where they can
obtain it free of charge.
In Form B offerings, we would not require that offering
participants deliver a full prospectus. We would, however, require
earlier delivery of a ``securities term sheet'' outlining the key
features of the securities. Delivery of that securities term sheet
would precede the investment decision--when the investor gives its oral
or written commitment to purchase. We also are considering, as an
alternative for Form B offerings, requiring delivery of a prospectus
containing all mandated transactional information listed in Subpart 500
of Regulation S-K that would be contained in a short-form registration
statement today.
In Form A offerings by unseasoned issuers (issuers that have
registered their initial public offerings within the past year),
underwriters and dealers participating in the offering would have to
deliver a preliminary prospectus at least 7 days before the date of
pricing. In all other Form A offerings, issuers, underwriters and
participating dealers would have to deliver a preliminary prospectus at
least 3 days before the date of pricing. These requirements would
ensure that investors that are offered securities of smaller,
unseasoned issuers have more time in which to assess the disclosure.
Issuers and other participants in Form A offerings also would have to
inform investors no later than 24 hours before pricing about any
material change that has occurred since they delivered prospectuses.

D. Public and Private Offering Flexibility

Today's capital markets can change quickly. Companies, especially
small businesses, may find that the desirability of making a public
offering versus a private offering can change just as quickly. Current
rules prevent most companies from changing their minds in a timely
fashion once they have started an offering one way. Our proposals would
remove most of those impediments. Under the proposed safe harbor, if an
issuer started to register a public offering but then decided to
abandon it, the issuer could withdraw the registration statement and
either wait 30 days to sell privately or sell privately sooner and
accept a higher liability standard for written disclosure provided to
purchasers.
Similarly, if an issuer started a private offering but then decided
to abandon it, the issuer could file a registration statement for a
public offering immediately unless it had offered the securities to
persons that would not have been eligible to buy in a private offering
under Securities Act Section 4(2). In that event, the issuer would have
to wait for 30 days after abandoning the private offering to file its
registration statement.
This safe harbor would be particularly useful to small issuers. It
would allow a small private company to ``test the waters'' for a public
offering of its securities through this mechanism. Doing so would not
prevent the small issuer from selling privately if it finds too few
investors to make it worthwhile to become a public company. Similarly,
small issuers that find more investor interest than expected could
change from a private offering to a registered public offering.

E. Periodic Reporting

We are proposing several changes to Exchange Act disclosure
requirements, some of which the Advisory Committee on Capital Formation
and Regulatory Processes recommended. These changes would require
issuers to report annual and quarterly financial results sooner, to
make and update risk factors disclosure in their Exchange Act reports,
to accelerate the due dates for some Form 8-K reports and to expand the
events about which Form 8-K requires a report. The changes also would
require persons signing Exchange Act filings to indicate that they have
reviewed the disclosure and, to their knowledge, the registration
statement or report does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading. These Exchange Act disclosure reforms would
provide key investor protections in a further streamlined registration
process. Additionally, if the proposed registration system is adopted,
the Commission envisions shifting staff resources to the review of
Exchange Act filings.

II. History of Registration Under the Securities Act

The Securities Act and the regulations thereunder have long
provided the foundation for a capital-raising system of unparalleled
integrity, fairness, and liquidity. The regulatory scheme seeks to
ensure that investors receive full and fair disclosure with respect to
securities offerings by issuers and their affiliates.
The Securities Act was adopted in response to the activities
culminating in the 1929 market crash.⁷ President

[[Page 67179]]

Franklin D. Roosevelt articulated the underlying philosophy of
regulating securities offerings which continues today:

\7\ The Securities Act was the first of six securities statutes
to be enacted during the 1933-1940 period. The other five acts
include: the Securities Exchange Act of 1934, Pub. L. No. 73-291, 48
Stat. 881 (1934) (codified as amended at 15 U.S.C. Secs. 78a-78kk
(1994, Supplemented 1996)); the Public Utilities Holding Company Act
of 1935, Pub. L. No. 74-333, 49 Stat. 803 (1935) (codified as
amended at 15 U.S.C. Secs. 79-79z-6 (1994, Supplemented 1996)); the
Trust Indenture Act of 1939, Pub. L. No. 76-253, 53 Stat. 1149
(1939) (codified as amended at 15 U.S.C. Secs. 77aaa-77bbbb (1994,
Supplemented 1996)); the Investment Company Act of 1940, Pub. L. No.
76-768, 54 Stat. 789 (1940) (codified as amended at 15 U.S.C.
Secs. 80a-1-80a-64 (1994, Supplemented 1996)); and the Investment
Advisors Act of 1940, Pub. L. No. 76-768, 54 Stat. 847 (1940)
(codified as amended at 15 U.S.C. Secs. 80b-1-80b-21 (1994,
Supplemented 1996)).
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[t]here is * * * an obligation upon us to insist that every
issue of new securities to be sold in interstate commerce shall be
accompanied by full publicity and information, and that no
essentially important element attending the issue shall be concealed
from the buying public.⁸

\8\ H.R. Rep. No. 85, 73d Cong. 1st Sess., at 1-2 (1933).
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Congress has made relatively few broad-reaching amendments to the
Securities Act since its inception. In administering the statute, we
strive to be responsive to changing markets and capital-raising
practices. Over the years, the Commission has interpreted the statute
through rules and regulations to give continuing life to the original
statute.

A. Evolution of the Registration System

Modern efforts at reforming registration stem in part from a
commentary on Securities Act regulation published in 1966. In his
article, ``Truth in Securities,'' Milton H. Cohen theorized that the:

Combined disclosure requirements of these statutes would have
been quite different if the 1933 and 1934 Acts * * * had been
enacted in opposite order, or had been enacted as a single,
integrated statute* * *.⁹
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\9\ Cohen, ``Truth in Securities'' Revisited, 79 Harv. L. Rev.
1340, 1341 (1966).

Cohen argued for a coordinated disclosure system having as its basis
the continuous disclosure system of the Exchange Act with the
Securities Act disclosure requirements built upon it.\10\ The
Commission soon thereafter instituted a study, chaired by Commissioner
Francis M. Wheat, to examine disclosure to investors.¹¹ The
Wheat Report, published in 1969, recommended expanded periodic
disclosure under the Exchange Act and the coordination of the
disclosure requirements of the Securities Act and the Exchange
Act.¹²
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\10\ Id. at 1342.
\11\ Disclosure to Investors--A Reappraisal of Administrative
Policies Under the 1933 and 1934 Acts, Report and Recommendations to
the SEC from the Disclosure Policy Study (Mar. 27, 1969)
[hereinafter ``Wheat Report''].
\12\ The securities bar also acted upon the ideas in Cohen's
article. The American Law Institute commissioned several industry
experts, led by Professor Louis Loss, to combine all six federal
statutes into one comprehensive code, American Law Institute,
Federal Securities Code (1980) (the ``ALI Code''). See also Loss,
The American Law Institute's Federal Securities Code Project, 25
Bus. Law. 27 (1969). Upon its completion ten years later in 1980,
the Commission and many in the securities industry expressed support
for the ALI Code. See Securities Act Release Nos. 6242 (Sept. 18,
1980) [20 S.E.C. 1483 (1980)] and 6377 (Jan. 21, 1982) [24 S.E.C.
Docket 788 (1961)] (releases stating and reaffirming support for the
ALI Code). See also Coffee, Re-Engineering Corporate Disclosure: The
Coming Debate Over Company Registration, 52 Wash. & Lee L. Rev.
1143, 1145 (1995). The ALI Code was in turn presented to Congress.
Congress, however, took no action with respect to the ALI Code.
---------------------------------------------------------------------------

The Commission followed up on the Wheat Report by adopting a short-
form Securities Act registration statement. That registration statement
permitted incorporation by reference of Exchange Act reports by larger
issuers and in specified types of offerings.¹³ This approach
allowed companies to avoid reiterating in their registration statements
the company disclosure contained in annual and other periodic reports.
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\13\ Securities Act Release No. 5117 (Dec. 23, 1970) [36 FR
777].
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In 1977, the Commission adopted Regulation S-K, which began the
effort to establish a single set of disclosure requirements for issuers
under both the Securities Act and the Exchange Act.¹⁴ That
effort was substantially completed with the adoption of the
``Integrated Disclosure System'' in 1982.¹⁵ The Commission's
integrated disclosure system eliminated overlapping and unnecessary
disclosure required by the Securities Act and the Exchange Act.
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\14\ Securities Act Release No. 5893 (Dec. 23, 1977) [42 FR
65554]. As originally adopted, Regulation S-K contained only two
items: ``Description of Business'' and ``Description of Property.''
\15\ Securities Act Release No. 6383 (Mar. 3, 1982) [47 FR
11380]. In that release, the Commission stated that ``in reliance on
the efficient market theory'' Form S-3 would allow for maximum use
of incorporation by reference [47 FR at 11382].
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The Commission also adopted the modern-day ``shelf registration''
system in connection with the integrated disclosure
system.¹⁶ That permits registration of securities offerings
that are conducted on a delayed basis sometime after the effective
date.¹⁷ In 1992, the Commission extended short-form and
shelf registration to smaller issuers and new offerings, including
asset-backed securities offerings.¹⁸ The Commission also
permitted registration of shelf offerings without requiring that the
amount of securities be allocated upon registration to specific classes
of the issuer's securities. This approach permitted issuers to decide
as late as the point of sale which of its securities to use.
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\16\ Temporary Rule 415 was adopted in March of 1982. Securities
Act Release No. 6383 (Mar. 3, 1982). In November of 1983, the
Commission announced the adoption of a revised shelf registration
rule. Securities Act Release No. 6499 (Nov. 17, 1983) [48 FR 52889].
\17\ See Securities Act Release No. 6499 (Nov. 17, 1983) and
Securities Act Rule 415, 17 CFR 230.415. Short-form registration is
used for delayed shelf offerings.
\18\ Securities Act Release No. 6964 (Oct. 22, 1992) [57 FR
32461].
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Another significant change in the registration system occurred with
the Commission's adoption in 1990 of Rule 144A.¹⁹ Rule 144A
provides a safe harbor from registration for resales of restricted
securities to QIBs. By creating certainty about when registration is
not required in these transactions, the Commission enhanced the
attractiveness of alternatives to registration of
securities.²⁰
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\19\ Securities Act Release No. 6862 (Apr. 23, 1990) [55 FR
17933].
\20\ According to Securities Data Co., the deal value of Rule
144A private placements in 1997 was $254.4 billion, approximately
$83 billion of which was raised by foreign issuers. Tibbitts,
Private Placement Volume Explodes as Structured Deals Rule 144A
Market, Investment Dealers' Digest, Feb. 2, 1998. The amount of non-
convertible bonds issued in the Rule 144A market in the first
quarter of 1998 ($30 billion) is almost equal to the entire amount
(equity, preferred and debt) placed in the Rule 144A market from its
inception in 1990 to the end of 1992 ($31 billion).
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B. Review of the Capital Formation Process

Both within and outside the Commission, debate periodically has
centered on the Securities Act and the best way to regulate the
securities offering process. Over the years, industry participants,
academics and Commission members have voiced opinions that there are
strains in the regulatory framework and have called for changes. Their
proposed solutions have ranged from minor rule changes to the abolition
of the Commission.
There also has been recent discussion about the extent to which the
regulatory system requires an overhaul in the face of the ever-changing
market and offering practices.²¹ Factors identified as
causing strain in the current regulatory regime include:
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\21\ Compare Merrill Lynch comment letter (Oct. 31, 1996)
(``[W]e believe that what the registration process needs today is a
tune up, not an overhaul.'') with American Bar Ass'n comment letter
(Dec. 11, 1996) (``[T]he time has come to recognize that the current
jury-rigged system requires fundamental reforms.''). These letters
are available for inspection and copying in the Commission's public
reference room. Refer to File No. S7-19-96.
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1. Technological developments in the field of electronic
communications; ²²
---------------------------------------------------------------------------

\22\ See, e.g., Report to the Congress: The Impact of Recent
Technological Advances on the Securities Markets, (Sept. 1997). That
Report, like all Commission reports issued after 1996, is available
on the Commission's Internet web site (http://www.sec.gov).

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[[Page 67180]]

2. The gradual erosion of traditional distinctions between public
and private offerings; ²³
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\23\ See, e.g., Keller, Securities Act Concepts: The Private/
Public Offering Dichotomy and Proposals for Reform, Mass. Continuing
Legal Educ., 15 Ann. Bus. & Sec. L. Conf. (Oct. 31, 1997).
---------------------------------------------------------------------------

3. Novel financing instruments, methods of capital-raising and risk
management initiatives; ²⁴ and
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\24\ Seligman, The Obsolescence of Wall Street: A Contextual
Approach to the Evolving Structure of Federal Securities Regulation
93 Mich. L. Rev. 649, 666-72 (1995). See also Securities Act Release
No. 7386 (Jan. 31, 1997) [62 FR 6044].
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4. Regulatory initiatives that reduce other market risks, such as
the T+3 clearance and settlement system.²⁵
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\25\ See, e.g., Securities Act Release No. 7168 (May 11, 1995)
[60 FR 26604].
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III. Recent Reform Initiatives

The Commission has been cognizant of the call for change in the
regulatory framework governing the capital formation process. For the
last several years, the Commission has been actively reevaluating the
current registration system. Recent Commission steps in that process
have included: the March 1996 Report of the Task Force on Disclosure
Simplification (the ``Task Force''); the July 1996 Report of the
Commission-impaneled Advisory Committee on the Capital Formation and
Regulatory Processes (the ``Advisory Committee''); and the Commission's
Securities Act Concept Release in July 1996 (the ``Concept
Release'').²⁶
---------------------------------------------------------------------------

\26\ Securities Act Release No. 7314 (July 31, 1996) [61 FR
40044].
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A. Task Force Report

The Commission's Task Force was organized in August 1995 to conduct
a broad-based review of existing disclosure requirements to identify
outdated or unnecessary requirements that clutter the regulatory
framework. That review encompassed the forms and rules relating to:
capital-raising transactions; periodic reporting pursuant to the
Exchange Act; proxy solicitations and tender offers; and beneficial
ownership reports under the Williams Act. The goal was to simplify the
disclosure process, consistent with investor protection, by eliminating
unnecessary requirements.²⁷ In its March 1996 report, the
Task Force recommended that the Commission eliminate or modify a
quarter of the rules and half the forms. To this end, the Commission
has abolished 45 rules and 6 forms.²⁸
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\27\ The Task Force met with issuers, investor groups,
underwriters, accounting firms, lawyers, and others who participate
daily in the capital markets. The Task Force reported that none of
the participants suggested wholesale deregulation, and virtually all
emphasized the importance of the Commission's basic regulatory goals
to preserve orderly markets. See Task Force Report at pp. 1-6.
\28\ Securities Act Release No. 7300 (May 31, 1996) [61 FR
30397] and Securities Act Release No. 7431 (July 18, 1997) [62 FR
39755]. These releases are available on the Commission's Internet
web site (http://www.sec.gov).
---------------------------------------------------------------------------

B. The Advisory Committee on Capital Formation

The Advisory Committee was established in 1995 by the Commission
and chaired by then-Commissioner Steven M.H. Wallman. The Advisory
Committee's objective was to evaluate the efficiency and effectiveness
of the regulatory process relating to public offerings of securities,
secondary market trading, and corporate reporting. After 18 months of
study, the Advisory Committee published a report in 1996 calling for
reform. Its primary recommendation was that the Commission further its
integrated disclosure system by implementing a ``company registration''
concept first envisioned by the ALI's Federal Securities Code. The
report advocated refocusing the registration system on registration not
of transactions, but of companies, with greater reliance on periodic
disclosure than prospectus disclosure. The Advisory Committee suggested
that the Commission implement the concept as a pilot program for larger
companies.

C. The Commission's Concept Release

In light of diverse developments in the markets and the work of the
Advisory Committee and Task Force, the Commission published the Concept
Release on offering regulation in July 1996. In the Concept Release,
the Commission announced that it was reexamining the application of the
Securities Act and the rules thereunder to securities offerings. The
Concept Release sought comment on the best methods for eliminating
unnecessary obstacles to capital formation while improving the quality
and timing of disclosure and, therefore, investor protection. The
Commission focused its questions in the Concept Release on broad
concepts underlying Securities Act regulation. They included:
Whether investors are receiving all material information
in a timely manner in the offering process;
Whether limitations on the use of written communications
other than the statutory prospectus during the offering process ought
to be eased;
Whether the speed of takedowns of securities under the
Commission's shelf registration system results in procedures that do
not adequately inform the market;
Whether the role of independent gatekeepers in the
offering process needs to be reconfigured to work in conjunction with
issuers' quick access to capital; and
Whether the periodic disclosure under the Exchange Act
needs improvement.

The Commission also asked questions in the Concept Release about the
Advisory Committee's company registration idea and suggestions about
regulatory reform that had been made by others. The Commission received
55 comment letters in response to its requests.²⁹
---------------------------------------------------------------------------

\29\ Those letters and a summary of them may be read and copied
at the Commission's Public Reference Room, 450 Fifth Street N.W.,
Washington, D.C. 20549. Refer to File No. S7-19-96.
---------------------------------------------------------------------------

D. The National Securities Markets Improvement Act

Following the publication of the Concept Release, the National
Securities Markets Improvements Act of 1996 (``NSMIA'') was
enacted.³⁰ This legislation was designed to update the
securities laws to promote investment, decrease the cost of capital,
and encourage competition. To this end, Congress granted the Commission
for the first time general exemptive authority under the Securities
Act.³¹ In order to exercise our new exemptive authority,
NSMIA requires us to find that such action is ``necessary or
appropriate in the public interest and consistent with the protection
of investors.'' ³² That exemptive authority gives the
Commission substantial additional flexibility in administering the
Securities Act. Congress believed that this additional flexibility
would allow the Commission to adopt more easily new approaches to
registration and disclosure in order to promote efficiency, competition
and capital formation.³³
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\30\ Pub. L. No. 104-290, 104th Cong., 2d. Sess. (1996).
\31\ See Section 28 of the Securities Act, 15 U.S.C. Sec. 77z-3.
\32\ 15 U.S.C. Sec. 77z-3.
\33\ H.R. Rep. No. 104-622, 104 Cong. 2d Sess. at (1996).
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After the enactment of NSMIA, the Commission began to study
possible reform of the regulatory structure for offerings even more
broadly. For the past two years, the Commission staff has researched
and studied the existing regulatory system and possible improvements
that could be made to it. Some of our proposals rely upon our new
exemptive authority.

[[Page 67181]]

IV. Scope of the Proposals

The Commission is proposing a variety of revisions to the current
regulatory structure for securities offerings.³⁴ While many
revisions address problems identified by offering participants, the
overall goal of the proposed reforms is to make the registration system
more workable for issuers and underwriters and more effective for
investors in today's capital markets. In the last decade, the
Commission has seen the results of a registration structure that has
been perceived as having too much rigidity to comport with the
realities of modern global markets. Sellers have used to their fullest
extent available methods of offering without registration.
Increasingly, they have tried to create new ways around registration
strictures. They also have stretched the boundary between registered
and exempt offerings in seeking to acquire the benefits of both. Where
registration has taken place, too many offerings have been accomplished
with a divergence between the disclosure about the transaction in the
registration statement and the disclosure actually used to convince
investors to buy.
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\34\ The proposals do not purport to affect any rules or
regulations imposed by self-regulatory organizations in connection
with securities offerings.
---------------------------------------------------------------------------

A large share of the stress on the registration structure in recent
years has stemmed from the issuers' and underwriters' need to raise
capital on a schedule that they can control. Our proposals seek to
fulfill that need through the registration system where consistent with
investor protection. In addition, the speed at which offerings are
accomplished today, and the limitations on communications imposed by
the statute, have called into question whether investors are being
informed in a timely manner. Rather than continuing the statute's
``exclusive prospectus'' approach to disclosure, our proposals take an
``inclusive'' approach to disclosure. We seek to ensure that material
information is within the reach of investors when they need it most. We
also seek to lessen the gap in offerings done quickly between the
disclosure about the offering actually being used to sell the
securities and the disclosure that is filed with the Commission in a
registration statement. Overall, the revisions should create a more
flexible registration system under which public offerings proceed with
benefits to both buyers and sellers.
Our proposals are primarily focused on the structure of the
regulation of offerings; they are not primarily focused on the contents
of disclosure requirements. In the process of considering structural
reform, however, the Commission has recognized that it needs to study
whether the specific disclosure that is mandated both in Exchange Act
periodic reports and Securities Act registration statements should be
re-focused to serve the investing public better. As a result, the
Commission's reform work is not done. The next step in our ongoing
process will be to revisit the quantity and quality of required
disclosure.

V. Proposals Altering the Securities Act Registration Process

A principal premise of the existing Securities Act registration
system is that a prospectus containing mandated disclosure should be
virtually the exclusive written document used to offer the securities.
In the years since adoption, especially with the recent explosion of
information technology, this exclusivity premise is less a reality than
a theory, at least for certain offerings and issuers. We believe that
it is time to recognize that a different approach would be better for
those offerings.
For larger seasoned issuers, communications made around the time of
a typical registered offering, whether or not part of a traditional
prospectus, provide the basis for investment decisions in the offering.
Those issuers are well followed by the market and the important
statements that they make are quickly disseminated and considered by
investors even when the issuers are not making an offering. When they
are making an offering, any communication those issuers and other
offering participants make is of even greater interest to the markets.
For those issuers, therefore, we propose a transformation from the
``exclusive'' prospectus approach to the ``inclusive'' prospectus
approach as a means of facilitating informed investment decisions. That
approach would embrace as part of the registration system all
information used by or on behalf of the issuer during the offering
period that would be material to an investor in the offering. All
investors in the offering would receive or have access to such
information as well as the required material company and transactional
disclosure. The proposed system would maintain investor protection by
subjecting this information to the antifraud and civil liabilities
provisions of the Securities Act and the Exchange Act.
For most offerings by smaller or unseasoned issuers, and in
business combinations and exchange offers, we would primarily rely on
the current mandated prospectus to provide written offering
communication to investors, although there too we would allow them more
freedom to communicate in any medium by means other than the
prospectus.³⁵
---------------------------------------------------------------------------

\35\ See Section VII. of this release regarding proposed changes
in the regulation of offering communications.
---------------------------------------------------------------------------

The proposed system would have three main registration forms: Form
A for smaller issuers and larger unseasoned issuers, Form B for larger
seasoned issuers and offerings to relatively well-informed or
sophisticated investors, and Form C for business combinations and
exchange offers. Both domestic and foreign issuers would use each of
these Forms.³⁶ Small business issuers would continue to be
permitted to use Form SB-1 and revised Form SB-2 for their offerings
and would have to use new Form SB-3 for business combinations and
exchange offers.
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\36\ While disclosure for foreign private issuers currently is
made through a separate set of registration forms, we believe that
it would be simpler to formulate a single set of forms for both
foreign and domestic issuers. In doing so, foreign private issuers
registering on Form A would be subject to the same disclosure
requirements as they are currently. In Form B, foreign private
issuers would have at least as much flexibility as domestic issuers.
Through designations on the front of the registration forms, it will
be possible to track the use by foreign private issuers regardless
of whether they register on the same forms as domestic issuers.
---------------------------------------------------------------------------

The new forms reflect our understanding of when investors need
more, or less, mandated disclosure and when investors benefit from
access to information from more than one source. In addition, the
proposed divisions of issuers and offerings would create a system that
more accurately reflects when an efficient market exists and when an
issuer has a significant market following. The new system also would
enhance the use of Exchange Act disclosure to satisfy Securities Act
disclosure requirements.

A. Form B Offerings

1. How Form B Works
a. Registration Statement Contents
At the time of effectiveness, a Form B registration statement would
consist of:
A cover page with a calculation of registration fee table;
A prospectus that contains:

--Offering information;
--The registrant's Exchange Act reports, via incorporation by
reference;
--A foreign private issuer's Item 18 reconciliation (or Item 17, as
applicable) to U.S. GAAP (if not already in an incorporated
report);³⁷
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\37\ See Items 17 and 18 of Form 20-F.

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[[Page 67182]]

--The securities term sheet; ³⁸
---------------------------------------------------------------------------

\38\ See Section VIII.C.4.a. of this release for a discussion of
this securities term sheet and delivery requirements relating to it.
---------------------------------------------------------------------------

--Undertakings to provide investors upon their request, and free of
charge, with information incorporated by reference but not delivered.

Signatures;
Selected exhibits: ³⁹
---------------------------------------------------------------------------

\39\ See proposed revisions to Item 601 of Regulation S-K, 17
CFR 229.601.
---------------------------------------------------------------------------

--Any instrument that defines the rights of the security holders
(incorporated by reference if previously filed);
--Consents; ⁴⁰
---------------------------------------------------------------------------

\40\ See infra note 73 for a discussion of consents of auditors
in delayed shelf registration statements.
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--Statement of eligibility of trustee, where applicable (Form T-1);
--Legal opinions; and
--A representation that underwriters concur with the issuer's
designated effective date.⁴¹
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\41\ See Sections V.A.1.d. and V.B.2.a. of this release for a
discussion of this underwriter concurrence.
---------------------------------------------------------------------------

Form B issuers would be required to deliver promptly a prospectus,
free of charge, to any investor who requests it. In addition to that
obligation, Form B issuers would be required to deliver a securities
terms sheet.⁴²
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\42\ We discuss prospectus delivery obligations for Form B
issuers at Section VIII.C.4.a. of this release.
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i. Company Disclosure
Investors, as always, will obtain company information from a
variety of sources such as the Internet, television, newspapers and
radio. They also may acquire company information from securities
analysts or the company itself. While there are many possible sources
of information about Form B issuers that investors can access
today,⁴³ one reliable source is the information that issuers
make public through filing their Exchange Act reports with the
Commission. Investors can rely on this information because it is
subject to the regulatory and antifraud provisions of the federal
securities laws as well as subject to review by the staff of the
Commission. This structure compels issuers to come forward with
information about their businesses that they might not choose to make
public otherwise.
---------------------------------------------------------------------------

\43\ We also believe our proposal to free communications by Form
B registrants, discussed below, would spur diverse public discourse
about the merits of the issuer and its offering, all of which would
be open to the public investor.
---------------------------------------------------------------------------

The proposed registration system takes account of this source of
information by providing that an issuer must incorporate by reference
into its effective registration statement on Form B:
1. Its latest annual report ⁴⁴ filed under the Exchange
Act; and ⁴⁵
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\44\ We do not, however, permit incorporation by reference of
annual reports on Form 40-F. See General Instruction I.B.7. of
proposed Form B.
\45\ Financial statements included in the Form must be no older
than permitted in the age of financial statements requirements of
Regulation S-X. See Rules 3-12 and 3-19 of Regulation S-X, 17 CFR
210.3-12 and 210.3-19. Foreign issuers using Form B would be
required to reconcile to U.S. GAAP any financial statements either
incorporated by reference into or set forth in the Form. We would
require reconciliation in accordance with Item 17 or Item 18 of Form
20-F under the same standards used today.
---------------------------------------------------------------------------

2. Any Exchange Act reports filed since the end of the fiscal year
covered by its latest annual report.⁴⁶
---------------------------------------------------------------------------

\46\ The proposed system would not permit Form B registrants to
incorporate by reference any Exchange Act report filed after the end
of the offering period. For delayed shelf offerings, each takedown
would have its own separate offering period.

Issuers that use Forms S-3 or F-3 currently must incorporate their
Exchange Act reports into those Forms. The 12-month reporting
requirements under those Forms, however, do not assure that an issuer
incorporates an annual report into either of those registration
statements because annual reports are not due until three months (or 6
months, for foreign private issuers) after the end of a company's
fiscal year. In addition to this information, issuers would be required
to disclose in their Form B registration statements updated company
information that describes material changes not reflected in any
Exchange Act reports incorporated by reference.
ii. Transactional Disclosure
We are seeking comment on two alternatives on Form B transactional
disclosure. The first would mandate the inclusion of ``offering
information'' that includes some of the traditional items of
transactional disclosure. This alternative would allow issuer
discretion as to materiality and applicability of other traditional
items of transactional disclosure. The second alternative would simply
mandate that issuers set forth in Form B the items of transactional
disclosure required today. Both alternatives would require that the
registrant file any offering information disclosed by or on behalf of
the issuer (including by the underwriter or participating dealer)
during the offering period.⁴⁷ Under the first proposal, the
registrant would file offering information as part of the prospectus in
the effective registration statement.⁴⁸ ``Offering
information'' consists of:
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\47\ We would not permit a Form B registrant to file information
that had not been disclosed during the offering period. See Form B
``Information Required in the Prospectus that is Part of the
Effective Registration Statement,'' paragraph 1.(c), and proposed
Securities Act Rule 172(e), 17 CFR 230.172(e). Information
communicated orally during that period could be reduced to writing
and filed as part of the registration statement if the registrant so
chooses.
\48\ Information communicated orally would not have to be filed
and would be subject to section 12(a)(2) liability.
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The amount of securities being offered; ⁴⁹
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\49\ Under Rule 457(a), 17 CFR 230.457(a), a number of
securities may be registered. Under Rule 457(o), 17 CFR 230.457(o),
a dollar amount may be registered. The registrant may choose between
these two alternatives in a typical capital-raising offering.
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Material changes in the issuer's affairs since the end of
the latest fiscal year that are not reflected in incorporated Exchange
Act reports;
The information required by Item 504 of Regulation S-K
regarding use of proceeds;
The information about underwriter's discounts and
commissions required by Item 501(b)(3) of Regulation S-K;
Information about the risks of the offering of the type
described in Item 503 of Regulation S-K;
Information concerning who is selling the securities of
the type described in Item 507 of Regulation S-K;
Material information about the terms of the securities
offered as required by Item 202 of Regulation S-K, unless capital stock
is to be registered and securities of the same class are registered
pursuant to Section 12 of the Exchange Act;
All information regarding the transaction that is
material, which may include where applicable, but is not limited to:

--Information about dilution of the type described in Item 506 of
Regulation S-K;
--Information about the determination of the offering price of the type
described in Item 505 of Regulation S-K;
--Information about the plan of distribution of the type described in
Item 508 of Regulation S-K;
--Ratio of earning to fixed charges, as described in Item 503 of
Regulation S-K;

Any offering information disclosed by or on behalf of the
issuer during the offering period,⁵⁰ other than information
communicated orally; and
---------------------------------------------------------------------------

\50\ For purposes of this Form, ``offering period'' means the
period beginning 15 days in advance of the first offer made by or on
behalf of the issuer in connection with the offering and ending when
the offering is completed.
---------------------------------------------------------------------------

Offering information communicated orally that the issuer
chooses to file.
This alternative could provide registrants, and those acting on
their

[[Page 67183]]

behalf, more flexibility to craft a selling document shaped by their
particular offering, the market demands for information, and the
requirements to provide material information to investors. We believe
the greater freedom may allow issuers to cut some boilerplate
disclosure and to omit non-material disclosure from the prospectus. We
solicit comment, however, with regard to whether issuers would use that
freedom to accomplish those objectives. At the same time, the Form's
requirements should ensure investor protection by requiring issuers to
disclose all material offering information in the prospectus that is
part of the effective Form B. We solicit comment on this point.
We solicit comment on whether traditional transactional line items
not included in Form B should be retained. If so, which of the items?
Conversely, should we permit Form B issuers to craft their
transactional disclosure based on what they believe is material
information, and what the market and investors would demand, rather
than based on traditional transactional line items? If so, should we
limit that flexibility to a narrower class of Form B issuers, such as
those with a minimum public float of $750 million or $1 billion?
The second alternative would mandate that issuers disclose in Form
B all the information required by the Regulation S-K transactional
disclosure items currently required in Form S-3 and/or Form F-3. In
addition to the information that would be required by the first
alternative, this alternative would require the registrant to provide
further information in accordance with Regulation S-K.⁵¹
Should Form B include as mandated itemized information all of the
topics listed under that requirement? Should mandated itemized
disclosure be a different subset of the Regulation S-K information
currently required in Form S-3 and/or Form F-3?
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\51\ That additional information would be: certain portions of
Item 501 of Regulation S-K (forepart of registration statement and
outside front cover page of prospectus); Item 502 of Regulation S-K
(inside front and outside back cover pages of prospectus); certain
portions of Item 503 of Regulation S-K (prospectus summary and
address and telephone number); Item 509 of Regulation S-K, where
applicable (interests of named experts and counsel) and Item 510 of
Regulation S-K, where applicable (disclosure of Commission position
on indemnification for Securities Act liabilities).
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b. Free Writing Materials
For Form B issuers, written information ⁵² disclosed
during the ``offering period'' would be classified as either ``offering
information'' or ``free writing'' materials.⁵³ The
``offering period'' with respect to a Form B offering would be defined
as the period beginning 15 days before the first offer made by or on
behalf of the issuer and ending at the time of completion of the
offering. ``Free writing'' materials would include all written
information disclosed by or on behalf of the issuer during the offering
period, other than ``offering information,'' factual business
communications ⁵⁴ and limited notices of proposed
offerings.⁵⁵ Free writing could include, but would not be
limited to, sales literature and selling documents that include
forward-looking information.⁵⁶ A document that contains both
offering information and ``free writing'' would be treated as ``free
writing,'' if the offering information was filed as part of the
issuer's registration statement. If the offering information was not
filed as part of the issuer's registration statement, the document,
including the ``free writing'' portion, would be treated as offering
information and would be required to be filed as part of the
registration statement.
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\52\ For these purposes, ``written'' includes all information
disseminated otherwise than orally and therefore would include
electronic communications and other future uses of changing
communications technology.
\53\ If a document includes offering information, whether or not
it also contains free writing, it would be treated as an offering
information document for all purposes unless that offering
information is otherwise included in the registration statement.
\54\ ``Factual business communications'' would be defined in
proposed Securities Act Rule 169, 17 CFR 230.169.
\55\ See proposed revisions to Securities Act Rule 135, 17 CFR
230.135.
\56\ Section 12(a)(2) would apply to free writing materials (and
to all oral statements made by or on behalf of the issuer during the
offering period).
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The registrant would file, at the same time it files its Form B
registration statement, the free writing materials it disseminated
before filing its Form B.⁵⁷ It would file free writing
materials used after the filing of its Form B at the time of first
use.⁵⁸ The registrant would not file free writing materials
as part of the effective registration statement, nor would it have to
file information in the effective registration statement as free
writing materials.⁵⁹
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\57\ See proposed Securities Act Rule 425(b)(2), 17 CFR
230.425(b)(2). As proposed, Rule 425 would describe the materials
that would not have to be filed. They consist of:
1. Any factual business communication (as defined in proposed
Rule 169) regardless of when it is made;
2. Any research report used in reliance on Rules 137, 138 or
139;
3. Any information used in connection with an offering under
Form S-8;
4. Any information used in connection with an offering on Form B
under a dividend or interest reinvestment plan;
5. Any information used in connection with a direct stock
purchase plan; or
6. Any information filed or to be filed as part of an effective
registration statement.
For purposes of proposed Rule 425, ``direct stock purchase
plan'' refers to a registrant-sponsored plan pursuant to which the
registrant offers registered common stock for cash to only its
existing common stock holders (``plan participants'') and in which
there is no underwriter participation. The common stock registered
pursuant to the plan may either be newly issued or purchased by the
registrant for the account of plan participants at prices not in
excess of current market prices at the time of purchase, or at
prices not in excess of an amount determined under a pricing formula
specified in the plan and based on average or current market prices
at the time of purchase.
\58\ See proposed Securities Act Rule 425(b), 17 CFR 230.425(b).
\59\ See proposed Securities Act Rule 425, 17 CFR 230.425.
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Given the significance of the offering period, should the
Commission require the registrant to state on the front cover page of
the registration statement the date of the first offer in connection
with the offering being registered? Should the Commission require free
writing materials to be filed at the time of their first use since
investors might prefer access to them as they make their investment
decisions?
c. Time of Filing
A registrant could file a registration statement on Form B at any
time before the first sale of the securities.⁶⁰ Issuers
wishing to file immediately before sale could do so.⁶¹
Because issuers may wish to price Form B offerings before filing and
because many offerings are currently priced after hours, we would allow
registrants to file Form B registration statements with the Commission
after hours via EDGAR or facsimile until 10:00 p.m.⁶²
Issuers would pay the filing fee under the same procedures used today
by issuers filing Rule 462(b) registration statements after hours via
facsimile.⁶³
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\60\ See Section VII of this release for a discussion of the
restrictions on communications that are being eliminated for Form B
offerings.
\61\ Because Form B offerings would not have to be filed until
the time of first sale, the payment of registration fees would also
be delayed until the time of first sale.
\62\ See proposed revisions to Securities Act Rules 110(d) and
402, 17 CFR 230.110(d) and 230.402. In the usual case, a registrant
may file a registration statement in paper format only until 5:30
p.m. It may file on EDGAR between 5:30 p.m. and 10:00 p.m., but
those registration statements are treated as if they were filed the
following day. Form B registration statements filed after hours via
EDGAR would be treated as filed the same day. See proposed revisions
to Rule 13 of Regulation S-T, 17 CFR 232.13. We also have proposed
revisions to Securities Act Rule 111(b), 17 CFR 230.111(b), to allow
for special fee payment procedures for Form B filings made after
hours.
\63\ See Securities Act Rule 111, 17 CFR 230.111. That procedure
is described in detail in Securities Act Release No. 7168 (May 11,
1995).

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[[Page 67184]]

d. Becoming Effective
A Form B and any amendment to a Form B would be effective by
operation of rule at the issuer's discretion to give issuers maximum
flexibility.⁶⁴ The issuer would simply select one of three
choices on the cover page:
---------------------------------------------------------------------------

\64\ See proposed Securities Act Rule 462(f)(1) and (f)(2), 17
CFR 230.462(f)(1) and 230.462(f)(2).
---------------------------------------------------------------------------

(1) Effective upon filing;
(2) Effective ____________ (date and time specified by the issuer);
or
(3) effective as specified in a later amendment to the registration
statement.⁶⁵ The Commission staff would not have to take
action for the registration statement to become effective.
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\65\ The later amendment could amount to no more than a cover
page on which the registrant would check the appropriate box to
designate immediate effectiveness or a specified effective date.
---------------------------------------------------------------------------

In most underwritten offerings under the current registration
system, the Commission requires that a request for effectiveness of a
registration statement be made by the underwriters in addition to the
issuer.⁶⁶ Both underwriters and issuers are subject to
liability under Section 11 for the disclosure in an effective
registration statement. A request for effectiveness is therefore an
acknowledgment by each requester that it is aware of its obligations
under the Securities Act.⁶⁷
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\66\ See Securities Act Rule 461(a), 17 CFR 230.461(a). The Rule
requires the managing underwriters, or if there are no managing
underwriters, the principal underwriters, to join in the issuer's
request for acceleration of a registration statement.
\67\ See Securities Act Rule 461(a), 17 CFR 230.461(a).
---------------------------------------------------------------------------

Because the issuer would have complete control over effectiveness
by controlling the filing, we would include in Form B a requirement
that the issuer obtain and file as an exhibit evidence of the managing
underwriters' or principal underwriters' concurrence with the issuer's
designation of effectiveness.⁶⁸ The issuer would have to
obtain that concurrence before it files the Form B registration
statement in which it requests either immediate effectiveness or
effectiveness at a specified date.
---------------------------------------------------------------------------

\68\ See proposed Form B ``Exhibits'' section and proposed
revisions to Item 601 of Regulation S-K. Evidence of concurrence
could be, for example, in a writing from the underwriter to the
issuer or an electronic message to that effect.
---------------------------------------------------------------------------

Would the requirement to file the evidence of the underwriters'
concurrence as an exhibit to Form B be unnecessarily burdensome?
Alternatively, should we require the issuer to represent in the
registration statement that it obtained the underwriters' concurrence,
but not require it to file the concurrence, and require it to retain
the concurrence for 5 years? Should we require that the issuer obtain
the concurrence, but not require that the concurrence be evidenced in
writing? Would an oral concurrence provide the issuer and the
underwriters with sufficient assurance of agreement and protection
against misunderstanding?
e. Delayed Shelf Offerings and Form B
Form B would provide much the same flexibility to issuers that
delayed shelf registration on Forms S-3 and F-3 has
provided,⁶⁹ and those benefits would be available to
approximately the same issuers.⁷⁰ Unlike current shelf
registration, however, issuers using Form B would not need to file a
base or core prospectus to be able to offer and sell at will. Base
prospectuses today, particularly those used for unallocated delayed
shelf registration statements, tend to describe in the broadest of
terms the many different types of securities and offerings that might
be done off the shelf. Thus, in offerings off the shelf, the key
offering disclosure is usually filed in the Rule 424 prospectus
supplement. Form B would allow an issuer to avoid writing transactional
disclosure that covers ``everything but the kitchen sink'' and simply
file whatever transactional disclosure it gives to investors at the
time of the offering.
---------------------------------------------------------------------------

\69\ For convenience, we refer to Rule 415(a)(1)(x), 17 CFR
230.415(a)(1)(x), offerings as delayed shelf offerings or shelf
offerings in this release. Other types of Rule 415 shelf offerings,
such as continuous offerings, generally are unaffected by the
proposed system.
\70\ Our research indicates that, of the 379 existing issuers
who utilized the equity and unallocated shelf registration system
between calendar year 1993 to the third quarter of 1996, only 37
would be ineligible to use new Form B under the public float/ADTV
tests (the tests are described at Section V.B.2.a. of this release).
Of those, 23 issuers appear to be REITs. The 37 that are eliminated
would be able to use Form B for offerings to QIBs and offerings of
investment grade securities, among others.
---------------------------------------------------------------------------

There are also other Form B benefits as compared to the current
delayed shelf system. First, the Form B registration statement would
not be subject to pre-effective staff review. Under the existing
delayed shelf system, the Form S-3 or F-3 containing the core
prospectus is subject to the staff's selective pre-review. Second,
issuers may have less concern about market overhang effects on its
stock price under Form B.⁷¹ Under the current system, an
issuer wishing to put equity securities on the shelf has to include
them in the registration statement even before it intends to offer
those securities. Under the proposed system, a registrant need only
file a Form B registration statement before sale. The absence of a
filing that signals an upcoming offering well before the time it can be
completed may be welcomed by issuers, but may be of concern to
secondary market participants.⁷²
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\71\ For a discussion of market overhang effects, see Securities
Act Release No. 6383, (Mar. 16, 1992) (adopting integrated
disclosure system and unallocated shelf registration rules).
\72\ See Section XVII of this release for a solicitation of
comment regarding the effect this proposal would have on the
secondary market.
---------------------------------------------------------------------------

Another advantage for issuers in Form B as compared to existing
shelf registration relates to fees. In shelf registration today, an
issuer must file the base prospectus and pay the full filing fee at
that time, even though it may not take down securities from the shelf
until much later. An issuer using Form B other than for delayed
offerings would pay upon filing but generally that would not occur
until sale. There would be no need to register more than is needed for
that offering at that time.
We believe that the way Form B operates would largely eliminate the
incentive for a registrant to set up a delayed shelf registration
statement. We recognize, however, that some issuers are accustomed to
doing shelf takedowns and do so on a frequent basis. As proposed, a
registrant wishing to file some preliminary information could still do
so on Form B and either become effective then and file the remaining
disclosure concerning the offering in a post-effective amendment or
delay effectiveness of the Form B until the rest of the information is
available. The issuer could designate when those post-effective
amendments become effective. The current delayed shelf does not require
directors and officers to sign the Rule 424(b) supplements filed for
each takedown.⁷³ Under the proposal, registrants may use a
power of attorney to avoid the inconvenience of obtaining multiple
signatures upon the filing of a pre-effective or post-effective
amendment. We also would provide in delayed shelf offerings that when
the persons signing a Form B do not appoint a person to

[[Page 67185]]

sign via a power of attorney, a signature on a post-effective amendment
by an authorized representative of the registrant shall be deemed to
constitute signature by the persons signing the original filing unless
otherwise specified in the amendment.⁷⁴
---------------------------------------------------------------------------

\73\ Under the current system, auditors do not provide consents
for prospectus supplements. They consent to inclusion of the
financial statements in the registration statement and also consent
at the time of filing most post-effective amendments. Subsequently
filed Forms 10-K that are incorporated by reference include the
auditor's consent to inclusion of the financial statements to update
the shelf. Under the proposed system, post-effective amendments will
be more common because transactional information will be filed in
that manner.
The consents of auditors are not required today with respect to
the filing of prospectus supplements and certain post-effective
amendments to shelf registration statements. The Commission
similarly would not require an auditor's consent for post-effective
amendments that amount to prospectus supplements and have no bearing
on the financial statements.
\74\ See Signatures section of Form B and proposed revisions to
Securities Act Rule 471, 17 CFR 230.471. See also Section XI.C. of
this release, the discussion of the proposal to require management
to certify that to management's knowledge, the filings they sign
contain no material misstatement or omission.
---------------------------------------------------------------------------

Delayed shelf offerings on Form B would, however, improve upon the
Form S-3/F-3 shelf registration system in two ways that would enhance
investor protection. First, we would provide clearly in Form B that any
transactional disclosure used in connection with a Form B offering is
within the effective registration statement. With Form B, transactional
information disclosed to investors before the end of the offering
period would have to be filed either as part of the effective
registration statement or on a post-effective amendment that becomes
effective whenever the issuer wishes before the time of sales. That
information would be within the scope of Section 11 under the
Securities Act. That transactional disclosure would include information
filed under Rule 424 as prospectus supplements to shelf registration
statements today. We also would provide clearly in Form B that
historical and forward-incorporated Exchange Act reports would be part
of the effective registration statement. That information also would be
within the scope of Section 11. We recognize that certain commentators
have questioned whether Section 11 applies to Rule 424 information
⁷⁵ and forward-incorporated Exchange Act
reports.⁷⁶ While we believe that under existing law such
Section 11 liability applies, and do not accept the views of those
commentators on these issues, we recognize that an explicit statement
in the proposed Form would serve to eliminate any uncertainty
practitioners may believe exists.
---------------------------------------------------------------------------

\75\ For example, the Advisory Committee expressed the belief
that Section 11 may not apply and recommended that the Commission
address this potential lapse in application of Securities Act
protections. See Advisory Committee Report at p. 28.
\76\ See, e.g., Johnson and McLaughlin, Corporate Finance and
the Federal Securities Laws 2d ed. 508-09 (1997). But see proposed
revisions to Item 512 of Regulation S-K, 17 CFR 229.512.
---------------------------------------------------------------------------

The other change to the way delayed shelf would operate relates to
the time of filing with the Commission information about the offering
off the shelf. Today, that information may be filed pursuant to Rule
424 up to two business days after the earlier of pricing of the
securities or first use of the prospectus supplement. Under the
proposed registration system, we would require that Form B issuers file
this information as part of the effective registration statement by the
time of sale.⁷⁷ We believe that both investors and the
market are better served by having this disclosure filed promptly.
Moreover, because the transactional information that may be filed as
part of the Form B registration statement includes only information
about which investors have been informed before committing to purchase
the securities, there is less reason to contemplate a filing after the
sale takes place. In addition, the Commission is aware that some
investors trading in shelf registrants' securities after a takedown and
before the filing have been troubled by the absence of disclosure
during that period. We have concerns that some investors are aware of
the shelf takedowns while others become aware days later when notice is
filed with the Commission. Although a two-business-day wait may not
have been considered a material delay at the outset of modern shelf
registration, it appears to be one in today's market framework.
Eliminating this delay would support our goal of reducing the risks of
selective disclosure.
---------------------------------------------------------------------------

\77\ See proposed revisions to Rule 424(b)(2), 17 CFR
230.424(b)(2).
---------------------------------------------------------------------------

We solicit comment on whether there is a continued need for a
delayed shelf concept under Form B. Do registrants see advantages to
delayed registration on Form B over and above what would be allowed on
Form B without that concept? Does the delayed shelf concept needlessly
complicate the system? Is there a reason to retain the two-year
limitation on the amount registered? Would concerns about market
overhang keep issuers from taking advantage of any extension? Should we
limit the extension to 3 or 4 years? Would issuers benefit more if we
remove completely any restrictions on the amount of securities that
issuers could register for a delayed shelf? What if we extended the
possible life of a shelf registration statement to 6, 7 or 10 years?
Would issuers register securities to be offered over those periods of
time?
2. Offerings Eligible for Registration on Form B
An issuer may register on Form B only offerings that fit in one of
the following categories.
a. Offerings by Larger Seasoned Issuers
Given the envisioned disclosure and delivery aspects of Form B, we
believe that only those issuers with a demonstrated market following
should be eligible to use Form B to register primary and secondary
offerings of any type to the general public. The current threshold for
short-form registration (Forms S-3 and F-3) is a public float of $75
million. Based on our research, we believe that the most accurate
measurement to attain the goal of choosing issuers for which there is
an efficient market is a combination of public float of the issuer's
common equity securities ⁷⁸ and average daily trading volume
(``ADTV'') of the issuer's equity securities.⁷⁹ We propose
that an issuer able to use Form B should either have:
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\78\ Public float is the aggregate market value of the issuer's
outstanding voting and non-voting common equity held by non-
affiliates of the issuer. 17 CFR 228.10(a)(1). We used market
capitalization information as a proxy for public float figures.
Public float information is less readily available and would require
a determination of the equity interests of affiliates of a company
in order to derive it from market capitalization data.
\79\ Our research showed that a public company's market
capitalization, public float and ADTV are closely and positively
associated with the number of analysts that follow firms.
Combination tests of ADTV and either market capitalization or public
float are more closely associated with the speed of price discovery
than any of those tests alone. The proposed tests would preclude
lesser followed companies from Form B registration eligibility. We
use a similar combination in Regulation M. See Exchange Act Rules
100-105, 17 CFR 242.100-242.105.
---------------------------------------------------------------------------

A public float of $75 million or more and an ADTV of $1
million or more; ⁸⁰ or
---------------------------------------------------------------------------

\80\ Our research indicates that, just taking into account ADTV
levels, 4% of the companies with an ADTV of $1 million or more would
have fewer than 3 analysts covering them. Our research also
indicates that, just taking into account market capitalization, 14%
of the companies with market capitalizations of $75 million or more
would have fewer than 3 analysts covering them.
---------------------------------------------------------------------------

A public float of $250 million or more.⁸¹
---------------------------------------------------------------------------

\81\ Our research indicates that 5% of the companies that have
market capitalizations of $250 million or more have fewer than 3
analysts covering them. On average, companies of this size have 15
analysts covering them.

Thus, if an issuer has a public float of less than $250 million then it
must have an ADTV of at least $1 million in addition to a public float
of $75 million.
In determining these thresholds, we considered, among other things,
the level of analysts coverage that would result at different public
float and ADTV thresholds. Our research indicates that companies that
meet the proposed combined public float/ADTV test would have an average
of 14 analysts following them.

[[Page 67186]]

We looked at analyst coverage not because we believe that analysts
create market following or because we believe that analysts statements
are wholly accurate and unbiased or because we believe that all
investors would have access to or rely upon analysts reports. Instead,
we looked to analyst coverage because we believe that the number of
analysts that cover companies that fit a certain profile is indicative
of the level of investor interest in companies within the profile. Like
news organizations, analysts tend to cover companies that are of
interest to their customers.⁸²
---------------------------------------------------------------------------

\82\ Both issuers and investors suggest that multiple analysts
are necessary to provide the public with broad, relatively unbiased
information about a company. We obtained information concerning
analyst coverage from Nelson Publications, publisher of Nelson's
Directory of Investment Research (1996). The research that we
conducted considered the number of analyst firms that follow a
company rather than the number of individual analysts. In proposing
thresholds, we have considered that not all analysts contained in
that listing would be actively following the issuer at all times.
Thus, we have chosen thresholds that provide a significant number of
analysts following the issuer. Where an issuer has significant
analyst following and the market operates efficiently with respect
to price discovery, we believe it is fair to assume some level of
investor awareness of company information. It is also fair to assume
that investors would have access to multiple sources of information
about a company, making short-form registration and elimination of
communications restrictions appropriate.
---------------------------------------------------------------------------

For purposes of Form B, issuers would be required to measure their
ADTV during the three full calendar months (or any 90 consecutive
calendar days ending within 10 calendar days) immediately preceding the
filing of the registration statement. They would measure their public
float as of the end of their last fiscal quarter. While the alternative
stand-alone public float test of $250 million may be used by both
domestic and foreign issuers to qualify for Form B eligibility, we
propose it primarily for the benefit of large foreign issuers whose
shares trade principally on foreign markets.⁸³ In comparison
to current Form S-3 and F-3 public float levels, 1,175 fewer companies
would be eligible to register on Form B due to size.⁸⁴ Those
companies, and even smaller ones, would, however, be eligible to
register on Form B under other criteria discussed below, such as when
offering only to QIBs or offering investment grade securities.
---------------------------------------------------------------------------

\83\ ADTV is measured for purposes of Form B on U.S. trading
markets only. We believe that provides a better measure of U.S.
market following than world-wide ADTV for these purposes. To avoid
creating a test that would disproportionately exclude well followed
foreign issuers with little or no U.S. trading market, we provide
the alternative $250 million float test without an ADTV component.
\84\ Of these companies, only 13 have taken advantage of
unallocated shelf registration. This eligibility criteria includes
801 more issuers than were eligible to register securities on Form
S-3 when the Commission lowered the public float requirements from
$150 million to $75 million in 1992. See Securities Act Release No.
6943 (July 16, 1992) [57 FR 32461].
---------------------------------------------------------------------------

In addition to the public float/ADTV criteria, Form B would be
available only to issuers that have a history of reporting under the
Exchange Act. The reporting history would ensure that issuers have been
reporting long enough so that adequate information about them is
publicly available. It also gives issuers enough time to adjust to the
disclosure requirements applicable to reporting companies. We propose a
one-year reporting history requirement coupled with the requirement
that the issuer have filed at least one annual report. Because annual
reports are due months after the end of a fiscal year, simply requiring
that Form B issuers have a one-year reporting history would not
necessarily ensure that all issuers using the Form had prepared and
filed at least one annual report.⁸⁵ We believe the annual
report requirement would provide benefits to investors, due to the fact
that they would have more Exchange Act information to use in evaluating
the issuer and also because the issuer would have more reporting
experience. In addition, an issuer would not qualify to use Form B
unless it had filed all Exchange Act reports due and had filed all of
its reports on a timely basis in the 12 months immediately before the
filing.⁸⁶
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\85\ Form S-3 currently requires simply a one-year reporting
history. Form F-3 requires a one-year reporting history and also
imposes a requirement that the registrant previously filed an annual
report on Form 20-F.
\86\ Issuers also would be required to be in compliance with our
EDGAR rules. These timeliness and EDGAR requirements currently apply
to offerings registered on short-form registration statements on
Forms S-3 and F-3.
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We request your comment on this proposal. Should the $75 million
threshold used in conjunction with the ADTV threshold be higher (e.g.,
$100 million, $150 million, $200 million or $250 million)?
⁸⁷ Should the ADTV test used with the public float test be
higher (e.g., $1.5 million or $2 million)? ⁸⁸ Should the
ADTV test be lower (e.g., $750,000)? ⁸⁹ Should we raise the
proposed stand-alone public float test of $250 million (e.g., to $300
million, $350 million, $400 million or $450 million)? Should we lower
the stand-alone public float test (e.g., to $200 million)?
⁹⁰ Should we raise the one-year and one annual report
reporting requirement to two years? ⁹¹ Is there any reason
why the ADTV/public float test thresholds should be consistent with the
thresholds used for the actively-traded security exception in Rule
101(c)(1) of Regulation M? Instead of worldwide volume, which is used
in Regulation M, would U.S. market volume, as proposed, be a better
indicator of market following by U.S. investors? Unlike Regulation M
and the proposals, should ADTV be calculated solely on the basis of
trading conducted on the NYSE, AMEX or Nasdaq-NMS so as to exclude
microcap companies? ⁹²
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\87\ At the $100 million market capitalization level, our
research indicates that 5% of the companies have fewer than 3
analysts covering them. At $150 million, 5% have fewer than 3
analysts; at $200 million, 5% have fewer than 3 analysts; and at
$250 million, 5% have fewer than 3. At the $100 million threshold,
an average of 14 analysts follow the company. At $150 million, the
average increases to 15, at $200 million the average increases is
15, and at $250 million the average is 16.
\88\ Our research indicates that companies with an ADTV between
$1 million and $2.5 million have an average of 8 analysts following
them.
\89\ Our research shows that 33% of companies with an ADTV of
less than $1 million have no analyst following.
\90\ Companies with a market capitalization of at least $200
million have an average of 14.5 analysts following them.
\91\ We studied the impact of extending the reporting history by
additional years and found no resulting statistically significant
improvement in price discovery or analyst following.
\92\ See Section V.A.2.g. of this release for a discussion
relating to microcap companies.
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b. Offerings to QIBs
As the Commission determined in adopting Rule 144A, larger
institutional investors, or QIBs as denominated in the rule, are
presumed to be sophisticated securities investors.⁹³ Their
investing experience and size purportedly puts them in a position to
insist upon as much information as would be provided by
registration.⁹⁴ Also, their size, which may be viewed as
signifying buying and bargaining power, should allow them to demand
from issuers protective covenants and restrictions. In other words,
their sophistication enables them to fend for themselves.⁹⁵
Rule 144A applies both with respect to securities of

[[Page 67187]]

reporting companies and non-reporting companies.⁹⁶
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\93\ Securities Act Release No. 6862 (Apr. 23, 1990). Rule 144A
provides a safe harbor from the registration requirements of the
Securities Act for resales of restricted securities to QIBs as
defined in Securities Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1).
\94\ In many instances, issuers prepare materials that are
almost identical in presentation and substance to registration
statements. See, e.g., McGeehan, Money Raised in Private Placement
of Issues Doubles as Companies Take Advantage of SEC's Rule 144A''
Wall St. J., Jan. 2, 1998, at 38, col. 1.
\95\ See Securities Act Release No. 6808 (Oct. 25, 1988) [53 FR
50038] Section IV.A.1. (institutional investors possess sufficient
knowledge and experience in financial and business matters, and so
are capable of evaluating the risks of an investment and are less in
need of the protections of registration); see also Securities Act
Release No. 6839 (July 11, 1989) [54 FR 30076], Section II.B.
\96\ When the issuer of the securities to be resold under Rule
144A is neither a reporting company nor exempt from reporting under
Exchange Act Rule 12g3-2(b), availability of the Rule is conditioned
on the right of the current or prospective holder of the issuer's
securities to obtain specific information from the issuer. See Rule
144A(d)(4), 17 CFR 230.144A(d)(4).
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If QIBs can fend for themselves in unregistered transactions
involving securities of both reporting and non-reporting companies,
they certainly should be able to fend for themselves at least as easily
in connection with an offering by a public company registered on Form
B. Moreover, when QIBs fend for themselves in Form B offerings, they
will share the benefit of the disclosure they acquire with the rest of
the investing public through the filing of that disclosure. To
encourage registration of offerings that otherwise would be made in
reliance on Rule 144A, we propose to extend Form B for registration of
offerings made solely to QIBs, as defined in Rule 144A, where the QIBs
are purchasing for their own accounts or for the accounts of other
QIBs.⁹⁷ Those offerings could be made where the issuer has
been a reporting company for at least one year, has filed at least one
annual report under Section 13(a) of the Exchange Act and is current
and timely in fulfilling its reporting requirements.
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\97\ An issuer that wishes to register an offering on Form B
made solely to QIBs may offer or sell only to persons it reasonably
believes are QIBs. The Division of Corporation Finance has
interpreted the filing of a registration statement as a general
solicitation. The filing of a Form B registration statement could,
in and of itself, be viewed as a general solicitation and therefore
as making offers to non-QIBs. Therefore, under the proposals, the
Division would reconsider the issue regarding filing as a general
solicitation for the purposes of QIB-only Form B offerings.
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i. Advantages of Registered Offerings
Domestic issuers and foreign issuers that are already reporting
would have the same key advantage under Form B registration that they
find today in making Rule 144A offerings: they would find it just as
easy to time their offerings because the issuer would control when its
registration statement becomes effective and it need only file before
the first sale. We believe issuers and investors would realize two
significant benefits from registration of securities that otherwise
would be sold only in reliance on Rule 144A:
1. Unlike Rule 144A, securities fungible with those that are listed
on exchanges or quoted on NASDAQ could be offered and sold under Form B
registration.
2. Unlike Rule 144A securities, the securities generally would be
freely resalable because they would be covered by a registration
statement. Because the securities would not be restricted, some QIBs
that otherwise would be subject to limitations on the amount of
restricted securities they may hold would be permitted to purchase
these registered securities freely.⁹⁸
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\98\ The fact that Rule 144A, 17 CFR 230.144A, offerings are
frequently conditioned on the issuer's promise to register the
offering with the Commission within three to six months evidences
the attraction of holding registered securities even for QIBs.
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ii. Limitations on QIB Purchases
Because the securities registered on Form B would not be restricted
securities, there is some chance that investors and issuers would
arrange to use the Form where the offering is not truly a QIB-only
offering but instead is a distribution to the public using a QIB as a
conduit.⁹⁹ We therefore would provide that certain QIBs
would be ineligible to purchase under a Form B QIB-only offering.
Dealers and investment advisers would be excluded from those offerings.
Those purchasers do not generally purchase securities for their own
investment. Dealers are in the business of selling securities.
Moreover, the size threshold in Rule 144A for dealers is significantly
lower than the thresholds for other QIBs. Given those factors, we
believe the risk of indirect distribution by QIBs in those categories
is sufficient to warrant precluding their participation. Should other
QIB groups be excluded? If so, which ones?
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\99\ This kind of indirect distribution would deprive the
ultimate public purchasers of the liability protections of
Securities Act registration.
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Furthermore, issuers and QIBs that attempt to effect an indirect
public distribution of securities through a QIB-only offering on Form B
would violate Section 5 absent an applicable exemption. The transaction
that the issuer would register under this provision of Form B would be
its sale of securities to QIBs, not a sale to the public. If the
securities do not come to rest with the QIBs and the QIBs are mere
conduits for sales to the public, the offering would be ineligible for
registration on Form B.¹⁰⁰ If a QIB purchases and effects a
distribution, it will be acting as an underwriter as defined in Section
2(a)(11) of the Securities Act. Its transaction would not be registered
and likely would not be exempt and therefore would be illegal.
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\100\ Securities Act Rule 401(g), 17 CFR 230.401(g), states that
any registration statement or amendment is deemed to be filed on the
proper form unless the Commission objects to the form before the
effective date. The rule thus requires the Commission and the
registrant to resolve disputes about form eligibility before
effectiveness. We recently have proposed to amend Rule 401(g) to
exclude from its scope all registration statements and post-
effective amendments that become effective automatically upon
filing. See Securities Act Release No. 7506 (Feb. 17, 1998) (63 FR
9648). In this release we propose to expand that exclusion to cover
all registration statements in which the registrant could designate
the effective date. See proposed revisions to Rule 401(g), 17 CFR
230.401(g). This change would eliminate the presumption existing
today that an effective Securities Act registration statement is on
the appropriate form and therefore aid the Commission staff in
asserting that securities are offered and sold in violation of
Section 5 if anyone attempts to use QIBs as conduits in connection
with a QIB-only Form B offering.
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iii. QIB Definition
The current general QIB test, which was established with the
adoption of Rule 144A, is whether the institution, acting for its own
account or for that of other QIBs, in the aggregate owns and invests on
a discretionary basis at least $100 million of securities of non-
affiliates.¹⁰¹ The QIB threshold differs for dealers and
banks, savings associations and equivalent institutions. We solicit
comment on whether the thresholds for defining ``qualified
institutional buyer'' for purposes of Form B and Rule 144A should be
revised upward in light of the length of time since Rule 144A was
adopted and the changes that have occurred in the markets since
then.¹⁰²
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\101\ See Securities Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1).
See also Securities Act Release No. 6862 (Apr. 23, 1990); Securities
Act Release No. 6806 (Oct. 25, 1988) [53 FR 44016].
\102\ In 1997, companies raised approximately $254 billion
through 144A offerings. This figure represents a 94% increase from
1996 and a 250% increase from 1995. McGeehan, supra, n. 94, at 38,
col. 1.
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Taking into account only inflation since 1990, use of the $100
million threshold today would have been the same as if the Commission
in 1990 had approved a 144A threshold of $81 million
dollars.¹⁰³ Taking into account only market changes since
1990, our use of the $100 million QIB threshold today is equivalent to
us adopting in 1990 a threshold of only $29.2 million.¹⁰⁴
Thus, taking into account market changes, the $100 million 1990
threshold would translate to approximately $240 million today. Even
with some adjustments, therefore, we believe more entities would
qualify as QIBs today than could have qualified at the time we adopted
Rule 144A in 1990.
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\103\ This figure is based on changes in the consumer price
index between January 1, 1990 and January 1, 1998.
\104\ This figure is based on increases in the S&P 500 between
January 1, 1990 and January 1, 1998.
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We solicit comment on whether one should have to own and invest on
a discretionary basis at least $125, $150 or $200 million in securities
of non-affiliated issuers to qualify as a QIB. We also solicit comment
on whether we

[[Page 67188]]

should increase the $10 million eligibility requirement for dealers
acting for their own accounts or for the accounts of other QIBs. Should
it be raised to $15, $20 or $25 million? Should we increase the net
worth test for banks, savings associations and equivalent institutions?
If so, should it be raised from $25 to $30, $35 or $50 million in order
for them to qualify as QIBs? ¹⁰⁵ Should a net worth test be
applied to those institutions at all?
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\105\ See Securities Act Rule 144A(a)(ii) and (a)(vi), 17 CFR
230.144A(a)(ii) and (a)(vi).
---------------------------------------------------------------------------

Are upward revisions necessary to provide continued assurance that
QIBs are sophisticated investors with some ability to require
appropriate disclosure from the sellers? If so, should they be based on
inflation only or should we revise them in accordance with market-
related measures?
We also request your comment on whether we should expand the
eligibility standards for Rule 144A QIB status. If so, what categories
of entities should we make eligible as QIBs? For example, should we
permit certain state pension funds to qualify as QIBs if they meet the
current thresholds in Rule 144A?
iv. Other Reporting and Non-Reporting Issuers
In light of the sophistication of QIB purchasers, we solicit
comment about whether we should extend Form B to issuers subject to the
Exchange Act reporting requirements that do not satisfy a one-year and
one annual report reporting history. If we were to extend Form B in
that way, an issuer could choose to register not long after registering
for the first time another offering under the Securities Act or a class
of securities under the Exchange Act. Even in that event, however, the
issuer would have filed virtually the same company information in its
prior registration statement that it otherwise would file in its
periodic reports. That information, like periodic reports, could be
incorporated into its Form B registration statement. In the case of
offerings made only to QIBs, is a year of seasoning as a reporting
company going to provide significant investor protections that the QIBs
themselves could not attain? Alternatively, should we increase the
reporting requirement to two years for offerings to QIBs on Form B by
issuers that do not meet the public float/ADTV threshold?
Non-reporting foreign issuers that currently make Rule 144A
offerings would not be eligible for Form B even for QIB-only offerings.
We solicit comment concerning whether the largest non-reporting foreign
issuers (e.g., those with a public float over $500 or $750 million)
should be permitted to use Form B to register offerings to QIBs of
investment grade securities. These issuers would be required to
reconcile their financial statements to conform to U.S. GAAP. This
alternative would allow large foreign issuers to enter the U.S. markets
in a registered context rather than through Rule 144A, and would give
the initial investors freely tradeable securities.¹⁰⁶
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\106\ Through 1992, foreign issuers accounted for about 30% of
the 144A market. See, e.g., Bostwick, The SEC Response to
Internationalization and Institutionalization: Rule 144A Merit
Regulation of Investors, 27 Law and Policy in Int'l. Bus. 423
(Winter 1996); Devere, 144A Deal Volume Surges in Dynamic Second
Quarter, 62 Investment Dealer's Digest 13 (July 22, 1996).
---------------------------------------------------------------------------

By registering, those companies would become reporting issuers. We
would require reconciliation of their financial statements in the Form
B registration statement. Also, because these issuers would not have
Exchange Act reports to incorporate by reference, we would require that
they disclose in the Form B registration statement the company
information set forth in Regulation S-K. Under those circumstances,
would allowing foreign issuers the opportunity to register investment
grade securities on an expedited basis encourage them to enter the U.S.
registration and reporting system? Would they be unlikely to register
even on that basis due to the reporting and disclosure requirements, or
for other reasons? Should we preclude non-reporting foreign issuers
from registering even investment grade QIB-only offerings on Form B
absent staff review?
c. Offerings to Certain Existing Security Holders
We propose to extend Form B to smaller issuers that do not meet the
Form's public float and ADTV threshold eligibility requirements for
registration of offerings to certain existing shareholders. Under the
proposed registration system, those issuers, which otherwise would be
required to use Form A, may use Form B to register: rights offerings;
offerings of securities pursuant to a dividend or interest reinvestment
plan; offerings of common stock to existing common stock holders, such
as under a direct stock purchase plan; offerings of securities upon
exercise of either outstanding transferable options or outstanding
transferable warrants; and offerings of securities upon conversion of
outstanding convertible securities.
Current short-form registration statements, Forms S-3 and F-3, may
be used in some, but not all, of these cases.¹⁰⁷ The
Commission extended Forms S-3 and F-3 for registration of these kinds
of offerings based on the premise that, despite the issuers' inability
to meet the eligibility requirements and the possibility they may not
be well known or widely followed by the market, these offerings would
be directed to specific investors that previously invested in the
issuer's securities and could therefore be expected to follow the
issuer or to receive information from the issuer. Similarly, we propose
to allow issuers that do not meet proposed Form B's public float and
ADTV tests to register these and similar offerings on Form B as long as
they meet the reporting requirements of the proposed Form and the
transactional requirements described below.
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\107\ See Instruction I.B.4. to Forms S-3 and F-3.
---------------------------------------------------------------------------

i. Dividend or Interest Reinvestment Plans
As early as 1977, we began relaxing registration requirements for
dividend or interest reinvestment plans (``DRIPs'').¹⁰⁸ We
currently allow all issuers to use short-form registration for
securities offered pursuant to their DRIPs even if they do not meet the
Forms' public float tests.¹⁰⁹ These registration statements
become effective automatically upon filing without staff
review.¹¹⁰
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\108\ See Securities Act Release No. 5923 (Apr. 11, 1978) [43 FR
16677].
\109\ Most DRIPs are registered on Form S-3. For purposes of
this discussion, we will refer to Form S-3 rather than Forms S-3 and
F-3.
\110\ Securities Act Release No. 6964 (Oct. 22, 1992).
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Under the proposed registration system, we seek both to maintain
the relaxed regulatory approach to registration of DRIP offerings and
to prevent abuses of the registration system's investor
protections.¹¹¹ We therefore would extend Form B for DRIP
offerings of seasoned issuers that do not otherwise meet the Form's
eligibility requirements if:
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\111\ Some issuers have been known to register DRIP offerings on
Form S-3 as a pretext for making what are basically primary
offerings to the public. Some issuers otherwise ineligible to use
Form S-3 have registered DRIPs on the Form to raise amounts of
capital that, in the worst cases, exceed the issuer's public float
at the commencement of the offering.
---------------------------------------------------------------------------

1. The issuer has not discontinued or suspended dividend payments
on the securities held by DRIP participants;
2. The DRIP securities registered on Form B are offered only to
existing security holders that have held the issuer's securities for at
least 2 months;

[[Page 67189]]

3. The dollar amount of the DRIP securities registered on Form B
represents no more than 15% of the issuer's public float when
aggregated with the dollar amount of securities previously registered
by the issuer on Form B pursuant to any offering directed solely to
common security holders, including a DRIP, within the 12 months before
the start of, and during, the current offering; and
4. The shareholder purchases in any 12-month period no more than
the smaller of 100% of the value of the issuer's securities owned by
the shareholder at the start of the 12-month period, or 5% of the total
offering amount, except that any shareholder may purchase up to $10,000
of securities in any 12-month period.
We would preclude issuers from using DRIPs to sell securities
directly to participants at a time when the issuer has discontinued or
suspended dividend payments on the DRIP securities. A purchase is not
merely a dividend reinvestment when the company is not paying
dividends. This is consistent with the Division's current
interpretation.¹¹²
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\112\ See The Division of Corporation Finance Manual of Publicly
Available Telephone Interpretations (July 1997), available on our
web site (http://www.sec.gov).
---------------------------------------------------------------------------

We also would set a limit on the amount of DRIP securities an
issuer may register on Form B equal to an aggregate of 15% of the
issuer's public float within the 12 months before the start of and
during the offering.¹¹³ Under this proposal, issuers could
make several DRIP offerings on Form B over the course of a 12-month
period as long as the total amount registered within that period did
not exceed 15%.¹¹⁴ While Form B would cover the offering of
securities by a smaller issuer to its existing shareholders, if such an
issuer uses its shareholders merely as conduits to distribute the
securities to the public, the offering would not be eligible for Form
B. If a shareholder purchases to effect a public distribution, it would
be considered an underwriter and its sale would not be considered
registered. To avoid the potential use of Form B in these conduit
situations, we propose to restrict the amount of securities that may be
purchased by any one shareholder and its affiliates. This provision, in
addition to the 15% limitation, would protect against an unregistered
distribution to the public.
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\113\ Based on our research of DRIP offerings made during the
last year, the 15% limit should not affect the amount of securities
that the vast majority of issuers register for offerings pursuant to
DRIPs. We specify this threshold in the instructions to proposed
Form B.
\114\ The issuer would refer to its most recently filed Form 10-
K to determine its public float for calculating how much it may
register on Form B. This limitation also may allow issuers to avoid
market overhang problems that may be associated with registering at
one time a large amount of securities to be offered over a long
period.
---------------------------------------------------------------------------

Our proposal would limit the amount that an existing shareholder
may purchase in any 12-month period. It could purchase the smaller of:
100% of the value of the issuer's securities it owns at the start of
the 12-month period; or 5% of the total offering amount. A shareholder
would have to aggregate its securities purchases and ownership with
those of its affiliates. The shareholder also would have to count its
purchases in all Form B offerings to existing security holders within
the 12-month period. Any one shareholder and its affiliates would be
able to purchase at least $10,000 of the issuer's securities in any 12-
month period in Form B offerings to existing security holders, despite
the percentage tests. For example, where a shareholder owned $5,000 of
the issuer's securities at the start of a 12-month period, it would be
able to purchase $10,000 of securities in the subsequent 12-month
period in all Form B registered offerings to existing security holders.
Finally, the Commission notes that investor eligibility to
participate in a DRIP is often based on ownership of a certain amount
of the issuer's securities. In many cases, ownership of just one share
or even a partial share worth as little as $25 qualifies a person for
participation in a DRIP. The Commission is concerned that where there
may be little public information about an issuer and the investor does
not have a significant ownership interest in the securities of an
issuer, the investor may not have access to adequate issuer information
or have the inclination to follow the issuer and its
business.¹¹⁵ To help ensure that investors have a chance to
learn about the issuer before deciding whether to participate in its
DRIP, the Commission proposes to provide that small issuers may not use
Form B to register their DRIPs unless the DRIP is limited to investors
who have held securities of the issuer for at least two months.
---------------------------------------------------------------------------

\115\ Securities Act Rule 405, 17 CFR 230.405, defines the term
dividend or interest reinvestment plan and states that such plans
may allow participants to contribute additional cash amounts for the
purchase of securities offered under the DRIP. Accordingly, once an
issuer registers a DRIP, it may offer securities to participants in
addition to or even in lieu of those purchased by the reinvestment
of dividends or interest.
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Should the proposed 15% threshold be lowered to 5% or 10%, or
raised to 20%? Would the shareholder purchase limitations adequately
protect against unregistered distributions to the public? Should the
percentage limitations be lower (e.g., 75% of the securities owned at
the start or 2% of the total offering) or higher (e.g., 150% of the
securities owned at the start or 10% of the total offering)? Should the
$10,000 minimum purchase amount during any 12-month period be lower
(e.g., $5,000) or higher (e.g., $20,000)? Should we lengthen the 12-
month measurement period to two years? Should the two-month ownership
period before participation be longer (e.g., 3, 4, 5 or 6 months) or
should it be shorter (e.g., one month) or eliminated completely?
Finally, would the holding period requirement make it overly burdensome
for issuers to determine who is eligible to participate in the DRIP?
ii. Offerings to Existing Common Stock Holders
For the same reasons we would permit small issuers to register on
Form B securities issued pursuant to DRIPs, rights offerings, or in
connection with convertible securities and exercise of transferable
warrants, we would permit smaller issuers to use Form B to register
offerings of common stock to existing common stock holders, without
regard to whether the offering was pursuant to an ongoing plan. This
proposal represents an extension of our current approach to offerings
to existing security holders and reflects, in part, our recognition
that more and more companies offer securities to existing security
holders through direct stock purchase plans (``DSPPs'').
To register on Form B, these offerings would have to meet the
following conditions:
1. The securities registered on Form B are offered only to existing
common stock holders that have held the issuer's common stock for at
least two months;
2. The dollar amount of the securities registered on Form B
represents no more than 15% of the issuer's public float when
aggregated with the dollar amount of securities previously registered
by the issuer on Form B pursuant to any offering directed solely to
common security holders, including under DRIPs, within the 12 months
before the start of, and during, the current offering; and
3. The shareholder purchases in any 12-month period no more than
the smaller of 100% of the value of the issuer's common stock owned by
the shareholder at the start of the 12-month period, or 5% of the total
offering amount, except that any shareholder may purchase up to $10,000
of common stock in any 12-month period.

[[Page 67190]]

We propose the first two conditions for the same reasons we propose
them in connection with DRIPs. Just as with DRIPs, we seek to prevent
small companies otherwise ineligible to use Form B from being overly-
aggressive in labeling a sale to the public as a sale to existing
shareholders. Therefore, we impose these conditions. The first
condition requires issuers to aggregate all their offerings of common
stock to existing security holders, including those under DRIPs, to
determine how much common stock they may register on the Form B for
offerings to existing common stock holders. We believe the condition is
appropriate because it would inhibit smaller issuers from circumventing
the 15% public float mechanism designed to prevent smaller issuers from
using DRIPs to raise excessive amounts of capital through a short-form
registration statement that they would otherwise be ineligible to
use.¹¹⁶ These common stock offerings raise concerns similar
to offerings under DRIPs. We therefore propose to add the same kind of
common stock shareholder purchase limitation as proposed for DRIP
offerings registered on Form B.
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\116\ Many issuers offer securities to existing security holders
through DSPPs to qualify those holders to participate in their
DRIPs. Depending on the circumstances, the two plans could work in
the same ways and provide holders with the same benefits.
Accordingly, at this time, we believe it is appropriate to limit the
amount of securities a small issuer can register under either
offering when registering them on Form B--no matter how the offering
is characterized.
---------------------------------------------------------------------------

The Commission believes this proposal will make it easier for
smaller issuers to publicly offer securities to its existing
shareholders. The proposal also may benefit investors because extending
Form B for offerings pursuant to DSPPs may encourage issuers to
register them.
We solicit your comment on this proposal. Should we narrow or
expand the offering thresholds? Would the shareholder purchase
limitations adequately protect against unregistered distributions to
the public? Should the purchase limitations be the same as used in DRIP
offerings or should they be lower or higher? Is two months a sufficient
amount of time to ensure that investors would have time to familiarize
themselves with the issuer? Is it a sufficient period of time to ensure
the offering is truly one to existing shareholders and not simply an
offering to the public at large? Should we have a minimum ownership
requirement to ensure that investors have reason to keep informed about
the company? If so, how much? Would a $1,000, $2,000, $5,000 or $10,000
threshold be appropriate? Should we apply a minimum ownership
requirement to DRIPs as well? If so, should the threshold be the same
as for offerings of common stock to common stock holders?
We are proposing to make Form B available for offerings to existing
common stock holders of smaller issuers, in part, because we assume
that those investors are following those issuers. Therefore, those
investors would not need delivery of company information. Is our
assumption correct that an existing common stock holder is likely to
follow the issuer? Would it be more appropriate to move such offerings
to Form A but permit small issuers to designate the effective date of
their Form A registration statement? What additional costs, if any,
would issuers incur as a result of requiring them to use Form A for
these offerings, with the ability to designate their effective dates,
instead of Form B?
iii. Convertible Securities, Transferable Warrants and Rights Offerings
In 1972, we adopted amendments to our short-form registration
statement to provide that seasoned issuers could use Form B to register
securities to be offered upon the conversion of outstanding convertible
securities and upon the exercise of outstanding transferable
warrants.¹¹⁷ In 1978, we adopted, in the ``nature of an
experiment,'' short-form registration to register rights offerings to
existing shareholders.¹¹⁸ We determined not to require that
issuers of rights offerings, or of the other kinds of offerings to
existing shareholders, meet the newly adopted eligibility standards
applied to primary offerings by large, seasoned
companies.¹¹⁹ When we adopted Form S-3, we explained that
offerees in offerings to existing shareholders pursuant to rights
offerings, exercises of convertible securities, exercises of
transferable warrants and dividend or interest reinvestment plans did
``not need the additional assurances of wide information dissemination
provided by the test for primary offerings'' because they already owned
securities of the issuer and could be presumed to follow the issuer
through corporate communications and Exchange Act
reports.¹²⁰
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\117\ See Securities Act Release No. 5265 (June 27, 1972) [37 FR
15989].
\118\ Securities Act Release No. 5879 (Nov. 2, 1977) [42 FR
58677].
\119\ Securities Act Release No. 5923 (Apr. 11, 1978) [43 FR
16672]; Securities Act Release No. 5931 (May 15, 1978) [43 FR
21661].
\120\ Securities Act Release No. 6331 (Aug. 6, 1981) [46 FR
41902].
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We believe that reasons that have historically supported a
streamlined and relaxed approach to offerings by smaller seasoned
issuers to existing shareholders would support extending the
availability of proposed Form B to smaller reporting issuers that make
offerings of securities pursuant to: rights offerings,¹²¹
conversion of outstanding convertible securities and exercise of
transferrable warrants.¹²² Those issuers would continue to
realize the benefits of short-form registration for offerings to
existing shareholders that had already made a decision to invest in the
issuer. At the same time, the reporting requirement of Form B would
ensure the public availability of at least 12 months of public
information about the issuer.
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\121\ In situations where securities underlying rights may be
acquired by new investors because, for instance, the rights are
transferable, an issuer may not use short-form registration unless
it meets the eligibility requirements for a primary offering on the
form. See, e.g., Securities Act Release No. 6943 (July 16, 1992).
Our proposals would not alter this position. Accordingly, smaller
issuers would be ineligible to use Form B to register securities
underlying rights that may be acquired by new investors. We also
would preclude smaller issuers from using Form B to register
securities underlying rights that were not taken up by existing
shareholders and that would be offered on a ``standby'' basis to new
investors.
\122\ Form B would not be available for the issuance of
securities pursuant to a conversion of a convertible security or the
exercise of a transferable warrant if the issuance of such
securities could occur within one year of the company's issuance of
the convertible security or transferable warrant. If the underlying
security is issuable within one year of the company's issuance of
the convertible security or transferable warrant, the underlying
security would be part of the offering of the convertible security
or transferable warrant. Consequently, the underlying securities
must be registered with the convertible security or transferable
warrant. In that case, unless the issuer is eligible to use Form B
to register the convertible security or transferable warrant, it
would not be eligible to register the underlying security on Form B.
See The Division of Corporation Finance Manual of Publicly Available
Telephone Interpretations, Section A.9. (July 1997).
---------------------------------------------------------------------------

We seek your comment on this proposal. Do any of these three types
of offerings present risks that should result in exclusion from Form B?
Is there any reason to preclude such issuers from using Form B? Should
we restrict availability of Form B to smaller issuers that have sent at
least a glossy annual report to their shareholders ¹²³
within the twelve months before making their offering to existing
shareholders? Is that requirement useful in light of the fact that the
warrants or convertible securities are transferable, and therefore the
shareholders to whom the issuer

[[Page 67191]]

would send that information may not be the same persons who exercise or
convert? Are we correct in continuing to believe that existing
investors would follow the issuer and keep informed of its business?
Or, to ensure investor follow-up, should we limit Form B for offerings
to existing security holders that hold a minimum amount or value of the
issuer's securities (e.g., $2,000)?
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\123\ Throughout this release, all references to ``annual
report'' or ``Exchange Act annual report'' refer to the annual
report filed under Section 13(a) of the Exchange Act, generally on a
Form 10-K or 20-F. All references to the ``glossy annual report to
security holders'' or ``the annual report to security holders''
refer to the annual report filed under Rule 14a-3, 17 CFR 240.14a-3.
---------------------------------------------------------------------------

Under current requirements, an issuer may not use Form S-3 to
register securities pursuant to DRIPs, upon exercise of outstanding
rights or transferable warrants, or upon conversion of outstanding
convertible securities unless it has sent an annual report
¹²⁴ within the 12 months preceding the filing of the Form S-
3 to all record holders of those outstanding or DRIP
securities.¹²⁵ Foreign private issuers registering such
offerings on Form F-3 are not subject to any prior information delivery
requirement.¹²⁶ We have not included a prior delivery
requirement in the proposed system. These issuers would be ineligible
to use Form B unless they had already filed with the Commission at
least one annual report.¹²⁷
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\124\ Form S-3 states that the material that issuers must
deliver to existing security holders must include the information
required by Rule 14a-3(b), 17 CFR 240.14a-3(b). The information
required under that Rule is most frequently included in companies'
glossy annual reports, and is less detailed than the information
required in an annual report filed under cover of Form 10-K. Form S-
3 also states that management-related information need only be
delivered to existing security holders who may be issued common
stock in connection with their exercises or conversions of
securities or participation in a DRIP.
\125\ See General Instruction I.B.4. of Form S-3.
\126\ See General Instruction 1.B.4. of Form F-3. Foreign
private issuers, however, are not permitted to use Form F-3 for
these kinds of offerings if any of the securities are to be offered
or sold in a standby or similar underwriting arrangement.
\127\ Smaller issuers of securities under these kinds of
offerings, whether domestic or foreign, would not be eligible to use
Form B unless they: were seasoned (subject for at least 12 months to
the reporting requirements of Section 12 or 15(d)); were timely in
meeting their reporting obligations; and had filed at least one
annual report under the Exchange Act. See General Instruction I.B.
of proposed Form B.
---------------------------------------------------------------------------

We solicit comment on whether to impose any information delivery
requirement on smaller issuers that would use Form B to register
securities issuable in connection with these kinds of securities
offerings. Is it fair to assume that security holders would have
adequate information about an issuer they already invested in if the
issuer were not required to deliver annual report information to
security holders? Should we require them to provide existing security
holders with more information than would be required under current
rules (e.g., information in an annual report on Form 10-K or 20-F)?
In connection with this proposal, are there any reasons to continue
to distinguish domestic issuers from foreign private issuers? Should we
require foreign private issuers making these kinds of offerings to
deliver information to their existing security holders? If so, should
they be required to deliver the same kind of information required by
Form 20-F, or should we allow them to deliver the level of information
required by Rule 14a-3?
iv. Exercise of Outstanding Transferable Options
We propose to allow smaller seasoned issuers to use Form B to
register offerings to existing security holders of securities issuable
upon exercise of outstanding transferable options. Issuer options are
like warrants in that they entitle the holder to buy or sell securities
at a fixed price, during a specified period in the future. In deciding
whether to buy the option, an investor speculates about the future
value of the security underlying the option. An option holder then
either trades the option on the basis of the premium price, exercises
it or lets it lapse.
If an option holder has already made one investment decision about
the underlying securities before exercising the option, we believe it
is fair to presume that the holder has access to information about the
issuer. (In the case of employee options, the employee may have simply
received a grant of options.) To at least the same extent as existing
shareholders, we believe that such investors may be expected to follow
the issuer closely through corporate communications or Exchange Act
reports. Therefore, we propose to extend Form B to smaller seasoned
issuers for registration of securities issuable upon exercise of
options.
As in the case of conversions of convertible securities and
exercises of transferable warrants, if the underlying security is
issuable within one year of the company's issuance of the option, the
underlying security would be part of the offering of the option.
Consequently, the underlying securities must be registered with the
option. In that case, unless the issuer is eligible to use Form B to
register the option, it would not be eligible to register the
underlying security on Form B.¹²⁸
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\128\ See The Division of Corporation Finance Manual of Publicly
Available Telephone Interpretations, Section A.9. (July 1997).
---------------------------------------------------------------------------

We seek comment on this proposal. Would allowing Form B
registration for option exercises by smaller companies otherwise
ineligible for Form B result in indirect distributions of common stock
to the public? Does their ineligibility to use Form B for this purpose
if exercisable within a year avoid that possibility? Should we preclude
Form B registration for exercises of options by dealers to avoid the
possibility of issuers entering into options with underwriters as a
means to effect a delayed distribution by issuers that would be
ineligible for delayed shelf registration?
For domestic issuers that would use Form B for offerings to
existing shareholders, should we, following Form S-3's current
requirements, extend the Form only if within the 12 months preceding
the filing on Form B the issuer sent out material company and financial
information to all its existing shareholders to whom it would extend
the Form B offering? ¹²⁹ If so, would investors need more or
less information than what Form S-3 currently calls for in order to
make an informed investment decision? ¹³⁰ Would 6 months be
more appropriate because it would be more timely? What information, if
any, should foreign companies using the Form be required to have
provided? Would this registration option render Form S-8 unnecessary
for exercises of employee stock options? Should we continue to require
issuers to register employee stock option exercises on Form S-8 in
light of the fact that employees may not have made an investment
decision when acquiring the options?
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\129\ Prior delivery of specific information to existing
shareholders is not currently required on Form F-3.
\130\ See General Instruction I.B.4. of Form S-3, citing to Rule
14a-3(b) of the Exchange Act, 17 CFR 249.13a-3(b), and Items 401,
402 and 403 of Regulation S-K, 17 CFR 229.401-229.403.
---------------------------------------------------------------------------

d. Non-Convertible Investment Grade Securities
Today, companies that do not meet the public float requirement of
Form S-3 may nevertheless register an offering of non-convertible
investment grade securities on that Form. When the Commission adopted
Form S-3 in 1982, we indicated that Form S-3 was appropriate for the
registration of investment grade securities because investors purchase
those securities on the basis of their interest rate and credit
rating.¹³¹ The Commission continues to believe that
investors rely on a security's credit rating, although investors may
well seek more than just

[[Page 67192]]

rating information in order to evaluate the investment.
---------------------------------------------------------------------------

\131\ Securities Act Release No. 6383 (Mar. 3, 1982).
---------------------------------------------------------------------------

Given the historical precedent of using investment grade rating as
an eligibility criterion for Form S-3 registration, we are proposing to
allow non-convertible investment grade securities offerings to be
registered on Form B by issuers that have been reporting under the
Exchange Act for at least a year, have filed at least one annual report
and are current and timely in filing those reports. We solicit comment,
however, regarding whether we should continue to have a registration
system in which Form eligibility turns solely on a credit rating,
particularly in the case of Form B. A credit rating is one
organization's judgment about the likelihood of default. That judgment
is not a guarantee of no risk. Rather than allowing use of Form B on
the sole basis of an investment grade rating for the securities being
offered, should we provide for registration of those securities on Form
A with its mandated transactional disclosure but allow for
effectiveness of those Form A filings upon demand?
e. Market Making Transactions by Affiliated Broker-Dealers
When a broker-dealer that is an affiliate of an issuer
¹³² engages in market making transactions in that issuer's
securities, registration under the Securities Act is
required.¹³³ The registration requirement arises under the
statute due to either of two reasons. First, in the definition of
``underwriter'' under the Securities Act, the term ``issuer'' includes
any person affiliated with the issuer.¹³⁴ Because of the
affiliation between the broker-dealer and the issuer, the broker-dealer
itself is considered an issuer. Thus, the exemption from Securities Act
registration for persons other than ``issuers, underwriters and
dealers'' would not be available.¹³⁵
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\132\ A broker-dealer is considered an affiliate of the issuer
when the broker-dealer controls, or is controlled by, the issuer or
when the broker-dealer and the issuer are under common control. See
Rule 405 of Regulation C, 17 CFR 230.405. The determination of
control is based on the facts and circumstances of the particular
situation.
\133\ Market-making transactions are principal transactions. A
principal transaction is a transaction in which the broker-dealer
purchases or sells for its own account, rather than the account of
another party.
\134\ Section 2(a)(11) of the Securities Act defines the term
``underwriter'' to mean ``any person who has purchased from an
issuer with a view to, or offers or sells for an issuer in
connection with, the distribution of any security, * * * or
participates or has a participation in the direct or indirect
underwriting of any such undertaking. * * * As used in this
paragraph the term ``issuer'' shall include, in addition to an
issuer, any person directly or indirectly controlling or controlled
by the issuer, or any person under direct or indirect common control
with the issuer.'' 15 U.S.C. Sec. 77b(a)(11).
\135\ See Section 4(1) of the Securities Act, 15 U.S.C.
Sec. 77d(1).
---------------------------------------------------------------------------

The second reason registration is required flows from the
definition of ``dealer'' under the Securities Act. The Securities Act
exempts from registration most securities transactions by
dealers.¹³⁶ ``Dealer,'' as defined under the Securities Act,
means any person that engages in transactions in ``securities issued by
another person.'' ¹³⁷ If an issuer and its broker-dealer are
affiliated, the broker-dealer would be considered to be an issuer.
Hence, if it engages in a transaction in the issuer's securities, its
transaction would not be in securities ``issued by another person.''
Thus, the affiliated broker-dealer is not a ``dealer'' under the
Securities Act and the dealer's exemption is not available. Absent an
exemption, registration under the Securities Act is required by Section
5.
---------------------------------------------------------------------------

\136\ See Section 4(3) of the Securities Act, 15 U.S.C.
Sec. 77d(3).
\137\ Section 2(a)(12) of the Securities Act defines the term
``dealer'' to mean ``any person who engages either for all or part
of his time, directly or indirectly, as agent, broker, or principal,
in the business of offering, buying, selling, or otherwise dealing
or trading in securities issued by another person.'' 15 U.S.C.
Sec. 77b(a)(12).
---------------------------------------------------------------------------

In accordance with Section 5, therefore, the broker-dealer must
prepare and deliver ``market making prospectuses'' in market making
transactions in securities of its affiliates. This prospectus discloses
the affiliation between the issuer and broker-dealer, explains the use
of the prospectus in offers and sales by the affiliated broker-dealer
in market making activities, and provides information about the issuer.
We have recognized that prospectus delivery in market making
transactions imposes a burden on affiliated broker-
dealers.¹³⁸ We seek to reduce that burden while maintaining
investor protection. By allowing registration of these transactions on
Form B, we would preserve the benefits for investors of registration,
but alleviate much of the burden.¹³⁹
---------------------------------------------------------------------------

\138\ The Task Force recommended elimination of the affiliated
broker-dealer's prospectus delivery obligation in ``regular way''
market making transactions in outstanding securities of a Section 12
reporting company. Task Force Report at p. 42.
\139\ See Sections VIII.C.3. and VIII.C.4.a. of this release for
a discussion of when prospectus information must be delivered in
Form B offerings.
---------------------------------------------------------------------------

Certain other transactions are proposed to be allowed on Form B
because of the nature of the purchasers, such as their financial
sophistication or their pre-existing knowledge of the issuer. Because
of their nature, these purchasers appear to have less need for
prospectus delivery. Purchasers in market making transactions, on the
other hand, may not have prior issuer knowledge or financial
sophistication. Despite this difference, however, purchasers in market
making transactions should not be adversely affected by registration on
Form B. Buyers in this situation, like most buyers in the secondary
markets, are likely to have made their investment decisions before
contact with the market maker.
We propose to permit registration of ordinary market making
transactions by affiliated broker-dealers on Form B only if the issuer
is a reporting company under the Exchange Act.¹⁴⁰ That
criterion would assure that information about the registrant is
publicly available. We also would include two requirements to be sure
that the transactions by affiliated broker-dealers are bona fide market
making transactions. First, the broker-dealer must engage in the
transactions only in its ordinary capacity as a market
maker.¹⁴¹ Second, the securities must be outstanding
securities that the broker-dealer did not acquire directly from the
issuer or an affiliate of the issuer or indirectly by arrangement with
those parties. Market making transactions that do not meet these
requirements could not be registered on Form B.
---------------------------------------------------------------------------

\140\ The same disqualifications that would apply to other types
of offerings on Form B also would apply for registration of market
making transactions. See Section V.A.2.g. of this release.
\141\ Section 3(a)(38) of the Exchange Act defines the term
``market maker'' to mean ``any specialist permitted to act as a
dealer, any dealer acting in the capacity of block positioner, and
any dealer who, with respect to a security, holds himself out (by
entering quotations in an inter-dealer communications system or
otherwise) as being willing to buy and sell such security for his
own account on a regular or continuous basis.'' 15 U.S.C.
Sec. 78c(a)(38).
---------------------------------------------------------------------------

We request your views on this aspect of Form B eligibility. Should
market making transactions by affiliated broker-dealers be permitted on
Form B? If not, why should they be excluded? Are there reasons
prospectus delivery should be retained for all market making
transactions? Are the registrant requirements appropriate and adequate?
Are there additional restrictions that would further ensure that only
bona fide market making transactions are registered on Form B? Should
the Commission consider extending Form B for this purpose to non-
reporting foreign private issuers whose securities are traded in
designated offshore markets and who claim the exemption from
registration under Rule 12g3-2(b)? Should we more specifically define
the

[[Page 67193]]

types of market making transactions permitted? Should the Commission
exempt all market making transactions from prospectus delivery
requirements, or exempt certain market making transactions from the
registration requirements entirely?
f. Small Business Issuers
Most small business issuers that file Exchange Act reports provide
disclosure based upon Regulation S-B. These issuers would be allowed to
register certain offerings on Form B. If they meet the seasoned
reporting requirements of Form B, they would be able to register on
Form B offerings to certain existing security holders, offerings of
non-convertible investment grade securities, offerings solely to QIBs
and market making transactions.
A small number of reporting small business issuers provide non-
financial statement disclosure based on Form 1-A, instead of Regulation
S-B.¹⁴² The Form 1-A disclosure requirements are generally
less extensive than those of Regulation S-B. These issuers are called
``transitional small business issuers.'' ¹⁴³ These companies
continue to provide non-financial statement disclosure based on Form 1-
A in their Exchange Act reports.
---------------------------------------------------------------------------

\142\ Form 1-A is the Form used to qualify securities under
Regulation A, an exemption from registration under the Securities
Act. Form 1-A contains two offering circular models, Model A and B,
plus other parts. These offering circular models and Part F/S of
Form 1-A provide the disclosure requirements for offering circulars
used in Regulation A offerings.
\143\ Transitional small business issuers are companies that
either initially registered a securities offering on Form SB-1 under
the Securities Act or initially registered on Form 10-KSB under the
Exchange Act and provided certain Form 10-KSB disclosure based on
the Form 1-A non-financial statement disclosure requirements.
---------------------------------------------------------------------------

Proposed Form B would not be available for transitional small
business issuers.¹⁴⁴ We believe that these issuers should be
excluded from using the Form for several reasons. First, the disclosure
in their Exchange Act reports would be less detailed than disclosure
provided by other Exchange Act reporting companies. Second, these
issuers are likely to have less experience in preparing disclosure
documents. Third, we believe that the disclosure document should be
subject to possible staff review. Consequently, automatic effectiveness
should be unavailable for these offerings.
---------------------------------------------------------------------------

\144\ This approach is consistent with our approach under the
proposed changes to Form SB-2 and proposed new Form SB-3. Proposed
Form SB-2 and SB-3 would not permit incorporation by reference by
transitional small business issuers.
---------------------------------------------------------------------------

We request your comments on our treatment of small business issuers
under proposed Form B. Should Form B be available for small business
issuers? If not, why not? Should we expand the Form to permit offerings
by transitional small business issuers? If so, what types of offerings
should they be allowed to conduct under the Form?
g. Form B Disqualifications
Given the freedom and flexibility provided to issuers that would
register their offerings on Form B, we do not believe that all issuers
that would meet the Form's reporting and other eligibility requirements
would necessarily be suited to use the Form. We believe certain events
and circumstances justify disqualification of otherwise eligible
offerings from registration on Form B, no matter under which category
of Form B offerings it would be eligible. For those offerings,
investors need the additional protections that come with registration
on other forms: mandated transactional disclosure standards; stricter
prospectus delivery requirements; possible staff review; and greater
Commission control over effectiveness.
Under our proposal, the disqualifications generally would fall into
four categories. The first category would include issuers whose
offerings have been identified as potential vehicles for fraudulent and
manipulative schemes that harm investors.¹⁴⁵ Blank check
companies ¹⁴⁶ and companies offering penny stock
¹⁴⁷ would fall into this category. The second category would
include issuers that appear more likely to face potentially significant
liquidity problems, such as issuers that recently defaulted on material
indebtedness. An issuer that is the subject of a ``going concern''
opinion from its independent auditor also would fall into this
category, as would an issuer that recently was involved in a bankruptcy
or insolvency proceeding.
---------------------------------------------------------------------------

\145\ See, e.g., Securities Act Release No. 7006 (July 2, 1993)
[58 FR 37445].
\146\ Securities Act Rule 419(a)(2), 17 CFR 230.419(a)(2),
defines blank check company.
\147\ Exchange Act Rule 3a51-1, 17 CFR 240.3a51-1, defines penny
stock.
---------------------------------------------------------------------------

We also believe that an issuer should be disqualified from the
privilege of using Form B if it abuses the registration system or other
federal securities laws. The third category of Form B ineligible
issuers would therefore include those issuers that within five years
before the date of filing a Form B were found to have violated
provisions of the federal securities laws or that were convicted of
securities fraud or business-related fraud or perjury.¹⁴⁸ It
also would include issuers with executive officers, directors, general
partners or nominees to such positions, or issuers using underwriters,
that have done the same.
---------------------------------------------------------------------------

\148\ See General Instruction I.B.6.(g) and (h) of Proposed Form
B, 17 CFR 239.5.
---------------------------------------------------------------------------

The issuers in these three categories have historically been viewed
as unsuited to short-form registration or ineligible for certain
disclosure-related relief. For instance, the Commission has repeatedly
stated its belief that penny stock and blank check offerings give rise
to disclosure abuses.¹⁴⁹ In addition, Congress determined
not to extend the safe harbors for forward-looking statements to:
issuers of blank check and penny stock securities offerings; issuers
previously convicted of certain felonies and misdemeanors; and, issuers
that are subject to a decree or order involving a violation of the
securities laws.¹⁵⁰ Accordingly, we believe it is
appropriate to preclude such issuers from registering their offerings
on Form B.
---------------------------------------------------------------------------

\149\ See, e.g., Securities Act Release No. 7024 (Oct. 25, 1993)
[58 FR 58099] (the Commission stated that Congress found blank check
companies to be common vehicles for fraud and manipulation in the
penny stock market, and concluded that the Commission's disclosure-
based regulation and review of such offerings protects investors);
Securities Act Release No. 7393 (Feb. 20, 1997) [62 FR 9276] (blank
check and penny stock issuers would be ineligible to use proposed
rule providing for delayed pricing because of ``prior substantial
abuses'').
\150\ Section 27A of the Securities Act, 15 U.S.C. Sec. 77z-2,
and Section 21E of the Exchange Act, 15 U.S.C. Sec. 78u-5.
---------------------------------------------------------------------------

The fourth category of issuers that we would disqualify from use of
Form B would include issuers that fail to cooperate in good faith with
the Commission's selective review system for Exchange Act reports. If
the issuer has failed to resolve the Commission's staff's comments on
an Exchange Act report that the issuer would be incorporating by
reference into its Form B, we would not permit that issuer to use Form
B.
We seek comment on these proposals. Should other categories of
issuers also be precluded from using Form B? For example, is there any
reason we should disqualify certain entities from using Form B, such as
partnerships, limited liability companies or direct participation
investment programs? On the other hand, should any of the issuers noted
in the four categories be permitted to use Form B? Should any of them
be permitted to use Form B, but not be permitted to designate the
effective time? Should we extend the look-back periods used to
disqualify issuers in any other category to coincide

[[Page 67194]]

with the five-year look-back for issuers which have violated the law?
More recently the Commission has identified offering abuses
associated with very small capitalization issuers.¹⁵¹ We
solicit comment on whether issuers more likely to be identified with
microcap fraud should be disqualified from using Form B even though
they do not fall into the blank check/penny stock category or the prior
violations category. If we were to disqualify issuers more likely to
engage in microcap offering fraud, how would we define such a category?
What issuer or offering characteristics would be inclusive enough to
meet our goal of preventing abuse but exclusive enough to avoid
improperly stigmatizing smaller issuers that are not involved in fraud?
---------------------------------------------------------------------------

\151\ See, e.g., Securities Act Release No. 7505 (Feb. 17, 1998)
[63 FR 9632] (adopting amendments to Regulation S (17 CFR 230.901-
905)); Exchange Act Release No. 39670 (Feb. 17, 1998)[63 FR 9661]
(proposing amendments to Exchange Act Rule 15c2-11 (17 CFR 240.15c2-
11)).
---------------------------------------------------------------------------

Would disqualification from Form B use on the basis of a ``going
concern'' opinion from the issuer's independent auditor cause undue
pressure to be placed on auditors not to issue those opinions? Should
the Commission replace that disqualification with one dependent on
whether the issuer had: (1) net losses or negative cash flows from
operations for two or more of the past three annual fiscal periods; or
(2) a deficit in net worth at the date of the most recent balance
sheet?
h. Secondary Offerings
As proposed, registrants would not be able to register an offering
on Form B without meeting other eligibility criterion simply because it
is a secondary offering. Whether an equity offering is a primary or
secondary one, the investment is in the securities of the issuer and it
is the issuer's disclosure that is relevant to investors. In either
offering, the issuer prepares the disclosure. The primary difference is
that the issuer does not receive the proceeds in the secondary
offering. Considered only from an investor's viewpoint, the same
disclosure would be needed regardless of whether the issuer or an
affiliate is selling the securities.
For some time, however, we have made a distinction in eligibility
for short-form registration between primary and secondary
offerings.¹⁵² To register secondary offerings, issuers do
not need to meet the Form S-3 or F-3 public float test. By allowing
short-form registration for secondary offerings, we have inadvertently
provided an incentive for issuers not to register primary sales and to
distribute to the public indirectly through third parties. Some
registrants have been particularly aggressive about casting what are
actually primary distributions as secondary offerings by selling
shareholders in order to use current short-form registration. This
practice threatens the integrity of the registration process by
permitting registrants to do indirectly what they would be precluded
from doing directly. Given the attractions of Form B, we would expect
that practice to continue if we were to allow secondary offering
registration on Form B. We would avoid that abuse by not allowing
registration of secondary offerings on Form B unless other offering
eligibility criteria were met.
---------------------------------------------------------------------------

\152\ See Securities Act Release No. 5265 (June 27, 1972).
---------------------------------------------------------------------------

In 1981, we proposed to apply the same public float test for both
primary and secondary offerings in Form S-3. Commenters were concerned
that applying the additional float requirement to secondary offerings
would adversely affect venture capital companies and their investors.
In light of that concern, we chose to distinguish the two types of
offerings in Form S-3. The proposed registration system, however, has
several advantages over the existing system that could ease any
concerns regarding venture capitalists. For example, under the
eligibility requirements for use of Form B, a company may register its
initial offering of common stock to the venture capitalists on Form B
that are existing common stockholders of the company. We also would
make Form B available for any offering to venture capitalists who are
QIBs. Form B offerings could be completed as quickly as today's private
offerings, because Form B would not be subject to staff pre-review and
could be effective upon filing if the issuer chooses. Because Form B
would permit companies to register their initial offerings to venture
capitalists, as opposed to first completing a private placement and
then registering those securities for a secondary offering, special
treatment of secondary offerings for the sake of venture capitalists
would no longer be needed.¹⁵³
---------------------------------------------------------------------------

\153\ Under this proposal, unlike in a registered secondary
offering, venture capitalists would generally not be subject to the
prospectus delivery requirements.
---------------------------------------------------------------------------

Registrants would register secondary offerings not eligible for
Form B under the proposed system on Form A which is described in detail
below. Form A, unlike Form S-1 today, would permit companies to
incorporate their Exchange Act filings by reference. Consequently, it
should take a company less time to prepare its registration statement
on Form A as compared to Form S-1 today. Additionally, the Commission
is proposing to provide some Form A companies with the ability to
designate the effective dates of their registration
statements.¹⁵⁴ Where applicable, the company's registration
statement, therefore, would be effective significantly sooner than
under the current system.¹⁵⁵
---------------------------------------------------------------------------

\154\ See proposed revisions to Securities Act Rule 462, 17 CFR
230.462.
\155\ The holding period of Rule 144(d), 17 CFR 230.144(d), also
is much shorter today than it was in 1981, thus making private
placements more attractive as an alternative to registration than
they were in 1981. We recently proposed to narrow the definition of
``affiliate.'' Consequently, Rule 144 would be available to most
venture capitalists. Securities Act Release No. 7391 (Feb. 20, 1997)
[62 FR 9246].
---------------------------------------------------------------------------

We are proposing to treat primary and secondary offerings the same
on Form B. Thus, secondary offerings by affiliates ¹⁵⁶ would
need to qualify under the same public float/ADTV, QIB-only, existing
shareholders, or investment grade eligibility criteria. Affiliates
stand in the shoes of the issuer and should get no different or better
treatment. Because issuers and others have relied upon the historical
distinction between secondary and primary offerings, however, we
solicit comment regarding whether the secondary nature of offerings by
non-affiliates should be added as a separate eligibility criterion on
new Form B.
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\156\ For purposes of this discussion, we assume that the
narrower definition of ``affiliate'' proposed by the Commission in
1997 would apply. We have not proposed that narrower definition in
this release because we already have proposed it.
---------------------------------------------------------------------------

Similarly, we are proposing to revise Form S-8 treatment of
secondary offerings.¹⁵⁷ Currently, affiliates and others may
register on Form S-8 resales of control or restricted securities
acquired pursuant to an employee benefit plan. The resale prospectus on
Form S-8 must meet the requirements of Part I of Form S-3 or Form F-3.
For the same reasons that we are not proposing special eligibility for
secondary offerings on Form B, we propose to eliminate special
eligibility for secondary (i.e., resale) offerings on Form S-8. Whether
an offering is primary or secondary is of little importance to most
investors. Investors tend to base their investment decision on an
issuer's disclosures. Accordingly, we believe amending Form S-8 would
further investor protection.
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\157\ Form S-8 would be largely unaffected by the proposed
registration system. For example, no additional filing or delivery
requirements would be added for Form S-8.
---------------------------------------------------------------------------

Comment is solicited with respect to elimination of S-3 level
registration of

[[Page 67195]]

secondary offerings on Form S-8. Are there compelling reasons to retain
that treatment in an employee benefit context that would not apply in
other secondary offerings?

B. Form A Offerings

Form A would be the basic form for registration under the
Securities Act.¹⁵⁸ It would be available for any offering
for which no other Form is authorized or prescribed. Initial public
offerings and smaller reporting issuers' offerings ineligible for
another form would be registered on Form A. Many of the offerings that
issuers would register today on Form S-1, F-1, S-2 and F-2 would be
registered under the proposed system on Form A. Just as in the case of
Forms B and C, both domestic and foreign filers would use Form
A.¹⁵⁹
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\158\ Form A also may be used to register concurrently under
Section 12(b) or 12(g) of the Exchange Act. See Section VI. of this
release for a discussion of concurrent Exchange Act registration.
\159\ U.S. registrants must provide all information required by
the Items of the Form except where the Item expressly identifies the
requirement as applying only to foreign registrants. Similarly,
foreign registrants must provide all information required by the
Items of this Form except where the Item expressly identifies the
requirement as applying only to U.S. registrants.
---------------------------------------------------------------------------

1. Structure of Form A
In keeping with current Securities Act registration forms, there
are two parts to Form A: information included in the prospectus (Part
I) and information not included in the prospectus (Part II).
a. Part I--Information Required in the Prospectus
Part I of Form A requires the following three categories of
information: (1) standard disclosure on the cover and back pages of the
prospectus and registration statement; (2) transactional information;
and (3) company information. All issuers registering on Form A would
set forth the first two types of information directly in the
prospectus. Some Form A issuers would incorporate by reference their
company information, while others would set forth that information
directly in the prospectus.
i. Cover Pages
All issuers using Form A must comply with Items 501, 502 and 503 of
Regulation S-K relating to information on the front cover page of the
registration statement, the cover pages of the prospectus and in the
summary and risk factors sections, among others. This is the same
requirement as in current Forms S-1, F-1, S-2 and F-2.
ii. Transactional Information
All issuers using Form A also must provide information regarding:
Summary risk factors and ratio of earnings to fixed
charges;
Use of proceeds;
Determination of offering price;
Dilution;
Selling security holders;
Plan of distribution;
Description of securities;
Interests of named experts and counsel; and
The Commission's position on indemnification for
Securities Act liabilities.

Again, this is the same information that is required in current Forms
S-1, F-1, S-2 and F-2.
iii. Company Information
Depending on whether the issuer is ``seasoned'' or not, it must
present company-related disclosure either in full in the prospectus or
incorporate it by reference into the prospectus that is part of the
effective registration statement.
(A) ``Seasoned'' Form A Issuers
For purposes of Form A, ``seasoned'' issuers would be:
Issuers that have been reporting under the Exchange Act
for at least 24 months, if they have a public float of $75 million or
more; and
Issuers that have been reporting under the Exchange Act
for at least 24 months and have filed at least two annual reports.

Issuers that are ``seasoned'' would be eligible to incorporate their
previously filed Exchange Act reports by reference unless they meet any
of the disqualifications contained in General Instruction II.B. of the
Form.¹⁶⁰
---------------------------------------------------------------------------

\160\ Section 11 would apply to all documents incorporated by
reference in Form A.
---------------------------------------------------------------------------

A Form A registrant would incorporate by reference into the
prospectus and deliver, along with the prospectus, its latest annual
report filed pursuant to Section 13(a) or 15(d) of the Exchange Act and
either deliver or include in the prospectus the information in Part I
of Form 10-Q or 10-QSB for the most recent fiscal quarter. The
registrant must deliver the information required by this option with
the first prospectus it sends. It need not deliver that information
with any subsequent prospectus it sends to the same person.
Issuers relying on this option would not have to reiterate company
information in the prospectus, although they would have to deliver
those incorporated reports with the preliminary
prospectus.¹⁶¹ The Form A eligibility requirements for
incorporation by reference would reduce the length of time a registrant
must be reporting. Under current Forms S-2 and F-2, a registrant must
have a thirty-six month reporting history before it may incorporate by
reference.¹⁶² We solicit comment on whether the seasoning
test for incorporation by reference on Form A should be shortened
(e.g., to where the issuer has been reporting under the Exchange Act
for 12 months and has filed at least one annual report).
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\161\ For a discussion of Form A prospectus delivery
obligations, see Sections VIII.C.3. and VIII.C.4.b. and e. of this
release.
\162\ Those forms are available for smaller seasoned issuers,
but are rarely used. In 1996, only 102 Forms S-2 were filed and only
three Forms F-2 were filed.
---------------------------------------------------------------------------

If a company incorporates by reference, investors would be required
to review more than one document to obtain all the material
information. We solicit comment as to whether this increases the
analytical burden on investors. Additionally, does incorporation by
reference of documents containing historical disclosure tend to obscure
recent material information about the company? Would it be better for
investors if incorporation by reference was limited to the most recent
annual report with all subsequent information included in the
prospectus? Today, some small issuers that are not well known to
investors may include, for marketing purposes, information in their
prospectuses that also is contained in the documents they have
incorporated by reference. Is incorporation by reference useful for
such small companies? Is incorporation by reference necessary in light
of technological advances in financial printing? Does incorporation by
reference reduce an issuer's cost of registration if the incorporated
documents are required to be delivered to investors? If so, by how much
are costs reduced?
Current Forms S-2 and F-2 give a registrant two options for
complying with the disclosure requirements of the Form when
incorporating by reference. If the registrant elects to deliver the
prospectus together with its Exchange Act reports incorporated by
reference in the registration statement, it must provide in the
prospectus updating financial information and describe any material
changes in its affairs not previously disclosed in an incorporated and
delivered Exchange Act report. If the registrant does not elect to
deliver its incorporated Exchange Act reports together with the
prospectus, it must

[[Page 67196]]

provide abbreviated company information in the prospectus
itself.¹⁶³ Proposed Form A would permit only the first
option of providing company information when incorporating--a
registrant may incorporate company information into its prospectus and
deliver its Exchange Act reports together with the
prospectus.¹⁶⁴ Otherwise, it could not incorporate and must
set forth the full company disclosure required in a Form A, just like
an unseasoned Form A company.
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\163\ This disclosure is less comprehensive than what would be
required on Form S-1 or F-1 today. It includes information
regarding: the registrant's business, the registrant's common equity
securities, management's discussion and analysis, changes in and
disagreements with accountants on accounting and financial
disclosure and market risk. Financial statements and other financial
information, including selected financial data and supplementary
financial information are also required to be presented in the
prospectus.
\164\ The disclosure required by seasoned Form A registrants
includes a description of any material change in the registrant's
affairs that is not already described in a filing with the
Commission, incorporated by reference into Form A and delivered to
investors.
---------------------------------------------------------------------------

Current Form S-2 permits issuers to choose to incorporate and
deliver their glossy annual and quarterly reports to security holders
in lieu of incorporating and delivering their Exchange Act annual and
quarterly reports. Proposed Form A would require issuers to incorporate
and deliver their latest Forms 10-K and 10-Q, because those reports
must contain more extensive disclosure about the company.¹⁶⁵
We solicit comment on whether Form A seasoned issuers should be given
the option to incorporate and deliver their glossy annual and quarterly
reports to shareholders in lieu of their reports on Forms 10-K and 10-
Q, with the additional provisions that those glossy annual and
quarterly reports are incorporated by reference in their entirety (and
are therefore subject to Section 11 liability under the Securities Act)
and are filed with the Commission before their use in the Form A.
---------------------------------------------------------------------------

\165\ A small business issuer may choose to register an offering
on Form A rather than on Form SB-2 and incorporate and deliver its
reports on Forms 10-KSB and 10-QSB. A small business issuer that
registers an offering under Form A but that does not incorporate its
Exchange Act reports must provide the company disclosure called for
by Form A based on either Regulation S-K or Form 20-F (if a Canadian
small business issuer).
---------------------------------------------------------------------------

In certain circumstances, current Forms S-2 and F-2 permit
registrants that are majority-owned subsidiaries but do not meet the
Form eligibility requirements to register on those Forms instead of
Form S-1 or F-1 if their parent satisfies certain requirements. This
provision allows both the parent and the majority-owned subsidiary to
register the offering on one form and incorporate by reference.
Proposed Form A would not provide a similar option to those majority-
owned subsidiaries. Given that Form A encompasses both seasoned and
non-seasoned issuers and that incorporation by reference on Form A
would be available after 24 months, as opposed to the current 36-month
requirement, we believe there would be little reason to extend the
ability to incorporate by reference to majority-owned subsidiaries any
sooner.
(B) ``Unseasoned'' Issuers
In initial public offerings and offerings by all other issuers that
are not ``seasoned,'' we would require that the registrant provide
company information in the prospectus. The content of the company
information in the registration statement would remain the same as it
is in current Forms S-1 and F-1. We would not permit these issuers to
incorporate by reference any Exchange Act reports.
b. Part II--Information Not in the Prospectus
Just as in Forms S-1, F-1, S-2 and F-2, Part II of proposed Form A
would require the following information in the registration statement
but not in the prospectus that is delivered to investors: expenses of
issuance and distribution, indemnification of directors and officers,
recent sales of unregistered securities, exhibits and undertakings.
2. Timing of Form A Offerings
a. Seasoned Issuers
Many commenters on the Concept Release noted that issuers would
benefit from greater certainty of the time schedule of staff review.
For example, a fixed offering schedule would promote efficiency in
marketing efforts and the management of deal flow. We believe that we
can achieve greater certainty in the timing of staff review without
compromising investor protection. Proposed revisions to Securities Act
Rule 462 ¹⁶⁶ would provide for effectiveness of registration
statements and post-effective amendments of seasoned issuers on Form A
whenever they request if:
---------------------------------------------------------------------------

\166\ 17 CFR 230.462.
---------------------------------------------------------------------------

1. The registrant's public float is or exceeds $75 million; or
2. The Exchange Act annual report incorporated into the Form A
recently has been reviewed fully by the Commission staff and has been
amended in accordance with the staff's comments, if so
requested.¹⁶⁷
---------------------------------------------------------------------------

\167\ Form A would not permit incorporation by reference of any
Exchange Act report or other filing if the staff reviewed the filing
and any comments remain unresolved.
---------------------------------------------------------------------------

In addition to the reporting history requirement, issuers in all
cases must be subject to the Exchange Act reporting requirements,
current in filing their Exchange Act reporting requirements and timely
in filing their Exchange Act reports during the last 12 months in order
to be seasoned. A seasoned issuer that meets one of these criteria may
choose when it wants its registration statement on Form A to be
effective.¹⁶⁸ The front cover of the Form would include
three boxes, one of which the issuer would check to designate the date
and time of effectiveness of the Form. Like Form B issuers, these
seasoned Form A issuers may elect that the filing become effective:
immediately upon filing, at the date and time specified on the front
cover, or as specified in a later amendment. Even if an issuer met
either of those criteria, the proposal would preclude it from
designating the effectiveness of its Form A if the issuer fits the
profile of any issuer disqualified in Form A from the provisions in the
Form for incorporation by reference and automatic
effectiveness.¹⁶⁹
---------------------------------------------------------------------------

\168\ While these registration statements will not be reviewed
by the staff, any request for confidential treatment regarding
information required to be included in the registration statement
may be received by the staff. Therefore, any request for
confidential treatment should be submitted a reasonable period
before the registration statement's designated effective date.
\169\ See General Instruction II.B of proposed Form A and
Section V.B.1.a.4. of this release.
---------------------------------------------------------------------------

The basis of the public float test is to provide medium-sized
seasoned issuers with certainty about the timing of their registered
offerings. We believe that issuers would be more inclined to register
their offerings if they knew they could take advantage of market
windows or realize a need for quick capital by relying on Form A's
provisions for automatic effectiveness.
The $75 million public float criteria is the same float level
required in our current short-form registration statements (Forms S-3
and F-3). Our research indicates that approximately 1175 companies that
are currently eligible to use those short-form registration statements
would be ineligible to use Form B, at least with respect to offerings
requiring the issuer to satisfy the public float/ADTV threshold. Those
1175 companies generally would be able to avail themselves of Form A's
provisions for automatic effectiveness if they had reported under the
Exchange Act for at least 24 months. We propose the $75 million float
requirement to ensure that the only registration statements on Form A
that could become automatically

[[Page 67197]]

effective are those filed by issuers with some market following
resulting from their size and at least 24 months experience filing
Exchange Act reports.
The basis of the recently reviewed test is that the staff will have
reviewed the bulk of the issuer's disclosure. Pursuant to this test,
any seasoned Form A issuer may designate effectiveness where it
incorporates by reference into its Form A an annual report filed under
Section 13(a) or 15(d) for its most recently completed fiscal year
¹⁷⁰ that has been reviewed fully by the Commission staff and
the issuer has responded satisfactorily to the staff's
comments.¹⁷¹ As discussed in greater detail below, the staff
of the Division of Corporation Finance would consider requests that the
staff review their Exchange Act reports.¹⁷² Because issuers
may request that the staff review their Exchange Act annual reports
before registering on Form A, this mechanism would allow an issuer
further flexibility in controlling the timing of its registered
offering.
---------------------------------------------------------------------------

\170\ See proposed revisions to Securities Act Rule
468(f)(1)(iv), 17 CFR 230.468(f)(1)(iv).
\171\ Because Form A would not permit issuers to incorporate any
Exchange Act report if any Commission staff comments on it are
unresolved, issuers could only take advantage of this provision if
the review of their annual report was completed.
\172\ See Section XII.B. of this release.
---------------------------------------------------------------------------

We solicit your comment on this proposal. Should we permit these
registration statements on Form A to become effective per the issuer's
discretion? Is the $75 million float too high? Should it be lowered to
$60 million? Or should it be raised to $100 million or $200 million?
Would the proposal to allow a Form A issuer incorporating a fully
reviewed annual report provide particular flexibility in light of the
proposal that the staff would review Exchange Act reports upon request
to the extent it is able? Should the power to designate effectiveness
when the staff has reviewed the issuer's annual report be limited to
offerings of a class of securities the issuer has registered
previously? Should there be any time frame within which the staff would
have to review the report, for example, within three or six months
before the offering? Should we exclude offerings of certain securities
from that treatment? If so, what types of securities?
Because the proposed rules provide these issuers with complete
control over effectiveness of their filings, we would require that the
issuer obtain evidence of the managing underwriters' or principal
underwriters' concurrence with its designation of
effectiveness.¹⁷³ The issuer would have to file the evidence
of concurrence as an exhibit to Form A.
---------------------------------------------------------------------------

\173\ See proposed Form A, Item 21 and proposed revisions to
Item 601 of Regulation S-K, 17 CFR 229.601.
---------------------------------------------------------------------------

Would a requirement to file the concurrence be unnecessarily
burdensome? Alternatively, should we require the issuer to obtain the
underwriters' concurrence, but not require that the concurrence be
evidenced in writing? Would an oral concurrence provide the issuer and
the underwriters with sufficient assurance of agreement and protection
against misunderstanding? Should we require that the issuer represent
in the registration statement that it obtained the concurrence, not
require filing, and require that the issuer retain the written
concurrence for five years?
b. Unseasoned Issuers
The timetable for effectiveness of registration statements filed by
issuers making their initial public offerings or by issuers who do not
meet the ``seasoned'' eligibility requirements of General Instruction
II. of Form A would be similar to the filings on Forms S-1 and F-1
today. All registration statements would be reviewed on a similar time
table as current Forms S-1 and F-1 and the registration statement would
become effective pursuant to a request for acceleration after the
issuer addresses staff comments.
3. Solicitation of Comments on Definition of Form A Seasoned Issuer
We use the same definition of seasoned issuer under Form A for
purposes of permitting incorporation by reference of Exchange Act
reports and timing of registration statement effectiveness, with one
exception discussed below. We distinguish between issuers with a public
float of $75 million or more and issuers with a public float of less
than $75 million. Issuers with public floats of $75 million or more
must have reported under the Exchange Act for 24 months or more.
Issuers with smaller public floats must have reported for 24 months or
more and filed at least two annual reports. For purposes of determining
effectiveness (but not incorporation by reference), issuers with
smaller public floats also must incorporate an Exchange Act annual
report that was reviewed fully by Commission staff and amended for any
staff comments. An issuer also must meet other conditions to be
seasoned for purposes of incorporation by reference and timing of
effectiveness.
We solicit comment regarding the reporting history of companies
with a public float of $75 million or more. Is 24 months the proper
reporting history to permit companies with that amount of public float
to determine the timing of their effectiveness? Would a 12-month
reporting history be sufficient in this regard? Similarly, is 24 months
the proper reporting history to permit these companies to incorporate
by reference Exchange Act periodic reports? Would a 12-month reporting
history be sufficient in this regard? For each of these purposes (i.e.,
timing of effectiveness and incorporation by reference), should we add
an annual report filing requirement to the 24- or 12-month reporting
periods? Finally, for each of these purposes, we have proposed that the
company be timely in filing its Exchange Act reports for the most
recent 12 months. Is this sufficient evidence of providing timely
information to the market? Would a longer period, such as 24 months, be
more appropriate?
We also solicit comment regarding the reporting history of
companies with a public float of less than $75 million. Is 24 months of
Exchange Act reporting and the filing of at least two annual reports
the proper reporting history to permit companies with that amount of
public float to determine the timing of their effectiveness? Would 12
months of Exchange Act reporting and the filing of at least one annual
report be sufficient in this regard? Similarly, is 24 months of
Exchange Act reporting and the filing of at least two annual reports
the proper reporting history to permit these companies to incorporate
by reference Exchange Act periodic reports? Would 12 months of Exchange
Act reporting and the filing of at least one annual report be
sufficient in this regard? For each of these purposes, should we simply
require either a 24- or 12-month reporting history, without regard to
how many annual reports had been filed by the registrant? Finally, for
each of these purposes, we have proposed that the company be timely in
filing its Exchange Act reports for the most recent 12 months. Is this
sufficient evidence of providing timely information to the market?
Would a longer period, such as 24 months, be more appropriate? For
purposes of timing of effectiveness, should we require that the
Exchange Act annual report incorporated by reference be reviewed fully
by Commission staff and satisfactorily amended for any staff comments?
4. Disqualification for Seasoned Form A Companies
As noted, Form A would permit smaller, reporting issuers to
incorporate

[[Page 67198]]

by reference their Exchange Act reports and to have greater control
over their effectiveness time schedule. We do not believe that all
issuers that would meet proposed Form A's reporting and other
eligibility requirements would necessarily be suited to incorporate by
reference their company information or have expedited effectiveness. We
believe certain events and circumstances justify disqualification of
otherwise eligible issuers from taking advantage of those benefits on
Form A. We propose to use the same factors that disqualify otherwise
eligible issuers from using Form B.¹⁷⁴ As we do with Form B
issuers, we solicit comment on whether we should lengthen the ``look-
back'' periods we propose to use to disqualify Form A issuers from
designating the effective date of their registration statements or
incorporating by reference. If so, should the periods be independent of
or match those in Form B?
---------------------------------------------------------------------------

\174\ See General Instruction II.B. of proposed Form A, 17 CFR
239.4. For a discussion of the nature of and reasons behind the
disqualifications, see Section V.A.2.g. of this release.
---------------------------------------------------------------------------

5. Real Estate Companies
Real estate entities that formerly registered on Form S-11 would
now register on Form A, unless they meet the eligibility requirements
of another form. Disclosure specifically required by Form S-11 instead
has been added to Regulation S-K.¹⁷⁵ Real estate entities
that formerly provided such disclosure on Forms S-11 or S-4 would
continue to be required to provide such disclosure on Forms A and C,
respectively.
---------------------------------------------------------------------------

\175\ See proposed Items 1101--1113 of Regulation S-K, 17 CFR
229.1101--229.1113.
---------------------------------------------------------------------------

These proposed disclosure requirements of Regulation S-K have been
drafted in plain English and would codify certain staff practices
regarding disclosure by real estate entities. These practices include
disclosing:
1. When finite life entities intend to sell their properties;
2. The securities rating assigned by a nationally recognized
statistical rating organization (``NRSRO'') to any securities in which
the registrant has invested;
3. Any cross default or cross collateralization provisions in
mortgages; and
4. Information about subsidiaries, such as operating partnerships.

Additionally, to provide uniformity on how registrants calculate
occupancy rates, the Commission is proposing to require real estate
entities to disclose occupancy rates as a percentage of rentable square
footage or units.¹⁷⁶ Finally, the new disclosure
requirements of Regulation S-K would omit disclosure currently required
by Item 35 of Form S-11, as it appears no longer applicable to most
real estate companies.
---------------------------------------------------------------------------

\176\ See proposed Item 1107 of Regulation S-K, 17 CFR 229.1107.
---------------------------------------------------------------------------

We also propose to amend Forms 10 and Form 10-K to codify the
staff's practice of requiring real estate entities to disclose:

Operating and financing activities;¹⁷⁷
---------------------------------------------------------------------------

\177\ See proposed Item 1105 of Regulation S-K, 17 CFR 229.1105.
---------------------------------------------------------------------------

Real estate and other investment activities;¹⁷⁸
and
---------------------------------------------------------------------------

\178\ See proposed Item 1106 of Regulation S-K, 17 CFR 229.1106.
---------------------------------------------------------------------------

A description of real estate and operating
data.¹⁷⁹
---------------------------------------------------------------------------

\179\ See proposed Item 1107 of Regulation S-K, 17 CFR 229.1107.
---------------------------------------------------------------------------

We also are proposing in certain offerings by real estate entities
to eliminate the Guide 5 recommendation that a registrant
supplementally provide the Commission staff, before use, sales
materials it intends to furnish to investors.¹⁸⁰ The
Commission staff would no longer pre-review the sales materials in
cases where an issuer has the power to designate the effective date of
its registration statement or when the Commission staff has notified
the issuer that it will not be reviewing its registration statement.
The benefits provided by the ability to designate effectiveness would
be significantly diminished if the issuer nevertheless had to delay its
offering until the Commission staff had pre-reviewed its sales
materials. Similarly, there would be little benefit to investors from
Commission staff pre-review of sales materials where the staff would
not also review the issuer's registration statement. Proposed Rule 425
generally would require issuers and offering participants to file sales
materials used in an offering. We request comment as to whether the
Guide 5 recommendation to provide the Commission staff with sales
materials supplementally should be eliminated for all offerings because
sales materials generally would be filed under proposed Rule 425.
---------------------------------------------------------------------------

\180\ See proposed revisions to Guide 5, referenced in 17 CFR
229.801(e).
---------------------------------------------------------------------------

C. Applicability of Civil Liability Provisions to Offerings Registered
on Proposed Forms A and B

The proposals provide a liability structure that depends on the
content of materials, as well as the manner and time in which materials
are used. The following discussion describes this liability structure.
1. Form A Offerings
A Form A offering either may involve, or must involve, the
following materials used in connection with the offer or sale of
securities:
The Form A registration statement, including the
prospectus;
If the issuer is seasoned, the Exchange Act reports that
it incorporates by reference into its registration statement;
Free-writing materials, but only after the issuer files
the Form A registration statement;
A prospectus contained in a post-effective amendment to
the Form A registration statement; and
Prospectus supplements that the issuer uses after
effectiveness of the Form A registration statement for shelf offerings.

The liability that applies to each of these types of materials is as
follows.
Section 11 liability would attach to the effective Form A
registration statement, including the prospectus in it.¹⁸¹
---------------------------------------------------------------------------

\181\ Section 12(a)(2) liability also would attach to any
information in the registration statement that is part of a
prospectus. Section 12(a)(2) also would attach to any oral
communication used to offer or sell the securities.
---------------------------------------------------------------------------

A Form A registrant relying on incorporation by reference would
have to incorporate into the registration statement its last annual
report filed under Section 13(a), and all Exchange Act reports that it
files under Section 13(a) thereafter up to the date of effectiveness.
Section 11 liability would attach to all information in those
incorporated reports. ¹⁸² Section 11 also would attach to
any Exchange Act report filed after the effective date that the issuer
incorporates by reference through filing a post-effective
amendment.¹⁸³
---------------------------------------------------------------------------

\182\ The filed Exchange Act reports would also be subject to
Section 18 liability. See Section XI.A.3 of this release for a
discussion of Section 18 of the Exchange Act.
\183\ A Form A issuer may not incorporate Exchange Act reports
filed after the effective date except through a post-effective
amendment. Forward incorporation is not available on Form A.
---------------------------------------------------------------------------

A Form A registrant using free writing materials after it files its
registration statement would file those materials in accordance with
Rule 425. Section 12(a)(2) liability would attach to all free writing
materials the registrant uses, whether or not they are filed under Rule
425 as required.
A Form A registrant could make additions or revisions to the
prospectus by filing a post-effective amendment to the registration
statement. The

[[Page 67199]]

prospectus in a post-effective amendment becomes the prospectus in the
registration statement. ¹⁸⁴ Accordingly, Section 11 would
attach to any prospectus (and any other information) included in a
post-effective amendment to Form A.
---------------------------------------------------------------------------

\184\ See Securities Act Section 11(a), 15 U.S.C. Sec. 77k(a),
and Item 512(a)(2) of Regulation S-K, 17 CFR 229.512(a)(2).
---------------------------------------------------------------------------

As proposed, Form A registrants would not be permitted to undertake
delayed shelf offerings of securities under Rule 415. Those registrants
could, however, undertake other shelf offerings, such as continuous
offerings. In those offerings, the registrant could use prospectus
supplements to change the prospectus in the registration statement
after effectiveness. Because prospectus supplements are not set forth
in post-effective amendments, it has been argued that Section 11
liability does not attach to them. It is our view that these
supplements are part of that prospectus and Section 11 liability
applies to the information in them.
All of the materials described above would be subject not only to
the civil liability provisions of the Securities Act, but also to the
antifraud provisions of the Securities Act and the Exchange Act. The
proposals would have no effect on the applicability of those
provisions.¹⁸⁵
---------------------------------------------------------------------------

\185\ See Exchange Act Section 10(b), 15 U.S.C. Sec. 78j(b),
Exchange Act Rule 10b-5, 17 CFR 240.10b-5 and Securities Act Section
17(a), 15 U.S.C. Sec. 77q(a).
---------------------------------------------------------------------------

Rule 167 defines any communication made more than 30 days before
filing in a Form A-registered offering as not being an offer to sell or
offer to buy securities for purposes of Section 5(c) of the Securities
Act. Because of this definition, neither Section 11 nor Section
12(a)(2) of the Securities Act would attach to these communications.
However, these definitions do not affect the application of the anti-
fraud provisions of the Exchange Act or the Securities Act. For
example, any communication ``in connection with the purchase or sale''
of a security would be subject to Exchange Act Section 10(b),
regardless of Rule 167. Similarly, any ``offer or sale of any
security'' would be subject to Securities Act Section 17(a).
2. Form B Offerings
In a Form B-registered offering, the liability provisions would
apply to written disclosures as follows:
Section 11 would apply to all information in the
registration statement, including: ¹⁸⁶
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\186\ Section 12(a)(2) liability also would attach to any
information in the registration statement that is part of a
prospectus and to any oral communication used to offer or sell the
securities.
---------------------------------------------------------------------------

The term sheet,
Offering information used during the offering
period,¹⁸⁷
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\187\ The offering period would begin 15 days before the first
offer is made and end at the completion of the offering.
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The Exchange Act reports incorporated by reference into
the registration statement,
Material updates to the disclosure in the incorporated
Exchange Act reports, and
All other information included in the registration
statement, including exhibits;
Section 12(a)(2) liability would always apply to ``free-
writing'' materials that are used during the offering period, including
regularly released forward-looking information;
Section 12(a)(2) liability may apply to factual business
communications during the offering period;
Section 17(a) liability would apply to any communication
that constitutes an offer of a security, regardless of whether that
offer was made during the offering period; and
Exchange Act Section 10(b) liability would apply to any
communication in connection with the purchase or sale of a security,
regardless of whether that communication was during the offering
period.
a. Section 11
Section 11 liability would attach to all information in the Form B
registration statement. Offering information that is used during the
offering period must be filed as part of the registration statement.
Offering information used in the period beginning 15 days before the
first offer and ending with the filing of the registration statement
must be filed with that registration statement. Because the offering
period runs through the completion of the offering, all offering
information--including pricing information--used after filing of the
registration statement would have to be filed as an amendment to the
Form B registration statement.
A Form B registrant must incorporate by reference into the
registration statement its last annual report filed under Section
13(a), and all Exchange Act reports that it files thereafter up to the
date of effectiveness of the registration statement. A Form B
registrant also must incorporate by reference into the registration
statement all Exchange Act reports it files between effectiveness of
the Form B registration statement and the completion of the offering.
A Form B registrant must inform potential investors of material
updates to its Exchange Act reports. The registrant would accomplish
this through the use of offering information that is filed as part of
the effective Form B registration statement.
b. Section 12(a)(2)
Section 12(a)(2) liability would always apply to free writing
materials that are used during the offering period. Among other
communications, regularly released forward-looking information would be
included in this category of information.¹⁸⁸
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\188\ Proposed Securities Act Rule 168, 17 CFR 230.168, would
define ``regularly released forward-looking information'' and exempt
it from the prohibition on pre-filing offers in Section 5(c). This
exemption would be more significant for Form A-registered offerings,
because all pre-filing offers in connection with offerings
registered on Form B would be exempt from Section 5(c) under
proposed Securities Act Rule 166, 17 CFR 230.166. Regularly released
forward-looking information must be filed under proposed Securities
Act Rule 425, 17 CFR 230.425.
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Free writing materials used during the offering period would have
to be filed in accordance with Rule 425. Free writing materials used in
the period beginning 15 days before the first offer and ending with the
filing of the registration statement must be filed under Rule 425.
Because the offering period runs through the completion of the
offering, free writing materials used after filing of the registration
statement also must be filed under Rule 425. Section 12(a)(2) liability
would attach to all free writing materials the registrant uses, whether
or not they are filed under Rule 425 as required.
While factual business communications are not ``free writing''
materials,¹⁸⁹ Section 12(a)(2) may still apply to those
communications during the offering period if they are made to offer
securities.
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\189\ Proposed Securities Act Rule 169, 17 CFR 230.169, would
define ``factual business communications'' and exempt them from the
prohibition on pre-filing offers in Section 5(c). This exemption
would be more significant for Form A-registered offerings, because
all pre-filing offers in connection with offerings registered on
Form B are exempt from Section 5(c) under proposed Securities Act
Rule 166, 17 CFR 230.166. Proposed Securities Act Rule 425, 17 CFR
230.425, would state that registrants need not file ``factual
business communications,'' regardless of when they are made.
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c. Section 17(a) and Exchange Act Section 10(b)
Section 17(a) liability would apply to any communication in the
offer or sale of a security, regardless of whether that communication
was made during the offering period. Exchange Act Section 10(b)
liability would apply to any communication in connection with the
purchase or sale of a security, regardless

[[Page 67200]]

of whether that communication was during the offering period.
Rule 167 defines any communication made more than 30 days before
filing in a Form A-registered offering as not being an offer to sell or
an offer to buy the securities being offered under the registration
statement. Rule 167 has a similar treatment for communications made
before the offering period in a Form B-registered offering. Because of
this rule, neither Section 11 nor Section 12(a)(2) would attach to
these communications. Rule 167 does not, however, affect the
application of Section 17(a) or Exchange Act Section 10(b) to these
communications.

D. Form C Offerings

1. Use of Form C
Under the proposed system, business combinations and exchange
offers would be registered exclusively on proposed Form
C.¹⁹⁰ Proposed Form C would permit all offerings that were
available on Forms S-4 and F-4. One form would be available for both
domestic and foreign issuers.¹⁹¹ A registrant must use Form
C, or SB-3 if a small business issuer, to register an offering under
the Securities Act that is:
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\190\ Small business issuers, however, would register business
combinations and exchange offers on proposed Form SB-3. For an
explanation of Form SB-3, see Section V.E.4. of this release. A
small business issuer's disclosure requirements would not differ
substantially from Form S-4 today. Form C would thus provide no
additional benefits to small business issuers than Form SB-3 and,
for tracking purposes, small business issuers would be barred from
using Form C. A small business issuer may, of course, provide more
information on Form SB-3 than required by the small business
disclosure regime.
\191\ U.S. registrants must provide all information required by
the Items of the Form except where the Item expressly identifies the
requirement as applying only to foreign registrants. Similarly,
foreign registrants must provide all information required by the
Items of this Form except where the Item expressly identifies the
requirement as applying only to U.S. registrants.
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1. A business combination transaction of the type specified in Rule
145(a);
2. A merger in which the applicable law would not require the
solicitation of the votes or consents of all of the security holders of
the company being acquired;
3. An exchange offer for securities of the issuer or another
entity;
4. A public reoffering or resale of any securities acquired
pursuant to this registration statement; or
5. More than one of the kinds of transactions listed in paragraphs
1. through 4. registered on one registration statement.
2. Relationship with Exchange Act Rules
Like Forms S-4 and F-4, the proposed Form C prospectus may serve as
the proxy or information statement used in connection with the proposed
transaction. Form C would be deemed to meet the informational and
filing requirements of the proxy or information statement rules under
Section 14 of the Exchange Act and Regulations 14A and 14C.
In a companion release, the Commission is also proposing changes to
the Exchange Act and Williams Act regulatory scheme applicable to
extraordinary transactions, including the rules under Sections 13(e),
14(a), 14(c), 14(d) and 14(e).¹⁹² For a more complete
discussion of the rationale behind the extraordinary transactions
proposals, you also should read that Release.
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\192\ See Exchange Act Release No. 40633 (Nov. 3, 1998).
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3. Timing of Form C
As proposed, a Form C registration statement would be subject to
Commission staff review and would become effective in the same manner
that Forms S-4 and F-4 become effective today. Although some Form C
registration statements would be filed by large seasoned issuers
acquiring large seasoned companies, we have not proposed automatic
effectiveness for Form C under the theory that the market is not
informed at the time of filing about the pro forma effects of the
transaction. We solicit comment, however, regarding whether all
registration statements filed on Form C (except Rule 13e-3 and roll-up
transactions) should become effective automatically upon filing or on
an expedited schedule (e.g., 20 days after filing). Should Form C
registration statements filed by Form B-eligible companies become
effective automatically upon filing, similar to the Form B registration
statement? Should Form C registration statements become effective
automatically or on an expedited schedule if the company to be acquired
would meet the Form B public float/ADTV test? What if both the
registrant and the company being acquired would meet that test? Should
Form A registrants eligible to determine the timing of effectiveness of
a Form A registration statement also be able to control timing of their
Form C registration statements? Are there any categories of offerings
on Form C that should be granted automatic or expedited effectiveness,
such as exchange offers?
4. Structure of Form C
In keeping with other Securities Act registration forms, there are
two parts to Form C: information included in the prospectus (Part I)
and information not included in the prospectus (Part II).
a. Part I--Information Required in the Prospectus
Like current Forms S-4 and F-4, Part I is divided into four
sections: information about the transaction, information about the
registrant, information about the company being acquired, and voting
and management information.
i. Information About the Transaction
The first section requires the disclosure of information about the
proposed transaction. In addition to other information, this section
requires a prospectus summary, a summary of the material features of
the proposed transaction and a presentation of pro forma financial
information.¹⁹³ This section is designed to elicit material
information about a transaction that should be presented in a
prospectus subject to Securities Act liabilities which is delivered to
investors. We solicit comment on whether Form B-eligible registrants
should be required to comply with the mandated disclosure requirements
for transactional information as described in this section or whether
these registrants should be permitted somewhat more freedom to develop
their own transactional disclosure, much as they would on Form B.
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\193\ Other information required by this section include: a
description of material contacts between the registrant and the
company being acquired; information required for reofferings by
persons deemed to be underwriters; disclosure regarding the
interests of named experts and counsel; and disclosure of the
Commission's position on indemnification for Securities Act
liabilities.
Real estate entities would be required to provide additional
information specific to that industry. That information includes
disclosure regarding: risk factors; the organization; tax treatment;
certain relationships and related transactions; selection,
management and custody of investments; conflict of interest policy
and limitations of liability.
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ii. Information About the Registrant
The second section mandates the disclosure regarding the
information required about the registrant and prescribes different
levels of information required to be presented in the prospectus
incorporated by reference, depending on which Securities Act form the
registrant could use in making a primary offering of its securities.
Current Forms S-4 and F-4 apply different levels of registrant
disclosure based on the registrant's

[[Page 67201]]

eligibility for Forms S-1, S-2, S-3, F-1, F-2 and F-3. Proposed Form C
continues this approach and reflects the proposed re-tiering of the
registration forms.
(A) Form B Eligible Registrants
If the registrant meets the registrant eligibility requirements of
General Instruction I.B. and the public float/ADTV test of Form B, it
may elect to satisfy company disclosure requirements through
incorporation by reference. The registrant would provide substantially
the same information that a Form S-3 or F-3 eligible issuer currently
provides on Forms S-4 and F-4:
1. A description of any material change in the affairs of the
registrant that is not already described in a filing with the
Commission which is incorporated by reference into the Form C;
2. Incorporation by reference of its latest annual report filed in
accordance with Section 13(a) or 15(d) of the Exchange Act and any
other reports filed pursuant to Section 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year; and
3. Under certain circumstances, incorporation by reference of the
description of capital stock contained in an Exchange Act registration
statement.¹⁹⁴
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\194\ The description of capital stock must be incorporated only
if capital stock is being registered and securities of the same
class are registered under Section 12 of the Exchange Act, and such
stock is either listed for trading or admitted to unlisted trading
privileges on a national securities exchange or bid and offer
quotations for such stock are reported in an automated quotations
system operated by a national securities association.
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(B) Seasoned Form A Registrants
If the registrant meets the eligibility requirements for
incorporation by reference in Form A, it may elect to comply with the
incorporation by reference option in Form C. ¹⁹⁵ A
registrant choosing this option must incorporate by reference into the
prospectus and deliver with the prospectus its latest annual report
filed pursuant to Section 13(a) or 15(d) of the Exchange Act and either
deliver or include in the prospectus the information in Part I of Form
10-Q or 10-QSB for the most recent fiscal quarter. The registrant must
deliver the information required by this option with the first
prospectus it sends. As with Form A, it need not deliver that
information with any subsequent prospectus it sends to the same person.
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\195\ See Sections V.B.1.a.iii.(A) and V.B.4. of this release
regarding Form A issuers eligible to incorporate by reference.
Section 11 would apply to all documents incorporated by reference in
Form C.
---------------------------------------------------------------------------

The disclosure required from seasoned Form A registrants would also
include a description of any material change in the registrant's
affairs that is not already described in a filing with the Commission
and incorporated by reference into Form C.
Unlike current Form S-4, Form C would not permit delivery of a
company's glossy annual or glossy quarterly report to security holders
in lieu of delivery of a Form 10-K or Form 10-Q report. Just as we are
soliciting comment on whether to provide the option to incorporate and
deliver a company's glossy annual and quarterly report in lieu of a
company's Form 10-K and Form 10-Q for ``seasoned'' companies filing on
Form A, we solicit comment on whether we should provide this option for
seasoned Form A companies filing on Form C.
(C) All Other Registrants
All registrants ineligible for Form C's two incorporation by
reference options would disclose in the registration statement the same
information as current Forms S-4 and F-4 require of Forms S-1 and F-1
registrants. In addition, real estate entities would disclose the
information required by the following proposed items of Regulation S-K:
Item 1105, Operating and financing activities; Item 1106, Real estate
and other investment activities; and Item 1107, Description of real
estate and operating data.
iii. Information About the Company Being Acquired
Similar to current Forms S-4 and F-4, proposed Form C would require
presentation of disclosure about the company being acquired in the
registration statement. Presentation of disclosure could be made under
the same options that would be available to the registrant. Thus, a
company to be acquired would refer to the ``Information About the
Registrant'' section to determine whether and how it could incorporate
by reference.
Forms S-4 and F-4 give non-reporting companies to be acquired a
choice about the amount of disclosure that they provide. They may
either provide the full company information required by reporting
companies ¹⁹⁶ or provide abbreviated company information
which only non-reporting companies are permitted to provide.
¹⁹⁷ Form C proposes different disclosure requirements than
on current Forms S-4 and F-4. Form C would require a non-reporting
company to provide the same non-financial disclosure as a reporting
company ¹⁹⁸ but would not require the company to provide the
full financial statement disclosure that a reporting company would have
to provide. ¹⁹⁹ We solicit comment on what non-financial
disclosure should be required by non-reporting companies. Would the
requirement to provide the same information as reporting companies be
unduly burdensome on these companies? If so, what information should be
required by non-reporting companies?
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\196\ See Item 17(a) of Form S-4 and Item 17(a) of Form F-4.
\197\ See Item 17(b) of Form S-4 and Item 17(b) of Form F-4.
\198\ Form S-4 does not require non-reporting companies to be
acquired to provide the information required by Item 102 of
Regulation S-K (description of property), Item 103 of Regulation S-K
(legal proceedings) or Item 304(a) of Regulation S-K (changes in and
disagreements with accountants on accounting and financial
disclosure). Form C would require both reporting and non-reporting
companies to provide this information. Similarly, Form F-4 does not
require non-reporting companies to be acquired to provide the
information required by Item 2 of Form 20-F (description of
property), Item 3 of Form 20-F (legal proceedings), Item 6 of Form
20-F (exchange controls) and Item 7 of Form 20-F (taxation). Form C
would require both reporting and non-reporting companies to provide
this information.
\199\ See Items 18(c) and 21(b) of proposed Form C, 17 CFR
239.6. For a more complete discussion of this proposal, see Exchange
Act Release No. 40633 (Nov. 3, 1998).
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iv. Voting and Management Information
Form C would require issuers to present much the same information
in the Form C prospectus as they would be required to present in Forms
S-4 and F-4 today. If either the registrant or the company to be
acquired is soliciting proxies, consents or authorizations, Form C
would require information about: the meeting, the vote required for
approval, revocability of proxy, dissenters' rights, persons making the
solicitation, persons with substantial interest in the matter and
voting securities of principal holders.
Whether or not proxies, consents or authorizations are being
solicited, and in the case of exchange offers, Form C would require
information concerning voting securities and the principal holders of
such shares with respect to all directors and executive officers of
both entities. Form C would require information about directors and
executive officers of the surviving or acquiring company, certain
relationships and related transactions and executive compensation. If
eligible to incorporate by reference, the registrant or the company to
be acquired could incorporate this information into the prospectus in
lieu of presenting the information in the prospectus.

[[Page 67202]]

b. Part II--Information Not Required in the Prospectus
Just as in Form S-4 and F-4, Part II of proposed Form C would
require, in the registration statement but not in the prospectus that
is delivered to shareholders, information about indemnification of
directors and officers, exhibits and undertakings.
5. General Instruction G. of Form S-4
Proposed Form C would not include any instruction to parallel
General Instruction G. of Form S-4 regarding the formation of bank or
savings and loan holding companies. This General Instruction is part of
Form S-4, but is no longer needed in the business combination form
because Congress has amended the Securities Act.²⁰⁰ Section
3(a)(12) exempts from registration the vast majority of those
transactions eligible for General Instruction G.²⁰¹ In those
limited situations in which an offering regarding the formation of a
bank or saving and loan holding company falls outside of the Section
3(a)(12) exemption, the registrant may still register the transaction
on any form appropriate to the registrant and transaction. In addition,
Staff Accounting Bulletin 50, which permits abbreviated financial
statements, would still be available in this transaction.
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\200\ Riegle Community Development and Regulatory Improvement
Act, Pub. L. No. 103-325, Title III, Sec. 320, 108 Stat. 2225 (1994)
amending Sec. 3(a) of the Securities Act (15 U.S.C. Sec. 77c(a)).
\201\ Transactions in which the rights and interests of security
holders in the holding company are not ``substantially the same'' as
those in the bank or savings and loan association before the
transaction are not exempted from registration by Section 3(a)(12)
but would have satisfied General Instruction G. of Form S-4.
---------------------------------------------------------------------------

6. Small Business--Business Combinations
Small business issuers would not be permitted to register an
offering involving a business combination on Form C. Instead, we are
proposing a new form, Form SB-3, which is a small business combination
form.²⁰² Due to the necessary different requirements of
larger domestic and foreign issuers and those issuers in the small
business reporting regime, the use of two forms is necessary for
business combinations to provide clarity for the registrant as to the
requirements of the particular offering.
---------------------------------------------------------------------------

\202\ See Section V.E.4. of this release for a discussion of
proposed Form SB-3.
---------------------------------------------------------------------------

In the event that a registrant filing on Form C is registering an
acquisition of a company that is reporting pursuant to the small
business issuer regime, the small business issuer need only provide the
information in the registration statement that it would be required to
provide if the offering was registered on Form SB-3.

E. Small Business Issuers

1. Small Business Issuers' System
In 1992 and 1993, we adopted special registration forms under the
Securities Act for smaller issuers: Forms SB-1 and SB-2.²⁰³
We also adopted special forms for these issuers to use in registering
and reporting under the Exchange Act.²⁰⁴ The disclosure
requirements of those forms are less extensive than the ones that apply
to larger issuers.
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\203\ Securities Act Release No. 6949 (July 30, 1992) [57 FR
36442] (adopting Form SB-2) and Securities Act Release No. 6996
(Apr. 28, 1993) [58 FR 26509] (adopting Form SB-1).
\204\ These Exchange Act forms are: Form 10-SB (the form used to
register a class of securities under the Exchange Act); Form 10-KSB
(the annual report form); and Form 10-QSB (the quarterly report
form). We also revised the requirements for annual reports to
security holders and proxy and information statements of small
business issuers. See 17 CFR 240.14a-3(b), Note to Small Business
Issuers; 17 CFR 240.14c-3(a)(2), Note to Small Business Issuers; and
17 CFR 240.14a-101, Note G--Special Note for Small Business Issuers.
---------------------------------------------------------------------------

The small business issuer registration and reporting systems were
designed to facilitate capital-raising by small businesses and reduce
their costs in complying with the federal securities laws. A small
business issuer generally is any issuer with less than $25 million in
revenues and a public float of less than $25 million.²⁰⁵
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\205\ 17 CFR 230.405. Other conditions also must be met. The
issuer must be either a U.S. or Canadian issuer and must not be an
investment company under the Investment Company Act of 1940. In
addition, if the issuer is a majority-owned subsidiary of another
company, the parent also must be a small business issuer.
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2. Re-defining ``Small Business Issuer''
Since the Commission adopted the ``small business issuer''
definition in 1992, economic and market changes have occurred. While
annual inflation rates have remained low, the nation's economy has
experienced significant growth. Revenue levels of most public companies
increased substantially, and their market capitalizations rose even
more dramatically. This growth in revenues and market capitalization
levels has effectively reduced the percentage and number of public
companies qualifying as small business issuers.²⁰⁶ Many
companies that would have met the definition of small business issuer
in 1992 now do not qualify as small business issuers even though they
remain relatively small. These companies must satisfy the more
extensive disclosure requirements of Regulation S-K and S-X in
preparing their registration statements and periodic reports.
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\206\ In 1992, we indicated that 42% of public companies had
revenues of less than $25 million and 63% had market capitalizations
under $25 million. Securities Act Release No. 6924 (Mar. 20, 1992)
[57 FR 9768]. Today, these percentages have fallen to 31% and 24%,
respectively. (This data is derived from a Compustat database for
9,698 public reporting companies as of June 24, 1998.) While about
3,600 public companies met the $25 million revenues test in 1992,
only about 3,000 public companies meet that test today. Our analysis
necessarily excludes private companies as information for them is
not generally available.
---------------------------------------------------------------------------

We have had six years of successful experience with the small
business issuer disclosure system. Our experience indicates that small
business issuers have incurred less cost, time and burden in preparing
disclosure documents based on the streamlined disclosure requirements.
The system has improved their access to capital and increased their
competitiveness against larger companies without reducing investor
protection. For these reasons, we are proposing to redefine ``small
business issuer'' by revising the criteria in the
definitions.²⁰⁷
---------------------------------------------------------------------------

\207\ See proposed revisions to Securities Act Rule 405, 17 CFR
230.405; Exchange Act Rule 12b-2, 17 CFR 240.12b-2; and Item 10 of
Regulation S-B, 17 CFR 228.10.
---------------------------------------------------------------------------

We are proposing to raise the revenues test to $50 million and
eliminate the public float test. As a result, 1100 more public
companies would meet that revenues test than satisfy the current $25
million revenues test today.²⁰⁸ The $50 million revenues
test also would reinstate the percentage of public companies that met
the revenues test in 1992.²⁰⁹ While the percentages remain
constant, 500 more public companies would meet the $50 million revenues
test than met the $25 million revenues test in 1992.
---------------------------------------------------------------------------

\208\ Currently, almost 4,100 public companies have revenues
below $50 million.
\209\ Approximately 42% of public companies met the $25 million
revenues test in 1992. The same percentage would meet the $50
million test today.
---------------------------------------------------------------------------

Our proposal would aid non-reporting companies with revenues
between $25 and $50 million that plan to register initial public
offerings under the Securities Act or propose to register a class of
securities under the Exchange Act. Also, reporting companies that are
small business issuers would be able to remain in the small business
disclosure system until their revenues grow to $50
million.²¹⁰
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\210\ Currently, reporting companies that are not in the small
business disclosure system are able to use that system only if they
meet the revenues and public float tests for two consecutive years.
See 17 CFR 228.10(a)(2)(iv). We would alter that treatment for
purposes of the transition from the $25 million thresholds to the
$50 million threshold. Under our proposals, we would allow a
reporting company to switch to the small business issuer disclosure
system immediately in the first year after the proposals become
effective if it had revenues of less than $50 million for its last
two fiscal years. That transition would be allowed even if the
issuer's revenues for those years exceeded the current $25 million
threshold or the issuer exceeded the current public float test in
those years.

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[[Page 67203]]

We would eliminate the public float test from the small business
issuer definition. The small business system is designed to simplify
and reduce the cost of raising capital for start-up, developing and
small businesses. We believe that the size of a company's revenues may
be a more indicative measure of whether a company needs the benefits of
the small business system than a combined revenues and public float
test. While the public float test for small businesses may be
correlated with the size of a company's operations, it can, at times,
penalize those small businesses that the market believes to have
promising prospects. The elimination of the public float test also
would simplify the regulatory scheme. Accordingly, we propose that a
company that has less than $50 million in revenues would qualify as a
small business issuer regardless of the size of its public float.
We request your comments on the proposed revised definition of
small business issuer.²¹¹ Should the proposed revenues level
be higher (such as $60 or $70 million) or lower (such as $45 or $40
million)? Why? Should the public float test be retained? If retained,
should it also be set at $50 million or should it be retained at $25
million or increased to $60 or 70 million? Should another measure, such
as assets level or market capitalization, be used to define small
business issuers? If another measure is used, what dollar level would
be appropriate and why?
---------------------------------------------------------------------------

\211\ See proposed Item 10(a)(1) of Regulation S-B, 17 CFR
228.10(a)(1).
---------------------------------------------------------------------------

We are not proposing to change the time period over which revenues
would be considered. Under the current definition, a non-reporting
company would look at the amount of its revenues during its last fiscal
year (and public float as of a date within 60 days before filing its
registration statement). A reporting company would look at its revenues
(and public float) as the end of its last two consecutive fiscal years.
We would continue to apply this approach. Thus, a private company
filing either an initial public offering under the Securities Act or
registering a class of securities under the Exchange Act would look to
its revenues during the its last fiscal year. A public reporting
company that is in the small business disclosure system would be
required to leave the system if it had revenues over $50 million in
each of its last two consecutive fiscal years. A public reporting
company which is not in the small business disclosure system would have
to earn less than $50 million revenues in each of its last two
consecutive fiscal years before it would be permitted to switch to the
small business system. We solicit your comments as to whether a
revenues test based on a longer time period, such as three years, or an
average annual revenues test based on a three-year period, would be
better.
3. Proposed Changes to Form SB-2
We propose changes to Form SB-2 to permit seasoned small business
issuers to incorporate their previously filed Exchange Act reports by
reference.²¹² In most cases, the Exchange Act disclosure
would satisfy the company disclosure requirements of Form SB-2. By
delivering previously prepared documents, the small business issuer
would avoid the expense, time and effort required in recreating this
disclosure. Those issuers would continue to include the same
information about the offering, such as use of proceeds and plan of
distribution disclosure, in the prospectus.²¹³ We believe
there is no compelling reason to preclude the small business issuer
from incorporating by reference to the same extent as a Form A issuer.
If we extend this option to small business issuers, they will not need
to leave the less extensive small business disclosure system in order
to enjoy the benefits of incorporation by reference.²¹⁴
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\212\ Section 11 would apply to all documents incorporated by
reference in Form SB-2.
\213\ The offering disclosure requirements are contained in
proposed Form SB-2, Items 1-10 and 14.
\214\ Form S-2 currently permits incorporation by reference for
small business issuers that meet certain requirements. See General
Instruction II.C. of Form S-2. The proposed changes to Form SB-2
would preserve this option for these issuers. While small business
issuers would be eligible to use Form A, use of that Form would
involve compliance with Regulation S-K rather than reliance on the
small business issuer disclosure system.
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a. Conditions for Using Incorporation by Reference
The conditions for using incorporation by reference in Form SB-2
would be the same as those in Form A. By using the same criteria, we
would treat equally all seasoned Exchange Act reporting companies that
are not using Form B, regardless of their size. To use incorporation by
reference, the small business issuer would have to have been subject to
the Exchange Act reporting requirements for at least a twenty-four-
month period and have filed all required reports on a timely basis
during the twelve months just before filing the Form SB-
2.²¹⁵ Likewise, the issuer also must have filed at least two
Exchange Act annual reports.
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\215\ See proposed Form SB-2, General Instruction D.
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Small business issuers would be subject to the same
disqualifications applicable to Form A and Form B issuers relating to
the issuer's financial condition, past violation of laws or status as a
blank check or penny stock company.²¹⁶ In addition, a small
business issuer that used the less extensive Regulation A narrative
disclosure requirements in its latest annual report on Form 10-KSB
would not be allowed to incorporate its Exchange Act reports by
reference. We solicit comment on whether we should extend any of Form
SB-2's disqualification provisions' ``look-back''
periods.²¹⁷
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\216\ See Sections V.A.2.g., V.B.1.a.iii.(A) and V.B.4. of this
release which discuss the disqualification provisions for Form A and
Form B issuers. The disqualification provisions for those Forms are
the same as we propose under Form SB-2.
\217\ See General Instruction E.2. of proposed Form SB-2, 17 CFR
239.10.
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Similarly, we are not proposing to permit transitional small
business issuers registering on Form SB-1 to use incorporation by
reference.²¹⁸ We believe it is important that issuers
experience at least one cycle of reporting under a comprehensive (as
opposed to a significantly streamlined) disclosure regime before
graduating to a short-form approach.
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\218\ Form SB-1 is available for certain small business issuers
that register no more than $10 million of securities during any
continuous twelve-month period. Form SB-1 permits these issuers to
provide the non-financial statement disclosure required under
Regulation A, 17 CFR 230.251-263. These narrative disclosure
requirements are less extensive than those of Regulation S-B, which
governs the disclosure in Form SB-2.
---------------------------------------------------------------------------

We solicit your views regarding whether incorporation by reference
should be available to small business issuers. Should their smaller
size preclude them from using incorporation by reference? Should we
impose additional conditions on small business issuers regardless of
what form they use given their smaller size? Should we shorten the
reporting history requirement (e.g., to twelve months or twelve months
and the filing of one annual report)? Does it take a longer period for
those issuers to adjust to the reporting requirements and produce the
expected Exchange Act disclosure? Should there be additional
disqualifications? For example, should a Form SB-2 issuer not be able
to incorporate by reference if a material retroactive restatement of
its financial statements or a material disposition of assets is not
reflected in its latest

[[Page 67204]]

Exchange Act annual report, even if that information is set forth in
the prospectus?
b. How to Incorporate by Reference
Under the proposals, a small business issuer choosing to
incorporate by reference must incorporate its latest Exchange Act
annual report and all Exchange Act reports filed after the end of the
fiscal year covered by that form.²¹⁹ It would not be
permitted to incorporate Exchange Act forms filed after the effective
date of the registration statement.
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\219\ See proposed Form SB-2, Items 11 and 12. A small business
issuer that was in the small business disclosure system during its
last fiscal year would incorporate its annual report on Form 10-KSB.
A reporting company that entered the small business disclosure
system after the close of its latest fiscal year would be allowed to
incorporate its annual report on Form 10-K or 20-F for its latest
fiscal year.
Small business issuers, like larger registrants, have the option
of satisfying certain Exchange Act annual report requirements by
incorporating portions of their glossy annual reports to security
holders under Rule 14a-3 or 14c-3, 17 CFR 240.14a-3 or 240.14c-3, or
definitive proxy or information statements filed under Regulations
14A or 14C. See, for example, Form 10-KSB, General Instruction E. If
a registrant's Exchange Act annual report incorporates from those
documents, the incorporated portions also will become part of the
Form SB-2 through incorporation of the Exchange Act annual report.
---------------------------------------------------------------------------

The issuer must list in the prospectus that is part of the
effective registration statement all of the reports that are
incorporated by reference.²²⁰ As part of the effective
registration statement, all incorporated portions of these reports
would be subject to Section 11. If an issuer wanted to incorporate an
Exchange Act report filed after effectiveness of the Form SB-2, it
would have to file a post-effective amendment to incorporate it into
that prospectus.
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\220\ See proposed Form SB-2, Item 12(a).
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A small business issuer would have to state in the SB-2 prospectus
that it will provide to investors any report that it is incorporating
by reference but not providing with the prospectus.²²¹ It
also must identify the reports that it files with or submits to the
Commission and describe how investors may obtain those
reports.²²²
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\221\ See proposed Form SB-2, Item 12(b). The issuer would have
to:
(i) Disclose that the information will be provided without cost
upon oral or written request; and
(ii) Name the contact person who should receive the request.
\222\ See proposed Form SB-2, Item 12(c).
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Small business issuers would have to update the company information
in the prospectus if material changes occur after the end of the fiscal
year covered by the annual report and are not reported in the Form 10-
QSB delivered with the prospectus.²²³ In addition, the small
business issuer would have to include financial statements of
businesses acquired or to be acquired or real estate operations
acquired or to be acquired, and pro forma financial information, if
that information is required by Regulation S-B ²²⁴ and was
not in the latest annual report.²²⁵
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\223\ See proposed Form SB-2, Item 11(e).
\224\ 17 CFR 228.310(c)-(e). Item 310(c) requires the financial
statements of certain businesses acquired or to be acquired. If
those financial statements are required, pro forma financial
information also must be provided under Item 310(d). Item 310(e)
requires financial information about certain real estate operations
acquired or to be acquired.
\225\ See proposed Form SB-2, Item 11(d).
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Comment is requested on the manner of incorporation of Exchange Act
reports. Should issuers be permitted to incorporate reports filed after
effectiveness of the Form SB-2 provided that they are deemed
incorporated into the prospectus that is part of the effective
registration statement?
c. Delivery of Exchange Act Reports
A small business issuer would have to provide copies of its recent
Exchange Act reports with the delivered prospectus when it incorporates
by reference in the Form SB-2. It must deliver to investors a copy of
its latest Exchange Act annual report and state in the prospectus that
it is accompanied by that annual report.²²⁶ It also would
have to deliver its Form 10-QSB for its most recent fiscal quarter
²²⁷ or include that information in the prospectus. Those
that choose to deliver the Form 10-QSB would have to state in the
prospectus that it is accompanied by that Form.
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\226\ See proposed Form SB-2, Item 11(a). An issuer that
incorporates sections of its glossy annual report to security
holders or definitive proxy or information statement into its Form
10-KSB also would have to deliver those portions together with the
prospectus.
\227\ See proposed Form SB-2, Item 11(c). If, however, the
report for the most recent fiscal quarter is not due before the
effective date of the Form SB-2, the issuer would deliver the
quarterly report for the fiscal quarter immediately before that one.
It could also elect to deliver the later Form 10-QSB even though it
is not yet due to be filed under Exchange Act rules.
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The issuer would have to deliver the Exchange Act annual report and
the Form 10-QSB with the prospectus delivered to investors under
proposed Securities Act Rule 172. If the issuer delivers another
prospectus to the same investor later on in the offering, it would not
have to re-deliver the Exchange Act reports.²²⁸
---------------------------------------------------------------------------

\228\ See proposed revisions to Form SB-2, Note to Item 12.
---------------------------------------------------------------------------

Our proposals require delivery of the small business issuer's full
Exchange Act annual report rather than an abbreviated glossy annual
report to security holders. We believe that most small business issuers
are not generally followed by the investment community and the
information that they report is not widely disseminated. Because a
typical annual report to security holders provides less information to
investors than an annual report, we believe the latter would aid
investors more.²²⁹ For example, an annual report to security
holders does not include complete information about management,
executive compensation, security ownership and transactions with
related parties. We would require that the issuer deliver this
disclosure, which is included in the Exchange Act annual report, with
the prospectus.²³⁰
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\229\ The annual report to security holders of small business
issuers must contain the information required by Rule 14a-3(b), 17
CFR 240.14a-3(b). This includes financial statements, changes in and
disagreements with accountants, management's discussion and analysis
or a plan of operations, a brief description of business, basic
management information and market prices for the issuer's common
equity and related information. 17 CFR 240.14a-3(b) and 17 CFR
240.14c-3(b).
\230\ For similar reasons, we do not propose that small business
issuers deliver a quarterly report to security holders instead of
the most recently filed Form 10-QSB.
---------------------------------------------------------------------------

We solicit comment on these delivery requirements. Should we expand
the delivery requirements to require delivery not just of the annual
report and most recent Form 10-QSB but also any other Form 10-QSB or
Form 8-K filed since the end of the fiscal year covered by the annual
report? Should we narrow the delivery requirements? For example, should
we allow small business issuers to deliver their annual reports to
security holders instead of their Exchange Act annual report
disclosure?
d. Other Changes to the Forms
In addition to amending Form SB-2 to permit incorporation by
reference, we are rearranging that Form in order to accommodate the new
provisions. Also, we are proposing correcting and technical changes to
Form SB-2.²³¹
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\231\ General Instruction A.3. would be revised because it
repeats General Instruction A.2. General Instruction B.1. would be
amended to remove the reference to Form SR, which was eliminated in
September 1997. See Securities Act Release No. 7431 (July 18, 1997).
---------------------------------------------------------------------------

4. Form SB-3
a. Use and Timing of Form SB-3
Small business issuers would register business combinations and
exchange offers on proposed Form SB-3, rather than Form C. Under the
present system, small business issuers must use Form S-4 for these
transactions. A General Instruction to the Form lists the Items of Form
S-4 with which small business filers are not required to comply. It
also lists those Items of other forms that the

[[Page 67205]]

registrant must comply with in lieu of the Form S-4 Items. We are
proposing a separate form for small business issuers to simplify and
streamline their disclosure requirements when they register a business
combination or exchange offer transaction.
Only registrants that are small business issuers under Rule 405
would be allowed to use proposed Form SB-3. Form SB-3 would be
available for the same types of transactions as proposed Form C and
current Form S-4.²³² Form SB-3 may serve as the proxy or
information statement used in the proposed transaction, like Form C. A
Form SB-3 would be subject to Commission staff review and would become
effective in the same manner as Form S-4 today.
---------------------------------------------------------------------------

\232\ See Section V.D.1. of this release for a discussion of the
transactions required to be registered on Form C.
---------------------------------------------------------------------------

b. Structure of Form SB-3
In keeping with other Securities Act registration forms, there are
two parts to Form SB-3: information included in the prospectus (Part I)
and information not included in the prospectus (Part II).
i. Part I--Information Required in the Prospectus
The Part I information of Form SB-3 would be the same as the Part I
information required by Form C. It would consist of four sections:
information about the transaction, information about the registrant,
information about the company being acquired, and voting and management
information.
(A) Information About the Transaction
The registrant would have to provide the same information about the
transaction as a registrant on Form C would.
(B) Information About the Registrant
This section details the disclosure requirements that apply to the
registrant. It includes three different disclosure formats, based upon
the level of disclosure that the small business issuer would have to
provide in a primary offering. We are proposing this approach with the
larger issuers on Form C as well.
(1) Transitional Small Business Issuers
Certain small business issuers provide non-financial statement
disclosure in their Exchange Act reports based on Form 1-
A.²³³ Those disclosure requirements are less detailed than
the Regulation S-B requirements, which apply to all other small
business issuers. Form S-4 now permits these registrants to provide the
same non-financial statement disclosures as they would on Form 1-A, so
long as the registrants provided the information required by Form 1-A
in their most recent Form 10-KSB. Proposed Form SB-3 would preserve
this option. This alternative would be available only if the registrant
would be eligible to use Form SB-1. Form SB-3 requires the registrant
to supplement the Form 1-A non-financial information with disclosure
required by certain items of Regulation S-B. Also, the registrant would
have to provide the financial statements called for by Item 310 of
Regulation S-B.
---------------------------------------------------------------------------

\233\ Non-reporting companies use Form 1-A to qualify securities
offered under Regulation A, an exemption from registration under
Section 3(b) of the Securities Act.
---------------------------------------------------------------------------

(2) Seasoned Small Business Issuers
A registrant that would be able to incorporate by reference from
its Exchange Act reports under the proposed changes to Form SB-2 also
would be able to incorporate by reference its Exchange Act reports
under proposed Form SB-3. Just like seasoned Form A issuers on Form C,
if the registrant chooses this option, it must incorporate by reference
into the prospectus, and deliver with the prospectus, its latest
Exchange Act annual and quarterly reports. Like proposed Form C, Form
SB-3 would not permit delivery of a company's glossy annual report to
security holders or a quarterly report to security holders.
(3) All Other Small Business Issuers
Registrants that are not transitional small business issuers or
seasoned small business issuers would have to provide the same
registrant information they are required to by Form S-4 today. A
transitional small business issuer or a seasoned small business issuer
also may elect to comply with this disclosure format.
(C) Information About the Company Being Acquired
Proposed Form SB-3 would require the same information required by
current Form S-4 and that would be required by proposed Form C. If the
company being acquired is a small business issuer, information for that
company would be provided under the same three options available to the
registrant on Form SB-3. If the company being acquired is not a small
business issuer, information for that company would be the same as if
it were the registrant on Form C.
(D) Voting and Management Information
This section of proposed Form SB-3 would mandate disclosure the
same as that required by Form S-4 and proposed Form C. If the
registrant or company being acquired is eligible to incorporate by
reference, this information also may be incorporated.
ii. Part II--Information Not Required in the Prospectus
Proposed Form SB-3 would require information about indemnification
of directors and officers, exhibits and undertakings to be provided in
Part II of the registration statement, as required by Form S-4 and
proposed Form C.
C. Request for Comments
We request your comments on proposed Form SB-3. Do you believe that
a separate form for small business issuers registering a business
combination or exchange offer is necessary? Would it be better to
include small business issuers on proposed Form C? We propose to allow
a small business issuer's acquisition of a company that is not a small
business issuer on Form SB-3. Is this appropriate or should those
transactions be filed on Form C?
5. Small Business Issuers that Become Reporting Companies
Another way in which we would ease capital formation for small
business issuers is to solve a dilemma that arises at times when they
seek to register an offering for the first time. Generally, small
business issuers have made exempt offerings of securities before they
first register an offering. Sometimes those offerings are made under
Rule 504 of Regulation D under the Securities Act.²³⁴ Rule
504 states that an issuer subject to the reporting requirements of
Section 13 or 15(d) may not rely on the Rule.
---------------------------------------------------------------------------

\234\ 17 CFR 230.504. That Rule provides an exemption from
registration for securities offerings not exceeding $1,000,000
within a 12-month period.
---------------------------------------------------------------------------

That prohibition on reliance by reporting companies has raised
registration concerns for companies that issue convertible securities
or warrants in compliance with Rule 504 and afterwards become reporting
companies.²³⁵ If their convertible securities or warrants
remain

[[Page 67206]]

outstanding at the time they become reporting companies, the ongoing
offer and sale of the underlying securities would no longer be covered
by Rule 504. Sometimes a reporting issuer can rely on another exemption
with respect to the continuing offer and the sale of the underlying
securities.²³⁶ If not, the reporting issuer can face the
difficult situation of having no exemption and being unable to register
the offering of the underlying securities because it has offered the
securities before filing a registration statement.²³⁷
---------------------------------------------------------------------------

\235\ An issuer may become an Exchange Act reporting company in
a number of ways. Usually, companies become subject to the reporting
requirements either because they register an offering of securities
under the Securities Act, they register a class of securities under
the Exchange Act before listing or quotation, or they exceed the
number of holders and assets tests in Exchange Act Section 12(g).
\236\ Under many circumstances, the Section 3(a)(9) exemption
would be available for the issuance of securities pursuant to a
conversion. Section 3(a)(9) does not generally apply, however, to
the exercise of warrants because the exemption is for exchanges by
the issuer of securities with its existing security holders and is
not available where a commission or remuneration is paid or given
directly or indirectly for soliciting the exchange.
\237\ Offers of the underlying securities occur upon issuance of
the convertible security or warrant where convertible or exercisable
within one year. Also, offers of the underlying securities continue
until the conversion or exercise has occurred or the conversion or
exercise period has ended.
---------------------------------------------------------------------------

We are concerned that an issuer would lose the Rule 504 exemption
for the underlying securities in these circumstances solely because the
issuer has become a reporting company. In fact, holders of convertible
securities or warrants may benefit from that transition. They may have
access to more information about the issuer if it is a reporting
company. Greater access to information always assists investors that
have to make investment decisions.
Accordingly, we propose to revise Rule 504 to provide that the
status of the issuer as a reporting company does not prevent it from
relying on the Rule for the issuance of securities underlying
convertible securities and warrants that it previously offered in
compliance with the Rule when it was not a reporting
company.²³⁸ If the issuer becomes unable to rely on Rule 504
for any reason other than the fact that it became a reporting company,
Rule 504 would not be available.
---------------------------------------------------------------------------

\238\ See proposed revisions to Securities Act Rule 504(a), 17
CFR 230.504(a).
---------------------------------------------------------------------------

Under this proposal, a reporting company would be able to rely on
Rule 504 only for the conversion or exercise of securities if they were
offered pursuant to Rule 504. Thus, before the issuer became subject to
the reporting requirements, the convertible securities or warrants
would have to have been:
1. Immediately convertible or exercisable; or
2. Convertible or exercisable within a year.
We solicit comment on this change to Rule 504. We seek comment
about whether we should permit a reporting company to rely on Rule 504
for the offer and sale of securities underlying convertible securities
or warrants regardless of when they become convertible or exercisable.
For example, should Rule 504 apply to the offer and sale of underlying
securities if the issuer becomes a reporting company one year after
issuing warrants under Rule 504 that were not exercisable for three
years?
Are there reasons to limit reliance on the Rule to a certain period
of time after the issuer becomes a reporting company? Should we not
allow an issuer to rely on the Rule for the exercise or conversion if
the issuer sold the warrants or convertible securities when it could
have foreseen that it was about to become a reporting company? For
example, should we extend Rule 504 to securities underlying warrants
and convertible securities only if the issuer sold them more than six
months (or three months) before becoming a reporting company?
6. Small Business Issuer Registration Fees
We also seek to ease the registration process for small business
issuers in recognition of unique difficulties they may face due to
their size. We are proposing rule revisions that would permit small
business issuers filing on small business registration statement forms
to delay payment of the Commission registration statement filing fee
until shortly before effectiveness.²³⁹ These issuers often
face substantial liquidity problems due to their smaller size. The cost
of preparing and filing a registration statement is a relatively
expensive endeavor for many small business issuers. Those costs may
deplete the issuer's liquid resources. By delaying fee payment, these
issuers will have extra time, at least for this portion of the offering
expenses, to generate funds to pay the fees. This should help ease
registration for these issuers.²⁴⁰
---------------------------------------------------------------------------

\239\ See proposed revisions to Securities Act Rule 456, 17 CFR
230.456.
\240\ Until recently, the Commission has had little flexibility
to change the timing of registration fee payments under the
Securities Act. Section 6(b)(2) of the Securities Act, 15 U.S.C.
Sec. 77f(b)(2), provides that registration fees must be paid when a
registration statement is filed. That section also says that a
registration statement will not be deemed filed unless the fee has
been paid. 15 U.S.C. Sec. 77f(c). NSMIA revised Section 4(e) of the
Exchange Act, 15 U.S.C. Sec. 78d(e), to allow the Commission
flexibility to specify the time that fee payments are due relative
to filings with the Commission.
---------------------------------------------------------------------------

The amount of securities that a small business issuer is able to
sell in a registered offering may not be determined until well after
the public offering begins and the issuer can assess investor interest.
It is not uncommon that small business issuers have to scale back the
amount of its offering. If the issuer were not required to pay the fee
until shortly before effectiveness, it would more likely be able to pay
only the fee on the amount of securities that will be sold in the
offering.
Under the proposals, a small business issuer that wishes to delay
fee payment would have to include a Rule 473(a) delaying amendment in
its registration statement. It also would have to include an
undertaking in the registration statement to pay the fee no later than
the day on which it submits a request for acceleration of effectiveness
of the registration statement. If a small business issuer files a pre-
effective amendment stating that the registration statement shall
thereafter become effective under Section 8(a) of the Securities Act
(deleted the delaying amendment), it would have to pay the fee no later
than the date the amendment is filed. If no fee is paid at that time,
the pre-effective amendment would not be considered filed. Where a
small business issuer makes an initial filing of a registration
statement without the Rule 473(a) delaying amendment, it must pay the
registration fee in order for the registration statement to be
considered filed. If no fee is paid at that time, the registration
statement would not be deemed filed.
We request your comments on this proposed rule change. Should fee
payments by small business issuers be delayed until shortly before
effectiveness? If not, why not? Should this alternative be available to
all small business issuers or only some category of those issuers, such
as non-reporting small business issuers? Should this option be allowed
for registration statements filed by blank check companies, blind pool
companies, or other issuers? Should this option be allowed for all
issuers that file on a registration form that is not effective at the
issuer's discretion, whether or not the issuer is a small business
issuer? ²⁴¹ Would the Commission staff be inundated with
filings by persons who were not necessarily sincere about going forward
with offerings? If so, should we require a good faith down payment of
the filing fee?
---------------------------------------------------------------------------

\241\ For example, Schedule B and the following Forms would not
always become effective at the issuer's discretion: A, C, F-8, F-9,
F-10 and F-80.
---------------------------------------------------------------------------

F. MJDS Issuers

In 1991, the Commission adopted rules and forms to create a
multijurisdictional disclosure system (``MJDS'') with Canada. The

[[Page 67207]]

Commission's purpose was to facilitate cross-border securities
offerings and periodic reporting by eligible Canadian
issuers.²⁴² The MJDS allows eligible Canadian issuers to
satisfy registration and reporting requirements under the Securities
Act and the Exchange Act by providing the Commission with disclosure
documents prepared under Canadian securities law. At the time the
Commission adopted the MJDS, Canada's securities administrators adopted
a parallel multijurisdictional disclosure system for U.S. issuers.
Together, the systems provide that issuers in the United States and
Canada are principally subject to the specific disclosure requirements
of only their home country when making securities offerings in the
other country.
---------------------------------------------------------------------------

\242\ Securities Act Release No. 6902 (June 21, 1991) [56 FR
30036].
---------------------------------------------------------------------------

The MJDS may be used only for certain kinds of
transactions,²⁴³ and only by issuers that meet the issuer
eligibility requirements related to those transactions. Issuer
eligibility requirements under the MJDS vary depending on the
transaction being registered. One requirement is that an issuer have a
minimum public float. To register an exchange offer or business
combination under the MJDS, an issuer must have a public float of (CN)
$75 million (Canadian dollars).²⁴⁴ To use the MJDS to
register an offering of investment grade securities or to register any
securities offering by a larger issuer, the issuer must have a public
float of at least (US) $75 million.²⁴⁵ Registration under
the Exchange Act also may be accomplished under the MJDS by a Canadian
issuer if it has a public float of at least (US) $75 million. The
minimum float requirements were designed so that the MJDS would be used
by issuers that were well-known and widely followed by the
market.²⁴⁶ Those issuers are the same type we would allow to
use proposed Form B for any offering. We are therefore proposing to
replace the public float tests under the MJDS with the same public
float/ADTV thresholds proposed for Form B.²⁴⁷
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\243\ Generally, the transactions permitted under the MJDS
include: issuance of securities upon exercise of rights offered to
existing shareholders; issuance of securities pursuant to an
exchange offer or business combination requiring shareholder vote;
issuance of investment grade debt or preferred securities; and
securities offerings by larger issuers.
\244\ Issuer exchange offers do not require a minimum public
float.
\245\ That float test is not applicable for offerings of non-
convertible investment grade securities.
\246\ When the Commission last revised the public float
thresholds in the MJDS, we specifically noted that the MJDS public
float test was meant to parallel the Form S-3 public float test.
Securities Act Release No. 7025 (Nov. 3, 1993) [58 FR 62028].
\247\ The proposed revisions would not add a public float
requirement for any transaction registered under the MJDS that does
not currently require one.
---------------------------------------------------------------------------

A Canadian foreign private issuer that meets the other issuer
eligibility criteria under the MJDS therefore would be eligible to use
it if:
1. Its public float is (US) $75 million or more and the ADTV of its
equity securities is $1 million or more; or
2. The issuer's public float is (US) $250 million or more.
With the combined public float/ADTV test, some issuers may find
that the proposed thresholds are more difficult to satisfy than the
current MJDS public float test. The proposed thresholds also would have
an effect on issuers seeking to register an exchange offer or a
business combination because the float would be measured in U.S.
dollars instead of Canadian dollars. Because the other public float
requirements under the MJDS are measured in U.S. dollars, the proposal
would have less of an impact on those transactions.
Despite the possibility that the new eligibility thresholds may
preclude some Canadian issuers from using the MJDS, we believe that the
reasons that support the proposed thresholds for Form B issuers, as
explained above, also support the proposed thresholds for MJDS issuers.
Accordingly, we propose to revise the public float tests in Forms F-8,
F-9, F-10, F-80, and 40-F to conform to the proposed public float/ADTV
thresholds for Form B.
We solicit your comment on this proposal. Should we continue to
express the proposed public float/ADTV requirements for business
combinations and exchange offers in Canadian dollars rather than in
U.S. dollars? Would the higher proposed thresholds allow too few
Canadian companies to use the MJDS system? Should the proposed
revisions apply to some but not all of the MJDS forms? If so, which
ones?
The proposals in this release also would affect MJDS issuers in
another way. Form B requires that the issuer previously have filed at
least one annual report on Form 10-K or Form 20-F and have registered
an offering of securities under the Securities Act using a form other
than those, such as the MJDS Securities Act forms, that become
effective automatically upon filing. As a result of these requirements,
Canadian issuers who file annual reports on Form 40-F or whose previous
offerings have been registered under the Securities Act on MJDS forms
will not be eligible to use Form B. If we permitted a Canadian issuer
to use filings under MJDS as the basis for Form B eligibility, the
issuer could access our markets both initially and on a continuing
basis without the Commission staff ever reviewing any of its disclosure
documents. Thus, we propose to exclude MJDS forms in determining
eligibility. Consequently, Canadian issuers would need to plan in
advance which registration or reporting forms to use under the
Securities Act and the Exchange Act, because they would not be able
move back and forth between the MJDS and non-MJDS systems as easily as
is currently possible. We solicit comment on this aspect of Form B. In
addition, in view of the fact that Form B will provide some of the same
benefits as the MJDS, in terms of ease of access to the market, should
some or all of the MJDS forms be eliminated in favor of the system
proposed in this release? If only some MJDS forms should be eliminated,
which ones?

G. Foreign Government Issuers

Proposed Rule 462 would permit certain seasoned foreign government
issuers that file registration statements on Schedule B to designate
the date and time of the effectiveness of their registration statements
by checking a box on the cover page of their Schedules.²⁴⁸
The issuer could designate that the registration statement be effective
automatically upon filing, upon any date and time it specifies, or as
designated in a later amendment. Registration statements filed in
reliance on the Rule would not be subject to Commission review.
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\248\ See proposed Securities Act Rule 462(f)(1) and (f)(2), 17
CFR 230.462(f)(1) and 230.462(f)(2).
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Rule 462 would only be available to foreign government issuers that
were registering on Schedule B an offering of at least $250 million
that also was underwritten on a firm commitment basis.²⁴⁹
These issuers also would be required to have a history of registering
under the Securities Act. To use Rule 462, a foreign government issuer
would have to have registered an offering under the Securities Act
within the three most recent years.
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\249\ For a delayed shelf offering, the $250 million would be
measured based on what is registered at the outset, not what is
offered in any single takedown.
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The prior registration requirements would guarantee that some
public information would be available before a foreign government
issuer could rely on the Rule. It also would give the issuer an
opportunity to become comfortable with the registration process and
disclosure standards of the federal securities laws.

[[Page 67208]]

The basis for extending automatic effectiveness to these issuers
rests on the concept that offerings by seasoned, well-known issuers
attract market, analyst and investor attention and recognition. We
believe that most investors and analysts would have familiarity with
these foreign governments due to their nature and size. The firm
commitment underwritten $250 million offering criteria should ensure
that their offering also attract significant market, analyst and
investor attention. We believe the prior filing requirement would
ensure that these issuers had some experience with registration under
the Securities Act. These factors would result, we believe, in the
generation and dissemination of current public information about the
foreign government issuers and their offerings. In this respect, they
would be similar to the classes of issuers to which we would extend
Form B. We are therefore proposing that, like Form B issuers, these
Schedule B issuers may designate the effectiveness of their
registration statements.
We seek comment on this proposal. Should we raise the proposed
effectiveness rule's offering threshold to something around $500
million or lower it to something around $150 million? Should we require
that a foreign government issuer have registered an offering under the
Securities Act within 5 years rather than within three years? Should we
allow any filing by a foreign sovereign government issuer, other than
its initial registered offering, to be effective immediately upon
filing? Should other non-financial factors affect the foreign
government issuer's ability to designate the effectiveness of its
registration statement?

H. Exxon Capital Transactions

If the Commission decides to adopt these proposals, the staff of
the Division of Corporation Finance would repeal the line of
interpretive letters concerning Exxon Capital exchange
offers.²⁵⁰ These interpretive letters allow issuers to sell
certain securities in a private offering and shortly thereafter
register an offering of substantially identical securities in exchange
for those securities privately placed. Issuers use this procedure, in
part, because it allows them to avoid the delay associated with
registration. Since July 1, 1998, more than one-third of all initial
public offerings have been Exxon Capital exchanges.
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\250\ See, e.g., Exxon Capital Holdings Corp. (May 13, 1988);
Morgan Stanley & Co. Inc. (Mar. 27, 1991); Mary Kay Cosmetics, Inc.
(June 5, 1991); Shearman & Sterling (July 2, 1993); Brown & Wood LLP
(Feb. 5, 1997).
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Under these interpretive letters, investors that participate in the
exchange may resell their new securities without complying with
registration or prospectus delivery requirements of the Securities Act.
Prior to these letters, privately placed securities could be registered
only for resale, which provides investors with the protection of
prospectus delivery requirements and subjects the sellers to the
liability provisions of Sections 12(a)(2) and 17(a) of the Securities
Act and, if deemed underwriters, Section 11 of the Securities
Act.²⁵¹
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\251\ The basic premise underlying the Exxon Capital line of
interpretive letters is that the securities exchanged in reliance on
those letters would remain in the institutional investor secondary
market.
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These proposals would create a registration system that captures
the speed and flexibility associated with private offerings while
retaining the benefits of registration for investors. Private
placements would no longer be an issuer's main choice when needing to
complete an offering quickly. Delays commonly associated with
registration would no longer exist for Form B issuers and for medium
size Form A issuers. Their registration statements would not be subject
to prior staff review. Moreover, if such an issuer chooses, its
registration statement could be effective upon filing.
The proposed registration system does not exclude the small issuer
from these benefits. Small issuers that do not meet the public float
requirement of Form B or the float level on Form A to allow control
over effectiveness would be able to use Form B to register an offering
if they sell only to QIBs. Given the nature of the purchasers
contemplated in the Exxon Capital line of letters, allowing small
issuers to register sales to QIBs on Form B would allow those issuers
much of the same flexibility the Exxon Capital structure gives them
today.
Elimination of this line of interpretive letters would eliminate
the ability of these smaller issuers to rely on the Exxon Capital line
of interpretive letters for sales to non-QIBs. This limitation seems
appropriate, as it aligns with our views regarding registered offerings
by these issuers to QIBs and the need for additional protections for
non-QIBs in offerings by these smaller issuers. Accordingly, we concur
with the belief of the Division of Corporation Finance that the Exxon
Capital line of interpretive letters should be repealed upon adoption
of reforms to the registration system. Comment is solicited with regard
to whether the Exxon Capital line of letters should be repealed sooner
or regardless of whether any reform to the registration statement is
adopted.

I. The Offset of Filing Fees and Other Technical Changes to the
Calculation of Filing Fees

In 1995, the Commission expanded Rule 429 ²⁵² to provide
a mechanism for issuers to offset the payment of a registration
statement filing fee with fees that were previously paid.²⁵³
The amount available for use as an offset under Rule 429 equals the
portion of the filing fee previously paid that is associated with any
unsold securities registered on an earlier registration statement. Once
a filing fee has been used as an offset, those unsold securities on the
earlier registration statement are deemed deregistered. This change has
proved to be beneficial to issuers.
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\252\ 17 CFR 230.429.
\253\ Securities Act Release No. 7168 (May 11, 1995).
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Rule 429, however, also provides for the use of a combined
prospectus for multiple offerings. At times, the combination of fee
offset procedures and combined prospectus procedures in the same rule
has resulted in confusion as to whether an issuer is offsetting fees or
is combining prospectuses. To avoid that confusion, we propose to move
the fee offset procedures into Rule 457, which currently deals with fee
payment.²⁵⁴
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\254\ See proposed Rule 457(p), 17 CFR 230.457(p).
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We also propose revisions to the fee offset procedures to allow
issuers to offset filing fees on more occasions. Currently, fee offset
is not possible if the issuer withdraws the earlier registration
statement. Under the proposals, we would allow issuers to offset a
registration statement filing fee in the same manner regardless of
whether it withdraws the registration statement. To assist the
Commission in tracking the payment of filing fees and allow for more
accurate estimates of future filing fee payments, the proposals would
provide that any offset must occur within five years of the completion
or termination of the initial registration statement.
We also are proposing to amend Rule 457 to codify certain staff
interpretations as follows:
(i) No additional filing fee would be required to be paid for a
resale offering of securities, where such securities were received and
a filing fee was paid, in connection with a registered offering
involving an exchange, reclassification or recapitalization;
²⁵⁵
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\255\ See proposed Rule 457(f)(5), 17 CFR 230.457(f)(5).

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[[Page 67209]]

(ii) We would not require payment of a filing fee for the
registration of an indeterminate amount of securities to be offered
solely for market making purposes by an affiliate of the issuer;
²⁵⁶ and
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\256\ See proposed Rule 457(q), 17 CFR 230.457(q).
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(iii) In offerings by selling security holders, the issuer may
calculate the filing fee using the total aggregate dollar amount to be
offered, rather than setting forth the number of securities and
information based on that just as in offerings where issuers are
selling.²⁵⁷
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\257\ See proposed Rule 457(o), 17 CFR 230.457(o).
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J. Solicitation of Comments Regarding Offerings of Asset-Backed
Securities Offerings

Currently, issuers (i.e., trusts or other limited purpose entities)
and registrants (i.e., sponsors, servicers or depositors) may register
an offering of investment grade asset-backed securities on Form S-3
whether or not they are subject to the Exchange Act's reporting
requirements. Form S-3 does not require an issuer or registrant of
investment grade asset-backed securities to have been reporting under
the Exchange Act because asset-backed securities are valued primarily
on the pool of assets chosen, not on an issuer or registrant's limited
operations.²⁵⁸ Moreover, historical Exchange Act reports
filed by the issuer or registrant of asset-backed securities generally
are viewed as of little assistance to investors since such reports
would reflect the results of a different pool of assets than those
backing the securities being offered. Investors of asset-backed
securities often look to a nationally recognized statistical rating
organization's (NRSRO) ratings when making their investment decisions.
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\258\ See Securities Act Release 6964 (October 22, 1992) [57 FR
56248].
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As proposed, neither Form B nor Form A is designated for use in
registering offerings of asset-backed securities.²⁵⁹ The
Commission staff is engaged in an ongoing project to consider
development of disclosure and registration requirements specifically
related to asset-backed securities. The Commission staff intends to
develop proposals with respect to asset-backed securities offerings in
connection with that project. To gather more information, we solicit
comment about the treatment of these types of offerings in relation to
the proposals in this release.
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\259\ Form S-3 has permitted the registration of investment
grade asset-backed securities since 1992. See Securities Act Release
No. 6964 (Oct. 22, 1992).
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Overall, should treatment of asset-backed securities offerings be
the same as or similar to treatment of Form A offerings or Form B
offerings? Should we continue to distinguish asset-backed securities on
the basis of whether or not they are investment grade securities?
Should offerings of investment grade asset-backed securities be treated
more like Form B offerings and other asset-backed securities offerings
be treated more like Form A offerings? Should we require that one or
more NRSROs have rated the securities?
Should the Commission give registrants in some asset-backed
offerings greater freedom to craft disclosure about the offering
without binding them to all of the itemized disclosure in Regulation S-
K? If so, how should the mandated items differ from the ones mandated
in Form B? Should the Commission craft a separate regulation setting
forth mandated asset-backed offering disclosure items? Should
communications restrictions applicable before filing a registration
statement and during the registration process be more akin to those
applicable to offerings on Form A, Form B or neither?
Should the Commission preserve staff review for all asset-backed
offerings or are there categories of such offerings that the Commission
need not review for the purpose of investor protection? Should the
Commission allow the registrant to control effectiveness in any
category of asset-backed offerings? Should delivery requirements with
respect to asset-backed offerings resemble delivery obligations of Form
A offerings, Form B offerings or neither?

VI. Concurrent Exchange Act Registration

We are proposing to permit an issuer to register concurrently both
an offering under the Securities Act and a class of securities under
the Exchange Act on Form A, Form B, Form C, Form SB-1, Form SB-2, Form
SB-3 and Schedule B.²⁶⁰ A reporting company can register a
class of securities under the Exchange Act on a short-form registration
statement: Form 8-A.²⁶¹ Form 8-A requires a description of
the registrant's securities and the filing as exhibits of documents
defining the rights of security holders.²⁶² Current rules
require companies that are registering both an offering of securities
under the Securities Act and a class of securities under the Exchange
Act to file two forms: the Securities Act registration statement and
the Form 8-A. Because the proposed Securities Act forms should contain
all of the necessary information, we propose to eliminate the Form 8-A
filing requirement when the registrant files one of those Securities
Act registration statements at that time.²⁶³
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\260\ The Commission's Task Force recommended concurrent
registration in its Report. Task Force Report at p. 86. We first
proposed concurrent registration in May 1996 as part of the Phase
Two proposals to implement certain recommendations contained in the
Report. Exchange Act Release No. 37263 (May 31, 1996) [61 FR 30405].
When we adopted several of the Phase Two proposals in July 1997, we
indicated that we would continue to consider the matter in our
efforts to streamline the registration process. Exchange Act Release
No. 38850 (July 18, 1997) [62 FR 39755]. That release adopted a
companion proposal which revised Rule 12d1-2, 17 CFR 240.12d1-2, to
permit automatic effectiveness of the Form 8-A as of the effective
time of the Securities Act registration statement relating to the
same class of securities. We continue to believe that concurrent
registration would be beneficial for registrants and are now
reproposing it. See proposed Exchange Act Rule 12d1-2, 17 CFR
240.12d1-2.
\261\ We also permit an issuer registering an initial public
offering to use Form 8-A even though it is not a reporting company
until after effectiveness of the Securities Act registration
statement.
\262\ The securities description must provide the information
called for by either Item 202 of Regulation S-K or Regulation S-B,
as applicable, 17 CFR 229.202 and 17 CFR 228.202. An issuer can
incorporate by reference into Form 8-A information that is contained
in other filings made with the Commission.
\263\ We also propose a revision to clarify that Form 8-A is
available for reporting companies only if they are current in their
reporting. See proposed revisions to General Instruction A of Form
8-A.
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To allow concurrent registration, those registration Forms would
have boxes on the facing page for registrants to check to indicate that
Exchange Act registration should be concurrent. The registrant would
include the title of the class of securities to be registered and the
exchange or market on which the securities are to be listed or traded.
We also are proposing a new rule to permit foreign governments and
their political subdivisions that register securities offerings on
Schedule B to register concurrently under the Exchange
Act.²⁶⁴ If these issuers seek concurrent Exchange Act
registration, they must include the same paragraph and table on the
facing page of their Schedule B registration statements that appear on
the Securities Act registration statements for which we will have
adopted forms.
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\264\ See proposed Securities Act Rule 499, 17 CFR 230.499.
---------------------------------------------------------------------------

We request comment on these concurrent registration proposals. Are
there offerings for which concurrent registration should not be
available because the securities description in the Securities Act
registration statement would not be adequate? ²⁶⁵
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\265\ In the 1996 proposing release, we did not propose to allow
concurrent registration for securities to be offered and sold on a
delayed basis under Rule 415(a)(1)(x), 17 CFR 230.415(a)(1)(x),
because of concerns about whether an adequate description of the
securities would be contained in the Exchange Act registration
statement.

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[[Page 67210]]

VII. Communications During the Offering Process

The Securities Act restricts the types of offering communications
that a registrant may use during the time it is engaged in a registered
public offering of its securities.²⁶⁶ The level of
restrictions depends on the period during which the communications
occur. The Securities Act creates three distinct periods in the
registered offering process. The first period occurs before a
registrant files a registration statement with the Commission and is
commonly called the ``pre-filing period.'' The second period starts
with the filing of the registration statement and ends with the
effectiveness of that registration statement and is commonly called the
``waiting period.'' The third period follows the effective date of the
registration statement. That period is commonly called the ``post-
effective period.''
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\266\ Those acting on behalf of the registrant (such as an
underwriter) are subject to the same restrictions as the registrant.
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During the pre-filing period, the Securities Act prohibits the
registrant from making any interstate offers or sales of the
securities.²⁶⁷ During the waiting period, the registrant may
make certain types of offers (but not sales). Offers made in writing,
by radio or by television must conform to the information requirements
of Section 10 of the Securities Act. Thus, the Securities Act prohibits
the use of supplemental sales literature (``free writing'') during the
waiting period. Generally, issuers and underwriters make written offers
during the waiting period by means of a preliminary prospectus which
must be filed with the Commission. Person-to-person oral offers also
are allowed during this period and, unlike widely disseminated
communications such as radio or television broadcasts, do not have to
satisfy the informational requirements of Section 10. During the post-
effective period, the registrant may use any materials to offer the
securities ²⁶⁸ but only if it delivers the final prospectus
before or with those materials.²⁶⁹ It also may sell the
securities.
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\267\ Securities Act Rule 135, 17 CFR 230.135, allows an issuer
to notify the public of a proposed offering as long as the contents
of the notice do not exceed the limited items specified in the rule.
\268\ These materials are still subject, of course, to the
antifraud and civil liability provisions of the statute.
\269\ Final prospectuses must satisfy the informational
requirements of Section 10(a) of the Securities Act.
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Congress designed these limitations so that the prospectus would be
the primary means for investors to obtain information during the
waiting period regarding an offering of securities. Congress' goal was
to prevent high pressure sales practices and to provide investors with
an opportunity to become familiar with the investment being
offered.²⁷⁰ In fact, the Securities Act originally
prohibited both oral and written offers during the waiting
period.²⁷¹ While that prohibition succeeded in limiting high
pressure sales practices, it also limited the time in which investors
could become familiar with the investment so as to make an unhurried
decision regarding the merits of the securities.²⁷² That
limitation ultimately was revised by Congress in 1954 in favor of
permitting certain offers during the waiting period.²⁷³
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\270\ H.R. Rep. No. 85, 73rd Cong., 1st Sess. 3 (1933).
\271\ Section 2(a)(3) of the Securities Act originally made no
distinction between offers and sales. The term sale was defined to
include any: ``offer to sell,'' ``offer for sale,'' ``attempt or
offer to dispose of, or solicitation of an offer to buy.''
Consequently, Section 5(a) of the Securities Act prohibited at that
time both interstate offers and sales of securities before a
registration statement became effective. See also S. Report No.
1036, 83rd Cong. 2d Sess. 4 (1954).
\272\ Hearings on S. 2846 Before the Subcomm. of the Senate
Comm. on Banking and Currency, 83rd Cong., 2d Sess. 23 (1954)
(statement of Ralph H. Demmler, Chairman of the Securities and
Exchange Commission). The regulators soon realized the importance of
providing investors with information during the waiting period. The
Federal Trade Commission (which administered the Securities Act
before the creation of the Commission in 1934) published its view in
1933 that it was permissible for issuers and underwriters to
disseminate circulars during the waiting period if they described a
security in the same manner a Section 10 prospectus would. See
Securities Act Release No. 70 (Nov. 6, 1933) [11 FR 10948];
Securities Act Release No. 464 (Aug. 19, 1935) [11 FR 10953]. In
1946, the Commission adopted Rule 131, 17 CFR 230.131, which
expressly permitted the use of a preliminary prospectus or ``red
herring.'' See Securities Act Release No. 3177 (Dec. 6, 1946) [11 FR
14260]. See also Securities Act Rules 430 and 430A, 17 CFR 230.430
and 230.430A.
\273\ The 1954 amendments were intended to codify practices with
regard to communications during the waiting period and finally
resolve concerns that dissemination of preliminary information
during the waiting period would breach the prohibition against
offers. See Hearings Before the H.R. Comm. on Interstate and Foreign
Commerce, 83rd Cong., 1st Sess. 66 (1953) (statement of Richard B.
McEntire, Commissioner of the Securities and Exchange Commission).
See also H.R. Rep. No. 1542, 83rd Cong., 2d Sess. 7 (1954).
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The statutory regulation of communications during the pre-filing
and waiting periods has not changed since those 1954 amendments. Our
capital markets, however, have changed significantly. For example,
there have been major advancements in technology and communication
media since 1954. There have been many more offerings of increasingly
complex and synthetic or hybrid securities. The trends towards
globalization of securities markets and multinationalization of issuers
and offerings have continued. Among others, these changes have
increasingly created conflicts between communications mechanisms to
which markets have become accustomed and the restrictions placed by the
Securities Act on communications around the time of a registered
offering.
The Commission continues to believe that the Securities Act goals
of preventing high pressure sales practices and providing investors
with the time and opportunity to familiarize themselves with investment
opportunities continue to be important today. We believe, however, that
the means by which to effectuate those goals can be shaped to
facilitate capital formation better and to provide more information on
a more timely basis to investors. We do not believe it is appropriate
to unnecessarily hinder communications when allowing them would provide
benefits to investors and issuers as well as reflect current practices
and realities.

A. Issuer Communications Relating to a Registered Offering

1. The Pre-Filing Period
a. Form B Registrants
Today, the largest public companies are followed by numerous
analysts that actively seek new information on a continual
basis.²⁷⁴ Unlike smaller and less mature companies, large
public companies tend to have a regular dialogue with investors and
market participants through the press and other media. Companies in
which there is a wide interest are called upon to release more
information about their activities more often than is expected of
lesser-known companies. The markets also absorb information disclosed
about these companies at a rapid rate.²⁷⁵

[[Page 67211]]

Technological innovations that permit instantaneous communications are
a driving force behind this decade's securities market.
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\274\ For example, companies with a $250 million or higher
market capitalization have, on average, 15 research analyst firms
following them.
\275\ A staff study on the market's absorption of information
found that the speed of price discovery is positively associated
with companies' market capitalizations, public floats and ADTVs. The
staff found that combination tests of ADTV and either public float
or market capitalization are more closely associated with the speed
of price discovery than tests of only public float, only market
capitalization or only ADTV. See Eligibility Requirements for Firms
Receiving Preferred Registration Status in the Registration and
Disclosure Reform Proposal (April 30, 1997).
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Given the abundance of readily accessible information about large,
seasoned public companies, any communications made by them while in the
process of registering an offering are less likely to have a
significant impact by conditioning the market or stimulating interest
in a proposed offering.²⁷⁶ Accordingly, we are proposing to
remove the restrictions on offering communications by those companies
during the pre-filing period.²⁷⁷ We are proposing an
exemption to provide that offers may be made in the pre-filing
period.²⁷⁸
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\276\ The Commission has long interpreted ``offer to sell''
broadly to encompass pre-filing publicity efforts that may not be
phrased expressly in terms of an offer but condition the market or
stimulate interest in the offering. See In the Matter of Loeb,
Rhodes & Co., 38 SEC 843 (1959) and In the Matter of First Maine
Corp., 38 SEC 882 (1959).
\277\ Rules 101 and 102 of Regulation M, 17 CFR 242.101 and
242.102, would continue to prohibit inducements to purchase
securities that are the subject of a distribution during any
applicable restricted period.
\278\ See proposed Securities Act Rule 166, 17 CFR 230.166.
Prospectuses used in reliance on this Rule during the period
beginning 15 days before the first offer and ending with the
offering completion would be filed under proposed Rule 425, 17 CFR
230.425.
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For a large, seasoned company to rely on the proposed exemption for
any offering, it must have filed all of its periodic reports under the
Exchange Act for at least one year on a timely basis and have filed at
least one annual report. It also must have either:
1. A public float with a market value of at least $250 million; or
2. A public float with a market value of at least $75 million and
the average daily trading volume for its equity shares of at least $1
million.
These mirror the eligibility criteria for Form B registration by
large well-followed issuers discussed earlier.
The proposed registration system also contemplates use of Form B
for offerings by smaller issuers that do not meet Form B's public float
and ADTV eligibility tests. Those offerings would be limited to:
offerings solely to QIBs; ²⁷⁹ offerings to certain existing
shareholders; ²⁸⁰ offerings of investment grade securities;
offerings of certain investment grade asset-backed securities; and
offerings in connection with market making transactions. We propose to
treat these Form B issuers in the same manner as we would treat large
seasoned issuers that would register their offerings on Form B.
Accordingly, their ability to offer registered securities also would
not be contingent on the prior filing of the registration statement for
the offering.²⁸¹
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\279\ See Securities Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1).
\280\ We propose that Form B allow registration of five kinds of
offerings to existing shareholders, including: offerings of
securities upon exercise of rights or conversion of convertible
securities; offerings pursuant to dividend or interest reinvestment
plans; offerings to existing common stock holders; and offerings of
securities issuable upon exercise of transferable warrants or
options. These offerings, and why we propose they be registered on
Form B, are discussed in more detail in Section V.A.2.c. of this
release.
\281\ See proposed Securities Act Rule 166(a), 17 CFR
230.166(a).
---------------------------------------------------------------------------

These offerings would be directed mainly to existing shareholders
of the issuer, such as under a DRIP, or to investors that, because of
their status, have unique access to information about the issuer, such
as a QIB. Offerees that have an existing connection with, or a prior
investment in, the issuer could be presumed to follow the issuer in
order to monitor their investment. ²⁸²
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\282\ See General Instruction I.B.4. of Form S-3.
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In the case of DRIPs, the participant already has made an
investment decision about the issuer--to participate in the DRIP--thus,
the investor would be likely to obtain information about the issuer
both on its own and from the issuer. We believe the investors in these
Form B offerings, due to their experience or nature, would be less
susceptible than other investors to pre-filing hype about a new
offering by the issuer.²⁸³ Thus, the investor protection
concerns that are associated with the prohibition against offers before
the registration statement is filed are lessened.
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\283\ Under the proposed Form B, generally, a small issuer would
not be permitted to make offerings to an existing security holder
unless the investor held securities of the issuer for at least a
two-month period. We set this requirement to ensure that the
investor would have adequate time to assess its investment and
determine whether to sell, hold or buy the issuer's securities.
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Similarly, investors that are able to obtain information because
they are able to influence the issuer to provide them with it, such as
QIBs, may not need the protections that would flow from a prohibition
of pre-filing communications. If an issuer makes statements about an
upcoming offering before it files its Form B for the offering, the QIB
is more likely than other investors to be in a position to insist that
the issuer explain any information the issuer disseminated before
filing. It also would be sophisticated enough to recognize the value of
waiting until it has a prospectus before making an investment decision.
Moreover, the free communications proposal would not extend to any
issuer that had not previously registered with the Commission. We also
would require that the issuer be reporting in a timely manner for at
least the one year before filing an offering on Form B. The reporting
requirements would serve the purpose of ensuring that material
information about the issuer would be publicly available. An investor
could use that, and whatever other information it may gather, to gauge
any communications by the issuer before the registration statement
filing.
We solicit comment on the proposal to allow Form B registrants to
communicate freely before filing a registration statement. Is Form B
the proper standard or should the treatment be limited only to some
subset of Form B offerings, such as those meeting the public float/ADTV
tests? For these purposes, should a minimum average daily trading
volume also be required for companies with a public float of at least
$250 million? Should companies be subject to the reporting requirements
for a longer period of time, such as two years?
Does the likelihood of market conditioning based on pre-filing
communications depend upon the security being issued or the transaction
being registered? Does the likelihood of market conditioning depend on
the trading market for the securities? If so, should the issuer's
trading market be an element of the test for when pre-filing
communications restrictions are lifted? Should the nature of the
securities offered affect whether pre-filing communications should be
restricted in any manner? If offering materials are used before filing
a registration statement, should certain information be required to be
disclosed therein?
While Section 5 of the Securities Act prohibits both offers to sell
and solicitations of offers to buy a security before a registration
statement is filed, Section 2(a)(3) of the Act exempts preliminary
negotiations or agreements between the issuer and any underwriter, and
among underwriters. During that period, negotiation of the financing
may proceed, but steps may not be taken to form a selling group.
Dealers may not make offers to buy the securities and underwriters and
issuers may not offer to sell them to dealers during that period.
Congress created this limitation in part to limit the pressure it
believed could be brought to bear on dealers to rush their
orders.²⁸⁴ Congress also expressed its concern that market
participants would overstimulate the demand for a company's securities
and then pressure that company to issue

[[Page 67212]]

such securities.²⁸⁵ Consequently, Section 5 also prevents
all pre-filing marketing of public offerings by underwriters and
dealers.
---------------------------------------------------------------------------

\284\ See H.R. Rep. No. 85, 73rd Cong., 1st Sess. 3 (1933).
\285\ See H.R. Rep. No. 85, 73rd Cong., 1st Sess. 2 (1933).
---------------------------------------------------------------------------

Under our proposal, before the filing of a Form B, dealers could
make offers to buy, and issuers and underwriters could make offers to
sell to dealers. Underwriters and dealers could market the securities
before the filing of the Form B. Comment is requested on these aspects
of the communications proposals. In today's markets, could issuers and
underwriters unduly pressure dealers to accept an allotment of
securities without the opportunity to scrutinize the registration
statement? Similarly, could underwriters and dealers unduly pressure
corporations to issue securities by marketing a company's securities
before the issuer wished it to happen? If so, what other safeguards
would protect against undue pressure?
b. Foreign Governments
We also propose to allow a seasoned foreign government issuer to
communicate freely before filing a registration statement for an
offering of securities that exceeds $250 million and that is
underwritten on a firm commitment basis.²⁸⁶ We would deem a
foreign government issuer to be seasoned if one year has passed since
the date of effectiveness of its initial public offering.²⁸⁷
We believe that, generally, there is abundant public information,
investor awareness and market following relating to seasoned foreign
government issuers that make large public offerings. At and around the
time of such an offering, sufficient market coverage appears virtually
assured. Therefore, we propose to allow large and seasoned foreign
government issuers to freely communicate during the pre-filing period.
---------------------------------------------------------------------------

\286\ We propose the $250 million offering threshold as a proxy
for size. The firm commitment underwriting requirement would provide
greater assurance that the offering would proceed in an orderly
fashion. And underwriting participation in the offering signals
greater market interest in the offering and the presence of other
investor protections due to the underwriters' gatekeeping function.
As with Form B issuers, we believe the seasoning requirement would
ensure a certain level of publicly available information.
\287\ See proposed Securities Act Rule 166(a), 17 CFR
230.166(a).
---------------------------------------------------------------------------

Smaller offerings by unseasoned foreign government issuers may not
attract significant market attention. Such an issuer should limit its
pre-filing communications to avoid situations where the only public
information available about the issuer or its offering before it files
its registration statement is the information that the issuer
disseminated for purposes of the offering. When the catalysts for
public dissemination of information from sources like analysts or other
securities experts are missing, we believe the best way for us to
protect investors is to limit the communications of unseasoned foreign
government issuers that make smaller offerings in the same way we would
limit the communications of Form A issuers. If a foreign government
issuer is registering its initial public offering or is registering an
offering of securities that is less than $250 million or that is not
being underwritten on a firm commitment basis, the issuer would be
subject to the same 30-day limited communications period applicable to
Form A registrants.²⁸⁸ Smaller unseasoned foreign government
issuers may rely on safe harbors to make announcements during that
period, such as factual business information ²⁸⁹ or Rule 135
offering notices.²⁹⁰
---------------------------------------------------------------------------

\288\ Proposed Securities Act Rule 167, 17 CFR 230.167, would
provide that communications before the beginning of the 30-day
period would not, for registration purposes, be deemed to be either
an offer to sell or an offer to buy as long as the issuer takes
reasonable steps to prevent further public dissemination of the
information during the 30-day limited communications period. The
rule would apply equally to unseasoned foreign sovereigns and all
foreign political subdivisions that must observe the 30-day limited
communications period.
\289\ See proposed Securities Act Rule 169, 17 CFR 230.169.
\290\ See proposed revisions to Securities Act Rule 135, 17 CFR
230.135.
---------------------------------------------------------------------------

c. All Other Registrants
Under existing regulations, not all public communications by an
issuer are prohibited before and during a registered offering. The line
between communications that are permissible and those that are not,
however, is not always easy to perceive. Over the years, the Commission
has attempted to address this issue in several releases.
In 1969, the Commission stated that, while a company is ``in
registration'': disclosure of a material event would ordinarily not be
subject to restrictions under Section 5 of the Securities Act if it is
purely factual and does not include predictions or
opinions.²⁹¹
---------------------------------------------------------------------------

\291\ Securities Act Release No. 5009 (Oct. 7, 1969) [34 FR
16870].
---------------------------------------------------------------------------

The release qualified that guidance, however, by stating that
``[a]lthough the matters discussed herein reflect the policies and
practices which the staff of the Commission will follow, they do not
represent rules of the Commission. Accordingly, these interpretations
are subject to change based on experience in their application. * * *''
Two years later, the Commission published another release on
communications.²⁹² That release stated, in the context of
companies refusing to answer legitimate inquiries, that ``the practice
of non-disclosure of factual information by a publicly held company on
the grounds that it has securities in registration'' ²⁹³ is
not justified by securities laws or Commission policy. In the same
release, however, the Commission indicated that neither a company in
registration nor persons acting on its behalf ``should instigate
publicity for the purpose of facilitating the sale of securities'' in
the offering. The Commission also noted that:
---------------------------------------------------------------------------

\292\ Securities Act Release No. 5180 (Aug. 6, 1971) [36 FR
16506].
\293\ The term ``in registration'' was used to mean the time
starting before the filing of the registration statement and ending
with the date the issuer ``reaches an understanding with a broker-
dealer that is to act as managing underwriter until the end of the
aftermarket prospectus delivery period applicable to dealers.'' Id.
---------------------------------------------------------------------------

[t]he determination of whether an item of information or publicity
could be deemed to constitute an offer--a step in the selling effort--
in violation of Section 5 must be made by the issuer in the light of
all the facts and circumstances surrounding each case.²⁹⁴
---------------------------------------------------------------------------

\294\ Id.
---------------------------------------------------------------------------

Given the generality of the statements made by the Commission
through the years, and the difficulty of applying a ``facts and
circumstances'' test that will be viewed by others in hindsight,
cautious legal counsel today often judge it wiser to advise clients to
apply significant restrictions on communications. In practice, they
appear reluctant to rely on the Commission's general statement of 30
years ago allowing disclosure of material factual information during
the course of a registered offering.²⁹⁵ In the absence of
Commission rules, the Commission's (or the staff's) statements have
been viewed as providing only vague, general guidance. Securities law
practitioners generally see applying that guidance as a practical
problem. Many companies appear to be following the practice of shutting
off communications of all types for the sake of eliminating the risk of
being questioned about possible illegal offers and experiencing a delay
in their offering. Those companies that wish to continue communications
face the cost of seeking legal advice and review of virtually any
communication during the period.²⁹⁶
---------------------------------------------------------------------------

\295\ Among other results, issuers sometimes refrain from
distributing routine reports to shareholders concerning the company
during the quiet period. See Quiet, Please, Investor Relations, Dec.
1997, at 49.
\296\ For example, the Commission understands that legal counsel
have advised issuers that all press releases, speeches to groups,
product advertisements, announcements of developments, responses to
inquiries by those who report to the public, changes in advertising
policy, and public statements first be cleared by legal counsel
during this period.

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[[Page 67213]]

This difficulty of discerning the breadth and length of the
limitations on communications is why we are proposing safe harbor rules
for registrants other than Form B and Schedule B issuers we discussed
above. The safe harbors should help to encourage open communication.
Our proposed solution is two-fold.
i. Bright-Line Communications Safe Harbor
The Commission seeks first to address uncertainty about whether
communications made long before the filing of a registration statement
will be viewed in hindsight as illegal offers. We believe that
uncertainty has led to a chilling of issuer communications for a longer
period before filing than is necessary for investor protection. The
uncertainty also unnecessarily complicates the task of those planning
the capital-raising process. We see little benefit to continuing it. We
believe the purpose of prohibiting offers before a registration
statement is filed, which we discussed above, can be fulfilled without
the attendant uncertainty costs.
Accordingly, we propose a safe harbor for all communications made
by or on behalf of any issuer that take place during a specified period
before it files a registration statement.²⁹⁷ In offerings
registered on Form B, an issuer, and those acting on behalf of the
issuer, may freely communicate before the offering period begins (i.e.,
15 days in advance of the first offer). For business combinations
registered on Forms C, SB-3, F-8, F-80 or F-10 (when F-10 is used in
connection with a business combination transaction), the offerors may
freely communicate before the first communication related to the
offering (except for communications, among the participants in the
offering).²⁹⁸ For all other offerings, an issuer, and those
acting on the issuer's behalf, may freely communicate at any time
before the 30-day period before the date of filing the registration
statement. Under the safe harbor, the issuer, underwriter and
participating dealer must take all reasonable steps within their
control to prevent further distribution or re-publication of the
communication during those periods in which free communication is not
permitted. We recognize that once a person makes information public it
is no longer in full control over whether others will use that
information at a later point in time. For example, an issuer may issue
a press release on the 40th day before filing a registration statement
on Form A and a monthly magazine that is published on the 29th day
before filing may see fit to make reference to it. We would not view it
as outside this safe harbor if the magazine published that information
on the 29th day through no efforts of, or arrangement with, the issuer.
If, however, the CEO or some other representative of the issuer gave an
interview on the 40th day before filing without getting assurance that
the interview article would not be published during the 30-day period,
that communication would be outside the safe harbor.
---------------------------------------------------------------------------

\297\ See proposed Securities Act Rule 167, 17 CFR 230.167. The
bright line safe harbor would apply only to registered offerings.
Accordingly, the safe harbor would not permit issuers to avoid the
prohibition on general solicitation when conducting a private
offering or avoid the Section 4(2) requirement that the
``transaction not involve any public offering.'' See 15 U.S.C.
Sec. 77d(2).
\298\ For a discussion of other ``free communication''
provisions applicable to business combinations, see Exchange Act
Release No. 40633 (Nov. 3, 1998).
---------------------------------------------------------------------------

In addition, if an issuer places information on its Internet web
site during a period in which it may freely communicate, we would view
it as outside the safe harbor if it fails to remove information from
its web site during the limited communications period, if the
communication is not covered by one of the other proposed safe harbors
discussed below (e.g., for factual business information or regularly
released forward-looking information). An issuer may not circumvent the
bright-line communications safe harbor by arranging for a third party
to disseminate information on its behalf during the limited
communications period. For example, if an agent or third party acting
on behalf of the issuer posts information on a web site that does not
fall within a safe harbor, we would view the posting as outside the
bright-line communications safe harbor.²⁹⁹
---------------------------------------------------------------------------

\299\ This position parallels advice we gave regarding third
party web site postings in the context of offshore Internet
offerings. See Securities Act Release No. 7516 (Mar. 23, 1998) [63
FR 14806], Sections III.D. and IV.D.
---------------------------------------------------------------------------

We recognize that there is a risk in creating a bright-line test.
Some issuers and underwriters could decide to make all of their selling
efforts before the bright-line period when a prospectus is not
available. We propose to mitigate that risk through the prospectus
delivery requirement (discussed below) that, regardless of when the
selling efforts occur, investors will have time to review the balanced,
accurate disclosure about the investment.³⁰⁰ We also
mitigate that risk in offerings not registered on Form B and not
involving business combinations through the use of a 30-day limited
communications period. The 30 days will operate as a ``cooling off''
period with respect to any communications made to investors. We solicit
comment, however, regarding whether a longer period, such as 90 days or
60 days or 45 days, would mitigate the risk further while still
providing a useful dividing line between communications likely to be
undertaken as part of the sales effort and those that serve other
purposes. Conversely, would a shorter period of time, such as 20 days,
adequately serve that function? Are there other risks or benefits of
creating a bright-line test?
---------------------------------------------------------------------------

\300\ An issuer could not use the Section 10 prospectus at a
point more than 30 days before filing and then fail to file it as
part of the registration statement because it is not ``an offer.''
The registration statement would be materially deficient absent the
prospectus.
---------------------------------------------------------------------------

Would the condition that all reasonable steps be taken within the
30 days by the issuer, underwriter or dealer to prevent further
distribution or re-publication be adequate to ensure that there is a
``cooling off'' period? Should we build in an automatic longer
prospectus delivery period before pricing when issuers or others
participating in the offering fall outside a safe harbor by
communicating during the 30-day period? The proposed safe harbor would
cover communications of any sort. Should we provide that the safe
harbor does not apply to communications discussing the offering itself?
Should we require that offering materials used more than 30 days in
advance of filing a registration statement be filed with the Commission
in the same way as free writing materials? ³⁰¹ If so, should
we require filing of such information if disseminated within 40, 50 or
60 days before the issuer files its registration statement?
---------------------------------------------------------------------------

\301\ See proposed Securities Act Rule 425, 17 CFR 230.425.
---------------------------------------------------------------------------

ii. Communications Safe Harbor
While defining the pre-filing period during which these issuers
must be concerned about the nature of their communications should help
lessen uncertainty, we believe further proposals would do so even more.
As the Commission stated almost three decades ago, ``[the] flow of
normal corporate news, unrelated to a selling effort for an issue of
securities, is natural, desirable and entirely consistent with the
objectives of disclosure to the public which underlies

[[Page 67214]]

the federal securities laws.'' ³⁰² We are proposing
therefore to exempt factual business communications from communications
restrictions.³⁰³ In addition, in offerings by reporting
companies, we propose an exemption from communications restrictions for
regularly released forward-looking information.³⁰⁴ We
solicit comment on whether we should extend the limited communications
period. Should it be 45, 50, 60 or 90 days in length?
---------------------------------------------------------------------------

\302\ Securities Act Release No. 5009 (Oct. 7, 1969).
\303\ See proposed Securities Act Rule 169, 17 CFR 230.169.
\304\ See proposed Securities Act Rule 168, 17 CFR 230.168.
---------------------------------------------------------------------------

(A) Factual Business Communications
For purposes of these proposals, ``factual business
communications'' would include:

--factual information about the issuer or some aspect of its business;
--advertisement of the issuer's products or services;
--factual business or financial developments with respect to the
issuer;
--dividend notices;
--factual information required to be set forth in any Exchange Act
report the issuer is required to file; and
--factual information communicated in response to unsolicited inquiries
from stockholders, analysts, the press and others with a legitimate
interest in the issuer's affairs.

Factual business communications would not include information about the
registered offering itself or forward-looking information. Information
about the offering would continue to be limited to that which is
permitted to be published under Securities Act Rule 135.³⁰⁵
---------------------------------------------------------------------------

\305\ We propose to revise Rule 135, 17 CFR 230.135, to permit
issuers to use it whether they plan to make a registered or private
offering. See Section VII.A.1.c.ii.(C) of this release for a
discussion of the proposed revisions to Rule 135.
---------------------------------------------------------------------------

(B) Regularly Released Forward-Looking Information
We also propose a safe harbor for reporting companies that are
accustomed to releasing forward-looking information to the markets so
that those communications are not discouraged during the limited
communications period 30 days before a registration statement is
filed.³⁰⁶ The safe harbor would exempt the dissemination of
that information from the Section 5 restrictions on offers in the pre-
filing period if the issuer is subject to the reporting requirements of
Section 13(a) of the Exchange Act. In order to come within the safe
harbor, the issuer must have customarily released this type of
information in its ordinary course of business for the last two fiscal
years (and any portion of a fiscal year) immediately before the
communication. The time, manner and form in which the information is
released must be consistent with past practice.³⁰⁷ The
categories of forward-looking information that would be covered by the
safe harbor are:
---------------------------------------------------------------------------

\306\ See proposed Securities Act Rule 168, 17 CFR 230.168.
\307\ This information generally would have to be filed with the
Commission under proposed Securities Act Rule 425, 17 CFR 230.425.

1. Projections of the issuer's revenues, income (loss), earnings
(loss) per share, capital expenditures, dividends, capital structure
or other financial items;
2. Statements about the issuer management's plans and objectives
for future operations, including plans or objectives relating to the
products or services of the issuer;
3. Statements about the issuer's future economic performance of
the type contemplated by the management's discussion and analysis of
financial condition and results of operation described in Item 303
of Regulation S-K or Item 9 of Form 20-F; and
4. Assumptions underlying or relating to any of the information
described in paragraphs (1), (2) and (3).³⁰⁸
---------------------------------------------------------------------------

\308\ These are essentially the same categories of statements
that are defined as forward looking statements under Securities Act
Section 27A(i)(1). In light of the offering context, we omitted the
category of ``statements by an underwriter or participating dealer
assessing any of the itemized information.''

We recognize that projections have historically been viewed as the
type of communication that would be particularly troublesome in the
period before a registration statement is filed.³⁰⁹ For that
reason, we propose to exclude these statements from the proposed safe
harbor for factual business communications. We also, however, wish to
encourage, where consistent with investor protection, the voluntary
disclosure of forward-looking information. Given its value to
investors, analysts, investment advisers and other securities
professionals, the release of forward-looking information should not be
constrained in circumstances that do not require constraint. Thus,
where that information is regularly released by the issuer, we would
presume that it is not being released around the time of the offering
solely as a method of hyping the securities. Accordingly, we propose
the safe harbor.
---------------------------------------------------------------------------

\309\ Until the 1970s, the Commission prohibited disclosure of
forward-looking information. In 1979, the Commission adopted a safe
harbor for release of forward-looking information. See Securities
Act Release No. 5362 (Feb. 2, 1973) [38 FR 7220]; Securities Act
Release No. 6084 (June 25, 1979) [44 FR 38810]; see also Wheat
Report, supra note 11, at 94; Securities Act Release No. 5180 (Aug.
16, 1971).
---------------------------------------------------------------------------

We solicit comment on the safe harbor for this forward-looking
information. Are there other categories of forward-looking information
that should be added to the list of exempted communications? Should any
of the categories proposed in the exemption be deleted?
(C) Notice of Proposed Offerings
As part of lifting communications restrictions, we propose to merge
current Securities Act Rules 135 and 135c.³¹⁰ The resulting
rule, Rule 135, would provide issuers with a communications safe harbor
for limited notice of their proposed offerings or business
transactions. We propose to remove the reference found in current Rule
135 that specifically states that issuers may not name the underwriters
of its proposed offering in any notice published in reliance on the
Rule. The proposed rule clearly pronounces that these notices may not
include information beyond the subjects enumerated in the rule. Because
the proposed rule does not include a provision that would allow issuers
to name their underwriters, their Rule 135 notices may not name their
underwriters. We solicit comment as to whether there are reasons to
retain the specific prohibitions in the rule.
---------------------------------------------------------------------------

\310\ See proposed revisions to Securities Act Rule 135, 17 CFR
230.135.
---------------------------------------------------------------------------

New Rule 135 would not require issuers to announce whether the
offering would be public or private. Consequently, an issuer would not
have to commit early on whether it is planning a registered or exempt
offering. Thus an issuer may find more flexibility in assessing market
demand through publication of the Rule 135 notice. Proposed Rule 135
also would provide specifically that an issuer may issue a statement to
correct inaccurate accounts or misstatements about its offering. An
issuer's correction may not, however, include more information than
would be needed to remedy the inaccuracy.
2. Communications During the Waiting Period
Restrictions on communications during the waiting period differ
according to the form the communication takes. During the waiting
period, oral offers may be made without content restrictions other than
due to liability concerns. Written offers, however, must have Section
10 contents or they cannot be used. This distinction

[[Page 67215]]

appears to do little to enhance investor protection or facilitate the
capital formation process. One can argue that it creates an incentive
for issuers and underwriters to omit information or to provide it in a
manner that is not readily available to investors for later reference.
For instance, sellers may choose to omit matters that are not easily
understood orally, or they may present that information orally anyway
despite the risk that investors will have a less than perfect
understanding of it. Issuers and their agents are known to deliberately
provide some information during the waiting period only orally, and
also limit the audience to avoid those communications being considered
broadcasted. Perhaps the best example of how this current regulatory
structure negatively affect investors is the ``road show'' structure.
It is common for issuers and underwriters to conduct ``road show''
presentations during the waiting period for selected broker-dealers and
large institutional investors. While these road shows are valuable to
some investors because they provide a forum for investors' questions,
their value is curtailed because of the limited audience invited to
attend and the fact that issuers and underwriters do not allow
participants to retain materials used during the presentation (other
than the preliminary prospectus). These restrictions raise concerns
regarding selective disclosure of material information. They also raise
concerns about whether investors have been informed as well as they
might have been absent those restrictions.³¹¹
---------------------------------------------------------------------------

\311\ See, e.g., Pratt, The IPO Information Gap; Retail
Investors are Always the Last to Know as Institutions Get Key Data
Despite SEC Ban, Investment Dealers' Digest, May 18, 1992, at 14.
See also Seely, In I.P.O.'s, the More Data the Better, N.Y. Times,
April 26, 1992, Sec. 3, at 13, col. 2.
---------------------------------------------------------------------------

We believe that the waiting period should be a time of open
dialogue between the registrant and its potential investors, provided
that the registrant is accountable for the accuracy and completeness of
its communications. The medium in which disclosure is made should not
be dictated by the regulatory structure but, rather, by the needs of
investors.
Under the proposal, we would allow companies to make offers and
disseminate offering information during the waiting period in any form
without each communication having to meet the informational
requirements of Section 10.³¹² This would permit issuers to
prepare presentations and disclose information in a variety of formats,
available to all investors. ³¹³ Through these changes, the
Commission seeks to have sellers augment the information available to
investors and thereby enhance investors' knowledge of the company and
its securities.³¹⁴
---------------------------------------------------------------------------

\312\ See proposed Securities Act Rule 165, 17 CFR 230.165. Any
prospectus disseminated in reliance on this Rule would be subject to
Section 12(a)(2) of the Securities Act and would be filed under
proposed Securities Act Rule 425, 17 CFR 230.425.
\313\ For example, the Division of Corporation Finance has
issued a line of no-action letters that permitted issuers and
underwriters to conduct road show presentations over the Internet
and through other electronic media. Access to these road shows
presentations, however, has been restricted by the sponsor to
institutional investors, investment advisers, broker-dealers,
security analysts and others that customarily would attend the live
presentation. See Staff no-action letters Private Financial Network
(Mar. 12, 1997); Net Roadshow, Inc. (July 23, 1997); and Bloomberg
L.P. (Oct. 22, 1997). We request comment on whether video road shows
should be deemed free writing and therefore would be required to be
filed under these proposals.
\314\ The proposals also include modifications to various rules
as a result of the restrictions on offering communications being
lifted. Securities Act Rule 431, 17 CFR 230.431, permits an issuer
that has been subject to the reporting requirements of the Exchange
Act for more than 36 months to distribute a summary prospectus after
it has filed the related registration statement. Our proposal to
permit the use of ``free writing'' materials during the waiting
period for all issuers would allow issuers to create and use summary
prospectuses without complying with the strictures of Rule 431.
Accordingly, we are proposing to eliminate Rule 431.
---------------------------------------------------------------------------

Our communications proposals logically contemplate that larger
seasoned issuers, including issuers eligible to use Form B and larger,
seasoned foreign government issuers, that would have no pre-filing
communications restrictions would also be able to freely communicate
after filing a registration statement.³¹⁵ While generally
there may be very limited post-filing marketing periods for these
issuers because no registration statement need be filed until the time
of sale, some may choose to file earlier. Proposed Rule 165 therefore
would permit those issuers to engage in post-filing free writing if
they:
---------------------------------------------------------------------------

\315\ See proposed Securities Act Rule 165, 17 CFR 230.165.
---------------------------------------------------------------------------

1. Comply with the preliminary prospectus delivery requirements in
proposed Rule 172;
2. File free writing materials under proposed Rule 425; and
3. File a final prospectus meeting the requirements of Section
10(a) before the first sale.

Smaller issuers that would be likely to market the securities during
the waiting period may also engage in post-filing free writing under
the same proposed conditions. All free writing materials and term
sheets, whether used by large or small issuers, would have to include a
prominent legend advising investors to read the other disclosure
documents filed with the Commission before making an investment
decision. The legend also would describe how the investor could get
copies of this information for free from the Commission's web site and
explain which documents an investor could get for free from the
issuer.³¹⁶ Although free writing material would be required
to be filed, it would not be required to be delivered. We believe that
the filing requirement enhances investor protection by reducing
selective disclosure. For example, road show materials not generally
available to individual investors today would be available to the
broader market on a real-time basis after the registration statement is
filed.³¹⁷ We solicit comment as to whether investors would
have an increased analytical burden in collecting and evaluating
various free writing materials.
---------------------------------------------------------------------------

\316\ See proposed revisions to Securities Act Rule 421, 17 CFR
230.421.
\317\ For Form B offerings, road show materials used before the
registration statement is filed would not be required to be filed
until the registration statement is.
---------------------------------------------------------------------------

In light of the free writing that would be granted by the proposed
rules, we propose to revise Securities Act Rule 134 to narrow its
application to investment companies. The Rule 134 safe harbor would not
be needed by other issuers. The proposed Rule 134 amendments would not
make substantive changes to the content of the Rule.³¹⁸ We
are, however, revising the Rule to make it more understandable. For
example, the legends informing investors how to obtain more complete
information about a fund would be simplified and combined into one
legend. The amendments also would clarify that an investment company
may identify its secretary, treasurer and any vice-president, in
addition to its president, in a Rule 134 advertisement.³¹⁹
Finally, to reflect changes made by NSMIA, legend text referring to
state registration of securities would be deleted.³²⁰
---------------------------------------------------------------------------

\318\ We noted in our release adopting amendments to Form N-1A
that we intend to re-evaluate fund advertising rules in the future.
See Investment Company Act Release No. 23064 (Mar. 23, 1998) [68 FR
13916, 13936].
\319\ See paragraph (a)(3)(ii) and (a)(3)(x) of the proposed
amendments to Securities Act Rule 134, 17 CFR 230.134.
\320\ NSMIA, Section 102(a) (exempting certain securities
offerings from state regulation).
---------------------------------------------------------------------------

We request comment regarding whether a legend substantially similar
to that required to appear in Rule 482 advertisements used with a
profile should be required for Rule 134 advertisements that are used
with a

[[Page 67216]]

profile.³²¹ Are funds likely to use Rule 134 advertisements
with a profile? Should such disclosure be permissive or mandatory?
---------------------------------------------------------------------------

\321\ Rule 482(a)(3)(ii), 17 CFR 230.482(a)(3)(ii), requires
Rule 482 advertisements that are used with a profile under Rule 498
(``Profile'') to include a conspicuous statement that indicates that
information is available in the Profile about the investment
company, the procedures for investing in the investment company and
the availability of the investment company's prospectus.
---------------------------------------------------------------------------

B. Filing Under EDGAR

Communications filed under Rule 425 would be filed electronically,
via the EDGAR system, to the same extent that the registration
statements to which the communications relate are required to be filed
under EDGAR.³²² In some cases, issuers may wish to
communicate with investors through multimedia prospectuses. These
multimedia prospectuses may be presented in the form of videos, CD-
ROMs, streamed video or audio files that can be played over the
Internet. Currently, EDGAR is not able to accept multimedia
prospectuses. Instead, companies using multimedia prospectuses file a
transcript of the material on EDGAR.³²³
---------------------------------------------------------------------------

\322\ Foreign private issuers are not required to file on EDGAR.
\323\ See Rule 304 of Regulation S-T, 17 CFR 232.304.
---------------------------------------------------------------------------

We have awarded a contract to modernize EDGAR, which will enable
filers to enhance the appearance of their documents by using graphics
and different fonts. The system, however, may not be able to
accommodate multimedia materials. We are considering whether some of
these media could be included in the new system. Some of the factors we
are considering include: security; development and maintenance costs of
a system that will accept these media; costs of database storage; how
these materials should be disseminated to the public; whether investors
would have as ready access to these materials as to the current
electronic filings; how to meet the archival requirements for storage
of electronic documents; wide divergence in industry standards for most
multi-media formats; how to assure that filed documents continue to be
readable in the future, since applications that can present these media
may change or even disappear over time.
If at adoption EDGAR is unable to accept multimedia prospectuses,
we would require that a transcript of the presentation be
filed.³²⁴ Additionally, we would require that the issuer
file five copies of the multimedia prospectus in the form used, so that
we may make it available through our public reference rooms. We solicit
comment on this approach and alternative approaches to the
dissemination of multimedia prospectuses. For example, rather than have
the issuer file five copies of the multimedia prospectus, should we
require that the issuer include an address in the transcript where the
multimedia prospectus can be obtained in its original form? Should we
require that a summary of the multimedia prospectus be filed through
EDGAR instead of a transcript?
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\324\ Like today, issuers also would have to include a fair and
accurate description of any graphical information presented that
otherwise is not disclosed in the transcript.
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C. Technology Implications of the Communications Proposals

The proposed communications rules would enable issuers and market
participants to take significantly greater advantage of the Internet
and other electronic media to communicate and deliver information to
investors.³²⁵ Most notably, the proposals would permit all
issuers, underwriters and their representatives to communicate during
the waiting period with potential investors without having to conform
their communications to the informational requirements of Section 10 of
the Securities Act.³²⁶ Accordingly, after filing a
registration statement, any issuer or underwriter could take full
advantage of innovative media technology in stylizing its free writing
materials. In that period, issuers and underwriters could use the
Internet and other electronic media to, among other things:

\325\ In October 1995, the Commission published its first
interpretive release regarding the use of electronic media. At that
time, the Commission noted its belief that the use of electronic
media ``enhances the efficiency of the securities markets by
allowing for the rapid dissemination of information to investors and
financial markets.'' Securities Act Release No. 7233 (Oct. 5, 1995)
[60 FR 53458]. The procedural requirements discussed in that release
regarding notice, access and evidence of delivery would continue to
be applicable under the proposed system. See also Securities Act
Release No. 7288 (May 9, 1996) [61 FR 24644]. More recently, the
Commission has provided additional guidance with regard to the use
of Internet web sites in the offering of securities offshore. See
Securities Act Release No. 7516 (Mar. 23, 1998).

\326\ See proposed Rule 165, 17 CFR 230.165.
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Conduct electronic roadshows to institutional and
retail investors without the use of password protection;
Use electronic mail to answer investors questions about
the company and its offering; and
Conduct ``chat room'' discussions or post messages on
bulletin boards about its offering with potential
investors.³²⁷
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\327\ In the near future, the Commission intends to address
specific technological issues that arise in the offering process.
These issues exist under the current offering framework as well as
the framework proposed in this release. Further guidance on these
activities may be provided in that release.

For offerings registered by well-followed, large issuers on Form B,
the issuers and underwriters could use the Internet and other media for
those purposes both before and after filing a registration
statement.³²⁸ The ability to communicate before filing would
allow issuers to use the Internet and other electronic media to
determine investors' interest in a proposed public offering well before
committing significant resources to its completion.
---------------------------------------------------------------------------

\328\ See proposed Rule 166, 17 CFR 230.166.
---------------------------------------------------------------------------

The 30-day bright-line test would help smaller companies that have
been concerned about when in relation to an offering they should
monitor or limit their Internet use. They would know they have freedom
to disseminate information on it at any time except during the 30 days
just before filing their registration statements.³²⁹
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\329\ See proposed Rule 167, 17 CFR 230.167.
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The proposed safe harbor for factual business communications made
within the 30 days before filing a registration statement would provide
smaller issuers with more certainty when determining what information
may be posted on their Internet Web sites during those 30
days.³³⁰
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\330\ See proposed Rule 169, 17 CFR 230.169.
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Proposed Form B also would provide issuers with more flexibility in
crafting transactional disclosure in their prospectuses. This
additional flexibility also should allow issuers to take greater
advantage of innovations in media technology.
The Commission also is proposing to require issuers to identify
their web site addresses and provide an e-mail contact on the cover
page of every registration statement under the Securities Act. This
requirement would make this information more accessible to investors,
as well as ease investors' electronic communications with companies.

D. Research Reports ³³¹
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\331\ For convenience, we use the terms ``research reports'' and
``reports'' in this section to cover not only formal reports
published by analysts but also the broad range of analyst
communications about issuers, whether or not formalized in a report.
Rules 137, 138 and 139, 17 CFR 230.137, 230.138 and 230.139, refer
to publication of ``information, opinions or recommendations.'' For
purposes of this release we use the term ``research'' generically to
cover all of those.
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Investors acquire useful information regarding companies from
sources other than Commission-mandated disclosure. One such source is
analysts' research reports. As the Commission has long acknowledged and
the Supreme Court recognized in Dirks v. SEC,³³² analysts

[[Page 67217]]

fulfill an important function by keeping investors informed. They
digest information from Exchange Act reports and other sources,
actively pursue new company information, put all of it into context,
and act as conduits in the flow of information by publishing reports
explaining the effect of this information to investors.³³³
They also express opinions and recommendations about investment in
issuers' securities. Unlike small investors, analysts can arrange to
interact with key company insiders and ask them pertinent questions.
Where analysts are acting independently and objectively, investors gain
from the publication of their insights.
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\332\ 463 U.S. 646, 658-59 (1983).
\333\ Investors benefit from being informed on an ongoing basis
via analysts about particular securities and issuers. For instance,
issuers' forward-looking information is disseminated indirectly
through analyst reports. Analysts communicate with issuer
representatives and then reflect their understanding about likely
future results in the reports or updates they publish. The market's
expectations of an issuer's future earnings can be gradually altered
by issuers leading analysts away from incorrect predictions; less
volatility in stock price would result.
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Analyst reports, however, also potentially can be misused to hype a
company's securities. Because they could do so under the guise of
providing objective, independent analysis, they could unduly influence
investors. Often, firms that employ analysts and publish their research
reports also act, or may act, as underwriters in connection with the
offerings of companies that are the subject of the reports. Research by
a broker or dealer about an issuer that proposes to register a public
offering, or has registered an offering, may constitute an offer of
those securities.³³⁴ This is particularly true when the
broker-dealer is to participate in the distribution as an underwriter
or selling group member.
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\334\ See Sections 2(a)(3) and 5 of the Securities Act, 15
U.S.C. Secs. 77b(a)(3), 77e.
---------------------------------------------------------------------------

The Commission recognized both possible uses of analyst research
reports--for hyping as well as for enhancing the free flow of
information--when it adopted Rules 137, 138 and 139 under the
Securities Act. Those safe harbor rules describe circumstances in which
a broker-dealer may publish research in and around the time of a
registered offering without concerns about violating Section 5 through
making an illegal offer or using a non-conforming prospectus. In those
rules, the Commission struck a balance between its concern about hyping
and its concern for current information by restricting the situations
in which the three safe harbors would apply.³³⁵ Commenters
on the Concept Release asked the Commission to minimize the scope of
restrictions on research in order to reflect rapid advances in
communications technology and globalization of the markets, among other
developments.³³⁶
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\335\ These releases are discussed in Chiappinelli, Gun Jumping:
The Problem of Extraneous Offers of Securities, 50 U. Pitt. L. Rev.
457, 505-07 (1989).
\336\ See, e.g., comment letters, in File No. S7-19-96, from the
American Bar Ass'n (Dec. 11, 1996), Merrill Lynch (Oct. 31, 1996),
Morgan Stanley (Dec. 9, 1996), PSA The Bond Market Ass'n (Nov. 8,
1996), Shearman & Sterling (Dec. 13, 1996) and the Securities
Industry Ass'n (Nov. 13, 1996).
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1. Proposals in Connection With Registered Offerings
When a company is making a registered offering, investors
particularly seek current information about the issuer and its
securities. In general, we propose to allow investors to receive as
much current information as possible with respect to companies that are
in registration, where consistent with investor protection. This is
true especially where the largest companies are involved. The
narrowness of the current rules regarding research causes some
analysts' research to be barred at a point at which investors may seek
current research reports the most. The result is that investors may
rely on research that does not reflect material changes or current
data.
In addition, the narrower rules put U.S. investors at a relative
disadvantage because analyst firms may determine that current law would
not allow them to give investors the current research that is
distributed to investors outside the United States. While larger U.S.
investors find out about research distributed offshore and arrange to
receive it, the same cannot be said with assurance about smaller U.S.
investors. Because of the benefits of analyst research, the proposals
overall would create broader exemptions to allow publication of
research in more instances around the time of an offering. This
approach would allow investors to judge for themselves the value of the
analysts' opinions set forth in those reports.
a. Rule 137
When a broker or dealer is not otherwise participating in a
distribution of securities, and does not propose to participate in a
distribution, it is guided by Rule 137.³³⁷ That rule
provides that research may be published by the broker or dealer in the
regular course of its business where it is not receiving consideration
of any kind from persons with an interest in the securities being
registered. Rule 137 protects the broker or dealer from being
considered an ``underwriter'' by virtue of its
publication.³³⁸ It provides a safe harbor only with respect
to reporting companies.
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\337\ Even if the distribution of research constitutes an offer,
a dealer may rely on Section 4(3) of the Securities Act which
provides an exemption from registration for dealers that are not
acting as underwriters. Section 4(3) is not available, however,
during certain defined periods shortly after the commencement of an
initial offering of a security or the effective date of a
registration statement. It is during those periods that reliance on
Rule 137, 17 CFR 230.137, may matter most.
\338\ Rule 137, 17 CFR 230.137, provides that a broker or dealer
satisfying the rule will not be ``participating'' in the offering
for purposes of the definition of ``underwriter'' in Securities Act
Section 2(11).
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The release proposing Rule 137 in 1969 explained that ``[t]he need
for such a rule is primarily evidenced in connection with actively
traded securities of issuers concerning which adequate information is
available to the public.'' ³³⁹ While the need for a safe
harbor in 1969 may have been confined to reporting companies, it no
longer appears to us that the need is so confined. Not all actively
traded securities are issued by reporting companies, particularly in
light of the market interest in securities of foreign issuers.
---------------------------------------------------------------------------

\339\ Securities Act Release No. 5010 (Oct. 7, 1969) [34 FR
18130].
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We propose to expand Rule 137 to cover non-reporting
companies.³⁴⁰ We also propose to delete the condition in
Rule 137 that the broker or dealer publish the report in the regular
course of its business. As expanded, Rule 137 would provide a safe
harbor with respect to registrants, such as foreign government issuers,
that are less likely to be reporting under the Exchange Act. The new
rule also would allow a broker or dealer to commence research coverage
on private companies planning to make registered offerings, even where
it had never before published a research report concerning that
company. Where a broker or dealer is not connected to the registrant's
distribution, we perceive limited risk that it will use its research
about the registrant or its securities to hype the market for the
securities being distributed. While the broker or dealer may seek to
cover the registrant for purposes of attracting underwriting business
from the registrant in the future, that motive for coverage is
universal and is not limited to the distribution period. Investors
should factor in that incentive when analyzing any research report. We
do not believe the risk of analysts creating reports that are
positively skewed to attract future business outweighs the benefits to

[[Page 67218]]

investors from having persons independent of the issuer and the
underwriter publish their views about the investment opportunity at a
time when investors would especially look for information. We solicit
comment on the relative risks and benefits of this approach.
---------------------------------------------------------------------------

\340\ See proposed revisions to Securities Act Rule 137, 17 CFR
230.137. The proposed rule would not cover blank check companies,
shell companies and companies making offerings of penny stock.
---------------------------------------------------------------------------

We also solicit comment regarding our proposal to remove the
``regular course of business'' condition in Rule 137. To avoid concerns
that research preparation, absent that condition, would be an unusual
activity for that broker or dealer, should it be replaced with a
narrower requirement that the person who prepares the research must be
employed by the broker or dealer to prepare research in the normal
course of his or her duties? Would those concerns be lessened if we
required that the person who prepares the research must be a registered
person? Should other restrictions be imposed on who prepares the
research? Should we mandate the manner in which the broker-dealer
discloses the identity and affiliation of those who prepare research?
b. Rule 138
Rule 138 permits a broker or dealer participating in a distribution
of one type of an issuer's securities to publish research confined to
another type of the issuer's securities if it publishes or distributes
the research in the ordinary course of its business. For example, a
dealer distributing non-convertible debt may publish under Rule 138
research solely relating to the common stock of that issuer. A dealer
distributing convertible debt could publish research limited to the
issuer's non-convertible, non-participating preferred securities under
Rule 138. When we proposed Rule 138 in 1969, we noted that the markets
for non-convertible senior securities and common stock differ
significantly. There is less opportunity to condition the market when a
broker or dealer is underwriting one and reporting on the
other.³⁴¹ In addition, the investment conditions with
respect to common stock and senior securities are significantly
different.³⁴²
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\341\ Securities Act Release No. 5010 (Oct. 7, 1969). The
release noted specifically that the market for senior securities is
largely institutional and that ``the investment conditions with
respect to common stock and the senior securities of established
corporations are significantly different.'' See also Securities Act
Release No. 6492 (Oct. 6, 1983) [48 FR 46801].
\342\ See Securities Act Release No. 5010 (Oct. 7, 1969).
---------------------------------------------------------------------------

Rule 138 is not available, however, for offerings by any type of
issuer. The offering must relate to securities of an issuer that: has
been reporting for 3 years (Form S-2 or F-2 issuers); has been
reporting for one year and has a public float of $75 million (S-3 or F-
3 issuers); or is a foreign private issuer that has a public float of
$75 million and a one-year trading history on a designated offshore
securities market. In addition, the research must be published by the
broker or dealer in the regular course of its business.
Unlike Rule 137, which focuses on whether the broker or dealer
becomes an underwriter by publishing research, the Rule 138 safe harbor
relates specifically to those who are acting as underwriters. The Rule
was designed to address the concern that the publication would violate
Section 5. A broker or dealers' research could be viewed as an unlawful
offer if it occurs before the filing of a registration statement. The
publication could also be a non-conforming prospectus ³⁴³
because the contents will not have the disclosure required by Section
10 of the Securities Act. Rule 138 therefore provides that publication
of research under the Rule will not be considered:

\343\ A ``prospectus'' is defined in Section 2(a)(10) of the
Securities Act to include any notice, circular, advertisement,
letter or communication, written or by radio or television, which
offers any security for sale or confirms the sale of any security.

--An offer during the pre-filing period, which would violate
Securities Act Section 5(c); or
--a distribution of a ``prospectus'' that does not conform to the
requirements of Section 10, which would violate Securities Act
Section 5(b)(1).³⁴⁴
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\344\ Rule 138, 17 CFR 230.138, exempts the research covered by
its terms from constituting an ``offer to sell'' for purposes of
Securities Act Section 5 or an ``offer for sale'' for purposes of
Securities Act Section 2(a)(10).

Under the proposed registration system, offers may be made during
the pre-filing period with respect to Form B offerings.³⁴⁵
In addition, prospectuses used in connection with Form B offerings need
not conform to the requirements of Section 10.³⁴⁶ Thus, a
broker or dealer would not need the relief that Rule 138 provides in
connection with Form B offerings.³⁴⁷
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\345\ See proposed Securities Act Rule 166, 17 CFR 230.166.
\346\ See proposed Securities Act Rule 165(a), 17 CFR
230.165(a).
\347\ Rule 138, 17 CFR 230.138, currently contains an
instruction that the Rule's safe harbor is available when an issuer
plans to file, files or has an effective shelf registration
statement that includes both non-convertible securities and equity
securities. See Securities Act Release No. 7132 (Feb. 1, 1995) [60
FR 6965]. Under the proposed registration system this instruction
would not be needed because these shelf offerings would be Form B
offerings.
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Further, in registered business combinations, any communications
before the first communication related to the offering, other than
communications among participants, would not constitute an offer for
the purposes of Section 5(c), provided that the parties take reasonable
steps to prevent distribution of such communication after the
announcement but before filing a registration statement. Thus, a broker
or dealer would not need the relief that Rule 138 provides in
connection with registered business combination transactions.
Brokers and dealers would only rely on Rule 138 to a limited extent
with respect to other registered offerings. In other offerings, a
proposed rule would provide that communications made more than 30 days
before the registration statement is filed would not constitute
offers.³⁴⁸ Research materials distributed during that period
would not constitute prospectuses.³⁴⁹ Thus, even in the
absence of the Rule 138 safe harbor, underwriters and participating
dealers would have no Section 5 concerns about publishing research
reports during that period. Similarly, after a registration statement
is filed, offers may be made and a proposed rule would provide that
prospectuses do not have to conform to Section 10 disclosure
standards.³⁵⁰ Thus, underwriters and participating dealers
would have no Section 5 concerns about publishing research reports
during that period. Thus, an underwriter or participating dealer's
Section 5 concerns about research reports would be limited to the 30-
day period before filing a registration statement.
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\348\ See proposed Securities Act Rule 167, 17 CFR 230.167.
\349\ In order for a communication to be a ``prospectus'' as
defined in Section 2(a)(10) of the Securities Act, the communication
must either offer a security or confirm the sale of a security.
Research reports do not confirm the sale of a security and proposed
Rule 167, 17 CFR 230.167, would provide that they are not prohibited
offers.
\350\ See proposed Securities Act Rule 165(b), 17 CFR
230.165(b).
---------------------------------------------------------------------------

We propose to expand Rule 138 to cover research reports relating to
securities of virtually all companies subject to the Exchange Act
reporting requirements, rather than just larger foreign and domestic
issuers with a one-year reporting history and other issuers with a 3-
year reporting history.³⁵¹ Where Exchange Act reports are
available, investors will have another source for information against
which to compare the analyst's report. The only reporting issuers'
securities that we would not cover are those that have historically
posed certain risks of abuse. They include: blank check companies,

[[Page 67219]]

shell companies and companies making offerings of penny stock.
---------------------------------------------------------------------------

\351\ See proposed revision to Securities Act Rule 138, 17 CFR
230.138.
---------------------------------------------------------------------------

We are not proposing that the Rule be limited to companies that
have been reporting for a specific period of time. Companies generally
become subject to the Exchange Act reporting requirements through
registering under either the Securities Act or the Exchange Act and
provide current disclosure in connection with that event. We solicit
comment, however, regarding whether companies covered by Rule 138
should have to have a specified reporting history (e.g., 6 months or a
year).
We are not currently proposing that Rule 138 be expanded to cover
non-reporting companies other than foreign private issuers that would
satisfy the public float/ADTV thresholds of Form B measured on a
worldwide basis and whose equity securities trade on a designated
offshore securities market.³⁵² As the Commission explained
in 1994 when it proposed to expand Rule 138 to cover certain non-
reporting foreign private issuers with an offshore trading history,
there is a stream of corporate information available in the marketplace
about those foreign private issuers due to their nature, even though
they are not filing reports with the Commission.³⁵³ The same
stream of information is not available about other non-reporting
companies.
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\352\ ``Designated offshore securities market'' is defined in
Rule 902(b) of Regulation S, 17 CFR 230.902(b).
\353\ See Securities Act Release No. 7120 (Dec. 13, 1994) [59 FR
31038].
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Comment is solicited with regard to the application of the proposed
Rule 138 safe harbor to research reports regarding non-reporting
issuers. Should we require the non-reporting foreign private issuers to
have a specified trading history on a designated offshore securities
market, as Rule 138 does today? If so, should that trading history be
set at one year as in current Rule 138, or some shorter period (e.g., 6
months)? Should we expand the safe harbor to cover cases where the
issuer has issued debt in a public offering, but then terminated its
status as a reporting company, if the broker or dealer is publishing
research reports with respect to those debt securities? Are there
reporting companies with respect to which Rule 138 should not apply?
c. Rule 139
Rule 139 permits a broker or dealer participating in a distribution
of securities by a larger, seasoned issuer or a larger foreign private
issuer publicly traded abroad to publish research concerning the issuer
or any class of its securities, if that research is in a publication
distributed with reasonable regularity in the normal course of its
business. Rule 139 also provides a safe harbor in those situations for
distributions by smaller seasoned issuers, if the broker or dealer
complies with additional restrictions on the nature of the publication
and the opinion or recommendation expressed in it.
Like Rule 138, Rule 139 was developed to create a safe harbor from
Section 5 for a person acting as an underwriter for the issuer. It
ensures that the research does not constitute an offer during the
period before filing, or constitute a non-conforming prospectus.
³⁵⁴ Unlike Rule 138, this Rule covers the situation where
the broker or dealer's report covers the same securities that it is
selling on the issuer's behalf in the registered offering.
---------------------------------------------------------------------------

\354\ Rule 139, 17 CFR 230.139, exempts the research from
constituting an ``offer to sell'' for purposes of Securities Act
Section 5 or an ``offer for sale'' for purposes of Securities Act
Section 2(a)(10).
---------------------------------------------------------------------------

The greatest potential for blurring the objective analyst role and
the underwriting role occurs when the analyst firm is publishing
research directly about the security it is underwriting. The Commission
has recognized that risk in the past by attaching more restrictions to
the publication of research reports under the circumstances in Rule
139.
i. Form B and Schedule B Offerings
In the case of Form B offerings, we believe that the fact that many
analysts would be covering the issuer, and that the investors would be
relatively informed already, justifies allowing research to be
published around the time of an offering without applying Section 5
restrictions. Thus, the proposed communications rules allow research
reports to be a part of the mix of information that investors may see
around the time of a Form B registered offering regardless of who
publishes those reports.³⁵⁵ Accordingly, the Rule 139 safe
harbor would not be needed in those cases.
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\355\ See proposed Securities Act Rule 166, 17 CFR 230.166, and
proposed Securities Act Rule 165(a), 17 CFR 230.165(a). As in the
case of Rule 138, 17 CFR 230.138, brokers and dealers would not have
a need to rely on Rule 139, 17 CFR 230.139, in connection with Form
B offerings.
---------------------------------------------------------------------------

We would provide the same freedom for a research report published
around the time of an offering by a seasoned foreign government issuer
that is registering an offering of securities that exceeds $250 million
and that is underwritten on a firm commitment basis.³⁵⁶
Because the proposed communications rules would provide that offers may
be made before filing of such a registration statement, an underwriter
or participating dealer would not have to be concerned about research
during that period.³⁵⁷ Similarly, because prospectuses
relating to offerings by those foreign government issuers would not
have to satisfy the requirements of Section 10, underwriters and
participating dealers would not have to be concerned about publishing
research once a Schedule B registration statement is
filed.³⁵⁸ The same would be true in a registered business
combination in the period prior to the first communication about the
transaction (other than among offering participants).
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\356\ By ``seasoned'' we mean that the foreign government
issuer's offering takes place one year or more after the effective
date of its initial public offering.
\357\ See proposed Securities Act Rule 166, 17 CFR 230.166.
\358\ See proposed Securities Act Rule 165(a), 17 CFR
230.165(a).
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ii. All Other Offerings
As discussed in connection with Rule 138, in all other offerings,
underwriters and participating dealers would have no Section 5 concerns
about publishing research more than 30 days before the filing of a
registration statement or after a registration statement is
filed.³⁵⁹ Thus, an underwriter or participating dealer would
rely on Rule 139 to address its Section 5 concerns about research
reports only during the 30-day period before the filing of a
registration statement.
---------------------------------------------------------------------------

\359\ See proposed Securities Act Rule 167, 17 CFR 230.167, and
proposed Securities Act Rule 165(b), 17 CFR 230.165(b).
---------------------------------------------------------------------------

In offerings by these issuers, we have some concern that, absent
restrictions, research reports published before the filing of a
registration statement might evolve into selling documents distributed
at a time when no prospectus is available. With appropriate
restrictions, we generally believe that research should be able to
continue during that time period. The proposed delivery rules would
ensure that investors will have time to consider the prospectus
disclosure before making a final investment decision.
iii. Focused Reports
Proposed Rule 139 would continue to provide for two categories of
reports, broad industry-related reports and reports more focused on the
issuer and its securities.³⁶⁰ The companies about which
brokers may prepare those two

[[Page 67220]]

categories of reports, however, would change. Where reporting issuers
are making the offering, we would not continue to limit the focused
issuer reports under the Rule to issuers that meet the Form S-3 or F-3
minimum float/investment grade and reporting history. Instead, the
proposed Rule would allow those reports in offerings of any type of
securities by any size issuer that has a one-year reporting
history.³⁶¹
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\360\ See proposed Securities Act Rule 139, 17 CFR 230.139.
\361\ We would continue to allow research concerning large
foreign exchange-traded issuers that are not reporting if the Form B
public float/ADTV threshold is satisfied.
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In addition, the proposed Rule would allow for focused reports
relating to offerings by foreign government issuers that are
registering on Schedule B for the first time as long as the issuer is
registering on Schedule B an offering of more than $250 million on a
firm commitment underwritten basis. We recognize that because of the
nature of foreign government issuers, significant amounts of
information likely would be available about them even though they may
not have registered before in this country. We solicit comment
regarding our extension of the focused reports safe harbor to these
foreign government offerings. Should we do so only if the foreign
government issuer has previously issued securities in a public offering
or if the broker or dealer was reporting on the issuer regularly before
the filing?
One of the conditions that currently applies to focused research
reports under Rule 139 is that the reports are distributed with
reasonable regularity in the normal course of business. We propose to
eliminate the ``reasonable regularity'' part of that condition but
retain a requirement that the report be distributed in the broker or
dealer's ordinary course of business. Where the issuer has been
reporting under the Exchange Act for more than a year, investors will
have public disclosure to refer to in weighing the contents of a
focused research report. The same would be true of a large, well-
followed foreign issuer even if it is not reporting in the United
States. The condition that the broker or dealer be distributing the
report as part of its ordinary course of business (i.e., it has a
history of distributing similar focused reports on other issuers or
securities) should allay concern about hyping as well. We solicit
comment about the elimination of the reasonable regularity condition.
Are there any reasons we should retain the condition? Should we instead
substitute a bright-line test that indicates more clearly just how long
a broker or dealer must have been reporting about the issuer or its
securities and with what frequency? If so, how long and how often?
iv. Consideration to Expand Rule 139 to IPOs and Offerings by
Unseasoned Issuers
We also solicit comment on whether to expand the focused reports
aspect of Rule 139 to initial registered offerings and repeat offerings
by large unseasoned issuers where research reports are published by
brokers or dealers that have been following the issuers in the ordinary
course of their business.³⁶² Large issuers, even those that
have not been reporting for a full year, may generate significant
market and analyst attention. In some cases, the same would be true in
initial registered offerings.
---------------------------------------------------------------------------

\362\ For purposes of this discussion, a large company would be
one that would meet the public float/ADTV tests in Form B.
---------------------------------------------------------------------------

In cases involving repeat offerings by large unseasoned reporting
companies, we believe it is possible that investors may benefit if
research reports concerning these large companies were available around
the time of their offerings. On the other hand, we see merit in
limiting dissemination of research reports about unseasoned companies.
A limitation helps ensure that the market is not mislead by subjective
reports that are not balanced by regulated public disclosure made over
a period of time. Given the risk of use of research reports as sales
materials in the case of initial registered offerings and other
offerings within a year of effectiveness, we would envision a safe
harbor applying only if the research reports were required to be filed
with the Commission in connection with the offering.
What limitations should we consider if we were to extend the Rule
139 focused reports safe harbor to IPOs? Should we limit extension to
companies initially offering more than a certain dollar amount of
securities? If so, at what level should we set the minimum offering
amount: $250 million; $500 million; $600 million? Should we set other
conditions? If so, what kinds?
Do these same considerations apply to unseasoned reporting
companies? Does the proposed Form B public float/ADTV criteria provide
a good model for qualifying companies that should be able to rely on
this aspect of Rule 139? Should we differentiate unseasoned reporting
companies listed on a national securities exchange from ones that are
not listed?
Should we condition any extension of Rule 139 to cover focused
reports about these companies on the broker or dealer having a
specified history of following the company (e.g., two years)? Should we
extend it only if the report was prepared by a broker or dealer that
had issued research reports about the company before the time it
announced its registered offering?
Should we require that issuers file any research report prepared in
reliance on any further extension of Rule 139 as part of their
registration statements or as prospectus supplements? A filing
requirement would assure that all investors would have equal access to
the report, in furtherance of our goals to reduce selective disclosure
whenever possible. If such reports are not filed, should issuers and
underwriters be required to inform investors of the reports'
availability and undertake to provide the reports upon request?
v. Industry-Related Reports
We also would extend the industry-related report safe harbor.
Instead of applying only to offerings of issuers that meet the Form S-3
or F-3 minimum float/investment grade and reporting history, we would
extend it to all issuers, regardless of size or reporting history.
Where the report is not truly focused on the issuer of the securities,
which the existing conditions ensure, there appears to be little risk
of a report that is distributed regularly being distributed for the
purpose of hyping the security. Even if the purpose of the broker-
dealer's distribution was hyping, that type of report is unlikely to
have that effect, regardless of whether the issuer is reporting or not.
We solicit comment, however, concerning whether the contents of such a
report under the proposed safe harbor should be further limited with
respect to non-reporting companies.
We also propose to alter one of the conditions of the existing
industry-related report safe harbor. We would eliminate the requirement
that the report not contain a more favorable recommendation than the
one made in the last publication by the broker or dealer about the
issuer or its securities. That condition controls the recommendation
being made by the analyst, not just the format in which it is made.
While we recognize the risk involved in lifting that constraint, we
believe it is possible to address the hyping concern by disclosure
rather than by prohibiting a broker or dealer from stating what may be
a legitimate change in its opinion. Our proposed Rule would provide
simply that, when a broker or dealer wishes to make a more favorable
recommendation than it made in the past, it also must disclose

[[Page 67221]]

in the report the last two opinions or recommendations it published
while not participating in a distribution by the issuer.³⁶³
Because the broker or dealer also must disclose its role in the
distribution, investors will be aware of the potential conflict of
interest and can judge the current recommendation accordingly.
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\363\ If the broker or dealer has not made recommendations on
two such occasions in the past, it may so state and provide its last
recommendation.
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As revised, Rule 139 also would require that the broker or dealer
reporting on unseasoned or non-reporting issuers have distributed such
reports with ``reasonable regularity.'' We solicit comment regarding
the need to retain the reasonable regularity requirement for unseasoned
or non-reporting issuers. We also solicit comment as to whether it is
necessary that projections for unseasoned or non-reporting issuers have
been published with reasonable regularity.
vi. Section 17(b)
Section 17(b) of the Securities Act requires disclosure of any
compensation received or expected to be received, directly or
indirectly, form an issuer, underwriter or dealer for the publication
or communication of information that describes a
security.³⁶⁴ Brokers and dealers are reminded that
compensation received from an issuer that could be attributed to the
preparation of a research report should be prominently disclosed.
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\364\ In adopting Section 17(b), Congress intended to address
the ``evils of the `tipster sheet' as well as articles in
newspaper[s] or periodicals that purport to give an unbiased opinion
but which opinions in reality [were] bought and paid for.'' H.R.
Rep. No. 85, 73rd Cong., 1st Sess. 24 (1933).
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2. Proposals and Interpretation in Connection With Regulation S and
Rule 144A Offerings
Where an issuer is offering securities outside the United States in
reliance on Regulation S, it and those acting on its behalf are
required to refrain from making ``directed selling efforts'' in the
United States and must ensure that the transaction is an ``offshore
transaction.'' ``Directed selling efforts'' is defined to encompass
activities that are done for the purpose of, or could reasonably be
expected to have the effect of, conditioning the market in the United
States for the securities being offered under the Regulation. To
satisfy the offshore transaction condition, no offer may be made to a
person in the United States.
A broker or dealer acting as an underwriter on behalf of an issuer
in connection with a Regulation S offering may wish, around the same
time, to publish or distribute in the United States its regular
analysts' research reports that cover the issuer, its securities or its
industry. In that event, questions arise regarding whether those
actions would conflict with the prohibition against directed selling
efforts or the offshore transaction condition.³⁶⁵ The
concern stems from the analysis that those actions could be viewed as
conditioning the market, which would constitute directed selling
efforts, or offering the securities in the United States, which is
prohibited under the ``offshore transaction'' requirement.
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\365\ See, e.g., Braverman, U.S. Legal Considerations Affecting
Global Offerings of Shares in Foreign Companies, 17 J. of Int'l. L.
& Bus. 30, 79 (1996).
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Similarly, when a broker or dealer is selling securities in
reliance on Rule 144A, it is subject to the condition that it may not
make offers to persons other than those it reasonably believes are
QIBs. Where it distributes research about the issuer around the time of
the Rule 144A transaction, it may be viewed as making offers to persons
that receive it, including those who are not QIBs.
We are concerned that these blanket restrictions have resulted in
brokers and dealers withholding regularly published research that they
have not prepared with a view towards promoting the offering to
investors. We therefore have proposed amendments to Regulation S and
Rule 144A. They provide that research may be published or distributed
under new terms set forth in Rules 138 and 139 notwithstanding the
Regulation S prohibition against directed selling efforts and offshore
transaction requirements or the requirement that Rule 144A offers be
limited to QIBs.
In Rule 139, we would add an exemption in connection with these
unregistered offerings. It would be limited to issuers about whom a
broker or dealer may prepare focused reports (that is, seasoned
issuers, larger foreign issuers and foreign government
issuers).³⁶⁶ We are not proposing to create a Rule 139
exemption for reports on small or unseasoned issuers making Regulation
S or Rule 144A offerings. We solicit comment, however, concerning
whether the proposed Rule 139 exemption for industry-type reports in
registered offerings should be extended on equivalent terms to
Regulation S or Rule 144A offerings.
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\366\ See proposed revisions to Securities Act Rules 138(b), 17
CFR 230.138(b); 139(b), 17 CFR 230.139(b); 144A(d)(1)(i), 17 CFR
230.144A(d)(1)(i); and Rule 902 (c)(3)(viii) and (h)(4) of
Regulation S, 17 CFR 230.902 (c)(3)(viii) and (h)(4).
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With one exception, we propose to apply the same conditions in the
Rule 138 and 139 exemptions for Regulation S and Rule 144A transactions
that we would apply in connection with registered offerings. The
additional condition would be that research could be published only in
a publication that the broker or dealer distributes with reasonable
regularity. We believe that restriction is appropriate given that our
goal in these unregistered offerings is to allow for the continuation
of research that the broker or dealer has regularly published, not the
commencement of research. We solicit comment with regard to whether the
research safe harbors for Regulation S and Rule 144A offerings should
contain additional safeguards. Conversely, should only Rule 139 contain
the reasonable regularity requirement for these offerings? We also
solicit comment on whether a bright-line test should replace the
``reasonable regularity'' requirement. If so, what publication
intervals should the safe harbor substitute for the reasonable
regularity requirement (e.g., annual or quarterly publication)? Would a
bright-line test provide sufficient flexibility to cover differing
practices among brokers and dealers?
In its 1990 release adopting Regulation S, we stated that research
reports of the nature described in Rule 139(b) would not be deemed to
constitute directed selling efforts in offerings by reporting
companies.³⁶⁷ Those reports are limited to ones that are not
focused solely on the issuer or its securities but are more akin to
industry reports. In addition, those reports are limited in how much
prominence they can give to the issuer and whether they can provide a
more favorable recommendation than last issued. In the same release, we
warned brokers and dealers involved in Regulation S offerings by non-
reporting companies to exercise greater caution in publication of
research. As a result, it generally has been viewed as not appropriate
for participating brokers or dealers to publish research of the nature
described in Rule 138 and Rule 139(a) while an issuer is conducting an
offering under Regulation S.
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\367\ Securities Act Release No. 6863 (Apr. 24, 1990) [55 FR
18306, 18311-12].
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The Commission believes that this interpretation currently limits
the distribution of regularly published research reports by brokers and
dealers. The Commission, therefore, is expressing the view today that
brokers and dealers may publish and distribute research reports as
described in current Rule 138 or Rule 139 without such

[[Page 67222]]

reports being deemed to constitute directed selling efforts.
3. Research and Proxy Solicitation
We also are proposing to codify a Commission staff position
³⁶⁸ 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.³⁶⁹ The new rule would
provide that distribution of research in accordance with Rule 138 or
139 would be an exempt solicitation for purposes of the proxy
rules.³⁷⁰
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\368\ See Staff no-action letter Merrill, Lynch, Pierce, Fenner
& Smith, Inc. (Oct. 24, 1997).
\369\ See proposed Exchange Act Rule 14a-1(l)(2)(v), 17 CFR
240.14a-1(l)(2)(v).
\370\ See Exchange Act Rule 14a-2(a)(7), 17 CFR 240.14a-2(a)(7).
---------------------------------------------------------------------------

Recently adopted Exchange Act Regulation M also contemplated
dissemination of research by distribution participants and their
affiliates during the pendency of a distribution of securities if the
conditions of Exchange Act Rule 138 or 139 are met.³⁷¹
Codification of the staff's position would further harmonize the
treatment of research under the Securities Act and Exchange Act rules.
We solicit comment on whether the proposed revisions would change
analysts' approach to publishing research reports on ongoing business
combinations.
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\371\ Exchange Act Rule 101(b)(1), 17 CFR 242.101(b)(1).
---------------------------------------------------------------------------

VIII. Prospectus Delivery

A. Congressional History

Congress intended that the prospectus provide investors with ``the
means of understanding the intricacies of the transaction. * * *''
³⁷² From the outset of the Securities Act, therefore,
Section 5 has required an issuer to send the investor a final
prospectus no later than the time of sale. ³⁷³ When Congress
recognized that the final prospectus would not always be available to
investors at the time they make their investment
decisions,³⁷⁴ it amended the Securities Act in 1954 to allow
for the use of the preliminary prospectus. As the House Committee on
Interstate and Foreign Commerce explained:
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\372\ H.R. Rep. No. 85, 73rd Cong., 1st Sess. 8 (1933).
\373\ A final prospectus is a prospectus that conforms to
Section 10(a) of the Securities Act, 15 U.S.C. Sec. 77(j)(a).
\374\ H.R. Report No. 1542, 83rd Cong., 2d Sess., 12 (1954).

[h]ow the investor might have accurate information at the time
it is useful to him is a problem that long has been recognized. The
proposed amendment offers an approach to its solution in that it
provides for the use of a processed document, or preliminary
prospectus, prior to the effective date of the registration
statement.³⁷⁵
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\375\ Id.

While Congress permitted the use of preliminary prospectuses, it did
not lift its mandate that final prospectuses be delivered. Thus, while
the issuer has the option to deliver prospectus information to the
investor before it makes its investment decision, the Act only requires
that a final prospectus be delivered to investors prior to or with the
confirmation. Because the confirmation arrives at the end of the
offering process, investors' investment decisions generally have been
made before the time of final prospectus delivery.

B. Commission History

In the face of Congress' decision to treat the two kinds of
prospectuses in that manner, the Commission's approach to preliminary
prospectus delivery has been measured. Immediately after the adoption
of the 1954 amendments, the Commission adopted Securities Act Rule
460.³⁷⁶ Rule 460 states that the Commission may consider
whether preliminary prospectuses have been adequately distributed
before accelerating the effectiveness of a registration
statement.³⁷⁷
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\376\ 17 CFR 230.460; Securities Act Release No. 3519 (Oct. 11,
1954) [19 FR 6727].
\377\ Under Section 8(a) of the Securities Act, the Commission
must give ``due regard to the adequacy of the information respecting
the issuer theretofore available to the public * * *'' before
accelerating the effectiveness of a registration statement. 15
U.S.C. Sec. 77(h)(a).
---------------------------------------------------------------------------

In 1969, the Commission expressed its concern that investors were
not receiving the necessary disclosure to make informed investment
decisions in offerings by first time issuers.³⁷⁸ The
Commission emphasized that ``the investing public should be aware that
many such offerings of securities are of a highly speculative character
and that the prospectus should be carefully examined before an
investment decision is reached.'' ³⁷⁹ Accordingly, the
Commission stated that, before accelerating the effectiveness of a
registration statement for a first time issuer, it would consider
whether the issuer had taken reasonable steps to send to investors a
preliminary prospectus at least 48 hours before the mailing of
confirmations.
---------------------------------------------------------------------------

\378\ Securities Act Release No. 4968 (Apr. 24, 1969) [34 FR
7235].
\379\ Securities Act Release No. 4968, 34 FR at 7235.
---------------------------------------------------------------------------

The Commission formalized that 48-hour requirement in offerings by
new issuers in 1982 when it amended Exchange Act Rule 15c2-
8.³⁸⁰ Rule 15c2-8 requires a broker or dealer, in connection
with offerings by first time issuers, to deliver a copy of the
preliminary prospectus to anyone expected to purchase in the offering.
They must deliver the prospectus at least 48 hours before sending a
confirmation. Rule 15c2-8 also requires that a broker or dealer take
reasonable steps to comply promptly with any written request for a
preliminary or final prospectus. Additionally, under the rule, brokers
and dealers must make copies of the preliminary and final prospectus
available to their sales associates that are expected to solicit orders
for such securities.³⁸¹
---------------------------------------------------------------------------

\380\ 17 CFR 240.15c2-8; Securities Act Release No. 6383 (Mar.
3, 1982) [47 FR 11380]. In the 1980 Rule 15c2-8 proposing release,
the Commission noted that a preliminary prospectus delivery
requirement may be appropriate for all issuers and solicited comment
on extending it to every offering. Securities Act Release No. 6276
(Dec. 23, 1980) [46 FR 78]. Commenters expressed concern that such
an extension would create an artificial waiting period that would
impose an undue burden on an issuer's ability to tap favorable
securities markets. See Securities Act Release No. 6338 (Aug. 6,
1981) [46 FR 42042].
\381\ In the 1969 release proposing Rule 15c2-8, the Commission
expressed its concern that salespersons were offering newly issued
securities without seeing a copy of the preliminary prospectus.
Exchange Act Release No. 8710 (Oct. 7, 1969) [34 FR 17034].
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C. Prospectus Delivery Proposals

The Commission continues to believe that delivery of information to
investors plays an integral role in their protection. In recognition of
the importance of the prospectus to investors, we recently adopted
rules that require the use of plain English in the
prospectus.³⁸² Among other benefits, the use of plain
English eliminates arcane, unnecessarily complex and incomprehensible
language from key sections of the prospectus. We adopted these rules in
order to allow investors to understand the intricacies and risks of an
offering better when making their investment decisions. If the plain
English prospectus reaches investors only after they have made their
investment decisions, the full benefit is not realized.
---------------------------------------------------------------------------

\382\ Securities Act Release No. 7497 (Jan. 28, 1998) [63 FR
6370].
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1. Adequacy of Current Rules
Under current market practices, the Commission is concerned that
Rule 460 and Rule 15c2-8 do not provide adequate assurance that all
investors who need it will have sufficient time to consider the
prospectus disclosure before making their investment decisions. Our
concern about the adequacy of current rules is multifold.

[[Page 67223]]

First, Rule 460 does not mandate delivery of preliminary prospectus
information. Second, delivery of the preliminary prospectus information
under Rule 15c2-8 covers only initial public offerings. While
preliminary prospectus disclosure is essential in those offerings,
investors' need for that disclosure before making investment decisions
is not confined to those offerings.
Third, because Rule 15c2-8 measures the timing of delivery from the
date of confirmation and uses only a 48-hour period, we are concerned
that the Rule does not ensure a sufficient amount of time for investors
to consider fully the intricacies of an offering. For example, in the
typical marketed underwritten offering today, investors appear to make
their investment decisions on or before the ``circle date.'' This is
the point at which investors are asked to ``firm up'' their orders in
anticipation of pricing. On the circle date, an investor is asked to
represent orally whether it will or will not purchase in the offering.
The underwriter ``circles'' those indications of interest in its book
that represent an affirmative response. The underwriters rely on these
commitments in reaching final price and volume terms with the issuer.
As a matter of practice, the investing public treats itself as
committed at this point in time.³⁸³ The circle date or dates
in an offering can occur days before pricing. Confirmations are sent to
investors after pricing occurs. While issuers and underwriters can
always choose to deliver preliminary prospectuses earlier than
required, and sometimes do under current practices, the 48-hour
delivery period in the Rule may not effectively guarantee that
investors receive prospectuses when they need them most.³⁸⁴
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\383\ According to offering participants with whom the staff
spoke, the ``law of the Street'' operates to require an investor
either to purchase the securities it orally committed to buy on the
circle date or harm its reputation by breaking its commitment. To
break the commitment made on the circle date also is to risk
exclusion from future offerings.
\384\ Arguments have been made to the staff that providing for
delivery in these marketed deals at such a late point in the
offering process would still be effective because underwriters will
allow their favored customers, even then, to back out of the trade
without repercussions. We are concerned that reliance on that
practice would disadvantage smaller investors and not reflect
current offering practices.
---------------------------------------------------------------------------

A fourth reason for concern that existing rules may not be
sufficient relates to the fact that the Rule only applies to brokers
and dealers. As the use of electronic media to make offerings becomes
more prevalent, issuers may increasingly choose to offer their stock
directly to the public.³⁸⁵ Issuers are not subject to Rule
15c2-8's delivery obligation.³⁸⁶ In current offerings not
involving a broker or dealer, Rule 15c2-8 has no effect on prospectus
delivery.
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\385\ See Grant, Small Firms Take Direct Route to Stock
Offerings, USA TODAY, Apr. 29, 1979, at 4b; Kollar, Do-it-Yourself
Public Offerings; The Internet Gives a New Dimension to an Old
Financing Vehicle, Investment Dealers' Digest, Mar. 24, 1997 at 4;
Barlas, Floating Stock on the Web; The Next Wave?, Investor's Daily,
Feb. 5, 1998, at A9.
\386\ Rule 15c2-8, 17 CFR 240.15c2-8, would apply if the issuer
itself is a broker or dealer.
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2. Prospectus Delivery and Developments in Communications
Investors' need for adequate time to review the preliminary
prospectus may be particularly enhanced in marketed deals under the
proposed system. Under today's proposals, we would permit the
distribution of sales materials in addition to the preliminary
prospectus. This may result in investors receiving much more sales
literature in marketed offerings. In turn, investors may require more
time with a preliminary prospectus in hand to evaluate all the
materials they have. Providing investors with preliminary prospectuses
sufficiently before their investment decisions would allow them to
consider both the supplemental sales literature and the disclosure
contained in the preliminary prospectus.
In the 29 years since the Commission first formulated the 48-hour
delivery period, advances in technology, changes in practices and
regulatory developments have profoundly altered the transmission of
prospectus information. Today, in a matter of minutes, issuers can
disseminate documents across the country and to the far corners of the
world. Many issuers have Internet web sites that provide investors with
instantaneous access to their financial reports and other company
information. Electronic delivery of prospectuses is becoming more
common, as companies and investors become more familiar with that
medium.³⁸⁷ Broker-dealers already make trade settlement
information in connection with securities offerings available
electronically on a real-time basis to institutional
customers.³⁸⁸ Print media also has seen its share of
technological advancements. In those 29 years, we have moved from
typewriters and typesetting to everyday use of computers. Today, a
prospectus can be printed in a fraction of the time it took when the
48-hour period was formulated. In addition, regulatory changes such as
shelf registration, unallocated shelf registration and, as proposed
today, Form B registration have allowed and would allow issuers and
underwriters to take advantage of any favorable changes in the
securities markets quickly.
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\387\ See Bagley & Tomkinson, Internet Is Seeing Its Share of
Securities Offerings, The Nat'l L.J., Feb. 2, 1998, at C3; Weisul,
The New Plumbing on Wall Street; Forget the Hype: The Internet is
Now Being Used by Securities Firms to Solve Workaday Problems,
Investment Dealers' Digest, Jun. 23, 1997, at 10.
\388\ See, e.g., Depository Trust Company's Institutional
Delivery System User Manual at 1 (1994). Electronic messages
containing the key information about the trade made in the offering
are often sent earlier so that the clearance and settlement process
may begin. Paper confirmations are then mailed later.
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3. Final Prospectus Delivery Exemption
We believe that requiring delivery of only a final prospectus at
the time of sale does not completely fulfill the Securities Act goal of
protecting investors through disclosure in all offerings. In firm
commitment underwritten offerings, the final prospectus invariably
arrives after the investor has made its investment decision. While
delivery of final prospectuses in those offerings may be useful to
investors who are considering litigation or resale, it does little to
fulfill the prophylactic goals of the Securities Act. As Professor
Louis Loss noted, ``[a] prospectus that comes with the security does
not tell the investor whether or not he should buy. It tells him
whether he has acquired a security or a lawsuit.'' ³⁸⁹
---------------------------------------------------------------------------

\389\ Loss, Fundamentals of Securities Regulation 93 (1988).
---------------------------------------------------------------------------

In addition, because the Securities Act requires delivery of a
final prospectus before or at the same time the confirmation is sent,
the successful completion of the clearance and settlement process is
contingent on prompt completion and delivery of the final prospectus.
Broker-dealers sometimes experience practical difficulties in trying to
comply with the current T+3 settlement cycle. In some cases, Exchange
Act 10b-10 confirmations have had to be delayed in order to await
completion of the final prospectus.³⁹⁰ Any future shortening
of the settlement cycle would simply exacerbate those difficulties.
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\390\ See the comment letters, in File No. S7-19-96, from the
American Bar Association (Dec. 11, 1996), Merrill Lynch (Oct. 31,
1996), Morgan Stanley (Dec. 9, 1996), PSA The Bond Market
Association (Nov. 8, 1996) and the Securities Industry Association
(Nov. 13, 1996).
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The cost of delivery of a final prospectus, where it is otherwise
readily available to the public,³⁹¹ may exceed

[[Page 67224]]

any marginal benefit to investors. To provide investors with the
maximum benefit from the prospectus, our proposals would re-focus
prospectus delivery requirements on a point in time before investors
have made their investment decisions. Accordingly, the Commission is
proposing to create a new exemption from the Securities Act requirement
to deliver a final prospectus.³⁹² The Commission is not
proposing to change the final prospectus delivery requirement in
Exchange Act Rule 15c2-8(d).³⁹³ That rule requires all
brokers or dealers that participate in a distribution of securities
registered under the Securities Act to take reasonable steps to comply
promptly with the written request of any person for a copy of the final
prospectus. The broker or dealer must comply with such request until
the expiration of the applicable 40-day or 90-day period under Section
4(3) of the Securities Act. We solicit comment on whether, as a
condition to the exemption, issuers, like brokers and
dealers,³⁹⁴ should be required to provide to a purchaser
upon request, and free of charge, a copy of the final prospectus.
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\391\ Domestic issuers file final prospectuses with the
Commission electronically via EDGAR. The filings are available on a
real-time basis through various services and after a 24-hour delay
at the Commission's web site (http://www.sec.gov).
\392\ See proposed Securities Act Rule 173, 17 CFR 230.173. This
Rule would not apply in the case of offerings on Forms C, SB-3, F-8,
F-80 or F-10 (when that Form is used in a business combination
transaction) or offerings of investment company securities.
\393\ 17 CFR 240.15c2-8(d).
\394\ See 17 CFR 240.15c2-8(a).
---------------------------------------------------------------------------

a. Conditions to the Exemption
As a condition to the exemption, we would require that issuers,
brokers and dealers tell investors, by the time investors receive their
confirmations of sale, where they can acquire the information that
constitutes the final prospectus free of charge.³⁹⁵ We also
would require as a condition the delivery of preliminary prospectus
information in accordance with the Commission's new rule.³⁹⁶
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\395\ See proposed Securities Act Rule 173(c), 17 CFR
230.173(c). In the case of Form B offerings, investors will be
notified through the term sheet of where they can acquire this
information.
\396\ See proposed Securities Act Rule 172, 17 CFR 230.172.
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Comment is solicited with respect to the notification condition.
Given the availability of the final prospectus in all cases via the
Commission's Internet web site or the Commission's Public Reference
Room, is there a need to tell investors where to find it? Should the
notification instead state that the registrant will provide promptly a
copy of the final prospectus upon request? Would the proposals shift
too heavy a burden to investors by requiring them to take action to
obtain a final prospectus rather than to receive it automatically? Is
the burden on investors enough that, despite EDGAR, we should continue
to require final prospectus delivery?
b. Business Combinations and Exchange Offers
We are not planning to exempt offerings registered on the
Securities Act forms for business combinations and exchange offers from
the final prospectus delivery requirement.³⁹⁷ These
offerings differ from the other offerings registered under the
Securities Act because the proxy rules and tender offer rules in
conjunction with state law impose informational and delivery
requirements in those transactions. The information contained in the
final prospectus therefore would be delivered regardless of Securities
Act requirements. In order to ensure consistency among the various
rules and regulations applicable to these business combinations and
exchange offers, the final prospectus delivery requirement would remain
intact.
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\397\ These Forms would include Forms C, SB-3, F-8, F-80 and F-
10 (when that Form is used in a business combination transaction).
---------------------------------------------------------------------------

In addition to the Section 5(b)(2) requirement for final prospectus
delivery, Forms S-4 and F-4 require the registrant, if it or the
company to be acquired incorporates any documents into the prospectus,
to deliver a prospectus no later than 20 business days before the date
of the meeting or, if no meeting is held and proxies are solicited, 20
days before the corporate action or transaction is effected. This time
period was established by the Commission in 1984 to address investors'
need for sufficient time to acquire the documents incorporated by
reference and, presumably, consider them.³⁹⁸ Since 1984, we
have witnessed the advent of EDGAR, the Internet and other sources of
filed information. The Commission no longer believes that a 20-day time
period is needed for that purpose. All of the documents that would be
incorporated into proposed Form C would be available through the
Commission's Internet web site, as well as other sources, before the
time the registration statement becomes effective. We propose to
eliminate the 20-day period. We solicit comment, however, on whether we
should retain a set period and, if so, how long that period should be.
Would delivery under the requirements applicable to these offerings not
ensure sufficient time to obtain and consider the disclosure without
one?
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\398\ Securities Act Release No. 6578 (Apr. 23, 1985) [50 FR
18990].
---------------------------------------------------------------------------

c. Rule 434 Final Prospectus Delivery Method
In 1995, the Commission adopted Rule 434 ³⁹⁹ to ease the
burden of prospectus delivery within the new T+3 settlement
cycle.⁴⁰⁰ At that time, four investment firms and the
Securities Industry Association (SIA) had expressed concern that there
would be insufficient time to mass print and mail final Section 10(a)
prospectuses in a T+3 settlement cycle. Rule 434 provides that delivery
of a final prospectus may be made in multiple documents at different
intervals in the offering process.
---------------------------------------------------------------------------

\399\ 17 CFR 230.434.
\400\ Securities Act Release No. 7168 (May 11, 1995).
---------------------------------------------------------------------------

Rule 434 allows issuers and other offering participants to meet
their prospectus delivery requirement by delivering a preliminary
prospectus and a term sheet or abbreviated term sheet before or at the
time of sale. The information contained in the preliminary prospectus,
confirmation and term sheet or abbreviated term sheet must in aggregate
meet the informational requirements of Section 10(a). Therefore, only
the Section 10(a) information not previously delivered to investors
would have to appear in the term sheet or abbreviated term sheet.
Consequently the term sheet or abbreviated term sheet could be printed
and mass mailed quicker than the final integrated
prospectus.⁴⁰¹
---------------------------------------------------------------------------

\401\ It appears, however, that most issuers and participants
continued to deliver the integrated final Section 10(a) prospectus
at the time of sale. Since September of 1996, only four (non-
investment company) issuers have filed term sheets or abbreviated
term sheets.
---------------------------------------------------------------------------

As discussed earlier, the Commission is proposing to re-focus the
prospectus delivery requirements on a point in time before investors
have made their investment decision. If the proposed registration
system is adopted, issuers and offering participants largely will be
exempt from the requirement to deliver a final prospectus at the time
of sale. Therefore, the printing and mailing of a final prospectus in
time to meet the T+3 settlement cycle would not be required.
Accordingly, the Commission is proposing to repeal Rule 434 for issuers
other than investment companies as its purpose and usefulness to
issuers and offering participants under the proposed registration
system would be limited. The proposals do not exempt investment
companies from the requirement to deliver a final prospectus at the
time of sale. The

[[Page 67225]]

Commission therefore is proposing to retain Rule 434 for closed-end
funds and unit investment trusts, which are currently covered by the
Rule. We request comment on whether Rule 434 should be retained for
these categories of investment companies.
4. Delivery of Preliminary Prospectus Information
Under the proposed registration system, we seek to ensure that high
quality disclosure is delivered to investors when they need it most--
before they make their investment decisions.⁴⁰² The proposed
prospectus delivery requirements, like the current prospectus delivery
requirements, do not contemplate that an issuer demonstrate that the
investors actually received the prospectus. The issuer would have to
take steps to ensure that the means it chooses to deliver the
prospectus would reasonably result in delivery to the issuer by a
certain date. As with other reforms, what prospectus information is
required to be delivered, and when, will depend upon the nature of the
issuer and offering.⁴⁰³
---------------------------------------------------------------------------

\402\ See proposed Securities Act Rule 172, 17 CFR 230.172, and
proposed revisions to Exchange Act Rule 15c2-8, 17 CFR 240.15c2-8.
\403\ If it chooses to, the issuer, underwriting or
participating broker or dealer may deliver a final prospectus in
lieu of the preliminary prospectus, so long as the delivery of the
final prospectus satisfies the required time frame.
---------------------------------------------------------------------------

a. Form B Offerings
In all offerings of securities on Form B, we propose to mandate the
delivery of transactional information before the investment
decision.⁴⁰⁴ We seek comment on two alternative proposals.
Under the first proposal, we would mandate delivery of a securities
term sheet. The securities term sheet would: (1) itemize the material
terms of the securities in summary format; (2) identify a contact
person to whom questions and requests for final documents may be
directed; (3) name any person other than the issuer that is selling the
securities and briefly identify any material relationship between such
person and the issuer within the past three years; and (4) include a
legend advising investors to read, before making an investment
decision, the documents the issuer files with the Commission. We would
require that the securities term sheet be delivered to investors before
they make their investment decisions and be on file with the Commission
before the first sale. Delivery of other information would not be
mandated in proposed Rule 172 for Form B offerings.
---------------------------------------------------------------------------

\404\ A preliminary prospectus could be used to satisfy this
obligation if an issuer so chooses. If a preliminary prospectus is
delivered, delivery of a securities term sheet would not be
required. Absent consent by the investor to electronic delivery, the
issuer or underwriter would be required to send a paper copy of the
securities term sheet.
---------------------------------------------------------------------------

Under the second proposal, we would require delivery of a
prospectus containing all transactional disclosure currently required
in Form S-3/F-3. That prospectus would have to be on file before first
sale. Just like the first proposal, delivery of other information would
not be mandated in proposed Rule 172.
We ask for comment on what kind of information should be mandated
in the term sheet or prospectus. For example, should the term sheet
include all ``offering information'' ⁴⁰⁵ filed in Form B
offerings? Should the term sheet be more like a profile prospectus?
Should mandated term sheet disclosure be a different subset of offering
information? If so, should the term sheet include only categories of
transactional information that must be disclosed in every Form B
registration statement (e.g., use of proceeds, changes in the
registrant's affairs, etc.)? Should the term sheet include any of the
categories of disclosure that must be included in the Form B filing if
applicable (e.g., transactional risk factors, dilution, etc.)? Should
we require that the term sheet be written in plain English? Should we
require in the prospectus fewer items of mandated disclosure? If so,
which items should be excluded?
---------------------------------------------------------------------------

\405\ See Section V.A.1.a.ii. of this release for a discussion
of what constitutes ``offering information.''
---------------------------------------------------------------------------

Similarly, should material changes in the issuer's affairs not
previously reported be required on either the term sheet or the
prospectus? Would there already be sufficient information available to
investors and the market regarding certain securities such that
delivery of a securities term sheet or prospectus would be unlikely to
enhance investor protection significantly? Should we require delivery
of a securities term sheet or prospectus in any Form B offering,
regardless of whether or not the class of securities was previously
registered?
b. Offerings by Small or Unseasoned Issuers
Delivery of information contained in the prospectus is especially
important when the registrant is a new or relatively new public
company. In those cases, there is comparatively little information
available about the company. Due to the general lack of familiarity by
investors with companies that are smaller or unseasoned, it is
important that prospectus information be delivered early enough for
investors to have sufficient time to assess the disclosure and, if
necessary, seek further information in light of it. In these
situations, we would not limit the requirement to deliver a preliminary
prospectus to non-reporting companies, as Rule 15c2-8 does today. We
are proposing to require the delivery of a Section 10 prospectus for
all filings of small or unseasoned offerings.⁴⁰⁶ The timing
aspect of the delivery requirement would be dependent upon whether the
offering was the registrant's initial public offering (or registered
within a year of the registrant's initial public offering). If so, we
propose to require that a Section 10 prospectus be delivered in a
manner reasonably designed to be received by each investor no later
than 7 calendar days before the date of pricing in a firm commitment
underwritten offering. In a best efforts offering, or direct public
offering, we would mandate delivery in a manner reasonably designed to
be received by each investor no later than 7 calendar days before the
investor signs a subscription agreement or other document in which it
commits to purchase securities. For more seasoned
issuers,⁴⁰⁷ we would require that the prospectus (and any
incorporated reports) be delivered so as to arrive at least 3 calendar
days before the date of pricing, or the date the investor signs a
subscription agreement or other document in which it commits to
purchase the securities, as applicable.
---------------------------------------------------------------------------

\406\ This requirement would encompass all filings on Forms A,
SB-1, SB-2, F-7, F-9, F-10 (not involving a business combination)
and certain Schedule B offerings. These proposals do not contemplate
that issuers must satisfy their prospectus delivery requirements by
using any specific method of delivery. Whether issuers satisfy
delivery requirements electronically or in more traditional ways,
they would be required to deliver the prospectus in a manner
reasonably designed to result in delivery by the applicable date.
\407\ For purposes of this delivery requirement, seasoned
issuers are those whose initial public offerings took place one year
or more before the effective date of the registration statement for
the current offering of securities.
---------------------------------------------------------------------------

We solicit comment on whether we should require earlier prospectus
delivery. Should we mandate delivery, for example, at 10 or 15 days
(rather than 7 days) and 5 or 10 days (rather than 3 days) before the
date of pricing or commitment to purchase? We solicit comment on
whether the proposed 7 and 3 day delivery dates are shorter or longer
than the dates by which issuers typically deliver red herring
prospectuses under the current system. Would the proposal alter current
delivery practices in offerings of the type that would be made on Form
A or

[[Page 67226]]

the small business issuer system? If so, how?
Because information would be delivered to the investor before the
transaction is declared effective and sold, material changes to the
transaction or the company information may arise that were not
disclosed in the preliminary prospectus delivered to investors. If
investors are not otherwise informed about those changes, the
information must be set forth in a document sent in a manner reasonably
designed to be delivered to each investor at least 24 hours before the
pricing of securities or the date the investor signs a subscription
agreement or otherwise commits to purchase the
securities.⁴⁰⁸ Should we instead require delivery of
material change information in 36 or 48 hours?
---------------------------------------------------------------------------

\408\ For example, an issuer could choose to have the brokers
tell investors orally about the changes when they call to determine
if investors will commit to purchase.
---------------------------------------------------------------------------

c. Foreign Government Issuers
We propose to exempt foreign government issuers ⁴⁰⁹ from
the final prospectus delivery requirements and require them to deliver
prospectus information under Rule 172 for the same reason we propose
that treatment for other issuers: to provide more timely and efficient
dissemination of information to investors.
---------------------------------------------------------------------------

\409\ Securities Act Rule 405, 17 CFR 230.405, defines ``foreign
government'' to mean the government of any foreign country or the
government of any political subdivision of a foreign country.
---------------------------------------------------------------------------

Foreign government issuers are exempt from the reporting
requirements under the Exchange Act unless they list their securities
on a U.S. exchange.⁴¹⁰ Therefore, the proposed prospectus
delivery requirements would serve a significant function in ensuring
that investors have the information about foreign governments they
need, at the time they need it, to make an informed investment
decision. As in the case of corporate issuers, however, delivery may be
needed more or less depending on the issuer and the offering. We
believe that investors would need less time to review the prospectus
information for a new offering by a seasoned issuer than it would that
of an unseasoned one.
---------------------------------------------------------------------------

\410\ Section 15(d) of the Exchange Act expressly states that it
does not apply to foreign government issuers. Section 12(g) of the
Exchange Act applies only to issuers of equity securities, and
foreign government issuers never issue equity. Accordingly, Section
12(b) is the only section under the Exchange Act that imposes a
reporting requirement on foreign government issuers.
---------------------------------------------------------------------------

When a foreign government issuer makes an initial registered
offering in the United States, it files a Schedule B with the
Commission. The Schedule is publicly available, and in many cases
contains much more information than is mandated.⁴¹¹
Investors can access this information through the Commission at any
time after the registration statement becomes publicly available.
Depending on the nature of the offering and the issuer, analysts may
cover the issuer and disseminate information about it and its
offerings. For purposes of prospectus delivery, therefore, we would
define ``seasoned'' foreign government issuers as those that already
have registered a public offering on Schedule B. In the absence of a
reporting history, we believe that is the best measure of seasoning.
---------------------------------------------------------------------------

\411\ Typically, the registration statements will include
information about the issuer's country, form of government, economy,
monetary system, public finance and national debt. Foreign
government issuers disclose this additional information for
marketing purposes and due to concern about the antifraud provisions
of the federal securities laws. See Greene & Adee, The Securities of
Foreign Governments, Political Subdivisions and Multinational
Organizations, 10 N.C.J. of Int'l L. and Com. Reg. 1 (Winter 1985).
---------------------------------------------------------------------------

Under proposed Rule 172, foreign government issuers would be
divided into two categories: (1) larger seasoned issuers; and (2)
smaller/unseasoned issuers. Larger seasoned issuers would consist of
those that:

Had registered an initial public offering with the
Commission that was declared effective more than one year before the
registration of its current offering on Schedule B; and
Are registering an offering of securities in excess of
$250 million that is being underwritten on a firm commitment basis.

All other foreign government issuers would be within the smaller/
unseasoned category.
Large seasoned foreign government issuers that registered their
offerings on Schedule B would be treated like Form B registrants for
purposes of prospectus information delivery requirements. We would
mandate the delivery of a term sheet describing the material terms of
the security being offered. We also would require that the term sheet
be on file with the Commission before the first sale.⁴¹²
These foreign government issuers would have to send the term sheet by
means that would reasonably result in delivery to the investor before
it makes a binding investment decision.
---------------------------------------------------------------------------

\412\ See proposed Securities Act Rule 230.493A, 17 CFR
230.493A.
---------------------------------------------------------------------------

Foreign government issuers in the smaller/unseasoned category would
be treated like Form A registrants. A foreign government issuer,
regardless of size, registering its initial public offering on Schedule
B (or registering within 1 year of it) would be included in the
smaller/unseasoned category. That issuer would be treated like an
issuer registering its initial public offering on Form A. Thus, we
would require it to send a prospectus that satisfies the requirements
of Section 10 of the Securities Act, by means reasonably designed so
that the investor receives the prospectus at least 7 days before:

The date of pricing the securities (for offerings
underwritten on a firm commitment basis); or
The date the investor signs a document that commits it
to purchase the securities or otherwise commits to purchase (for
offerings underwritten on a best efforts basis and non-underwritten
offerings).

A seasoned foreign government issuer registering an offering of
less than $250 million or registering an offering that is not
underwritten on a firm commitment basis would be treated the same as a
seasoned small issuer on Form A. It would have to deliver a prospectus
3 days before the date of pricing or the date an investor commits to
purchase, as applicable.
We solicit comment on the prospectus delivery proposals as they
relate to foreign government issuers. For unseasoned foreign
governments, should we mandate prospectus delivery earlier than 7 days?
Would 10 or 15 days be a better measure of time needed to digest the
information and do any follow up inquiries. For other foreign
government issuers in the smaller/unseasoned category, should we
mandate prospectus delivery earlier than 3 days? Would 5 or 10 days be
a better measure? For seasoned Schedule B issuers making smaller
offerings or offerings not done on a firm commitment underwritten
basis, should we mandate prospectus delivery earlier than 3 days? Would
5 or 10 days be a better measure? Should our definitions of
``seasoned'' for offerings by foreign government issuers require that
the issuer have made its initial public offering more than 1 year
earlier? Would two years earlier be a better test? Should we raise the
offering threshold (e.g., to $400 or $500 million) or lower it (e.g.,
to $100 or $150 million)?
As we do regarding the term sheet required for Form B offerings, we
solicit comment on whether the term sheet for Schedule B offerings
should include information in addition to the material terms of the
securities.
d. Canadian MJDS Issuers
We also would require earlier delivery with respect to offerings on
Forms F-7, F-8, F-9, F-10 and F-80--the registration statements used in
connection with the MJDS. Under the proposed registration system,
issuers

[[Page 67227]]

that register offerings under the MJDS, other than business
combinations and exchange offers, also would be required to comply with
proposed Rule 172.⁴¹³ We believe this requirement would be
especially useful to U.S. investors who may need more time to
familiarize themselves with the disclosure that Canadian companies
prepare pursuant to the requirements of Canadian securities regulation,
which would likely differ somewhat from disclosure generally prepared
under U.S. federal securities laws.
---------------------------------------------------------------------------

\413\ Business combinations and exchange offers on Form F-8, F-
80, and F-10 (when that Form is used in a business combination
transaction) like business combinations on Forms C and SB-3, would
not be subject to proposed Rule 172, 17 CFR 230.172, preliminary
prospectus delivery. Instead, due to the nature of the transactions,
they would continue to be subject to the final prospectus delivery
obligations of Section 5. The timing of that delivery would be
dependent on state law.
---------------------------------------------------------------------------

Issuers that register on MJDS Forms F-7, F-9 or F-10 (when that
form does not involve a business combination) would be required to
deliver a Section 10 prospectus under the proposed Rule. The delivery
periods would mirror those applicable to Form A offerings. Seasoned
issuers making offerings underwritten on a firm commitment basis would
be required to deliver the prospectus to investors at least 3 days
before the pricing date. For offerings underwritten on a best efforts
basis, seasoned issuers would be required to deliver the prospectus to
investors at least 3 days before the investor commits to purchase the
securities. Unseasoned issuers would be required to deliver the Section
10 prospectus at least 7 days before the date of pricing or the date an
investor commits to purchase, depending on the type of underwriting.
Because there would be less public information available for unseasoned
issuers, the proposed Rule calls for them to give investors more time
to read the prospectus.
Comment is solicited with regard to these delivery obligations.
Would the 7-day or 3-day delivery requirement provide investors with
sufficient time to consider the issuer's disclosure? Should MJDS
issuers be required to deliver sooner than proposed? Would 10 or 15
days (instead of 7) or 5 or 10 days (instead of 3) be better measures?
Should we provide that MJDS issuers eligible to register on Form B be
treated for purposes of delivery the same as Form B issuers, even
though they rely on Canadian disclosure requirements? Is there any
reason to differentiate the business combinations and exchange offers
on MJDS forms from those on Form C or Form SB-3 with respect to the
delivery requirements?
e. Effectiveness and Prospectus Delivery
In determining whether to accelerate effectiveness of registration
statements, Section 8(a) of the Securities Act provides that the
Commission consider whether there has been available adequate and
understandable public information about an issuer and its offering. If
not, the Commission may determine that it is not in the public interest
to accelerate effectiveness of the registration statement. Under the
proposed registration system, we would consider whether an issuer
complied with its prospectus delivery obligations in evaluating any
request for acceleration. We propose to amend Securities Act Rule 461
to reflect the consideration of compliance with delivery obligations
under proposed Rule 172. ⁴¹⁴
---------------------------------------------------------------------------

\414\See proposed Securities Act Rule 461(b)(2)(i), 17 CFR
230.461(b)(2)(i).
---------------------------------------------------------------------------

f. Secondary Offerings
The proposed prospectus delivery requirements also would apply to
registered secondary offerings made by selling security holders. We
believe this is appropriate because most registered secondary offerings
would be made in a manner that is similar to registered primary
offerings. We solicit comment regarding whether it is appropriate to
apply the same delivery requirements to all secondary offerings made by
selling security holders that we apply to primary offerings made by the
issuer. If not, why not, and how should they differ?
Are certain types of registered secondary offerings conducted in a
sufficiently different manner from registered primary offerings that
the delivery requirements are either not necessary or not appropriate?
In particular, should the same delivery requirements apply to non-
underwritten secondary sales into an existing trading market?
5. Aftermarket Prospectus Delivery
For a specified period of time after a registration statement
becomes effective, the Securities Act requires dealers to deliver a
final prospectus to persons who buy those securities. This aftermarket
delivery obligation applies to all dealers, whether or not they
participated in the offering itself.⁴¹⁵ The obligation
arises because Section 5 applies to the dealer's transactions. The
exemption generally relied upon by dealers, Section 4(3) of the
Securities Act, is not available during a 40-day or 90-day period after
the later of the effective date of a registration statement or the
first bona fide offer of the security.⁴¹⁶ Thus, the
aftermarket delivery period is defined primarily by the length of time
Section 4(3) is unavailable.⁴¹⁷
---------------------------------------------------------------------------

\415\ The obligation is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments.
\416\ The 90-day delivery period in Section 4(3) applies for
securities of issuers that have not previously registered under the
Securities Act. The 40-day delivery period in Section 4(3) applies
to securities of issuers that previously registered under the
Securities Act.
\417\ As discussed below, Securities Act Rule 174, 17 CFR
230.174, modifies the statutory delivery obligation.
---------------------------------------------------------------------------

a. Background of Aftermarket Prospectus Delivery
An exemption from registration for dealers is not available during
those periods because Congress determined to mandate that information
be delivered to investors by all dealers while the securities are ``in
the stream of distribution.'' ⁴¹⁸ Congress deemed protection
of investors in the aftermarket important because: those investors are
likely to be less sophisticated than the ones able to purchase in the
initial sale, they frequently purchase at a higher price than the price
of the initial offering, and they are solicited or influenced by the
same selling efforts as the initial purchasers.⁴¹⁹ The
Section 4(3) period was created to distinguish between transactions
during distributions and ordinary trading transactions.⁴²⁰
---------------------------------------------------------------------------

\418\ See S. Rep. No. 1036, 83rd Cong., 2d Sess. 7 (1954)
(statement of Dr. Edward T. McCormick, former Commissioner of the
Securities and Exchange Commission and then-current president of the
American Stock Exchange).
\419\ See S. Rep. 379, 88th Cong., 1st Sess. 28 (1963).
\420\ The primary purpose of Section 4(3) was to exempt from the
scope of Section 5 ``transactions by a dealer in securities not
connected by time and circumstances with [the] distribution of a new
offering.'' H.R. Rep. No. 85, 73rd Cong., 1st Sess. 6 (1933). The
bright-line test Congress adopted was considered less ambiguous and
less subject to ``easy evasion'' than any attempt to establish
criteria distinguishing dealer activities which are distributive
from those which are merely incidental to ordinary trading. Throop
and Lane, Some Problems of Exemption Under the Securities Act of
1933, 4 L. & Contemp. Problems 89, 120 (1937).
---------------------------------------------------------------------------

Initially, Congress provided for a one-year aftermarket prospectus
delivery period during which all dealers were obligated to deliver a
prospectus. In 1954, Congress shortened the period to 40 days because
it determined that distributions were completed well before the one-
year period. ⁴²¹ In 1964, Congress extended the 40-day
period to 90 days for those transactions where no securities of an
issuer had previously

[[Page 67228]]

been sold pursuant to an earlier effective registration
statement.⁴²² At the same time, Congress gave the Commission
the power to shorten the 40-day and 90-day delivery period by rule,
regulation or order.
---------------------------------------------------------------------------

\421\ 1954 Amendments to the Securities Act of 1933, Pub. L. No.
83-577, 68 Stat. 683 (1954).
\422\ Securities Act Amendments of 1964, Pub. L. No. 88-467, 78
Stat. 580 (1964). Congress extended the period for two reasons.
First, it viewed 90 days as a ``more realistic appraisal of the time
during which the distribution process continues in the case of many
new issuers.'' See S. Rep. No. 379, 88th Cong., 1st Sess. 28 (1963).
Second, it wished to protect investors from the ``hot issue'' allure
characterized by a ``seemingly insatiable appetite'' for new issues
with ``rapid rises in the prices of such securities to premiums over
the initial offering.'' Id.
---------------------------------------------------------------------------

In response to the 1964 legislative action, the Commission promptly
shortened the aftermarket delivery period for some offerings via the
adoption of Rule 174.⁴²³ Since 1964, the Commission has
amended aftermarket delivery obligations in Rule 174 four
times.⁴²⁴
---------------------------------------------------------------------------

\423\ Securities Act Release No. 4749 (Dec. 23, 1964) [29 FR
19099].
\424\ Securities Act Release No. 4886 (Nov. 29, 1967) [32 FR
17933] (exempting securities registered on new Form S-7 from the
prospectus delivery requirements of Section 4(3)); Securities Act
Release No. 5101 (Nov. 19, 1970) [35 FR 18130] (eliminating the
aftermarket delivery requirement for securities of reporting
issuers); Securities Act Release No. 6763 (Apr. 4, 1988) [53 FR
11841] (reducing the aftermarket delivery requirement for securities
issued in initial public offerings that are exchange-listed or
quoted on an automated inter-dealer quotation system) and Securities
Act Release No. 6932 (April 4, 1992) [57 FR 18037] (adopting a
longer delivery requirement for securities of blank check
companies).
---------------------------------------------------------------------------

Current Rule 174 exempts from aftermarket prospectus delivery any
transaction relating to securities of a reporting
company.⁴²⁵ If the transaction relates to securities of a
non-reporting company that will be listed on a national securities
exchange or quoted on an electronic inter-dealer quotation system,
current Rule 174 sets an aftermarket delivery period of 25
days.⁴²⁶ For offerings by blank check companies, Rule 174
sets an aftermarket prospectus delivery period of 90 days after the
funds are released from the escrow or trust account.⁴²⁷
Where a registration statement relates to offerings to be made from
time to time, Rule 174 provides that there is no aftermarket delivery
requirement once the initial periodexpires.⁴²⁸
---------------------------------------------------------------------------

\425\ 17 CFR 230.174(b).
\426\ 17 CFR 230.174(d). In establishing the 25-day period, the
Commission considered how long it took for the market to be
stabilized and to disseminate information. The Commission also
studied the daily trading volume and relative prices changes in the
aftermarket. Securities Act Release No. 6763 (Apr. 4, 1988).
\427\ 17 CFR 230.174(g).
\428\ 17 CFR 230.174(c).
---------------------------------------------------------------------------

b. Aftermarket Underwriter Activities
In practice, aftermarket activities by underwriters occur in
connection with offerings both by reporting and non-reporting
companies. For example, the Commission's Office of Economic Analysis
surveyed aftermarket underwriter short covering in 236 offerings
completed between May and July 1997.⁴²⁹ Short covering
occurs when the underwriter creates a short position in the offering
that it covers by exercising the over-allotment option, by purchases in
the aftermarket or by a combination of the two.
---------------------------------------------------------------------------

\429\ Of the 236 offerings studied, 114 were initial public
offerings and 122 were primary, non-initial public offerings.
---------------------------------------------------------------------------

In its survey, the Commission examined the frequency of short
covering. Of the 236 offerings, underwriters in 54% of the initial
public offerings and 73% of the non-initial public offerings covered
short positions in the aftermarket.⁴³⁰ Of those initial
public offerings, 42% had underwriters still covering short positions
10 days after the offering. That percentage dropped to 13% at 25 days
after the offering. Of the non-initial public offerings in which short
position were taken, 28% had underwriters who were still covering short
positions 10 days after the offering. That percentage dropped to 10% at
25 days after the offering.⁴³¹
---------------------------------------------------------------------------

\430\ As a result of the findings of this research, the
Commission also reviewed the frequency of short covering based on
differing criteria, such as average daily trading volume, market
capitalization, and proceeds of the offering, to determine if there
were other factors indicative of aftermarket activity. The
Commission found no statistically significant deviations resulting
from the various objective criteria selected. Frequency of
Aftermarket Price Stabilization, Memorandum of the Commission's
Office of Economic Analysis (July 24, 1998).
\431\ Id.
---------------------------------------------------------------------------

c. Recent Case Law Relating to Aftermarket Delivery Obligations
Since the Gustafson v. Alloyd Co.⁴³² decision by the
Supreme Court, several federal district courts have concluded that the
end of the prospectus delivery obligation also marks the end of the
distribution for purposes of civil liability provisions under the
Securities Act. Those decisions tie together the obligation to deliver
a prospectus in the aftermarket with the existence of investor remedies
in the aftermarket.
---------------------------------------------------------------------------

\432\ 513 U.S. 561 (1995).
---------------------------------------------------------------------------

In Gustafson, the Supreme Court stated that ``the liability imposed
by Section 12[(a)](2) * * * cannot attach unless there is an obligation
to distribute the prospectus in the first place (or unless there is an
exemption).'' ⁴³³ District courts have interpreted this
dicta to mean that Section 12(a)(2) protections apply only where there
is an obligation under Section 5 (read in conjunction with Section 4(3)
and Rule 174) to deliver a prospectus.⁴³⁴ Some courts have
extended that reasoning by analogy to Section 11 as well.⁴³⁵
---------------------------------------------------------------------------

\433\ Id. at 564.
\434\ Stack v. Lobo, 903 F. Supp. 1361 (N.D. Cal.
1995)(characterizing Gustafson as imposing ``prospectus liability
only when the issuer is required to distribute a prospectus'' and
applying the civil liability provisions based on the 25-day period
created by Rule 174 for IPOs); Agryropoulous v. Mednet, 1997 U.S.
Dist. LEXIS 10497 (C.D. Cal. 1997) (citing Gustafson for the holding
that ``[S]ection 12(a)(2) imposes prospectus liability only when the
issuer is required to distribute a prospectus'') and Gannon v.
Continental Ins. Co., 920 F. Supp. 566 (D.N.J. 1996) (interpreting
Gustafson to preclude liability under Section 12(a)(2) ``for
anything other than a stock purchase on an initial offering''). See
also Levitin v. A Pea in the Pod, 1997 U.S. Dist. LEXIS 4985 (N.D.
Tex. 1997) (reasoning ``[a]ny redistribution of * * * stock within
the statutory [mandatory prospectus delivery] period...takes on the
characteristics of a new offering'' and thus liability attaches).
\435\ See, e.g., In Re WRT Energy Securities Lit., 1997 U.S.
Dist. LEXIS 14009 at *21 (S.D.N.Y. 1997); Gould v. Harris, 929 F.
Supp. 353 (C.D. Cal. 1996); Murphy v. Hollywood Enter. Corp., 1996
WL 393662 at *3 (D. Or. 1996); Gannon v. Continental Ins. Co., 920
F. Supp. 566 (D.N.J. 1996) and Stack, 903 F. Supp. at 1361.
---------------------------------------------------------------------------

Under the current delivery requirements, that interpretation could
result, and in some cases has resulted, in findings that Section 11 and
Section 12(a)(2) protections do not extend to the entire distribution
because Rule 174 creates an exemption from the prospectus delivery
aspect of Section 5. We believe such an outcome is inconsistent with
the investor protection provisions of the Securities Act and therefore
seek to eliminate any potential confusion that could arise from
Commission rules relating to prospectus delivery obligations.
d. Aftermarket Prospectus Delivery Proposals
We propose to continue the principle of applying a prospectus
delivery obligation to transactions in the aftermarket. The concerns
about aftermarket purchasers that caused Congress to apply Section 5's
investor protections arguably remain just as valid today. We want to
ensure that investors are suitably informed and protected in the
aftermarket. When we adopted Rule 174, we intended simply to express
when prospectus delivery was needed.⁴³⁶ We did not intend to
delineate when the remedies provisions

[[Page 67229]]

in the Securities Act would or would not apply.
---------------------------------------------------------------------------

\436\ Securities Act Release No. 4749 (Dec. 23, 1964).
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While we believe it is appropriate overall to continue to apply a
prospectus delivery obligation in the aftermarket, we also recognize
that the world of accessible investment information has changed in many
respects since Congress last amended that obligation in 1964. We
believe it is time to reassess how this particular delivery obligation
may be satisfied. While the Gustafson Court stated that a prospectus
delivery obligation must exist in order to apply Section 12(a)(2),
Section 12(a)(2) does not speak to the method by which that obligation
could be satisfied. Physical delivery of a prospectus would not
necessarily be required for purposes of the section.
Today, prospectuses are readily available during the aftermarket
period through our Internet web site as well as other electronic
sources. The Commission realizes that some investors are
technologically sophisticated and are just as able as dealers to
download the final prospectus from the Internet. We also recognize,
however, that there are still many investors who do not have the
capacity to obtain information in that manner. Given that the final
prospectus delivery obligation in the aftermarket truly protects
investors primarily after they have made their initial investment
decisions, we believe that obligation could be satisfied through a
means other than physical delivery.
We propose to revise Rule 174 so that the prospectus delivery
obligation would be satisfied if a final prospectus ⁴³⁷ is
on file with the Commission and the dealer notifies each investor,
before or at the same time it receives a confirmation, where it may
promptly acquire, free of charge from the issuer, final prospectus
information. For example, the dealer could notify investors that they
can download a final prospectus in electronic form from our web site
and request it in paper format by calling the dealer at the listed
number. The notice may be in the form of a legend on the confirmation
sent by the dealer under Exchange Act Rule 10b-10.
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\437\ We would provide that the prospectus on file may omit
price-related information in reliance on Securities Act Rule 430A,
17 CFR 230.430A, which deems that information to be part of the
effective registration statement upon filing.
---------------------------------------------------------------------------

The proposed Rule would maintain the twin goals of the aftermarket
prospectus delivery that Congress created: informing investors and
preserving investor remedies throughout the stream of distribution of
securities. By directing investors to a web site where they are able to
view and print the final prospectus, and by allowing investors to
request physical delivery of a final prospectus, the Commission would
ensure investor awareness of the availability of information in the
aftermarket. At the same time, the burden on dealers would be minimized
to only those cases where investors seek a paper prospectus.
We propose to apply the Section 5 prospectus delivery obligation
for transactions by all dealers for a period of 25 calendar days after
the later of: the effective date of the registration statement, or the
first date on which the security was bona fide offered to the
public.⁴³⁸ The aftermarket delivery obligation would apply
regardless of whether the offering is an initial public offering or a
repeat offering. The frequency and nature of the underwriter trading
behavior demonstrates that aftermarket distributive activities are
clearly not confined to offerings that are initial public
offerings.⁴³⁹
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\438\ Proposed revisions to Rule 174, 17 CFR 230.174, would
retain some of the provisions of current Rule 174: (1) we would
continue to apply a 90-day prospectus delivery obligation to
securities of blank check companies; (2) we would retain the
provision that Rule 174 does not shorten the prospectus delivery
obligation with respect to securities covered by any registration
statement that was the subject of a stop order under Section 8(a) of
the Act; and (3) we would retain the provision expressing the our
authority to set a different aftermarket delivery obligation in a
particular case, as appropriate.
\439\ We have considered but rejected an outright exemption of
dealers' transactions from the aftermarket prospectus delivery
obligation. Among the reasons for doing so is the risk that it could
have the unintended effect of limiting remedies for purchasers in
aftermarket transactions. We believe that result would frustrate the
legislative and Commission intent to protect investors who buy
throughout the distribution period, including the aftermarket part
of it.
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The intent of Section 4(3) and Rule 174 was to provide Securities
Act protection during the entire stream of distribution. Given our
research and understanding of practices, we believe it is possible to
set an appropriate delivery obligation period at 25 days for both
initial public offerings and repeat offerings. The single period for
all offerings would simplify compliance for dealers and provide a
bright-line by which investors could set their expectations. Thus, the
market should benefit from the clear definition of aftermarket
transactions. While distributive activities continue in some offerings
beyond that period, we believe the vast majority do not. We solicit
comment, however, regarding whether the period should be shorter (e.g.,
20 days) or longer (e.g., 30 days) or vary according to some other
aspect of the offering.
We also solicit comment on whether dealers that were not members of
the underwriting syndicate for an offering of a reporting company
should have a prospectus delivery requirement. Would the cost of
compliance by notification under proposed Rule 174 for those dealers be
greater than the benefit of an informed aftermarket?
6. Proposed Repeal of Rule 153
Under the proposed prospectus delivery regime, Securities Act Rule
153 would not be necessary.⁴⁴⁰ Rule 153 addresses delivery
of final prospectuses in transactions between brokers taking place over
a national securities exchange. The Rule states that the Section 5
delivery obligation of a final prospectus before or with a security
will be satisfied if the issuer or underwriter delivers the final
prospectus to the exchange. The Rule contemplates that these
prospectuses will then be taken or copied by the members of the
exchange that are on the buy side of the transaction and delivered to
the beneficial purchaser.⁴⁴¹ The Rule is limited in that it
applies only to transactions between members of a national securities
exchange and only where the transaction was effected on that
exchange.⁴⁴² The Rule is not applicable for transactions on
an automated quotation system.
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\440\ 17 CFR 230.153.
\441\ Some commentators have questioned whether in practice the
re-delivery to the purchaser would occur. See, e.g., Johnson &
McLaughlin, supra note 76, at 548-49.
\442\ See In the Matter of Hazel Bishop Inc., Securities Act
Release No. 4371 (June 7, 1961) [40 S.E.C. Docket 718 (1961)].
---------------------------------------------------------------------------

Based on our staff's discussions with exchanges and market
participants, it appears that Rule 153 is not relied on (or rarely
relied on) to accomplish prospectus delivery. There are two
explanations for this. First, Rule 153 is narrow in scope and therefore
does not apply to many transactions. Second, from a procedural
standpoint, an underwriter finds it easier to mail prospectuses to all
purchasers rather than differentiating among them.
Under the proposed aftermarket prospectus delivery system, Rule 153
would not be necessary. As we propose to revise Rule 174, dealers would
have a prospectus delivery requirement for transactions relating to a
registered security for a period of twenty-five calendar days after the
later of: the effective date of the registration statement, or the
first date on which the security was bona fide offered to the public.
That delivery obligation would be deemed satisfied, however, if a final
prospectus is on file with the

[[Page 67230]]

Commission and each investor is notified where it can obtain the final
prospectus information that satisfies Section 10(a). Thus, in the
limited situations under the proposed system in which Rule 153 might
apply, delivery is satisfied through another mechanism. We therefore
propose to repeal Rule 153.
7. Record Keeping of Prospectus Delivery
We solicit comment on whether the Commission should, by rule,
specifically require broker-dealers to keep records of their
distribution of information relating to an offering of securities under
the Securities Act.⁴⁴³ For example, should the Commission
require a broker-dealer to keep records on each offering regarding
where and how prospectuses, term sheets and free writing material were
disseminated? Should the Commission limit such a rule only to managing
or principal underwriters or should the rule apply to every broker-
dealer? Should records be required concerning prospectuses only, or
should the records reflect all information distributed? Should this
requirement be limited to the ``offering period'' only or should it
extend through the aftermarket delivery time period required by the
proposed amendment to Rule 174? Should this requirement be limited only
to those offerings that become effectively automatically?
⁴⁴⁴ How long should these records be required to be kept? Is
two years a long enough period? Is six years too long?
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\443\ The Commission would promulgate such a rule under Section
17 of the Exchange Act.
\444\ The Act requires the Commission, in ruling upon requests
for acceleration of the effective date of a registration statement,
to consider whether adequate information is available to the public.
See Securities Act Section 8(a). The Commission gives guidance as to
what constitutes adequate information in Rule 460, 17 CFR 230.460.
Many issuers provide the Commission with a description of their
effort to satisfy the guidance set forth in Rule 460 in their
requests for acceleration of the registration statement. Requests
for acceleration are submitted pursuant to Securities Act Rule 461,
17 CFR 230.461. Under the proposals, in Form B offerings and certain
offerings on Form A, underwriters and issuers would no longer submit
to the Commission a request for acceleration.
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To enable easier tracking of compliance, should we require issuers
that make offerings (other than Form B offerings) that are underwritten
on a firm commitment basis disclose the pricing date? Should it be
disclosed in the first quarterly report they would be required to file
after the offering or in another Exchange Act report (e.g., a Form 8-
K)?

IX. The Role of Underwriters

A. Legislative Shaping of the Underwriters' Role

In passing the Securities Act in 1933, Congress was acting on its
concern that misleading disclosure and high pressure sales tactics had
overstimulated investors' demand for securities.⁴⁴⁵
Congress' remedy was to require that investors get complete and
truthful information regarding the offered securities. To help ensure
that result, Congress deliberately placed underwriters within the scope
of the liability provisions.⁴⁴⁶ Congress recognized that
underwriters occupied a unique position that enabled them to discover
and compel disclosure of essential facts about the offering.
⁴⁴⁷ Congress believed that subjecting underwriters to the
liability provisions would provide the necessary incentive to ensure
their careful investigation of the offering.⁴⁴⁸
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\445\ During the 1920s, $25,000,000,000 in securities (half of
all those issued) proved to be worthless. H.R. Rep. No. 85, 73rd
Cong., 1st Sess. 2 (1933) (hereinafter H.R. Rep. No. 85).
\446\ Congress placed some of the responsibility for investors'
losses on the securities industry. The House of Representatives'
Committee on Interstate and Foreign Commerce noted that ``the
flotation of such a mass of essentially fraudulent securities was
made possible because of the complete abandonment by many
underwriters and dealers in securities of those standards of fair,
honest and prudent dealing that should be basic to the encouragement
of investment. * * *'' H.R. Rep. No. 85 at 2.
\447\ ABA Committee on Federal Regulation of Securities, Report
of Task Force on Sellers' Due Diligence and Similar Defenses Under
the Federal Securities Laws, 48 Bus. Law. 1185, 1191 (May 1993).
\448\ H.R. Rep. No. 85 at 5.
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Congress' goal was not to have underwriters act as insurers of an
issuer's securities.⁴⁴⁹ Accordingly, Congress provided
underwriters and others with a ``due diligence'' defense. An
underwriter is not liable under Section 11 for the non-expertised
portions of the registration statement if, after reasonable
investigation, it had reasonable grounds to believe (and did believe)
that the statements in the registration statement ``were true and that
there was no omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.* *
*'' ⁴⁵⁰
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\449\ H.R. Rep. No. 152, 73rd Cong., 1st Sess. 26 (1933). In
order to remove any uncertainty with regard to the standard of
reasonableness Section 11(c) of the Securities Act was amended in
1934 to replace the term ``fiduciary'' with the common law
definition of the duty of a fiduciary. H.R. Rep. No. 1383, 73rd
Cong., 2d Sess. (1934). See also Escott, et al v. Barchris
Construction Corp., 283 F. Supp. 643, 697 (S.D.N.Y. 1968) (``In
order to make the underwriters' participation in this enterprise of
any value to the investors, the underwriters must make some
reasonable attempt to verify the data submitted to them.'').
\450\ 15 U.S.C. Sec. 77(k)(b)(3). For expertised portions of the
registration statement, an underwriter need only show that it had no
reasonable ground to believe, and did not believe, that the
statements in the registration statement were untrue or omitted to
state a material fact. Id.
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B. Case Law Interpretation of the Underwriters' Role

In the past, the courts also have recognized the important role
underwriters play in the offering process. As the U.S. Court of Appeals
for the Second Circuit noted, ``[n]o greater reliance in our self-
regulatory system is placed on any single participant in the issuance
of securities than upon the underwriter.* * *'' ⁴⁵¹
Accordingly, courts have found that underwriters must conduct an
investigation ``reasonably calculated to reveal all of those facts
[that] would be of interest to a reasonably prudent investor.''
⁴⁵² As the courts have noted, it is impossible to have a
rigid rule defining what is a reasonable investigation or how far an
underwriter must go in order to verify an issuer's
statements.⁴⁵³
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\451\ Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480
F.2d 341, 370 (2d Cir. 1983).
\452\ See, e.g., Feit v. Leasco Data Processing Equipment, 332
F. Supp. 544, 582 (E.D.N.Y. 1971).
\453\ Barchris, 283 F. Supp. at 643.
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C. Commission Interpretation of the Underwriters' Role

We, too, have provided guidance with regard to underwriter due
diligence. In 1982, as part of a comprehensive program to integrate the
disclosure requirements of the Securities Act and the Exchange Act, we
adopted Rule 176.⁴⁵⁴ Rule 176 identifies circumstances
relevant in determining whether a person's conduct satisfies the due
diligence standard in Section 11.\455\ They are:

\454\ 17 CFR 230.176.
\455\ The rule applies to persons other than the issuer. In the
adopting release for Rule 176, the Commission acknowledged that
there are other circumstances beyond those enumerated in the rule
which may bear upon the reasonableness of an underwriter's
investigation. See Securities Act Release No. 6383 (Mar. 3, 1982).

1. The type of issuer;
2. The type of security;
3. The type of person;
4. The office held when the person is an officer;
5. The presence or absence of another relationship to the issuer
when the person is a director or proposed director;
6. Reasonable reliance on officers, employees and others whose
duties should have given them knowledge of the particular facts;
7. For underwriters, the type of underwriting arrangement, the
role as

[[Page 67231]]

underwriter, and the availability of information with respect to the
registration; and
8. Where a fact or document is incorporated by reference,
whether the person had any responsibility for the fact or document
when filed.

We wrote this list in a general way to apply to virtually any kind of
offering and to apply to any person that could claim a due diligence
defense.
We adopted Rule 176 to provide guidance to courts assessing the
reasonableness of an investigation under the integrated disclosure
system. ⁴⁵⁶ At that time, we expressly rejected the
consideration of competitive timing and pressures when evaluating the
reasonableness of an underwriter's investigation.⁴⁵⁷
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\456\ The integrated disclosure system (and later shelf
registration) allowed issuers to complete registered offerings
faster than previously possible. Underwriters expressed concern that
those accelerated time schedules would increase pressure on them to
expedite their due diligence investigations. See Securities Act
Release No. 6335 (Aug. 6, 1981) [46 FR 42015]. See also Feit, 332 F.
Supp. at 582. The Commission stated that the integrated disclosure
system was not designed to modify the responsibility of underwriters
and others to make a reasonable investigation. See also Securities
Act Release No. 6499 (Nov. 17, 1983).
\457\ Securities Act Release No. 6335 (Aug. 6, 1981).
---------------------------------------------------------------------------

In proposing Rule 176, we also discussed techniques available to
underwriters that would allow them to expedite their due diligence
investigations.⁴⁵⁸ We stated that an underwriter could
develop a ``reservoir of knowledge,'' before an offering, by carefully
reviewing a company's Exchange Act filings, analysts' reports, and by
attending the company's meetings with analysts and brokers. This
``reservoir of knowledge'' would enable the underwriter to complete its
due diligence investigations more quickly, because it would already be
familiar with the company.
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\458\ Securities Act Release No. 6335 (Aug. 6, 1981). These
techniques were not codified as part of the rule but ``were
presented to help facilitate the development of procedures
compatible with integrated approach to registration.'' See
Securities Act Release No. 6383 (Mar. 3, 1982).
---------------------------------------------------------------------------

D. Proposed Guidance on Underwriter Due Diligence

The registration system we are proposing, among other things, would
allow more reporting issuers to register capital faster and more
efficiently. Consequently, underwriters may experience marginal
additional timing pressures in conducting their due diligence
investigations. Under those circumstances, underwriters must take care
not to allow competitive pressures and issuers' demands for speed to
lessen their due diligence investigations. We have been advised that
firms currently underwriting expedited offerings by reporting issuers
perform a reasonable investigation despite the very short period
between when they are named the underwriter and when the offering is
commenced. They reportedly use a combination of real-time and
anticipatory due diligence practices. Those practices should work as
well in connection with expedited offerings under the proposed
registration system.
We believe that a court would, of its own accord, take into account
all of the facts and circumstances that affect the ability of the
underwriter to conduct a reasonable investigation or develop reasonable
grounds for belief. Nevertheless, a rule that provides guidance with
respect to expedited offerings by reporting companies could help those
involved in the due diligence process and those assessing its adequacy.
We believe we can identify several due diligence practices for those
offerings that, if present, may be indicative of a ``reasonable
investigation'' under Section 11 and ``reasonable care'' under Section
12(a)(2).
Accordingly, we are proposing to expand Rule 176.⁴⁵⁹
First, we are proposing that Rule 176 address the reasonable care
standard of Section 12(a)(2) as well as the reasonable investigation
standard of Section 11. While Section 11 requires a more diligent
investigation than Section 12(a)(2), any practices or factors that
would be considered favorably under Section 11 also should be
considered as favorably under the reasonable care standard of Section
12(a)(2).⁴⁶⁰
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\459\ See proposed revisions to Securities Act Rule 176, 17 CFR
230.176.
\460\ If our proposed expansion of Securities Act Rule 176, 17
CFR 230.176, is adopted as proposed, we envision providing
additional guidance in the adopting release as to the difference
between the reasonable care standard of Section 12(a)(2) and the
reasonable investigation standard of Section 11.
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We also are proposing to add subsection (i) to the Rule. It would
identify six due diligence practices that the Commission believes would
enhance an underwriter's due diligence investigation when conducting an
expedited offering. The Commission believes the courts should view
these practices as positive factors when evaluating an underwriter's
due diligence defense, though these practices in no way constitute an
exclusive list or serve as a substitute for a court's analysis of all
relevant circumstances. The absence of one or more of these practices,
apart from the underwriter's review of the registration statement and
inquiry into facts or circumstances that raise concerns about the
adequacy or accuracy of the disclosure, should not be considered
definitive in reaching a conclusion about the adequacy of the
underwriter's investigation.
Subsection (i) would apply only to offerings of equity and non-
investment grade debt securities that were marketed and completed in
fewer than five days. Additionally, the proposed guidance would require
that the issuer have registered the offering on Form B. These expedited
offerings require the underwriter to perform the bulk of its due
diligence on a compressed time schedule. For offerings conducted on a
longer time schedule, the Commission believes that no additional
guidance is required. For every offering, including expedited
offerings, the courts would examine all the relevant circumstances. The
six practices that the courts should consider as positive factors in
expedited offerings are:

1. Whether the underwriter reviewed the registration statement
and conducted a reasonable inquiry into any fact or circumstance
that would cause a reasonable person to question whether the
registration statement contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
2. Whether the underwriter discussed the information contained
in the registration statement with the relevant executive officer(s)
of the registrant (including, at a minimum, the chief financial
officer (``CFO'') or chief accounting officer (``CAO'') or his or
her designee) and the CFO or CAO (or his or her designee) certified
that he or she has examined the registration statement and that to
the best of his or her knowledge, it does not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
3. Whether the underwriter received a Statement on Auditing
Standards (``SAS'') No. 72 comfort letter from the issuer's
auditors;
4. Whether the underwriter received a favorable opinion from
issuer's counsel opining that nothing has come to its attention that
has caused it to believe that the registration statement contains an
unfair or untrue statement or omits to state a material fact;
5. Whether the underwriter employed counsel that, after
reviewing the issuer's registration statement, Exchange Act filings
and other information, opined that nothing came to its attention
that would lead it to believe that the registration statement
contains an untrue statement or omits to state a material fact; and
6. Whether the underwriter employed and consulted a research
analyst that:
(i) Has followed the issuer or the issuer's industry on an
ongoing basis for at least the 6 months immediately before the
commencement of the offering; and

[[Page 67232]]

(ii) Has issued a report on the issuer or its industry within
the 12 months immediately before commencement of the offering.

The Advisory Committee on Capital Formation also recommended
expanding the factors listed in Rule 176.⁴⁶¹ We solicit
comment on whether one of those factors, a management report to the
audit committee of the board regarding procedures established to assure
accurate and complete Exchange Act disclosure, be included in Rule 176
as a basis for underwriter due diligence.⁴⁶²
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\461\ See Advisory Committee Report at 65-70. That Committee
primarily suggested that compliance with both mandatory and
voluntary ``disclosure enhancements'' recommended in its Report be
added as factors for underwriters. In addition to the management
report to the audit committee, those included:
--Senior management certification to the Commission regarding
disclosure in Exchange Act reports;
--Reviews by outside professionals including:
--SAS 71 review by company's auditors
--SAS 72 comfort letter
--SAS 37 subsequent events procedures
--Rule 10b-5 opinion letter
--Existence of a disclosure review committee of the board of
directors;
--The extent of access to analysts; and
--The size of the offering.
\462\ See Section XI.A.4. of this release regarding Exchange Act
disclosure.
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1. Proposed Practices Reflect Current Practice
Various underwriters and issuers have identified to the Commission
staff potential elements of current due diligence investigations for
expedited offerings. All of the six practices identified in the
proposal reportedly are being used to some degree by most underwriters
for those offerings. For example, even in the speediest of offerings,
an underwriter interested in establishing that it had done a reasonable
investigation would: read the disclosure, talk about it with management
of the issuer, document management's conclusion about its adequacy, and
follow up on matters of concern that arise in connection with its
inquiry. An underwriter doing a due diligence investigation in an
expedited offering may seek assurance from third parties involved in
the offering that they have not discovered inadequacies in the
disclosure. Thus, they may arrange for opinions from both the issuer's
counsel and their own. Additionally, underwriters may arrange for a SAS
72 comfort letter from the issuer's auditor. Though we believe that
underwriters' reliance on representations by third parties may,
depending on the circumstances, be a factor in considering an
underwriter defense in expedited offerings, in every instance we
believe it is appropriate for underwriters to review the registration
statement and make reasonable inquires about any suspicious statements
or omissions. For that reason, we have indicated that a court could
consider dispositive an underwriter's failure to do so. We request
comment on whether reliance on third party representations alone could
satisfy an underwriter's obligation.
2. The Role of Analysts
An underwriter will sometimes employ its research analysts to help
it conduct its due diligence investigation. We believe it is
appropriate to recognize that research analysts working for an
underwriter can play an important role in facilitating the due
diligence process in expedited offerings. A research analyst that
follows an issuer's industry would likely be aware of the risks and
prospects of an issuer's business. An analyst is employed to search out
and analyze not only the Commission filings but also any other
information that is available about the issuer and its industry. While
an analyst may not have the same degree of access to issuer information
as an underwriter performing long-term due diligence, he or she
generally has regular contact with the issuer or companies in the
issuer's industry. As a result, the analyst would have acquired the
necessary ``reservoir of information'' about the issuer that helps
fulfill due diligence requirements in expedited offerings.
Firms acting as underwriters in expedited offerings generally do so
when they are already conducting a form of ``due diligence'' year round
via their in-house analysts. Because of their analysts' prior work,
these underwriters have less to do immediately before the
offering.⁴⁶³ While some brokerage firms may have ``walled
off'' analysts from the underwriting side of their businesses, that no
longer appears to be uniformly the case at the time where an analyst's
knowledge can be instrumental in expediting the due diligence
process.⁴⁶⁴
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\463\ While the rule contemplates that the analyst has been
following the issuer or its industry as part of its employment
responsibilities for a period of time, the rule does not require
that the analyst be employed by the underwriter for that entire
period. The fact that an analyst moves from one analyst position to
another should not be relevant where the analyst's coverage of the
issuer continues.
\464\ While we recognize the varying practices with respect to
maintaining a wall between the analyst and underwriting sides of the
brokerage firm, we do not suggest that brokerage firms should remove
or lower those walls. Although we recognize the helpful role
analysts perform in facilitating due diligence, we also recognize
the wisdom of maintaining legitimate walls between analysts and
underwriters that work for the same brokerage firm and share an
interest in the same issuers. See, e.g., AutoZone Holders Sold Stock
in June After Goldman, Analysts Talked Up Issue, Wall St. J., Jan.
15, 1997 at C1.
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In this respect, we recognize that, in limited and controlled
circumstances, cooperation between analysts and underwriters can be
useful. The proposed system perceives the utility of a ``one-way'' wall
between analysts and underwriters of the same firm, whereby information
from the analysts who have a ``reservoir of information'' is available
to the underwriters for purposes of Rule 176. We still would expect
brokerage firms to maintain a wall between analysts and underwriters to
prevent any flow of information from the underwriter to the analyst
that would result in selective disclosure.
3. Other Due Diligence Practices
The Commission also wishes to solicit comment on a number of other
due diligence practices that are currently being conducted or discussed
by underwriters.
a. Disclosure Review by an Issuer's Independent Accountants
The role of the accountant in a due diligence investigation cannot
be overlooked. Accountants are often the people most familiar with an
issuer's financial standing and prospects. They play a vital role in
the protection of investors. As noted earlier, underwriters also rely
on accountants in performing their due diligence investigation.
Underwriters often will request a SAS 72 comfort letter from an
issuer's independent auditors as part of their due diligence
investigation. Additionally, some issuers have their accountants
conduct a SAS 71 review of their quarterly financial statements. We
believe that this additional review of an issuer's quarterly financial
statements augments compliance with our rules and regulations.
Consequently, we request comment as to whether we should add to the
proposed practices the fact that an independent accountant performed a
timely review under SAS 71 of an issuer's quarterly financial
information.
Recently, the American Institute of Certified Public Accountants
(``AICPA'') issued a Statement on Standards for Attestation Engagements
No. 8 (``SSAE 8''). The SSAE 8 contemplates that an accountant may
perform either an examination or a review of an issuer's management's
and discussion and analysis (``MD&A'') disclosure. The examination is
intended to result in the accountant's expression of an opinion as to
whether:

[[Page 67233]]

1. The issuer MD&A disclosure contains the required elements of
Item 303 or Regulation S-K or Item 303 of Regulation S-B;
2. The historical financial information included in the MD&A is
accurately derived from the issuer's financial statements; and
3. The issuer's underlying information, determinations, estimates
and assumptions provide a reasonable basis for the disclosures
contained in the MD&A.\465\
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\465\ Statement on Standards for Attestation Engagement No. 8,
American Institute of Certified Public Accountants.

We believe that a SSAE opinion may further our disclosure goals and
help obtain greater compliance with our rules. Therefore, we also
solicit comment as to whether a SSAE 8 review should be added to the
proposed practices.
b. Disclosure Review by an Independent Qualified Professional
We also request comment as to whether to include as one of the
proposed practices an underwriter's review of a favorable report issued
by a qualified independent professional to the issuer after the
professional conducted a year-end disclosure review. The purpose of the
qualified independent professional's review would be for the
professional to assess the disclosure in the annual report the issuer
is drafting before the issuer files it under the Exchange
Act.⁴⁶⁶ Although this practice is not common today, we
believe it could enhance the quality of Exchange Act disclosure that is
typically incorporated by reference into registration statements in
connection with expedited and other offerings. In the event that a
qualified independent professional completed such a review, a
reasonable underwriter should be allowed to factor that in when
figuring out what steps it needs to take in its due diligence.
---------------------------------------------------------------------------

\466\ This annual report would be incorporated into the
registration statement prepared for the offering.
---------------------------------------------------------------------------

We anticipate that such a disclosure review generally would occur
independent of the offering process during the period after the end of
the issuer's fiscal year but before it has filed its annual report. In
the course of the review, the professional would read all of the
issuer's Exchange Act reports for the year, as well as last year's
annual report, to assist it in evaluating the quality of the Exchange
Act annual report not yet filed by the issuer for the year just ended.
The qualified independent professional also would perform a reasonable
investigation. ⁴⁶⁷ It would have to issue its report before
the commencement of the offering in order for the underwriters to place
reasonable reliance on the report.
---------------------------------------------------------------------------

\467\ We envision this investigation as akin to the type of
reasonable investigation an underwriter would undertake if the
disclosure were contained in a Securities Act registration
statement.
---------------------------------------------------------------------------

To issue a favorable report, the professional would have to state
that, after reading those reports and doing a reasonable investigation,
it believes that the disclosure in the non-expertised portions of the
annual report to be filed is true and there were no omissions of
material facts. As to the expertised portions (including the audited
financial statements), the professional would have to state that it
does not believe that the disclosure is untrue or there was an omission
to state a material fact.
We also request comment as to whether certain qualifications should
be required of the independent professional. While we anticipate that
different professions could perform the disclosure review, should such
a review be limited to only certain professions such as the legal or
accounting profession? Would we need to provide guidance as to what
would constitute an adequate disclosure review? Would there be a
sufficient number of qualified professionals willing to undertake such
a review? Since these professionals would be subject to liability,
would this prevent a market for such services from developing? Would
issuers be willing to pay for such a review?
Besides this proposed practice and the liability provisions of the
Acts, are there more direct or better ways to enhance the underwriters'
due diligence role with respect to an issuer's Exchange Act reports? If
so, what are they?

E. Interpretation of the Guidance

While we believe that the due diligence practices we propose to add
to Rule 176 would enhance an underwriter's investigation, these
practices should not be viewed as mandatory. We also are not suggesting
that some or all of these practices are the exclusive way to establish
adequate due diligence, even in an expedited offering. The absence of
any one or more of the practices in a particular case, except for the
underwriter's review of the registration statement and inquiry into
facts or circumstances that raise concerns about the adequacy or
accuracy of the disclosure, should not be considered definitive in
reaching a conclusion about the adequacy of due diligence efforts.
⁴⁶⁸ Each offering is unique, and therefore the underwriter
must evaluate the surrounding circumstances and then choose the
appropriate due diligence practices.
---------------------------------------------------------------------------

\468\ We have reflected this position in proposed revisions to
Rule 176, 17 CFR 230.176.
---------------------------------------------------------------------------

F. Investment Grade Debt Offerings

The proposed guidance would not apply to offerings of investment
grade debt. Issuers that offer investment grade debt under a medium
term note program may conduct frequent offerings. Consequently,
underwriters' due diligence is usually performed periodically rather
than with each offering of investment grade debt. Periodic due
diligence normally would not be completed under the same time pressures
associated with an expedited offering of equity or non-investment grade
debt securities. We solicit comment, however, as to whether investment
grade debt offerings should be included in the proposed amendments to
Rule 176. If so, are there certain due diligence practices that would
not be applicable to investment grade debt? Are there specific due
diligence practices that are performed only with regard to investment
grade debt offerings? Should these practices be added to Rule 176?
Would these practices allow for due diligence to be performed on an
offering-by-offering basis? Would additional guidance regarding
investment grade debt offerings be useful to the courts?

G. Requests for Comment on the Proposed Guidance

The Commission requests comment on the proposed amendment to Rule
176. Because the courts already consider the surrounding circumstances
of the offering when determining whether an underwriter's investigation
was reasonable, would adding these practices to Rule 176 materially
assist courts in evaluating due diligence efforts? Would adding them
assist underwriters in crafting their due diligence practices? Would
any of the proposed practices cause some underwriters, such as those
that do not employ analysts, to suffer unfair competitive
disadvantages?
Are there other due diligence practices that should be included in
the proposed amendment? Are any of the practices not relevant to
consider in assessing an underwriter's due diligence? Should the extent
to which an underwriter has very recently underwritten another offering
for the same issuer be explicitly identified as a relevant
circumstance?

[[Page 67234]]

Should the proposed 5-day marketing period be shortened (e.g., to
two or three days) or lengthened (e.g., to five business days)? Should
the proposed guidance be limited to offerings that are underwritten on
a firm commitment basis? Should the proposed guidance be expanded to
cover offerings that are registered on Form A, particularly those for
which the underwriter designates effectiveness? Will the proposed
changes provide an incentive for underwriters and issuers to complete
their offerings earlier than today? Do we need to define when an
offering is considered first marketed? In general, we solicit comment
on whether the proposed practices, separately or as a package, provide
underwriters with sufficient guidance to enable them to perform
adequate due diligence investigations. Are the proposals too lenient to
serve that purpose? Should we add other practices to proposed Rule
176(i) to direct underwriters who participate in these offerings
better? On the other hand, are the proposals overly burdensome?

H. Liability Safe Harbor

Several commenters on the Concept Release suggested that reform is
needed to ensure that an underwriter's exposure to liability under
Section 11 mirrors its ability to affect disclosure.⁴⁶⁹ In
expedited offerings, they argued, there is little time to conduct due
diligence immediately before commencement. As a result, some commenters
suggested that underwriters be protected from liability through a safe
harbor in those offerings.⁴⁷⁰ We are not proposing such a
safe harbor from potential liability. To grant one to underwriters
would be to lessen significantly their incentive to test the quality of
the issuer's disclosure in such offerings. We recognize the value that
underwriters add to the disclosure process. In our view, investors
require that protection. In addition, like the courts and past
Commissions, we do not believe that it would be possible to craft a
single, finite list of steps that will, without fail, constitute a
reasonable investigation in every set of circumstances in many
different offerings. We believe our proposal to include specific
guidance in Rule 176 about expedited offerings will aid underwriters
considering how to conduct due diligence in those circumstances and
assist in the event a court needs to assess those steps.
---------------------------------------------------------------------------

\469\ See, e.g., comment letters, in File No. S7-19-96, from
Merrill Lynch (Oct. 31, 1996), Morgan Stanley (Dec. 9, 1996) and the
Securities Industry Ass'n (Nov. 13, 1996).
\470\ See, e.g., comment letters, in File Number S7-19-96, from
Cleary, Gottlieb, Steen & Hamilton (Dec. 27, 1996) and Merrill Lynch
(Oct. 31, 1996).
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X. Integration of Registered and Unregistered Offerings

A. The Integration Doctrine

The integration doctrine reaches all the way back to
1933.⁴⁷¹ Put simply, integration is the process of combining
separate transactions in securities as part of the same offering for
purposes of analyzing whether the registration provisions of the
Securities Act apply. It is what prevents an issuer from evading
registration by artificially splitting what is in reality a single
offering to make it appear that an exemption applies when no exemption
for that offering was ever intended. When separate transactions are
integrated into one offering, that offering must have an exemption from
registration. If no exemption is available, then the transaction, if
not registered, would be in violation of Section 5 of the Securities
Act. Thus, integration is a concept that upholds the policies
underlying both the registration system and the exemption system in the
Securities Act.
---------------------------------------------------------------------------

\471\ See Securities Act Release No. 97 (Dec. 28, 1933).
---------------------------------------------------------------------------

The integration doctrine is not always easy for securities law
practitioners to apply to offerings. The analysis generally is
dependent on considering all the particular facts and circumstances for
each offering. Over the years, however, the Commission has given
guidance. In 1962, the Commission issued a release that established a
framework for analyzing whether offerings should be
integrated.⁴⁷² The five-factor test established in that
release continues to apply today.⁴⁷³ In addition, the
Commission has created a number of safe harbors from integration in
order to simplify the analysis in particular cases.⁴⁷⁴ The
application of the integration doctrine also has been the subject of
staff interpretive letters.⁴⁷⁵
---------------------------------------------------------------------------

\472\ See Securities Act Release No. 4552 (Nov. 6, 1962) [27 FR
11316].
\473\ The five factors are:
1. Are the offerings part of a single plan of financing?
2. Do the offerings have the same general purpose?
3. Are the offerings of the same class of securities?
4. Are the offerings being made at or about the same time?
5. Are the securities being sold for the same type of
consideration?
These factors also are noted in Rule 502 of Regulation D, 17 CFR
230.502. The Commission has stated that any of the factors can be
determinative. Securities Act Release No. 4552 (Nov. 6, 1962).
\474\ For example, Rule 502(a), 17 CFR 230.502(a), provides that
offers and sales made more than 6 months before the start of an
offering under Regulation D or more than 6 months after the
completion of an offering under Regulation D will not be integrated
with the Regulation D offering if there were no non-Regulation D
offers and sales of that class of securities (other than through
employee benefit plans) during that period. See also Rule 147(b)(2),
17 CFR 230.147(b)(2), which provides a similar safe harbor for
exempt intrastate offerings; Rule 251(c), 17 CFR 230.251(c), which
provides a similar safe harbor under Regulation A for small
offerings by non-reporting issuers; Rule 701(b)(6), 17 CFR
230.701(b)(6), which contains a non-integration provision in
connection with exempt offerings to employees and consultants under
compensation plans.
\475\ See, e.g., Staff interpretive letters Squadron, Ellenoff,
Pleasant and Lehrer (Feb. 28, 1992) and Black Box Inc. (June 26,
1990).
---------------------------------------------------------------------------

B. Rule 152

In 1935, the Commission adopted Rule 152.⁴⁷⁶ It provides
a safe harbor from integration when an issuer makes a private offering
pursuant to Securities Act Section 4(2) and then decides to make a
public offering and/or file a registration statement. The rule states
that Section 4(2) shall be deemed to apply to transactions that did not
involve any public offering at the time even though the issuer decides
subsequently to make a public offering and/or file a registration
statement.
---------------------------------------------------------------------------

\476\ See Securities Act Release No. 305 (Mar. 2, 1935). See
also Securities Act Release No. 4761 (Feb. 5, 1965) [30 FR 2022].
---------------------------------------------------------------------------

Rule 152 has not been considered a model of clarity. Over the
years, the scope of Rule 152 has been a matter of some uncertainty and
the subject of Commission staff no-action letters. For example,
questions have been raised about: whether the safe harbor is available
to both completed private offerings and abandoned private offerings,
whether the safe harbor is available when the registered offering was
contemplated at the time of the private offering, and under what
circumstances an offering is considered completed for purposes of the
safe harbor.⁴⁷⁷
---------------------------------------------------------------------------

\477\ See, e.g., Staff interpretive letters Quad City Holdings,
Inc. (Apr. 8, 1993); Vulture Petroleum Corp. (Feb. 2, 1987);
Verticom Inc. (Feb. 12, 1986).
---------------------------------------------------------------------------

C. Proposed Safe Harbors for Completed and Abandoned Offerings; Related
Rule Proposals

The integration doctrine and Rule 152 have received a great deal of
attention in recent years from securities law practitioners. Their
interest has reflected their clients' demand for speed in the offering
process. One area in which frequent questions arise with respect to
integration is the combination of private and public
offerings.⁴⁷⁸
---------------------------------------------------------------------------

\478\ Integration issues may relate to two or more private
offerings, as well. Neither current nor proposed revisions to Rule
152, 17 CFR 230.152, addresses these issues.

---------------------------------------------------------------------------

[[Page 67235]]

We propose to revise Rule 152 to clarify and expand the integration
safe harbor.⁴⁷⁹ First, the rule would address the
circumstances under which a completed unregistered private offering
would not be integrated with a subsequent registered offering. Second,
the rule would set conditions under which an unregistered private
offering that has been abandoned may be followed by a registered
offering. Third, the rule would provide a safe harbor for issuers that
wish to abandon a registered offering and follow it with an
unregistered private offering. Fourth, the rule would codify some of
the staff positions taken with respect to integration and registration
of resales. Finally, the exempt offerings covered by the rule would be
expanded to include other types of unregistered private offerings in
addition to Section 4(2) offerings.
---------------------------------------------------------------------------

\479\ See proposed revisions to Securities Act Rule 152, 17 CFR
230.152.
---------------------------------------------------------------------------

We also are proposing related rule changes. Proposed Rule 159 would
codify a current staff position concerning lock-up agreements before
business combinations.⁴⁸⁰ Rule 477 would be revised to
facilitate withdrawals of registration statements.⁴⁸¹
---------------------------------------------------------------------------

\480\ See proposed Securities Act Rule 159, 17 CFR 230.159.
\481\ See proposed revisions to Securities Act Rule 477, 17 CFR
230.477.
---------------------------------------------------------------------------

1. Completed Offerings
a. Issuer Transactions
Through revising Rule 152, we hope to avoid persistent interpretive
questions concerning whether Section 5 problems arise if a private
offering was completed within 6 months before the filing of a
registration statement.⁴⁸² As proposed, if the private
offering is completed before the registration statement is filed, the
private offering would not be integrated with the registered offering
regardless of the length of time between the two offerings.
---------------------------------------------------------------------------

\482\ The 6-month time period is found in Rule 502(a) of
Regulation D, 17 CFR 230.502(a). Offers and sales within 6 months of
the start or end of a Regulation D offering must be analyzed under
the five-factor test to determine whether those offers and sales
should be considered part of the Regulation D offering.
---------------------------------------------------------------------------

The proposed rule would define the circumstances under which an
offering would be considered completed for purposes of the safe harbor.
An offering would be completed where all purchasers have fully paid the
purchase price for the securities in the private offering. If certain
conditions are met, an offering will be considered completed even if
the purchase price for the securities has not been fully paid. For this
exception to apply, the transaction may not be subsequently re-
negotiated. These conditions require that the purchaser be
unconditionally obligated to pay for the securities. We would qualify
that requirement to permit conditional obligations to purchase the
securities as long as the obligation depends on a condition that is not
within the direct or indirect control of any purchaser. Also, the
purchase price in the private offering must be fixed and not contingent
upon market prices around the time of the registered offering. This
ensures that the purchaser assumes the market risk.
A private offering may involve the offer and sale of convertible
securities or warrants. These securities are generally convertible or
exercisable into a class of underlying securities (e.g., common stock)
over a period of time. While these securities are convertible or
exercisable, the issuer, in effect, is conducting an offering of the
underlying securities. During this time period, the issuer may file a
registration statement under the Securities Act. The offering of the
underlying securities concurrently with the registered offering has
generated uncertainty about whether the offerings should be integrated.
To address these concerns, we propose to expand the Rule 152 safe
harbor to protect the offering of the underlying securities from
integration with the registered offering. As proposed, the offering of
the underlying securities would be considered completed when the
offering of the convertible securities or warrants is completed.
A special approach would apply to a private offering made before an
initial public offering where the private offering does not raise
capital for the issuer but is conducted only to modify the issuer's
capital structure. For this approach to apply, the private offering
must not be a roll-up transaction under Rule 901(c) of Regulation S-K.
When these conditions are satisfied, the private offering would not be
integrated with the later registered offering.
We request your comments on our proposed safe harbor for completed
offerings. Is our definition of completed offerings clear, especially
those offerings where payment for the securities has not been made?
Should other conditions be added for these offerings?
b. Resale Transactions
We would clarify in Rule 152 that it is permissible for an issuer
to register the resale of securities that were originally sold by the
issuer in a completed bona fide private offering. The private offering
would be considered completed if the proposed conditions discussed
above are met. An offering would be considered completed even though
payment for the securities has not been made, or the securities have
not been issued, when the registration statement for the resales is
filed. Under this approach, payment for the securities may be made
following filing or effectiveness of the registration statement for the
resales. Also, the payment obligation may be conditioned upon
effectiveness of the registration statement, assuming the purchasers
have no control over that condition.
We would exclude from the safe harbor resales by affiliates of the
issuer or a broker-dealer that has purchased directly from the issuer
or an affiliate. In these transactions, there are questions as to
whether the offering is a true resale transaction or a primary offering
by the issuer. This determination may be made only after examining the
facts and circumstances of each individual situation. Because of this
uncertainty, we do not propose to extend the safe harbor for these
resale offerings.
For purposes of this provision, the definition of ``affiliate''
would have the same meaning as that term has under Rule
144.⁴⁸³ We have proposed to change the definition of
affiliate under Rule 144.⁴⁸⁴ If the Rule 144 definition is
changed, the new definition also would apply to Rule 152.
---------------------------------------------------------------------------

\483\ Rule 144(a)(1), 17 CFR 230.144(a)(1), defines an affiliate
of an issuer as a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.
\484\ See Securities Act Release No. 7391 (Feb. 28, 1997) [62 FR
9246].
---------------------------------------------------------------------------

We request your views on the safe harbor for resale offerings.
Should the safe harbor cover resale offerings by affiliates? If it
should, what conditions should be imposed to assure that the resales
are bona fide secondary transactions and not part of a primary
distribution? Should the Rule 144 definition of affiliate be used or
would some subset of the persons that fall within that definition be
more appropriate? If so, what?
c. Lock-up Agreements
The use of lock-up agreements in business combinations has become
common. As part of the negotiations for these combinations, the
acquiring party usually requires that management and principal security
holders of the company to be acquired commit to vote for the
acquisition. These so-called ``lock-up'' agreements are made when the
acquisition agreement is finalized, before any action by the public
security holders. These agreements could be

[[Page 67236]]

considered investment decisions under the Securities Act. If they are,
the offers and sales of securities were made to persons who entered
into those agreements before the business combination is presented to
the non-affiliated security holders for their vote. Under this
reasoning, those offers and sales could not be included in the
registration statement for the offering to the persons not entering
into lock-up agreements.
In recognition of the legitimate business reasons underlying the
practice, the staff has permitted the registration of offers and sales
under certain circumstances where lock-up agreements have been signed.
We propose a rule that codifies this position.⁴⁸⁵ Our
proposed rule would allow registration of those offers and sales when:
---------------------------------------------------------------------------

\485\ See proposed Securities Act Rule 159, 17 CFR 230.159.
---------------------------------------------------------------------------

(i) The lock-up agreements involve only executive officers,
directors, affiliates, founders and their family members, and holders
of 5% or more of the voting equity securities of the company being
acquired;
(ii) The persons signing the agreements own less than 100% of the
voting equity securities of the company being acquired; and
(iii) Votes will be solicited from shareholders of the company
being acquired who have not signed the agreements and who would be
ineligible to purchase in an offering under Section 4(2) or 4(6) of the
Securities Act or Rule 506 of Regulation D.
The first condition would assure that the only persons who signed
the agreements were insiders with access to corporate information who
arguably would not need the protections of registration and prospectus
disclosure. The last two conditions would make certain that
registration under the Securities Act is required to accomplish the
business combination. Where no vote is required or 100% of the shares
are locked up, no investment decision would be made by non-affiliated
shareholders and the transaction would have been completed via the
lock-up agreement. If the non-affiliated shareholders were able to
purchase under one of the private offering exemptions from
registration, the entire transaction would be more akin to a private
placement and registration of only resales would follow from that
characterization.
We request your comments on proposed Rule 159. Should registration
be permitted for securities under lock-up agreements? If no, why not?
Are the proposed conditions sufficient or are different or additional
conditions needed? Should some specified percentage lower than 100%
(e.g., 75%) be used? Would it matter what percentage had been locked up
if a significant number of shareholders had not been? Should the
proposed rule, which applies to lock-ups in connection with mergers and
similar transactions, also apply to lock-ups in connection with tender
offers? If so, would different conditions be appropriate?
2. Abandoned Offerings
An ongoing private offering may be abandoned by an issuer for any
of a number of reasons. After commencement of a private offering, the
issuer may discover that interest in the securities is soft and it is
unable to sell the amount of securities it needs to sell. On the other
hand, the issuer may encounter substantial interest from investors and
wish to increase the size or scope of the offering. In the latter
situation, the issuer may decide to switch the offering from a private
one to a registered one.
Likewise, a registered offering may be abandoned for various
reasons. For example, the issuer and its underwriter may discover after
filing the registration statement that there is less investor interest
than required to complete the registered offering successfully. The
issuer may encounter delays in getting the registration statement
effective and need funding on a more expedited basis. Changes in the
market may make a registered offering less attractive.
a. Private to Public
Under Section 5 of the Securities Act, offers may not be made in
registered offerings before filing a registration statement. Thus, an
issuer generally is unable to begin a private offering by making offers
and then decide to make the offering a registered one.
Under the proposed registration system, Form B issuers would have
no difficulty beginning an offering as a private one and completing it
as a registered public offering. Because the issuer would not be
required to file a Form B until the time of sale, and offers could be
made before filing, the transition from a unregistered offering to a
registered offering would not have the same regulatory consequences as
it does today.
Form A and other issuers, however, would not have the same freedom
to proceed with offers in the absence of a filed disclosure document.
⁴⁸⁶ Thus, the same issues that exist today under the
registration system would need to be addressed for those issuers. We
propose to expand Rule 152 to permit Form A issuers to abandon an
ongoing private offering and then conduct a public offering under the
following conditions:
---------------------------------------------------------------------------

\486\ Issuers registering offerings on the small business issuer
forms (i.e., Forms SB-1, SB-2 and SB-3) would face the same issues
as issuers registering on Form A. They would receive the same
treatment for this purpose.

1. The issuer notifies all offerees in the private offering that
the private offering is abandoned;
2. No securities were sold in the private offering;
3. Neither the issuer nor any person acting on its behalf
offered the securities in the private offering by any form of
general solicitation or general advertising; ⁴⁸⁷
---------------------------------------------------------------------------

\487\ These terms would have the same meanings as used in Rule
502(c) of Regulation D, 17 CFR 230.502(c).
---------------------------------------------------------------------------

4. The issuer does not file the registration statement until at
least 30 days after it notifies all offerees of abandonment if
securities had been offered in the private offering to any person
ineligible to purchase in an offering in accordance with Section
4(2), Section 4(6) or Rule 506; and
5. The issuer either files any selling materials used in the
private offering as part of the registration statement or it informs
all private offerees that the filed prospectus replaces the prior
selling materials and any indications of interest are rescinded.

These conditions would assure that persons offered the securities
in the private offering are treated the same as offerees and purchasers
in the registered offering. The prohibition against sales would make
sure that all purchasers have the protections of Section 11 liability.
The prohibition on any public offers in the private offering and the
30-day waiting period (if applicable) would protect against issuers who
had no intention of making a private offering abusing the safe harbor
by making public offers before filing the registration statement
containing the full and balanced disclosure. Because only Form B
issuers are granted that freedom under the proposed communications
rules, we would not want that distinction eroded by persons through the
integration safe harbor. The 30-day waiting period also would be
consistent with our communications proposals in that 30 days measures
the limited communications period before a public offering.
The notification condition in the safe harbor would assure that all
private offerees are aware of the abandonment of the private offering.
Offerees in the private offering would receive the benefit of Section
11 liability on any selling materials used in the private offering
where the issuer files those materials as part of the registration

[[Page 67237]]

statement. If the issuer chooses not to do that, those offerees would
be informed that they should rely on the prospectus for the registered
offering instead of the earlier selling materials.
Assuming the 30-day waiting period does not apply, if all of these
conditions are met, the issuer need not wait before filing the
registration statement. We request your comments on this safe harbor.
Are the conditions adequate to assure full protection of investors? Are
different or additional conditions needed? Is the 30-day waiting period
sufficiently long to provide a disincentive to abuse of the safe harbor
or should it be longer (e.g., 45 or 60 days)? Would a company be able
to condition the public market for its securities through beginning a
private offering under this mechanism despite the 30-day waiting
period? Should the offering materials used in the private offering
always have to be filed either under proposed Rule 425 or as part of
the effective registration statement?
b. Public to Private
The filing of a registration statement for a specific securities
offering constitutes a general solicitation for that
offering.⁴⁸⁸ Thus, when an issuer wishes to convert an
offering begun as a registered public offering into a private offering,
or follow it soon after abandonment with a private offering, it is
doubtful that a private offering exemption would be available. In
addition, public offers under the registration statement may have been
made to persons who would be ineligible to buy in the private offering.
Issuers currently in this situation must wait a full six months to be
certain that the public offering under the registration statement would
not be integrated with the private offering. We are proposing a safe
harbor that would shorten or eliminate that wait.
---------------------------------------------------------------------------

\488\ See Division of Corporation Finance, Current Issues and
Rulemaking Outline available on the Commission's web site (http://
www.sec.gov).
---------------------------------------------------------------------------

An issuer, especially a private company or a small business issuer,
may not know whether investors will be interested in its securities.
Expecting that investors will be interested, these issuers may undergo
the time and expense of preparing and filing a registration statement
under the Securities Act. During the public offering period, they may
discover only limited investor interest. Faced with soft investor
interest, these issuers may have to abandon the registered offering,
but they still may need funding. Our proposal would eliminate
integration concerns and permit these issuers to offer and sell
securities in the private offering to persons eligible to buy under the
private offering exemption even if they expressed interest as a result
of public offers in the registered offering.⁴⁸⁹ Thus,
issuers faced with a soft market will receive at least some benefits
from the time and expense incurred while pursuing registration.
---------------------------------------------------------------------------

\489\ While the proposed revisions would provide for no
integration, the subsequent private offering must satisfy all of the
conditions of the relevant exemption to proceed on that basis.
---------------------------------------------------------------------------

We propose a safe harbor that would permit switching from a public
offering (started either by the filing of a registration statement or
begun under Form B before filing a registration statement) to an
unregistered private offering if the following conditions are met:

1. If a registration statement has been filed, the issuer
withdraws it under Rule 477;
2. If no registration statement has been filed (i.e., Form B),
the issuer notifies all offerees in a public offering that it is
abandoning the public offering;
3. No securities were sold in the public offering;
4. Where the issuer first offers the securities in the private
offering more than 30 days after abandonment or withdrawal, the
issuer notifies each purchaser in the private offering that the
offering is not registered, the securities are restricted, and that
investors do not have the protections of Section 11 of the
Securities Act; and
5. Where the issuer first offers the securities in the private
offering 30 or fewer days after abandonment or withdrawal of the
public offering, the issuer and any underwriter agree to accept
liability for material misstatements or omissions in the offering
documents used in the private offering under the standards of
Section 11 and Section 12(a)(2) of the Securities Act.

The notification requirement for public offerings begun under Form
B would assure that offerees are made aware of the termination of the
public offering. If a registration statement has been filed, it must be
withdrawn in order to end the public offering. Because the withdrawal
of the registration statement is public information, it would signal to
offerees that the public offering has been terminated.
If the private offering is begun more than 30 days after
abandonment or withdrawal of the public offering, the intervening time
period should reduce concerns that offerees in the private offering
would be influenced by the public offering. Offerees in the private
offering likely will discount any offering materials they may have
received in the public offering due to this passage of time. Instead,
they are more likely to rely on the private offering documents. We
would require that the issuer notify purchasers in the private offering
that the offering is not registered, the securities would be restricted
securities and that they do not have the benefits of Section 11
liability. This disclosure requirement plus the intervening time period
would assure that investors do not confuse the securities they are
buying in the private offering with those offered in the public
offering.
An issuer may need funding immediately and may not be able to wait
more than 30 days. We would provide an option for companies that need
to raise capital within the 30-day period. The reduced time period
between the public offering and the private offering raises more
investor protections concerns, however, about the lingering effects of
the public offering. Offerees in the private offering may still be
influenced by the public offering. In addition, we do not want issuers
to use the integration safe harbor merely as a mechanism to avoid the
prohibition on general solicitation and general advertising. Allowing
an immediate switch from registered to private would encourage that
abuse, absent some disincentives.
We propose as a condition that an issuer and any underwriter
involved in the private offering enter into a binding agreement to
apply Section 11 liability standards for any material misstatements or
material omissions in the private offering materials with respect to
any investor who purchases in the private offering within 30 days
following the end of the public offering. These investors, who are
likely to have been influenced by the public offering, should have the
protections of Section 11 liability. We also would provide that
investors who purchase in the private offering more than 30 days after
the public offering ends would have the benefit of Section 12(a)(2)
standards for liability for any material misstatements or material
omission in the private offering materials.
Are the proposed conditions adequate to assure that investors in
the private offering are fully protected? Should different or
additional conditions be required? Is a 30-day time period adequate or
should the time period be longer (e.g., 45 or 60 days)? Should we
permit private offerings to start within the 30-day period at all?
3. Definition of Private Offering
Rule 152 currently provides a safe harbor only for transactions
under Section 4(2) of the Securities Act. There are other exemptions
under the Securities Act which prohibit public

[[Page 67238]]

offers. Section 4(6) ⁴⁹⁰ prohibits advertising or public
solicitation in any transaction under that section. Rule 506, \491\
which was adopted under Section 4(2), prohibits offers or sales by any
form of general solicitation or advertising. These exemptions also have
other requirements, in addition to the ban on public offers.
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\490\ 15 U.S.C. Sec. 77d(6). Section 4(6) exempts a transaction
that does not exceed $5 million, if offers or sales are made to only
accredited investors and other conditions are met. Accredited
investor is defined in Rule 501(a) of Regulation D, 17 CFR
230.501(a).
\491\ 17 CFR 230.506. The Commission adopted Rule 506 to provide
a safe harbor as to what type of offering would not be considered a
public offering for purposes of Section 4(2). An issuer complying
with Rule 506 is certain that it is conducting a valid Section 4(2)
offering.
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We propose to expand the private offerings covered by Rule 152 to
include offerings under the Section 4(6) exemption and to specify in
the Rule that it applies to the Rule 506 exemption. This would provide
consistent treatment for Securities Act exemptions for private
offerings. We request your views on the expansion of Rule 152 to these
additional private offering exemptions. Are there reasons to continue
to exclude either of these two exemptions?
Rule 505 of Regulation D,\492\ unlike Rule 506, permits sales to
persons who are neither accredited nor financially sophisticated.\493\
Because these persons may purchase in Rule 505 offerings, we have not
included those offerings in Rule 152. We solicit comment, however, as
to whether sufficient protections exist under the proposed safe harbor
to justify inclusion of Rule 505 offerings.
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\492\ 17 CFR 230.505. Rule 505 provides an exemption for
offerings up to $5 million within a twelve-month period, if certain
conditions are met. This exemption was created by the Commission
under Section 3(b) of Securities Act, 15 U.S.C. Sec. 77c(b).
\493\ Generally speaking, these investors must be limited to 35.
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D. Proposed Changes to Rule 477

Rule 477 of Regulation C ⁴⁹⁴ contains the procedures to
be followed by a registrant in order to withdraw a registration
statement or an amendment filed under the Securities Act. The
Commission must find that the withdrawal is consistent with the public
interest and investor protection and affirmatively act to consent to
the withdrawal. This finding requirement involves staff review of the
withdrawal request and the time necessary for that review. The time
needed for that review can vary. For a limited number of registration
statements, the withdrawal request is deemed granted upon filing where
the registration statement has not become effective.⁴⁹⁵
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\494\ 17 CFR 230.477.
\495\ Rule 477(b), 17 CFR 230.477(b), currently permits this
procedure for registration statements on Form F-2, relating to a
dividend or interest reinvestment plan, or on Form S-4 complying
with General Instruction G. of that Form.
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We propose to revise the rule to facilitate withdrawal of
registration statements, particularly in light of the effect of
withdrawals under proposed Rule 152. We would allow registration
statements to be withdrawn automatically upon filing the request. The
proposed changes would permit quick withdrawals for registration
statements. These changes would expedite the use of proposed Rule 152
in switching from a registered public offering to a private offering
and provide predictability in other cases.
We request your comments on the proposed change to Rule 477. Should
we permit fewer types of registration statements to be withdrawn
automatically upon filing? Should the rule be changed only to permit
automatic withdrawal of any Form B registration statement, or any Form
A registration statement where the registrant is eligible to
incorporate by reference and become effective on an expedited basis?
Should it be changed so that for all other registration statements, an
application for withdrawal would become effective automatically ten
days after filing, unless we grant the withdrawal earlier or notify the
registrant during the ten-day period that the application will be
reviewed? Are there reasons to limit the classes of registration
statements that may be withdrawn automatically?

XI. Proposals Relating to Exchange Act Disclosure

To improve Exchange Act disclosure, we propose revisions to enhance
the quality and timeliness of information in the periodic reports filed
by domestic reporting companies.⁴⁹⁶ Investors trading in the
secondary markets look to Exchange Act reports for information.
Moreover, seasoned issuers that file registration statements under the
Securities Act incorporate information from their Exchange Act reports
into their Securities Act filings. Investors buying in public offerings
therefore also rely on Exchange Act disclosure. As we provide for
further reliance on Exchange Act disclosure, we are particularly
cognizant of the need to evaluate whether and how it can better serve
investors.
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\496 \Some of these proposed revisions were suggested in
substance by the Advisory Committee. While the Advisory Committee
envisioned them as operating only where a company was part of a
company registration pilot system, we believe implementing these
improvements makes sense for all issuers regardless of whether they
are concurrently registering an offering. The proposals relating to
Exchange Act disclosure do not precisely follow the suggestions of
the Advisory Committee. However, they emphasize the significance of
Exchange Act reporting and would provide investors with a more
current and fuller stream of information. That end corresponds with
the Advisory Committee's goals.
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Under our proposals, we would extend risk factor disclosure to
Exchange Act reports, expand the items of disclosure required to be
reported on Form 8-K and add a provision for voluntary reporting of
information on Form 6-K. We also would require top management that sign
Exchange Act registration statements and reports to certify that they
have reviewed the disclosure in them and that they know of no untrue
statement of a material fact or omission of a material fact necessary
in order to make the statements made, in light of the circumstances
under which they were made, not misleading. In addition, we would
require issuers to identify their web site addresses, if any, and an e-
mail address, if any, on the cover page of all registration statements
and Exchange Act reports. This requirement would make this information
more accessible to investors, as well as ease investors' electronic
communications with public companies.
Companies frequently issue press releases as a means of
disseminating corporate information. In the case of quarterly and
annual financial results, we are concerned that this manner of
disclosure provides uneven results: some investors may learn of the
information, others may not; some investors may have quicker access to
the information than others. One of the purposes of the Commission's
reporting system is to provide a single source where all investors can
expect to find material company disclosure. To even the flow of
disclosure to investors, we believe that companies should file material
financial information that they may currently be making public only by
press release.
We also note reports that corporate managers make conference calls
after issuing press releases in order to ``clarify'' the
information.⁴⁹⁷ We are concerned that these conference calls
exacerbate the problem of uneven disclosure, especially in the short-

[[Page 67239]]

term.⁴⁹⁸ This practice widens the information gap between
large and small investors. Large investors, particularly institutional
ones, may be on the conference call, or they frequently hire analysts
that participate in conference calls and often obtain more detailed
information about a company's earnings before the information is widely
disseminated. While we believe analysts perform a valuable public
function in filtering and passing on company information, we believe
the small investors are the last to realize the benefits of this
function. We think this is especially true when companies do not file
with the Commission material information they issue in press releases
or communicate by conference calls to analysts.⁴⁹⁹
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\497\ See, e.g., Frankel, et al., An Empirical Examination of
Conference Calls as a Voluntary Disclosure Medium (Dec. 1996)
(unpublished manuscript) (U. of Mich. Bus. Sch.) [hereinafter
Conference Call Study]. This study noted that companies typically
hold conference calls with analysts because of the declining
relevance of historical financial data.
\498\ See Remarks by Arthur Levitt, Chairman of the Securities
and Exchange Commission, A Question of Integrity: Promoting Investor
Confidence by Fighting Insider Trading (Feb. 27, 1998), available on
the Commission's web site (http://www.sec.gov).
\499\ The Conference Call Study states that company managers
often provide ``detailed segment data'' during the course of a
conference call that is not available in the press release. They
also make more forward-looking statements than in the press release.
Conference Call Study supra note 497, at 9.
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When there is a significant time lag between the occurrence of a
material event and the reporting of that event, or the determination of
the quarterly or annual results and the reporting of them, there is a
greater chance that selected investors will learn about the information
before others.\500\ We seek to minimize the gap of information between
all investors. One way to do that is to require the quicker filing of
material company information with the Commission. Although this will
not eliminate entirely the information gap, it will decrease the amount
of time during which there is a trading advantage. By requiring
companies to speed their reporting of material information such as
earnings announcements and other financial data, we hope to decrease
the information gap between the ``have'' and ``have-not'' investors.
Accordingly, we propose to shorten the due dates for material event
reports and to accelerate the reporting of annual and quarterly
selected financial data.
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\500\ See, e.g., Trading Picks Up During Conference Calls,
Evidently leaving Small Investors on Hold, Wall St. J., Mar. 6,
1998, at C2; Small Investors Angered by Growth of After-Hours
Profits Reports, Wall St. J., Jan. 21, 1997, at C1; The Price of
Great Expectations, Wash. Post, Jan. 23, 1997, at E1.
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A. Annual and Quarterly Reports

1. Risk Factor Disclosure
Most Securities Act registration statements currently require an
analysis of the risks associated with an investment in a company's
securities.⁵⁰¹ Item 503 of Regulation S-K ⁵⁰²
describes that required disclosure as a ``discussion of the most
significant factors that make the offering speculative or risky.'' The
Commission promulgated this requirement because it assists investors in
comprehending more fully whether the securities present an appropriate
level of risk for them as an investment.
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\501\ See, e.g., Forms F-1, F-2, F-3, F-4, S-1, S-2, S-3, S-4
and S-11. To provide uniformity, we also would mandate risk factor
disclosure in Securities Act registration statements of foreign
governments and their political subdivisions. Those are virtually
the only Securities Act registration statements that do not
currently mandate this disclosure. Because those investments are not
free from risk, investors should benefit from a risk analysis by
those issuers as well.
\502\ 17 CFR 229.503.
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We propose to extend risk factor disclosure to Exchange Act
registration statements ⁵⁰³ and periodic reports
⁵⁰⁴ of all issuers. The proposal would require issuers to
articulate concisely the most significant risk factors relating to the
company's future financial performance. This disclosure would be
equally valuable whether investors are purchasing securities in a
registered offering or trading in the secondary markets. Through the
proposal, the Commission would ensure that timely disclosure about
these types of risks does not depend on whether a public company
decides to register an offering.
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\503\ The Exchange Act registration forms affected are: Forms
10, 10-SB and 18. Form 20-F registration statements already require
risk factor disclosure. See Item 1(b) of Form 20-F.
\504\ The Exchange Act periodic reports affected are: Forms 20-
F, 10-Q, 10-QSB, 10-K, 10-KSB and 18-K. The Advisory Committee
suggested the use of risk factor disclosure in Form 10-K, with
updates in Form 10-Q for any material change in the risk disclosure.
Advisory Committee Report at Appendix B, p. 57.
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The annual disclosure specifically would consist of an itemization
of the most significant factors with respect to the public company's
business, operations, industry or financial position that may have a
negative impact on its future financial performance. A foreign
government issuer would set forth the most significant risk factors
with respect to its financial position and the most significant country
risks that are unlikely to be known or anticipated by
investors.⁵⁰⁵ The proposal would require that the issuer
briefly explain how each risk affects it.
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\505\ The forms used by foreign governments and their political
subdivisions are Schedule B under the Securities Act and Forms 18
and 18-K under the Exchange Act.
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For public companies filing quarterly reports, we also are
proposing that material changes in risk factor disclosure be reported
quarterly. The company would disclose in the quarterly report only
material risk factors that either:

1. Were not included in the later of the registrant's most
recent Securities Act registration statement or Exchange Act
periodic report; or
2. Had changed since the date of that registration statement or
periodic report.

Foreign private issuers are not required to file reports on a quarterly
basis under the Exchange Act; therefore, those companies would update
their risk factors disclosure on an annual basis unless they choose to
do so more frequently.⁵⁰⁶
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\506\ We are proposing to amend Form 6-K to create an Item by
which foreign private issuers would identify information they are
filing under that Form at their option that is not based on foreign
requirements.
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A reporting company may incorporate risk factor disclosure into its
Securities Act registration statement from its Exchange Act periodic
reports. This Exchange Act disclosure may satisfy in whole or in part
the risk factor disclosure required in the Securities Act registration
statement. Where that is true, a registrant need not reiterate that
risk factor disclosure in its Securities Act registration
statement.⁵⁰⁷
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\507\ In a Securities Act registration statement, the risk
factors disclosure sometimes focuses on aspects of the particular
security or the particular transaction that is the subject of the
registration statement, in addition to company risk factors. The
risk factor disclosure that issuers would include in Exchange Act
reports would relate only to the risks that could affect the
company's future financial performance. Thus, given the somewhat
differing focus, the risk factor disclosure may vary.
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Securities Act Rule 421(d) requires issuers to write and design
their risk factor disclosure in registration statements using plain
English principles. Where risk factor disclosure in Exchange Act
reports currently is incorporated by reference into Securities Act
registration statements, the Commission staff has advised issuers that
the Exchange Act risk factor disclosure must comply with Rule 421(d).
Under the proposals, registrants may more frequently incorporate
Exchange Act risk factor disclosure into their Securities Act
registration statements. In light of that, we are proposing an Exchange
Act rule parallel to Rule 421(d) that would clarify that plain English
requirements apply to Exchange Act risk factor
disclosure.⁵⁰⁸
---------------------------------------------------------------------------

\508\ See proposed Exchange Act Rule 12b-24, 17 CFR 240.12b-24.
---------------------------------------------------------------------------

We seek comment on the proposals relating to risk factor
disclosures for quarterly and annual reports. Should we require risk
factor disclosure about specific matters that are in addition to those
referred to in Item 503 of Regulation S-K? If so, what are they?

[[Page 67240]]

2. Due Dates for Annual Reports of Foreign Private Issuers
Reporting companies that are foreign private issuers are required
to file annual reports on Form 20-F.⁵⁰⁹ These reports are
due within six months after the end of fiscal year.⁵¹⁰ Like
domestic issuers, foreign private issuers issue press releases
containing their annual results before the due dates of their annual
reports filed with the Commission. In fact, given the longer due date,
they may do this far more frequently than domestic
issuers.⁵¹¹
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\509\ ``Foreign private issuer'' is defined in Exchange Act Rule
3b-4(c), 17 CFR 240.3b-4(c).
\510\ See General Instruction A.(b) of Form 20-F.
\511\ Using electronic search databases, we found that foreign
private issuers use Business Wire and PR Newswire and other services
to issue press releases about their annual results, including
detailed financial information. For comparative purposes, these
companies disclose information about their most recent year end
along with the same information for the prior year. While it appears
that a minority of foreign companies issue these press releases as
soon as two months after their fiscal year ends, others issue them
within three or four months after the fiscal year end.
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For the same reasons we propose to accelerate the reporting of
annual results for domestic issuers through adding a Form 8-K filing,
we also propose to accelerate the due date for annual reports of
foreign private issuers. We propose that a foreign private issuer be
required to file its annual report on Form 20-F within 5 months after
its fiscal year end. Although that due date would remain significantly
longer than the due date for annual reports of domestic companies, it
would shorten the gap between the two. In light of the variety of
foreign law requirements for annual reports, a gradual decrease in due
dates for annual reports appears preferable. We believe foreign
reporting companies should be able to prepare annual reports within 5
months or less without an undue increase in cost. We also propose to
change the filing period for the transition report that must be filed
after a foreign private issuer changes its fiscal year. We would reduce
the time period for filing this report from six to five
months.⁵¹² We would not change the present three-month
filing period where the transition period does not exceed six months
and the issuer elects to file the abbreviated transition
report.⁵¹³
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\512\ See proposed Exchange Act Rule 13a-10(g)(3), 17 CFR
240.13a-10(g)(3) and proposed Exchange Act Rule 15d-10(g)(3), 17 CFR
240.15d-19(g)(3).
\513\ See Exchange Act Rule 13a-10(g)(4), 17 CFR 240.13a-
10(g)(4) and Exchange Act Rule 15d-10(g)(4), 17 CFR 240.15d-
10(g)(4).
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We seek comment on this proposal. Should we accelerate the due date
to 4 months? How would the 4-month or 5-month due date compare to
foreign requirements to report annual results?
3. Treating Quarterly Information as ``Filed''
Under current Exchange Act rules,⁵¹⁴ the financial
information required by Part I of Form 10-Q and Form 10-QSB is deemed
not to be ``filed.'' ⁵¹⁵ Part I information is therefore not
subject to liability under Section 18 of the Exchange
Act.⁵¹⁶ Those rules originated in 1955 when the Commission
proposed to require semi-annual reporting of certain financial
information for the first time.⁵¹⁷ At that time, the
Commission determined that semi-annual reports should be deemed not to
be filed for purposes of Section 18 because interim earnings figures
included in those reports would often be based on ``reasonable
estimates * * * or certain assumptions.'' ⁵¹⁸
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\514\ Exchange Act Rule 13a-13(d), 17 CFR 240.13a-13(d), and
Exchange Act Rule 15d-13(d), 17 CFR 240.15d-13(d).
\515\ Part I of Form 10-Q consists of: the financial statements;
the Management's Discussion and Analysis of Financial Condition and
Results of Operations; and the Quantitative and Qualitative
Disclosures About Market Risk. Part I of Form 10-QSB contains only
the first two of those three categories.
\516\ Section 18 provides a remedy for those relying on false or
misleading statements made in any application, report, document or
registration statement filed with the Commission under the Exchange
Act.
\517\ Exchange Act Release No. 5129 (Jan. 27, 1955) [20 FR 771].
\518\ Id. See also Exchange Act Release No. 5189 (June 23, 1955)
[20 FR 4816] (adopting the semi-annual reports as proposed).
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Since 1955, the Commission has taken a few steps to expand periodic
financial reporting. In 1970, we required that public companies file
quarterly financial information on Form 10-Q.⁵¹⁹ In 1981, we
expanded the information required by Form 10-Q to include disclosure of
management's discussion and analysis of the registrant's financial
condition and results of operations (``MD&A'').⁵²⁰ Most
recently, we amended Form 10-Q in 1997 to require registrants to
disclose qualitative and quantitative information about market
risks.⁵²¹
---------------------------------------------------------------------------

\519\ Exchange Act Release No. 9004 (Oct. 28, 1970) [35 FR
17537].
\520\ Exchange Act Release No. 17524 (Feb. 17, 1981) [46 FR
12480].
\521\ See Exchange Act Release No. 38223 (Jan. 31, 1997) [46 FR
6044].
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Both the existing registration system and the proposed registration
system rely on Exchange Act disclosure. The rationale behind the rules
granting relief from Section 18 seems out of place more than 40 years
later in a market which now routinely relies on such reasonable
estimates and assumptions. Furthermore, registrants have had 28 years
of experience preparing quarterly financial statements and 17 years of
preparing MD&A disclosures.
Accordingly, we propose to revise rules to treat the financial
statements and MD&A disclosure in Forms 10-Q and 10-QSB as
filed.⁵²² We would not extend the same treatment to market
risk disclosure. Given the recent adoption of the rules requiring that
disclosure, as well as the complex nature of that disclosure, we
believe it would be appropriate to continue to treat that part of Form
10-Q disclosure as not ``filed'' for purposes of Section 18.
---------------------------------------------------------------------------

\522\ See proposed revisions to Exchange Act Rules 13a-13d and
15d-13(d), 17 CFR 240.13a-13(d) and 240.15d-13(d). Along with these
proposed revisions to Rule 15d-13, we are correcting that Rule by
removing paragraph (e), which is duplicative and was intended to be
removed in a prior amendment to the Rule. See Exchange Act Release
No. 13477 (Apr. 28, 1977) [42 FR 24062] and Exchange Act Release No.
13156 (Jan. 13, 1977) [42 FR 4424].
---------------------------------------------------------------------------

We solicit comment on whether applying Section 18 remedies to
financial statements and MD&A disclosure would cause registrants to
alter disclosure in quarterly reports that they make today. If so, what
kinds of disclosure would change and how? Is there any reason to treat
MD&A disclosure as ``filed'' but not the financial statements, or vice
versa? How does the treatment of these parts as not ``filed'' affect
investors? Should we also apply Section 18 remedies to quarterly market
risk disclosures?
4. Request for Comment on Management Report to Audit Committee
We solicit comment on the Advisory Committee's recommendation to
require the filing of a management report to the audit committee of the
board of directors.⁵²³ The report would disclose the
procedures, if any, established to assure the accuracy and adequacy of
Exchange Act reports. As the Advisory Committee envisioned it, the
report would not specify a particular set of procedures to follow, nor
would it require an assessment of the adequacy of the procedures. The
report would be filed as an exhibit to the Form 10-K and would be
refiled only when there was a material change in procedures. Would such
a report enhance the quality of disclosure provided in Exchange Act
reports?
---------------------------------------------------------------------------

\523\ See Advisory Committee Report at Appendix B, pp. 52-54.
See also Section IX.D. of this release regarding whether the report
should be considered as a factor in evaluating an underwriter's due
diligence obligation.

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[[Page 67241]]

B. Interim Reports on Form 8-K

1. Timely Disclosure of Annual and Quarterly Results of Domestic
Companies
a. Form 8-K Requirement for Item 301 Information
A domestic reporting company must file an annual report on Form 10-
K or Form 10-KSB within 90 days after the end of its fiscal
year.⁵²⁴ A domestic reporting company must file a quarterly
report on Form 10-Q or 10-QSB within 45 days of the end of its
quarter.⁵²⁵
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\524\ See General Instructions A of Forms 10-K and 10-KSB.
Foreign companies that do not satisfy the foreign private issuer
definition in Exchange Act Rule 3b-4(c), 17 CFR 240.3b-4(c), also
must report on Forms 10-K or 10-KSB.
\525\ See General Instruction A of Forms 10-Q and 10-QSB.
Foreign private issuers, as defined in Exchange Act Rule 3b-4(c)
have no quarterly reporting obligation. See Exchange Act Rule 13a-
13(b)(2), 17 CFR 240.13a-13(b)(2). Other non-governmental foreign
issuers must file quarterly reports.
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Hundreds of public companies issue press releases to announce
annual and quarterly results well before they file their annual and
quarterly reports with the Commission.⁵²⁶ We are cognizant
that significant technological developments over at least the last
three decades have simplified the process of preparing financial data
and periodic reports. It appears that companies and their auditors have
developed efficiencies over the years that allow them to generate basic
financial data quickly.
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\526\ Companies frequently issue press releases through Business
Wire, PR Newswire and other publications. Through narrow searches of
electronic databases, it is possible to find the press releases of
hundreds of companies that relate to early annual and quarterly
results or earnings information. Most companies seem to have
included in their press releases the basic information that would be
prepared for inclusion in a periodic report. Some companies also use
press releases to announce the early filing of periodic reports with
the Commission and to publish the same financial information that
they include in their filings with the Commission.
---------------------------------------------------------------------------

The timing and frequency with which companies issue press releases
about their annual and quarterly results indicates that companies
complete the preparation of at least their core financial data well
before the due dates of their periodic reports. That practice also
reflects the importance of that financial information and investors'
demand for it at the earliest time it is available.
While we applaud companies' practice of issuing press releases to
keep investors informed, there are disadvantages to dissemination of
information in this way. Not all investors subscribe to the
publications that carry press release information. Not all publications
report on every company's release or include all the information in the
release.⁵²⁷ The unevenness of press release disclosure
raises concerns that not all investors are informed of a company's
financial results at the same time. Moreover, presentation of annual
and quarterly information in press releases differs from company to
company. Sometimes this variance appears to arise because a company
wants to focus on the positive aspects of the financial
information.⁵²⁸
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\527\ Some services apparently publish verbatim almost any
company press release (e.g., Business Wire or PR Newswire). Not all
investors have access or know about these services.
\528\ See, e.g., Antilla, Quarterly Reports Often Mask
Companies' Ugly Truths, The Dallas Morning News, Apr. 12, 1998 at
13A.
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To ensure uniform and even disclosure by public companies, we
propose to require domestic reporting companies to report selected
financial data on Form 8-K. That report would be due on the earlier of
the date they issue a press release containing earnings information or
either the date that is 30 days after the end of each of the first
three quarters of their fiscal year or 60 days after the end of their
fiscal year.
The Form 8-K would include the selected financial data required by
Item 301 of Regulation S-K for both the most recently completed fiscal
quarter and interim period or year. For comparative purposes, we also
would require companies to disclose Item 301 financial data for the
same periods of the prior year. For example, if a company issued an
early press release announcing earnings results for its second quarter,
its Form 8-K would include Item 301 information for the three months
comprising the second quarter as well as for the six months ending the
second quarter. The Form also would include Item 301 information for
the corresponding periods of the prior year so investors could compare
current results with last year's results.
We believe the press releases of most companies include at least
this level of basic material information. Accordingly, we do not
believe the requirement would impose a significant burden on domestic
reporting companies, particularly those that consistently issue press
releases. As for companies that do not follow the press release
practice, we believe that they nevertheless would be able to prepare
Item 301 information by the 30th day after the end of their quarters or
the 60th day after the end of their fiscal years.
Regulation S-B does not contain a disclosure requirement comparable
to Item 301 of Regulation S-K. Thus, small business issuers now are not
required to provide Regulation S-K, Item 301 information in their
disclosure documents. Also, transitional small business issuers are not
required to provide this information. We propose to require all small
business issuers, including transitional small business issuers, to
provide Regulation S-K, Item 301 information in Form 8-K reports filed
in advance of their quarterly or annual reports. We request your
comments on whether small business issuers should be required to
provide Regulation S-K, Item 301 information in these current reports.
Should small business issuers providing disclosure based on Regulation
S-B be subject to this requirement? Should transitional small business
issuers be subject to this requirement? Would it be more difficult for
small business issuers to comply with this requirement? Would the
additional time and cost of this disclosure requirement outweigh the
increase in investor protection?
We believe that all investors and the market would benefit from
being able to review selected financial data earlier than they can
today. Would these benefits justify the cost associated with an
additional filing? Should we require more or less than Item 301
information? If more, what kinds of additional information should we
require? Should we require companies to discuss factors that may affect
the comparability of current results with last year's results? If less,
what should we omit? Would current interim financial data be meaningful
absent presentation of historical comparative information? Given the
limited nature of the information required by Item 301, should we
require companies to file the Form 8-K even earlier than proposed
(e.g., 20 or 25 days after the end of the quarter and 45 or 50 days
after the end of the year)?
b. Solicitation of Comment on Whether to Accelerate Due Dates
Since 1970, annual reports have been due 90 days after a reporting
company's fiscal year end.⁵²⁹ Quarterly reports, since they
were first required in 1946, have always been due within 45 days after
the end of a quarter.⁵³⁰ Many companies file, or ostensibly
could file, their periodic reports before they are due.
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\529\ See Exchange Act Release Nos. 9000 (Oct. 21, 1970) [35 FR
16919] and 9004 (Oct. 28, 1970) [35 FR 17537]. Before 1970, the due
date for filing annual reports was 120 days after a company's fiscal
year end.
\530\ See Exchange Act Release No. 3803 (Mar. 28, 1946) [11 FR
10988].
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In this age of computers, instantaneous communications and

[[Page 67242]]

electronic filing, we believe it is possible for reporting companies to
file their annual and quarterly Exchange Act reports sooner than they
are currently due. Public companies, as a group, have had decades of
experience in preparing Exchange Act periodic reports within 90 and 45
days.⁵³¹
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\531\ Since 1970, we have expanded the information required by
Form 10-Q only twice to any notable extent. In 1981, we added the
requirement for MD&A information. Exchange Act Release No. 17524
(Feb. 17, 1981); see Item 2 of Part 2 of Form 10-Q. Last year we
added a disclosure requirement relating to market risk. Exchange Act
Release No. 38223 (Jan. 31, 1997); see Item 3 of Part 2 of Form 10-
Q.
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As the proposed registration system makes clear, the securities
markets move faster than they did before. Commentators have long
remarked that because the due dates for quarterly reports are so
lengthy, the information required by Form 10-Q or 10-QSB is stale by
the time the reports are available.⁵³² Annual information--
when provided 90 days after a fiscal year end--is also viewed as stale.
We believe investors and the market would realize immediate and ongoing
benefits if domestic reporting companies filed their annual and
quarterly reports earlier than currently due. We also believe earlier
due dates would provide investors with more timely disclosure as well
as shorten the period during which periodic results would be available
to only certain investors.
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\532\ ``In a slower, paper-based world, quarterly reporting
frames were deemed adequate for purposes of the 1934 Act's
continuous disclosure system * * * [b]ut in an era of electronic
reporting, it is possible to advocate a much more rapid reporting
obligation.'' Coffee, Brave New World? The Impact(s) of the Internet
on Modern Securities Regulation, 52 Bus. Law 1195, 1199 (Aug. 1997).
In 1969, former Commission Chairman Manuel Cohen said: ``because
companies need not file the [quarterly] report until 45 days after
the end of the quarter, the information is often stale.'' See Brown,
Corporate Communications and the Federal Securities Laws, 53 Geo.
Wash. L. Rev. 741, (1985).
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For these reasons, as an alternative to the proposal to add a
financial reporting requirement to Form 8-K discussed above, we request
comment on whether we should accelerate the due dates for annual and
quarterly reports. Should we require companies to file quarterly
reports on Forms 10-Q or 10-QSB within 30 days after their first three
fiscal quarters? Should we require them to file annual reports within
60 days after their fiscal year end? Would companies find it feasible
to prepare their periodic reports within those periods? If we adopt
this alternative, should the periods be lengthened (e.g., to 35 or 40
days after the end of a quarter and 70 or 75 days after the end of a
fiscal year)? Should small business issuers, because they may have
fewer resources, be given more time to prepare periodic reports than
larger issuers? Should larger issuers, because their accounting issues
may be more complex, be given the same amount or more time than small
business issuers to prepare their periodic reports? If we were to
reduce the time period for filing annual and quarterly reports, should
we also shorten the filing period for the transition report that must
be filed after an issuer changes its fiscal year?
We solicit comment on whether accelerated periodic reporting
requirements would exacerbate the problems of selective disclosure by
issuers to certain analysts or shareholders. Are there steps other
than, or in addition to, accelerating the due dates of periodic and
current reports that the Commission should take to address selective
disclosure to institutional investors through conference calls, advance
press releases or other methods?
2. Other Reporting Events
We propose to expand the items of disclosure that reporting
companies must report on Form 8-K to include: material modifications to
the rights of security holders; departure of a CEO or CFO; material
defaults on senior securities; certain auditor notifications; and
company name changes. Some of the proposed items currently have to be
disclosed only on a quarterly basis. Other proposed items may be
reported if the company chooses to do so or feels compelled to do so
because of concerns about antifraud provisions. We believe that prompt
reporting by issuers of each of these events would enhance investor
protection. We solicit comment on whether other disclosure should be
required on Form 8-K. If so, what types of information? If companies
disclose less information to the market when experiencing difficulties,
is there a need for more frequent reports or updates when events such
as those we propose to add take place?
We also propose to accelerate the due date of reports that must be
filed on Form 8-K. The longer the period of time between the occurrence
of a material event and the public reporting of the event, the greater
the likelihood that over the course of that period security holders
will be selectively informed of that material information. The unfair
trading advantage that may result can be significantly lessened if
information about material events is reported earlier on Form 8-K.
a. Material Modifications to the Rights of Security Holders
The Commission believes, as did the Advisory Committee, that
reporting companies should promptly and publicly notify their security
holders about material modifications in their rights.⁵³³ The
Commission proposes to add an item to Form 8-K that would accelerate
the disclosure of developments that materially modify the rights of
security holders, favorably or unfavorably, to within five calendar
days of the development or event causing the modification.
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\533\ The Advisory Committee recommended that the Commission
expand Form 8-K to require disclosure about developments that would
result in material modifications to the rights of security holders.
See Advisory Committee Report at p. 27 and Appendix B at p. 55.
---------------------------------------------------------------------------

Under current requirements, a reporting company must disclose the
general effects of those modifications in the report on Form 10-Q or
Form 10-QSB for the quarter in which the modifications
occur.⁵³⁴ That requirement allows reporting companies to
delay filing this information for up to four and a half months after
changes to security holder rights have occurred. That timing is
unnecessarily long given the significance of these matters to security
holders and the possibility that modifications to their rights could
have a dramatic effect on the value of the securities they own.
---------------------------------------------------------------------------

\534\ Item 2 of Part II of Form 10-Q and 10-QSB. Foreign private
issuers are not required to file quarterly reports and therefore are
not subject to this disclosure requirement.
---------------------------------------------------------------------------

Under our proposal, reporting companies would be required to
promptly disclose on Form 8-K any modification of the instruments that
define security holder rights, modifications to security holder rights
resulting from the issuance of another class of securities, and
modifications resulting because of restrictions on working capital or
payment of dividends.
We solicit comment on this proposal. Should it encompass other
specific events that could materially affect security holder rights,
such as reincorporation from one state to another, elimination of
preemptive rights, or adoption of an anti-takeover plan.
b. Departure of CEO, CFO, COO or President
The departure of a reporting company's chief executive officer,
chief financial officer, chief operating officer, president, or any
person serving equivalent functions, is a material event that often can
cause changes in the

[[Page 67243]]

market price of the company's securities as well as changes to the
company's business or goals. Today, reporting companies are not
required to disclose these events on either a quarterly or current
basis, although many do report them on a timely basis because the
departure of a CEO, CFO, COO or president is usually viewed as a
material event.⁵³⁵
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\535\ Item 6 of Form 8-K currently requires prompt disclosure of
a director's resignation or declination to stand for re-election.
The Item does not require similar disclosure with respect to CEOs,
CFOs, COOs or president.
---------------------------------------------------------------------------

The Advisory Committee recognized that general principles of
materiality often cause reporting companies to promptly disclose the
termination of their CEOs, CFOs, COOs or president; nonetheless, it
recommended that the Commission expand Form 8-K to accelerate and
mandate disclosure of the resignation or removal of a public company's
top five executive officers.⁵³⁶
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\536\ See Advisory Committee Report at p. 27 and Appendix B at
p. 55. The Committee did not limit its recommendation to disclosures
regarding the CEO, CFO, COO and president. It extended its
recommendation to the ``top five'' or ``five most senior'' executive
officers.
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We believe it is important to investors and the market that public
companies promptly report news of the departure of a CEO, CFO, COO,
president or any person serving in those capacities. Whether the
departure is the result of resignation or termination or another reason
also would be of interest to investors. Accordingly, the Commission
proposes to add an item to Form 8-K to require disclosure of that
departure information. Given the significance of this information, we
solicit comment on whether it should be reported within one business
day of the departure.
We also seek comment on whether the proposal should be extended to
include more than just a company's CEO, CFO, COO and president. Should
we require a company to disclose on Form 8-K the departure of any of
its five most highly compensated executive officers? Are other
positions, whether or not based on compensation, significant enough to
justify mandating Form 8-K disclosure when they are vacated? For
example, should Form 8-K require disclosure of the departure of key
personnel who make significant contributions to the company, such as a
chief technology officer or head of information systems, a scientist,
researcher, or head of marketing or production?
c. Material Defaults on Senior Securities
Any material default by a reporting company on payments of
principal or interest or any other scheduled payment on its securities
could have severe consequences to the reporting company, its business
and its security holders. The default is especially significant when
senior securities are involved, because a default on those securities
may signal that the company faces imminent, serious financial
difficulty.
Under current reporting requirements, disclosure of material
defaults on senior securities need be made only on a quarterly
basis.⁵³⁷ The Commission believes quarterly reporting of
such events is insufficient, as did the Advisory
Committee.⁵³⁸ Reporting companies should be required to
provide current public notice of all material defaults on senior
securities so that investors have time to consider the possible effects
of any default, including whether to sell or hold their securities.
Further, the Commission and the Advisory Committee share concerns that,
under current reporting standards, default information may become stale
before it reaches all the security holders of a reporting company.
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\537\ Item 3 of Part II of Form 10-Q and Item 3 of Part II of
Form 10-QSB. Both Items require disclosure of defaults whether under
the terms of a company's governing instruments or with respect to
arrearages in the payment of a dividend or other delinquencies.
Neither Item, however, requires disclosure of defaults or arrearages
with respect to any class of securities held entirely by or for the
account of the registrant or its wholly owned subsidiaries. See
Instruction to Item 3 of Part II of Form 10-Q and Instruction to
Item 3 of Part II of Form 10-QSB. Our proposal includes these same
reporting exceptions.
\538\ The Advisory Committee also recommended that the
Commission accelerate disclosure of material defaults on senior
securities. The Committee believed that prompt public disclosure
would reduce the possibility of unfair trading based on selective
disclosure and would improve market efficiency. See Advisory
Committee Report at p. 27 and Appendix B at pp. 55-56.
---------------------------------------------------------------------------

For these reasons, we propose to revise 8-K to require current
disclosure of material defaults under a company's governing instruments
and material delinquencies in a company's payments of interest or a
dividend preference due on its senior securities. Also, given the
potentially grave consequences of a material default on senior
securities, the Commission does not believe it would be appropriate to
allow reporting companies to wait as much as five days to report the
event. Instead, we believe that reporting companies should disclose
this information as soon as possible, but certainly no later than the
day following the material default. Accordingly, we propose to set the
due date at one business day after the day the default occurred. Where
the default occurred on a Saturday, Sunday or a federal holiday, we
propose that the disclosure be due within two business days after the
day the default occurred.
As with other proposed changes to Form 8-K, we solicit your
comment. Do reporting companies need as much as five days before they
are prepared to file material default reports? Should we limit the due
date to one business day, instead of two business days, for reporting
of material defaults that occur on a Saturday, Sunday or federal
holiday?
d. Reliance on Prior Audit
Form 8-K already requires a reporting company to disclose promptly
when its independent accountant resigns, declines to stand for
reelection or is dismissed, as well as when it engages a new
auditor.⁵³⁹ To supplement these items, the Commission is
proposing that a reporting company promptly report when:
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\539\ Item 4 of Form 8-K.

(i) its independent auditor notifies it that it may no longer
rely on the audit report included; and
(ii) the independent auditor notifies it that the auditor will
not consent to the use of its prior audit report or the company or
one of its significant subsidiaries.

The Commission believes that such announcements would be of
interest and importance to investors and the market because they could
signal a discrepancy in the company's audited financial
reports.⁵⁴⁰ Further, announcements or dissemination of
information about such auditor notices, as with announcements and
information about the other events proposed to be added to Form 8-K,
could have an immediate and significant impact on the market price of a
company's securities. We are concerned about the potential for unfair
trading on the basis of selective information. The Advisory Committee
stated these same concerns, and also posited that timely disclosure
about matters relating to certifying would reinforce the auditor's role
as a gatekeeper.⁵⁴¹
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\540\ The Advisory Committee suggested that this kind of
disclosure should be required on Form 8-K. See Advisory Committee
Report at p. 27 and Appendix B at pp. 55-56. As noted, the
Commission's proposals do not precisely follow the Committee's
suggestions. The Committee did not expressly suggest expanding Form
8-K to require disclosure of an accountant or auditor's refusal to
consent to use of its prior audit report.
\541\ See Advisory Committee Report, Appendix B at pp. 27-28 and
55-56. The Committee explained that an auditor could provide a
gatekeeping function when asked to furnish or update a consent to
the use of its report. If the auditor does not satisfy itself that
the report does not require any adjustments, it may withhold or
refuse to consent to use of the report. By requiring companies to
report when its auditor refuses to consent to use of its report, we
elicit disclosure that may signal problems with the company's
financials.
---------------------------------------------------------------------------

Accordingly, we propose to add these events to those that relate to
a

[[Page 67244]]

company's accountants and auditors and that are already in Form 8-
K.⁵⁴² We would require companies to report these events
within one business day of their occurrence.
---------------------------------------------------------------------------

\542\ See proposed revisions to Item 304 of Regulation S-B, 17
CFR 228.304, and proposed revisions to Item 304 of Regulation S-K,
17 CFR 229.304.
---------------------------------------------------------------------------

We solicit comment about whether other events concerning an
auditor's report should be included in the Form 8-K. For example,
should companies report when they seek to have another auditor reaudit
a prior audited period? The Committee did suggest we require disclosure
of engagement of a new auditor to reaudit a prior audited period. We
seek comment on this subject.
With respect to the information about auditors already required by
Item 4 of Form 8-K, we propose to accelerate the due date for reporting
that information to one business day after the reporting event occurs.
We believe the significance of that information warrants near immediate
disclosure.
e. Name Changes
We propose to add to Form 8-K a requirement that a reporting
company report any change in its name. This disclosure is not
specifically required in current periodic reports, although companies
may report name changes because general principles of materiality may
call for it. Under our proposal, companies would report their former
and current names within five calendar days after the change. Prompt
reporting of a change in a reporting company's name is important to
keep investors informed of the status of the company. Also, for
investors that are not otherwise aware, a change in a company's name
often signals the occurrence of some significant event concerning the
company about which they should educate themselves. Timely public
notice of a name change also would allow investors to continue to
follow or research the reporting company and avoid concern about its
fate when its familiar name is replaced by an unfamiliar one.
We solicit comment on this proposal. If the name change results
from a business combination that was already publicly announced, should
we nonetheless require name change reporting?
f. Due Dates for Reporting Events
Currently, most reports filed on Form 8-K are due within 15
calendar days after the occurrence of the event triggering the
reporting requirement.⁵⁴³ Some reports are due within 5
business days after the occurrence of the event.⁵⁴⁴
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\543\ Events concerning changes in control of a registrant,
acquisition or disposition by a registrant of a significant amount
of assets, and a registrant's bankruptcy or receivership, as well as
other events, must be reported within 15 calendar days of the
occurrence of the event. See General Instruction B. of Form 8-K.
\544\ Registrants must file reports on Form 8-K within 5
business days of both changes in the registrant's certifying
accountant and the resignation of any of the registrant's directors.
See General Instruction B. of Form 8-K.
---------------------------------------------------------------------------

The Commission believes that, given the explosive growth of the
secondary trading market and the importance of Exchange Act reporting
to it, reporting companies should be required to disclose more
information about material events and developments that concern them
and their security holders sooner than they are required currently.
The Advisory Committee suggested that the due date for mandated
reports on Form 8-K be accelerated from 15 calendar days to 5 business
days.⁵⁴⁵ The Commission believes it is appropriate to go
further, however, and proposes to accelerate the general Form 8-K due
date to 5 calendar days after occurrence of the events required to be
reported on the Form.⁵⁴⁶ For disclosures of material
defaults and notices that a company's independent accountant has
resigned, declined to stand for reelection or been
replaced,⁵⁴⁷ as discussed above, we generally would require
companies to report within one business day after the date of the
reportable event. We also propose to accelerate the reporting of
resignations of any of the registrant's directors to within one
business day of the reportable event.⁵⁴⁸
---------------------------------------------------------------------------

\545\ Advisory Committee Report at p. 27.
\546\ As discussed above, this due date would not apply to the
reporting of annual and quarterly financial results on Form 8-K.
\547\ This information is currently required to be disclosed
under Item 4 of Form 8-K, within 5 business days of the event.
\548\ This information is currently required under Item 6 of
Form 8-K and is due today within 5 business days of the event.
---------------------------------------------------------------------------

The Commission recognizes that acceleration of the due date may
create some burdens for reporting companies; however, we believe that
any burdens are outweighed by investors' and the market's need for
current information. With respect to each proposed addition to or
acceleration of reporting under Form 8-K, the Commission believes that
security holders and the market have a need for prompt disclosure
particularly because the events could impact the market price of the
reporting company's securities. We also believe that the faster that
material information is publicly disclosed, the less the potential for
unfair trading on the basis of selective disclosure.
We ask for your comment on this proposal. Does the proposed 5-day
reporting period provide reporting companies with enough time to file
their reports? If not, should the due dates be extended, as the
Committee suggested, to 5 business days? Should material defaults be
reported faster than other events required to be reported on Form 8-K?
Should the due date of other required reports similarly be set at one
business day?

C. Signatures

1. Exchange Act Reports and Registration Statements
The Commission is proposing to revise the signatures section of all
registration statements and periodic reports filed under the Exchange
Act to mandate that the persons who are required to sign those reports
must certify that they have read the registration statement or report
and that they know of no untrue statement of a material fact or
omission of a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.⁵⁴⁹ The proposal also would expand the number of
persons required to sign Forms 8-A, 10, 10-SB, 20-F, 40-F, 10-Q and 10-
QSB, to include the principal executive officers of the registrant and
a majority of the board of directors of the registrant.⁵⁵⁰
Although we are not proposing to require that a majority of board
members sign current reports filed under cover of Form 8-K and 6-K, we
would require the signatory for the registrant to certify that he or
she provided a copy of those reports to the registrant's board of
directors. That certification should encourage board participation in
the disclosures required to be made on those Forms.⁵⁵¹
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\549\ The proposal relates to Exchange Act Forms 8-A, 10, 10-SB,
20--F, 40-F, 6-K, 8-K, 10-Q, 10-QSB, 10-K and 10-KSB. The Commission
is not currently proposing to change the language in these Forms
that direct the registrant to file a specified number of copies with
the Commission. Of course, reporting entities that file the Forms
electronically pursuant to Regulation S-T need not submit multiple
copies electronically.
\550\ Forms 10-K and 10-KSB already require those persons to
sign those Forms. See Instruction D.(2)(a) of Form 10K and
Instruction C.2. of Form 10-KSB. Forms 8-K and 6-K only require the
signature of the officer signing on behalf of the registrant and in
his or her capacity as an officer of the registrant. See Form 6-K
and Form 8-K. We do not propose to revise either Form 6-K or 8-K to
require more signatures.
\551\ Although board members may not review the disclosures in
those Forms before receiving them from the registrant, we believe
that the delivery requirement would increase director awareness of
the disclosure in the reports, and therefore possibly increase their
participation. Moreover, the Commission has noted that certain
companies may have no internal system by which to provide directors
with significant corporate information. The Commission has indicated
before that directors must assume some responsibility with respect
to disclosures made by the companies on whose boards they sit. See,
e.g., Exchange Act Release No. 17114 (Sept. 2, 1980) [45 FR 63630].

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[[Page 67245]]

We believe that persons signing the report will be less likely to
adopt the practice of simply signing blank signature pages without
having even seen the report if they must affirmatively state that they
have read the report and that they know of no untrue statement of a
material fact or omission of a material fact necessary in order to make
the statements made, in light of the circumstances under which they
were made, not misleading.⁵⁵² Requiring a signatory of
current reports to provide a copy of those reports to the registrant's
board of directors would, at a minimum, help ensure that the board is
quickly informed about material current developments or events that
concern the registrant.
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\552\ The Advisory Committee noted in its Report that it was
advised that senior management of reporting companies routinely
execute the signature pages for Exchange Act reports without having
or reviewing the report itself. See Advisory Committee Report,
Appendix B at p. 50. The Advisory Committee learned in various
meetings and through research that board members devote less
attention to Exchange Act reports than they devote to reviewing
Securities Act filings. See Advisory Committee Report, Appendix A at
pp. 49-53.
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This proposal is based in part on the Advisory Committee's finding
that the disclosures made in Exchange Act reports tends to be of a
lesser quality than the disclosures made in Securities Act filings. The
Committee believed that, generally, one way to improve Exchange Act
disclosures would be to require senior management to review the
Exchange Act reports filed on behalf of the company they
managed.⁵⁵³
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\553\ The Committee also suggested that, the Commission require
senior management to address and submit a report to the audit
committee of the board of directors describing the procedures
employed to ensure compliance with disclosure and accounting
standards and requirements. See Advisory Committee Report, Appendix
B at pp. 50-54.
---------------------------------------------------------------------------

The Commission concurs with the Committee's goal that management
take a more active role in the disclosure the registrant makes in its
Exchange Act reports as well as acknowledge more responsibility for the
disclosure in their reports.⁵⁵⁴ We also note, as the
Committee did, that revisions to enhance the disclosures in Form 8-K
may improve disclosure for Securities Act purposes, because almost all
seasoned issuers incorporate their Exchange Act reports into their
Securities Act registration statements.
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\554\ In 1980, the Commission amended Form 10-K to require that
the Form be signed on behalf of the registrant by the registrant's
principal executive officer(s), its principal financial officer, its
controller or principal accounting officer and by at least a
majority of the board of directors. Exchange Act Release No. 17114
(Sept. 2, 1980). The Commission noted that, while commentators
either did not address or object to the proposal to require
executive officers to sign the Form 10-K, they did object to the
proposal that board members be required to sign. The Commission
adopted the proposal over the commentators' objections because it
concluded that the requirement would help shift the focus to
Exchange Act reporting. By shifting the focus, the Commission
expected that officers and directors would pay more attention to the
disclosures made in Forms 10-K and to participate more in their
preparation. It believed then, as we do now, that the signature
requirement would impose an added measure of discipline that would
provide benefits that outweighed the potential impact, if any, of
the signature on legal liability.
---------------------------------------------------------------------------

We recognize that companies may find it inconvenient to obtain the
additional signatures that would be necessary to file the report.
However, we believe the instructions to the Forms, current or proposed,
that provide for conformed signatures would significantly ease any
logistical burdens associated with obtaining the signatures.
2. Securities Act Filings
We also propose to revise the signature sections of certain
registration statements under the Securities Act to mandate that any
person signing the registration statements certify that he or she has
read the registration statement and, to his or her knowledge, it does
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.⁵⁵⁵ Unlike the Exchange
Act proposals, we would not expand the number of persons required to
sign the registration statements.⁵⁵⁶
---------------------------------------------------------------------------

\555\ We would revise existing Securities Act Forms SB-1 and SB-
2. Proposed Securities Act Forms A, B, C and SB-3 would include the
same certification.
\556\ Forms S-1, S-2, F-1, F-2, S-3, F-3, S-4, F-4 and S-11
currently require the signatures of the same persons we would
require to sign proposed Forms A, B and C.
---------------------------------------------------------------------------

We hope that the certification requirement would cause the
signatories, who typically also manage and control the issuer, to read
the disclosure and perhaps even participate more in the preparation of
the filing. We seek your comment on this proposal. Would the proposed
certification have any effect on the extent to which the signatories
participate in overseeing the disclosure? Would it change the extent to
which management of the companies are given draft disclosure or given
time to read the disclosure before filing? Given that signatories are
already responsible for the disclosure under the liability provisions
of the Securities Act,⁵⁵⁷ would certification have any
effect?
---------------------------------------------------------------------------

\557\ See Securities Act Section 11(a), 15 U.S.C. Sec. 77(k)(a).
---------------------------------------------------------------------------

D. Form 6-K Submissions

Form 6-K is a critical part of the Exchange Act disclosure system
for foreign private issuers. Form 6-K requires a foreign private issuer
to furnish the Commission with all the material information that the
foreign issuer:
1. Discloses or is required to disclose under the laws of its
domicile or place of incorporation;
2. Files or is required to file with stock exchanges that list its
securities; and
3. Distributes or is required to distribute to its security
holders.⁵⁵⁸
---------------------------------------------------------------------------

\558\ See General Instruction B to Form 6-K.
---------------------------------------------------------------------------

Unlike Form 8-K,⁵⁵⁹ Form 6-K does not explicitly
encourage current voluntary disclosure that is not dependent upon
foreign requirements. The Commission believes foreign issuers should be
encouraged to keep their security holders and the market up-to-date,
particularly because they may report less frequently than domestic
issuers do under the Exchange Act system. Accordingly, the Commission
proposes to add an instruction to Form 6-K to encourage foreign issuers
to submit voluntarily current information that the issuer deems of
importance to its security holders. Because the submission would be
voluntary, we are not proposing a filing deadline, but we would
recommend that foreign issuers promptly submit the Form 6-K after
becoming aware of the information. We would deem information submitted
voluntarily not to be filed for purposes of Section 18, just as we do
all information under cover of Form 6-K.⁵⁶⁰
---------------------------------------------------------------------------

\559\ See Item 5 of Form 8-K.
\560\ For internal tracking purposes, we propose to add a box to
the cover of Form 6-K for issuers to check if they are voluntarily
submitting the Form 6-K pursuant to the proposed instruction.
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We solicit comment on the proposed instruction. Rather than
encourage more disclosure by foreign private issuers, should we mandate
particular disclosures not required under applicable foreign
requirements? If so, what disclosures should be mandatory? For example,
should we require issuers to report risk factor information similar to
what would be required in Form 10-Q? Should we encourage reporting of
other information about the issuer by enumerating in the proposed
instruction areas of possible interest to investors?
The Commission is also proposing to revise Form 6-K to include four
new

[[Page 67246]]

items in the list of examples of what issuers would disclose on Form 6-
K if the information is disclosed under applicable foreign
requirements. Those items are: (i) changes in the issuer's name; (ii)
material modifications to the rights of security holders; (iii) any
material defaults on indebtedness, material arrearages in dividends and
other material delinquencies; and (iv) departure of the issuer's chief
executive officer, chief financial officer, chief operating officer or
president (or anyone serving those functions). The existing list on
Form 6-K mirrors the events that domestic issuers must report on Form
8-K. Because we are proposing to include these items on Form 8-K, we
are proposing corresponding changes to the Form 6-K list. Each of the
four relates to material events that all reporting issuers, foreign or
domestic, should disclose to their security holders and the market of
on a timely basis.
We seek comment on this revision. Are there reasons to omit any of
the four from the instruction? Should we consider adding other, more
specific, informational items?

E. Solicitation of Comment Regarding Plain English in Exchange Act
Reports

The Commission recently adopted the requirement that Securities Act
prospectuses be drafted in plain English. In the Securities Act
registration system we propose today, investors would look increasingly
to Exchange Act reports for information regarding the registrant. These
proposals also would expand the documents that would be used in
connection with an offering. The concerns that led to the plain English
revisions included the need to read and understand easily the
information that is the basis for the investment decision. Given
today's proposals, these concerns would also seem to apply to Exchange
Act documents that are incorporated by reference into the Securities
Act prospectus. One proposal to require risk factor disclosure in
Exchange Act registration statements and periodic reports also requires
that disclosure be written using plain English principles. We solicit
comment on whether we should extend the plain English requirement to
all materials that are a part of the prospectus, including other parts
of Exchange Act reports that are incorporated by reference into that
document. Would it be more appropriate to extend the plain English
requirements to all Exchange Act periodic reports, regardless of
whether they are incorporated by reference into a Securities Act
registration statement? Should we extend the plain English requirements
only to certain parts of Exchange Act periodic reports, such as the
description of the company's business or the MD&A section?

XII. Staff Review Policy

The Commission staff would continue to review all IPO registration
statements for sufficiency of disclosure. The staff would review Form A
registration statements by certain repeat issuers and Form C
registration statements if they are selected in accordance with its
review criteria.
Form B registration statements would not be reviewed by the staff
before effectiveness. Although the Commission will continue to review
their periodic reports on a regular basis, we see less need for
regulatory supervision at the time of their offerings. We solicit
comment, however, on whether the staff review should apply to Form B
offerings of novel securities. If so, how should ``novel'' be defined
so as to provide certainty as to the possibility of review? If the
Commission staff reviews ``novel'' securities offerings, would those
offerings tend to gravitate to the unregistered market?
Form B registration statements would be screened by the staff
promptly after being filed with the Commission. The staff will
determine whether the offering was eligible to be registered on Form B
⁵⁶¹ and whether the disclosure raises any ``red flags''
concerning compliance with the antifraud provisions of the federal
securities laws. If the offering filed on Form B is not eligible for
registration on Form B, the issuer would have violated Section 5 of the
Act and would be referred to the Division of Enforcement for
appropriate action. If the disclosure raises ``red flags,'' the staff
will conduct an immediate review of the registration statement and take
further action as appropriate.
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\561\ The issuer and the offering must meet the eligibility
requirements set forth in General Instruction I. of Form B.
---------------------------------------------------------------------------

Filings on Form A would be divided into two categories: those
subject to review and those not subject to review. Filings by smaller
and unseasoned issuers would be reviewed by the staff in the same way
they are today. However, medium-sized seasoned issuers may designate
the time and date that their registration statements on Form A would
become effective; these filings obviously would not be subject to staff
review prior to effectiveness. Some commenters on the Concept Release
suggested that the Division disclose its review criteria to provide
more predictability in the offering process.⁵⁶² They noted
that, other than in the case of initial public offerings which are
always reviewed by the staff, the Commission has not chosen to tell
issuers planning an offering what criteria the staff will use to make
its decision about reviewing their registration statements.
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\562\ See, e.g., comment letters, in File No. S7-19-96, from PSA
The Bond Market Trade Ass'n (Nov. 8, 1996); Cleary, Gottlieb, Steen
& Hamilton (Dec. 27, 1996); and the N.Y. State Bar Ass'n (Oct. 25,
1996).
---------------------------------------------------------------------------

We intend to resolve this uncertainty in the case of Form B
offerings by announcing that the staff will not review those offerings.
These registration statements either would be effective upon filing or
would become effective when the issuer chooses. The same would be true
of Form A offerings either made by issuers with a public float greater
than $75 million or made by seasoned issuers incorporating an annual
report on Form 10-K or Form 20-F that has been reviewed previously by
the Commission staff. In addition, we propose not to review certain
offerings by large seasoned foreign government issuers registering on
Schedule B. In all other repeat offerings, we believe that the positive
effects on registration statement disclosure that result from the
possibility of staff review outweigh the cost of uncertainty. As a
result, the Division will not make its review criteria for other
offerings public.
In order to increase efficiency and certainty for issuers, however,
we propose several changes to the staff review process with respect to
Exchange Act filings.

A. Notification of Selection for Review

If the proposals are adopted, the Division staff will begin to
notify the issuer as soon as its Exchange Act reports are selected for
review. This practice would eliminate the concerns expressed by issuers
that they are taken by surprise when they receive a comment letter from
the staff on their Exchange Act filings. The staff also will indicate
in those notification telephone calls approximately when comments, if
any, can be expected to be communicated to the issuer by the staff.

B. Voluntary Pre-Review of Filings

If the proposals are adopted, the Division staff will begin to
consider requests by issuers for the staff to review their Exchange Act
disclosure because the issuer is planning an offering in the near
future. The Commission also reminds issuers that, as always, the
Division is willing to discuss with issuers potential accounting
problems that may arise either in due course or in connection with
unusual transactions.

[[Page 67247]]

Resolution of those issues before filing benefits all interested
parties. ⁵⁶³
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\563\ We would exclude from this policy Exchange Act reports
filed in accordance with requirements of foreign law, such as Forms
40-F and 6-K.
---------------------------------------------------------------------------

This voluntary review option would be available to reporting
issuers that are concerned about receiving a staff comment letter
requesting an amendment to an Exchange Act report that is being
incorporated into a registration statement or that will serve as the
basis for company disclosure in a registration statement. Subject to
obvious limitations on staff resources, the staff will make every
effort to accommodate an issuer's request when made a reasonable period
before an offering. If the staff is unable to accommodate a request,
the issuer will be so advised promptly after the request is made. If
the staff informs the issuer that it is unable to review the issuer's
Exchange Act reports at that time, the staff would not select those
reports for a routine review during the 30 days thereafter. At any time
more than 30 days thereafter, the staff could choose to perform a
routine review of that issuer's reports. At all times, the Commission
staff would reserve the right to review those reports for cause.

XIII. Request for Comments About Investment Company Issuers and
Market Value Adjustment Contracts

A. Investment Company Issuers

Interested persons are asked to submit written comments on how any
aspect of the proposals affects investment companies and on how the
proposals should be modified to reflect the circumstances of investment
companies. For example should the safe harbors for communications
contained in proposed rules 167, 168 and 169 apply to investment
companies or should investment companies be expressly excluded from
these safe harbors? Do the proposals, which generally are tied to the
form on which securities are registered, adequately address delivery
obligations with respect to investment company securities, particularly
the securities of closed-end investment companies?

B. Market Value Adjustment Contracts

Life insurance companies sometimes issue so-called ``market value
adjustment'' contracts, either alone or in combination with a variable
annuity contract. Under a market value adjustment contract, an insurer
promises a contractowner a fixed interest rate, subject to an
adjustment based on prevailing interest rates in the event of early
surrender of the contract. Market value adjustment contracts have been
registered on Form S-1, S-2 or S-3. Under today's proposals, they would
be registered on Form A or B.
We solicit comment on how the proposals affect market value
adjustment contracts and on how the proposals should be modified for
these contracts. For example, what criteria should be used to determine
whether a market value adjustment contract is registered on Form A or
Form B? Is one of these forms more appropriate for all market value
adjustment contracts? Should registration statements on Form B for
market value adjustment contracts be subject to the same rules for time
of filing and time of effectiveness as other Form B registration
statements, or should they be treated similarly to investment company
registration statements? Should the exemption permitting offers to be
made in the pre-filing period apply to market value adjustment
contracts registered on Form B? Should the same delivery requirements
apply to market value adjustment contracts registered on Forms A and B
as apply to other Form A and B offerings, or should market value
adjustment contracts be treated similarly to investment company
securities?

XIV. Cost-Benefit Analysis

The proposed new rules and amendments should modernize and improve
the Commission's regulatory system for offerings under the Securities
Act. We believe our proposals would enhance communications between
public companies and investors, and promote investor protection. In
this section we examine the benefits and costs of the proposed
revisions of the Securities Act and Exchange Act, focusing on the
groups that might be affected. We request that commentators provide
views and supporting information as to the benefits and costs
associated with the proposals.

A. Impact on Investors

We anticipate that the proposed rules and amendments would enhance
investor protection by requiring issuers to deliver information to
investors before they commit to purchasing securities.⁵⁶⁴
Specifically, the proposed rules and amendments would require issuers
registering securities on Form A to deliver preliminary prospectuses to
potential buyers 7 days before pricing for initial public offerings and
3 days before pricing for repeat offerings. Issuers would have to
notify offerees of material changes at least 24 hours before pricing.
For Form B offerings, issuers would be required to deliver term sheets
outlining the key features of the securities before accepting purchases
from customers. In contrast to the proposed rules, the final prospectus
currently is required to be sent to investors before, or at the same
time as, the securities purchased.⁵⁶⁵ Thus investors
typically receive prospectuses after securities sales, rather than when
they are considering the merits of investments. The proposed rules and
amendments would accelerate the delivery of information to investors in
some circumstances, thereby ensuring they receive written information
before investing.
---------------------------------------------------------------------------

\564\ See proposed Securities Act Rule 172, 17 CFR 230.172.
\565\ In initial public offerings, issuers are required to
deliver preliminary prospectuses to investors at least 48 hours
before sending confirmations.
---------------------------------------------------------------------------

The proposed rules and amendments would also enhance the
timeliness, uniformity, and quality of disclosure in Exchange Act
reports by:

Requiring registrants to file summary financial
information on Form 8-K before they file Forms 10-K and 10-Q;
Shortening the period during which foreign private
registrants may file Form 20-F;
Reducing the 15-day filing period for Form 8-K to 5
days, and reducing the 5-day filing period for disclosing
independent accountant and director resignations, material defaults,
dividend arrearages, and delinquencies filed on Form 8-K to 1 day;
Requiring registrants to report additional events on
Form 8-K, including:

--Material modifications to rights of security holders;
--Departures of CEO, CFO, COO or president (or persons in equivalent
positions);
--Material defaults on senior securities (must be disclosed no later
than one day following default);
--notices that reliance on prior audit is no longer permissible, or
that auditor will not consent to use of its report in a Securities
Act filing; ⁵⁶⁶ and
---------------------------------------------------------------------------

\566\ See 17 CFR 228.304 and 17 CFR 229.304.
---------------------------------------------------------------------------

--change in company name.

Altering Form 6-K to:

--Encourage registrants to voluntarily and promptly report current
important information;
--Suggest that registrants report the same events that are reported
pursuant to Form 8-K; and
--Include a signature requirement.

Treating the information in Part I of Forms 10-Q and
10-QSB as ``filed'' for purposes of Section 18 under the Exchange
Act; ⁵⁶⁷ and
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\567\ See proposed revisions to Exchange Act Rules 13a-13(d) and
15d-13(d), 17 CFR 240.13a-13(d) and 17 CFR 240.15d-13(d).

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[[Page 67248]]

Requiring risk factors disclosure in Forms 10-K and 10-
KSB with quarterly updating in Forms 10-Q and 10-QSB.⁵⁶⁸
---------------------------------------------------------------------------

\568\ The proposed revisions would also require issuers to
disclose risk factors in Forms 10, 10-SB, 18, 20-F, and 18-K.

Reducing filing periods and requiring firms to file summary financial
information with the Commission before filing Forms 10-K and 10-Q would
unify and in some instances accelerate the release of information to
investors. The other requirements would enhance the uniformity and
quality of information disseminated to the market and investors.
The Commission is proposing to require that all persons who sign a
firm's registration statements filed under the Securities Act and
reports filed under the Exchange Act certify they have read the filing
and do not know of any material misstatement or omissions of
information in the filing.⁵⁶⁹ The proposals would expand the
number of persons required to sign forms to include the registrant, the
registrant's principal executive officer, principal financial officer,
principal accounting officer, and at least a majority of the
registrant's board.⁵⁷⁰ These revisions would help ensure
that information is adequately reviewed both internally by a
registrant's senior management (and by its board), thereby enhancing
investors' confidence in the quality of the information.
---------------------------------------------------------------------------

\569\ The proposed revisions would affect Forms A, B, C, SB-1,
SB-2, and SB-3 under the Securities Act and Forms 10-K, 10-KSB, 10-
Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, 18, 8-K, and 6-K under the
Exchange Act.
\570\ Foreign private issuers also would need to have an
authorized representative in the United States sign. The proposed
revisions would affect Forms A, B, C, SB-1, SB-2, and SB-3 under the
Securities Act and Forms 10-K, 10-KSB, 10-Q, 10-QSB, 10, 8-A, 10-SB,
20-F, 40-F, and 18 under the Exchange Act. For Forms 8-K and 6-K, we
would require either the registrant's principal executive officer,
principal financial officer, or principal accounting officer to sign
a particular Exchange Act report and certify he or she provided a
copy to board members.
---------------------------------------------------------------------------

The proposed rules and amendments would also improve investors'
access to information by allowing issuers to use ``free writing'' sales
materials before the effectiveness of their registration
statement.⁵⁷¹ Current limitations on communications
originally were intended to focus investors' attention on prospectuses,
whose contents were specified by the Commission. We believe that by
allowing issuers the additional flexibility to communicate with
investors before the effectiveness of a registration statement,
investors may become better informed before making their investment
decisions. These additional communications made during the offering
period would be subject to the provisions of Section 12(a)(2) under the
Securities Act and the antifraud provisions of the Securities and the
Exchange Acts.⁵⁷² Additionally, investors would continue to
have access to issuers' registration statements through the
Commission's Internet web site and several non-governmental web sites.
The Commission recognizes, however, that deregulating communications
may impose an analytical burden on investors. For example, in some
offerings, an investor may need to assemble and assimilate various free
writing documents and Exchange Act materials in order to get the whole
investment picture. We seek comment on whether investors would benefit
overall from issuers communicating with investors during the waiting
period.
---------------------------------------------------------------------------

\571\ See proposed Securities Act Rule 165, 17 CFR 230.165, and
Rule 166, 17 CFR 230.166.
\572\ Under the proposals, Form B offering information would be
subject to liability under Section 11 of the Securities Act.
---------------------------------------------------------------------------

The proposed rules and amendments would improve investors' access
to information by allowing issuers that register offerings on Form B to
communicate with investors before they file a registration statement.
⁵⁷³ The proposed rules and amendments would apply to:

\573\ See proposed Securities Act Rule 166, 17 CFR 230.166.

Large, seasoned companies;
Offerings sold only to QIBs;
Offerings to certain existing shareholders;
Offerings of certain non-convertible investment
securities; and
Certain market making transactions by affiliated
brokers/dealers.

In these instances, the Commission anticipates investors would
benefit from receiving information from issuers during the pre-filing
period, and believes that doing so would not create an investor
protection concern, given the information is subject to the provisions
of Section 12(a)(2) under the Securities Act and the antifraud
provisions of the Securities and the Exchange Acts. ⁵⁷⁴
Moreover, given the abundance of readily accessible information about
large, seasoned public companies, any communications made by them while
in the process of registering an offering are less likely to have a
significant impact by conditioning the market or stimulating interest
in a proposed offering. The Commission, however, recognizes that
deregulating communications may lead to issuers ``hyping'' securities
more than today. We seek comment on whether such activities would
interfere with investors' ability to evaluate offerings objectively.
---------------------------------------------------------------------------

\574\ Under the proposals, Form B offering information would be
subject to liability under Section 11 of the Securities Act.
---------------------------------------------------------------------------

Offerings to QIBs and existing shareholders also may be registered
on Form B. We believe that these investors, due to their experience or
nature, would be less susceptible than other investors to pre-filing
hype about a new offering. For example, under the proposed rules,
issuers may register on Form B an offering of securities to QIBs.
Because of their sophistication, we believe QIBs are more likely than
other investors to be in a position to insist that issuers explain any
information disseminated before the filing of a registration statement.
Similarly, we believe that certain existing shareholders would benefit
from issuers communicating more freely. These investors are likely to
be knowledgeable about the investments in which they would be eligible
to receive additional issuer disclosures during the pre-offering
period. And finally, we believe purchasers of non-convertible
investment grade debt are unlikely to need the additional protections
offered by Form A registration. We understand these securities'
investors buy largely based on ratings and maturities. We request
comment on the accuracy of these views.
The proposed new rules and amendments are designed to increase the
amount of information provided to investors. For example, the proposals
would allow analysts to distribute research reports around the time of
offerings as long as they disclosed potential conflicts of
interest.⁵⁷⁵ Facilitating communication between analysts and
investors would enhance investors' ability to evaluate offerings and
should increase the speed at which the market discovers prices.
---------------------------------------------------------------------------

\575\ See proposed revisions to Securities Act Rules 137, 138,
and 139, 17 CFR 230.137, 230.138, and 230.139.
---------------------------------------------------------------------------

The proposed revisions also would reduce the effects of selected
disclosure by requiring issuers to file all ``free writing'' materials
with the Commission. These materials would then be available to all
investors through our web site. In offerings today, many issuers and
their representatives exclude some investors from roadshows and other
issuer communications. The proposed rules and amendments should put
investors with Internet access on a more equal footing with respect to
receiving written information about the issuer, although issuers might
continue or increase their selective disclosure of oral information. We
request comment

[[Page 67249]]

on whether investors without access to the Internet may be
disadvantaged.
The proposed new rules and amendments would likely expand the
registered investment opportunities available to investors. The
proposed revisions would lower the cost of registering public offerings
which in turn may motivate issuers to shift at least some securities'
sales from the private to the public market. Investors that are
eligible to purchase securities in private placements today would be
able to purchase securities that would be similar to those before, but
would be freely resalable. The information would be subject to the
higher liability standards of Section 11 under the Securities Act.
Investors currently ineligible to purchase securities in private
placements may have new investment opportunities. Shifting securities
offerings from the private to the public market also would likely
increase the liquidity of the public market.
Although it is difficult to estimate the number of offerings or
aggregate amount of securities that might become available to the
public market, we anticipate that larger seasoned issuers would
register some offerings on Form B that otherwise would have been
privately placed, resulting in more offerings becoming available to
non-QIB investors. Smaller, less seasoned issuers would likely register
at least some offerings on Form B that they offer exclusively to QIBs
and to certain existing shareholders, or that are investment grade non-
convertible securities, rather than privately place them, resulting in
more offerings being traded in the public market.⁵⁷⁶ The
Commission recognizes that some smaller, less seasoned issuers,
however, would choose today to register their securities on Form B as
an offering exclusively to QIBs. In these instances, non-QIB investors
under the proposals would not be able to participate in the initial
distribution of securities. We request comment on the extent to which
the proposed rules would integrate the private and public markets and
bifurcate QIB versus non-QIB investment opportunities.
---------------------------------------------------------------------------

\576\ In a study of non-convertible debt, we found that at least
49% of the non-convertible debt issued in the 144A market in the
first half of 1998 would have likely migrated to the public market
under the proposed rules. The evidence indicates yields on privately
placed investment grade securities and securities with registration
rights are essentially the same as yields on registered securities
with similar characteristics. The insignificant yield differential
suggests that investors perceive few differences between these
privately placed and publicly registered securities. Yet issuers pay
as much as 100 basis points in extra issuance costs for privately
placed investment grade securities and securities with registration
rights. Presumably, issuers believe the additional expense is more
than justified by the issuance and timing flexibility provided by
the private market. Under the proposed rules, issuers would have
much of the same flexibility when they register offerings on Form B
that they currently have in the private market. We therefore
anticipate that issuers would sell these securities in the public
rather than private market. See Effects of Streamlined Registration,
Memorandum by the Commission's Office of Economic Analysis (Sept.
18, 1998).
---------------------------------------------------------------------------

One cost to investors of the proposed revisions is that they might
increase investors' analytical burden. The proposed new rules and
amendments would allow Form A issuers with two years of reporting
history to incorporate Exchange Act reports into prospectuses as long
as they deliver the reports with prospectuses to investors. Investors
in these offerings would have to physically compile the delivered
integrated information. The Commission notes that investors have not
complained they are unduly burdened when investing in offerings where
company information is incorporated by reference from the issuer's
Exchange Act reports. The Commission seeks comment from investors as to
whether, as a practical matter, compiling delivered materials that are
incorporated by reference into prospectuses is burdensome to investors.
The Commission seeks comment from investors as to whether, in their
experience, issuers or mutual fund companies have promptly delivered
periodic reports incorporated by reference or, in the mutual fund
context, the Statement of Additional Information, when such materials
were requested. And we seek comment from companies on how often they
receive requests from investors.
The proposed new rules and amendments could also increase
investors' analytical burden if they receive transactional information
in Form B registration statements that is not uniform. In addition,
investors would have the burden of identifying omitted information that
today may be mandated. In general, however, we expect few problems. We
anticipate that issuers and underwriters would use the opportunity to
craft disclosure based on investors' demand and the requirement to
provide material information to investors. The proposed rules do not
change issuers' or underwriters' liability, thus we expect they would
have incentives to present complete and correct transactional
information. The Commission also is proposing to continue mandating the
same company information as today, as well as certain transactional
disclosure items. We request your comments on the accuracy of this
view.
The Commission recognizes that some fraction of the cost savings to
issuers and underwriters reflects a shifting of costs from issuers to
investors, including investment advisers, investment companies, and
retail investors. These costs may include quantifiable costs (such as
printing) and less quantifiable costs (such as time, effort, and
inconvenience). Some portion of the printing costs that Form B
companies would save by not printing and delivering final prospectuses
might be shifted to investors. Under the proposals, prospectuses would
be available to investors through the Commission's web site or issuers'
toll-free telephone numbers. Investors could either rely on
prospectuses' continued availability on the Internet (and not acquire
hard copies), call issuers for free copies or download and print them.
The Commission seeks comment on the assumptions and quantitative
data that should go into estimating the costs to investors of acquiring
prospectuses in Form B offerings. For example, would investors be less
likely to read and use prospectuses if prospectuses are not delivered
and investors have to take extra steps to receive them? What percentage
of investors would contact issuers for free copies of prospectuses?
What percentage of investors would obtain prospectuses through the
Internet? How much does it cost investors in terms of paper, Internet
connection costs, and telephone connection time to download information
and print prospectuses? How likely is it that investors would read
prospectuses ``on-line,'' and if they did so, how much in additional
connection charges would they pay? What are the costs to issuers and
underwriters of printing and delivering prospectuses? What are the
costs of bulk printing of prospectuses through commercial printers
relative to the cost of ``retail printing'' of prospectuses by
individual investors? We request comment on the number of prospectuses
that issuers and underwriters would no longer need to print and deliver
to investors and the size of the resulting cost savings.
The proposed new rules and amendments would allow companies that
currently are ineligible to register offerings on Forms SB-1 and SB-2
to use these forms, and to register business combinations on new Form
SB-3.⁵⁷⁷ One issue that could arise is the quality of the
newly eligible firms' disclosures might be lower than today, because
the small issuer disclosure system, of which

[[Page 67250]]

Forms SB-1 and SB-2 are part, allows companies to register offerings
with less extensive disclosure requirements than those required by
Forms S-1 and S-2. We do not anticipate, however, that classifying
companies with revenues up to $50 million as small business issuers
would harm investors. The information that we have suggests allowing
more firms to file on Forms SB-1 and SB-2 would not cause or allow
firms that otherwise would register on Forms A or B to misrepresent or
omit material information to investors. We request your comments on the
accuracy of this view.
---------------------------------------------------------------------------

\577\ See proposed revisions to Securities Act Rule 405, 17 CFR
230.405.
---------------------------------------------------------------------------

A final concern is that eliminating staff review of offerings
registered on Form B would diminish issuers' incentives to fully and
accurately disclose information in prospectuses. Although the
Commission's staff currently reviews relatively few offerings that
would be registered on Form B under the proposals,⁵⁷⁸ the
possibility of review likely enhances the quality of disclosure. The
Commission agrees that prospectus review is valuable, but believes the
resources currently dedicated to prospectus review might better serve
investors' interests if applied to reviews of Exchange Act reports. As
discussed in the Advisory Committee report, the equity trading markets
are approximately 35 times larger (approximately $5.5 trillion dollars
in 1995) than the primary markets (approximately $155 billion dollars
in 1995).⁵⁷⁹ Given that larger seasoned issuers are followed
by analysts and other providers of information, we believe that
focusing on Exchange Act report reviews would benefit investors. We
request your comments on the accuracy of this view.
---------------------------------------------------------------------------

\578\ See Advisory Committee Report at Appendix A, p. 9, Table
2. The Commission reviewed approximately 15% of prospectuses of
underwritten common equity registered in calendar years 1994 and
1995 on Form S-3, which roughly parallels Form B.
\579\ See Advisory Committee Report at p. 2 and at Addendum to
Appendix A, Fig. 2.
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B. Impact on Issuers

The proposed rules and amendments would change the registration
forms on which issuers register offerings and business combinations.
Issuers would use Forms A, B, and C rather than Forms S-1, F-1, S-2, F-
2, S-3, F-3, S-4, and F-4. Form A would be available to all issuers: It
would roughly parallel current Forms S-1, F-1, S-2, and F-2. Issuers
that would have been reporting companies for at least two years and
that used Form A would be able to incorporate Exchange Act reports by
reference. Form B would be available to larger seasoned issuers; that
is, issuers with either public floats of at least $75 million and ADTVs
of $1 million or public floats of at least $250 million.⁵⁸⁰
Alternatively, issuers could use Form B if they sell securities
exclusively to QIBs and certain existing shareholders, or sell non-
convertible investment grade securities. Issuers would use Form C to
register business combinations. The Commission also is proposing to
revise the definition of small business issuer to increase the revenue
test from $25 to $50 million and remove the public float
test.⁵⁸¹ Firms that meet this test would be eligible to
register offerings on Forms SB-1 and SB-2, and business combinations on
new Form SB-3.
---------------------------------------------------------------------------

\580\ Public float is the aggregate market value of the issuer's
outstanding voting and non-voting common equity held by non-
affiliates of the issuer. See 17 CFR 230.405.
\581\ See proposed revisions to Securities Act Rule 405, 17 CFR
230.405.
---------------------------------------------------------------------------

In the table below, we estimate the impact of the proposed
eligibility requirements on companies' form eligibility based on data
from 1997. We apply the proposed Form A and Form B public float, ADTV,
and reporting history form requirements to the companies that were
publicly traded on the NYSE, AMEX, and NASDAQ market in
1997.⁵⁸² Of the 8,825 companies that were traded on these
exchanges and market in 1997, 5,428 would have been required to
register offerings on Form A under the proposals, unless they sold
securities solely to QIBs and certain existing shareholders, or sold
non-convertible investment grade securities.⁵⁸³ Of those
5,428 companies, 1,075 of the companies would not have been allowed to
incorporate Exchange Act reports by reference on Form A under the
proposals, whereas 4,353 would have been permitted to incorporate
Exchange Act reports by reference. Of the 4,353 companies that would
have been permitted to incorporate Exchange Act reports by reference on
Form A under the proposals, 2,526 were required to register offerings
on Forms S-1 and F-1 in 1997, 400 were required to register offerings
on Forms S-2 and F-2, and 1,427 were required to register offerings on
Forms S-3 and F-3. Under the proposed rules and amendments, 3,397
registrants would have been eligible to register offering on Form B
based on their public floats and ADTVs. Not shown in the table are the
4,087 companies, 1,050 more than today, that would have been eligible
in 1997 to register offerings on Forms SB-1, SB-2, and SB-3 under the
proposed rules.⁵⁸⁴ The impact of these changes on issuers is
discussed below.
---------------------------------------------------------------------------

\582\ Market capitalization was used as a proxy for public
float. We use data from the Center for Research in Security Prices.
We also are proposing to change the requirements for Canadian
foreign private issuers to be eligible for MJDS to roughly conform
with the requirements for Form B. These changes affect Forms F-7, F-
8, F-9, F-10, F-80 and 40-F. We request comment on the impact of the
revisions on these issuers.
\583\ The proposed rules would allow certain Form A issuers with
at least $75 million in public float to go effective whenever they
request. We estimate approximately 1,960 issuers would be eligible
under the proposals.
\584\ See 17 CFR 228.10.

Table: Impact of Proposed Form Requirements on Registrants
----------------------------------------------------------------------------------------------------------------
Form A, no Form A,
incorporation incorporation Form B Total
by reference by reference
----------------------------------------------------------------------------------------------------------------
Form S-1/F-1.................................... 1,075 2,526 0 3,601
Form S-2/F-2.................................... 0 400 0 400
Form S-3/F-3.................................... 0 1,427 3,397 4,824
---------------------------------------------------------------
Total....................................... 1,075 4,353 3,397 8,825
----------------------------------------------------------------------------------------------------------------

We anticipate that the proposed rules and amendments would lower
the cost of raising capital in the public market for many issuers. For
the purposes of the Paperwork Reduction Act, the table in Section XV
summarizes our preliminary estimates of the internal burden hours that
parties would spend to comply with the proposals. We base these
estimates on current burden hour estimates and the staff's experience
with these filings. The estimates in the table

[[Page 67251]]

indicate that public companies would expend approximately 9,106,343
internal burden hours/year complying with the proposals. If we assume
70% of these burden hours would be expended by persons that cost the
affected parties $85/hour and 30% of these burden hours would be
expended by persons that cost $10/hour, then the proposals would cost
approximately $573,699,609/year in internal staff time.⁵⁸⁵
For the purposes of the Paperwork Reduction Act, we also estimate that
parties would spend approximately $4,754,863,050/year on outside
professional help to comply with the proposals. Thus we estimate that
affected parties would spend approximately $5,328,562,659/year to
comply with the proposals. Applying the same cost estimates to the
burden imposed by the current rules, we estimate that issuers would
spend approximately $5,581,739,205/year.⁵⁸⁶ Note that these
estimates do not attempt to quantify the proposals' intangible
benefits, such as the benefits to issuers and investors of enhanced
communications and the greater likelihood that issuers would shift
capital raising from the private to the public market, nor its
intangible costs, such as the cost to security holders of identifying
misleading or incomplete pre-filing information. We request comment on
the reasonableness of our estimates.
---------------------------------------------------------------------------

\585\ These hourly rates translate to annual salaries of
$170,000/year and $20,000/year.
\586\ For the purposes of the Paperwork Reduction Act, we
estimate in the table of Section XV the burden hours imposed on
parties to comply with the current rules. Assuming (as we did for
the proposed rules) that 25% of the hours required to comply with
the rules are provided by corporate staff at a cost of $63/hour (70%
of the expended corporate staff time cost $85/hour, whereas 30% of
the expended corporate staff time cost $10/hour), and 75% of the
hours required to comply with the rules are provided by external
professional help at a cost of $175/hour, we estimate that affected
parties spend approximately 37,971,015 burden hours/year * $147/hour
= $5,581,739,205/year.
---------------------------------------------------------------------------

The proposed rules would allow issuers that otherwise would not be
eligible to register securities on Form B to use Form B if they sold
securities exclusively to QIBs and certain existing shareholders, or
sold non-convertible investment grade securities. Consequently, they
would be able to incorporate Exchange Act reports by reference without
delivering them to investors, and would be able to craft transactional
disclosure, subject to Section 11 liability standards, with fewer
constraints than under the current regime. These changes would lower
issuers' expenses to publicly raise capital. Although we cannot
estimate the number of offerings or aggregate amount of securities that
these issuers might register on Form B rather than on Form A, we
anticipate that they would register at least some offerings on Form B.
If they used Form B, they would also be allowed to communicate with
investors during the pre-offering period. We request your comments,
including any supporting empirical information, on the benefits and
costs to smaller, less seasoned issuers of registering securities on
Form B under the proposed rules.
The proposed rules would simplify larger seasoned issuers'
preparation of Form B by lifting restrictions on
communications,⁵⁸⁷ enhancing these issuers' control over the
timing of public offerings,⁵⁸⁸ and not requiring physical
delivery of a prospectus.⁵⁸⁹ Under the proposed rules, we
would require issuers in Form B offerings to deliver only a term sheet
of the securities' most important features, instead of a full
prospectus. We request comment on the number of Form B offerings in
which issuers would not have to deliver prospectuses, the number of
offerees in these deals, and the percentage of investors that would not
request prospectuses. To the extent investors do not request the
prospectus or information incorporated by reference, or obtain such
information on the Internet, issuers would save mailings costs.
Specifically, how does the difference in costs between the bulk mailing
of prospectuses, under current law, and the on-request mailing of
prospectuses as proposed, affect the potential cost to Form B issuers?
How much would it cost Form B issuers to establish toll-free telephone
numbers? How much would it cost Form B issuers to deliver term sheets?
In Form A offerings, issuers would no longer have to deliver final
prospectuses, but would have to deliver preliminary prospectuses. How
many prospectuses would Form A issuers have to send to offerees? How
does this number compare to the number of investors in these offerings?
Would it cost more or less to send preliminary prospectuses relative to
sending final prospectuses today? We request comment on the benefits
and costs of these revisions to issuers.
---------------------------------------------------------------------------

\587\ See proposed Securities Act Rules 165 and 166, 17 CFR
230.165 and 230.166.
\588\ Offering materials would not be subject to staff review,
and issuers could designate offerings' effective dates. Certain
Schedule B filers also could designate the timing of their
offerings' effectiveness.
\589\ See proposed Securities Act Rules 172 and 173, 17 CFR
230.172 and 230.173.
---------------------------------------------------------------------------

The proposed rules and amendments would increase all issuers'
flexibility to raise capital in a number of ways. The proposals would
allow issuers to ``test the waters'' to gauge investor interest in
offerings, allowing them to withdraw unpopular offerings more quickly
than under the current regime. Issuers would be able to convert more
easily and with less regulatory uncertainty between public and private
offerings,⁵⁹⁰ and would no longer be required to announce
public or private status in ``limited content notices.'' ⁵⁹¹
The Commission would also credit issuers' registration fees if they
withdraw registration statements, and would allow small business
issuers to increase the amount of securities they register on a
statement by 50%, up from 20% today. The Commission is proposing to
permit issuers in the small business issuer system to delay paying
registration statement filing fees until shortly before they sell
securities.⁵⁹² This provision is designed to help ease these
issuers' liquidity concerns. We anticipate these changes would benefit
issuers. We request comment on the reasonableness of this view.
---------------------------------------------------------------------------

\590\ See proposed revisions to Securities Act Rule 152, 17 CFR
230.152.
\591\ See proposed revisions to Securities Act Rules 135c and
135, 17 CFR 230.135c and 230.135.
\592\ See 17 CFR 228.512.
---------------------------------------------------------------------------

These proposed new rules and amendments could slow issuers' access
to the public market in quick offerings because issuers would be
required to deliver preliminary prospectuses in some offerings and term
sheets in others. The proposed rules and amendments would require
issuers registering securities on Form A to deliver preliminary
prospectuses to buyers 7 days before pricing for initial public
offerings and 3 days before pricing for repeat offerings. In addition,
issuers would have to notify offerees of material changes at least 24
hours in advance of pricing. For Form B offerings, issuers would be
required to deliver term sheets outlining the key features of
securities being offered.⁵⁹³
---------------------------------------------------------------------------

\593\ See proposed Securities Act Rule 172, 17 CFR 230.172, and
proposed revisions to Exchange Act Rule 15c2-8, 17 CFR 240.15c2-8.
---------------------------------------------------------------------------

To assess the burden of the proposed Form A delivery requirements
on issuers whose public floats, ADTVs, and reporting histories would
otherwise require them to register offerings on Form A, we examine
whether these issuers' offerings in 1996 would have been slowed by the
proposed restrictions. In the case of non-shelf offerings, very few
deals would have been affected.⁵⁹⁴ In the case of shelf

[[Page 67252]]

offerings, more deals, especially medium-term-note offerings, would
have been slowed by the Form A prospectus delivery
requirements.⁵⁹⁵ In general, however, these offerings are
sold to institutional buyers, and issuers would be eligible to register
offerings on Form B if securities were sold solely to QIBs and certain
existing shareholders, or were non-convertible investment grade
securities. Registration on Form B would eliminate regulatory
uncertainty and Form B issuers would be required to deliver only a
securities term sheet to investors.
---------------------------------------------------------------------------

\594\ We found that 14 non-shelf offerings by 13 issuers would
have been slowed by the proposed Form A delivery requirements. In
all but one case, the requirement to deliver notice of material
changes at least 24 hours in advance of pricing would have caused
the delay. Of course, the current registration regime encourages
issuers to delay filing registration statement amendments, thus it
is unclear as to whether these issuers could have filed their
amendments earlier without incurring additional cost.
\595\ In some cases, as discussed above, firms that currently
use Forms S-3 and F-3 to issue securities from shelves would not
have sufficient public float and ADTV to qualify to use Form B.
These firms would have to meet the preliminary prospectus delivery
requirements for Form A. Here we examine these firms' use in 1996 of
unallocated shelf to see if the proposed prospectus delivery
requirements would have slowed their offerings. In 1996, 187 firms
that were eligible to use Forms S-3 and F-3, but which would not
have been eligible to use Form B took securities off unallocated
shelves. Not all of these offerings, however, would have been
slowed. In roughly \2/3\ of equity deals and \1/3\ of non medium-
term-note (MTN) debt deals, firms file preliminary takedown
prospectuses (red herrings) with the Commission because they market
the deals. Marketing, not regulatory requirements slow these deals.
Such marketing is rare, however, for takedowns in MTN programs.
---------------------------------------------------------------------------

Under the proposals, we would require issuers to file post-
effective amendments for delayed shelf takedowns by the time of first
sale. This requirement would accelerate issuers' filing obligation with
respect to transactional disclosure in prospectus supplements relative
to today. We do not, however, anticipate a substantial increase in
burden on issuers. We ask comment on the reasonableness of this view.

C. Impact on Other Parties

We anticipate that the proposed rules and amendments would on
balance benefit underwriters. The proposed changes would clarify and
expand the current safe harbors for research reports. Analysts would be
allowed to distribute research reports around the time of an offering
as long as potential conflicts of interest were
disclosed.⁵⁹⁶ Thus analysts would be able to continue
servicing their clients, even during offerings.
---------------------------------------------------------------------------

\596\ See proposed revisions to Securities Act Rules 137, 138,
and 139, 17 CFR 230.137, 230.138, and 230.139.
---------------------------------------------------------------------------

The proposed rules and amendments would also remove much of the
burden on issuers and underwriters of delivering final
prospectuses.⁵⁹⁷ We anticipate these parties would
experience tremendous cost savings from this change. The proposed rules
would also facilitate the Commission moving towards quicker clearing
and settling cycles in the future, reducing clearance and settlement
risk to clearing corporations, their members, and public investors. The
proposed rules and amendments would lift the obligation on dealers to
deliver final prospectuses to investors in sales after initial
distributions if final prospectuses are on file with the Commission and
dealers notify investors where they may acquire them.⁵⁹⁸
---------------------------------------------------------------------------

\597\ See proposed Securities Act Rule 173, 17 CFR 230.173.
\598\ See proposed revisions to Securities Act Rule 174, 17 CFR
230.174.
---------------------------------------------------------------------------

The proposed rules, however, could increase the pressure on
underwriters to rapidly review offerings because more offerings would
be eligible to come to market quickly. Although underwriters'
techniques to review offerings have improved since the introduction of
shelf registration in 1982, several commentators on the Concept Release
noted that further deregulation of the registration process could
undermine their ability to influence the contents of issuer disclosure,
leaving them liable for prospectus content. The Commission is proposing
to revise Rule 176 to provide courts better guidance as to whether a
due diligence investigation meets a ``reasonable investigation'' and
``reasonable ground for belief'' standard in a defense against
liability under Sections 11 and 12(a)(2) in a quick offering.
⁵⁹⁹ We also are proposing to extend Rule 176 to cover
liability under Section 12(a)(2) as well as Section 11. We believe the
revisions would provide guidance to underwriters and the courts while
preserving underwriters' as ``gatekeepers.''
---------------------------------------------------------------------------

\599\ See proposed revisions to Securities Act Rule 176, 17 CFR
230.176.
---------------------------------------------------------------------------

For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),⁶⁰⁰ a rule is ``major'' if it has
resulted, or is likely to result in:
---------------------------------------------------------------------------

\600\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

An annual effect on the economy of $100 million or more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment or
innovation.
Commenters should provide empirical data on (a) the annual effect
on the economy; (b) any increase in costs or prices for consumers or
individual industries; and (c) any effect on competition, investment or
innovation. We note that for purposes of the Paperwork Reduction Act,
we estimate the proposals would create an annual information collection
paperwork preparation savings to issuers of more than $100 million. We
request your comments on the reasonableness of this estimate.
In adopting rules under the Exchange Act, Section 23(a) requires
the Commission to consider the impact that rules would have on
competition and to not adopt any rule that would impose a burden on
competition not necessary or appropriate in the public interest.
Section 3(f) of the Exchange Act requires the Commission, when engaged
in rulemaking and required to consider or determine whether the action
is necessary or appropriate in the public interest, to also consider,
in addition to the protection of investors, whether the action would
promote efficiency, competition, and capital formation.⁶⁰¹
---------------------------------------------------------------------------

\601\ 15 U.S.C. Sec. 78c(f).
---------------------------------------------------------------------------

We believe the proposals would lower companies' cost of capital
raising relative to today which would enhance their efficiency and
facilitate capital formation. We anticipate the proposals would promote
investor protection and enhance communications between public companies
and investors, thereby increasing investors' confidence in the
integrity of the securities markets.
To the extent that the proposals would lower the cost of raising
capital in the United States, they could enhance the competitiveness of
issuers that raise capital in the U.S. public capital markets. We
anticipate the proposals also could reduce some of the competitive
disadvantage of small issuers that today register offerings on Forms S-
1, SB-1, and SB-2 relative to larger firms. Given that the proposals
would (1) allow small issuers to raise capital from QIBs and certain
existing shareholders, or sell non-convertible investment grade
securities using Form B; (2) allow small businesses to incorporate
Exchange Act reports by reference into registration statements as long
as they deliver the reports with prospectuses to investors; and (3)
allow certain Form A issuers' registration statements to go effective
immediately if they are reporting companies for at least two years and
have public floats of at least $75 million, we believe small companies'
competitiveness could be enhanced relative to today.
The proposals to revise Rule 176 to provide courts better guidance
as to whether a due diligence investigation meets a ``reasonable
investigation'' and ``reasonable ground for belief'' standard

[[Page 67253]]

in a defense against liability under Sections 11 and 12(a)(2) in a
quick offering could, however, put underwriters that do not have in-
house analysts at a competitive disadvantage relative to other
underwriters. The revision would allow underwriters to cite the
employment and consultation of research analysts that are actively
involved in an issuer's industry as a positive factor for the courts to
consider when deciding whether underwriters' investigations are
reasonable. Underwriters that cannot rely on this factor may be
somewhat at a competitive disadvantage in underwriting quick offerings.
We request comment on the significance of this disadvantage.
As discussed above, the Commission anticipates that the proposed
rules and amendments would reduce the cost of raising capital in the
public market, promoting efficiency, competition, and capital
formation. The Commission requests comment on these preliminary views
and encourages commentators to provide empirical data and other facts
to support their views. We request data and analysis on the effect of
the proposed changes on efficiency and capital formation. The
Commission also requests comments on the competitive effects that may
impact market participants under the proposed amendments.

XV. Initial Regulatory Flexibility Analysis

We prepared this Initial Regulatory Flexibility Analysis under 5
U.S.C. Sec. 603 concerning the new rules, forms, and amendments
proposed today. We will consider your written comments in the
preparation of the final analysis.

A. Reasons and Objectives for Proposed Action

The purpose of the proposed new rules, forms, and amendments is to
modernize, rationalize, and clarify the Commission's regulatory system
for offerings under the Securities Act of 1933, enhance communications
between public companies and investors, and promote investor
protection.

B. Objectives and Legal Basis

We propose the new rules, forms, and amendments to the Commission's
existing rules and forms pursuant to Sections 2(b), 6, 7, 8, 10, 19(a),
and 28 of the Securities Act, as amended and Sections 3, 4, 10, 12, 15,
23, and 36 of the Exchange Act.

C. Small Entities Subject to the Rules

The proposed rules and amendments would affect small entities that
are required to file registration statements and reports under the
Securities Act, Exchange Act, and the Investment Company Act. For the
purposes of the Regulatory Flexibility Act, the Securities Act and
Exchange Act define a ``small business'' issuer, other than an
investment company, to be an issuer that, on the last day of its most
recent fiscal year, had total assets of $5 million or
less.⁶⁰² When used with respect to an issuer that is an
investment company, the term is defined as an investment company and
any related investment company with aggregate net assets of $50 million
or less as of the end of its most recent fiscal year.⁶⁰³
---------------------------------------------------------------------------

\602\ See 17 CFR 230.157 and 17 CFR 240.0-10.
\603\ See 17 CFR 240.0-10.
---------------------------------------------------------------------------

We currently are aware of approximately 1,100 reporting companies
that are not investment companies with assets of $5 million or less.
There are approximately 400 investment companies that satisfy the
``small entity'' definition. All of these companies would be subject to
the proposed rules, forms, and amended rules. We have no reliable way,
however, to determine how many businesses may become subject to
Commission reporting obligations in the future, or may otherwise be
impacted by the changes.

D. Reporting, Recordkeeping, and Other Compliance Requirements

For the most part, the proposals are deregulatory in nature,
modernizing, rationalizing, and clarifying the Commission's regulatory
system for offerings under the Securities Act and enhancing
communications between public companies and investors. Under the
proposed rules, small businesses would report and file essentially the
same information as today, although more small companies would be
eligible for the small business disclosure system's streamlined
reporting. The Commission also is proposing a new small business
combination form, Form SB-3. One exception to this generalization is
the Commission would require issuers, both large and small, to file
written communication used during the waiting period in a securities
offering. The proposed rules and amendments also could change small
issuers' recordkeeping of prospectus delivery to investors. Our
preliminary view is that any additional recordkeeping burden resulting
from our proposals for prospectus delivery would be minimal. To the
extent that underwriters and issuers collect information to contact
potential investors and collect information to send prospectuses and
confirmations under the existing rules, we do not anticipate the
proposals would impose a significant additional burden on underwriters
and issuers. We request comment, however, on the accuracy of this view.

E. Significant Alternatives

The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish the stated objectives,
while minimizing any significant adverse impact on small issuers. In
connection with the proposed rules forms, and amendments, we considered
several alternatives, including:
Establishing different compliance and reporting
requirements or timetables that take into account the resources of
small businesses;
Clarifying, consolidating or simplifying compliance and
reporting requirements under the rule for small businesses;
Using performance rather than design standards; and
Exempting small businesses from all or part of the
requirements.
In a number of instances, the proposed rules, forms, and amendments
would reduce the burden of complying with the Securities Act and
Exchange Act to both large and small businesses. We propose to allow
issuers to simultaneously register offerings under the Securities Act
and classes of securities under the Exchange Act by checking a box on
their Securities Act registration statements.⁶⁰⁴ The
revision would reduce the number of issuer filings. And the proposed
rules and amendments would reduce uncertainty regarding staff review of
Exchange Act reports through notification of review and pre-review. The
proposed rules would allow issuers, both large and small, to raise
capital from QIBs and certain existing shareholders, or sell non-
convertible investment grade securities using Form B. These issuers
would be able to incorporate Exchange Act reports by reference without
necessarily delivering them to investors, and would be able to craft
transactional disclosure, subject to Section 11 liability standards,
with fewer constraints than under the current regime. These changes
should lower issuers' expenses to publicly raise capital.
---------------------------------------------------------------------------

\604\ See proposed Securities Act Rule 499, 17 CFR 230.499, for
Schedule B filers and proposed revisions to Exchange Act Rule 12d1-
2, 17 CFR 240.12d1-2.
---------------------------------------------------------------------------

The proposed rules and amendments would increase all issuers'
flexibility to raise capital in a number of ways. The

[[Page 67254]]

proposals would allow issuers to ``test the waters'' to gauge investor
interest in offerings, allowing them to withdraw unpopular offerings
more quickly than under the current regime. Issuers would be able to
convert more easily and with less regulatory uncertainty between public
and private offerings,⁶⁰⁵ and would no longer be required to
announce public or private status in ``limited content notices.''
⁶⁰⁶ The Commission would credit issuers' registration fees
if they withdraw registration statements. We anticipate these changes
would benefit small issuers.
---------------------------------------------------------------------------

\605\ See proposed revisions to Securities Act Rule 152, 17 CFR
230.152.
\606\ See proposed revisions to Securities Act Rules 135c and
135, 17 CFR 230.135c and 230.135.
---------------------------------------------------------------------------

The proposals would also relax many of the restrictions on
communications between issuers and investors and clarify any remaining
limitations. Issuers would be able to more freely promote and sell
securities to investors, subject to the provisions of Section 12(a)(2)
under the Securities Act and the antifraud provisions of Rule 10b-5
under the Exchange Act.⁶⁰⁷ Specifically, the proposed rules
and amendments would allow all issuers to communicate freely with
investors after registration statements are filed.⁶⁰⁸ During
the pre-filing period, issuers of offerings registered on Forms A, SB-
1, and SB-2 and unregistered offerings would be somewhat limited in
their ability to communicate with investors, but the proposed rules
would clearly define the length of the period and would delineate the
types of communications permitted and prohibited.⁶⁰⁹ These
changes would enhance small businesses' communications with investors
and reduce regulatory uncertainty.
---------------------------------------------------------------------------

\607\ Under the proposals, Form B offering information would be
subject to liability under Section 11 of the Securities Act.
\608\ See proposed Securities Act Rule 425, 17 CFR 230.425.
\609\ See proposed Securities Act Rules 167, 168, and 169, 17
CFR 230.167, 230.168, and 230.169.
---------------------------------------------------------------------------

The proposed rules and amendments explicitly would reduce the
impact on small businesses complying with the provisions of the
Securities Act by allowing seasoned small businesses to incorporate
Exchange Act reports by reference into the small business registration
forms as long as they deliver the reports with prospectuses to
investors. This provision should save issuers time and money. For
example, we estimate issuers would spend approximately 533, or 343
fewer, burden hours preparing Form SB-2 registration statements under
the proposed rules than today.⁶¹⁰ The Commission is
proposing to allow more issuers to qualify for the small business
disclosure system and to allow small business issuers to register
business combinations and exchange offers on a new form, Form SB-3.
Form SB-3 is designed to simplify and streamline the information that
small businesses must disclose when they combine with other firms. As
discussed in detail in Section XV, we estimate small business issuers
would expend approximately 1,095 burden hours to file business
combinations on Form SB-3,⁶¹¹ or $163,155/filing in labor
costs. Relative to filing on Forms S-4 or F-4 today, we estimate these
issuers would save approximately 149 burden hours/filing or $22,201/
filing in labor costs. The Commission also is proposing to permit
issuers in the small business issuer system to delay paying
registration statement filing fees until shortly before they sell
securities.⁶¹² This provision is designed to help ease these
issuers' liquidity concerns. Small business issuers also would gain
approximately $166/filing in interest because they would be able to
defer paying registration fees.⁶¹³ Finally, the Commission
would allow small business issuers to increase the amount of securities
they register on a statement by 50%, up from 20% today.
---------------------------------------------------------------------------

\610\ See the detailed discussion in Section XV of this release.
\611\ We base this estimate on the number of burden hours
required to file Form SB-2 under the proposals relative to the
number of burden hours required to file Form A. We then reduce the
number of burden hours required today to file Form C by this ratio.
Specifically, we estimate the number of hours required to file Form
SB-3 under the proposed rules would be [(533 burden hours/SB-2
filing under the proposals / 606 burden hours/Form A filing under
the proposals) * 1,244 burden hours/Form C filing under the
proposals = 1,095 burden hours/SB-3 filing.
\612\ See 17 CFR 228.512.
\613\ In fiscal year 1998, small business issuers filed
registration statements an average of 103 days before effectiveness.
On average, these issuers raised $13,068,000/filing. At an interest
rate of 15%/year, which the staff believes small firms could be
required to pay, and Commission filing fees of 0.03% per dollar of
capital raised, these issuers would have saved $166/filing on
average in interest if they had been able to postpone paying their
registration fee.
---------------------------------------------------------------------------

The proposed rules and amendments could impose additional
analytical burdens on investors that qualify as small entities, such as
some investment companies and investment advisors. As discussed in
Section XV, the proposed rules and amendments would allow issuers to
communicate, including using written sales materials, with investors,
both large and small, after registering offerings with the Commission.
We seek comment on whether small investors would benefit overall from
issuers communicating with investors during the waiting period. The
proposed new rules and amendments also would allow Form A issuers with
two years of reporting history to incorporate Exchange Act reports into
prospectuses as long as they deliver the reports with prospectuses to
investors. Investors in these offerings would have to physically
compile the delivered integrated information. The Commission seeks
comment from investors as to whether, as a practical matter, compiling
delivered materials that are incorporated by reference into
prospectuses would be burdensome to small investors. Finally, the
proposals could also increase small investors' analytical burden if
they receive transactional information in Form B registration
statements that is not uniform in presentation from offering to
offering. We request your comments on whether some issuer flexibility
in crafting Form B transactional disclosure would unduly burden small
investors.
As discussed in Section XV, the Commission recognizes that some
portion of the printing costs that Form B companies would save by not
printing and delivering final prospectuses might be shifted to small
investors. Under the proposals, prospectuses would be available to
investors through the Commission's web site or through issuers' toll-
free telephone numbers. Small investors could either rely on
prospectuses' continued availability on the Internet (and not acquire
hard copies), call issuers for free copies or download and print them.
The Commission seeks comment on whether the proposed revisions would
unduly burden small investors.
We did not propose all of the alternatives that we considered. In
some instances, the alternatives we chose not to propose would be
inconsistent with our statutory mandate to require prospectuses to
disclose fully and fairly all material information to investors. In
other instances, the alternatives would significantly reduce the
quality and timeliness of Exchange Act report information, depriving
shareholders of an important means to evaluate investments. We believe
that except in the specific instances, such as in the case of the small
business disclosure system and Form B disclosure requirements, the
proposed rules, forms, and amendments should apply equally to all
entities required to disclose information to enhance protection of all
investors. For these reasons, we also believe there would be no benefit
in providing separate requirements for small issuers based on the use
of

[[Page 67255]]

performance rather than design standards.

F. Overlapping or Conflicting Federal Rules

We do not believe any current federal rules duplicate, overlap or
conflict with the rules, schedules, and amendments that we propose to
amend.
We request your written comments on any aspect of this Initial
Regulatory Flexibility Analysis. We particularly seek comment on:
The number of small entities that would be affected by the
proposed rules, forms, and amendments;
The expected impact of the proposals as discussed above;
and
How to quantify the number of small entities that would be
affected by, and how to quantify the impact of, the proposed rules,
forms, and amendments.

We ask commentators to describe the nature of any impact and provide
empirical data supporting the extent of the impact.

XVI. Paperwork Reduction Act

The proposed rules and amendments affect several regulations and
forms that contain ``collection of information requirements'' within
the meaning of the Paperwork Reduction Act of 1995.⁶¹⁴ The
Commission has submitted proposed revisions to those rules and Forms to
the Office of Management and Budget (``OMB'') for review in accordance
with 44 U.S.C. Sec. 3507(d) and 5 CFR 1320.11. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.
---------------------------------------------------------------------------

\614\ 44 U.S.C. Sec. 3501 et seq.
---------------------------------------------------------------------------

The proposed new rules, forms, and amendments would modernize,
rationalize, and clarify the Commission's regulatory system for
offerings under the Securities Act of 1933, enhance communications
between public companies and investors, and promote investor
protection. The proposed forms and regulations set forth the
disclosures that the Commission would require issuers to make about
themselves and their securities offerings to the public. The
requirements of the forms would largely be the same as today, except
for a few changes that are discussed in detail below and in Section
XIII. The information is needed so that prospective investors may make
informed investment decisions both in registered offerings and in
secondary transactions of registered securities. The information
collection requirements imposed by the forms and regulations would be
mandatory to the extent that companies are publicly owned and offer
securities to the public. There would be no mandatory retention period
for the information disclosed, and the information gathered would be
made publicly available.
Form S-1 under the Securities Act (OMB Control Number 3235-0065) is
used by issuers that are not eligible to use other forms to register
offerings of securities.⁶¹⁵ The form sets forth the
transactional and company information required by the Commission in
securities offerings. Form S-2 under the Securities Act (OMB Control
Number 3235-0072) is used by issuers that have reported under the
Exchange Act for a minimum of three years and have timely filed all
required reports during the 12 calendar months and any portion of the
month immediately preceding the filing of the registration statement to
register offerings of securities. The form sets forth the transactional
and company information required by the Commission in securities
offerings. It permits incorporation by reference of Exchange Act
reports. Delivery of these incorporated documents as well as the
prospectus to investors may be required. Form S-3 under the Securities
Act (OMB Control Number 3235-0073) is used by issuers that have
reported under the Exchange Act for a minimum of twelve months and have
met the timely filing requirements set forth under Form S-3 (also, the
offering and issuer must meet the eligibility tests prescribed by the
form) to register offerings of securities. The form sets forth the
transactional and company information required by the Commission in
securities offerings. It permits incorporation by reference of Exchange
Act reports. Form F-1 under the Securities Act (OMB Control Number
3235-0258) is used by foreign private issuers that are not eligible to
use other forms to register offerings of securities. The form sets
forth the transactional and company information required by the
Commission in securities offerings. Form F-2 under the Securities Act
(OMB Control Number 3235-0257) is used by foreign private issuers that
have reported under the Exchange Act for a minimum of three years or
have an equity float of at least $75 million worldwide or are
registering non-convertible investment grade securities to register
offerings of securities. The form is somewhat shorter than Form F-1
because it uses delivery of filings made by the issuer under the
Exchange Act, particularly Form 20-F. Form F-3 under the Securities Act
(OMB Control Number 3235-0256) is used by foreign private issuers that
have reported under the Exchange Act for a minimum of twelve months and
that have a worldwide public market float of more than $75 million (the
form also may be used by eligible foreign private issuers to register
offerings of non-convertible investment grade securities, securities to
be sold by selling security holders, or securities to be issued to
certain existing security holders) to register offerings of securities.
The form allows issuers to incorporate Exchange Act reports by
reference. Form SB-1 under the Securities Act (OMB Control Number 3235-
0423) is used by small business issuers, as defined in Rule 405 of the
Securities Act, to register offerings of up to $10 million of
securities in a continuous 12-month period. The form sets forth the
transactional and company information required by the Commission in
securities offerings. It requires less detailed information about the
issuer's business than Form S-1. Form SB-2 under the Securities Act
(OMB Control Number 3235-0418) is used by small business issuers, as
defined in Rule 405 of the Securities Act, to register securities
offerings. The form sets forth the transactional and company
information required by the Commission in securities offerings. It
requires less detailed information about the issuer's business than
Form S-1. Form S-4 under the Securities Act (OMB Control Number 3235-
0324) is used by issuers to register securities offerings in connection
with business combinations and exchange offers. The form sets forth the
transactional and company information required by the Commission in
securities offerings. Form F-4 under the Securities Act (OMB Control
Number 3235-0325) is used by issuers to register securities offerings
in connection with business combinations and exchange offers involving
foreign private issuers. The form sets forth the transactional and
company information required by the Commission in securities offerings.
Form F-7 under the Securities Act (OMB Control Number 3235-0383) is
used by publicly traded Canadian foreign private issuers to register
rights offers extended to their U.S. holders. To be registered on Form
F-7, the rights must be granted to U.S. shareholders on terms no less
favorable than those extended to other shareholders. Form F-8 under the
Securities Act (OMB

[[Page 67256]]

Control Number 3235-0378) is used by large publicly traded Canadian
foreign private issuers to register securities offerings in connection
with business combinations and exchange offers. To be registered on
Form F-8, the securities must be offered to U.S. shareholders on terms
no less favorable than those extended to other holders. Form F-9 under
the Securities Act (OMB Control Number 3235-0377) is used by large
publicly traded Canadian foreign private issuers to register non-
convertible investment grade securities. Form F-10 under the Securities
Act (OMB Control Number 3235-0380) is used by large publicly traded
Canadian foreign private issuers to register any securities offerings,
except certain derivative securities. Unlike Forms F-7, F-8, F-9, and
F-80, however, Form F-10 requires the Canadian issuer to reconcile its
financial statements to U.S. GAAP. Form F-80 under the Securities Act
(OMB Control Number 3235-0404) is used by large publicly traded
Canadian foreign private issuers to register securities offerings in
connection with business combinations and exchange offers. To be
registered on Form F-80, the securities must be offered to U.S. holders
on terms no less favorable than those extended to other holders.
Schedule B under the Securities Act is used by Foreign governments or
political subdivisions thereof to register securities offerings.
Generally, it contains a description of the country and its government,
the terms of the offering, and the uses of proceeds. Form S-8 under the
Securities Act (OMB Control Number 3235-0066) is used by issuers to
register securities for offer and sale to employees in a compensatory
or incentive context. Form A under the Securities Act (OMB Control
Number to be determined) would be used by issuers that are not eligible
to use other forms to register offerings of securities. The form would
set forth the transactional and company information required by the
Commission in securities offerings. Form B under the Securities Act
(OMB Control Number to be determined) would be used by issuers that
have reported under the Exchange Act for a minimum of twelve months and
that have public floats of at least $75 million and ADTVs of $1 million
or public floats of at least $250 million (alternatively, issuers could
use Form B if they sell securities exclusively to QIBs and certain
existing shareholders or register non-convertible investment grade
securities) to register offerings of securities. These issuers would be
able to incorporate Exchange Act reports by reference without
necessarily delivering them to investors, and would be able to craft
transactional disclosure, subject to Section 11 liability standards and
some itemized requirements, with fewer constraints than under the
current Form S-3. Form C under the Securities Act (OMB Control Number
to be determined) would be used by issuers to register securities
offerings in connection with business combinations and exchange offers.
The form would set forth the transactional and company information
required by the Commission in securities offerings. Form SB-3 under the
Securities Act (OMB Control Number to be determined) would be used by
small business issuers, as defined in Rule 405 of the Securities Act,
to register securities offerings in connection with business
combinations and exchange offers. The form would set forth the
transactional and company information required by the Commission in
securities offerings. It would require less detailed information about
the issuer's business than Form A.
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\615\ Regulations S-K and S-B do not impose reporting burdens
directly on public companies. For administrative convenience, each
of these regulations is currently assigned one burden hour. The
burden hours imposed by the disclosure regulations are currently
included in the estimates for the forms that refer to the
regulations.
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Form 10 under the Exchange Act (OMB Control Number 3235-0064) is
used by registrants to file classes of securities. It requires certain
business and financial information about the issuer. Form 8-A under the
Exchange Act (OMB Control Number 3235-0056) is an optional short form
used by issuers to file classes of securities. Form 10-SB under the
Exchange Act (OMB Control Number 3235-0419) is used by small business
issuers, as defined in Rule 12b-2 of the Exchange Act, to file classes
of securities. This form requires slightly less detailed information
about the issuer's business than Form 10 requires. Form 20-F under the
Exchange Act (OMB Control Number 3235-0288) is used by foreign private
issuers to register securities or file annual reports. Form 40-F under
the Exchange Act (OMB Control Number 3235-0381) is used by Canadian
foreign private issuers to register securities or file annual reports.
Form 18 under the Exchange Act (OMB Control Number 3235-0121) is used
by foreign governments or political subdivisions thereof to register
securities on a national securities exchange. Form 10-K under the
Exchange Act (OMB Control Number 3235-0063) is used by registrants to
file annual reports. It provides a comprehensive overview of the
registrant's business. Form 10-KSB under the Exchange Act (OMB Control
Number 3235-0420) is used by small business registrants, as defined in
Rule 12b-2 of the Exchange Act, to file annual reports. It provides a
comprehensive overview of the registrant's business, although its
requirements call for slightly less detailed information than required
by Form 10-K. Form 18-K under the Exchange Act (OMB Control Number
3235-0120) is used by foreign governments or political subdivisions
thereof to file annual reports. Form 10-Q under the Exchange Act (OMB
Control Number 3235-0070) is used by registrants to file quarterly
reports. It includes unaudited financial statements and provides a
continuing view of the registrant's financial position during the year.
The report must be filed for each of the first three fiscal quarters of
the registrant's fiscal year. Form 10-QSB under the Exchange Act (OMB
Control Number 3235-0416) is used by small business registrants, as
defined in Rule 12b-2 of the Exchange Act, to file quarterly reports.
It includes unaudited financial statements and provides a continuing
view of the registrant's financial position during the year. The report
must be filed for each of the first three fiscal quarters of the
registrant's fiscal year. Form 8-K under the Exchange Act (OMB Control
Number 3235-0060) is used by registrants to report the occurrence of
material events or corporate changes. Form 6-K under the Exchange Act
(OMB Control Number 3235-0116) is used by foreign private issuers to
report information: (i) Required to be made public in the country of
its domicile; (ii) filed with and made public by a foreign stock
exchange on which its securities are traded; or (iii) distributed to
security holders. The report must be furnished promptly after such
material is made public. Issuers would also file under Rule 425 of the
Securities Act (OMB Control Number to be determined) written
communications (other than required registration statements) about
pending offerings.
In addition to affecting these collections of information, the
proposed rules and amendments also could change issuers' recordkeeping
of prospectus delivery to investors and impose a new burden of tracking
their ``first offers'' in Form B offerings. Our preliminary view is
that any additional recordkeeping burden resulting from our proposals
for prospectus delivery would be minimal. To the extent that
underwriters and issuers collect information to contact potential
investors and collect information to send prospectuses and
confirmations under the existing rules, we do not anticipate the
proposals would impose a significant additional burden on underwriters
and issuers. We request comment, however, on the accuracy of

[[Page 67257]]

this view. We also do not anticipate that requiring issuers to keep
information provided to investors fifteen days before the first offer
and any information used throughout the offering period would impose a
significant burden on issuers. Issuers would only have to keep the
information until they file it with us. Thus issuers might not have to
keep it longer than the date of their first offer because they can file
their registration statement with us at that time. The longest issuers
would have to keep the information would be the length of the offering
period, plus 15 days, since the latest they can file the registration
statement is at first sale. We request comment and any supporting data
on the burden that these requirements would impose on issuers and
underwriters.
We anticipate that the proposed rules and amendments would lower
the cost of raising capital in the public market for many issuers. For
the purposes of the Paperwork Reduction Act, the table below summarizes
our preliminary estimates of the burden hours that parties would spend
to comply with the proposals. We base these estimates on current burden
hour estimates and the staff's experience with these filings. The
estimates in the table indicate that parties would expend approximately
9,106,343 burden hours/year to comply with the proposals. In addition,
as discussed in more detail below, we estimate that parties would spend
approximately $4,754,863,050/year on outside professional help to
comply with the proposals. Note that these estimates do not attempt to
quantify the proposals' intangible benefits, such as the benefits to
issuers and investors of enhanced communications and the greater
likelihood that issuers would shift capital raising from the private to
the public market, nor its intangible costs, such as the cost to
security holders of identifying misleading or incomplete pre-filing
information. We request comment on the reasonableness of our estimates.

Table: Burden Hour Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated burden hours/filing Estimated filings/year Estimated burden hours/year
-----------------------------------------------------------------------------------------------
Form Before After
Before After Before After revisions (E) revisions (F)
revisions (A) revisions (B) revisions (C) revisions (D) = A*C = B*D
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-1..................................................... 1,267 0 1,136 0 1,439,312 0
S-2..................................................... 470 0 152 0 71,440 0
S-3..................................................... 398 0 3,890 0 1,548,220 0
F-1..................................................... 1,868 0 139 0 259,652 0
F-2..................................................... 559 0 1 0 559 0
F-3..................................................... 166 0 172 0 28,552 0
SB-1.................................................... 710 178 8 8 5,680 1,424
SB-2.................................................... 876 138 414 559 362,664 77,142
S-4..................................................... 1,233 0 3,701 0 4,563,333 0
F-4..................................................... 1,308 0 677 0 885,516 0
F-7..................................................... 2 1 1 1 2 1
F-8..................................................... 2 1 16 16 32 16
F-9..................................................... 420 105 12 12 5,040 1,260
F-10.................................................... 420 105 45 45 18,900 4,725
F-80.................................................... 2 1 2 2 4 2
Schedule B.............................................. 0 0 33 33 0 0
S-8..................................................... 46 12 5,597 5,261 257,462 63,132
A....................................................... 0 152 0 2,616 0 397,632
B....................................................... 0 75 0 3,067 0 230,025
C....................................................... 0 311 0 3,984 0 1,239,024
SB-3.................................................... 0 280 0 394 0 110,320
10...................................................... 95 24 124 124 11,780 2,976
8-A..................................................... 7 7 2,293 0 15,363 0
10-SB................................................... 90 23 162 162 14,580 3,726
20-F.................................................... 1,991 498 908 908 1,807,828 452,184
20-FR................................................... 95 24 99 99 9,405 2,376
40-F.................................................... 1,991 498 121 121 240,911 60,258
40-FR................................................... 95 24 15 15 1,425 360
18...................................................... 8 2 0 0 0 0
10-K.................................................... 1,723 431 10,392 9,342 17,905,416 4,026,402
10-KSB.................................................. 1,179 295 2,591 3,641 3,054,789 1,074,095
18-K.................................................... 8 2 38 38 304 76
10-Q.................................................... 144 36 29,551 26,401 4,255,344 950,436
10-QSB.................................................. 131 33 7,521 10,671 985,251 352,143
8-K..................................................... 5 5 27,519 69,087 137,595 345,435
6-K..................................................... 8 8 10,582 11,000 84,656 88,000
Filings under Rule 425.................................. 0 0.25 0 10,628 0 2,657
-----------------------------------------------------------------------------------------------
Total................................................... .............. .............. .............. .............. 37,971,015 9,106,343
--------------------------------------------------------------------------------------------------------------------------------------------------------

The Commission's experience indicates that allowing small companies
to register offerings on Forms SB-1 and SB-2 reduces issuers'
disclosure burden hours and cost. The proposed rules and amendments
would therefore save time and money for 1,050 companies--companies that
would become newly eligible to register offerings on Forms SB-1, SB-2,
and SB-3 under the proposed rules and amendments. ⁶¹⁶ Among
those affected would be (1) non-

[[Page 67258]]

reporting companies with revenues between $25 and $50 million that plan
to register initial public offerings under the Securities Act or
propose to register under the Exchange Act, (2) non-reporting companies
with revenues under $25 million but public float over $25 million,
because the public float test would be eliminated, and (3) reporting
companies that would remain in the small business disclosure system
longer than under the current system.
---------------------------------------------------------------------------

\616\ See proposed revisions to Securities Act Rule 405.
---------------------------------------------------------------------------

In fiscal year 1998, issuers registered eight offerings on Form SB-
1. Given the limited use of this form, we do not expect any additional
filings on this form under the proposed rules and amendments. Under the
proposed rules, we estimate issuers would require 710 hours to file
Form SB-1, the same as today. ⁶¹⁷ Of the 710 hours, we
estimate that 25% (178 internal burden hours) would be provided by
corporate staff, and 75% (532 hours) by external professional help. In
addition, we anticipate filers would spend, at an estimated $175/hour,
approximately $93,100/filing in professional labor costs to file Form
SB-1.⁶¹⁸ We request your comments and supporting empirical
information on the reasonableness of these estimates.
---------------------------------------------------------------------------

\617\ The numbers in Column B of the Table differ significantly
from those in Column A of Table 2 because the estimated burden hours
in Column A include the estimated corporate burden hours and outside
labor hours that parties would require to file information
statement. In Column B, we estimate only the corporate burden hours
needed to file information statements (we estimate separately the
expense, in dollar terms, of outside labor).
\618\ We estimate filers would spend $93,100/filing in
professional labor costs. We base this estimate on 532 hours of
professional labor/Form SB-1 *$175/hour. In aggregate, we estimate
that filers would spend $744,800/year to file 8 Form SB-1s/year.
---------------------------------------------------------------------------

In fiscal year 1998, issuers registered 414 offerings on Form SB-2.
In addition to these filings, we expect an additional 143 filings/year,
for a total of 559 filings/year, on Form SB-2 because more firms would
be eligible to use Form SB-2 under the proposed rules and
amendments.⁶¹⁹ Under the current rules, issuers expend
approximately 876 hours to register securities on Form SB-2, which does
not allow issuers to incorporate Exchange Act reports by reference. The
proposed rules and amendments would allow seasoned issuers to
incorporate Exchange Act reports by reference into Form SB-2
registration statements as long as they deliver the reports with
prospectuses to investors. We anticipate this provision would save
issuers time and money. We anticipate approximately 330 (59%) of the
559 filings/year would incorporate Exchange Act reports by reference
under the proposed rules, whereas 229 (41%) would not.⁶²⁰
Under the proposed rules, we estimate issuers would require 876 hours
to file Form SB-2 if they cannot incorporate Exchange Act reports by
reference under the proposals, and approximately 324 hours if they
can.⁶²¹ On average, we estimate small business issuers would
spend approximately 550 hours preparing Form SB-2 registration
statements under the proposed rules than today. ⁶²² Of the
550 hours, we estimate that 25% (138 internal burden hours) would be
provided by corporate staff, and 75% (412 hours) by external
professional help. We anticipate filers would spend, at an estimated
$175/hour, approximately $72,100/filing in professional labor costs to
file Form SB-2.⁶²³ We request your comments and supporting
empirical information on the reasonableness of these estimates.
---------------------------------------------------------------------------

\619\ We base this estimate on the number of firms that would be
eligible to register offerings on Form SB-2 under the proposals
relative to the number of firms that are eligible to register
offerings on Form SB-2 today, and on the number of SB-2 filings in
fiscal year 1998. Specifically, we estimate the number of SB-2
filings under the proposals would be (4,087 firms eligible to
register on Form SB-2 under the proposals/3,037 firms eligible to
register on Form SB-2 today) *414 SB-2 filings/year today=559 SB-2
filings/year.
\620\ We base this estimate on the number of repeat offerings
registered on Form SB-2 today relative to the number of offerings
registered on Form SB-2 today, and on the number of offerings we
expect would be registered on Form SB-2 under the proposals.
Specifically, we estimate the number of SB-2 filings/year that would
incorporate Exchange Act reports by reference under the proposals
would be (246 repeat offerings registered on Form SB-2 today/414
offerings registered on Form SB-2 today) *559 SB-2 filings/year
under the proposals=330 SB-2 filings/year. We expect the remaining
229 offerings (559 SB-2 filings/year under the proposals -330 SB-2
filings/year that would incorporate Exchange Act reports by
reference under the proposals) not to incorporate Exchange Act
reports by reference.
\621\ We base this estimate on the number of burden hours
required today to file Form S-2 (which allows issuers to incorporate
Exchange Act reports by reference, but requires them to deliver the
reports to investors) relative to the number of burden hours
required today to file Form S-1. We then reduce the number of burden
hours we estimate issuers would require under the proposed rules to
file Form SB-2 if they cannot incorporate Exchange Act information
by reference by this ratio. Specifically, we estimate the number of
hours required to file Form SB-2 under the proposed rules if an
issuer cannot incorporate Exchange Act reports by reference would be
(470 burden hours/S-2 filing today/1,267 burden hours/S-1 filing
today) *876 burden hours/SB-2 filing under the proposals with no
incorporation by reference=324 burden hours/SB-2 filing with
incorporation by reference.
\622\ We base this estimate on [(876 hours/SB-2 filing under the
proposals with no incorporation by reference *229 SB-2 filings under
the proposals with no incorporation by reference)+(324 hours/SB-2
filing under the proposals with incorporation by reference *330 SB-2
filings under the proposals with no incorporation by reference)]/559
SB-2 filings under the proposals=550 hours/SB-2 filing on average
under the proposed rules. Today, SB-2 filings require 876 hours/
filing or 326 more hours than under the proposed rules.
\623\ We estimate filers would spend $72,100/filing in
professional labor costs. We base this estimate on 412 hours of
professional labor/Form SB-2 *$175/hour. In aggregate, we estimate
that filers would spend $40,303,900/year to file 559 Form SB-2s/
year.
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The proposed rules would simplify larger seasoned issuers'
preparation of Form B by allowing them greater flexibility to craft
their transactional disclosure. In fiscal year 1998, approximately
4,824 issuers registered 4,062 offerings on Forms S-3 and F-
3.⁶²⁴ Based on the proposed rule's public float and ADTV
tests, approximately 3,397 or 70% of these issuers would be eligible to
register offerings on Form B under the proposed rules.⁶²⁵
The remaining 1,427 or 30% of issuers would be required to register
offerings on Form A. Based on relative representation, and the total
offerings registered on Forms S-3 and F-3 in fiscal year 1998, we
estimate issuers would register approximately 2,843 offerings on Form B
and 1,219 offerings on Form A.⁶²⁶ (We anticipate, however,
that many Form A issuers would register at least some offerings on Form
B by selling their securities exclusively to QIBs and certain existing
shareholders, or selling non-convertible investment grade securities,
and thus would achieve the savings associated with filing on Form B.)
We estimate 224 additional secondary offerings would be filed on Form B
under the proposals that currently are filed on Form S-8.⁶²⁷
Thus, we anticipate 3,067 offerings would be filed on Form B under the
proposals. We anticipate that these issuers would save burden hours and
money from the simplification of Form B. We estimate that issuers would
require 300 hours to register securities on Form B. Of the 300 hours,
we estimate that 25% (75 internal burden

[[Page 67259]]

hours) would be provided by corporate staff, and 75% (225 hours) by
external professional help. We anticipate filers would spend, at an
estimated $175/hour, approximately $39,375/filing in professional labor
costs to file Form B.cv⁶²⁸ We request your comments and
supporting empirical information on the reasonableness of these
estimates.
---------------------------------------------------------------------------

\624\ In fiscal year 1998, issuers registered 3,890 offerings on
Form S-3 and 172 offerings on Form F-3.
\625\ We estimate the percentage of firms that currently are
eligible to use Forms S-3 and F-3 that would be eligible under the
proposals to register offerings on Form B based on their public
floats and ADTVs would be (3,397 firms that would be required to
register offerings on Form B under the proposals/4,824 firms that
would be eligible to register offerings on Forms S-3 and F-3
today)=70%.
\626\ Specifically, 70% *4,062 offerings/year=2,843 offerings/
year on Form B under the proposals and 30% *4,062 offerings/
year=1,219 offerings/year on Form A.
\627\ In a random sample of 50 offerings filed in 1996 and 1997
on Form S-8, we found 6% would no longer be eligible to file on Form
S-8 under the proposals. Under the proposed rules and based on our
sample, we would require 4% (224) of the 5,597 offerings filed on
Form S-8 in fiscal year 1998 to file on Form B, 1% (56) to file on
Form A with automatic effectiveness and incorporation by reference,
and 1% (56) to file on Form A with no automatic effectiveness.
\628\ We estimate filers would spend $39,375/filing in
professional labor costs. We base this estimate on 225 hours of
professional labor/Form B* $175/hour. In aggregate, we estimate that
filers would spend $120,763,125/year to file 3,067 Form Bs/year.
---------------------------------------------------------------------------

The proposed rules and amendments also would simplify issuers'
preparation of Form A prospectuses and reduce regulatory uncertainty.
The proposals would allow certain Form A issuers' registration
statements to go effective immediately if they are reporting companies
for at least two years and have public floats of at least $75 million.
We estimate approximately 1,960 Form A issuers would meet these
criteria. The proposals would also allow Form A issuers to incorporate
Exchange Act disclosure by reference in registration statements two
years after becoming reporting issuers rather than after three years,
as currently required. As discussed above, 2,526 companies that
currently are required to register offerings on Forms S-1 and F-1 would
become newly eligible to incorporate Exchange Act reports by reference.
These firms would save burden hours and prospectus preparation costs
when offering securities. Based on the number of offerings filed on
Forms S-1, S-2, F-1, and F-2 in fiscal year 1998,⁶²⁹ the
proposed availability of Forms SB-1 and SB-2 to certain of these
issuers,⁶³⁰ the number of offerings by issuers that today
would file on Forms S-3 and F-3 that would not be eligible for Form B,
⁶³¹ and the number of offerings currently filed on Form S-8
that would be filed on Form A under the proposals,⁶³² we
estimate issuers would file approximately 2,616 offerings/year on Form
A.⁶³³ We expect the 1,219 offerings/year that issuers
registered in fiscal year 1998 on Forms S-3 and F-3 to incorporate
Exchange Act reports by reference on Form A under the proposals. In
addition, we expect approximately 978 of the 1,397 remaining filings on
Form A to incorporate Exchange Act reports by reference each
year.⁶³⁴ Thus we expect issuers would incorporate Exchange
Act reports by reference into 2,197 Form A offerings/year under the
proposed rules. The remaining 419 offerings on Form A would not be
eligible to incorporate Exchange Act reports by reference. We estimate
issuers filing on Form A under the proposed rules and amendments would
expend approximately 1,333 burden hours/filing if they cannot
incorporate Exchange Act reports by reference,⁶³⁵ and 471
burden hours if they can.⁶³⁶ On average, we anticipate
issuers would spend about 609 hours preparing Form A registration
statements.⁶³⁷ Of the 609 hours, we estimate that 25% (152
internal burden hours) would be provided by corporate staff, and 75%
(457 hours) by external professional help. We anticipate filers would
spend, at an estimated $175/hour, approximately $79,975/filing in
professional labor costs to file Form B.⁶³⁸ We request your
comments and supporting empirical information on the reasonableness of
these estimates.
---------------------------------------------------------------------------

\629\ Issuers registered 1,136 offerings on Form S-1, 152
offerings on Form S-2, 139 offerings on Form F-1, and one offering
on Form F-2, for a total of 1,428 offerings in fiscal year 1998.
\630\ Under the proposed rules, issuers would register these
offerings on Form A, except for the 143 offerings we anticipate
issuers would register on Form SB-2.
\631\ We estimate 30% of the firms currently eligible to use
Forms S-3 and F-3 would be required to register offerings on Form A
based on their public floats and ADTVs. Specifically, the percentage
would be (1,427 firms that would be required to register offerings
on Form A under the proposals/4,824 firms that would be eligible to
register offerings on Forms S-3 and F-3 today) = 30%. If we adjust
the 4,062 offerings issuers registered on Forms S-3 and F-3 in
fiscal year 1998 by this percentage, we estimate issuers would
register approximately 1,219 of these offerings/year on Form A under
the proposals.
\632\ In a random sample of 50 offerings filed in 1996 and 1997
on Form S-8, we found 6% would no longer be eligible to file on Form
S-8 under the proposals. Under the proposed rules and based on our
sample, we would require 4% (224) of the 5,597 offerings filed on
Form S-8 in fiscal year 1998 to file on Form B, 1% (56) to file on
Form A with automatic effectiveness and incorporation by reference,
and 1% (56) to file on Form A with no automatic effectiveness.
\633\ Specifically, issuers would register on Form A under the
proposed rules 1,428 offerings/year currently registered on Forms S-
1, S-2, F-1, and F-2-143 offerings/year registered on Form SB-2 +
1,219 offerings/year currently registered on Form S-3 + 112
offerings/year currently registered on Form S-8 = 2,616 offerings/
year.
\634\ We base this conclusion on the number of firms that
currently are required to register offerings on Forms S-1 and F-1
that would become newly eligible to incorporate Exchange Act reports
by reference under the proposals relative to the number of firms
that currently are required to register offerings on Forms S-1 and
F-1. Specifically, the number of filings on Form A that would
incorporate Exchange Act reports by reference each year would be
(2,526 firms that would be eligible to incorporate Exchange Act
reports by reference on Form A under the proposals/3,601 firms that
currently are eligible to register offerings on Forms S-1 and F-1)
*(2,616 offerings/year on Form A -1,219 offerings/year on Form A
that would incorporate Exchange Act reports by reference that are
eligible to be registered on Form S-3 today) = 978 offerings/year
(in addition to the 1,219 offerings/year on Form A that would
incorporate Exchange Act reports by reference that are eligible to
be registered on Form S-3 today).
\635\ Both domestic and foreign issuers would be able to
register offerings on Form A. Domestic issuers currently require
1,267 hours to complete Form S-1 (which does not allow issuers to
incorporate Exchange Act reports by reference), whereas foreign
issuers require 1,868 hours to complete Form F-1 (which also does
not allow issuers to incorporate Exchange Act reports by reference).
In fiscal year 1998, issuers registered 1,136 offerings on Form S-1
and 139 offerings on Form F-1. We estimate the number of hours that
issuers would require to file Form A if they cannot incorporate
Exchange Act reports by reference would be [(1,136 domestic Form A
filings that previously would have been filed on Form S-1 *1,267
hours/domestic Form A filing that previously would have been filed
on Form S-1) + (139 foreign Form A filings that previously would
have been filed on Form F-1 *1,868 hours/foreign Form A filing that
previously would have been filed on Form F-1)]/1,275 filings on Form
A = 1,333 hours/filing.
\636\ Both domestic and foreign issuers would be able to
register offerings on Form A. Domestic issuers currently require 470
hours to complete Form S-2 (which allows issuers to incorporate
Exchange Act reports by reference), whereas foreign issuers require
559 hours to complete Form F-2 (which allows issuers to incorporate
Exchange Act reports by reference). In fiscal year 1998, issuers
registered 152 offerings on Form S-2 and one offering on Form F-2.
We therefore estimate the number of hours that issuers would require
to file Form A if they can incorporate Exchange Act reports by
reference would be 471 hours/filing.
\637\ As discussed above, we anticipate issuers would register
419 offerings/year on Form A where Exchange Act reports would not be
incorporated by reference and 2,197 offerings/year on Form A where
Exchange Act reports would be incorporated by reference. The average
hours to file Form A would be approximately 1,333 hours if they
cannot incorporate Exchange Act reports by reference and 471 hours
if they can incorporate Exchange Act reports by reference. On
average we expect the number of hours issuers would expend to file
Form A would be [(419 offerings/year on Form A where Exchange Act
reports would not be incorporated by reference * 1,333 hours if they
cannot incorporate Exchange Act reports by reference) + (2,197
offerings/year on Form A where Exchange Act reports would be
incorporated by reference * 471 hours if they can incorporate
Exchange Act reports by reference)]/2,616 offerings/year on Form A =
609 hours/filing.
\638\ We estimate filers would spend $79,975/filing in
professional labor costs. We base this estimate on 457 hours of
professional labor/Form A * $175/hour. In aggregate, we estimate
that filers would spend $209,214,600/year to file 2,616 Form As/
year.
---------------------------------------------------------------------------

The proposed rules and amendments would also create new Form C for
business combinations and new Form SB-3 for small business issuer
combinations. In fiscal year 1998, issuers registered 4,378 business
combinations on Forms S-4 and F-4. Of these, we estimate issuers would
register approximately 3,984 on Form C and 394 on Form SB-3 under the
proposed rules.⁶³⁹ We estimate issuers

[[Page 67260]]

would expend approximately 1,245 hours to complete Form C under the
proposed rules and amendments.⁶⁴⁰ Of the 1,245 hours, we
estimate that 25% (311 internal burden hours) would be provided by
corporate staff, and 75% (934 hours) by external professional help. We
anticipate filers would spend, at an estimated $175/hour, approximately
$163,450/filing in professional labor costs to file Form
C.⁶⁴¹ We estimate small business issuers would expend
approximately 1,121 hours to file business combinations on Form SB-
3.⁶⁴² Of the 1,121 hours, we estimate that 25% (280 internal
burden hours) would be provided by corporate staff, and 75% (841 hours)
by external professional help. We anticipate filers would spend, at an
estimated $175/hour, approximately $147,175/filing in professional
labor costs to file Form B.⁶⁴³ We request your comments and
supporting empirical information on the reasonableness of these
estimates.
---------------------------------------------------------------------------

\639\ Issuers registered 3,701 offerings on Form S-4 in fiscal
year 1998 and 677 offerings on Form F-4, for a total of 4,378
business combinations. Based on the number of offerings we expect
issuers would register on Forms SB-1 and SB-2 under the proposals
relative to the number of offerings registered on Forms SB-1, SB-2,
A, and B, and the number of business combinations in fiscal year
1998, we estimate the number of SB-3 filings issuers would file
under the proposals would be (567 offerings registered on Forms SB-1
and SB-2 under the proposals / 6,250 offerings registered in fiscal
year 1998) * 4,378 filings/year under the proposals = 394 SB-3
filings/year. The remaining 3,984 business combinations (4,378
filings/year--394 SB-3 filings/year) would be filed on Form C.
\640\ Both domestic and foreign issuers would be required to
register business combinations on Form C. Domestic issuers currently
require 1,233 hours to complete Form S-4, whereas foreign issuers
require 1,308 hours to complete Form F-4. In fiscal year 1998,
issuers registered 3,701 business combinations on Form S-4 and 677
business combinations on Form F-4. We estimate the number of burden
hours that issuers would require to file Form C would be [(3,701
Form C filings that previously would have been filed on Form S-4 *
1,233 hours/Form C filing that previously would have been filed on
Form S-4) + (677 Form C filings that previously would have been
filed on Form F-4 * 1,308 hours/Form C filing that previously would
have been filed on Form F-4)]/4,378 filings on Form C = 1,245 hours/
filing on Form C.
\641\ We estimate filers would spend $163,450/filing in
professional labor costs. We base this estimate on 934 hours of
professional labor/Form C * $175/hour. In aggregate, we estimate
that filers would spend $651,184,800/year to file 3,984 Form Cs/
year.
\642\ We base this estimate on the number of hours required to
file Form SB-2 under the proposals relative to the number of hours
required to file Form A. We then reduce the number of hours required
today to file Form C by this ratio. Specifically, we estimate the
number of hours required to file Form SB-3 under the proposed rules
would be [(550 hours/SB-2 filing under the proposals / 609 hours/
Form A filing under the proposals) * 1,245 hours/Form C filing under
the proposals = 1,121 hours/SB-3 filing.
\643\ We estimate filers would spend $147,175/filing in
professional labor costs. We base this estimate on 841 hours of
professional labor/Form A* $175/hour. In aggregate, we estimate that
filers would spend $57,986,950/year to file 394 Form As/year.
---------------------------------------------------------------------------

The proposals also would relax many of the restrictions on
communications between issuers and investors and clarify any remaining
limitations. Issuers would be able to more freely promote securities to
investors, subject to the provisions of Section 12(a)(2) under the
Securities Act and the antifraud provisions of the Securities and the
Exchange Acts.⁶⁴⁴ Specifically, the proposed rules and
amendments would allow all issuers to communicate freely with investors
after a registration statement was filed.⁶⁴⁵ During the pre-
filing period, issuers of offerings registered on Forms A, SB-1, and
SB-2 and unregistered offerings would be somewhat limited in their
ability to communicate with investors, but the proposed rules would
clearly define the length of the period and would delineate the types
of communications permitted and prohibited.⁶⁴⁶ The
Commission would permit larger seasoned issuers and other issuers
making particular kinds of offerings on Form B to communicate with
investors both before and after registration statements are
filed.⁶⁴⁷ Proposed Rule 425 would require issuers to file
written communications (in addition to required registration
statements) about pending offerings. The rule, which would have few
specific information requirements, would require issuers to attach
their written communications and include a prominent legend advising
investors to read the registration statement. The Commission recognizes
that companies would incur costs from filing sales literature used in
public offerings. We estimate that a firm's corporate staff would
expend approximately 15 burden minutes (0.25 internal burden hours) to
file a written communication under the proposed rule.⁶⁴⁸ Not
all issuers would use sales literature in offerings, especially those
that occur quickly. In other offerings, however, issuers might
communicate with investors using sales literature. Preliminarily, we
estimate issuers would file, on average, one written communication
(besides the required registration) for each offering. Thus, we
anticipate issuers would register approximately 10,628 offerings on
Forms A, B, C, SB-1, SB-2, and SB-3 per year. We estimate issuers would
expend approximately 2,657 burden hours to file written communications
under Rule 425. We request your comments and supporting empirical
information on the reasonableness of these estimates.
---------------------------------------------------------------------------

\644\ Under the proposals, Form B offering information would be
subject to liability under Section 11 of the Securities Act.
\645\ See proposed Securities Act Rule 165, 17 CFR 230.165.
\646\ See proposed Securities Act Rules 167, 168, and 169, 17
CFR 230.167, 230.168, and 230.169.
\647\ See proposed Securities Act Rule 166, 17 CFR 230.166.
\648\ We base this estimate on the burden imposed by a similar
filing requirement under Item 901(c) of Regulation S-K for roll-up
transactions.
---------------------------------------------------------------------------

We anticipate that the proposed rules and amendments would
streamline and simplify issuers' filing of Exchange Act reports in two
ways. First, the Commission would allow issuers to simultaneously
register an offering under the Securities Act and a class of securities
under the Exchange Act by checking a box on their Securities Act
registration statements.⁶⁴⁹ This change would not result in
any loss of information to investors because the Securities Act
registration forms would include any Exchange Act registration
information currently not required by the Securities Act registration
requirements. The revision, however, would reduce the number of issuer
filings. As indicated in the Table, we anticipate that issuers would no
longer need to file approximately 2,293 Form 8-As/year, saving
approximately 7 burden hours/filing. Second, the proposed rules and
amendments would reduce uncertainty regarding staff review of Exchange
Act reports through notification of review and pre-review.
---------------------------------------------------------------------------

\649\ See proposed Securities Act Rule 499, 17 CFR 230.499, for
Schedule B filers and proposed revisions to Exchange Act Rule 12d1-
2, 17 CFR 240.12d1-2.
---------------------------------------------------------------------------

These proposed new rules and amendments, however, would enhance and
expedite some of the disclosure required in Exchange Act reports filed
by reporting companies. These revisions could increase issuers' cost of
disclosure. To help assess the costs, we asked representatives of the
American Society of Corporate Secretaries (ASCS), two issuers, one
accounting firm, and two law firms to assess the impact of the proposed
rule changes. These parties did not anticipate substantial increases in
registrant costs if the Commission required reporting companies to file
summary financial information on Form 8-K within 30 days after quarter-
end and 45 days after fiscal year-end.⁶⁵⁰ They reported that
most firms release earnings information before quarter end and hence
the requirement would codify and unify financial reporting

[[Page 67261]]

practice. We estimate registrants would file 4 additional Form 8-Ks/
year. If each Form 8-K filing requires a registrant to expend 5 burden
hours, companies would expend approximately 20 additional burden hours/
year.⁶⁵¹ We request comment on the reasonableness of this
estimate.
---------------------------------------------------------------------------

\650\ In a 1998 survey of its members, the ASCS found that
although only 10% of respondents file Form 8-K with quarterly
financial information, over 99% issue quarterly press releases. Of
those, approximately 90% issue a press release within 30 days after
quarter-end. The results of the survey indicate that 38% of
respondents issue a summary or complete balance sheet, 46% issue a
summary or complete income statement, 24% issue a summary or
complete cash flow statement, 69% issue information on revenues or
sales (including those that issued an income statement), 80% issue
earnings (including those that issued an income statement), and 12%
issue segment financial information.
\651\ The parties consulted generally indicated that Form 8-K
filings are prepared by corporate counsel.
---------------------------------------------------------------------------

The proposed rules and amendments would also reduce the Form 8-K
filing period from 15 to 5 days, affecting only announcements of:
Changes in control;
Acquisitions or dispositions of assets;
Bankruptcies or receiverships; and
Changes of fiscal year.

The parties we contacted did not anticipate reducing the Form 8-K
filing period for these events would substantially increase
registrants' costs. They indicated that registrants typically issue
press releases when these events occur, and thus would be able to file
announcements on Form 8-K within 5 days at little additional cost. We
request comment on the feasibility and cost of accelerating the filing
deadline of Form 8-K for these events.
The proposed rules and amendments would also reduce the Form 8-K
filing period from 5 to 1 days for announcements of:
Independent accountant resignations;
Director resignations; and
Material defaults, dividend arrearages, and delinquencies.

The Commission does not anticipate that reducing the Form 8-K filing
period for these events would substantially increase registrants'
costs, and believes the benefits to investors would outweigh the costs
to registrants. We request comment, however, on the validity of this
view.
The proposed rules and amendments would require additional events
required to be reported on Form 8-K, including:
Material modifications to rights of security holders;
Departures of CEO, CFO, COO or president (or persons in
equivalent positions);
Material default on senior securities (must be disclosed
no later than one day following default);
Notice that reliance on prior audit is no longer
permissible, or that auditor will not consent to use of its report in a
Securities Act filing; ⁶⁵² and
---------------------------------------------------------------------------

\652\ See 17 CFR 228.304 and 17 CFR 229.304.
---------------------------------------------------------------------------

Change in company name.

As with the reduction in the Form 8-K filing period, the Commission
anticipates the cost of these revisions to be low. After (or, in some
cases, before) these events occur, registrants are likely to issue
press releases and file a Form 8-K based on their more general
obligation to release information about material events.⁶⁵³
And most of these events are likely to be expected and thus issuers
should be able to anticipate the need to file. We request your
comments, including any supporting empirical information, on the costs
that would be incurred by companies under the proposed revisions. We
also view the proposed changes to Form 6-K as imposing little
additional burden on foreign private issuers. In many instances, the
firms that the Commission would ask to file a Form 6-K already are
required to file similar information in their home countries. The
proposed filings would also be voluntary, rather than required. We
request comment on the burden of these revisions, along with the
signature requirement, on foreign private issuers.
---------------------------------------------------------------------------

\653\ See, e.g., the comment letter on the Concept Release, File
No. S7-19-96, submitted by the American Bar Ass'n. (Dec. 11, 1996).
---------------------------------------------------------------------------

We propose to treat the information in Part I of Forms 10-Q and 10-
QSB as ``filed'' for purposes of Section 18 under the Exchange Act.
Although the revision would increase the liability associated with the
financial information in Forms 10-Q and 10-QSB, we do not believe it
would significantly increase registrants' costs. The reporting systems
that generate this financial information also generate the financial
information contained in Forms 10-K and 10-KSB, which currently is
subject to liability under Section 18. We therefore do not anticipate
that registrants would need to undertake substantial investments to
generate information in quarterly reports that can withstand the
heightened standard of liability. We request comment on this view.
Another proposed rule would require registrants to disclose risk
factors in Forms 10-K and 10-KSB and to update them quarterly in Forms
10-Q and 10-QSB.⁶⁵⁴ Again the Commission does not anticipate
that the rule would impose a substantial burden on reporting companies.
The Commission already requires issuers to disclose risk factors in
most Securities Act registration statements. Thus the proposed
revisions would require firms that recently have raised capital just to
update previously disclosed risk factors. In a 1998 ASCS survey of its
members, only 20% of respondents indicated that the costs of disclosing
risk factors would be significant, 54% estimated modest cost increases,
and 26% estimated no cost increase. Of those respondents estimating
costs to be significant, 19% believed the impact would be short term,
rather than on-going. To reflect this cost, we added one hour to the
estimates for Forms 10-K, 10-KSB, 10-Q, and 10-QSB.⁶⁵⁵ On
average, we anticipate issuers would spend about 1,724 hours preparing
Form 10-K.⁶⁵⁶ Of the 1,724 hours, we estimate that 25% (431
internal burden hours) would be provided by corporate staff, and 75%
(1,293 hours) by external professional help. We anticipate filers would
spend, at an estimated $175/hour, approximately $226,275/filing in
professional labor costs to file Form 10-K.⁶⁵⁷ We request
your comments and supporting empirical information on the
reasonableness of these estimates. Finally, the Commission is proposing
to require that all persons who sign a firm's registration statements
filed under the Securities Act and reports filed under the Exchange Act
certify they have read the filing and do not know of any material
misstatement or omissions of information in the filings.⁶⁵⁸
The proposals would also

[[Page 67262]]

expand the number of persons required to sign forms to include the
registrant, the registrant's principal executive officer, principal
financial officer, principal accounting officer, and at least a
majority of the registrant's board.⁶⁵⁹ The cost to
registrants of these proposals would be the cost associated with having
managers and board members spend additional time reading documents so
that they can affirm having read them. Given the involvement of most
firms' senior managers in the reporting process, we do not anticipate
significant additional cost to registrants from these proposals. We
request comment, however, on this view.
---------------------------------------------------------------------------

\654\ The proposed revisions would also require issuers to
disclose risk factors in Forms 10, 10-SB, 18, 20-F, and 18-K.
\655\ We also added a burden hour to our estimates for Forms 10,
10-SB, 18, 20-F, and 18-K.
\656\ As discussed above, we anticipate issuers would register
419 offerings/year on Form A where Exchange Act reports would not be
incorporated by reference and 2,197 offerings/year on Form A where
Exchange Act reports would be incorporated by reference. The average
hours to file Form A would be approximately 1,333 hours if they
cannot incorporate Exchange Act reports by reference and 471 hours
if they can incorporate Exchange Act reports by reference. On
average we expect the number of hours issuers would expend to file
Form A would be [(419 offerings/year on Form A where Exchange Act
reports would not be incorporated by reference * 1,333 hours if they
cannot incorporate Exchange Act reports by reference) + (2,197
offerings/year on Form A where Exchange Act reports would be
incorporated by reference * 471 hours if they can incorporate
Exchange Act reports by reference)]/2,616 offerings/year on Form A =
609 hours/filing.
\657\ We estimate filers would spend $226,275/filing in
professional labor costs. We base this estimate on 1,293 hours of
professional labor/Form 10-K* $175/hour. In aggregate, we estimate
that filers would spend $2,113,861,050/year to file 9,342 Form 10-
Ks/year. In fiscal year 1998, registrants filed 10,392 Form 10-Ks
and 2,591 Form 10-KSBs. Under the proposals 1,050 companies that
currently file their annual report on Form 10-K would be eligible to
file on Form 10-KSB. Thus we anticipate registrants would file 9,342
Form 10-Ks and 3,641 Form 10-KSBs. In fiscal year 1998, registrants
filed 29,551 Form 10-Qs and 7,521 Form 10-QSBs. Under the proposals
1,050 companies that currently file their quarterly reports on Form
10-Q would be eligible to file on Form 10-QSB. Thus we anticipate
registrants would file 26,401 Form 10-Qs [29,551 Form 10-Qs today--
(3 quarterly reports on Form 10-QSB/year * 1,050 companies)], and
10,671 Form 10-QSBs [7,521 Form 10-QSBs today + (3 quarterly reports
on Form 10-QSB/year * 1,050 companies)].
\658\ The proposed revisions would affect Forms A, B, C, SB-1,
SB-2, and SB-3 under the Securities Act and Forms 10-K, 10-KSB, 10-
Q, 10-QSB, 10, 8-A, 10-SB, 20-F, 40-F, 18, 8-K, and 6-K under the
Exchange Act. We also are proposing to require registrants to
disclose their email address and web site on all registration
statements and Exchange Act reports. We do not anticipate any
additional burden from these requirements.
\659\ Foreign private issuers also would need to have an
authorized representative in the United States sign. The proposed
revisions would affect Forms A, B, C, SB-1, SB-2, and SB-3 under the
Securities Act and Forms 10-K, 10-KSB, 10-Q, 10-QSB, 10, 8-A, 10-SB,
20-F, 40-F, and 18 under the Exchange Act. For Forms 8-K and 6-K, we
would require either the registrant's principal executive officer,
principal financial officer or principal accounting officer to sign
a particular Exchange Act report and certify he or she provided a
copy to board members.
---------------------------------------------------------------------------

In accordance with 44 U.S.C. Sec. 3506c(2)(B), we solicit comment
on the following:
Whether the proposed changes in each collection of
information are necessary for the proper performance of the function of
the agency;
The accuracy of our estimate of the burden of the proposed
changes to each collection of information;
The quality, utility, and clarity of the information to be
collected; and
Whether there are ways to minimize the burden of any of
the collections of information on those who are required to respond,
including through the use of automated collection techniques or other
forms of information technology.

Anyone desiring to submit comments on any or all of the collection of
information requirements should direct them to the Office of Management
and Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
D.C. 20503, and should also send a copy of their comments to Jonathan
G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, with reference to File No. S7-30-
98. The Office of Management and Budget is required to make a decision
concerning the collection of information between 30 and 60 days after
publication, so a comment to OMB is best assured of having its full
effect if OMB receives it within 30 days of publication.

XVII. General Request for Comments

Given the scope and significance of this proposal, the Commission
is particularly eager to receive your comments. We solicit comment,
both specific and general, upon each component of the proposal. We
believe your comments will be very important in determining the course
these proposals will take. The Commission therefore intends to review
with great care all comments received.
We also solicit comment on whether issuers would take advantage of
some of the flexibility in registration or communication provided in
the proposal to engage in fraudulent activities. If so, what elements
of the proposal could be open to such abuse? How can we avoid abuse and
continue to ensure investor protection, for example, in the proposals
for automatic effectiveness and free communications, while at the same
time provide issuers with timing certainty and allow market
participants to take fuller advantage of today's technology?
We believe our proposals would provide additional benefits for
smaller companies (e.g., simpler and more flexible registration
process, elimination of restrictions on post-filing communications and
relaxed integration rules). We also believe that our proposals balance
these benefits with enhanced protection for investors (e.g., earlier
prospectus delivery, filing of free writing prospectuses). We solicit
comment on the impact that our proposals may have on microcap companies
and microcap fraud. Should we exclude microcap companies from some of
our proposals as a precautionary measure against microcap fraud? If so,
which proposals? By excluding microcap companies from certain proposals
would we be providing a competitive advantage to their non-microcap
competitors? Rather than excluding microcap companies, should we
provide for enhanced monitoring of microcap companies?
We encourage your comments on whether and how our proposal would
affect the secondary trading markets for securities. How would our
proposal affect public investors, broker-dealers and the companies
whose securities are traded in the secondary markets? Our proposed
changes to the Exchange Act disclosure system would enhance and speed
corporate information to the marketplace, would add Commission
resources to oversight of the secondary markets and should provide
valuable benefits to investors. Besides the proposed Exchange Act
reporting changes, our proposal relates primarily to the securities
offering process, rather than secondary trading. Would these proposed
changes adversely affect participants in secondary trading? Would
investor protection in secondary market transactions be affected by our
proposed changes? If so, how?
Any interested person wishing to submit written comments on any
aspect of the proposals, as well as on other matters that might have an
impact on the proposals, is requested to do so. In addition, the
Commission requests comment on whether any further changes to the
Commission's rules and forms are necessary or appropriate to implement
the objectives of the proposals. Comments should be submitted in
triplicate to Jonathan G. Katz, Secretary, U.S. Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and should
refer to file number S7-30-98.

XVIII. Statutory Bases

The proposed new rules, forms and amendments to the Commission
existing rules and forms are being proposed pursuant to Sections 2(b),
6, 7, 8, 10, 19(a) and 28 of the Securities Act of 1933 as amended and
Sections 3, 4, 10, 12, 15, 23 and 36 of the Securities Exchange Act of
1934.

List of Subjects

17 CFR Part 200

Administrative practice and procedure, Authority delegation
(Government agencies).

17 CFR Part 202

Administrative practice and procedure, Securities.

17 CFR Part 210

Accountants, Accounting.

17 CFR Part 228

Reporting and recordkeeping requirements, Securities, Small
business.

17 CFR Parts 229, 239 and 249

Reporting and recordkeeping requirements, Securities.

17 CFR Part 230

Advertising, Investment companies, Reporting and recordkeeping
requirements, Securities.

17 CFR Part 240

Brokers, Reporting and recordkeeping requirements, Securities.

[[Page 67263]]

Text of Proposed Amendments

In accordance with the foregoing, the Securities and Exchange
Commission proposes to amend Title 17, chapter II of the Code of
Federal Regulations as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

The authority citation for part 200 continues to read in part as
follows:

Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 78mm, 79t,
77sss, 80a-37, 80b-11, unless otherwise noted.

* * * * *

Sec. 200.30-1 [Amended]

2. By removing paragraph (a)(4) in Sec. 200.30-1 and by
redesignating paragraphs (a)(5), (a)(6), (a)(7) and (a)(8) as
paragraphs (a)(4), (a)(5), (a)(6) and (a)(7).

PART 202--INFORMAL AND OTHER PROCEDURES

3. The authority citation for part 202 continues to read in part as
follows:

Authority: 15 U.S.C. 77s, 77t, 78d-1, 78u, 78w, 78ll(d), 79r,
79t, 77sss, 77uuu, 80a-37, 80a-41, 80b-9, and 80b-11, unless
otherwise noted.
* * * * *
4. By revising the seventh sentence of the introductory text of
Sec. 202.3a to read as follows:

Sec. 202.3a Instructions for filing fees.

* * * Filing fees paid pursuant to Section 6(b) of the Securities
Act of 1933 ( 15 U.S.C. 77a et. seq.) or pursuant to Section 307(b) of
the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et. seq.) should be
designated as ``restricted,'' except that filing fees paid with respect
to registration statements filed in accordance with Form SB-1, SB-2 and
SB-3 (Secs. 239.9, 239.10 and 239.11 of this chapter) or pursuant to
Secs. 230.462(b), 230.462(e) and 230.462(f) of this chapter should be
designated as ``unrestricted.'' * * *
* * * * *

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT
COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

5. The authority citation for part 210 continues to read as
follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77aa(25),
77aa(26), 78j-1, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d),
79e(b), 79j(a), 79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-
37(a), unless otherwise noted.

Sec. 210.3-14 [Amended]

6. By amending the Note following paragraph (a)(1) of Sec. 210.3-14
by removing the words ``Item 15 of Form S-11'' and adding, in their
place the words ``Item 1107(b) of Regulation S-K (Sec. 229.1107(b) of
this chapter)''.

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

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

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37,
80b-11, unless otherwise noted.

8. By amending Sec. 228.10 by removing paragraph (b)(4); and
revising paragraph (a) to read as follows:

Sec. 228.10 (Item 10) General.

(a) Application of Regulation S-B. Regulation S-B is the source of
disclosure requirements for ``small business issuer'' filings under the
Securities Act of 1933 (the ``Securities Act'') and the Securities
Exchange Act of 1934 (the ``Exchange Act'').
(1) Definition of small business issuer. A small business issuer is
defined as a company that meets all of the following criteria:
(i) Has revenues (including revenues of any consolidated
subsidiaries) of less than $50,000,000;
(ii) Is a U.S. or Canadian issuer;
(iii) Is not an investment company;
(iv) If a majority-owned subsidiary, the parent corporation is also
a small business issuer; and
(v) Each majority-owned subsidiary of the company, if any, meets
the criteria of paragraphs (a)(1)(ii) and (a)(1)(iii) of this section.
(2) Entering and exiting the small business disclosure system. (i)
A company that meets the definition of small business issuer may use
Form SB-1, SB-2 or SB-3 (Secs. 239.9, 239.10 and 239.11 of this
chapter), whichever is appropriate, for registration of its securities
under the Securities Act; Form 10-SB (Sec. 249.210b of this chapter)
for registration of its securities under the Exchange Act; and Forms
10-KSB and 10-QSB (Secs. 249.310b and 249.308b of this chapter) for its
annual and quarterly reports.
(ii) For a non-reporting company entering the disclosure system for
the first time either by filing a registration statement under the
Securities Act or a registration statement under the Exchange Act, the
determination as to whether the company is a small business issuer is
made with reference to its revenues during its last fiscal year.
(iii) Once a small business issuer becomes a reporting company, it
will remain a small business issuer until it exceeds the revenue limit
at the end of two consecutive years (or until it fails to meet one of
the other criteria in the small business issuer definition).
(iv) A reporting company that is not a small business issuer must
meet the definition of a small business issuer at the end of two
consecutive fiscal years before it will be considered a small business
issuer.
(v) The determination as to the reporting category (small business
issuer or other issuer) made for a non-reporting company at the time it
enters the disclosure system governs all Exchange Act reports relating
to the remainder of that fiscal year. The determination made for a
reporting company at the end of its fiscal year governs all Exchange
Act reports relating to the next fiscal year. An issuer may not change
from one category to another with respect to reports under the Exchange
Act for a single fiscal year. A small business issuer may, however,
choose not to use Form SB-1 or SB-2 (Sec. 239.9 or Sec. 239.10 of this
chapter) for registration under the Securities Act.
(vi) Notwithstanding paragraph (a)(2)(v) of this section, a company
that is a reporting company as of __________ [insert effective date of
the final rule] may determine at any time between __________ [insert
effective date of the final rule] and __________ [insert date one year
after effective date of the final rule] to begin reporting under the
Exchange Act on the forms available only to small business issuers if
it satisfies the small business issuer definition through having
revenues of less than $50 million in each of its last two fiscal years
and satisfying the other criteria in paragraph (a)(1) of this section.
* * * * *
9. By amending Sec. 228.304 by revising the introductory text of
paragraph (a)(1), paragraphs (a)(1)(i), (a)(1)(iii), (a)(1)(iv)(A),
(a)(1)(iv)(B) introductory text, (a)(1)(iv)(B)(2), (a)(1)(iv)(B)(3),
(a)(1)(iv)(D) and (a)(1)(iv)(E); and by adding a sentence at the end of
paragraph (a)(3) to read as follows:

[[Page 67264]]

Sec. 228.304 (Item 304) Changes in and disagreements with accountants
on accounting and financial disclosure.

(a)(1) The disclosure described below is required if the small
business issuer, during its two most recent fiscal years or any
subsequent interim period, dismissed its principal independent
accountant or a significant subsidiary dismissed its independent
accountant on whom the small business issuer's principal accountant
expressed reliance in its report. The disclosure also is required if,
during that time, any of those accountants: resigned; declined to stand
for re-election after the current audit; notified the registrant or a
significant subsidiary that reliance on the accountant's prior audit
report is no longer permissible; or notified the registrant or a
significant subsidiary that it will not consent to the use of the
accountant's prior audit report in a filing with the Commission. State:
(i) Which of the actions described in paragraph (a)(1) of this
section occurred and when;
* * * * *
(iii) If a change in accountants resulted, whether the decision to
change accountants was recommended or approved by the board of
directors or a committee thereof; and
(iv)(A) Whether, during the small business issuer's two fiscal
years and any subsequent interim period immediately preceding the date
of the action described in paragraph (a)(1) of this section, there were
disagreements with the accountant, whether or not resolved to the
accountant's satisfaction, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure;
(B) The following information, if applicable. Indicate whether the
accountant advised the small business issuer that:
* * * * *
(2) Information has come to the attention of the accountant that
made the accountant unwilling to rely on management's representations,
or unwilling to be associated with the financial statements prepared by
management; or
(3) The scope of its audit should be expanded significantly, or
that information has come to the accountant's attention that the
accountant has concluded will, or if further investigated might,
materially impact the fairness or reliability of a previously issued
audit report or the underlying financial statements, or the financial
statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent audited financial statements
(including information that might preclude the issuance of an
unqualified audit report); and
* * * * *
(D) Whether the board of directors or any committee thereof
discussed the subject matter of each such disagreement with the
accountant;
(E) If a change in accountants resulted, whether the small business
issuer has authorized the former accountant to respond fully to the
inquiries of the successor accountant concerning the subject matter of
each such disagreement. If not, describe the nature of any limitation
on responses and the reason for that limitation.
* * * * *
(3) * * * If the former accountant declines to furnish the
registrant with a letter addressed to the Commission stating whether
the accountant agrees with the statements made by the registrant in
response to this Item 304(a), so state.
* * * * *
10. By amending Sec. 228.512 by removing the words ``Form S-3 or S-
8 (Secs. 239.13 or 239.16b of this chapter)'' from the Note to
paragraph (a)(1) and adding in their place the words ``Form B or S-8
(Secs. 239.5 or 239.16b of this chapter)''; and by adding paragraphs
(g), (h) and (i) to read as follows:

Sec. 228.512 (Item 512) Undertakings.

* * * * *
(g) Registration on Form SB-3 of securities offered for resale.
Include the following if the securities are being registered on Form
SB-3 (Sec. 239.11 of this chapter) in connection with a transaction
specified in paragraph (a) of Sec. 230.145 of this chapter:
(1) Before a public reoffering of securities registered on this
Form by any person who is considered an underwriter within the meaning
of Sec. 230.145(c) of this chapter through use of a prospectus that is
a part of this registration statement, [Name of registrant] will ensure
that the reoffering prospectus contains all the information called for
by the Form concerning the reoffering by the underwriter(s) (in
addition to the information required by other items of the Form).
(2) [Name of registrant] will file as part of an amendment to the
registration statement any prospectus that is filed under paragraph
(g)(1) of this Item or purports to meet the requirements of Section
10(a)(3) of the Securities Act (15 U.S.C. 77j(a)(3)) and is used in
connection with an offering of securities subject to Sec. 230.415 of
this chapter. We will not use such prospectus until the amendment
containing the prospectus is effective. For purposes of determining any
liability under the Securities Act of 1933 (15 U.S.C. 77a et. seq.), we
acknowledge that each amendment will be considered a new registration
statement relating to the securities being offered, and the offering of
those securities at that time will be considered the initial bona fide
offering of those securities.
(h) Delayed payment of registration fee. A small business issuer
relying on Sec. 230.456 of this chapter to delay paying the
registration fee, must include the following undertaking:

[Name of registrant] will pay the required registration fee no
later than the earlier of:
(1) The date on which we request that the Commission grant
effectiveness of this registration statement under Section 8(a) of
the Act (15 U.S.C. 77h(a)); or
(2) The date on which we file an amendment to the registration
statement that contains the statement set forth in Sec. 230.473(b).

(i) Registration on Form SB-1, SB-2 or SB-3. If the securities are
being registered on Form SB-1 (Sec. 239.9 of this chapter), Form SB-2
(Sec. 239.10 of this chapter) or on Form SB-3 (Sec. 239.11 of this
chapter) include the following:

The registrant will file with the Commission, on or before the
date of first use, all free writing materials used in connection
with the securities registered on this registration statement after
effectiveness and before the offering is completed.

11. By amending Sec. 228.601 by removing from paragraph (b)(1) the
words ``Form S-3 (Sec. 239.13)'' and adding, in their place, the words
``Form B (Sec. 239.5)''; by removing from paragraph (b)(10)(ii)(B)(5)
the words ``, or registering debt or non-voting preferred stock on Form
S-2 (Sec. 239.12)''; by removing from Note 2 to paragraph (c)(1)(ii)
the words ``Form S-3 (Sec. 239.13 of this chapter)'' and adding, in
their place, the words ``Form B (Sec. 239.5 of this chapter)''; by
removing from Note 1 to paragraph (c)(1) the words ``Form S-2
(Sec. 239.12 of this chapter), Form S-3 (Sec. 239.13 of this chapter)''
and adding, in their place, the words ``Items 11 and 12 of Form SB-2
(Sec. 239.10 of this chapter), Form B (Sec. 239.5 of this chapter)'';
by removing from the introductory text of paragraph (c)(3) the words
``Form S-1 (Sec. 239.11 of this chapter)'' and adding, in their place,
the words ``Form A (Sec. 239.4 of this chapter)''; and by revising the
exhibit table to read as follows:

Sec. 228.601 (Item 601) Exhibits.

* * * * *

[[Page 67265]]

Exhibit Table
----------------------------------------------------------------------------------------------------------------
Securities Act forms Exchange Act forms
-------------------------------------------------------------------------------
B SB-2 SB-3 S-8 10-SB 8-K 10-QSB 10-KSB
----------------------------------------------------------------------------------------------------------------
(1) Underwriting agreement...... X X X ........ ........ X ........ ........
(2) Plan of acquisition,
reorganization, arrangement,
liquidation or succession...... X X X ........ X X X X
(3) (i) Articles of
Incorporation.................. ........ X X ........ X ........ X X
(ii) By-Laws.................... ........ X X ........ X ........ X X
(4) Instruments defining the
rights of security holders,
including indentures........... X X X X X X X X
(5) Opinion re legality......... X X X X ........ ........ ........ ........
(6) No exhibit required......... N/A N/A N/A N/A N/A N/A N/A N/A
(7) [Removed and reserved]...... ........ ........ ........ ........ ........ ........ ........ ........
(8) Opinion re tax matters...... X X X ........ ........ ........ ........ ........
(9) Voting trust agreement...... ........ X X ........ X ........ ........ X
(10) Material contracts......... ........ X X ........ X ........ X X
(11) Statement re computation of
per share earnings............. ........ X X ........ X ........ X X
(12) No exhibit required........ N/A N/A N/A N/A N/A N/A N/A N/A
(13) Annual or quarterly
reports, Form 10-Q \1\......... ........ X X ........ ........ ........ ........ X
(14) [Removed and reserved]..... ........ ........ ........ ........ ........ ........ ........ ........
(15) Letter re unaudited interim
financial information.......... X X X X ........ ........ X ........
(16) Letter re change in
certifying accountant \3\...... ........ X X ........ X X ........ X
(17) Letter re director
resignation.................... ........ ........ ........ ........ ........ X ........ ........
(18) Letter re change in
accounting principles.......... ........ ........ ........ ........ ........ ........ X X
(19) Report furnished to
security holders............... ........ ........ ........ ........ ........ ........ X ........
(20) Other documents or
statements to security holders. ........ ........ ........ ........ ........ X ........ ........
(21) Subsidiaries of the
registrant..................... ........ X X ........ X ........ ........ X
(22) Published report regarding
matters submitted to vote of
security holders............... ........ ........ ........ ........ ........ ........ X X
(23) Consents of experts and
counsel........................ X X X X ........ \2\ X \2\ X \2\ X
(24) Power of attorney.......... X X X X X X X X
(25) Statement of eligibility of
trustee........................ X X X ........ ........ ........ ........ ........
(26) Invitation for competitive
bids........................... X X X ........ ........ ........ ........ ........
(27) Financial Data Schedule \4\ X X X ........ X X X X
(28) [Removed and reserved]..... ........ ........ ........ ........ ........ ........ ........ ........
(29) Underwriter Concurrence
with Effective Date............ X ........ ........ ........ ........ ........ ........ ........
[Reserved (30) through (98)].... ........ ........ ........ ........ ........ ........ ........ ........
(99) Additional Exhibits........ X X X X X X X X
----------------------------------------------------------------------------------------------------------------
\1\ Only if incorporated by reference into a prospectus and delivered to holders along with the prospectus as
permitted by the registration statement; or in the case of a Form 10-KSB, where the annual report is
incorporated by reference into the text of the Form 10-KSB.
\2\ Where the opinion of the expert counsel has been incorporated by reference into a previously filed
Securities Act registration statement.
\3\ If required under Item 304 of Regulation S-K.
\4\ Financial Data Schedules must be filed by electronic filers only. Such Schedule must be filed only when a
filing includes annual and/or interim financial statement that have not been previously included in a filing
with the Commission. See Item 601(c) of Regulation S-B.

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

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

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll(d), 79e,
79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise
noted.
* * * * *

Sec. 229.10 [Amended]

13. By amending Sec. 229.10 by removing in paragraph (c)(1)(iii)
the words ``Form S-3 (Sec. 239.13 of this chapter)'' and adding, in
their place, the words ``Form B (Sec. 239.5 of this chapter)''.

Sec. 229.101 [Amended]

14. By amending Sec. 229.101 by removing in paragraph (a)(2)(i) the
words ``Form S-1 (Sec. 239.11 of this chapter)'' and adding, in their
place, the words ``Form A (Sec. 239.4 of this chapter)'', and by
removing in paragraph (a)(2)(iii)(B)(1) the words ``Form S-1'' and
adding, in their place, the words ``Form A''.

Sec. 229.102 [Amended]

15. By amending Sec. 229.102 by removing the words ``Office of
Engineering'' in Instruction 4. to Instructions to Item 102 and adding,
in their place, ``Office of Natural Resources''.

Sec. 229.201 [Amended]

16. By amending Sec. 229.201 by removing in paragraph (a)(2) the
words ``Form S-1 (Sec. 239.11 of this chapter)'' and adding, in their
place, the words ``Form A (Sec. 239.4 of this chapter)''.
17. By amending Sec. 229.304 by revising the introductory text of
paragraph (a)(1), paragraph (a)(1)(i), the introductory text of
paragraph (a)(1)(iii), paragraph (a)(1)(iv), the first sentence of the
introductory text of paragraph (a)(1)(v), paragraph (a)(1)(v)(C)(2),
paragraph (a)(1)(v)(D)(2); and by adding a sentence at the end of
paragraph (a)(3) to read as follows:

Sec. 229.304 (Item 304) Changes in and disagreements with accountants
on accounting and financial disclosure.

(a)(1) The disclosure described below is required if the
registrant, during its two most recent fiscal years or any subsequent
interim period, dismissed its

[[Page 67266]]

principal independent accountant or a significant subsidiary dismissed
its independent accountant on whom the registrant's principal
accountant expressed reliance in its report. The disclosure also is
required if, during that time, any of those accountants: resigned;
declined to stand for re-election after the current audit; notified the
registrant or a significant subsidiary that reliance on the
accountant's prior audit report is no longer permissible; or notified
the registrant or a significant subsidiary that it will not consent to
the use of the accountant's prior audit report in a filing with the
Commission.
(i) State which of the actions described in paragraph (a)(1) of
this section occurred and when;
* * * * *
(iii) If a change in accountants resulted, state whether the
decision to change accountants was recommended or approved by:
* * * * *
(iv) State whether, during the registrant's two fiscal years and
any subsequent interim period immediately preceding the date of the
action described in paragraph (a)(1) of this section, there were
disagreements with the accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. In addition:
(A) Describe each such disagreement;
(B) State whether the board of directors or any committee thereof
discussed the subject matter of each such disagreement with the
accountant; and
(C) If a change in accountants resulted, state whether the
registrant has authorized the former accountant to respond fully to the
inquiries of the successor accountant concerning the subject matter of
each such disagreement. If not, describe the nature of any limitation
on responses and the reason for that limitation.
Instructions to Item 304(a)(1)(iv).

1. The registrant need only disclose information in response to
this Item if the disagreement(s), if not resolved to the
satisfaction of the accountant, would have caused it to make
reference to the subject matter of the disagreement(s) in connection
with its report.
2. The disagreements required to be reported in response to this
Item include both those resolved to the accountant's satisfaction
and those not resolved to the accountant's satisfaction.
3. Disagreements contemplated by this Item are those that occur
at the decision-making level, i.e., between personnel of the
registrant responsible for the presentation of its financial
statements and personnel of the accounting firm responsible for
rendering its report.

(v) If, during the registrant's two fiscal years and any subsequent
interim period immediately preceding the date of the action described
in paragraph (a)(1) of this Item, any of the events listed in
paragraphs (a)(1)(v)(A) through (a)(1)(v)(D) of this Item occurred,
provide the information required by paragraph (a)(1)(iv) of this Item
for each event (even if the registrant and the accountant did not
express a difference of opinion regarding the event). * * *
* * * * *
(C) * * *
(2) Due to the action described in paragraph (a)(1) of this Item,
or for any other reason, the accountant did not so expand the scope of
its audit or conduct such further investigation; or
(D) * * *
(2) Due to the action described in paragraph (a)(1) of this Item,
or for any other reason, the issue has not been resolved to the
accountant's satisfaction prior to such action.
* * * * *
(3) * * * If the former accountant declines to furnish the
registrant with a letter addressed to the Commission stating whether
the accountant agrees with the statements made by the registrant in
response to this Item 304(a), so state.
* * * * *
18. By amending Sec. 229.305 by revising Instruction 2.D. to
General Instructions to Paragraphs 305(a), 305(b), 305(c), 305(d), and
305(e), to read as follows:

Sec. 229.305 (Item 305) Quantitative and qualitative disclosures about
market risk.

* * * * *
General Instructions to Paragraphs 305(a), 305(b), 305(c), 305(d),
and 305(e):
* * * * *
2. * * *
D. For purposes of Instruction 1. of the General Instructions to
Paragraphs 305(a), 305(b), 305(c), 305(d), and 305(e), market
capitalization is the aggregate market value of common equity. The term
``common equity'' is as defined in Securities Act Rule 405
(Sec. 230.405 of this chapter). The aggregate market value of the
registrant's outstanding voting and non-voting common equity shall
include the common equity held by affiliates and shall be computed by
use of the price at which the common equity was last sold, or the
average of the bid and asked prices of such common equity, in the
principal market for such common equity as of January 28, 1997.
19. By amending Sec. 229.404 by removing in the introductory text
of paragraph (d) the words ``Form S-1 under the Securities Act
(Sec. 239.11 of this chapter)'' and adding, in their place, the words
``Form A under the Securities Act (Sec. 239.4 of this chapter)''.
20. By amending Sec. 229.501 by revising the section heading to
read as follows:

Sec. 229.501 (Item 501) Front cover page of the registration statement
and outside front cover page of the prospectus.

* * * * *
21. By amending Sec. 229.512 by removing in paragraph (a)(1)(iii)
the words ``on Form S-3 (Sec. 239.13 of this chapter)'' and adding in
their place the words ``on Form B (Sec. 239.5 of this chapter)''; in
paragraph (a)(4), by removing in the third sentence the words ``on Form
F-3 (Sec. 239.33 of this chapter)'' and adding, in their place, the
words ``on Form B (Sec. 239.5 of this chapter)'', and removing the
words ``in the Form F-3.'' and adding in their place ``in the Form
B.''; by revising paragraph (b) and the introductory text of paragraph
(g); and by adding paragraph (k) to read as follows:

Sec. 229.512 (Item 512) Undertakings.

* * * * *
(b) Filings incorporating by reference subsequent Exchange Act
documents. Include the following if the registration statement
incorporates by reference any Exchange Act document filed subsequent to
the initial effective date of the registration statement:

The undersigned registrant hereby undertakes that, for
determining liability under the Securities Act of 1933, each of the
registrant's reports pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
* * * * *
(g) Registration on Form C or Form SB-3 of securities offered for
resale. Include the following if the registrant is registering an
offering on Form C or Form SB-3 (Secs. 239.6 or 239.11 of this chapter)
in connection with a transaction specified in paragraph (a) of Rule 145
(Sec. 230.145 of this chapter).
* * * * *
(k) Registration on Form A, Form B or Form C. If the securities are
being registered on Form A (Sec. 239.4 of this chapter), Form B
(Sec. 239.5 of this chapter) or on Form C (Sec. 239.6 of this chapter)
include the following:

The registrant will file with the Commission, on or before the
date of first use, all free writing materials used in connection
with the securities registered on

[[Page 67267]]

this registration statement after effectiveness and before the
offering is completed.

22. By amending Sec. 229.601 by removing from paragraph
(b)(10)(iii)(B)(6) the words ``or registering debt instruments or
preferred stock which are not voting securities on Form S-2''; and by
removing from Note 1 to Paragraph (c)(1) the words ``Form S-2
(Sec. 239.12 of this chapter), Form S-3 (239.13 of this chapter)'' and
adding, in their place, the words ``Form B (239.13 of this chapter),
General Instruction VIII of Form A (Sec. 239.4 of this chapter)''; by
revising the Exhibit Table, paragraph (b)(4)(ii) and paragraph (b)(8);
and by adding paragraph (b)(28) to read as follows:

Sec. 229.601 (Item 601) Exhibits.

* * * * *
(b) * * *
(4) Instruments defining the rights of security holders, including
indentures
(i) * * *
(ii) Except as set forth in paragraph (b)(4)(iii) of this Item, for
filings on Forms A and C under the Securities Act (Secs. 239.4 and
239.6 of this chapter) and Forms 10 and 10-K (Secs. 249.210 and 249.310
of this chapter) under the Exchange Act all instruments defining the
rights of holders of long-term debt of the registrant and its
consolidated subsidiaries and for any of its unconsolidated
subsidiaries for which financial statements are required to be filed.
* * * * *
(8) Opinion re tax matters. (i) Real estate entity registrants and
roll-up transactions. The registrant must file an opinion of counsel,
an opinion of an independent public or certified public accountant or a
revenue ruling from the Internal Revenue Service supporting the tax
matters and consequences to the investors it describes in its filing in
the following circumstances:
(A) The registrant is required to provide the information required
by Item 1108 of Regulation S-K (Tax treatment) in its registration
statement on Form A (Sec. 239.4 of this chapter);
(B) Securities Act Industry Guide 5 applies to the offering; or
(C) The transaction being registered is a roll-up as defined in
Item 901 of Regulation S-K (Sec. 229.901).
(ii) All other registrants. All other registrants must include this
exhibit only when the tax consequences are material to an investor and
the registrant includes a discussion of tax consequences in the filing.
If a tax opinion is set forth in full in the filing, the exhibit may so
state instead of repeating the full opinion. Any conditions or
qualifications on the opinion must be adequately described in the
filing.
* * * * *
(28) Underwriter concurrence with effective date. A registrant
filing a registration statement listed in Sec. 230.462(f)(1) of this
chapter must file the written concurrence with the effective date,
signed and dated by the managing underwriter(s), or if there are no
managing underwriter(s), of the principal underwriter(s) of its
offering. If the filed concurrence is not manually signed, a registrant
must retain the manually signed underwriters' concurrence for a period
of five years. Upon request, the registrant must provide a copy of that
concurrence to the Commission or its staff.
* * * * *

Exhibit Table
------------------------------------------------------------------------
Securities Act forms
---------------------------------------
A B C \3\ S-8
------------------------------------------------------------------------
(1) Underwriting agreement...... X ........ X ........
(2) Plan of acquisition,
reorganization, arrangement,
liquidation or succession...... X ........ X ........
(3) Articles of Incorporation... X ........ X ........
(ii) By-Laws.................... X ........ X ........
(4) Instruments defining the
rights of security holders,
including indentures........... X X X X
(5) Opinion re legality......... X X X X
(6) [Removed and reserved]...... ........ ........ ........ ........
(7) [Removed and reserved]...... ........ ........ ........ ........
(8) Opinion re tax matters...... X X X ........
(9) Voting trust agreement...... X ........ X ........
(10) Materials contracts........ X ........ X ........
(11) Statement re computation of
per share earnings............. X ........ X ........
(12) Statements re computation
of ratios...................... X ........ X ........
(13) Annual report to security
holders, Form 10-Q or quarterly
report to security holders\1\.. X ........ X ........
(14) [Removed and reserved]..... ........ ........ ........ ........
(15) Letter re unaudited interim
financial information.......... X ........ X X
(16) Letter re change in
certifying accountant.......... X \4\ ........ X \4\ ........
(17) Letter re director
resignation.................... ........ ........ ........ ........
(18) Letter re change in
accounting principles.......... ........ ........ ........ ........
(19) Report furnished to
security holders............... ........ ........ ........ ........
(20) Other documents or
statements to security holders. ........ ........ ........ ........
(21) Subsidiaries of the
registrant..................... X ........ X ........
(22) Published matters regarding
matters submitted to vote of
security holders............... ........ ........ ........ ........
(23) Consents of experts and
counsel \2\.................... X X X X
(24) Power of attorney.......... X ........ X X
925) Statement of eligibility of
trustee........................ X X X ........
(26) Invitation for competitive
bids........................... X ........ X ........
(27) Financial Data Schedule \5\ X ........ X ........
(28) [Removed and Reserved]..... ........ ........ ........ ........
(29) Underwriter Concurrence
with Effective Date............ X X ........ ........
[Reserved (30) through (98)].... ........ ........ ........ ........
(99) Additional Exhibits........ ........ ........ X X
------------------------------------------------------------------------
\1\ Where incorporated by reference into the text of the prospectus and
delivered to security holders along with the prospectus as permitted
by the registration statement; or, in the case of the Form 10-K, where
the annual report to security holders is incorporated by reference
into the text of the Form 10-K.

[[Page 67268]]

\2\ Where the opinion of the expert or counsel has been incorporate by
reference into a previously filed Securities Act registration
statement
\3\ An exhibit need not be provided about a company if
(a) the company meets the requirements of General Instruction I.A.,
I.B., I.C.1 of Form B; and
(b) The Exhibit would not have been required to be filed if the Company
was registering a primary offering on Form B.
\4\ If required pursuant to item 304 of Regulation S-K.
\5\ Financial Data Schedules shall be filed by electronic filers only.
Such schedule shall be filed only when a filing includes annual and/or
interim financial statements that have not been previously included in
a filing with the Commission. See Item 601 of Regulation S-K.

23. By amending Securities Act Industry Guide 5 (referenced in
Sec. 229.801(e)) by removing from paragraph 16 the words ``Form S-1 or
S-11'' and adding, in their place, the words ``Form A (Sec. 239.4 of
this chapter)'' and by revising paragraph 19.D. to read as follows:

Note: The text of Securities Act Industry Guide 5 does not and
this amendment will not appear in the Code of Federal Regulations.
* * * * *

Guide 5

* * * * *

19. Summary of promotional and sales material

* * * * *
D.(1) The registrant or any offering participant must, before its
use, provide the Commission staff supplementally any written sales
material that it intends to furnish investors. This includes all
materials described in paragraph B. The registrant or the offering
participant need not, however, supplementally provide the staff with
sales material if:
(i) the offering is registered on Form A and the registrant meets
the requirements of General Instruction VIII. of that Form;
(ii) the offering is registered on Form B;
(iii) the staff has notified the registrant that its registration
statement will not be reviewed; or
(iv) the sales material is used only internally.
(2) For purposes of this paragraph, sales material includes all
marketing memoranda that are sent by the General Partner or its
affiliates to broker/dealers or other sales personnel and may include
material labeled ``for broker/dealers use only.'' Staff comments, if
any, will be promptly communicated to the registrant. The registrant
should contact the staff before using any sales material that has been
submitted to the staff.

Note to paragraph 19.D.: You should read Securities Act Rule
425. Sales materials may be required to be filed under that Rule.

24. By amending part 229 to add subpart 229.1100 to read as
follows:

Subpart 229.1100--Real Estate Interests

229.1101 (Item 1101) Definitions.
229.1101 (Item 1102) Limitations on transfer.
229.1103 (Item 1103) Summary risk factor information.
229.1104 (Item 1104) Organization.
229.1105 (Item 1105) Operating and financing activities.
229.1106 (Item 1106) Real estate and other investment activities.
229.1107 (Item 1107) Description of real estate and operating data.
229.1108 (Item 1108) Tax treatment of you and your investors.
229.1109 (Item 1109) Certain relationships and related transactions.
229.1110 (Item 1110) Selection, management and custody of
investments.
229.1111 (Item 1111) Conflict of interest policies.
229.1112 (Item 1112) Limitations of liability.
229.1113 (Item 1113) Sales to special parties.

Subpart 229.1100--Real Estate Interests

Sec. 229.1101 (Item 1101) Definitions

For purposes of this subpart 229.1100 of Regulation S-K:
(a) You are a real estate entity if you:
(1) Are a real estate investment trust under Section 856 of the
Internal Revenue Code (26 U.S.C. 856(a)); or (2) Invest in real estate,
interests in real estate, or securities of other real estate investors
as your primary business.

Instruction to Item 1101(a)

``Real estate entity'' does not include any issuer that is an
investment company registered or required to register under the
Investment Company Act of 1940.

(b) Affiliated person means:
(1) Your directors and officers;
(2) Any person directly or indirectly controlling or under direct
or indirect common control with you;
(3) Any record owner who owns, or anyone you know who beneficially
owns, 10 percent or more of any class of your equity securities;
(4) Any promoter directly or indirectly connected with you in any
capacity;
(5) Principal underwriters of securities being registered;
(6) People performing management or advisory services; and (7) Any
associate of any of these people.

Sec. 229.1102 (Item 1102) Limitations on transfer.

Disclose on the cover page of the prospectus any limitations on the
transfer of the securities you are offering. If no market exists for
the securities, so state on the cover page. If a market does exist,
disclose in the prospectus the nature of the market and the market
price as of the latest practicable date before the filing of the
registration statement or an amendment to the registration statement.

Sec. 229.1103 (Item 1103) Summary risk factor information.

In a series of concise bullets or paragraphs, present a summary of
the risk factors of the offering. Address the following, if
appropriate:
(a) A comparison of the percentage of securities being offered to
the public and those issued or to be issued to affiliated person;
(b) The extent to which security holders can be liable for your
acts or obligations;
(c) The allocation of cash distributions between investors who are
affiliated persons and those investors who are not affiliated persons;
and
(d) The compensation and benefits affiliated persons will receive,
directly or indirectly. With respect to underwriters, include a
comparison of the aggregate compensation and benefits to be received by
them with the aggregate net proceeds from the sale of the securities
being registered.

Sec. 229.1104 (Item 1104) Organization.

(a) Provide the following information:
(1) Your name and form of organization;
(2) The State or other jurisdiction whose laws govern your
organization;
(3) The date your governing instruments became operative; and
(4) The date on which your governing instruments will expire, if
any and, if you may be finite life as defined in Item 901 of Regulation
S-K, your planned time period for holding your assets.
(b) Outline any provisions of your governing instruments that
provide that your duration or planned investment holding period may be
shortened or extended.
(c) Summarize the provisions of your governing instruments, or any
policy or proposed policy, relating to the holding of annual or other
meetings of investors.
(d) If you were organized within the last five years, name all
promoters. Indicate whether each promoter holds any position or intends
to hold any position with you.

[[Page 67269]]

Sec. 229.1105 (Item 1105) Operating and financing activities.

For each of the following activities, describe your and your
subsidiaries' policy or proposed policy, indicate if you may change
each policy without a vote of investors, and indicate the extent to
which you have engaged in each activity.
(a) Issue securities senior to the securities you are offering;
(b) Borrow money;
(c) Make loans. Purchasing a portion of publicly distributed bonds,
debentures or other securities, in the original distribution, or
otherwise, is not making a loan;
(d) Invest in another issuer's securities in order to exercise
control;
(e) Underwrite other issuer's securities;
(f) Purchase, sell or trade investments;
(g) Offer securities in exchange for property;
(h) Repurchase or otherwise reacquire your securities; and
(i) Provide annual or other reports to investors. Indicate what the
reports will cover and whether they will include audited financial
statements.
Instruction to Item 1105.

Include a separate description of your policy for each activity.
If you will not engage in a particular activity, specifically state
that you will not.

Sec. 229.1106 (Item 1106) Real estate and other investment activities.

(a) Describe the types of real estate investments you intend to
make and indicate whether you can change this plan without a vote of
investors.
(b) Describe the principles and procedures you and your
subsidiaries will use in investing in the assets.
(c) Disclose the percentage of your and your subsidiaries' assets
you may invest in any one type of investment.
(d) You should include the information below if you or your
subsidiaries might invest in the following types of assets:
(1) Investments in real estate or real estate interests. (i)
Identify the geographic areas where you intend to invest;
(ii) Describe the types of real estate in which you may invest,
such as office buildings, apartment buildings, shopping centers,
industrial and commercial properties, special purpose buildings or
undeveloped land;
(iii) Describe how you intend to operate and finance your real
estate. Disclose any limit on the number or amount of mortgages you may
place on any one piece of property;
(iv) Specifically state whether your policy is to acquire assets
primarily for income or capital gain; and
(v) Disclose your policy as to the amount or percentages of your
assets you may invest in any one property;
(2) Investments in real estate mortgages and mortgage-backed
securities. (i) Describe the types of mortgages you may invest in, such
as first or second mortgages. Disclose whether the mortgages are
guaranteed, and if so, by whom;
(ii) Describe your policy as to the amount or percentage of assets
you may invest in any single mortgage;
(iii) Describe each type of mortgage activity in which you intend
to engage, such as originating or servicing mortgages;
(iv) Describe how long you anticipate holding these investments;
(v) Indicate the types of properties subject to mortgages in which
you intend to invest, such as, single family homes, apartment
buildings, office buildings, bowling alleys, commercial properties or
undeveloped land; and
(vi) Identify the geographic areas where the property underlying
the mortgages is located.
(3) Securities of or interests in other real estate investors. (i)
Describe the types of securities or other interests in persons engaged
in real estate activities in which you may invest, such as common
stock, limited partnership interests, interests in real estate
investment trusts, mortgage-backed securities and joint venture
interests;
(ii) Disclose your policy as to the amount or percentage of your
assets you may invest in each type of security or interest and the
amount or percentage of your assets you may invest in any one issuer;
(iii) Describe the investment policies and primary activities of
persons in which you will invest, such as mortgage sales, investment in
office buildings or investment in undeveloped land; and
(iv) State your criteria for the purchase of these securities or
interests, such as securities listed on a national securities exchange,
minimum net income requirements, period of operation of issuer or
rating of security.
(e) Indicate the type of other securities (e.g., bonds, preferred
stocks, common stocks) and the industry groups in which you may invest
and the percentage of your assets which you may invest in each type or
industry group. Describe how you will acquire these assets.

Sec. 229.1107 (Item 1107) Description of real estate and operating
data.

Provide the following information separately for each material real
estate interest. For all other real estate interests, provide the
following information by classes or groups of properties that
reasonably convey the required disclosure:
(a) For real estate interests in which you or your subsidiaries now
invest or intend to invest:
(1) State the location and describe the general character;
(2) Identify the present and proposed use and discuss whether the
real estate interests are suitable and adequate for the present or
proposed use;
(3) Describe your title to or interest in the real estate;
(4) For each material mortgage, lien or other encumbrance:
(i) Disclose the principal amount;
(ii) Describe the interest and amortization provisions;
(iii) Describe the prepayment provisions;
(iv) Discuss any cross collateralization or cross default
provisions;
(v) Identify the maturity date; and
(vi) Quantify the balance due at maturity assuming no prepayment of
principal;
(5) Disclose principal lease terms;
(6) Outline the terms of any option or contract to purchase or sell
the real estate interests;
(7) Briefly discuss proposed renovation, development or improvement
programs. Quantify the cost of these programs. If you do not have any
plans, state that you have no plan and indicate why you are investing
or will invest in the real estate;
(8) Describe the general competitive conditions in the markets in
which the real estate interests or the underlying properties are
operated; and
(9) State whether management believes that the real estate interest
or the underlying properties are adequately covered by insurance.
(b) For each improved material real estate interest in which you or
your subsidiaries now invest or intend to invest:
(1) Occupancy rate, as a percentage of rentable square footage or
units, for each of the past five years;
(2) Average annual effective rent paid per square foot or per unit
for each of the past five years;
(3) The following schedule of lease expirations in each of the next
ten years:

[[Page 67270]]

----------------------------------------------------------------------------------------------------------------
(A) Total (B) Area (D) Percentage
number of covered by (C) Annual of gross
Year tenants with expiring rental of annual rental
leases leases (sq. expiring for expiring
expiring feet) leases ($) leases
----------------------------------------------------------------------------------------------------------------
Year in which filing is made....................
Second Year.....................................
***.............................................
***.............................................
***.............................................
Tenth Year......................................
----------------------------------------------------------------------------------------------------------------

(4) The number of tenants that occupy ten percent or more of the
rentable square footage, the main business of those tenants and the
principal provisions of their lease including, but not limited to,
annual rent, the expiration date and any renewal option;
(5) The principal businesses, occupations or professions conducted
at the property underlying the real estate interest;
(6) The Federal tax basis, rate, depreciation method and life
claimed for each real estate interest or component for which you charge
depreciation; and
(7) The realty tax rate, annual realty taxes and estimated taxes on
any proposed improvement.
Instructions to Item 1107.

1. You need not provide detailed legal and physical descriptions
of your real estate interest. Rather, you should disclose all
information necessary for an investor to evaluate and understand
your real estate interests. We encourage tabular presentation.
2. A material real estate interest is one that:
(a) Has a book value representing ten percent or more of your
total assets, including assets of your consolidated subsidiaries; or
(b) Produced gross revenue in the last fiscal year that was ten
percent or more of your total revenues for the last fiscal year,
including revenues of your consolidated subsidiaries.

Sec. 229.1108 (Item 1108) Tax treatment of you and your investors.

Describe material Federal income tax consequences for you, your
subsidiaries and your investors including a discussion of:
(a) Your and your subsidiaries' treatment under Federal income tax
laws;
(b) The treatment of distributions to investors under Federal
income tax laws, including gains from the sale of securities or real
estate interests in excess of annual net income; and
(c) The tax treatment of any exchange of securities for real estate
interests or other securities.

Sec. 229.1109 (Item 1109) Certain relationships and related
transactions.

Disclose the aggregate depreciation claimed by the seller for
Federal income tax purposes if:
(a) You provide any information required by Instruction 5 to Item
404(a) of Regulation S-K; and
(b) The assets had been acquired by the seller within five years
prior to the Item 404 of Regulation S-K transaction.

Sec. 229.1110 (Item 1110) Selection, management and custody of
investments.

(a) Describe any arrangements you or your subsidiaries have made or
propose to make with respect to the following. If any of the persons
performing these services is a corporation or other organization,
include the name and principal occupations during the last five years
of each principal executive officer of such corporation or other
organization:
(1) Management of your real estate interests, including arranging
for purchases, sales, leases, maintenance and insurance;
(2) The purchase, sale and servicing of your mortgages; and
(3) Investment advisory services.
(b) If any of these services in paragraph (a) of this Item will be
performed by any affiliated person, other than an officer or director
performing the services in that capacity with no additional
compensation, furnish the following information about each person:
(1) Name and address;
(2) Nature of principal business;
(3) Principal occupations during the last five years;
(4) Nature of all existing direct or indirect material interests in
or business connections with you or any of your affiliated person;
(5) Nature of all services rendered to you; and
(6) Compensation received from you and your subsidiaries, directly
or indirectly, during your last fiscal year and the capacities in which
this remuneration was received.

Sec. 229.1111 (Item 1111) Conflict of interest policies.

Outline your policies and provisions of your governing instruments
which limit any person from any of the following:
(a) Having any financial interest in any investment you or any of
your subsidiaries will acquire or dispose of or in any transaction to
which you or any of your subsidiaries are a party or have an interest;
and
(b) Engaging for their own account in business activities of the
types you and your subsidiaries conduct or will conduct.

Sec. 229.1112 (Item 1112) Limitations of liability.

Outline the principal provisions of your governing instruments or
of any contract or arrangement to which you or a subsidiary are a party
that limit the liability of affiliated person or any of their
directors, officers or employees. Indicate the effect of Section 14 of
the Act (15 U.S.C. 77n) upon any provision broad enough to cover
liability arising under the Act.

Sec. 229.1113 (Item 1113) Sales to special parties.

Name each person or specify each class of persons (other than
underwriters or dealers, acting in that capacity) to whom you or your
subsidiaries have sold securities within the past six months or are
going to sell securities at a different price than you are offering the
same class of securities pursuant to this registration statement. Also
provide this information with respect to any selling security holder
registering securities pursuant to this registration statement. State
the consideration given or to be given by each of these persons or
class.

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

By revising the general authority citation for part 230 to read in
part as follows:

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r,
77s, 77sss, 77z-3, 78c, 78d,

[[Page 67271]]

78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 78mm, 79t, 80a-8, 80a-24,
80a-28, 80a-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
26. By revising paragraph (d) of Sec. 230.110 to read as follows:

Sec. 230.110 Business hours of the Commission.

* * * * *
(d) Filings by facsimile. Registration statements, post-effective
amendments and prospectuses, filed pursuant to Secs. 230.425(c),
230.462(a), (b), (e) or (f) may be filed by facsimile transmission with
the Commission any day (except Saturdays, Sundays and federal holidays)
from 5:30 p.m. to 10 p.m. Eastern Standard Time or Eastern Daylight
Savings Time, whichever is currently in effect.
By revising the introductory text of paragraph (b) of Sec. 230.111
to read as follows:

Sec. 230.111 Payment of fees.

* * * * *
(b) Notwithstanding paragraph (a) of this section, payment of
filing fees for registration statements filed pursuant to
Secs. 230.462(b), (e), or (f) between the hours of 5:30 p.m. and 10
p.m. Eastern Standard Time or Eastern Daylight Savings Time, whichever
is currently in effect may be made by:
* * * * *
By amending Sec. 230.134 by revising the section heading and the
introductory text, the introductory text of paragraph (a) and
paragraphs (a)(3), (a)(13), (a)(14)(i), (b)(1), and (e) to read as
follows:

Sec. 230.134 Registered investment company communications not deemed a
prospectus.

The term prospectus as defined in Section 2(10) of the Act (15
U.S.C. 77b(10)) does not include a notice, circular, advertisement,
letter, or other communication published or transmitted to any person
after a registration statement has been filed by an investment company
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1--
80(a)-64) (``fund'') if the communication contains only the statements
required or permitted by this section.
(a) The communication may include any one or more of the following
items of information, in any order:
* * * * *
(3)(i) The fund's classification and subclassification under the
Investment Company Act of 1940, the type or category of fund and
whether in the selection of investments emphasis is placed upon income
or growth characteristics, and a general description of an investment
company including its general attributes, methods of operation and
services offered provided that such description is not inconsistent
with the operation of the particular fund for which more specific
information is being given, identification of the fund's investment
adviser, any logo, corporate symbol or trademark of the fund or its
investment adviser and any graphic design or device or an attention-
getting headline, not involving performance figures, designed to direct
the reader's attention to textual material included in the
communication pursuant to other provisions of this section; and, with
respect to a fund issuing redeemable securities:
(A) A description of the fund's investment objectives and policies,
services, and method of operation;
(B) Identification of the fund's principal officers;
(C) The year of incorporation or organization or period of
existence of the fund, its investment adviser, or both;
(D) The fund's aggregate net asset value as of the most recent
practicable date;
(E) The aggregate net asset value as of the most recent practicable
date of all funds under the management of the fund's investment
adviser;
(F) Any pictorial illustration that is appropriate for inclusion in
the fund's prospectus and not involving performance figures;
(G) Descriptive material relating to economic conditions, or to
retirement plans or other goals to which an investment in the fund
could be directed, but not directly or indirectly relating to past
performance or implying achievement of investment objectives; and
(H) Written notice of the terms of an offer made solely to all
registered holders of the securities, or of a particular class or
series of securities, issued by the fund proportionate to their
holdings, offering to sell additional shares to such holders of
securities at prices reflecting a reduction in, or elimination of, the
regular sales load charged: Provided that, if any printed material
permitted by paragraphs (a)(3)(i) (A) through (H) of this section is
included, or if any material permitted by paragraphs (a)(3)(i) (A)
through (G) of this section is used in a radio or television
advertisement, the communication shall also contain the following
legend given emphasis no less than that used in the major portion of
the advertisement:

For more complete information about [Name of Fund] including
charges and expenses [get] [obtain] [send for] a prospectus [from
(Name and Address)] [by sending this coupon]. Read it carefully
before you invest or [pay] [forward funds] [send money].

(ii) For purposes of paragraph (a)(3)(i)(B) of this section,
principal officers means the president, secretary, treasurer, any vice-
president in charge of a principal business function and any other
person who performs similar policy making functions for the fund on a
regular basis.
(iii) In the case of two or more funds having the same investment
adviser or principal underwriter, the same information described in
paragraph (a)(3)(i) may be included as to each such fund in a joint
communication on the same basis as it is permitted in communications
dealing with individual funds under paragraph (a)(3)(i).
* * * * *
(13) Offers, descriptions and explanations of any products and
services not constituting securities subject to registration under the
Act, and descriptions of corporations. The offers, descriptions and
explanations may not relate directly to the desirability of owning or
purchasing a security issued by a fund and all direct references to a
security issued by a fund may contain only the statements required or
permitted to be included by the other provisions of this section and
must be placed in a separate and enclosed area in the communication.
(14)(i) With respect to any class of debt securities, any class of
convertible debt securities or any class of preferred stock, the
security rating or ratings assigned to the class of securities by any
nationally recognized statistical rating organization and the name or
names of the nationally recognized statistical rating organization(s)
that assigned such rating(s).
* * * * *
(b) * * *
(1) If the registration statement has not yet become effective, the
following statement:

A registration statement relating to these securities has been
filed with the Securities and Exchange Commission but has not yet
become effective. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement becomes
effective. This [communication] shall not constitute an offer to
sell or the solicitation of an offer to buy.
* * * * *
(e) In the case of a fund that holds itself out as a ``money market
fund,'' a communication used under this section shall contain the
disclosure required by Sec. 230.482(a)(7).

[[Page 67272]]

By revising Sec. 230.135 to read as follows:

Sec. 230.135 Notice of proposed offerings.

(a) All Offerings. For purposes of Section 5 of the Act (15 U.S.C.
77e) only, an issuer or a selling security holder (and any person
acting on behalf of either of them) that publishes through any medium a
notice of a proposed offering will not be deemed to offer its
securities for sale through that notice if:
(1) Legend. The notice includes a statement to the effect that it
does not constitute an offer of any securities for sale; and
(2) Limited notice content. The notice otherwise includes no more
than the following information:
(i) The name of the issuer;
(ii) The title, amount and basic terms of the securities offered;
(iii) The amount of the offering, if any, to be made by selling
security holders;
(iv) The anticipated timing of the offering;
(v) A brief statement of the manner and the purpose of the
offering;
(vi) Whether the issuer is directing its offering to only a
particular class of purchasers;
(vii) Any statements or legends required by the laws of any state
or foreign country or administrative authority; and
(viii) In the following offerings, the notice may contain
additional information, as follows:
(A) In a rights offering to existing security holders:
(1) The class of security holders eligible to subscribe;
(2) The subscription ratio and expected subscription price;
(3) The proposed record date;
(4) The anticipated issuance date of the rights; and
(5) The subscription period or expiration date of the rights
offering.
(B) In an offering to employees of the issuer or an affiliated
company:
(1) The name of the employer;
(2) The class of employees being offered the securities;
(3) The offering price; and
(4) The duration of the offering period.
(C) In an exchange offer:
(1) The basic terms of the exchange offer;
(2) The name of the subject company; and
(3) The subject class of securities.
(b) Corrections of misstatements about the offering. A person that
publishes a notice in reliance on this section may issue a notice that
contains no more information than is necessary to correct inaccuracies
published about the proposed offering.
(c) Rule 145(a) offerings. For purposes of Section 5 of the Act (15
U.S.C. 77e) only, an issuer or a selling security holder (and any
person acting on behalf of either of them) that publishes through any
medium a notice of a transaction described in paragraph (a) of
Sec. 230.145 will not be deemed to offer its securities for sale
through that notice if:
(1) Legend. The notice includes a statement to the effect that it
does not constitute an offer of any securities for sale;
(2) Limited notice content. The notice otherwise includes no more
than the following information:
(i) The name of the issuer;
(ii) The name of the person whose assets are to be sold in exchange
for the securities to be offered;
(iii) The names of any other parties to the transaction;
(iv) A brief description of the business of the parties to the
transaction;
(v) The date, time and place of the meeting of security holders to
vote on or consent to the transaction;
(vi) A brief description of the transaction and the basis upon
which the transaction will be made; and
(vii) Any statements or legends required by the laws of any state
or foreign country or administrative authority.

Sec. 230.135c [Removed and Reserved]

30. By removing and reserving Sec. 230.135c.
31. By amending Sec. 230.135e by revising paragraph (b)(1) to read
as follows:

Sec. 230.135e Offshore press conferences, meetings with issuer
representatives conducted offshore, and press-related materials
released offshore.

* * * * *
(b) * * *
(1) State that:
(i) The written press-related materials are not an offer of
securities for sale in the United States;
(ii) The securities may not be offered or sold in the United States
absent registration or an exemption from registration; and
(iii) Any registered public offering to be made in the United
States will involve a registration statement that will contain
information about the company and management, as well as financial
statements.
* * * * *
32. By revising Sec. 230.137 to read as follows:

Sec. 230.137 Publications by brokers or dealers that are not
participating in a registrant's distribution of securities.

Under the following conditions, a broker or dealer shall not be
considered an underwriter as defined in Section 2(a)(11) of the Act (15
U.S.C. 77b(a)(11)) solely because it publishes or distributes
information, an opinion or a recommendation with respect to the
securities of a registrant that proposes to file, has filed, or has an
effective registration statement under the Act:
(a) The broker or dealer is not participating, and does not propose
to participate, in the distribution of the registered securities;
(b) The issuer is not:
(1) A development stage company that either has no specific
business plan or purpose or has indicated that its business plan is to
engage in a merger or acquisition with an unidentified entity or
entities;
(2) A shell entity having few or no assets, earnings or operations;
or
(3) Registering an offering of penny stock as defined in
Sec. 240.3a51-1 of this chapter; and
(c) In connection with its publication or distribution, the broker
or dealer is not receiving consideration directly or indirectly from,
or acting under any direct or indirect arrangement or understanding
with:
(1) The registrant;
(2) A selling security holder;
(3) Any participant in the distribution; or
(4) Any other person with an interest in the securities that are
the subject of the registration statement.
Instruction to paragraph (c):

This provision does not preclude payment of the regular
subscription or purchase price of the document or other
communication in which the broker or dealer's information, opinion
or recommendation appears.

33. By revising Sec. 230.138 to read as follows:

Sec. 230.138 Publications by a broker or dealer about securities other
than those it is distributing or selling.

[[Page 67273]]

float/average daily trading volume threshold in General Instruction
I.C.1. of Form B (except measured on world-wide markets rather than
only U.S. markets), and has equity securities trading on a designated
offshore securities market as defined in Sec. 230.902(b);
(2) The issuer is not:
(i) A development stage company that either has no specific
business plan or purpose or has indicated that its business plan is to
engage in a merger or acquisition with an unidentified entity or
entities;
(ii) A shell entity having few or no assets, earnings or
operations; or
(iii) Registering an offering of penny stock as defined in
Sec. 240.3a51-1 of this chapter;
(3) The broker or dealer publishes or distributes the information,
opinion or recommendation in the ordinary course of its business;
(4) The publication prominently describes the capacity in which the
broker or dealer is participating in the distribution; and
(5) The information, opinion or recommendation relates to:
(i)(A) An issuer's common stock, or debt or preferred stock
convertible into common stock; and
(B) The issuer proposes to file a registration statement, has filed
a registration statement, or has an effective registration statement
relating to non-convertible debt securities or non-convertible,
nonparticipating preferred stock; or
(ii)(A) An issuer's non-convertible debt securities or non-
convertible, nonparticipating preferred stock; and
(B) The issuer proposes to file a registration statement, has filed
a registration statement, or has an effective registration statement
relating solely to common stock or debt or preferred stock convertible
into common stock.
(b) Certain unregistered offerings. (1) If the conditions set forth
in paragraph (a)(1), (a)(2), (a)(3), (a)(4), (b)(2) and (b)(3) of this
section are satisfied, a broker's or dealer's publication or
distribution of information, an opinion or a recommendation:
(i) Shall not constitute directed selling efforts as defined in
Sec. 230.902(c);
(ii) Shall not be inconsistent with an offshore transaction as
defined in Sec. 230.902(h); and
(iii) Shall be an exception to the prohibition against offers to
persons other than qualified institutional buyers in
Sec. 230.144A(d)(1)(i).
(2) The broker or dealer publishes or distributes the information,
opinion or recommendation in a publication that is distributed with
reasonable regularity in the ordinary course of business.
(3) The information, opinion or recommendation relates to:
(i)(A) An issuer's common stock, or debt or preferred stock
convertible into common stock; and
(B) The issuer proposes to offer or is offering solely non-
convertible debt securities or non-convertible, nonparticipating
preferred stock; or
(ii)(A) An issuer's non-convertible debt securities or non-
convertible, nonparticipating preferred stock; and
(B) The issuer proposes to offer or is offering solely common stock
or debt or preferred stock convertible into common stock.
34. By revising Sec. 230.139 to read as follows:

Sec. 230.139 Publications by brokers or dealers distributing
securities.

(a) Registered offerings. Under the following conditions, a
broker's or dealer's publication or distribution of information, an
opinion or a recommendation shall be exempt from Section 5(b)(1) and
Section 5(c) of the Act (15 U.S.C. 77e(b)(1) and (c)) even if the
broker or dealer is participating or will participate in the
distribution of the issuer's securities to which a registration
statement relates:
(1) Seasoned issuers; larger foreign issuers; foreign government
issuers. (i) The issuer:
(A) Has been subject to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l or 78o(d)) for at
least one year and has filed all reports it was required to file
pursuant to Section 13, 14 or 15(d) of such Act (15 U.S.C. 78m, 78n or
78o(d)) during the last year;
(B) Is a foreign private issuer that:
(1) Is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act;
(2) Satisfies the public float threshold in General Instruction
I.C.1. of Form B (Sec. 239.5 of this chapter) or the public float/
average daily trading volume threshold in General Instruction I.C.1. of
Form B (except measured on markets worldwide rather than only U.S.
markets); and
(3) Has had equity securities trading on a designated offshore
securities market (as defined in Sec. 230.902(b)) for at least one
year;
(C) Is a foreign government issuer eligible to register on Schedule
B (15 U.S.C. 77aa), if the offering is a firm commitment underwritten
offering in excess of $250 million in securities;
(ii) The issuer is not:
(A) A development stage company that either has no specific
business plan or purpose or has indicated that its business plan is to
engage in a merger or acquisition with an unidentified entity or
entities;
(B) A shell entity having few or no assets, earnings or operations;
or
(C) Registering an offering of ``penny stock'' as defined in
Sec. 240.3a51-1 of this chapter;
(iii) The publication prominently describes the capacity in which
the broker or dealer is participating in the distribution; and
(iv) The information, opinion or recommendation is contained in a
publication that is distributed in the ordinary course of business.
(2) All other reporting and non-reporting issuers. (i) The
conditions set forth in paragraphs (a)(1)(ii), (a)(1)(iii) and
(a)(1)(iv) of this section are satisfied;
(ii) The information, opinion or recommendation is contained in a
publication that is distributed with reasonable regularity in the
ordinary course of business;
(iii) The information, opinion or recommendation is contained in a
publication that includes similar information, opinions or
recommendations with respect to a substantial number of issuers in the
issuer's industry or sub-industry, or contains a comprehensive list of
securities currently recommended by such broker or dealer;
(iv) The information, opinion or recommendation is given no
materially greater space or prominence in the publication than that
given to other securities or registrants; and
(v) If the publication contains an opinion or recommendation more
favorable as to the issuer or any class of its securities than that
last published by the broker or dealer prior to the commencement of
participation in the distribution, the publication sets forth the last
two opinions or recommendations published by the broker or dealer with
respect to the issuer or its securities while not participating in a
distribution by the issuer.
(b) Certain unregistered offerings. If the conditions set forth in
paragraph (a)(1) of this section are satisfied, a broker's or dealer's
publication or distribution of information, an opinion or a
recommendation, if contained in a publication that is distributed with
reasonable regularity in the ordinary course of business:
(1) Shall not constitute directed selling efforts as defined in
Sec. 230.902(c);
(2) Shall not be inconsistent with an offshore transaction as
defined in Sec. 230.902(h); and

[[Page 67274]]

(3) Shall be an exception to the prohibition against offers to
persons other than qualified institutional buyers in
Sec. 230.144A(d)(1)(i).
Instructions to Sec. 230.139.

1. For purposes of paragraph (a)(2) of this section, a research
report has not been distributed with ``reasonable regularity'' if it
contains information, an opinion or a recommendation concerning a
company with respect to which a broker or dealer currently is not
publishing research.
2. Projections constitute opinions within the meaning of this
section.
3. For purposes of paragraph (a)(2)(ii) of this section, where
projections of an issuer's sales or earnings are included in a
publication, the broker or dealer must have published the
projections previously on a regular basis in order for the
publication to have been distributed with reasonable regularity in
the ordinary course of business.
4. For purposes of paragraph (a)(2)(iii), the broker or dealer
must have included projections with respect to either a substantial
number of companies in the issuer's industry or sub-industry, or all
companies represented in the comprehensive list of securities
contained in the publication. Also, those projections may not cover
significantly different periods with respect to the issuer as
compared to the other companies.

35. By amending Sec. 230.144A by redesignating paragraphs
(d)(1)(i), (d)(1)(ii), (d)(1)(iii) and (d)(1)(iv) as paragraphs
(d)(1)(ii)(A), (d)(1)(ii)(B), (d)(1)(ii)(C) and (d)(1)(ii)(D); and by
adding new paragraphs (d)(1)(i) and (d)(1)(ii) introductory text to
read as follows:

Sec. 230.144A Private resales of securities to institutions.

* * * * *
(d) * * *
(1)(i) The securities are offered or sold only to a qualified
institutional buyer or to an offeree or purchaser that the seller and
any person acting on behalf of the seller reasonably believe is a
qualified institutional buyer, except that if the seller is a broker or
dealer, it may distribute information, an opinion or a recommendation
in accordance with Sec. 230.138(b) or Sec. 230.139(b) while relying on
this section.
(ii) In determining whether a prospective purchaser is a qualified
institutional buyer, the seller and any person acting on its behalf
shall be entitled to rely upon the following non-exclusive methods of
establishing the prospective purchaser's ownership and discretionary
investments of securities:
* * * * *
36. By amending Sec. 230.145 by revising the last sentence of the
first paragraph of the Preliminary Note and paragraph (b) to read as
follows:

Sec. 230.145 Reclassification of securities, mergers, consolidations
and acquisitions of assets.

Preliminary Note: * * * Issuers must register transactions
described in paragraph (a) of Rule 145 on Form C (Sec. 239.6 of this
chapter), Form SB-3 (Sec. 239.11 of this chapter) or Form N-14
(Sec. 239.23 of this chapter).
* * * * *
(b) Communications. Communications in connection with a registered
transaction described in paragraph (a) of this section may be made in
accordance with Secs. 230.135, 230.165, 230.166, 230.167, 230.168 or
230.169.
* * * * *
37. By revising Sec. 230.152 to read as follows:

Sec. 230.152 Integration of private and public offerings.

(a) Completed private offerings; resales. (1) A completed bona fide
private offering will not be considered part of an offering registered
under the Act as long as the registration statement is filed after the
completion of the private offering. At any time following the
completion of a bona fide private offering, a registrant may register
the securities sold in the private offering for purpose of resale by
persons other than an affiliate or a dealer who has purchased directly
from the issuer or an affiliate of the issuer.
(2) For purposes of paragraph (a)(1) of this section, a private
offering will be considered completed:
(i) As of the date all purchasers in the private offering have paid
the purchase price; or
(ii) As of the date the following are true, provided that the
transaction is not subsequently renegotiated:
(A) All purchasers are unconditionally obligated to pay the
purchase price, except that the purchase obligation may be contingent
on a condition that is not within the direct or indirect control of any
purchaser; and
(B) The purchase price is fixed and is not contingent on the market
price of the securities at or around the time of the registered
offering.
(3) For purposes of paragraph (a)(1) of this section, an offering
of securities underlying convertible securities or warrants will be
considered completed if the offering of the convertible securities or
warrants to which it relates is completed. This is true regardless of
when the convertible securities or warrants become convertible or
exercisable.
(4) For purposes of paragraph (a)(1) of this section, an offering
of securities prior to the issuer's initial offering registered under
Section 5 of the Act (15 U.S.C. 77e) will be considered completed if:
(i) It does not raise capital for the issuer;
(ii) It is undertaken for the sole purpose of modifying the capital
structure of the issuer; and
(iii) It does not involve a roll-up transaction as defined in
Sec. 228.901(c) of this chapter.
(b) Abandoned private offerings followed by offerings registered
other than on Form B. A bona fide private offering of securities will
not be considered part of an offering subsequently registered under
Section 5 of the Act on a form other than Form B (Sec. 239.5 of this
chapter) if:
(1) The registrant notifies all offerees in the private offering of
its abandonment of that offering;
(2) The registrant does not file the registration statement for the
registered offering until at least 30 days after it notified the
offerees of abandonment, where the registrant (or any person acting on
its behalf) offered securities in the private offering to any person
ineligible to purchase in an offering in accordance with Section 4(2)
or 4(6) of the Act (15 U.S.C. 77d(2) or 77d(6)) or Sec. 230.506;
(3) Neither the issuer nor any person acting on its behalf offered
the securities in the private offering by any form of general
solicitation or general advertising (as those terms are used in
Sec. 230.502(c));
(4) No securities were sold in the private offering; and
(5) One of the following conditions is met:
(i) The registrant files any selling materials used in the private
offering as part of the effective registration statement; or
(ii) The registrant informs offerees in the private offering that:
(A) The prospectus delivered in the registered offering supersedes
any selling materials used in the private offering; and
(B) Any indications of willingness to purchase offerees gave during
the private offering are considered rescinded.
(c) Abandoned public offerings followed by private offerings. An
offering of securities for which a registration statement under the Act
was filed or that would have been eligible to be registered on Form B
(collectively, a ``public offering'') will not be considered part of a
subsequent bona fide private offering if:
(1) The issuer notifies all offerees in the public offering of its
abandonment of that offering or, if the issuer filed a

[[Page 67275]]

registration statement for that offering, the issuer withdraws it under
Sec. 230.477;
(2) No securities were sold in the public offering; and
(3) One of the following conditions is satisfied:
(i) If the issuer (or any person acting on its behalf) first offers
the securities in the private offering more than 30 days after
notification of abandonment or withdrawal of the public offering, it
notifies each purchaser in the private offering that:
(A) The offering is not registered under the Act;
(B) The securities are restricted and cannot be resold unless they
are registered under the Securities Act or unless an exemption from
registration is available; and
(C) Investors do not have the protection of Section 11 of the Act
(15 U.S.C. 77k).
(ii) If the issuer (or any person acting on its behalf) first
offers the securities in the private offering 30 or fewer days after
notification of abandonment or withdrawal of the public offering, the
issuer and any underwriter:
(A) Agree in writing, in a manner enforceable by each investor
committing to purchase in the 30-day period following abandonment or
withdrawal of the public offering, that they will be liable for any
material misstatements or omissions in the offering documents used in
the private offering under the standards set by Section 11 of the Act;
and
(B) Agree in writing, in a manner enforceable by each investor
committing to purchase after the 30-day period following abandonment or
withdrawal of the public offering, that they will be liable for any
material misstatements or omissions in the offering documents used in
the private offering under the standards set by Section 12(a)(2) of the
Act (15 U.S.C. 77l(a)(2)).
(d) Definition of terms. For the purposes of this section only, a
private offering means an unregistered offering of securities that is
exempt from registration pursuant to Section 4(2) or 4(6) of the Act or
Sec. 230.506 of Regulation D.

Sec. 230.153 [Removed and Reserved]

38. By removing and reserving Sec. 230.153.
39. By adding Sec. 230.159 to read as follows:

Sec. 230.159 Lock-up agreements.

All offers and sales in a negotiated transaction described in
Sec. 230.145(a) may be registered under Section 5 of the Act (15 U.S.C.
77e) notwithstanding the fact that certain shareholders of the company
to be acquired sign agreements with the acquiror to vote in favor of
the transaction prior to the filing or the effective date of the
registration statement, if:
(a) The agreements are limited to executive officers, affiliates
and directors of the company to be acquired, the founder(s) of that
company and their family members, and holders of 5% or more of the
voting equity securities of that company;
(b) The persons signing the agreements own less than 100% of the
voting equity securities of the company being acquired; and
(c) Votes will be solicited from shareholders of the company to be
acquired who:
(1) Have not signed the agreements; and
(2) Would be ineligible to purchase under an exemption from
registration pursuant to Section 4(2) or 4(6) of the Act (15 U.S.C.
77d(2) or 77d(6)) or Sec. 230.506 of Regulation D.
40. By adding Sec. 230.165 to read as follows:

Sec. 230.165 Post-filing free writing.

Notwithstanding Section 5(b)(1) of the Act (15 U.S.C. 77e(b)(1)),
any prospectus used in connection with an offering after the filing of
a registration statement need not satisfy the requirements of Section
10 (15 U.S.C. 77j) of the Act if:
(a) Prospectus information is delivered in accordance with
Sec. 230.172, as applicable;
(b) The registrant files with the Commission any prospectus used in
reliance on this section when so required by Sec. 230.425; and
(c) The registrant files with the Commission the information
necessary to satisfy the requirements of Section 10(a) of the Act prior
to the first sale in the offering.
41. By adding Sec. 230.166 to read as follows:

Sec. 230.166 Offers made before filing a registration statement.

(a) Form B and seasoned Schedule B offerings. Notwithstanding
Section 5(c) of the Act (15 U.S.C. 77e(c)), an issuer, underwriter or
participating dealer may make an offer to sell or solicit an offer to
buy securities prior to the filing of a registration statement with
respect to those securities if:
(1) At the time of the offer, the registrant and the offering
satisfy the Eligibility Requirements of Schedule B or General
Instruction I of Form B (Sec. 239.5 of this chapter);
(2) Either:
(i) The offering is later registered on Form B; or
(ii) The offering:
(A) Is later registered on Schedule B (15 U.S.C. 77aa);
(B) Is a firm commitment underwritten offering in excess of $250
million in securities; and
(C) Is registered 1 year or more after the effective date of the
registrant's initial registered offering; and
(3) The registrant files any prospectus used in reliance on this
section in the period beginning 15 days before the first offer and
ending with the filing of the registration statement when so required
by Sec. 230.425.
(b) Form C/SB-3 transactions. Notwithstanding Section 5(c) of the
Act, the offeror of securities in a transaction to be registered on
Form C, SB-3, F-8, F-80 or F-10 (Secs. 239.6, 239.11, 239.38, 239.41 or
239.40 of this chapter) (when that form is used in a business
combination transaction) may make an offer to sell or solicit an offer
to buy securities before the filing of a registration statement with
respect to those securities if:
(1) Any prospectus relating to the transaction used in the period
beginning with the first public announcement, and ending with the
filing of the registration statement is filed in accordance with
Sec. 230.425; and
(2) In an exchange offer, the offers are made in accordance with
the tender offer rules; and, in a transaction involving the vote of
security holders, the offers are made in accordance with the proxy
rules.
42. By adding Sec. 230.167 to read as follows:

Sec. 230.167 Exemption from Section 5(c) for certain communications.

(a) In offerings registered on Form B (Sec. 239.5 of this chapter),
any communication made before the offering period shall not constitute
an offer to sell or an offer to buy the securities being offered under
the registration statement for purposes of Section 5(c) of the Act (15
U.S.C. 77e(c)). ``Offering period'' is defined in Form B.
(b) In offerings registered on Forms C (Sec. 239.6 of this
chapter), SB-3 (Sec. 239.11 of this chapter), F-8 (Sec. 239.38 of this
chapter), F-80 (Sec. 239.41 of this chapter) or F-10 (Sec. 239.40 of
this chapter) (when Form F-10 is used in connection with a business
combination transaction), any communication before the first
communication related to the offering (except for communications among
the participants in the offering) shall not constitute an offer to sell
or an offer to buy the securities being offered under the registration
statement for purposes of Section 5(c) of the Act, provided that the
parties to the transaction take all

[[Page 67276]]

reasonable steps within their control to prevent further distribution
or publication of such communication during the period between that
first communication and the date of filing the registration statement.
(c) In all offerings other than those described in paragraph (a) or
(b) of this section or those registered on Form S-8 (Sec. 239.16b of
this chapter), any communication made by an issuer, underwriter or
participating dealer more than 30 days before the date of filing of the
registration statement shall not constitute an offer to sell or offer
to buy the securities being offered under the registration statement
for purposes of Section 5(c) of the Act, provided that the issuer,
underwriter(s) or participating dealer(s) take all reasonable steps
within their control to prevent further distribution or publication of
such communication during the 30 days immediately preceding the date of
filing the registration statement.
43. By adding Sec. 230.168 to read as follows:

Sec. 230.168 Regularly released forward-looking information.

(a) Except in connection with offerings registered on Form S-8, C,
SB-3, F-8, F-80 or F-10 (when that form is used in a business
combination transaction), (Sec. 239.16b, 239.6, 239.11, 239.38, 239.41
or 239.40 of this chapter) in a registered offering by an issuer that
is subject to the requirements of Section 12 or 15(d) of the Exchange
Act (15 U.S.C. 78l or 78o(d)), the dissemination of regularly released
forward-looking information by an issuer, underwriter or participating
dealer in the 30-day period immediately preceding the filing of a
registration statement shall be exempt from the prohibitions on offers
to sell or offers to buy set forth in Section 5(c) of the Act (15
U.S.C. 77e(c)), if the registrant files any prospectus used in reliance
on this section when so required by Sec. 230.425.
(b) In an offering registered on Form S-8, C, SB-3, F-8, F-80 or F-
10 (when that form is used in a business combination transaction) by an
issuer that is subject to the requirements of Section 12 or 15(d) of
the Exchange Act, the dissemination of regularly released forward-
looking information by an issuer, underwriter or participating dealer
in the period after the public announcement of the offering and prior
to the filing of the registration statement shall be exempt from the
prohibitions on offers to sell or offers to buy in Section 5(c) of the
Act, if the registrant files any prospectus used in reliance on this
section when so required by Sec. 230.425.
(c) For purposes of this section, ``regularly released forward-
looking information'' includes the information listed in paragraphs
(c)(1) through (c)(4) of this section, if the issuer customarily
releases information of this type in the ordinary course of business on
a regular basis, it has done so in the two fiscal years (and any
portion of a fiscal year) immediately prior to the communication, and
the time, manner and form in which it is released is consistent with
past practice:
(1) Projections of the issuer's revenues, income (loss), earnings
(loss) per share, capital expenditures, dividends, capital structure or
other financial items;
(2) Statements about the issuer management's plans and objectives
for future operations, including plans or objectives relating to the
products or services of the issuer;
(3) Statements about the issuer's future economic performance of
the type contemplated by the management's discussion and analysis of
financial condition and results of operation described in Sec. 229.303
of this chapter or Item 9 of Form 20-F (Sec. 249.220f of this chapter);
and
(4) Assumptions underlying or relating to any of the information
described in paragraphs (c)(1), (c)(2) and (c)(3) of this section.
By adding Sec. 230.169 to read as follows:

Sec. 230.169 Factual business communications.

(a) Except in connection with offerings registered on Form S-8, C,
SB-3, F-8, F-80 or F-10 (when that form is used in a business
combination transaction), (Secs. 239.16b, 239.6, 239.11, 239.38, 239.41
or 239.40 of this chapter), factual business communications made by an
issuer, underwriter or participating dealer in the 30-day period
immediately preceding the filing of a registration statement with
respect to a registered offering shall be exempt from the prohibitions
on offers to sell and offers to buy in Section 5(c) of the Act (15
U.S.C. 77e(c)).
(b) In an offering registered on Form S-8, C, SB-3, F-8, F-80 or F-
10 (when that form is used in a business combination transaction),
factual business communications made by an issuer, underwriter or
participating dealer after the public announcement of the offering and
prior to the filing of the registration statement shall be exempt from
the prohibition on offers to sell and offers to buy in Section 5(c) of
the Act.
(c) For purposes of this section, factual business communications
include:
(1) Factual information about the issuer or some aspect of its
business;
(2) Advertisement of the issuer's products or services;
(3) Factual business or financial developments with respect to the
issuer;
(4) Dividend notices;
(5) Factual information set forth in any Exchange Act report the
issuer is required to file; and
(6) Factual information communicated in response to unsolicited
inquiries by persons that are not affiliates of the issuer, underwriter
or participating dealer.
(d) For purposes of this section, factual business communications
do not include:
(1) Information about the registered offering; or
(2) Forward-looking information.
45. By adding Sec. 230.172 to read as follows:

Sec. 230.172 Delivery of prospectus information.

The issuer, selling security holders, any underwriter, any
participating broker or dealer, and any person acting on behalf of any
of them, must deliver prospectus information to each person offered
securities in connection with an offering registered under the Act as
follows:
(a) Form B and Schedule B seasoned registrants. If the registrant
is offering securities as described in paragraph (a)(1) of this
section, then delivery under paragraph (a)(2) of this section must be
made.
(1) Securities in an offering registered on:
(i) Form B (Sec. 239.5 of this chapter), other than pursuant to
General Instruction I.C.6. of Form B; or
(ii) Schedule B (15 U.S.C. 77aa), where it is a firm commitment
underwritten offering in excess of $250 million in securities that is
registered more than one year after the effective date of the
registrant's initial registered offering;
(2) A term sheet prospectus that contains the following information
must be sent in a manner reasonably designed to arrive before the date
an investor makes a binding investment decision:
(i) An itemization of the material terms of the securities in
summary format;
(ii) The name of any person, other than the issuer, for whose
account securities are offered and a brief identification of any
material

[[Page 67277]]

relationship such person has (or had within the past three years) with
the issuer or any affiliate of the issuer;
(iii) The identity and location of a contact person to whom
questions may be directed; and
(iv) The identity and location of a person who, upon request, will
send promptly the documents that define the terms of the securities.
(b) Other registrants--firm commitment underwritten offerings. If
an offering is registered on Form A, Form SB-1, Form SB-2, Form F-7,
Form F-9, Form F-10 (other than in a business combination transaction),
(Secs. 239.4, 239.9, 239.10, 239.37, 239.39, 230.40 of this chapter) or
on Schedule B (other than as described in paragraph (a) of this
section), is underwritten on a firm commitment basis and the offering:
(1) Is the registrant's initial offering registered in accordance
with Section 5 of the Act (15 U.S.C. Sec. 77e) or is an offering
registered within one year of the effective date of the registrant's
initial registered offering, then a prospectus satisfying Section 10 of
the Act (15 U.S.C. Sec. 77j) must be sent to each investor in a manner
reasonably designed to arrive at least 7 calendar days before the
pricing of the securities.
(2) Takes place more than one year after the effective date of the
registrant's initial offering registered in accordance with Section 5
of the Act, then a prospectus satisfying Section 10 of the Act must be
sent to each investor in a manner reasonably designed to arrive at
least 3 calendar days before the pricing of the securities.
(c) Other registrants--non-firm commitment underwritten offerings.
If an offering is registered on Form A, Form SB-1, Form SB-2, Form F-7,
Form F-9, Form F-10 (other than in a business combination), or on
Schedule B (other than as described in paragraph (a) of this section),
is not underwritten on a firm commitment basis and the offering:
(1) Is the registrant's initial offering in accordance with Section
5 of the Act or is an offering taking place within one year of the
effective date of the registrant's initial registered offering, then a
prospectus satisfying Section 10 of the Act must be sent to each
investor in a manner reasonably designed to arrive at least 7 calendar
days before the investor signs a subscription agreement or otherwise
commits to purchase securities.
(2) Takes place more than one year after the effective date of the
registrant's initial registered offering in accordance with Section 5
of the Act, then a prospectus satisfying Section 10 of the Act must be
sent to each investor in a manner reasonably designed to arrive at
least 3 days before the investor signs a subscription agreement or
otherwise commits to purchase the securities.
Note to paragraphs (b) and (c).

The issuer, underwriter or participating broker or dealer may
choose to deliver a prospectus meeting the requirements of Section
10(a), instead of a prospectus meeting the requirements of Section
10, if it does so in accordance with the terms of paragraphs (b) and
(c) of this section.

(d) Roll-ups. Notwithstanding paragraphs (a) through (c) of this
section, if a registrant is registering a roll-up transaction as
defined in Sec. 229.901(c) of this chapter, a prospectus that satisfies
the requirements of Section 10 of the Act must be sent to each investor
no later than the earlier of:
(1) 60 calendar days before the meeting at which the roll-up
transaction will be submitted to a vote or 60 calendar days before the
earliest date on which partnership action could be taken by consent;
and
(2) The date calculated by applying the maximum number of days
permitted for giving notice under applicable state law.
(e) Material changes. If not previously disclosed by any other
means to investors, material changes to the information reflected in
the prospectus delivered must be set forth in a document sent to each
investor in a manner reasonably designed to arrive at least 24 hours
before:
(1) The securities are priced, if the offering is subject to
paragraph (b) of this section;
(2) The investor signs a subscription agreement or otherwise
commits to purchase securities, if the offering is subject to paragraph
(c) of this section; or
(3) The date of the meeting at which the transaction will be
submitted to a vote or on which partnership action could be taken by
consent, if the offering is subject to paragraph (d) of this section.
(f) Rule 462 registration statements. Notwithstanding paragraphs
(a) through (d) of this section, if an offering is registered in part
through a registration statement filed under Sec. 230.462(b) or
Sec. 230.462(e), a prospectus delivered with respect to the earlier
registration statement to an investor in compliance with this
Sec. 230.172 will be deemed to satisfy the delivery requirements with
respect to that investor under this Sec. 230.172 with respect to the
Sec. 230.462(b) or Sec. 230.462(e) registration statement for the
offering, provided that the issuer, underwriter or participating dealer
otherwise informs investors purchasing in the offering of the change in
the size of the offering.
46. By adding Sec. 230.173 to read as follows:

Sec. 230.173 Delivery of final prospectuses.

Notwithstanding Section 5(b)(2) of the Act (15 U.S.C. 77e(b)(2)), a
prospectus that meets the requirements of Section 10(a) of the Act (15
U.S.C. 77j(a)) need not precede or accompany the carrying or delivery
of any security by any person in an offering registered other than on
Form S-8, Form C, Form SB-3, Form F-8, Form F-80 or F-10 (when that
form is used in a business combination transaction) (Secs. 239.16b,
239.6, 239.11, 239.38, 239.41 or 239.40 of this chapter) provided that:
(a) Prospectus information that satisfies the requirements of
Section 10(a) of the Act other than the price-related information that
may be omitted pursuant to Sec. 230.430A is filed with the Commission
prior to the transmission of any confirmation in connection with the
offering;
(b) Delivery of prospectus information in accordance with
Sec. 230.172 or Sec. 230.174, as applicable, has been made;
(c) At or before the time they receive any confirmation of sale,
investors are informed where they can acquire promptly the prospectus
information that meets the requirements of Section 10(a) of the Act,
free of charge; and
(d) The security being carried or delivered is not issued by an
investment company.
47. By revising Sec. 230.174 to read as follows:

Sec. 230.174 Aftermarket delivery of prospectuses by dealers.

(a) For transactions that take place prior to the expiration of the
40-day or 90-day period specified in Section 4(3) of the Act (15 U.S.C.
77d(3)) in which a dealer is obliged to deliver a Section 10(a) (15
U.S.C. 77j(a)) prospectus, the dealer need only satisfy that obligation
in transactions occurring during a period of twenty-five calendar days
after the later of:
(1) The effective date of the registration statement; or
(2) The first date on which the security was bona fide offered to
the public.
(b) For purposes of paragraph (a) of this section, the required
prospectus is delivered if:
(1) A prospectus satisfying the requirements of Section 10(a)
(other than omitting price-related information pursuant to
Sec. 230.430A) is on file with the Commission; and
(2) Prior to or at the same time each investor receives a
confirmation the

[[Page 67278]]

dealer notifies it as to where it may obtain promptly that prospectus,
free of charge.
(c) Paragraph (a) of this section shall not apply to any
transaction relating to a blank check company (as defined in
Sec. 230.419). In such transactions, all dealers must deliver a
prospectus satisfying the requirements of Section 10(a) for ninety
calendar days after the date the funds and securities are released from
the escrow or trust account under Sec. 230.419.
(d) If a registration statement relates to offerings made on a
continuous basis, a dealer's prospectus delivery obligation expires
after the initial prospectus delivery period specified in this section.
(e) This section shall not apply to any transaction in which:
(1) The registration statement is the subject of a stop order
issued under Section 8 of the Act (15 U.S.C. 77h); or
(2) The Commission provides, upon application or on its own motion,
another aftermarket delivery obligation.
(f) Nothing in this section shall affect any obligation to deliver
a prospectus pursuant to the provisions of Section 5 of the Act (15
U.S.C. 77e) by a dealer who:
(1) Is acting as an underwriter with respect to the securities
involved; or
(2) Is engaged in a transaction as to securities constituting the
whole or a part of an unsold allotment to, or subscription by, that
dealer as a participant in the distribution of the securities by the
issuer or by or through an underwriter.
(g) No prospectus need be delivered in the 40-day or 90-day period
specified in Section 4(3) of the Act (15 U.S.C. 77d(3)) if the
registration statement is on Form F-6 (Sec. 239.36 of this chapter).
48. By amending Sec. 230.176 by revising the section heading and
the introductory text; by removing the word ``and'' at the end of
paragraph (g); revising ``incorporated.'' at the end of paragraph (h)
to read ``incorporated; and''; and by adding paragraph (i) to read as
follows:

Sec. 230.176 Reasonable investigation and reasonable grounds for
belief under Section 11 of the Act and reasonable care under Section
12(a)(2) of the Act.

In determining whether or not the conduct of a person, other than
the issuer, constitutes a reasonable investigation or a reasonable
ground for belief meeting the standard set forth in Section 11(c) of
the Act (15 U.S.C. 77k(c)) or the exercise of reasonable care meeting
the standard set forth in Section 12(a)(2) of the Act (15 U.S.C.
77l(a)(2)), relevant circumstances to include:
* * * * *
(i)(1) The circumstances listed in paragraph (i)(3) of this section
if:
(i) The person is an underwriter;
(ii) Investment grade debt securities are not being offered;
(iii) The offering is marketed and priced in fewer than five days;
(iv) The issuer meets the requirements of General Instruction
I.B.2. of Form B (Sec. 239.5 of this chapter); and
(v) The offering is registered on Form B (Sec. 239.5 of this
chapter) pursuant to either General Instruction I.C.1. or I.C.2.
(2) The absence of any one or more of the circumstances listed in
paragraph (i)(3) of this section, except for paragraph (i)(3)(i) of
this section, should not be considered definitive in reaching a
conclusion regarding whether the conduct of the underwriter met the
standards set forth in Section 11(c) or 12(a)(2) of the Act.
(3)(i) Whether the underwriter:
(A) Reviewed the registration statement (which, for purposes of
this section, includes all amendments and supplements to it and all
documents incorporated by reference into it); and
(B) Conducted a reasonable inquiry into any fact or circumstance
that would have caused a reasonable person to question whether the
registration statement contains an untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(ii) Whether the underwriter discussed the information contained in
the registration statement with the relevant executive officer(s) of
the issuer (including, at a minimum, its chief financial officer or
chief accounting officer or that person's designee (or person
performing those functions)) and the issuer's chief financial officer
or chief accounting officer or that person's designee (or person
performing those functions) certified to the underwriter that:
(A) He or she has read the registration statement; and
(B) To the best of his or her knowledge after reasonable
investigation, the registration statement does not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(iii) Whether the underwriter received from the independent
accountants responsible for the audited financial statements included
in the registration statement a letter contemplated by Statement on
Auditing Standards No. 72 of the American Institute of Certified Public
Accountants;
(iv) Whether the underwriter received an opinion from the issuer's
legal counsel substantially to the effect that:
(A) Counsel is of the opinion that the registration statement and
prospectus (except for financial statements, financial data and
schedules included therein as to which counsel need not express any
opinion) comply as to form in all material respects with the Act and
the rules and regulations of the Commission thereunder; and
(B) Counsel has participated in the drafting and preparation of the
registration statement and prospectus and nothing that has come to the
attention of counsel that has caused it to believe that the
registration statement (except for financial statements, financial data
and schedules as to which counsel need not express any belief),
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(v)(A) Whether the underwriter employed legal counsel that
reviewed:
(1) The issuer's registration statement and all periodic reports
filed by the issuer with the Commission for the last full fiscal year
ended prior to the offering and any portion of a fiscal year
thereafter; and
(2) The issuer's charter, by-laws, corporate minutes for the last
full fiscal year ended prior to the offering and any portion of a
fiscal year thereafter, and all material contracts entered into by the
issuer in the last five years prior to effectiveness of the
registration statement;
(B) Whether underwriter's counsel opined substantially to the
effect that nothing has come to its attention that would lead it to
believe that the registration statement contains an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vi) Whether the underwriter employs a research analyst that:
(A) For at least the 6 months immediately prior to the commencement
of the offering, has followed the issuer or the issuer's industry on an
ongoing basis;
(B) Has issued a report on the issuer or the issuer's industry
within the 12 months immediately prior to the commencement of the
offering; and
(C) Has been consulted by the underwriter in connection with the
disclosure used in the offering.
49. By amending Sec. 230.401 by revising paragraph (g) to read as
follows:

[[Page 67279]]

Sec. 230.401 Requirements as to proper form.

* * * * *
(g) Except for registration statements and post-effective
amendments that become effective automatically pursuant to
Sec. 230.462, Sec. 230.464 and 230.485(b) (including registration
statements that become effective automatically at the time designated
by the issuer in accordance with Sec. 230.462(f)(2)), a registration
statement or any amendment thereto is deemed filed on the proper form
unless the Commission objects to the form before the effective date.
50. By revising paragraph (d) of Sec. 230.402 to read as follows:

Sec. 230.402 Number of copies; binding; signatures.

* * * * *
(d) Notwithstanding any other provision of this section, if a
registrant files a registration statement pursuant to Sec. 230.462(b),
Sec. 230.462(e) or Sec. 230.462(f) by facsimile pursuant to
Sec. 230.110(d), the registrant need only file one complete copy of the
registration statement with the Commission. That copy must include all
exhibits and other documents that are a part of it. That copy need not
be bound. It may include facsimile versions of signatures in accordance
with paragraph (e) of this section.
* * * * *
51. By amending Sec. 230.405 by revising the definition of ``small
business issuer'' to read as follows:

Sec. 230.405 Definitions of terms.

* * * * *
Small Business Issuer. The term ``small business issuer'' means an
entity that meets the following criteria:
(1) Has revenues (including revenues of any consolidated
subsidiaries) of less than $50,000,000;
(2) Is a U.S. or Canadian issuer;
(3) Is not an investment company;
(4) If a majority-owned subsidiary, the parent corporation is also
a small business issuer; and (5) Each majority owned subsidiary of the
entity, if any, meets the criteria in paragraphs (2) and (3) of this
definition.
* * * * *

Sec. 230.406 [Amended]

52. By amending Sec. 230.406 by removing in paragraph (a) the words
``Form S-3, F-2, F-3 (Sec. 239.13, 239.32 or 239.33 of this chapter)
relating to a dividend or interest reinvestment plan, or on Form S-4
(Sec. 239.25 of this chapter) complying with General Instruction G of
that Form'' and adding, in their place, the words ``Form B (Sec. 239.5
of this chapter), or on Form A (Sec. 239.4 of this chapter) complying
with General Instruction VIII. of that Form where the issuer plans to
have the registration statement become effective upon filing or fewer
than 20 days thereafter''.

Sec. 230.415 [Amended]

53. By amending paragraph (a)(1)(x) of Sec. 230.415 by removing the
words ``Form S-3 or Form F-3 (Sec. 239.13 or Sec. 239.33 of this
chapter)'' and adding, in their place, the words ``Form B (Sec. 239.5
of this chapter)''.
54. By amending Sec. 230.418 by revising the first sentence of the
introductory text of paragraph to read as follows:

Sec. 230.418 Supplemental information.

(a) The Commission or its staff may, where it deems appropriate,
request supplemental information not otherwise filed with the
Commission concerning the registrant, the registration statement, the
distribution of the securities, market activities and underwriters'
activities. * * *
* * * * *
55. By removing in Sec. 230.418(a)(3) the words ``eligible to use
Form S-2 or Form S-3 (Secs. 239.12 or 239.13 of this chapter)'' and
adding, in their place, the words ``that meets the requirements of
General Instructions II.A. and II.B of Form A (Sec. 239.4 of this
chapter) or is eligible to use Form B (239.5 of this chapter)''.
56. By amending Sec. 230.421 by adding paragraph (e) to read as
follows:

Sec. 230.421 Presentation of Information in Prospectuses.

* * * * *
(e) If a prospectus is not subject to the informational
requirements of Section 10 of the Act, it must contain a prominent
legend that urges investors to read filed documents because they
contain important information. The legend must identify the other types
of filings available about the offering, for example: free writing,
term sheet, Exchange Act reports, and prospectus (registration
statement). The legend must also explain that investors can get the
document(s) for free at the SEC's web site and explain which documents
are free from the issuer. You may adapt the following legend or write
your own in plain English:

Example: Before you invest, you should read the other
document(s) that we have filed with the SEC. These documents
[describe or name the documents] contain important information that
you need to consider before making an investment decision. You may
get these documents for free by visiting EDGAR on the SEC web site
at www.sec.gov. We will send you [describe or name the documents]
for free if you call us at 1 800 xxx-xxxx.

57. By amending Sec. 230.424 by revising the section heading and
paragraph (b)(2); revising Instruction 1 and redesignating it as
``Instruction to Sec. 230.424''; and by removing paragraph (b)(7) and
Instruction 2 to read as follows:

Sec. 230.424 Filing of Section 10 prospectuses; number of copies.

* * * * *
(b) * * *
(2) A prospectus used in connection with a primary offering of
securities made on a delayed basis pursuant to Secs. 230.415(a)(1)(vii)
or 230.415(a)(1)(viii) that discloses the public offering price,
description of securities, specific method of distribution or similar
matters shall be filed with the Commission no later than the second
business day following the earlier of:
(i) The date the offering price is determined; and
(ii) The date the prospectus is first used after effectiveness in
connection with a public offering or sale.
* * * * *
Instruction to Sec. 230.424. Notwithstanding Secs. 230.424(b)(2)
and 230.424(b)(5), a form of prospectus or prospectus supplement
relating to an offering of mortgage-related securities on a delayed
basis under Sec. 230.415(a)(1)(vii) that is required to be filed
pursuant to paragraph (b) of this section shall be filed with the
Commission no later than the second business day it is first used
after effectiveness in connection with a public offering or sale.
* * * * *
58. By adding Sec. 230.425 to read as follows:

Sec. 230.425 Filing of ``free writing'' and other prospectuses.

(a) A registrant must file under this section the information
described in paragraph (b) of this section except that it need not
file:
(1) Any factual business communication, as defined in Sec. 230.169,
regardless of when it is made;
(2) Any research report used in reliance on Sec. 230.137,
Sec. 230.138, Sec. 230.139, Sec. 230.165 or Sec. 230.166;
(3) Any information used in connection with an offering under Form
S-8 (Sec. 239.16b of this chapter);
(4) Any information used in connection with an offering on Form B
(Sec. 239.5 of this chapter) under a dividend or interest reinvestment
plan;
(5) Any information used in connection with a direct stock purchase
plan;
(6) Any information filed or to be filed as part of an effective
registration statement (except in a business combination transaction
registered on

[[Page 67280]]

Form C, SB-3, F-8, F-10 or F-80 (Secs. 239.6, 239.11, 239.38, 239.40 or
239.41)); or
(7) Any confirmation described in Sec. 240.10b-10 of this chapter;
(b)(1) Five copies of any prospectus used in reliance on
Sec. 230.165 shall be filed with the Commission on or before the date
of first use.
(2) Five copies of any prospectus used prior to the filing of a
registration statement in reliance on Sec. 230.166(a) shall be filed
with the Commission at the time the related registration statement is
filed.
(3) Five copies of any prospectus used before the filing of a
registration statement in reliance on Sec. 230.166(b) shall be filed
with the Commission on or before the date of first use. Each copy of a
prospectus filed under this section must identify the filer and the
company that is the subject of the offering in the upper right corner
of the cover page in addition to the information required by paragraph
(c) of this section.
(4) Five copies of any prospectus used in reliance on Sec. 230.168
shall be filed with the Commission at the time the related registration
statement is filed.
(c) Each copy of a prospectus filed under this section shall
contain, in the upper right corner of the cover page, the Commission
file number for the related registration statement or, if that file
number is unknown, a description sufficient to identify the related
registration statement.

Sec. 230.428 [Amended]

59. By removing in Sec. 230.428(b)(2)(iii) the words ``or F-1
(Sec. 239.31 of this chapter)'' and adding, in their place, the words
``or Form A (Sec. 239.4 of this chapter)''.
60. By revising Sec. 230.429 to read as follows:

Sec. 230.429 Prospectus relating to several registration statements.

(a) Where a registrant has filed two or more registration
statements, it may file a single prospectus in the latest one in order
to satisfy the requirements of the Act and the rules and regulations
thereunder for that offering and any other offering(s) registered on
the earlier registration statement(s). The combined prospectus in the
latest registration statement must include all of the information that
would currently be required in a prospectus relating to all offering(s)
it covers. The combined prospectus may be filed as part of the initial
filing of the latest registration statement, in a pre-effective
amendment to it or in a post-effective amendment to it.
(b) Where a registrant relies on paragraph (a) of this section, the
registration statement containing the combined prospectus shall act,
upon effectiveness, as a post-effective amendment to those registration
statements whose offerings have been combined into the new or amended
registration statement. The registrant must identify the earlier
registration statement(s) to which the combined prospectus relates by
setting forth the Commission file number(s) at the bottom of the facing
page of the latest registration statement.
61. By amending Sec. 230.430A by removing the word ``fifteen'' and
adding, in each place it appears, the word ``five'' in paragraph (a)(3)
and by revising the last sentence of Instruction to Paragraph (a) to
read as follows:

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

* * * * *
Instruction to Paragraph (a). * * * Notwithstanding the
foregoing, any increase or decrease in volume (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the price
range may be reflected in the form of prospectus filed with
Commission pursuant to Sec. 230.424(b)(1) or Sec. 230.497(h) if, in
the aggregate, the changes in volume and price result in no more
than a 20% change in the amount of net proceeds disclosed in a
prospectus that was delivered to investors in accordance with
Sec. 230.172(b) or, if no prospectus was required to be delivered,
in the prospectus that was part of the effective registration
statement.
* * * * *

Sec. 230.431 [Removed and Reserved]

62. By removing and reserving Sec. 230.431.
63. By revising Sec. 230.434 to read as follows:

Sec. 230.434 Prospectus delivery requirements in firm commitment
underwritten offerings by registered investment companies.

(a) Where an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) registers an offering of
securities on Form N-2 (Sec. 274.11a-1 of this chapter) or Form S-6
(Sec. 239.16 of this chapter) and the conditions described in paragraph
(b) are satisfied, then:
(1) The prospectus subject to completion and the term sheet
described in paragraph (b)(4), taken together, shall constitute a
prospectus that meets the requirements of Section 10(a) of the Act (15
U.S.C. 77j(a)) for purposes of Section 2(a)(10) of the Act (15 U.S.C.
77b(a)(10)) and Section 5(b)(2) of the Act (15 U.S.C. 77e(b)(2)); and
(2) The Section 10(a) prospectus described in paragraph (a)(1)
shall have:
(i) Been sent or given prior to or at the same time that a
confirmation is sent or given for purposes of Section 2(a)(10) of the
Act; and
(ii) Accompanied or preceded the transmission of the securities for
purpose of sale or for delivery after sale for purposes of Section
5(b)(2) of the Act.
(b) Conditions:
(1) The securities are offered for cash in a firm commitment
underwritten offering;
(2) A prospectus subject to completion and any term sheet described
in paragraph (b)(iv), together or separately, are sent or given prior
to or at the same time with the confirmation;
(3) The prospectus subject to completion and term sheet, together,
are not materially different from the prospectus in the registration
statement at the time of its effectiveness or an effective post-
effective amendment thereto (including, in both instances, information
deemed to be a part of the registration statement at the time of
effectiveness pursuant to Rule 430A(b) (Sec. 230.430A(b)); and
(4) The term sheet under this paragraph (b) sets forth all
information material to investors with respect to the offering that is
not disclosed in the prospectus subject to completion or the
confirmation.
(c) The information contained in any term sheet described in this
section shall be deemed to be a part of the registration statement as
of the time such registration statement was declared effective.

Instruction: Any form of prospectus or term sheet used in
reliance on this section shall be filed in accordance with
Sec. 230.497(h).

(d) Any term sheet described under this section shall state, at the
top center of its cover page, that the term sheet is a supplement to a
prospectus and identify that prospectus by issuer name and date;
clearly identify the document as a term sheet used in reliance on Rule
434; set forth the approximate date of the term sheet's first use; and
clearly identify the documents that, when taken together, constitute
the Section 10(a) prospectus.
(e) For purposes of this section, prospectus subject to completion
shall mean any prospectus that is either a preliminary prospectus used
in reliance on Rule 430 (Sec. 230.430) or a prospectus omitting
information in reliance on Rule 430A (Sec. 230.430A).
64. By revising Sec. 230.455 to read as follows:

[[Page 67281]]

Sec. 230.455 Place of filing.

All registration statements and other papers filed with the
Commission under the Act in paper format shall be filed at its
principal office, except for registration statements and post-effective
amendments thereto filed via facsimile pursuant to Sec. 230.110(d).
Materials not filed electronically or via facsimile may be filed by
delivery to the Commission through the mails or otherwise.
65. By amending Sec. 230.456 by revising the section heading;
designating the current text as paragraph (a); and adding paragraph (b)
to read as follows:

Sec. 230.456 Date of filing, timing for fee payment by small business
issuers.

* * * * *
(b)(1) Notwithstanding Section 6 of the Act (15 U.S.C. 77f) and
paragraph (a) of this section, a small business issuer filing a
registration statement on Form SB-1, SB-2 or SB-3 (Secs. 239.9, 239.10
or 239.11 of this chapter) that contains the delaying amendment
described in Sec. 230.473(a) may defer payment of the registration fee
required by Section 6, provided that it pays the fee no later than the
first date to occur of the following:
(i) The date on which the small business issuer requests that the
Commission grant effectiveness of the registration statement under
Section 8(a) of the Act (15 U.S.C. 77h(a)); or
(ii) The date on which the small business issuer files an amendment
to the registration statement that states that the registration
statement shall thereafter become effective in accordance with the
provisions of Section 8(a) of the Act, as described in Sec. 230.473(b).
(2) Notwithstanding Section 6(c) of the Act, where the small
business issuer defers payment of the registration fee in accordance
with paragraph (b)(1) of this section, the registration statement (and
any amendment thereto) will be considered filed when it is received by
the Commission (assuming all requirements of the Act and the rules that
apply to such filing have been complied with, other than payment of the
registration fee).
66. By amending Sec. 230.457 by adding paragraphs (f)(5), (p) and
(q) and revising the first sentence of paragraph (o) to read as
follows:

Sec. 230.457 Computation of Fee.

* * * * *
(f) * * *
(5) If a filing fee is paid pursuant to this paragraph for the
registration of an offering and the registration statement also covers
the resale of such securities, no additional filing fee is required to
be paid with respect to the resale.
* * * * *
(o) Where an issuer is registering an offering of securities, the
registration fee may be calculated on the basis of the maximum
aggregate offering price of all the securities listed in the
``Calculation of Registration Fee'' table. * * *
(p) Where all or a portion of the securities offered under a
registration statement remain unsold after the offering's completion or
termination, the dollar amount of the filing fee paid that is
associated with the unsold securities may be used as an offset against
the total filing fee due to be paid for a subsequent registration
statement or registration statements. The subsequent registration
statement(s) must be filed by the same registrant or a wholly-owned
subsidiary of that registrant within five years of the completion or
termination of the initial registration statement.
(q) Notwithstanding any other provisions of this section, no filing
fee is required for the registration of an indeterminate amount of
securities to be offered solely for market making purposes by an
affiliate of the issuer.
67. By revising paragraph (b)(2) of Sec. 230.461 to read as
follows:

Sec. 230.461 Acceleration of effective date.

* * * * *
(b) * * *
(2)(i) Where delivery of prospectus information to investors
required by Sec. 230.172 is not accomplished, until the registrant, any
underwriter and any participating dealer give the Commission adequate
assurance that they have complied with Sec. 230.172; and
(ii) Where the prospectus information delivered to investors is
found to be inaccurate or inadequate in any material respect, until the
registrant, any underwriter and any participating dealer give the
Commission adequate assurance that they have informed investors that
will purchase in the offering of the appropriate correcting
information.
* * * * *
68. By amending Sec. 230.462 by revising the section heading,
paragraphs (a), (b)(2) and (c); and by adding paragraphs (e), (f) and
(g) to read as follows:

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

(a) A registration statement filed in accordance with Form S-8
(Sec. 239.16b of this chapter) shall become effective upon filing with
the Commission.
(b) * * *
(2) The registration statement is filed before the date
confirmations are sent or given or, in an offering described in
Sec. 230.145(a), before the meeting date at which security holders
approved the transaction or, if no meeting was held, the date the
transaction was approved by security holders' authorization or consent;
and
* * * * *
(c) A post-effective amendment shall become effective upon filing
with the Commission if:
(1) Other than price-related information previously omitted in
reliance upon Sec. 230.430A, it contains no substantive changes from or
additions to the prospectus previously filed:
(i) As part of the effective registration statement; or
(ii) As part of a post-effective amendment to that registration
statement; and
(2) The post-effective amendment is filed:
(i) Prior to the time confirmations are sent or given; and
(ii) No more than 30 days after the effectiveness of the
registration statement or another post-effective amendment thereto that
contains a prospectus.
* * * * *
(e) A registration statement and any post-effective amendment
thereto shall become effective upon filing with the Commission if:
(1) The registration statement is filed on Form SB-1 (Sec. 239.9 of
this chapter), Form SB-2 (Sec. 239.10 of this chapter) or Form SB-3
(Sec. 239.11 of this chapter) and is registering additional securities
of the same class(es) as were included in an earlier effective
registration statement filed on Form SB-1, Form SB-2 or Form SB-3 for
the same offering;
(2) The registration statement is filed before the date
confirmations are sent or given or, in an offering described in
Sec. 230.145(a), before the meeting date at which security holders
approved the transaction or, if no meeting was held, the date the
transaction was approved by security holders' authorization or consent;
and
(3) The new registration statement registers additional securities
in an amount and at a price that together represent no more than 50% of
the maximum aggregate offering price set forth for each class of
securities in the ``Calculation of Registration Fee'' table contained
in the earlier registration statement.
(f)(1) The following registration statements shall become effective
in accordance with paragraph (e)(2) of this section:

[[Page 67282]]

(i) A registration statement filed in accordance with Form B
(Sec. 239.5 of this chapter);
(ii) A registration statement filed in accordance with Schedule B
(15 U.S.C. 77aa) by a foreign government issuer that:
(A) Registered an offering under the Act within the 3 years before
the filing date of the current offering; and
(B) Is registering an offering of at least $250 million in
securities that is underwritten on a firm commitment basis; and
(iii) A registration statement filed in accordance with Form A
(Sec. 239.4 of this chapter) by an issuer that:
(A) Satisfies the requirements of General Instruction II.A. or
II.C. of Form A and is not disqualified as specified in General
Instruction II.B. of Form A.; and
(B) Has a public float of $75 million or more as of the filing
date; or
(C) Incorporates into the Form A its annual report filed under
Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or
78o(d)) for the end of its most recently completed fiscal year and that
annual report was reviewed fully by the staff of the Commission and was
amended in accordance with the staff's comments (if so requested).
(2) The registrant shall designate the effective date of the
registration statement listed in paragraph (f)(1) of this section. It
must indicate on the front page of the Form or Schedule that the
registration statement will become effective either:
(i) Upon filing with the Commission;
(ii) At the date and time set forth on the front page of the Form
or Schedule; or
(iii) As specified in a later amendment to the Form or Schedule.
(g) An issuer may file only one registration statement pursuant to
either paragraph (b) or (e) of this section for any offering.
69. By revising Sec. 230.464 to read as follows:

Sec. 230.464 Effective date of a post-effective amendment filed on
Form A, Form B or Form S-8.

(a) If at the time a registrant files a post-effective amendment on
Form A, it meets the requirements set forth in General Instruction
VIII. to Form A (Sec. 239.4 of this chapter):
(1) Its post-effective amendment filed on Form A shall become
effective in accordance with the registrant's designation on the front
page of Form A either:
(i) Upon filing with the Commission;
(ii) On the date set forth on the front page of Form A; or
(iii) As specified in a later post-effective amendment to the Form;
and
(2) The effective date of the registration statement shall be
deemed to be the effective date of the post-effective amendment.
(b) If at the time a registrant files a post-effective amendment on
Form B (Sec. 239.5 of this chapter), it meets the eligibility
requirements to file that post-effective amendment on Form B:
(1) Its post-effective amendment filed on Form B shall become
effective in accordance with the registrant's designation on the front
page of Form B either:
(i) Upon filing with the Commission;
(ii) On the date set forth on the front page of Form B; or
(iii) As specified in a later post-effective amendment to the Form;
and
(2) The effective date of the registration statement shall be
deemed to be the effective date of the post-effective amendment.
(c) If a registrant meets the eligibility requirement of Form S-8
(Sec. 239.16b of this chapter), its post-effective amendment filed on
Form S-8:
(1) Shall become effective upon filing with the Commission; and
(2) The effective date of the registration statement shall be
deemed to be the filing date of the post-effective amendment.
70. By revising the first sentence of paragraph (a) of Sec. 230.471
and adding paragraph (c) to read as follows:

Sec. 230.471 Signatures to amendments.

(a) Except as provided in paragraph (c) of this section or
Sec. 230.478, every amendment to a registration statement shall be
signed by the persons specified in Section 6(a) of the Act (15 U.S.C.
77f(a)). * * *
* * * * *
(c)(1) All persons who sign a registration statement on Form B
(Sec. 239.5 of this chapter) will be deemed to have signed a post-
effective amendment to that registration statement where an authorized
representative of the registrant signs that amendment if all the
following are true:
(i) The registration statement relates to an offering under
Sec. 230.415(a)(1)(x);
(ii) The person did not grant a power of attorney for another
person to sign a post-effective amendment; and
(iii) The post-effective amendment does not expressly state to the
contrary.
(2) Despite paragraph (c)(2) of this section, if any person who
signed the registration statement no longer acts in the capacity in
which such person signed the registration statement, the registrant
must provide the signature of the person who currently acts in that
capacity in the post-effective amendment.
71. By revising paragraph (e) of Sec. 230.472 to read as follows:

Sec. 230.472 Filing of amendments; number of copies.

* * * * *
(e) Notwithstanding any other provision of this section, if a
registrant files a post-effective amendment pursuant to
Sec. 230.462(b), Sec. 230.462(e) or Sec. 230.462(f) by facsimile
pursuant to Sec. 230.110(d), the registrant need file only one complete
copy of the registration statement with the Commission. That copy must
include all exhibits and other documents that are a part of it. That
copy need not be bound. It may include facsimile versions of signatures
in accordance with Sec. 230.402(e).

Sec. 230.473 [Amended]

72. By amending Sec. 230.473 by removing in paragraph (d) the words
``Form S-3, F-2 or F-3 (Sec. 239.13, Sec. 239.32 or Sec. 239.33 of this
chapter) relating to a dividend or interest reinvestment plan; or on
Form S-4 (Sec. 239.25 of this chapter) complying with General
Instruction G of that Form'' and adding, in their place, the words
``Form B (Sec. 239.5 of this chapter) or on Form A (Sec. 239.4 of this
chapter) complying with General Instruction VIII. of that Form''.

Sec. 230.475a [Removed]

73. By removing Sec. 230.475a.
74. By amending Sec. 230.477 by revising paragraphs (b) and (c);
and by adding paragraph (d) to read as follows:

Sec. 230.477 Withdrawal of registration statement or amendment.

* * * * *
(b) Any application for withdrawal of an entire registration
statement will be deemed granted upon filing of the application with
the Commission if made prior to the effective date.
(c) The registrant must sign any application for withdrawal and
must state fully in it the grounds on which it is making the
application. If the application for withdrawal is being made in
anticipation of reliance on Sec. 230.152(c), the registrant must state
in the application that no securities were sold in connection with the
offering and that it may undertake a subsequent private offering in
reliance on Sec. 230.152.
(d) Any withdrawn document will remain in the Commission's files,
but an indication of the date of withdrawal will be included in the
file for the withdrawn document along with a notation that it was
withdrawn upon the request of the registrant with the consent of the
Commission.

[[Page 67283]]

75. To add Sec. 230.493A to read as follows:

Sec. 230.493A Filing of securities term sheet in certain offerings
registered on Schedule B.

Foreign government issuers must file with the Commission any
securities term sheet they deliver pursuant to Sec. 230.172(a) as part
of the prospectus in the related effective registration statement on
Schedule B (15 U.S.C. 77aa). They must file the securities term sheet
no later than the date of the first sale in the offering.
76. By adding Sec. 230.499 to read as follows:

Sec. 230.499 Concurrent registration under the Exchange Act on
Schedule B.

(a) Any issuer filing a registration statement pursuant to Schedule
B (15 U.S.C. 77aa) also may use that Schedule to register concurrently
under Section 12(b) or 12(g) of the Exchange Act (15 U.S.C. 78l(b) or
(g)). The issuer may register any class of securities that is the
subject of the offering it is registering under the Securities Act. To
register, the issuer must check the appropriate box(es) and identify
the class(es) of securities it is registering under Section 12(b) or
12(g) and the exchange or market for those securities. The issuer also
must include the following paragraph and table on the facing page of
the Schedule B registration statement:

The issuer is using Schedule B to register concurrently under
Section 12(b) or 12(g) of the Exchange Act one or more classes of
securities that are the subject of the offering being registered
under the Securities Act. The issuer has checked the appropriate
box(es) and identified the class(es) of securities it is registering
under Section 12(b) or 12(g) on the table below:
{time} Securities being registered pursuant to Exchange Act
Section 12(b):
Title of each class:
----------------------------------------------------------------------
----------------------------------------------------------------------
Name of exchange on which listed:
----------------------------------------------------------------------
----------------------------------------------------------------------
{time} Securities being registered pursuant to Exchange Act
Section 12(g):
Title of each class:
----------------------------------------------------------------------
----------------------------------------------------------------------
Name of market on which quoted:
----------------------------------------------------------------------
----------------------------------------------------------------------
(b) Registration on Schedule B of a class of securities under
Exchange Act Section 12(b) shall become effective upon the later of:
(1) Receipt by the Commission of certification from the national
securities exchange listed on the cover of the Schedule B that the
securities have been approved for listing; or (2) Effectiveness of the
Schedule B under the Securities Act.
(c) Registration on this Schedule B of a class of securities under
Exchange Act Section 12(g) shall become effective automatically upon
the earlier of:
(1) 60 days after the initial filing of this Schedule B; or
(2) The effectiveness of this Schedule B.
(d) The issuer must file at least one complete, signed copy of the
registration statement on Schedule B with each exchange or market
identified on the cover of the Schedule B.
77. By amending Sec. 230.502 by removing in paragraph (b)(2)(ii)(B)
the words ``Form S-1 (Sec. 239.11 of this chapter)'' and adding, in
their place, the words ``Form A (Sec. 239.4 of this chapter)'', by
removing ``SB-2 (Sec. 239.10 of this chapter) or S-11 (Sec. 239.18 of
this chapter)'' and adding, in their place, the words ``or SB-2
(Sec. 239.10 of this chapter)'', by removing in paragraph (b)(2)(ii)(D)
the words ``Form F-1 (Sec. 239.31 of this chapter)'' and adding, in
their place, the words ``Form A (Sec. 239.4 of this chapter)'' by
removing in paragraph (c)(2) the words ``with Sec. 230.135c'' and
adding, in their place, the words ``with Sec. 230.135''; revising the
Note heading following paragraph (a) and adding a sentence at the end
of that Note to read as follows:

Sec. 230.502 General conditions to be met.

* * * * *
(a) Integration. * * *
Note to Paragraph (a). * * * See also Sec. 230.152 which
provides safe harbors from integration of public offerings and
private offerings made around the same time, including offerings
under Sec. 230.506.
* * * * *
78. By revising paragraph (a) of Sec. 230.504 to read as follows:

Sec. 230.504 Exemption for limited offerings and sales of securities
not exceeding $1,000,000.

(a) Exemption. Offers and sales of securities that satisfy the
conditions in paragraph (b) of this section shall be exempt from the
provisions of Section 5 of the Act (15 U.S.C. 77e) under Section 3(b)
of the Act (15 U.S.C. 77c(b)) if the issuer is not:
(1) An investment company;
(2) A development stage company that either:
(i) Has no specific business plan or purpose; or
(ii) Has indicated that its business plan is to engage in a merger
or acquisition with an unidentified entity or entities; or
(3) Subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act (15 U.S.C. 78m or 78o(d)), except that an issuer may
be subject to those requirements in connection with the offer and sale
of securities underlying convertible securities or warrants if:
(i) The issuer offered and sold the convertible securities or
warrants in compliance with this section while it was not subject to
those requirements; and
(ii) The issuer offered the securities underlying the convertible
securities or warrants in compliance with this section prior to
becoming subject to those requirements.
* * * * *
79. By amending Sec. 230.902 by removing the word ``and'' at the
end of paragraph (c)(3)(v)(B); by revising paragraph (c)(3)(vi); by
removing the period at the end of paragraph (c)(3)(vii) and adding in
its place ``; and''; and by adding paragraphs (c)(3)(viii) and (h)(4)
to read as follows:

Sec. 230.902 Definitions.

* * * * *
(c) Directed selling efforts. * * *
(3) * * *
(vi) Publication by an issuer of a notice in accordance with
Sec. 230.135;
* * * * *
(viii) Publication or distribution of information, an opinion or a
recommendation by a broker or dealer in accordance with Sec. 230.138 or
Sec. 230.139.
* * * * *
(h) Offshore transaction. * * *
(4) Notwithstanding paragraph (h)(1) of this section, publication
or distribution of information, an opinion or a recommendation in
accordance with Sec. 230.138 or Sec. 230.139 by a broker or dealer at
or around the time of an offering in reliance on Regulation S
(Secs. 230.901 through 230.904) will not cause the transaction to fail
to be an offshore transaction as defined in this section.
* * * * *

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILERS

80. By revising the authority citation for part 232 to read as
follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 77z-
3, 78c(b), 78d, 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 78mm,
79t(a), 80a-8, 80a-29, 80a-30 and 80a-37.

81. By amending Sec. 232.13 by revising paragraphs (a)(1)(ii),
(a)(1)(iii) and (a)(3) before the Note; and by adding paragraph
(a)(1)(iv) to read as follows:

[[Page 67284]]

Sec. 232.13 Date of filing; adjustment of filing date.

(a) * * *
(1) * * *
(ii) The filing conforms to the applicable technical standards
regarding electronic format in the EDGAR Filer Manual;
(iii) With respect to Securities Act filings, including filings
under Section 24(f) of the Investment Company Act (15 U.S.C. 80a-
24(f)), the required fee payment:
(A) For registration statements filed in accordance with Forms SB-
1, SB-2 or SB-3 (Secs. 239.9, 239.10 or 239.11 of this chapter) is made
no later than the earlier of:
(1) The date on which the small business issuer requests, under
Sec. 230.461 of this chapter, that the Commission accelerate the
effective date of its registration statement; or
(2) The date on which the small business issuer files an amendment
to the registration statement that contains the statement set forth in
Sec. 230.473(b) of this chapter.
(B) For registration statements other than those filed in
accordance with Forms SB-1, SB-2 or SB-3 is confirmed upon filing; and
(iv) Notwithstanding paragraph (a)(1)(iii) of this section, the
failure to pay an insignificant amount of the fee at the required time,
as a result of a bona fide error, shall not affect the filing.
(2) * * *
(3) Notwithstanding paragraph (a)(2) of this section, any
registration statement or any post-effective amendment thereto filed
pursuant to Secs. 230.462(b), 230.462(e) or 230.462(f) of this chapter
by direct transmission commencing on or before 10:00 p.m. Eastern
Standard Time or Eastern Daylight Savings Time, whichever is currently
in effect, shall be deemed filed on the same business day.
* * * * *
82. By amending Sec. 232.101 by revising the Note following
paragraph (a)(3); by removing paragraph (c)(7); and by redesignating
paragraphs (c)(8), (c)(9), (c)(10), (c)(11), (c)(12), (c)(13), (c)(14),
(c)(15), (c)(16) and (c)(17) as paragraphs (c)(7), (c)(8), (c)(9),
(c)(10), (c)(11), (c)(12), (c)(13), (c)(14), (c)(15) and (c)(16) to
read as follows:

Sec. 232.101 Mandated electronic submissions and exceptions.

(a) * * *
(3) * * *

Note to Paragraph (a): Failure to submit a required electronic
filing pursuant to paragraph (a) of this section, as well as any
required confirming electronic copy of a paper filing made in
reliance on a hardship exemption as provided in Secs. 232.201 and
232.202, will result in the ineligibility to use Form B and S-8
(Secs. 239.5 and 239.16b of this chapter), restrict incorporation by
reference of the document submitted in paper (see Sec. 232.303), and
toll certain time periods associated with tender offers (see
Secs. 240.13e-4(f)(12) and 240.14e-1(e) of this chapter).
* * * * *
83. By amending Sec. 232.201 revising Note 1 following paragraph
(b) to read as follows:

Sec. 232.201 Temporary hardship exemption.

* * * * *
(b) * * *

Note 1 to Paragraph (b): Failure to submit the confirming
electronic copy of a paper filing made in reliance on a temporary
hardship exemption, as required in paragraph (b) of this section,
will result in the ineligibility to use Form B and S-8 (Secs. 239.5
and 239.16b of this chapter), restrict incorporation by reference of
the document submitted in paper (see Sec. 232.303), and toll certain
time periods associated with tender offers (see Secs. 240.13e-
4(f)(12) and 240.14e-1(e) of this chapter).
* * * * *
84. By amending Sec. 232.202 by revising Note 3 following paragraph
(d) to read as follows:

Sec. 232.202 Continuing hardship exemption.

* * * * *
(d) * * *

Note: 3 Failure to submit the confirming electronic copy of a
paper filing made in reliance on a continuing hardship exemption
granted pursuant to paragraph (d) of this section will result in the
ineligibility to use Forms B and S-8 (Secs. 239.5 and 239.16b of
this chapter), restrict incorporation by reference of the document
submitted in paper (see Sec. 232.303), and toll certain time periods
associated with tender offers (see Secs. 240.13e-4(f)(12) and
240.14e-1(e) of this chapter).

85. By adding a sentence at the end of paragraph (a) of
Sec. 232.304 to read as follows:

Sec. 232.304 Graphic and image material.

(a) * * * Additionally, five copies of any prospectus filed in
accordance with Sec. 230.425 that contains graphic, imagine or audio
material that cannot be reproduced in the electronic filing must be
filed with the Commission in its original form.
* * * * *

Sec. 232.311 [Amended]

86. By amending Sec. 232.311 by removing paragraph (i).
87. By amending Sec. 232.401 by revising the last sentence of the
Note to read as follows:

Sec. 232.401 Financial Data Schedule.

* * * * *
Note: * * * Further, electronic filers that have not filed a
required Financial Data Schedule will be ineligible to use Form B
and Form S-8 (Secs. 239.5 and 239.16b of this chapter).

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

88. By revising the general authority citation for part 239 to read
as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78d, 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 78mm, 78u-
5, 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-
29, 80a-30 and 80a-37, unless otherwise noted.
* * * * *

Secs. 239.11, 239.12, 239.13, 239.18, 239.25, 239.31, 239.32, 239.33,
239.34 and Forms S-1, S-2, S-3, S-4, S-11, F-1, F-2, F-3, and F-
4 [Removed and Reserved]

89. By removing and reserving Sec. 239.11, Sec. 239.12,
Sec. 239.13, Sec. 239.25, Sec. 239.18, Sec. 239.31, Sec. 239.32,
Sec. 239.33, Sec. 239.34, and by removing Forms S-1, S-2, S-3, S-4, S-
11, F-1, F-2, F-3, and F-4.
90. By adding Sec. 239.4 and Form A to read as follows:

Sec. 239.4 Form A, for registration under the Securities Act of 1933
and optional concurrent registration under the Securities Exchange Act
of 1934.

(a) This form shall be used for registration under the Securities
Act of 1933 (15 U.S.C. 77a et. seq.) (``Securities Act'') of any
offering for which no other form is authorized or prescribed.
Therefore, for example, this form shall not be used for:
(1) Any offering for which Form C or Form SB-3 (Sec. 239.6 or
239.11) is authorized; or
(2) Any offering by a foreign government or a political subdivision
thereof for which Schedule B (15 U.S.C. 77aa) is authorized.
(b) A registrant also may use this form to register concurrently
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
(``Exchange Act''). It may register under the Exchange Act any class of
securities that are the subject of the offering it is registering under
the Securities Act. To register, the registrant must check the
appropriate box(es) on the cover page of this form and identify which
class(es) of securities it is registering under Section 12(b) or 12(g)
of the Exchange Act.

Note: The text of Form A will not appear in the Code of Federal
Regulations.

U.S. Securities and Exchange Commission, Washington, D.C. 20549

Form A--Registration Statement Under The Securities Act of 1933 [and
Optional Registration Pursuant to Section 12(b) or 12(g) of The
Securities Exchange Act of 1934]

----------------------------------------------------------------------

[[Page 67285]]

(Exact name of Registrant as specified in its charter)

----------------------------------------------------------------------
(Translation of Registrant's name into English, if applicable)

----------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)

----------------------------------------------------------------------
(I.R.S. Employer Identification Number)

----------------------------------------------------------------------
(Address and telephone number of Registrant's principal executive
offices)

----------------------------------------------------------------------
(Name, address and telephone number of Registrant's agent for
service)

----------------------------------------------------------------------
(Web Site Address, if any)

----------------------------------------------------------------------
(E-mail Address, if any)

* * * * *
Approximate date of commencement of sales ________________

If you are a foreign private issuer as defined in Securities Act
Rule 405, check the following box. [ ]
If you are not a foreign private issuer as defined in Securities
Act Rule 405, check the following box. [ ]
If any of the securities being registered on this Form are to be
offered pursuant to Securities Act Rule 415, check the following
box. [ ] __________
If you are filing this Form to register additional securities
for an offering in accordance with Securities Act Rule 462(b), check
the following box and list the Securities Act registration number of
the earlier effective registration statement for the same offering.
[ ] ____________
If this Form is a post-effective amendment filed in accordance
with Securities Act Rule 462(c) to re-start the 15-business-day
period during which pricing must occur under Securities Act Rule
430A(a)(3) or to reflect a non-substantive change from, or addition
to, the prospectus, check the following box and list the Securities
Act registration number of the earlier effective registration
statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed in accordance
with Rule 462(d) under the Securities Act solely to add exhibits,
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same
offering. [ ] ____________
If you are using this Form to register concurrently under
Section 12(b) or 12(g) of the Exchange Act any class of securities
that are the subject of the offering you are registering under the
Securities Act, check the appropriate box and provide the
information indicated below:

[ ] Securities being registered pursuant to Exchange Act Section
12(b):
Title of each class:
----------------------------------------------------------------------

----------------------------------------------------------------------

Name of exchange on which listed:
----------------------------------------------------------------------

----------------------------------------------------------------------

This Section 12(b) registration will become effective upon the
later of (1) effectiveness of this Form A; or (2) receipt by the
Commission of certification from the national securities exchange
listed above.

[ ] Securities being registered pursuant to Exchange Act Section
12(g):
Title of each class:
----------------------------------------------------------------------

----------------------------------------------------------------------

Name of market on which quoted:
----------------------------------------------------------------------

----------------------------------------------------------------------

Section 12(g) registration statements become effective
automatically 60 days after filing. You may check box 1 or 2, below,
to shorten this time period. Also, you may check box 3, below, to
preserve your option to shorten this time period. If you check box 3
and do not file a later amendment, the registration of the class of
securities listed above will become effective 60 days after filing
of this Form A.
We propose that this filing become effective (check appropriate
box):
1. [ ] upon filing with the Commission. By checking this box,
the undersigned are certifying compliance with the delivery
requirements of Securities Act Rule 172(b) in connection with the
offering. In addition, in checking this box, any underwriter in
connection with the offering also is requesting that the
registration statement become effective upon filing.
2. [ ] on __________ at __________. By checking this box, the
undersigned are certifying compliance with the delivery requirements
of Securities Act Rule 172(b) in connection with the offering. In
addition, in checking this box, any underwriter in connection with
the offering also is requesting that the registration statement
become effective upon the date and time designated.
3. [ ] as specified in a later amendment to this Form.

Calculation of Registration Fee
----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount to maximum maximum Amount of
Title of each class of securities to be registered be offering aggregate registration
registered price per offering fee
unit price
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Notes to the Fee Table:
1. Set forth any explanatory details relating to the fee table in footnotes to the table.
2. If the basis for calculating the fee is not evident from the information presented in this table, refer to
the applicable provisions of Securities Act Rule 457 in a footnote.
3. If the fee is calculated under Rule 457(o), the ``Amount to be registered'' and the ``Proposed maximum
offering price per unit'' need not appear in this table.
4. If any of the securities registered are not sold in connection with this offering, the registrant (or a
qualifying wholly-owned subsidiary) may use the dollar amount of the fee paid with respect to the unsold
securities to offset the total fee due on its subsequent registration statement. See Rule 457(p). When
offsetting any part of the fee under Rule 457(p), the registrant must state the dollar amount being offset in
a footnote to the fee table and must identify the file number of the registration statement and the amount and
class of securities in connection with which the offsetting fee was previously paid. Use of Rule 457(p) to
offset any fee automatically deregisters the securities in connection with which the fee was previously paid.

General Instructions

I. Rules as to Use of Form A

A. This Form shall be used for registration under the Securities
Act of 1933 (``Securities Act'') of any offering for which no other
form is authorized or prescribed. Therefore, for example, this Form
shall not be used for:
1. any offering for which Form C or Form SB-3 is authorized; or
2. any offering by a foreign government or a political
subdivision thereof for which Schedule B is authorized.
B. A registrant also may use this Form to register concurrently
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
(``Exchange Act''). It may register under the Exchange Act any class
of securities that are the subject of the offering it is registering
under the Securities Act. To register, the

[[Page 67286]]

registrant must check the appropriate box(es) on the cover page of
this Form and identify which class(es) of securities it is
registering under Section 12(b) or 12(g).

II. Registrant Information--Incorporation by Reference

A. Registrants Eligible to Incorporate by Reference. Unless
otherwise provided in General Instruction II.B., a registrant may
comply with Items 12 and 13, instead of Item 14, if it meets the
following requirements:
1. the registrant:
(a) has a class of securities registered pursuant to Section
12(b) or 12(g) of the Exchange Act; or
(b) is required to file reports pursuant to Section 15(d) of the
Exchange Act;
2. for a period of at least twenty-four full calendar months and
any portion of a month immediately preceding the date of filing this
Form, the registrant:
(a) has been subject to the requirements of Section 12 or
Section 15(d) of the Exchange Act;
(b) has filed all material it was required to file pursuant to
Sections 13, 14 and 15(d) of the Exchange Act; and
(c) has filed two annual reports if its public float is less
than $75 million.
(3) for a period of at least twelve full calendar months and any
portion of a month immediately preceding the date of filing this
Form, the registrant has filed in a timely manner all materials it
was required to file pursuant to Sections 13, 14 and 15(d) of the
Exchange Act.
Note to General Instruction II.A.2.(c):
If a registrant filed a Form 12b-25 to delay filing any report
(or portion of a report) during that time period, it must have filed
the related report (or portion) within the time prescribed by Rule
12b-25.
B. Registrants Ineligible to Incorporate by Reference and Rely
on Automatic Effectiveness. A registrant must comply with Item 14
and is ineligible to rely on Securities Act Rule 462(f)(1)(iv) if it
fails to meet any of the conditions of General Instruction II.A. or
any of the following is true:
1. within 2 years before the date of filing this Form, the
registrant was a development stage company that either:
(a) had no specific business plan or purpose; or
(b) indicated that its business plan was to engage in a merger
or acquisition with an unidentified entity or entities;
2. within two years before the date of filing this Form, the
registrant was a shell entity having few or no assets, earnings or
operations;
3. the registrant is registering an offering of ``penny stock''
as defined in Exchange Act Rule 3a51-1 or has issued it in the two
years prior to the date of filing this Form;
4. the registrant or any of its subsidiaries has, since the end
of the last fiscal year for which the registrant included certified
financial statements in an Exchange Act report:
(a) failed to pay any dividend or sinking fund installment on
preferred stock;
(b) caused any material delinquency with respect to preferred
stock that was not cured within 30 days; or
(c) defaulted on any payment of principal, interest, a sinking
fund installment, a purchase fund installment or any other
installment on indebtedness, or defaulted on any rental on a long-
term lease, if such debt and lease defaults in the aggregate are
material;
5. the independent accountant that examined the registrant's
financial statements for the most recent fiscal year expressed in
its report substantial doubt about the registrant's ability to
continue as a going concern;
6. within three years before the date of filing, a petition
under the federal bankruptcy laws or any state insolvency law was
filed by or against the registrant, or a court appointed a receiver,
fiscal agent or similar officer with respect to the business or
property of the registrant. If true, however, this would not
disqualify the registrant if it has filed an annual report with
audited financial statements subsequent to its emergence from that
bankruptcy, insolvency or receivership process;
7. within five years before the date of filing, the registrant,
any executive officer, director or general partner of the registrant
or person nominated to any of those positions, or underwriter was
convicted of any felony or misdemeanor described in clauses (i)
through (iv) of Section 15(b)(4)(B) of the Exchange Act;
8. within five years before the date of filing, the registrant,
any executive officer, director or general partner of the registrant
or person nominated to any of those positions, or underwriter was
made the subject of a judicial or administrative decree or order
arising out of a governmental action that:
(a) prohibits future violations of any antifraud provision of
the securities laws or Section 5 of the Securities Act;
(b) requires that the registrant, any executive officer,
director or general partner of the registrant or person nominated to
any of those positions, or underwriter cease and desist from
violating any antifraud provision of the securities laws or from
violating Section 5 of the Securities Act; or
(c) determines that the registrant, any executive officer,
director or general partner of the registrant or person nominated to
any of those positions, or underwriter violated any antifraud
provision of the securities laws or Section 5 of the Securities Act;
9. the registrant is a ``small business issuer,'' as defined in
Securities Act Rule 405, that provided the ``Information Required in
Annual Report of Transitional Small Business Issuers'' in its most
recent annual report on Form 10-KSB; and
10. the registrant would incorporate by reference into its Form
A registration statement a report under the Exchange Act that:
(a) the Commission, after review, requested that the registrant
amend in accordance with its comments; and
(b) either the registrant did not amend the report or, in the
Commission's judgment, did not amend the report in accordance with
the Commission's comments.
C. Successor Registrants. We will deem a successor registrant to
have satisfied the eligibility requirements of General Instruction
II.A. of this Form if it satisfies either of the following
requirements:
1.(a) taken together, the registrant and its predecessor(s) meet the
eligibility requirements in General Instruction II.A. of this Form;
(b) the primary purpose of the succession was to change the
state or other jurisdiction of incorporation of the predecessor(s)
or to form a holding company for the predecessor(s); and
(c) the assets and liabilities of the successor at the time of
succession were substantially the same as those of the predecessor;
or
2. the predecessor(s) met the eligibility requirements of
General Instruction II.A. of this Form at the time of succession and
the registrant has continued to meet them since the succession.

III. Domestic and Foreign Registrants

A. Definitions.
1. As used in this Form, ``U.S. registrant'' includes all
registrants other than foreign governments and foreign private
issuers.
2. As used in this Form, ``foreign registrant'' includes only
registrants that are foreign private issuers.
3. ``Foreign government'' and ``foreign private issuer'' are
defined in Rule 405 of Regulation C.
B. Information Required.
1. U.S. registrants must provide all information required by the
Items of this Form except where the Item expressly identifies the
requirement as applying only to foreign registrants.
2. Foreign registrants must provide all information required by
the Items of this Form except where the Item expressly identifies
the requirement as applying only to U.S. registrants.

IV. Free Writing Prospectus Information

You should read Securities Act Rule 165. That rule permits a
Form A registrant and those acting on its behalf to use ``free
writing'' offering materials that do not meet the requirements of
Section 10 of the Act. Those offering materials may be used after
the registrant has filed with the Commission a registration
statement containing the Section 10 prospectus. If you use a
prospectus in reliance on that Rule, you must file it when required
to do so by Securities Act Rule 425.

V. Securities Act Rules and Regulations

A. Prospectus delivery. You should read Securities Act Rule 172.
That rule describes prospectus delivery obligations applicable to
offerings registered on this Form.
B. Preparation and filing of Form. You should read the other
rules and regulations under the Securities Act (Part 230 of Title 17
of the Code of Federal Regulations), particularly Regulation C,
Regulation S-K and Form 20-F. Regulation C contains general
requirements regarding the preparation and filing of registration
statements. Regulation S-K contains non-financial statement
disclosure requirements applicable to registration statements. Form
20-F also contains non-financial statement disclosure requirements,
but they apply only to foreign private issuers.

[[Page 67287]]

C. Blank check companies. If the offering registered on this
Form relates to a blank check company, you should read Securities
Act Rule 419. Among other things, that Rule contains additional
disclosure requirements.

VI. Foreign Registrant Financial Statements

A. A foreign registrant must reconcile its financial statements
included in or incorporated into this registration statement. It
must reconcile them to Item 18 of Form 20-F, except as otherwise
permitted in paragraph B of this General Instruction.
B. A foreign registrant need only reconcile its financial
statements to Item 17 of Form 20-F if:
1. it is registering an offering of its non-convertible
investment grade securities. A security is ``investment grade'' if,
at the time of sale:
(a) it is rated by at least one nationally recognized
statistical rating organization (``NRSRO'') (as that term is used in
Exchange Act Rule 15c3-1(c)(2)(vi)(F)) in one of the generic rating
categories that signify investment grade; and
(b) no other NRSRO rating the security has placed it in a
category that does not signify investment grade;
2. it is registering an offering of its securities to be issued
upon the exercise of outstanding rights granted pro rata to all
existing security holders of the class of securities to which the
rights attach;
3. it is registering an offering of its securities pursuant to a
dividend or interest reinvestment plan;
4. it is registering an offering of its securities upon the
conversion of outstanding convertible securities that it (or its
affiliate) issued; or
5. it is registering an offering of its securities upon the
exercise of outstanding transferrable warrants that it (or its
affiliate) issued.
C. Notwithstanding paragraphs B.2., B.3., B.4. and B.5. of this
General Instruction, if securities are to be offered or sold in a
standby underwriting in the United States or by similar arrangement,
the registrant must reconcile its financial statements to Item 18 of
Form 20-F.

VII. Roll-Up Transactions

A. The registrant must comply with the disclosure provisions of
Subpart 900 of Regulation S-K if it registers a roll-up transaction
(as defined in Item 901(c) of Regulation S-K) on this Form, even if
the registrant is a ``small business issuer'' as defined in
Securities Act Rule 405. To the extent that the disclosure
requirements of Subpart 900 are inconsistent with the disclosure
requirements of this Form, the requirements of Subpart 900 control.
B. If the registrant registers a roll-up transaction on this
Form, special prospectus delivery requirements apply. See Securities
Act Rule 172(e).
C. You should read the proxy rules and Rule 14e-7 of the tender
offer rules. They contain provisions specifically applicable to
roll-up transactions. Those provisions apply whether or not the
entities involved have registered securities under Section 12 of the
Exchange Act.

VIII. Effectiveness of Registration Statement and Post-Effective
Amendments

A.1. Registration statements on this Form will become effective
automatically pursuant to Securities Act Rule 462(f)(1)(iv) on the
date designated by the registrant on the front page of the Form if:
(i) the registrant meets the requirements of General Instruction
II.A. or II.C. and is not disqualified as specified in General
Instruction II.B.; and
(A) the registrant has a public float of $75 million or more; or
(B) the annual report filed by the registrant for its most
recently completed fiscal year end was reviewed by the staff of the
Commission, was amended in accordance with the staff's comments (if
so requested) and is incorporated by reference into the Form A.
2. ``Public float'' means the aggregate market value of the
registrant's outstanding voting and non-voting common equity
securities held by persons other than affiliates of the registrant,
as of the end of the registrant's last fiscal quarter.
3. Under Rule 462(f)(1)(iv), registrants may designate that the
Form will become effective either:
(i) upon filing with the Commission;
(ii) at the date and time as set forth on the front page of the
Form;
(iii) as specified in a later amendment to the Form.
4. Before filing this Form in reliance on Rule 462(f)(1)(iv),
registrants must obtain the concurrence of the underwriter with the
designated effective date.
5. Registration statements on this Form filed in reliance on
Securities Act Rule 462(f)(1)(iv) become public upon filing and are
not reviewed by the Commission staff prior to the effective date
designated by the issuer. Confidential treatment requests with
respect to information that the registrant is required to file in
this Form may, however, be reviewed by the staff. As a result, when
the issuer plans to have the Form become effective upon filing or
fewer than 20 days thereafter, it must furnish to the staff in
advance of filing, any request it wishes to make for confidential
treatment of information relating to the Form. See Securities Act
Rule 406. The Commission must act on the confidential treatment
request before this Form becomes effective.
B. Any post-effective amendment filed on this Form by a
registrant eligible to designate its effective date as described in
General Instruction VIII.A. also shall become effective as
designated by the registrant. See General Instruction VIII.A.2. and
Securities Act Rule 464.

IX. Registration of Additional Securities.

A. Under certain circumstances, the registrant may increase the
size of an offering after the effective date through filing a short-
form registration statement under Securities Act Rule 462(b). A Rule
462(b) registration statement may include only the following:
1. the facing page;
2. a statement that the earlier registration statement,
identified by file number, is incorporated by reference;
3. any required opinions and consents;
4. the signature page; and
5. any price-related information omitted from the earlier
registration statement in reliance on Securities Act Rule 430A, if
the registrant so chooses.
B. The information contained in a Rule 462(b) registration
statement is deemed to be a part of the earlier effective
registration statement as of the date of effectiveness of the Rule
462(b) registration statement.
C. The registrant may incorporate by reference from the earlier
registration statement any opinion or consent required in the Rule
462(b) registration statement if:
1. the opinion or consent expressly allows that incorporation;
and
2. the opinion or consent also relates to the Rule 462(b)
registration statement.
Note to General Instruction IX.C.
You should read Securities Act Rule 411(c) regarding
incorporation by reference of exhibits and Securities Act Rule
439(b) regarding incorporation by reference of consents.

X. Concurrent Registration of Securities under the Exchange Act.

A. Registration on this Form of a class of securities under
Exchange Act Section 12(b) shall become effective upon the later of:
1. receipt by the Commission of certification from the national
securities exchange listed on the cover of this Form that the
securities have been approved for listing; or
2. effectiveness of this registration statement.
B. Registration on this Form of a class of securities under
Exchange Act Section 12(g) shall become effective upon the
effectiveness of this registration statement.
C. If the registrant is required to file an annual report under
Exchange Act Section 15(d) for its last fiscal year, it must file
that annual report within the time period specified in the
appropriate annual report form even if the Exchange Act registration
becomes effective before the annual report is due.
D. The registrant must file at least one complete, signed copy
of the registration statement with each exchange or market
identified on the cover of this Form.

Part I--Information Required in the Prospectus

Item 1. Front Cover Page of the Registration Statement and Outside
Front Cover Page of the Prospectus

(a) Provide the information required by Item 501 of Regulation
S-K.
(b) If the registrant is a real estate entity as defined in Item
1101 of Regulation S-K, provide the information required by Item
1102 of Regulation S-K.

Item 2. Inside Front and Outside Back Cover Pages of Prospectus

Provide the information required by Item 502 of Regulation S-K.

Item 3. Prospectus Summary, Risk Factors, and Ratio of Earnings to
Fixed Charges

(a) Provide the information required by Item 503 of Regulation
S-K.
(b) If the registrant is a real estate entity as defined by Item
1101 of Regulation S-K,

[[Page 67288]]

provide the information required by Item 1103 of Regulation S-K.
Note to Item 3.
Information is required by this Item only to the extent that it
is not already incorporated by reference from an Exchange Act
report.

Item 4. Use of Proceeds

Provide the information required by Item 504 of Regulation S-K.

Item 5. Determination of Offering Price

Provide the information required by Item 505 of Regulation S-K.

Item 6. Dilution

Provide the information required by Item 506 of Regulation S-K.

Item 7. Selling Security Holders

Provide the information required by Item 507 of Regulation S-K.

Item 8. Plan of Distribution

Provide the information required by Item 508 of Regulation S-K.

Item 9. Description of Securities

Provide the information required by Item 202 of Regulation S-K.

Item 10. Interests of Named Experts and Counsel

Provide the information required by Item 509 of Regulation S-K.

Item 11. Real Estate Entities

If the registrant is a real estate entity as defined in Item
1101 of Regulation S-K, provide the information required by Item
1104 and Items 1108 through Item 1112 of Regulation S-K.

Item 12. Information Required for Seasoned Form A Companies

If the registrant meets the requirements of General Instruction
II. of this Form and elects to comply with this Item and Item 13
(instead of Item 14), it must do the following:
(a) Annual report. Deliver together with the prospectus a copy
of its latest annual report filed pursuant to Section 13(a) or 15(d)
of the Exchange Act.
(b) Quarterly information. U.S. registrants: Provide the
information required by Part I of Form 10-Q (or Form 10-QSB, if
applicable) for the most recent fiscal quarter following the fiscal
year covered by the annual report delivered pursuant to this Item.
The registrant must:
(1) include that information in the prospectus; or (2) deliver
together with the prospectus a copy of its latest Form 10-Q (or 10-
QSB);
Notes to Items 12(a) and 12(b).
1. Indicate in the prospectus that it is accompanied by the
reports that the registrant sends pursuant to paragraphs (a) and (b)
of this Item.
2. If the registrant incorporates by reference portions of any
other document into a report it delivers under this Item, it also
must deliver the incorporated portions with it.
3. If the registrant's Form 10-Q (or 10-QSB) for the most recent
quarter is not due to be filed prior to the effective date of the
registration statement, it may provide the information for the
previous fiscal quarter to satisfy Item 12(b). For this purpose, the
due date is calculated without the extension provided by Exchange
Act Rule 12b-25.
(c) Current financial statements. Foreign registrants: If the
financial statements you incorporate by reference in accordance with
Item 13 of this Form are not sufficiently current to comply with
Rule 3-19 of Regulation S-X, you must provide financial statements
necessary to comply with that Rule. You must do so through one of
the following means:
(1) include that information in the prospectus; or
(2) include that information in an amended or a newly filed
Exchange Act report, disclose in the prospectus that you have done
so, incorporate that report by reference into the effective
registration statement, and deliver it together with the prospectus.
(d) Other financial information. If not reflected in the
registrant's annual report delivered to investors in accordance with
paragraph (a) of this Item, provide:
(1) financial information required by Rule 3-05 and Article 11
of Regulation S-X with respect to transactions other than the one
being registered;
(2) restated financial statements prepared in accordance with or
reconciled to U.S. GAAP and Regulation S-X where:
(i) after the end of its most recent fiscal year, the registrant
consummated one or more business combinations accounted for by the
pooling of interest method of accounting; and
(ii) the acquired businesses, considered in the aggregate, are
significant pursuant to Rule 11-01(b) or Regulation S-X;
(3) restated financial statements prepared in accordance with or
reconciled to U.S. GAAP and Regulation S-X, if a change in
accounting principles or correction of an error required a material
retroactive restatement of financial statements; or
(4) any financial information required because of a material
disposition of assets outside the normal course of business. See
Item 2 of Form 8-K and Instruction 3 to Rule 11-02(b) of Regulation
S-X.
Instructions to Item 12(d).
1. You may incorporate by reference into the effective
registration statement the information required by paragraph (d) of
Item 12. If you incorporate it, you must deliver it together with
the prospectus.
2. Foreign registrants: You should read Rules 4-01(a)(2) and 10-
01 of Regulation S-X.
(e) Material changes. Describe any material change in the
registrant's affairs that:
(1) has occurred since the end of the fiscal year covered by the
annual report delivered pursuant to this Item; and
(2) the registrant has not described in an Exchange Act report
delivered together with the prospectus in accordance with this Item.
Instructions to Item 12.
1. The registrant must deliver information required by this Item
with the first prospectus it delivers. It need not deliver that
information with any subsequent prospectus sent to the same person.
2. Any reports the registrant delivers together with the
prospectus pursuant to this Item must be delivered without charge to
the investor.
3. Small business issuers. Small business issuers may provide
the information required by Item 11 of Form SB-2, instead of the
information required by this Item.

Item 13. Incorporation of Certain Information by Reference for Seasoned
Form A Companies

If the registrant provides information in accordance with Item
12 of this Form:
(a) it must incorporate by reference into the prospectus that is
part of the effective registration statement:
(1) its latest annual report filed in accordance with Section
13(a) or 15(d) of the Exchange Act that contains audited financial
statements;
(2) any reports it filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of that fiscal year covered by its
annual report incorporated in this Form.
Instructions to Item 13(a).
1. List in the prospectus that is part of the effective
registration statement all documents filed prior to effectiveness
that are incorporated by reference.
2. You should read Rule 439 regarding consent to the use of
material incorporated by reference.
(b) You must set forth the following undertakings in the
prospectus:
(1) that you will provide to each person, including any
beneficial owner, to whom a prospectus is delivered, a copy of any
information that has been incorporated by reference in the
prospectus but not delivered with the prospectus;
(2) that you will provide this information upon written or oral
request;
(3) that you will provide this information at no cost to the
requester;
(4) that you will send a copy of that information within one
business day of any request for that information;
(5) that you will send those incorporated documents in a manner
that should result in delivery within three business days; and
(6) that the name, address and telephone number to which the
request for this information must be made is: [fill in information].
Instructions to Item 13(b).
1. The undertakings cover all documents incorporated by
reference through the date of responding to the request.
2. If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
(c) In the prospectus, you must:
(1) identify the reports and other information that you file
with the Commission;
(2) state that the public:
(i) may read and copy materials you file with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and
(ii) may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330; and
(3) if you are an electronic filer, state that the Commission
maintains an Internet web site that contains reports, proxy and

[[Page 67289]]

information statements, and other information regarding issuers that
file electronically with the Commission and state the address of
that site (http://www.sec.gov). You are encouraged to give your
Internet web site address, if available.

Item 14. Information Required for All Other Companies

Any registrant that does not provide information in accordance
with Items 12 and 13 must provide the following information:
(a) Description of Business.
(1) U.S. registrants: Item 101 of Regulation S-K.
(2) Foreign registrants: Item 1 of Form 20-F.
(b) Description of Property.
(1) U.S. registrants: Item 102 of Regulation S-K.
(2) Foreign registrants: Item 2 of Form 20-F.
(3) If the registrant is a real estate entity as defined in Item
1101 of Regulation S-K, provide the information required by Items
1105, 1106 and 1107 of Regulation S-K in lieu of the information
required by paragraph (b)(i) or (b)(ii) of this Item.
(c) Legal Proceedings.
(1) U.S. registrants: Item 103 of Regulation S-K.
(2) Foreign registrants: Item 3 of Form 20-F.
(d) Market Information.
(1) U.S. registrants: If the registrant is offering common
equity securities, Item 201 of Regulation S-K.
(2) Foreign registrants: Item 5 of Form 20-F.
(e) Financial Statements.
(1) U.S. registrants:
(i) financial statements meeting the requirements of Regulation
S-X and any information required by Rule 3-05 and Article 11 of
Regulation S-X;
(ii) restated financial statements prepared in accordance with
or reconciled to U.S. GAAP and Regulation S-X where:
(A) after the end of its most recent fiscal year, the registrant
consummated one or more business combinations accounted for by the
pooling of interest method of accounting; and
(B) the acquired businesses, considered in the aggregate, are
significant pursuant to Rule 11-01(b) or Regulation S-X;
(iii) restated financial statements prepared in accordance with
or reconciled to U.S. GAAP and Regulation S-X, if a change in
accounting principles or correction of an error required a material
retroactive restatement of financial statements; and
(iv) any financial information required because of a material
disposition of assets outside the normal course of business. See
Item 2 of Form 8-K and Instruction 3 to Rule 11-02(b) of Regulation
S-X.
(2) Foreign registrants: Item 18 of Form 20-F except if you may
comply with Item 17 of Form 20-F pursuant to General Instruction VI.
Instructions to Item 14(e).
1. File schedules required by Regulation S-X as ``Financial
Statement Schedules'' pursuant to Item 20 of this Form.
2. Foreign registrants: Your financial statements must comply
with Rule 3-19 of Regulation S-X. See also Rules 4-01(a)(2) and 10-
01 of Regulation S-X.
(f) Exchange Controls.
(i) U.S. registrants: Not applicable.
(ii) Foreign registrants: Item 6 of Form 20-F.
(g) Taxation.
(i) U.S. registrants: Not applicable.
(ii) Foreign registrants: Item 7 of Form 20-F.
(h) Selected Financial Data.
(i) U.S. registrants: Item 301 of Regulation S-K.
(ii) Foreign registrants: Item 8 of Form 20-F.
(i) Supplementary Financial Information.
(i) U.S. registrants: Item 302 of Regulation S-K.
(ii) Foreign registrants: Not applicable.
(j) Management's Discussion and Analysis.
(i) U.S. registrants: Item 303 of Regulation S-K.
(ii) Foreign registrants: Item 9 of Form 20-F.
(k) Changes In and Disagreements With Accountants.
(i) U.S. registrants: Item 304 of Regulation S-K.
(ii) Foreign registrants: Not applicable.
(l) Quantitative and Qualitative Disclosures of Market Risk.
(i) U.S. registrants: Item 305 of Regulation S-K.
(ii) Foreign registrants: Item 9A of Form 20-F.
(m) Directors and Executive Officers.
(i) U.S. registrants: Item 401 of Regulation S-K.
(ii) Foreign registrants: Item 10 of Form 20-F.
(n) Executive and Officer Compensation.
(i) U.S. registrants: Item 402 of Regulation S-K.
(ii) Foreign registrants: Item 11 of Form 20-F.
(o) Control of Registrant.
(i) U.S. registrant: Item 403 of Regulation S-K.
(ii) Foreign registrant: Item 4 of Form 20-F.
(p) Options Issued by Registrant.
(i) U.S. registrants: Not applicable.
(ii) Foreign registrants: Item 12 of Form 20-F.
(q) Interest of Management in Certain Transactions.
(i) U.S. registrant: Item 404 of Regulation S-K.
(ii) Foreign registrant: Item 13 of Form 20-F.

Item 15. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities

Provide the information required by Item 510 of Regulation S-K.

Part II--Information Not Required in the Prospectus

Item 16. Other Expenses of Issuance and Distribution

Provide the information required by Item 511 of Regulation S-K.

Item 17. Indemnification of Directors and Officers

Provide the information required by Item 702 of Regulation S-K.

Item 18. Recent Sales of Unregistered Securities

Provide the information required by Item 701 of Regulation S-K,
unless incorporated by reference.

Item 19. Sales to Special Parties

If the registrant is a real estate entity as defined in Item
1101 of Regulation S-K, provide the information required by Item
1113 of Regulation S-K.

Item 20. Exhibits

(a) Provide the information required by Item 601 of Regulation
S-K.
(b) Provide the financial statement schedules required by
Regulation S-X and Items 11 or 13 of this Form. List each schedule
according to the number assigned to it in Regulation S-X.

Item 21. Undertakings

Provide the information required by Item 512 of Regulation S-K.

Signatures

The registrant certifies that it has duly caused and authorized
the undersigned to sign this registration statement on its behalf.
The undersigned certifies that he/she has read this registration
statement and to his/her knowledge the registration statement does
not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make
the statements therein not misleading.

(Registrant)-----------------------------------------------------------

By (Signature and Title)-----------------------------------------------

Date-------------------------------------------------------------------

The following persons certify that they have read this
registration statement and to their knowledge the registration
statement does not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The
following persons also certify that they are signing below on behalf
of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)-----------------------------------------------

Date-------------------------------------------------------------------

By (Signature and Title)-----------------------------------------------

Date-------------------------------------------------------------------

[[Page 67290]]

3. Where the registrant is a limited partnership, its general
partner must sign. Where the general partner is a corporation, the
majority of the board of directors of the corporate general partner
must sign the registration statement.
4. Type or print the name and title of each person who signs the
registration statement beneath the person's signature. Any person
who occupies more than one of the specified positions must indicate
each capacity in which that person signs the registration statement.
See Securities Act Rule 402 concerning manual signatures and Item
601 of Regulation S-K concerning signatures pursuant to powers of
attorney.

91. By adding Sec. 239.5 and Form B to read as follows:

Sec. 239.5 Form B, for registration under the Securities Act of 1933
of certain offerings, and optional concurrent registration under the
Securities Exchange Act of 1934.

(a) A registrant may use this Form for registration of securities
offerings under the Securities Act of 1933 (15 U.S.C. 77a et seq.)
(``Securities Act'') if:
(1) It is not a foreign government as defined in Sec. 230.405 of
this chapter;
(2) It meets all of the requirements of General Instruction I.B. of
this Form, unless otherwise specified in General Instruction I.C.;
(3) The offering is one of those described in General Instruction
I.C. of this Form and is not a roll-up transaction as defined in Item
901(c) of Regulation S-K (Sec. 229.901(c) of this chapter); and
(4) Form C (Sec. 230.6 of this chapter) is not authorized for
registration of the offering.
(b) A registrant also may use this Form to register concurrently
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
(``Exchange Act''). It may register under the Exchange Act any class of
securities that are the subject of the offering it is registering under
the Securities Act. To register, the registrant must check the
appropriate box(es) on the cover page of this Form and identify which
class(es) of securities it is registering under Section 12(b) or 12(g)
of the Exchange Act.

Note: The text of Form B will not appear in the Code of Federal
Regulations.

U.S. Securities and Exchange Commission, Washington, D.C. 20549

FORM B--Registration Statement Under The Act of 1933 [And Optional
Registration Pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934]

----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

----------------------------------------------------------------------
(Translation of Registrant's name into English, if applicable)

----------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)

----------------------------------------------------------------------
(I.R.S. Employer Identification Number)

----------------------------------------------------------------------
(Address and telephone number of Registrant's principal executive
offices)

----------------------------------------------------------------------
(Name, address and telephone number of Registrant's agent for
service)

----------------------------------------------------------------------
(Web Site Address, if any)

----------------------------------------------------------------------
(E-mail Address, if any)

* * * * *
Approximate date of commencement of sales ________________
If you are a foreign private issuer as defined in Securities Act
Rule 405, check the following box. [ ]
If you are not a foreign private issuer as defined in Securities
Act Rule 405, check the following box. [ ]
If any of the securities being registered on this Form are to be
offered pursuant to Securities Act Rule 415, check the following
box. [ ] __________
If you are using this Form to register concurrently under
Section 12(b) or 12(g) Exchange Act any class of securities that are
the subject of the offering you are registering under the Securities
Act, check the appropriate box and provide the information indicated
below:
[ ] Securities being registered pursuant to Exchange Act Section
12(b):
Title of each class:
----------------------------------------------------------------------

----------------------------------------------------------------------

Name of exchange on which listed:
----------------------------------------------------------------------

----------------------------------------------------------------------

This Section 12(b) registration will become effective upon the
later of (1) effectiveness of this Form B; or (2) receipt by the
Commission of certification from the national securities exchange
listed above.
[ ] Securities being registered pursuant to Exchange Act Section
12(g):
Title of each class:
----------------------------------------------------------------------

----------------------------------------------------------------------

Name of market on which quoted:
----------------------------------------------------------------------

----------------------------------------------------------------------

Section 12(g) registration statements become effective
automatically 60 days after filing. You may check box 1 or 2, below,
to shorten this time period. Also, you may check box 3, below, to
preserve your option to shorten this time period. If you check box 3
and do not file a later amendment, the registration of the class of
securities listed above will become effective 60 days after filing
of this Form B.
We propose that this filing become effective (check appropriate
box):
1. [ ] upon filing with the Commission. By checking this box,
the undersigned are certifying compliance with the delivery
requirements of Securities Act Rule 172(a) in connection with the
offering. In addition, in checking this box, any underwriter in
connection with the offering also is requesting that the
registration statement become effective upon filing.
2. [ ] on (date) at (time) . By checking this box, the
undersigned are certifying compliance with the delivery requirements
of Securities Act Rule 172(a) in connection with the offering. In
addition, in checking this box, any underwriter in connection with
the offering also is requesting that the registration statement
become effective upon the date and time designated.
3. [ ] as specified in a later amendment to this Form.

----------------------------------------------------------------------------------------------------------------
ANotes to the Fee Table:
A1. Set forth any explanatory details relating to the fee table in footnotes to the table.
A2. If the basis for calculating the fee is not evident from the information presented in this table, refer to
the applicable provisions of Securities Act Rule 457 in a footnote.

[[Page 67291]]

A3. If the fee is calculated under Rule 457(o), the ``Amount to be registered'' and the ``Proposed maximum
offering price per unit'' need not appear in this table.
A4. If any of the securities registered are not sold in connection with this offering, the registrant (or a
qualifying wholly-owned subsidiary) may use the dollar amount of the fee paid with respect to the unsold
securities to offset the total fee due on its subsequent registration statement. See Rule 457(p). When
offsetting any part of the fee under Rule 457(p), the registrant must state the dollar amount being offset in
a footnote to the fee table and must identify the file number of the registration statement and the amount and
class of securities in connection with which the offsetting fee was previously paid. Use of Rule 457(p) to
offset any fee automatically deregisters the securities in connection with which the fee was previously paid.
A5. Where two or more classes of securities are being registered pursuant to General Instruction I.C.1., I.C.2.
or I.C.4. on a delayed or continuous basis pursuant to Securities Act Rule 415(a)(1)(x) and Rule 457(o), the
registrant need only specify the ``Proposed maximum aggregate offering price'' and the ``Amount of
registration fee'' for all classes listed in the fee table as a group, not for each individual class. The
registrant must, however, list each of the classes of securities under the ``Title of each class of securities
to be registered'' section of the fee table.

General Instructions

I. Eligibility Requirements for Form B

A. General Requirement.
1. A registrant may use this Form for registration of securities
offerings under the Securities Act of 1933 if:
(a) it is not a foreign government as defined in Securities Act
Rule 405;
(b) it meets all of the requirements of General Instruction
I.B., unless otherwise specified in General Instruction I.C.;
(c) the offering is one of those described in General
Instruction I.C. and is not a roll-up transaction as defined in Item
901(c) of Regulation S-K; and
(d) Form C is not authorized for registration of the offering.
2. A registrant also may use this Form to register concurrently
under Section 12(b) or 12(g) of the Exchange Act. It may register
under the Exchange Act any class of securities that are the subject
of the offering it is registering under the Securities Act. To
register, the registrant must check the appropriate box(es) on the
cover page of this Form and identify which class(es) of securities
it is registering under Section 12(b) or 12(g).
B. Eligible Registrants.
1. The registrant:
(a) has a class of securities registered pursuant to Section
12(b) or 12(g) of the Exchange Act; or
(b) is required to file reports pursuant to Section 15(d) of the
Exchange Act.
2. For a period of at least 12 full calendar months and any
portion of a month immediately preceding the date of filing this
Form, the registrant:
(a) has been subject to the requirements of Section 12 or 15(d)
of the Exchange Act;
(b) has filed all the material it was required to file pursuant
to Sections 13, 14 and 15(d) of the Exchange Act;
(c) has filed in a timely manner all materials it was required
to file pursuant to Sections 13, 14 and 15(d) of the Exchange Act.
Note to General Instruction I.B.2.(c): If a registrant filed a
Form 12b-25 to delay filing any report (or a portion of a report)
during that time period, it must have filed the related report (or
portion) within the time prescribed by Exchange Act Rule 12b-25;
3. The registrant filed at least one annual report on Form 10-K
or Form 20-F prior to the date of filing this Form;
4. Prior to the date of filing this Form, the registrant
registered an offering of securities under the Securities Act other
than on a Form B, Form F-7, Form F-8, Form F-9, Form F-10, Form F-80
or on any form that became effective upon filing. A registrant need
not satisfy this requirement, however, if it became a publicly held
entity through an unregistered spin-off transaction whereby its
parent company distributed equity shares of the registrant on a pro
rata basis to the parent's shareholders;
5. Successor Registrants. We will deem a successor registrant to
have satisfied the eligibility requirements of General Instruction
I.B.2, I.B.3. and I.B.4. of this Form if it satisfies either of the
following requirements:
(a)(1) taken together, the registrant and its predecessor(s)
meet the eligibility requirements in General Instructions I.B.2,
I.B.3. and I.B.4.;
(2) the primary purpose of the succession was to change the
state or other jurisdiction of incorporation of the predecessor(s)
or to form a holding company for the predecessor(s); and
(3) the assets and liabilities of the successor at the time of
succession were substantially the same as those of the
predecessor(s); or
(b) the predecessor met the eligibility requirements of General
Instructions I.B.2, I.B.3. and I.B.4. at the time of succession and
the registrant has continued to meet them since the succession.
6. Disqualifications. None of the following is true:
(a) within two years before the date of filing this Form, the
registrant was a development stage company that either:
(1) had no specific business plan or purpose; or
(2) indicated that its business plan was to engage in a merger
or acquisition with an unidentified entity or entities;
(b) within two years before the date of filing this Form, the
registrant was a shell entity having few or no assets, earnings or
operations;
(c) the registrant is registering an offering of ``penny stock''
as defined in Exchange Act Rule 3a51-1 or has issued penny stock in
the two years prior to the date of filing this Form;
(d) the registrant or any of its subsidiaries has, since the end
of the last fiscal year for which the registrant included certified
financial statements in an Exchange Act report:
(1) failed to pay any dividend or sinking fund installment on
preferred stock;
(2) caused any material delinquency with respect to preferred
stock that was not cured within 30 days; or
(3) defaulted on any payment of principal, interest, a sinking
fund installment, a purchase fund installment or any other
installment on indebtedness, or defaulted on any rental on a long-
term lease, if such debt and lease defaults in the aggregate are
material;
(e) the independent accountant that examined the registrant's
financial statements for the most recent fiscal year expressed in
its report substantial doubt about the registrant's ability to
continue as a going concern;
(f) within three years before the date of filing, a petition
under the federal bankruptcy laws or any state insolvency law was
filed by or against the registrant, or a court appointed a receiver,
fiscal agent or similar officer with respect to the business or
property of the registrant. If true, however, this would not
disqualify the registrant if it has filed an annual report with
audited financial statements subsequent to its emergence from that
bankruptcy, insolvency or receivership process;
(g) within five years before the date of filing, the registrant,
any executive officer, director or general partner of the registrant
or person nominated to any of those positions, or underwriter was
convicted of any felony or misdemeanor described in clauses (i)
through (iv) of Section 15(b)(4)(B) of the Exchange Act;
(h) within five years before the date of filing, the registrant,
any executive officer, director or general partner of the registrant
or person nominated to any of those positions, or underwriter was
made the subject of a judicial or administrative decree or order
arising out of a governmental action that:
(1) prohibits future violations of any antifraud provision of
the securities laws or Section 5 of the Securities Act;
(2) requires that the registrant, any executive officer,
director or general partner of the registrant or person nominated
any of those positions, or underwriter cease and desist from
violating any antifraud provision of the securities laws or from
violating Section 5 of the Securities Act; or
(3) determines that the registrant, any executive officer,
director or general partner of the registrant or person nominated to
any of those positions, or underwriter violated any antifraud
provision of the securities laws or Section 5 of the Securities Act;
and
(i) the registrant would incorporate by reference into its Form
B registration statement a report under the Exchange Act that:
(1) the Commission, after review, requested that the registrant
amend in accordance with its comments; and
(2) either the registrant did not amend the report or, in the
Commission's judgment, did not amend the report in accordance with
the Commission's comments; and
(j) the registrant is a ``small business issuer,'' as defined in
Sec. 230.405, that

[[Page 67292]]

provided the ``Information Required in Annual Report of Transitional
Small Business Issuers'' in its most recent annual report on Form
10-KSB.
7. MJDS Filers. A registrant shall be ineligible to use Form B
if the most recent annual report it filed pursuant to Section 13 or
15(d) of the Exchange Act was on Form 40-F.
C. Eligible Offerings.
1. Offerings by Well-Followed Issuers.
An offering of securities of a registrant that satisfies all of
the registrant requirements in General Instruction I.B. is eligible
where either the registrant's public float is $75 million or more
and the average daily trading volume value of its equity securities
is $1 million or more, or the registrant's public float is $250
million or more.
For purposes of this Instruction:
(a) ``affiliate'' has the meaning set forth in Securities Act
Rule 144(a)(1);
(b) ``average daily trading volume'' means the average daily
trading volume on U.S. markets during the three full calendar
months, or any 90 consecutive calendar days ending within 10
calendar days, immediately preceding the filing of the registration
statement;
(c) ``common equity'' has the meaning set forth in Securities
Act Rule 405; and
(d) ``public float'' means the aggregate market value of the
registrant's outstanding voting and non-voting common equity
securities held by persons other than affiliates of the registrant,
as of the end of the registrant's last fiscal quarter. The aggregate
market value of the registrant's outstanding voting and non-voting
common equity shall be computed by use of the price at which the
common equity was last sold before the end of the last fiscal
quarter, or the average of the bid and asked prices in the principal
market for such common equity, as of the last reported date before
the end of the last fiscal quarter.
2. Offerings Made Solely to QIBs.
An offering of securities of a registrant that satisfies the
registrant requirements in General Instruction I.B. is eligible
where the securities are offered and sold only to persons that the
seller, and any person acting on behalf of the seller, reasonably
believe are qualified institutional buyers.
Note to General Instruction I.C.2.: For purposes of this
Instruction, ``qualified institutional buyer'' shall have the
meaning set forth in Securities Act Rule 144A(a)(1) except that it
shall not include dealers as defined in Section 2(a)(12) of the Act
or investment advisers as defined in Section 202(a)(11) of the
Investment Advisers Act of 1940. Rules 144A(a)(2)--(a)(5) shall
apply to this Instruction. In determining whether an investor is a
qualified institutional buyer, the registrant and any person acting
on behalf of the registrant may rely on the non-exclusive methods
set forth in Rule 144A(d)(1)(i)--(iv).
3. Offerings to Certain Existing Shareholders.
An offering by a registrant that satisfies all of the registrant
requirements in General Instruction I.B. is eligible where the
securities are offered and sold solely to existing security holders
as follows:
(a) Rights Offerings. Securities of the registrant to be offered
upon the exercise of outstanding rights granted by the registrant
pro rata to all its existing security holders of the class to which
the rights attach;
(b) DRIPS. Securities offered pursuant to a dividend or interest
reinvestment plan, as defined in Securities Act Rule 405, provided
that:
(1) with respect to a dividend reinvestment plan, securities
will be offered only while the registrant has not discontinued
dividend payments on the securities held, and with respect to an
interest reinvestment plan, securities will be offered only while
the registrant has not discontinued payment of interest on the
securities held;
(2) the plan offering being registered on this Form represents
no more than 15% of its public float (as defined in General
Instruction I.C.1.(d)) when aggregated with the dollar amount of
securities registered on this Form B by the registrant for offerings
to its existing shareholders within the 12 months before the start
of and during the offering on this Form. For purposes of determining
the amount of 15% of the registrant's public float, the registrant
should use the amount of public float reported on its most recently
filed Form 10-K;
(3) the plan offering being registered on this Form is extended
only to existing shareholders of the registrant that have held
securities of the registrant continuously for at least a two-month
period prior to becoming a participant; and
(4) the proposed aggregate purchase of securities by an existing
shareholder and its affiliates in the offering registered on this
Form and any other Form B offerings to existing shareholders made by
the issuer during the preceding 12-month period, does not exceed the
greater of:
(i) $10,000; or
(ii) whichever of the following amounts is smaller:
(A) 100% of the aggregate value of the same class(es) of the
issuer's securities owned by the existing shareholder and its
affiliates at the start of the 12-month period; or
(B) 5% of the total dollar amount of securities in the offering.
(c) Common Stock Holders. Offerings of the registrant's common
stock solely to the registrant's existing common stock holders,
without regard to whether pursuant to an ongoing plan, provided
that:
(1) the offering being registered on this Form represents no
more than 15% of the registrant's public float (as defined in
General Instruction I.C.1.(d)) when aggregated with the dollar
amount of securities registered by the registrant on Form B for
offerings to its existing shareholders within the last 12 months
before the start of and during the offering on this Form. For
purposes of determining the amount of 15% of the registrant's public
float, the registrant should use the amount of public float reported
on its most recently filed Form 10-K;
(2) the offering is extended only to existing shareholders of
the registrant that have held its common stock continuously for at
least a two-month period prior to being offered the securities; and
(3) the proposed aggregate purchase of securities by an existing
shareholder and its affiliates in the offering registered on this
Form and any other Form B offerings to existing shareholders made by
the issuer during the preceding 12-month period, does not exceed the
greater of:
(i) $10,000; or
(ii) whichever of the following amounts is smaller:
(A) 100% of the aggregate value of the same class(es) of the
issuer's securities owned by the existing shareholder and its
affiliates at the start of the 12-month period; or
(B) 5% of the total dollar amount of securities in the offering.
(d) Options Holders. Securities of the registrant issued upon
the exercise of its outstanding transferable options;
(e) Holders of Convertible Securities. Securities of the
registrant issued upon conversion of its outstanding convertible
securities; and (f)
(f) Warrants Holders. Securities of the registrant issued upon
the exercise of its outstanding transferable warrants.
(g) Standby Underwriting Agreements. No portion of any offering
registered pursuant to this paragraph 3. may be offered pursuant to
a standby underwriting agreement, or similar arrangement, in the
United States.
4. Offerings of Non-Convertible Investment Grade Securities.
(a) An offering of non-convertible investment grade securities
of a registrant that satisfies the registrant requirements in
General Instruction I.B. is eligible where the securities offered
are, at the time of sale, investment grade securities.
(b) For purposes of this Form, a security is ``investment
grade'' if, at the time of sale:
(1) it is rated by at least one nationally recognized
statistical rating organization (``NRSRO'') (as that term is used in
Exchange Act Rule 15c3-1(c)(2)(vi)(F)) in one of the generic rating
categories that signify investment grade; and
(2) no other NRSRO rating the security has placed it in a
category that does not signify investment grade.
5. Offerings by Majority-Owned Subsidiaries.
If a registrant is a majority-owned subsidiary, it may register
offerings of its non-convertible securities on this Form
notwithstanding the fact that it does not satisfy a registrant
eligibility requirement in General Instruction I.B.1., I.B.2.,
I.B.3. or I.B.4., or the public float/ADTV test in General
Instruction I.C.1. if:
(a) its parent satisfies all registrant eligibility requirements
in General Instruction I.B. and the public float/ADTV test in
General Instruction I.C.1.;
(b) the offering satisfies the applicable transaction
requirement; and
(c) its parent fully and unconditionally guarantees the payment
obligations on the securities being offered in the registered
transaction.
Note to General Instruction I.C.5.
The parent must concurrently register its offering of the
guarantee and may register that on the same registration statement
used for the offering of the guaranteed securities. Rule 3-10 of
Regulation S-X specifies the financial statements of the guarantor
and its affiliates that are required.

[[Page 67293]]

6. Market-Making Transactions.
An offering by a registrant that satisfies the registrant
requirements in General Instruction I.B.1. and I.B.6. is eligible
if:
(a) it registers transactions of a broker-dealer that is an
affiliate of the issuer;
(b) the broker-dealer engages in the transactions solely in its
ordinary capacity as a market maker as defined in Exchange Act
Section 3a-38; and
(c) the transactions involve outstanding securities of the
issuer that the broker-dealer has not acquired directly from the
issuer or an affiliate of the issuer or indirectly by arrangement
with the issuer or an affiliate of the issuer.

II. Securities Act Rules and Regulations

A. You should read Securities Act Rule 172. That rule describes
prospectus delivery obligations that may be applicable to offerings
registered on this Form.
B. You should read the other rules and regulations under the
Securities Act (Part 230 of Title 17 of the Code of Federal
Regulations), particularly Regulation C. That Regulation contains
general requirements regarding the preparation and filing of
registration statements.
C. You should read Rules 101, 201 and 202 of Regulation S-T.
Those rules require registrants subject to the electronic filing
requirements to make all applicable filings through the Commission's
EDGAR system. Those rules also provide that failure to submit a
required electronic filing will result in ineligibility to use this
Form and restrictions on use of incorporation by reference until the
required electronic filing has been made.

III. Offering Materials

A. You should read Securities Act Rule 166. That rule permits an
eligible registrant to make offers prior to filing a Form B
registration statement. If you use a prospectus to make offers in
reliance on that rule in the offering period, you must file that
prospectus when required to do so by Securities Act Rule 425.
B. You should read Securities Act Rule 165. That rule permits a
Form B registrant and those acting on its behalf to use ``free
writing'' offering materials that do not meet the requirements of
Section 10 of the Securities Act. If you use a prospectus in
reliance on that Rule, you must file it when required to do so by
Securities Act Rule 425.

IV. Foreign Issuer Financial Statements

A. A foreign issuer must reconcile its financial statements
included in or incorporated into this registration statement. It
must reconcile them to Item 18 of Form 20-F, except as otherwise
permitted in paragraph B of this General Instruction.
B. A foreign issuer need only reconcile its financial statements
to Item 17 of Form 20-F if:
1. an offering of the registrant's non-convertible investment
grade securities is being registered. See General Instruction I.C.4.
for the definition of ``investment grade'' securities; `
2. an offering of the registrant's securities upon the exercise
of outstanding rights that it granted pro rata to all existing
security holders of the class of securities to which the rights
attach is being registered;
3. an offering of the registrant's securities pursuant to a
dividend or interest reinvestment plan is being registered;
4. an offering of the registrant's securities upon the
conversion of outstanding convertible securities that it (or its
affiliate) issued is being registered; or
5. an offering of the registrant's securities upon the exercise
of outstanding transferrable warrants that it (or its affiliate)
issued is being registered.
C. Notwithstanding paragraphs B.2., B.3., B.4. and B.5. of this
General Instruction, if securities are to be offered or sold in a
standby underwriting in the United States or by similar arrangement,
the registrant must reconcile to Item 18 of Form 20-F.

V. Requests for Confidential Treatment

All registration statements on this Form become public upon
filing. Registration statements filed on this Form are not reviewed
by the Commission staff prior to the effective date. Confidential
treatment requests with respect to information that the registrant
is required to file in this Form may, however, be reviewed by the
staff. As a result, when the issuer plans to have the Form become
effective upon filing or fewer than 20 days thereafter, it must
furnish to the staff in advance of filing, any request it wishes to
make for confidential treatment of information relating to the Form.
See Securities Act Rule 406. The Commission must act on that request
before this Form becomes effective.

VI. Concurrent Registration of Securities Under the Exchange Act

A. Registration on this Form of a class of securities under
Exchange Act Section 12(b) shall become effective upon the later of:
1. receipt by the Commission of certification from the national
securities exchange listed on the cover of this Form that the
securities have been approved for listing; or
2. effectiveness of this registration statement.
B. Registration on this Form of a class of securities under
Exchange Act Section 12(g) shall become effective automatically upon
the earlier of (1) 60 days after the initial filing of this
registration statement; or (2) the effectiveness of this
registration statement.
C. If the registrant is required to file an annual report under
Exchange Act Section 15(d) for its last fiscal year, it must file
that annual report within the time period specified in the
appropriate annual report form even if the Exchange Act registration
becomes effective before the annual report is due.
D. The registrant must file at least one complete, signed copy
of the registration statement with each exchange or market
identified on the cover of this Form.

Information Required in the Prospectus That Is Part of the Effective
Registration Statement

1. Offering Information.
(a) Disclose the following information, all of which constitutes
the ``offering information'' for purposes of this Form:
(1) the amount of securities being offered;
(2) material changes in the issuer's affairs since the end of
the latest fiscal year that are not reflected in incorporated
Exchange Act reports;
(3) the information required by Item 504 of Regulation S-K
regarding use of proceeds;
(4) the information required by Item 507 of Regulation S-K
regarding who is selling the securities;
(5) material information about the terms of the securities
offered as required by Item 202 of Regulation S-K, unless capital
stock is to be registered and securities of the same class are
registered pursuant to Section 12 of the Exchange Act;
(6) information about the risks of the offering of the type
described in Item 503 of Regulation S-K;
(7) information about the underwriter's discounts and
commissions required by Item 501(b)(3) of Regulation S-K; and
(8) all information regarding the transaction that is material,
which may include where applicable, but is not limited to:
(i) information about dilution of the type described in Item 506
of Regulation S-K;
(ii) information about the determination of the offering price
of the type described in Item 505 of Regulation S-K;
(iii) information about the plan of distribution of the type
described in Item 508 of Regulation S-K;
(iv) ratio of earnings to fixed charges as described in Item 503
of Regulation S-K.
(b) You must include any offering information disclosed by or on
behalf of the issuer during the offering period, other than
information communicated orally.
(c) You may include offering information communicated orally.
You may not include offering information that has not been disclosed
by or on behalf of the issuer during the offering period.
(d) For purposes of this Form, ``offering period'' means the
period beginning 15 days in advance of the first offer made in
connection with the offering and ending when the offering is
completed.
2. Incorporation of Previously Filed Information.
State that you are incorporating by reference into the
prospectus that is part of the effective registration statement the
following documents, and list them:
(a) your latest annual report filed in accordance with Section
13(a) or 15(d) of the Exchange Act that contains audited financial
statements; and
(b) any reports you filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of the fiscal year covered by the
annual report you incorporate in this Form;
3. Incorporation of Subsequently Filed Information.
(a) Subject to paragraph (b) of this instruction, state that all
documents you subsequently file pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act during the offering period are deemed
to be incorporated by reference into the prospectus that is part of
the effective registration statement as of the date you file those
documents.
(b) You may incorporate Exchange Act documents filed after the
time of delivery in

[[Page 67294]]

accordance with Securities Act Rule 172 only if you otherwise
disclosed to investors the information contained in those documents
prior to or at the same time as you delivered.
(c) You may not incorporate Exchange Act documents filed after
the end of the offering period. For offerings done as part of a
delayed shelf under Securities Act Rule 415(a)(1)(x), each takedown
will be treated as having its own offering period. In each takedown
post-effective amendment on this Form you must state that you are
incorporating the documents required by paragraph 2.(a) of this
instruction and list them.
(d) Securities Act Rule 424 is not available in connection with
offerings registered on this Form. Material changes in disclosure
must be reflected in pre-effective amendments, in post-effective
amendments that the registrant may choose to designate as effective
upon filing, or in Exchange Act documents where permitted to be
incorporated by reference.
4. Financial statements.
(a) Foreign registrants: If the financial statements you
incorporate by reference in accordance with paragraph 2 of this
instruction of the Form are not sufficiently current to comply with
Rule 3-19 of Regulation S-X, you must provide financial statements
necessary to comply with that Rule. You must through one of the
following means:
(1) include that information in the prospectus; or
(2) include that information in an amended or a new Exchange Act
report, disclose in the prospectus that you have done so,
incorporate that report by reference into the effective registration
statement, and deliver it together with the prospectus.
(b) Other financial information. Include the following
information in the prospectus unless incorporated by reference:
(1) financial information required by Rule 3-05 and Article 11
of Regulation S-X with respect to transactions other than the one
being registered;
(2) restated financial statements prepared in accordance with or
reconciled to U.S. GAAP and Regulation S-X where:
(i) after the end of its most recent fiscal year, the registrant
consummated one or more business combinations accounted for by the
pooling of interest method of accounting; and
(ii) the acquired businesses, considered in the aggregate, are
significant pursuant to Rule 11-01(b) of Regulation S-X;
(3) restated financial statements prepared in accordance with or
reconciled to U.S. GAAP and Regulation S-X, if a change in
accounting principles or correction of an error required a material
retroactive restatement of financial statements; or
(4) any financial information required because of a material
disposition of assets outside the normal course of business.
Instruction to paragraph 4.
1. Foreign registrants: You should read Rules 4-01(a)(2) and 10-
01 of Regulation S-X.
2. Small business issuers: You must provide the financial
information specified in paragraph 4(b) if required by Item 310 of
Regulation S-B.
5. Securities Term Sheet. File as part of the prospectus in the
effective registration statement the term sheet prospectus that must
be delivered to investors under Securities Act Rule 172(a)(2). That
term sheet need contain only:
(a) an itemization of the material terms of the securities in
summary format;
(b) the name of any person, other than the issuer, for whose
account securities are offered and a brief identification of any
material relationship such person has (or had within the past three
years) with the issuer or any affiliate of the issuer;
(c) the identity and location of a contact person to whom
questions may be directed; and
(d) the identity and location of a person to whom requests for
documents defining the terms of the securities, which shall be sent
promptly upon request, may be made.
6. Material Changes Term Sheet. File as part of the prospectus
in the effective registration statement any document describing
material changes that must be delivered to investors under
Securities Act Rule 172(e).
7. Undertakings. Set forth the following undertakings in the
prospectus:
(a) that you will provide to each investor, including any
beneficial owner, a copy of any information that has been
incorporated by reference in the prospectus but not delivered, as
follows:
(i) upon written or oral request;
(ii) at no cost to the requester;
(b) that you will send that incorporated information within one
business day of any request for it;
(c) that you will send that incorporated information in a manner
that should result in delivery within three business days; and
(d) that the name, address, and telephone number to which the
request for that information must be made is: [ fill in information
].
Notes to Paragraph 7.
(1) This undertaking covers all documents incorporated by
reference through the date of responding to the request.
(2) If you send any of the information that is incorporated by
reference in the prospectus to investors, you must also send any
exhibits that are specifically incorporated by reference in that
information.
8. Aftermarket Delivery. Include the legend required by Item
502(b) of Regulation S-K.

Information not Required in the Prospectus That Is Part of the
Effective Registration Statement

1. Exhibits. Provide the exhibits required by Item 601 of
Regulation S-K.
2. Undertakings.
(a) Include the undertakings required by Item 512 of Regulation
S-K.
(b) Aftermarket delivery period. If not contained in the
prospectus that is part of the effective registration statement,
undertake that you will file a post-effective amendment to insert
the date the aftermarket delivery period ends in the legend required
by Item 502(b) of Regulation S-K.

Other Offering Materials

In addition to the offering information filed in the prospectus
that is part of the effective registration statement, the
registrant, any underwriter, any participating dealer or anyone
acting on behalf of any of them may use free writing materials.
``Free writing'' materials for purposes of this Form consist of all
information disclosed by or on behalf of the issuer during the
offering period, other than offering information, factual business
communications as defined in Securities Act Rule 169 or information
disclosed orally. You must file free writing materials by the time
of first sale. Securities Act Rule 425 describes the procedures for
filing those offering materials with the Commission.

Signatures

The registrant hereby certifies that it meets all of the
requirements for filing on Form B. The registrant also certifies
that it has duly caused and authorized the undersigned to sign this
registration statement on its behalf. The undersigned certifies that
he/she has read this registration statement and to his/her knowledge
the registration statement does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(Registrant)-----------------------------------------------------------

By (Signature and Title)-----------------------------------------------

Date-------------------------------------------------------------------

By (Signature and Title)-----------------------------------------------

Date-------------------------------------------------------------------

Signature Instructions

1. The following persons, or persons performing similar
functions, must sign the registration statement:
(a) the registrant;
(b) its principal executive officer or officers;
(c) its principal financial officer;
(d) its controller or principal accounting officer; and
(e) at least the majority of its board of directors.
2. Where the registrant is a foreign issuer, its authorized
representative in the United States also must sign the registration
statement.
3. Where the registrant is a limited partnership, its general
partner must sign. Where the general partner is a corporation, the
majority of the board of directors of the corporate general partner
must sign the registration statement.
4. Type or print the name and title of each person who signs the
registration statement beneath the person's signature. Any person

[[Page 67295]]

who occupies more than one of the specified positions must indicate
each capacity in which that person signs the registration statement.
See Securities Act Rule 402 concerning manual signatures and Item
601 of Regulation S-K concerning signatures pursuant to powers of
attorney.
5. Where eligibility for use of the Form is based on the
assignment of a security rating, the registrant may sign the
registration statement notwithstanding the fact that the security
rating has not been assigned by the filing date, provided that the
registrant reasonably believes, and so states in the registration
statement, that the security rating requirement will be met by the
time of sale.
6. Rule 415(a)(1)(x) offerings.
(a) All persons who sign this registration statement will be
deemed by doing so to grant an authorized representative of the
registrant the power to sign any post-effective amendment to the
registration statement on their behalf if:
(i) the registration statement relates to an offering pursuant
to Rule 415(a)(1)(x);
(ii) a power of attorney has not been granted by the person in
connection with signatures of post-effective amendments; and
(iii) the post-effective amendment does not provide otherwise.
(b) If, at the time of filing a post-effective amendment, any
person who signed the effective registration statement no longer
acts in the capacity in which he or she signed it, the person who
currently acts in that capacity must sign the post-effective
amendment.

92. By adding Sec. 239.6 and Form C to read as follows:

Sec. 239.6 Form C, for registration under the Securities Act of 1933
of securities issued in business combination transactions, and for
optional concurrent registration under the Securities Exchange Act of
1934.

(a) A registrant other than a small business issuer must use this
Form to register an offering under the Securities Act of 1933
(``Securities Act'') that is:
(1) A transaction of the type specified in paragraph (a) of
Sec. 230.145 of this chapter;
(2) A merger in which the applicable law would not require the
solicitation of the votes or consents of all of the security holders of
the company being acquired;
(3) An exchange offer for securities of the issuer or another
entity;
(4) A public reoffering or resale of any such securities acquired
pursuant to this registration statement; or
(5) More than one of the kinds of transactions listed in paragraphs
(a)(1) through (a)(4) of this section registered on one registration
statement.
(b) A registrant also may use this Form to register concurrently
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
(``Exchange Act''). It may register under the Exchange Act any class of
securities that are the subject of the offering it is registering under
the Securities Act. To register, the registrant must check the
appropriate box(es) on the cover page of this Form and identify which
class(es) of securities it is registering under Section 12(b) or 12(g)
of the Exchange Act.

Note: The text of Form C will not appear in the Code of Federal
Regulations.

U.S. Securities and Exchange Commission, Washington, D.C. 20549

Form C--Registration Statement Under the Securities Act of 1933 [And
Optional Registration Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934]