SECURITIES OFFERING REFORM 8591 33

User Manual: 8591

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SECURITIES AND EXCHANGE COMMISSION

17 CFR PARTS 200, 228, 229, 230, 239, 240, 243, 249, and 274

RELEASE NOS. 33-8591; 34-52056; IC-26993; FR-75

INTERNATIONAL SERIES RELEASE NO. 1294

FILE NO. S7-38-04

RIN 3235-AI11

SECURITIES OFFERING REFORM

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission is adopting rules that will

modify and advance significantly the registration, communications, and offering

processes under the Securities Act of 1933. Today’s rules will eliminate unnecessary and

outmoded restrictions on offerings. In addition, the rules will provide more timely

investment information to investors without mandating delays in the offering process that

we believe would be inconsistent with the needs of issuers for timely access to capital.

The rules also will continue our long-term efforts toward integrating disclosure and

processes under the Securities Act and the Securities Exchange Act of 1934. The rules

will further these goals by addressing communications related to registered securities

offerings, delivery of information to investors, and procedural aspects of the offering and

capital formation processes.

EFFECTIVE DATE: December 1, 2005

FOR FURTHER INFORMATION CONTACT: Amy M. Starr, Daniel Horwood, or

Anne Nguyen, at (202) 551-3200, in the Division of Corporation Finance, U.S. Securities

and Exchange Commission, 100 F Street, NE, Washington DC 20549 or, with respect to

questions regarding investment companies, Kieran Brown in the Division of Investment

Management, at (202) 551-6784.

SUPPLEMENTARY INFORMATION:

We are amending Rule 30-11 of the Administrative Practice and Procedure, Item 5122 of

Regulation S-B,3 Item 5124 of Regulation S-K,5 and Rules 134, 137, 138, 139, 153, 158,

174, 401, 405, 408, 412, 413, 415, 418, 424, 426, 430A, 439, 456, 457, 462, 473, 497,

and 9026 and eliminating Rule 4347 under the Securities Act.8 We are adding Rules 159,

159A, 163, 163A, 164, 168, 169, 172, 173, 430B, 430C, and 433 under the Securities

Act. We are amending Forms S-1, S-3, S-4, F-1, F-3, and F-4 and eliminating Forms S-2

1 17 CFR 200.30-1.

2 17 CFR 228.512.

3 17 CFR 228.10 et seq.

4 17 CFR 229.512.

5 17 CFR 229.10 et seq.

6 17 CFR 230.134; 17 CFR 230.137; 17 CFR 230.138; 17 CFR 230.139; 17 CFR

230.153; 17 CFR 230.158; 17 CFR 230.174; 17 CFR 230.401; 17 CFR 230.405;

17 CFR 230.408; 17 CFR 230.412; 17 CFR 230.413; 17 CFR 230.415; 17 CFR

230.418; 17 CFR 230.424; 17 CFR 230.426; 17 CFR 230.430A; 17 CFR 230.439;

17 CFR 230.456; 17 CFR 230.457; 17 CFR 230.462; 17 CFR 230.473; 17 CFR

230.497; and 17 CFR 230.902.

7 17 CFR 230.434.

8 15 U.S.C. 77a et seq.

and F-29 under the Securities Act; amending Rule 10010 of Regulation FD11and Rule 14a-

212 under the Securities Exchange Act of 1934;13 amending Forms 10, 10-K, 10-Q, 10-

KSB, and 20-F14 under the Exchange Act; and amending Form N-215 under the Securities

Act and the Investment Company Act of 1940.16

9 17 CFR 239.11; 17 CFR.239.13; 17 CFR 239.25; 17 CFR 239.31; 17 CFR

239.33; 17 CFR 239.34; 17 CFR 239.12; and 17 CFR 239.32.

10 17 CFR 243.100.

11 17 CFR 243.100 through 243.103.

12 17 CFR 240.14a-2.

13 15 U.S.C. 78a et seq.

14 17 CFR 249.210; 17 CFR 249.308a; 17 CFR 249.310; 17 CFR 249.310b; and 17

CFR 249.220f.

15 17 CFR 239.14 and 17 CFR 274.11a-1.

16 15 U.S.C. 80a-1 et seq.

Table of Contents

I. Introduction

A. Overview

B. Background

1. Advances in Technology

2. Exchange Act Reporting Standards

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

A. Well-Known Seasoned Issuers

1. Definition of Well-Known Seasoned Issuer

a. Market Capitalization Threshold

b. Registered Offerings of Non-Convertible Securities

Threshold

2. Timing of Determination of Well-Known Seasoned Issuer Status

3. Well-Known Seasoned Issuers’ Securities Offerings

4. Comments Regarding the Definition of Well-Known Seasoned

Issuer

B. Other Categories of Issuers

III. Communications Rules

A. Communications Requirements Prior to Today’s Rules and Amendments

B. Need for Modernization of Communications Requirements

1. General

2. Definition of Written Communication

a. “Written Communication” and “Graphic Communication”

b. Comments Regarding Proposals

C. Overview of Communications Rules

D. Communications Rules

1. Permitted Continuation of Ongoing Communications During an

Offering

a. Overview

b. Exception for Regularly Released Factual Business and

Forward-looking Information – Available to Reporting

Issuers

i. Factual Business Information

(A) Scope of the Safe Harbor

(B) Comments on the Scope of the Safe Harbor

ii. Forward-Looking Information

(A) Scope of the Safe Harbor

iii. Conditions of Safe Harbor in Rule 168

(A) “By or on Behalf of” the Issuer

(1) Definition

(2) Comments on Definition

(B) Regularly Released Information

(1) Regularly Released Condition

(2) Comments on Regularly Released

Condition

(1) Scope of Exclusion

(2) Comments on Exclusion

c. Exception for Regularly Released Factual Business

Information – Available to Non-Reporting Issuers

i. Scope of the Safe Harbor

ii. Comments on the Safe Harbor

2. Other Permitted Communications Prior to Filing a Registration

Statement

a. 30-Day Bright-line Exclusion From the Prohibition on

Offers Prior to Filing a Registration Statement – All Issuers

i. Scope of Exclusion

ii. Comments on 30-day Bright-line Exclusion

b. Permitted Pre-Filing Offers for Well-Known Seasoned

Issuers

i. Overview

ii. Exemption for Pre-Filing Offers

iii. Comments on Exemption for Pre-Filing Offers

3. Relaxation of Restrictions on Written Offering-Related

Communications

a. Rule 134

i. Expansion of Permitted Information

ii. Section 10 Prospectus Requirement

iii. Changes to Required Information

b. Permissible Use of Free Writing Prospectuses

i. Overview

ii. Definition of Free Writing Prospectus

(A) Scope of Definition

(B) Comments on Definition

iii. Permitted Use of a Free Writing Prospectus After

the Filing of a Registration Statement Under Rule

433

(A) Overview

(B) Issuer Eligibility

(1) Comments on Ineligible

Issuer Definition

Writing Prospectus

(1) Prospectus Delivery or Availability

(a) Prospectus Delivery

Conditions for Non-

Reporting Issuers and

Unseasoned Issuers

(b) Prospectus Availability

Condition for Seasoned

Issuers and Well-Known

Seasoned Issuers

Delivery or Availability

Condition

(2) Information in a Free Writing

Prospectus

(a) Information Conditions

(b) Amendment to Rule 408

(i) Discussion

(ii) Cure for

Unintentional or

Immaterial Failure to

Include a Legend

(iii) Impermissible

Legends or

Disclaimers

(3) Filing Conditions

(a) General Conditions

(i) Scope of General

Conditions

(ii) Conditions Specific to

Final Terms of the

Securities or Offering

(iii) Asset-Backed Issuers

(iv) Comments on Filing

Condition

(b) Immaterial or Unintentional

Failures to File

(i) Scope of Cure

Provision

(ii) Comments on Cure

Provision

(4) Record Retention Condition

(a) Discussion

(b) Immaterial or Unintentional

Failure to Retain a Free

Writing Prospectus

(D) Road Shows

(1) Definition of Electronic Road Show

(2) Treatment of Electronic Road Shows

(3) Comments on Electronic Road

Shows

(E) Treatment of Communications on Web Sites

and Other Electronics Issues

(1) General

(2) Historical Information on an Issuer

Web Site

(3) Comments on Treatment of

Communications on Web Sites and

Other Electronics Issues

(F) Media Publications or Broadcasts

(1) Overview

(2) Application of Rule 164 and Rule

433 to Media Publications

(a) Prospectus Delivery or

Availability

(i) Where Media

Publications Are

Prepared or

Consideration Paid by

Issuer or Offering

Participant

(ii) Unaffiliated Media

Publications

(b) Filing

(3) Responses to Comments on

Treatment of Media Publications

(G) Liability Issues Affecting Free Writing

Prospectuses

(1) General

(2) Filed Free Writing Prospectus Not

Part of Registration Statement

(3) Cross-Liability Issues

c. Interaction of New Communications Rules with Regulation

i. Amendments to Regulation FD

ii. Comments on Amendments to Regulation FD

4. Use of Research Reports

a. Current Regulatory Treatment of Research Reports

b. Amendments to Exemptions for Research

i. Definition of Research Report

(A) Definition

(B) Comments on Definition of Research Report

ii. Rule 137

iii. Rule 138

(A) Amendments to Rule 138

(B) Comments on Rule 138 Amendments

iv. Rule 139

(A) Issuer-Specific Reports

(1) Amendments Regarding Issuer-

Specific Reports

(2) Comments on Issuer-Specific

Reports

(B) Industry-Related Reports

(1) Amendments Regarding Industry-

Related Reports

(2) Comments on Industry-Related

Reports

v. Rule 139a

vi. Research Report Amendments in Connection with

Regulation S and Rule 144A Offerings

vii. Research and Proxy Solicitations

IV. Liability Issues

A. Information Conveyed by the Time of Sale for Purposes of Section

12(a)(2) and Section 17(a)(2) Liability

1. Interpretation and Rule

2. Comments and Guidance Regarding Our Interpretation and Rule

159

a. The Section 12(a)(2) and Section 17(a)(2) Analysis of the

Information Conveyed

b. Determination of Time of Sale

c. Termination of Old Contract and Creation or Reformation

of a New Contract

3. Rule 412 and Rule 430B

4. Relationship of Section 12(a)(2) and Section 17(a)(2)

Interpretation and Rule 159 to Section 11 Liability

B. Issuer as Seller

C. Due Diligence Interpretation

V. Securities Act Registration Rules and Amendments

A. Overview

B. Procedural Rules

1. Procedural Changes Regarding Shelf Offerings

a. Overview

b. Information in a Prospectus

i. Mechanics

(A) Rule 430B

(B) Means for Providing Information

Following Effectiveness

(1) Scope of Provision

(2) Comments on Identification of

Selling Security Holders

ii. Information Deemed Part of Registration Statement

iii. Date of Inclusion of Prospectus Supplements in

Registration Statements and New Effective Dates of

Registration Statements

(A) Scope of Provisions

(B) New Effective Dates for Section 11

Purposes

New Effective Dates

iv. Amendments to Rule 415

(A) Elimination of Limitation on Amount of

Securities Registered

(1) Revised Provisions

(2) Comments on Elimination of

Limitation on Amount of Securities

Registered

(B) Immediate Takedowns From a Shelf

Registration Statement Filed Under Rule

415(a)(1)(x)

Restrictions for Seasoned Issuers

v. Rule 424 Amendments

vi. Elimination of Rule 434

vii. Issuer Undertakings

(A) Treatment of Information in Prospectus

Supplements

(B) Prospectus Supplements Deemed Part of a

Registration Statement and New Effective

Dates

c. Changes to Form S-3 and Form F-3

2. Automatic Shelf Registration for Well-Known Seasoned Issuers

a. Overview

i. Rule Changes

ii. Comments on Automatic Shelf Registration

b. Automatic Shelf Registration Mechanics

i. Eligibility

ii. Information in a Registration Statement

(A) Information That May be Omitted From the

Base Prospectus

(B) Mechanics for Including Information

(D) Pay-as-You-Go Registration Fees

(1) Pay-as-You-Go Fee Rules

(2) Comments on Pay-as-You-Go Fees

(E) Registration Under Securities Act Sections 5

and 6

(F) Immediate Effectiveness

(G) Duration

3. Unseasoned Issuers and Non-Reporting Issuers

a. Overview

b. Amendments to Form S-1 and Form F-1 – Expanded Use

of Incorporation by Reference

i. Eligibility

ii. Procedural Requirements

iii. Comments on Form S-1 and Form F-1 Amendments

c. Elimination of Form S-2 and Form F-2

VI. Prospectus Delivery Reforms

A. Current Prospectus Delivery Requirements

B. Prospectus Delivery Revisions

1. Access Equals Delivery

a. Rule 172

(i) Scope of Rule

(ii) Comments on Rule 172

b. Exceptions to the Rule

c. Notification

(i) Rule 173

(ii) Comments on Rule 173

2. Written Confirmations and Notices of Allocations

3. Transactions Taking Place on an Exchange or Through a

Registered Trading Facility – Rule 153

4. Aftermarket Prospectus Delivery – Rule 174

VII. Additional Exchange Act Disclosure Provisions

A. Risk Factor Disclosure

1. Scope of Requirement

2. Comments on Risk Factor Disclosure Requirement

B. Disclosure of Unresolved Staff Comments

1. Disclosure Requirement

2. Comments on Disclosure of Outstanding Comments

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

VIII. Paperwork Reduction Act

A. Background

B. Summary of Information Collections

C. Summary of Comment Letters on the PRA Analysis

D. Paperwork Reduction Act Burden Estimates

1. Exchange Act Periodic Reports and Registration Statements

2. Communications and Prospectus Delivery

3. Securities Act Registration Statements

IX. Cost Benefit Analysis

A. Background

B. Summary of Rules

1. Communications

2. Securities Act Registration Rules

3. Prospectus Delivery

4. Exchange Act Reports

C. Comments on the Proposals

D. Benefits

1. Increased Information Flow

2. Investor Protection

3. Facilitating Capital Formation

4. Reduced Regulatory Uncertainty

5. Lower Costs

E. Costs

1. Compliance Costs

2. Potential for Increased Liability

3. Other Potential Costs

X. Consideration of Burden on Competition and Promotion of Efficiency,

Competition and Capital Formation

XI. Final Regulatory Flexibility Act Analysis

A. Reasons for and Objectives of the Rules and Amendments

B. Significant Issues Raised by Public Comment

C. Small Entities Subject to the Rules

D. Reporting, Record Keeping and Other Compliance Requirements

E. Agency Action to Minimize Effect on Small Entities

XII. Statutory Authority – Text of the Rules and Amendments

I. Introduction

A. Overview

On November 3, 2004, we issued proposed rule and form changes under the

Securities Act and the Exchange Act that would modernize the securities offering and

communication processes while maintaining protection of investors under the Securities

Act.17 We received over 130 comment letters on the proposals.18 While a large number

of letters focused on only one area of the proposals,19 a significant number of the other

letters addressed many aspects of the proposals. In general, commenters strongly

supported the proposals and their objectives. A number of commenters believed that the

proposals struck the appropriate balance between improving the capital formation process

and modernizing offering communications, while preserving investor protection and

avoiding unnecessary impediments to the capital formation process. As with other

rulemakings, including those of the magnitude that the proposals represented,

commenters provided many thoughtful comments and useful suggestions. We are

17 Securities Offering Reform, Release No. 33-8501 (Nov. 3, 2004)[69 FR 67392]

(“Proposing Release”).

18 The public comments we received are available for inspection in our Public

Reference Room at 100 F Street, NE, Washington, DC 20549 in File No. S7-

38-04, or may be viewed at http://www.sec.gov/rules/proposed/s73804.shtml.

19 A large number of commenters submitted comments that addressed only issues

regarding electronic road shows. See, e.g., letters from Robert Alpert; E. Price

Ambler; Kenneth Arnot; Richard Barrera; Lisa Baudot; Thomas Bengtsson; Barry

Bruner; Harold Candland; Nikita Chitnis; Herbert Chung; Rick Dowdle; Pat

Gilbert; Ira Ginsburg; Naval Goel; Bernard Krieg; Francis Lanio; Jimmy Liu;

Marvin Lutz; Peter Martin; Craig Millar; Piers Monckton; NetRoadshow Inc.

(“NetRoadshow”); F. Thomas O’Halloran, Paul J. Rasplicka; Kim Redding; Eric

Ribner; David Schumacher, Andre Shih; Susquehanna International Group, LLP

(“SIG”); Steve Smart-O’Connor; Bob Smith, Forrest Tempel; Chris Wallis; and

Adam White.

adopting the rules and amendments as proposed with certain modifications to address a

number of points that commenters raised.

The rules we are adopting today continue the evolution of the offering process

under the Securities Act that began as far back as 1966, when Milton Cohen noted the

anomaly of the structure of the disclosure rules under the Securities Act and the

Exchange Act and suggested the integration of the requirements under the two statutes.20

Mr. Cohen’s article was followed by a 1969 study led by Commissioner Francis Wheat21

and the Commission’s Advisory Committee on Corporate Disclosure in 1977.22 These

studies eventually led to the Commission’s adoption of the integrated disclosure system,

short-form registration under the Securities Act, and Securities Act Rule 415 permitting

shelf registration of continuous offerings and delayed offerings.23

20 Milton H. Cohen, Truth in Securities Revisited, 79 Harv. L. Rev. 1340 (1966).

(“It is my thesis that the combined disclosure requirements of these statutes would

have been quite different if the 1933 and 1934 Acts ... had been enacted in

opposite order, or had been enacted as a single, integrated statute —that is, if the

starting point had been a statutory scheme of continuous disclosures covering

issuers of actively traded securities and the question of special disclosures in

connection with public offerings had then been faced in this setting. Accordingly,

it is my plea that there now be created a new coordinated disclosure system

having as its basis the continuous disclosure system of the 1934 Act and treating

the ‘1933 Act’ disclosure needs on this foundation.”)

21 See Disclosure to Investors – A Reappraisal of Federal Administrative Policies

under the ’33 and ‘34 Acts, Policy Study (the “Wheat Report”),

www.sechistorical.org/museum/Museum_Papers/museum_Papers_Chron.php#19

60 (Mar. 27, 1969).

22 See Report of the Advisory Committee on Corporate Disclosure, Cmte. Print 95-

29, House Cmte. On Interstate and Foreign Commerce, 95th Cong., 1st. Sess.,

Nov. 3, 1977 (Nov. 3, 1977). In addition, beginning in 1968, the American Law

Institute (“ALI”) began its work on a Federal Securities Code, which was

approved in 1978 by the ALI membership. The ALI Federal Securities Code

included company registration as a central component. See American L. Inst.,

Federal Securities Code (1980).

23 See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3,

The Commission’s attention to the offering and communications processes under

the Securities Act continued more recently. In particular, in March 1996, members of the

Commission staff delivered the Report of the Task Force on Disclosure Simplification to

the Commission.24 It recommended a number of areas where simplification and

modernization of the registration and offering process could be accomplished. In July

1996, the Advisory Committee on the Capital Formation and Regulatory Processes

delivered its report to the Commission.25 Its principal recommendation was that the

Securities Act registration and disclosure processes be more directly tied to the

philosophy and structure of the Exchange Act through the adoption of a system of

“company registration.” Under company registration, the focus of Securities Act and

Exchange Act registration and disclosure would move from transactions to issuers, and

corollary steps would be taken to provide for disclosure and registration of individual

offerings within the company registration framework.

Promptly after the Advisory Committee on the Capital Formation and Regulatory

Processes delivered its report, the Commission issued a concept release regarding

regulation of the securities offering process.26 The release sought input on a number of

significant issues, including:

1982) [47 FR 11380] (“Integrated Disclosure Release”): Delayed or Continuous

Offering and Sale of Securities, Release No. 33-6423 (Sept. 2, 1982) [47 FR

39799]; and Shelf Registration, Release No. 33-6499 (Nov. 17, 1983) [48 FR

52889].

24 Report of the Task Force on Disclosure Simplification, available at

www.sec.gov/news/studies/smpl.htm (Mar. 5, 1996).

25 Report of the Advisory Committee on the Capital Formation and Regulatory

Process (the “Advisory Committee Report”), available at www.sec.gov/news/

studies/capform.htm (July 24, 1996).

26 Securities Act Concepts and Their Effects on Capital Formation, Release No.

• whether the concept of company registration should be pursued;

• whether other methods of increasing the integration of Securities Act and

Exchange Act disclosure and other processes should be considered;

• whether existing or further reliance on Exchange Act filings should be

accompanied by enhancements to Exchange Act reporting;

• whether companies make information about their public securities offerings

available to investors in an appropriate and timely manner, including:

{ at what point in the offering process delivery of, or access to, information

should be assured in connection with registered offerings under the Securities

Act and whether current requirements ensure timely delivery of information to

the secondary market in connection with such offerings;

{ whether prospectus supplements in shelf offerings should be made part of the

registration statement;

{ whether and, if so, in what circumstances electronic access should replace

actual delivery of information in connection with offerings registered under

the Securities Act; and

{ whether restrictions on written offers under the Securities Act should be

liberalized and what liability standards should attach to such communications;

• whether adjustments to the roles and responsibilities of traditional “gatekeepers”

in the Securities Act offering process, such as underwriters and accountants,

should be made in light of increases in the speed of and other evolutions in the

offering process;

• whether changes should be made to address evolution in the relationships between

the public and private offering processes, including:

{ whether changes in Rules 144A27 and 14428 under the Securities Act should be

considered; and

{ whether there should be any relaxation in our prohibition against general

solicitations of interest or offers in unregistered private offerings; and

33-7314 (July 25, 1996) [61 FR 40044] (the “1996 Concept Release”).

27 17 CFR 230.144A.

28 17 CFR 230.144.

• whether the review process of issuer filings under the Securities Act and the

Exchange Act by the staff of the Division of Corporation Finance should be

modified to limit the impact of the process on access to capital markets, at least

for some category of large seasoned issuers.29

In 1998, the Commission proposed new rules under the Securities Act that were

intended to modernize the securities offering process.30 As we recognized in the

Proposing Release, much of the comment in response to the 1998 proposals suggested

that the system of regulating capital formation in the registered offering market provides

a number of advantages that should be considered carefully and retained if we are to

make other changes.

The rules we are adopting today are focused primarily on constructive,

incremental changes in our regulatory structure and the offering process rather than the

introduction of a far-reaching new system, as we believe that we can best achieve further

integration of Securities Act and Exchange Act disclosure and processes by making

29 In addition, the 1996 Concept Release sought input on a number of items

suggested for consideration by the Task Force on Disclosure Simplification,

including the following: allowing smaller issuers that have been reporting for one

year to make delayed offerings (without altering the disclosure requirements or

permitting forward incorporation by reference); eliminating “at-the-market”

offering restrictions; allowing universal shelf registration for secondary offerings;

allowing issuers and majority-owned subsidiaries to be named as possible issuers

on a shelf registration (without designating the issuer until takedown); allowing

reallocation of securities on a shelf registration statement by post-effective

amendment; allowing registration by seasoned issuers without any specification

of the classes registered; and allowing seasoned issuers to pay registration fees at

the time of the takedown.

30 See The Regulation of Securities Offerings, Release No. 33-7606A (Nov. 13,

1998 [63 FR 67174] (the “1998 proposals”). The Commission proposed these

new rules after it was granted general exemptive authority under the Securities

Act. The National Securities Markets Improvement Act of 1996 (NSMIA) (Pub.

L. 104-290, 110 Stat. 3416 (Oct. 11, 1996)) provided the Commission with

general authority to adopt exemptive rules under the Securities Act to the extent

that such exemptive action is “necessary or appropriate in the public interest and

adjustments in the current integrated disclosure and shelf registration systems. Further,

consistent with our belief that investors and the securities markets will benefit from

greater permissible communications by issuers while retaining appropriate liability for

these communications, we have sought to address the need for timeliness of information

for investors by building on existing statutory provisions and processes without

mandating delays in the offering process that we believe would be inconsistent with the

needs of issuers for timely access to the securities markets and capital.

We are adopting the proposed revisions to the registration, communications, and

offering processes for registered transactions under the Securities Act with certain

modifications. We believe the rules we are adopting, while limited in scope, properly

address the areas that are in need of modernization. The adopted rules involve three main

areas:

• communications related to registered securities offerings;

• registration and other procedures in the offering and capital formation processes;

and

• delivery of information to investors, including delivery through access and notice,

and timeliness of that delivery.

Today’s rules reflect our view that revisions to the Securities Act registration and

offering procedures are appropriate in light of significant developments in the offering

and capital formation procedures and can provide enhanced protection of investors under

the statute. We believe that the rule changes we adopt today will:

• facilitate greater availability of information to investors and the market with

regard to all issuers;

consistent with the protection of investors.” See Securities Act Section 28 [15

U.S.C. 77z-3].

• eliminate barriers to open communications that have been made increasingly

outmoded by technological advances;

• reflect the increased importance of electronic dissemination of information,

including the use of the Internet;

• make the capital formation process more efficient; and

• define more clearly both the information and the timeliness of the availability of

information against which a seller’s statements are evaluated for liability

purposes.

The rules we are adopting today reflect certain modifications from the proposals

to address important points commenters raised. The modifications to the proposals

include the following:

• the definitions of graphic communication and written communication (including

as to road shows) exclude live, in real-time communications to a live audience

that are transmitted graphically;

• the free writing prospectus rules address “cross-liability” concerns among

offering participants arising from the use of free writing prospectuses;

• the free writing prospectus rules clarify the filing conditions applicable to media

publications, descriptions of the final terms of securities and offerings, and

electronic and other road shows, and modify the record retention provisions;

• the shelf registration rules address issues regarding the liability of officers,

directors, and accountants and other experts arising from the new effective dates

triggered by the filing of prospectus supplements;

• the definition of ineligible issuer more closely conforms the definition to other

ineligibility provisions in the Securities Act;

• the rule permitting specified written notices that are not prospectuses narrows the

types of information for which a preliminary prospectus will have to include a

price range as a condition;

• the definition of well-known seasoned issuer enables issuers to include all

registered non-convertible securities, other than common equity, issued for cash

in measuring the amount of registered fixed income securities over the prior three

years; and

• the prospectus delivery rule addresses concerns about potential underwriter

liability due to an issuer’s failure to timely file its final prospectus.

We also have endeavored to provide more guidance to market participants regarding our

interpretation of the liability provisions of Securities Act Sections 12(a)(2) and 17(a)(2).31

B. Background

1. Advances in Technology

As we noted in the Proposing Release, significant technological advances over the

last three decades have increased both the market’s demand for more timely corporate

disclosure and the ability of issuers to capture, process, and disseminate this information.

Computers, sophisticated financial software, electronic mail, teleconferencing,

videoconferencing, webcasting, and other technologies available today have replaced, to

a large extent, paper, pencils, typewriters, adding machines, carbon paper, paper mail,

travel, and face-to-face meetings relied on previously. The rules we are adopting today

seek to recognize the integral role that technology plays in timely informing the markets

and investors about important corporate information and developments.

2. Exchange Act Reporting Standards

The role that a public issuer’s Exchange Act reports play in investment decision

making is a key component of the rules we are adopting today. Congress recognized that

the ongoing dissemination of accurate information by issuers about themselves and their

securities is essential to the effective operation of the trading markets. The Exchange Act

and underlying rules have established a system of continuing disclosure about issuers that

have offered securities to the public, or that have securities that are listed on a national

securities exchange or are broadly held by the public. The Exchange Act rules require

public issuers to make periodic disclosures at annual and quarterly intervals, with other

important information reported on a more current basis. The Exchange Act specifically

provides for current disclosure to maintain the timeliness and adequacy of information

disclosed by issuers, and we have significantly expanded our current disclosure

requirements consistent with the provision in the Sarbanes-Oxley Act of 200232 that

“[e]ach issuer reporting under Section 13(a) or 15(d) … disclose to the public on a rapid

and current basis such additional information concerning material changes in the

financial condition or operations of the issuer … as the Commission determines … is

necessary or useful for the protection of investors and in the public interest.”33

A public issuer’s Exchange Act record provides the basic source of information to

the market and to potential purchasers regarding the issuer and its management, business,

financial condition, and prospects. Because an issuer’s Exchange Act reports and other

publicly available information form the basis for the market’s evaluation of the issuer and

the pricing of its securities, investors in the secondary market use that information in

making their investment decisions. Similarly, during a securities offering in which an

issuer uses a short-form registration statement, an issuer’s Exchange Act record is very

often the most significant part of the information about the issuer in the registration

statement.

31 15 U.S.C. 77l(a)(2) and 15 U.S.C. 77q(a)(2).

32 Pub. L. 107-204, 116 Stat. 745 (2002).

33 See Section 409 of the Sarbanes-Oxley Act, which added Section 13(l) to the

Exchange Act (15 U.S.C. 78m(l)). See also Additional Form 8-K Disclosure

Requirements and Acceleration of Filing Date, Release No. 33-8400 (Mar. 16,

2004) [69 FR 15594] and Additional Form 8-K Disclosure Requirements and

Acceleration of Filing Date; Correction, Release No. 33-8400A (Aug. 4, 2004)

[69 FR 48370] (“Form 8-K Releases”).

With the enactment of the Sarbanes-Oxley Act and our recent rulemaking and

interpretive actions, we have enhanced significantly the disclosure included in issuers’

Exchange Act filings and accelerated the filing deadlines for many issuers. The

following are examples of recent regulatory actions that have improved the delivery of

timely, high-quality information to the securities markets by issuers under the Exchange

Act:

• requiring the establishment of disclosure controls and procedures;34

• requiring a public issuer’s top management to certify the content of periodic

reports and highlight their responsibilities for and evaluation of the issuer’s

disclosure controls and procedures and internal control over financial reporting;35

• modifying the approach to current disclosure by increasing significantly the types

of events that must be reported on a current basis and shortening the time for

filing current reports;36

• approving listing standard changes intended to improve corporate governance and

enhance the role of the audit committee of the issuer’s board of directors with

regard to financial reporting and auditor independence;37 and

• providing further interpretive guidance regarding the content and

understandability of Management’s Discussion and Analysis of Financial

Condition and Results of Operations (MD&A) – a disclosure item we believe is at

the core of a reporting issuer’s periodic reports.38

34 See Certification of Disclosure in Companies’ Quarterly and Annual Reports,

Release No. 33-8124 (Aug. 28, 2002) [67 FR 57276] (“Certification Release”).

35 See Management’s Report on Internal Control Over Financial Reporting and

Certification of Disclosure in Exchange Act Periodic Reports, Release No.

33-8238 (June 5, 2003) [68 FR 36636]; Certification Release, note 34.

36 See Form 8-K Releases, note 33.

37 See Standards Relating to Listed Company Audit Committees, Release No.

33-8220 (Apr. 9, 2003) [68 FR 18788].

38 See Commission Guidance Regarding Management’s Discussion and Analysis of

Financial Condition and Results of Operations, Release No. 33-8350 (Dec. 19,

2003) [68 FR 75056] (the “2003 MD&A Release”).

Many of the recent changes to the Exchange Act reporting framework provide

greater rigor to the process that issuers must follow in preparing their financial statements

and Exchange Act reports. Senior management now must certify the material adequacy

of the content of periodic Exchange Act reports. Moreover, issuers, with the involvement

of senior management, now must implement and evaluate disclosure controls and

procedures and internal controls over financial reporting. Further, we believe the

heightened role of an issuer’s board of directors and its audit committee provides a

structure that can contribute to improved Exchange Act reports.

As we recognized in the Proposing Release, the 1996 Concept Release and the

1998 proposals also considered the role of enhanced Exchange Act reporting as an

important corollary to reform of the offering process under the Securities Act.39 We

believe that the enhancements to Exchange Act reporting described above enable us to

rely on these reports to a greater degree in adopting our rules to reform the securities

offering process.

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

A. Well-Known Seasoned Issuers

We are modifying the framework for communications in connection with public

offerings for all issuers and the framework of the registration process for most issuers that

report under the Exchange Act. As we explained in the Proposing Release, we believe

that the most far-reaching revisions of our communications rules and registration

39 Enhanced Exchange Act reporting also was central to the recommendations of the

Advisory Committee. See note 25.

processes should be considered for issuers that have a reporting history under the

Exchange Act and are presumptively the most widely followed in the marketplace.40

Today, the largest issuers are followed by sophisticated institutional and retail

investors, members of the financial press, and numerous sell-side and buy-side analysts

that actively seek new information on a continual basis. Unlike smaller or less mature

issuers, large seasoned public issuers tend to have a more regular dialogue with investors

and market participants through the press and other media. The communications of these

well-known seasoned issuers are subject to scrutiny by investors, the financial press,

analysts, and others who evaluate disclosure when it is made.

1. Definition of Well-Known Seasoned Issuer

We are adding a new category of issuer – a “well-known seasoned issuer” – that

will be permitted to benefit to the greatest degree from the modifications to our rules we

are adopting today regarding communications and the registration processes.41 We are

defining a well-known seasoned issuer as an issuer that is required to file reports pursuant

to Section 13(a) or Section 15(d) the Exchange Act and satisfies the following

requirements as of the date on which its status as a well-known seasoned issuer is

determined:

40 Today’s rules will provide a class of well-known seasoned issuers greater

flexibility in registering their securities offerings under a more streamlined

registration process known as automatic shelf registration. Under the automatic

shelf registration process, eligible well-known seasoned issuers can register, on a

more flexible basis than is currently the case, offerings of different types of

securities using Form S-3 or Form F-3 registration statements that are effective

upon filing. See discussion in Section V.B.2. below under “Automatic Shelf

Registration for Well-Known Seasoned Issuers.”

41 Except for expanding eligibility for certain majority-owned subsidiaries, as

discussed below, we are not changing the existing eligibility standards for the use

of Form S-3 and Form F-3.

• the issuer must meet the registrant requirements of Form S-3 or Form F-3;42

• the issuer either:

{ as of a date within 60 days of its eligibility determination date must have a

worldwide market value of its outstanding voting and non-voting common

equity held by non-affiliates of $700 million or more; or

{ as of a date within 60 days of its eligibility determination date, must have

issued in the last three years, at least $1 billion aggregate principal amount of

non-convertible securities, other than common equity,43 in primary offerings

for cash, not exchange, registered under the Securities Act;44 and

• the issuer must not be an ineligible issuer.45

If it does not itself meet the conditions for eligibility as a well-known seasoned

issuer, a majority-owned subsidiary of a well-known seasoned issuer will nonetheless be

a well-known seasoned issuer in connection with the offer and sale of its own securities

if:

• the securities are non-convertible securities, other than common equity, and the

parent of the majority-owned subsidiary is a well-known seasoned issuer and fully

and unconditionally guarantees those securities;46

42 Through the form requirements, the definition requires that a well-known

seasoned issuer be current and timely in its Exchange Act reporting obligations.

43 “Common equity” is defined in Securities Act Rule 405 as “any class of common

stock, or an equivalent interest, including but not limited to a unit of beneficial

interest in a trust or a limited partnership interest.”

44 As we discuss below, these issuers generally are limited in the types of securities

they may register on an automatic shelf registration statement as a well-known

seasoned issuer. See Section II.A.3 below under “Well-Known Seasoned Issuers

Securities Offerings.”

45 See definition of “ineligible issuer” added to Securities Act Rule 405 and

discussed in Section III.D.3 below under “Issuer Eligibility.” Further, an issuer

will not meet the definition of well-known seasoned issuer if it is an asset-backed

issuer (as defined in Item 1101(b) of Regulation AB [17 CFR 229.1101(b)], an

investment company registered under the Investment Company Act of 1940, or a

business development company. Business development companies are a category

of closed-end investment companies that are not required to register under the

Investment Company Act. See Section 2(a)(48) of the Investment Company Act

of 1940 [15 U.S.C. 80a-2(a)(48)].

• the securities are guarantees of non-convertible securities, other than common

equity, of (1) its well-known seasoned issuer parent or (2) another majority-

owned subsidiary where those non-convertible securities are fully and

unconditionally guaranteed by the well-known seasoned issuer parent;47 or

• the majority-owned subsidiary is offering non-convertible investment grade

securities.48

Overall, the issuers that will meet our thresholds for well-known seasoned issuers

are the most active issuers in the U.S. public capital markets. In 2004, those issuers,

which represented approximately 30% of listed issuers, accounted for about 95% of U.S.

equity market capitalization. They have accounted for more than 96% of the total debt

raised in registered offerings over the past eight years by issuers listed on a major

exchange or equity market. These issuers, accordingly, represent the most significant

amount of capital raised and traded in the United States. As a result of the active

participation of these issuers in the markets and, among other things, the wide following

of these issuers by market participants, the media, and institutional investors, we believe

that it is appropriate to provide communications and registration flexibilities to these

well-known seasoned issuers beyond that provided to other issuers, including other

seasoned issuers.

46 Whether a guarantee is full and unconditional is analyzed under the same

principles as those used under Rule 3-10 of Regulation S-X [17 CFR 210.3-10]

and Exchange Act Rule 12h-5 [17 CFR 240.12h-5]. In addition, the guarantee

may only be of securities that have a limited duration and are not perpetual. This

analysis is not different from the current analysis under Form S-3 or Form F-3 for

registered guaranteed securities.

47 See amendments to Securities Act Rule 405. Unless the majority-owned

subsidiary itself meets the eligibility conditions for a well-known seasoned issuer,

it may, of course, only register securities as a well-known seasoned issuer on its

parent’s automatic shelf registration statement.

48 These offerings would be required to meet the conditions of General Instruction

I.B.2 of Form S-3 or Form F-3.

a. Market Capitalization Threshold

As we discussed in the Proposing Release, we believe that non-affiliate equity

market capitalization, or “public float,” of a reporting issuer can be used as a proxy for

whether the issuer has a demonstrated market following.49 We are adopting as a

threshold a public float of $700 million or more. We have used market capitalization as a

proxy for public float in evaluating this threshold and its implications.

To determine whether an issuer meets the $700 million threshold under the

definition, the issuer will calculate its public float in the same manner that it calculates its

public float for purposes of determining Form S-3 or F-3 eligibility.50 We have revised

the definition from the proposal to clarify that the non-affiliate equity market

capitalization is determined on a worldwide basis, as it historically has been for purposes

of eligibility to use Form F-3. In addition, for purposes of calculating public float of a

non-U.S. issuer to determine eligibility as a well-known seasoned issuer and eligibility to

use Form S-3 or F-3, we interpret “common equity” as defined in Securities Act Rule 405

as including a class of participating voting or non-voting preferred stock of a foreign

49 Public float also is one of the key determinants for eligibility for current short-

form registration on Form S-3 or Form F-3.

50 The determination of public float is based on a public trading market. This is the

same requirement in General Instruction I.B.1 of Form S-3 and Form F-3 that a

registrant have a $75 million market value and in the definition of accelerated

filer in Exchange Act Rule 12b-2 [17 CFR 240.12b-2]. Therefore, an entity with

$700 million of common equity securities outstanding but not trading in any

public trading market would not be a well-known seasoned issuer based on

market capitalization. See Simplification of Registration Procedures for Primary

Securities Offerings, Release No. 33-6964 (Oct. 29, 1982) [57 FR 48970];

Simplification of Registration Procedures for Primary Securities Offerings,

Release No. 33-6943 (July 22, 1992) [57 FR 32461] (proposing release);

Integrated Disclosure Release, note 23; and Reproposal of Comprehensive

Revision to System for Registration of Securities Offerings, Release No. 33-6331

(Aug. 18, 1981) [46 FR 41902].

issuer where the issuance of the preferred stock results from requirements of the

applicable foreign jurisdiction or market and where the class of preferred stock has

liquidation or dividend preferences and other terms that cause it to be the substantial

economic equivalent of a class of common stock.

To evaluate the implications of a $700 million public float threshold, staff in our

Office of Economic Analysis (“OEA”) obtained data on the 12,551 registered offerings

that were conducted from 1997 to 2004 by 2,875 issuers that had public equity

outstanding and were listed on a major exchange or equity market.51 Of these offerings,

9,164 were debt offerings that raised proceeds of $1,927 billion, and 3,387 were equity

offerings that raised proceeds of $567 billion. The average issuer conducted 4.2 debt

offerings and 1.1 equity offerings per calendar year, although as many as 209 debt

offerings have been conducted by a single issuer within a calendar year.

OEA also analyzed data on the financial market conditions under which these

offerings were made. High levels of analyst coverage, institutional ownership, and

trading volume are useful indicators of the scrutiny that an issuer receives from the

market, although no one statistic can fully capture the extent to which an issuer is

followed by the market.52 Issuers with market capitalization in excess of $700 million

that conducted offerings from 1997 to 2004 typically had an average of 12 analysts

51 OEA compiled and analyzed the supporting data for the public float (using market

capitalization) and outstanding debt thresholds.

52 See, e.g., Harrison Hong, Terrence Lim, and Jeremy C. Stein, Bad News Travels

Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies, 55

Journal of Finance 265 (2000); Robert C. Merton, A Simple Model of Capital

Market Equilibrium with Incomplete Information, 42 Journal of Finance 483

(1987).

following them prior to the offering.53 This includes only sell-side analysts and is, we

believe, a conservative indicator of analyst scrutiny. Institutional investors accounted for

an average of 52% of equity ownership prior to offerings by issuers with market

capitalization above $700 million. Those issuers had an average daily trading volume of

nearly $52 million prior to offerings in this period and accounted for the following

percentages of capital raised:

OFFERING PROCEEDS, BY ISSUER CAPITALIZATION

PRIMARY SEASONED OFFERINGS, 1997-2004*

$Billions (%) Proceeds from Offerings, by Issuer Capitalization

Market Capitalization of Issuers

>$700mm >$0 (All Issuers)

Equity $ 396 (70%) $ 567 (100%)

Debt54 $1,849 (96%) $1,927 (100%)

Total $2,245 (90%) $2,494 (100%)

*Source: OEA estimates using Center for Research in Securities

Prices at the University of Chicago and Securities Data

Corporation data.

b. Registered Offerings of Non-Convertible Securities Threshold

Issuers that do not meet the public equity float test will be considered well-known

seasoned issuers if they have issued for cash more than an aggregate of $1 billion in

non-convertible securities, other than common equity, through registered primary

offerings over the prior three years. These issuers also will have to satisfy the other

53 Issuers with a market capitalization of between $75 million and $200 million, in

most cases, have between zero to five analysts following them, with

approximately 50% having zero to two analysts following them.

54 Because the methodology includes only listed issuers, it excludes debt-only

issuers (including companies that will be well-known seasoned issuers), including

those that are subsidiaries of companies with listed public equity but that are not

themselves listed.

conditions of the well-known seasoned issuer definition, such as the form eligibility

requirement.55 In determining compliance with this threshold:

• issuers may aggregate the amount of non-convertible securities, other than

common equity, issued in registered primary offerings during the prior three

years;

• issuers may include only such non-convertible securities that were issued in

registered primary offerings for cash – they may not include registered exchange

offers in this aggregation; and

• parent company issuers only may include in their calculation the principal amount

of their full and unconditional guarantees, within the meaning of Rule 3-10 of

Regulation S-X,56 of non-convertible securities, other than common equity, of

their majority-owned subsidiaries issued in registered primary offerings for cash

during the three-year period.

The aggregate principal amount of non-convertible securities that may be counted

toward the $1 billion issuance threshold may have been issued in any registered primary

offering for cash, on any form (other than Form S-4 or Form F-4). Those non-convertible

securities need not be investment grade securities to be included in the calculation. In

calculating the $1 billion amount, issuers generally may include the principal amount of

any debt and the greater of liquidation preference or par value of any non-convertible

preferred stock that were issued in primary registered offerings for cash.57

55 As we discuss below, these issuers generally are limited in the types of securities

they may register on an automatic shelf registration statement as a well-known

seasoned issuer. See Section II.A.3 below under “Well-Known Seasoned Issuers

Securities Offerings.”

56 17 CFR 210.3-10.

57 Some commenters asked for clarification on how to value certain types of debt

issuances, such as debt issuances involving original issue discount or debt issued

in foreign currency denominations. See, e.g., letters from the American Bar

Association (“ABA”) and the New York State Bar Association (“NYSBA”). We

have not made any modifications to the definition in response to these comments.

Issuers should use the same calculation that they use to determine the dollar

amount of securities that they are registering for purposes of determining their

filing fees under Securities Act Rule 457.

Issuers may not include the principal amount of securities that were offered in

registered exchange offers by the issuer when determining compliance with the $1 billion

non-convertible securities threshold. A substantial portion of these offerings involve

registered exchange offers of substantially identical securities for securities that were sold

in private offerings. In those cases, the original sale to investors in the private offering,

relying upon, for example, the exemptions of Securities Act Section 4(2)58 and Rule

144A, is not registered and is not carried out under the Securities Act’s disclosure or

liability standards. Moreover, in the subsequent registered exchange offers purchasers

may not be able, in certain cases, to avail themselves effectively of the remedies

otherwise available to purchasers in registered offerings for cash. While these exchange

offers are permitted in some circumstances, the policy preference for registered offerings,

in conjunction with the streamlining of the registration process we provide today, lead us

to conclude that such exchange offers should not count towards the $1 billion threshold.

OEA analyzed statistics on issuers that did not meet the $700 million public

equity threshold. OEA found that very few issuers that had public common equity but

did not meet the $700 million public float threshold would meet the $1 billion non-

convertible securities threshold. However, OEA also found that a number of issuers

without any public common equity would meet the $1 billion threshold. Based on OEA’s

analysis, from 1997 to 2004 the issuers of fixed income securities that did not have

outstanding public common equity but met the $1 billion threshold accounted for 16.7%

of all of the issuers without public common equity that issued public debt, but accounted

for 65% of total debt and preferred stock issued by all of such issuers. None of the debt

58 15 U.S.C. 77d(2).

offerings of issuers meeting the threshold was rated below investment grade, and 86% of

their debt offerings were rated A or higher by a nationally recognized security rating

organization (an “NRSRO”). This group of issuers also on average had 19 basis points

lower yield spread for their issues relative to issuers without public common equity that

had issued less than $1 billion of fixed income securities in the past three years. We

believe that this lower yield spread reflects lower default risk (higher ratings) and higher

liquidity and transparency of the issuers.59

2. Timing of Determination of Well-Known Seasoned Issuer Status

Whether an issuer satisfies the eligibility requirements for being a well-known

seasoned issuer generally will be determined on an approximately annual basis. We

revised the timing of determination of status as a well-known seasoned issuer in response

to comments.60 As adopted, the definition uses the 60-day window period used in Form

S-3 and Form F-3 and provides that the eligibility determination will be made as of the

later of the time of filing of the issuer’s most recent shelf registration statement or the

time of its most recent amendment (by post-effective amendment, incorporated Exchange

Act report, or form of prospectus) to a shelf registration statement for purposes of

complying with Securities Act Section 10(a)(3).61 In the event that the issuer has not

59 See Gordon J. Alexander, William F. Sharpe, and Jeffrey V. Bailey,

Fundamentals of Investments (2001 ed.) at 530.

60 See, e.g., letters from Alston & Bird LLP (“Alston”); Davis Polk & Wardwell

(“Davis Polk”); Ernst & Young LLP (“E & Y”); and the Association of the Bar of

the City of New York (“NYCBA”).

61 See 15 U.S.C. 77j(a)(3). Under Form S-3 and Form F-3, the Section 10(a)(3)

update need not be made through a post-effective amendment. Rather, under

these Forms, the Section 10(a)(3) update generally occurs when the issuer files its

annual report on Form 10-K or Form 20-F containing the issuer’s audited

financial statements for its most recently completed fiscal year by the due date of

such annual report.

filed a shelf registration statement or amended a shelf registration statement for purposes

of complying with Securities Act Section 10(a)(3) for sixteen months, the determination

date will be the time of filing of the issuer’s most recent annual report on Form 10-K or

Form 20-F. If the issuer does not accomplish its Section 10(a)(3) update or file its annual

report when due, the due date will become the date of determination and, because the

issuer will be neither timely nor current in its reporting obligations under the Exchange

Act at that time, it will cease to be a well-known seasoned issuer. It can of course

become a well-known seasoned issuer again in the future if and when it meets applicable

requirements.

A well-known seasoned issuer may not be an ineligible issuer on the date of

determination of well-known seasoned issuer status. The date of determination of

whether an issuer is an ineligible issuer for these purposes is the same date as that used

for other purposes in determining the issuer’s status as a well-known seasoned issuer.

3. Well-Known Seasoned Issuers’ Securities Offerings

An issuer that meets the definition of well-known seasoned issuer based on the

$700 million public float threshold can use an automatic shelf registration statement, as

discussed below, to register any offering of securities, other than those for business

combination transactions.62 An issuer that meets the definition of well-known seasoned

issuer based on the amount of registered non-convertible security issuances in the prior

three years also may register any such offering for cash using automatic shelf registration

if it is eligible to register a primary offering of its securities on Form S-3 or Form F-3

62 Under the Rule, business combination transactions are those defined in Rule

165(f)(1) [17 CFR 230.165(f)(1)]. Rule 165(f)(1) defines a business combination

transaction to mean any transaction specified in Rule 145(a) [17 CFR 230.145(a)]

pursuant to General Instruction I.B.1. of such forms.63 An issuer that meets the definition

of well-known seasoned issuer based on the amount of registered non-convertible

security issuances in the prior three years but is not eligible to register a primary offering

of securities on Form S-3 or Form F-3 pursuant to General Instruction I.B.1 of such

forms may use automatic shelf registration to register only offerings for cash of non-

convertible securities, other than common equity, whether or not investment grade.

4. Comments Regarding the Definition of Well-Known Seasoned Issuer

Commenters generally supported the addition of a class of well-known seasoned

issuers who will benefit the most from the new rules.64 Most of the comments related to

the threshold for eligibility based on public equity float, the definition of “debt security”

for purposes of the debt threshold calculation, the inclusion of securities issued in

exchange offers, the frequency of eligibility determinations, and the inclusion or

exclusion of Schedule B issuers, voluntary issuers, and asset-backed issuers.65 A number

or exchange offer.

63 We believe that an eligible well-known seasoned issuer that can otherwise use

Form S-3 or Form F-3 for registered primary offerings because it has a $75

million public float should not have to use two different registration statements

for its securities offerings for cash.

64 See, e.g., letters from Alston; The Bond Market Association (“TBMA”);

Citigroup Global Corporate & Investment Bank (“Citigroup”); LaSalle Broker-

Dealer Services Division of ABN-AMRO Financial Services, Inc. (“LaSalle”);

NYSBA; and Reuters America LLC (“Reuters”).

65 See, e.g., letters from ABA; the American Bar Association comment letter on

asset-backed securities (“ABA-ABS”); Cleary Gottlieb Steen & Hamilton

(“Cleary”); Fried, Frank, Harris, Shriver & Jacobson (“Fried Frank”); the

International Bar Association (“IBA”); the Securities Industry Association

(“SIA”); and TBMA.

of commenters also suggested that the timing of the eligibility determination for well-

known seasoned issuers be revised.66

Some commenters expressed the view that the $700 million threshold was too

high, while others thought additional eligibility conditions should be included.67 None of

the commenters provided any empirical data supporting their views to modify the

thresholds. Other commenters suggested alternative ways to measure whether an issuer

should be considered a well-known seasoned issuer, including average daily trading

volume or institutional ownership measures.68 Many commenters requested that we

clarify that the public float used in the calculation be the company’s worldwide public

float.69 A number of commenters on the definition requested that we direct the staff to

reconsider the bases for the thresholds in two to three years.70

Commenters on the debt threshold were most concerned about the types of

securities included in the calculation and whether it was appropriate to include only debt

issued in registered offerings.71 Some commenters requested that the debt calculation be

based on a broader category of fixed income securities including debt securities and non-

66 See, e.g., letters from Alston; Davis Polk; E & Y; NYCBA; and TBMA.

67 See, e.g., letters from ABA; the American Institute for Certified Public

Accountants (“AICPA”); BDO Seidman, LLP (“BDO Seidman”); Deloitte &

Touche LLP (“Deloitte”); E & Y; Fried Frank; the National Association of Real

Estate Investment Trusts (“NAREIT”); NYSBA; Reuters; Sullivan & Cromwell

(“S & C”); and Students in Professor Samuel C. Thompson’s Investment Banking

Class, UCLA School of Law (“UCLA”).

68 See, e.g., letters from ABA; Brinson Patrick Securities Corporation (“Brinson

Patrick”); and S & C.

69 See, e.g., letters from ABA; Alston; Cleary; Fried Frank; IBA; NYSBA; and

S & C.

70 See, e.g., letters from NYCBA; SIA; and UCLA.

71 See, e.g., letters from ABA; Alston; Cleary; Davis Polk; S & C; and TBMA.

convertible preferred securities.72 Commenters suggested that non-investment grade debt

be included in the calculation.73 These commenters also suggested that securities issued

in exchange offers, such as “Exxon Capital” exchange offers, be included in the debt

calculation. Some commenters suggested that the debt calculation be based on all debt

and non-convertible preferred stock sold, whether or not in registered offerings.74

Finally, some commenters requested that issuers meeting the well-known seasoned issuer

definition based on their debt offerings be allowed to use the automatic shelf registration

procedure for registering offerings of equity securities as well as debt securities.75

We have retained the $700 million public float threshold and the $1 billion debt

threshold. As the discussion above reflects, in reaching our determination to use the $700

million public float amount, we considered trading volume, institutional ownership, and

market capitalization.

In response to comments, we have clarified that the basis for determining the

public float calculation is worldwide public float of voting and non-voting common

equity. In response to comments, 76 we also are providing an interpretation, as set forth

above, regarding the inclusion in the calculation of certain participating preferred stock of

non-U.S. issuers that is substantially economically equivalent to common equity.

72 See, e.g., letters from ABA; Alston; Cleary; the Society of Corporate Secretaries

& Governance Professionals (“SCSGP”); the Southern Company (“Southern”);

and TBMA.

73 See, e.g., letters from Alston; Davis Polk; the NYCBA; S & C; and TBMA.

74 See, e.g., letters from ABA; Alston; Fried Frank; IBA; and TBMA.

75 See, e.g., letters from Alston; Fried Frank; and TBMA.

76 See letters from Cleary and Shearman & Sterling (“Shearman”).

While we are not revising the dollar amount of the thresholds for public equity

float or for issued debt, the definition as adopted addresses a number of the other issues

that commenters raised. For example, we have expanded the $1 billion debt threshold to

include any non-convertible security, other than common equity, that has been issued in a

registered offering for cash during the prior three years.77 Further, the offering of the

security included in the calculation could have been registered on any form (other than

Form S-4 or Form F-4) and the security need not be investment grade. In addition, a

parent issuer may count the aggregate amount of its registered full and unconditional

guarantees of non-convertible securities, other than common equity, of its majority-

owned subsidiaries issued for cash during the three-year period.

While we have not changed the dollar amounts of the thresholds, we do agree

with commenters that it would be appropriate to revisit the thresholds in a few years.

We, therefore, are directing the staff of the Division of Corporation Finance and OEA to

undertake a study in three years after full implementation of the rules to evaluate the

operation of the definition we adopt today and any material changes in the data upon

which the thresholds are based and report back to us and recommend any potential

changes to the thresholds based on such new data.

Although some commenters had suggested expanding the categories of eligible

issuers beyond those contained in the proposed definition,78 and others suggested

narrowing the categories of eligible issuers or otherwise imposing more stringent

77 We have not expanded the non-convertible security threshold to include the

amount of securities issued in unregistered offerings or in exchange offers.

78 See, e.g., letters from ABA; ABA-ABS; Allied Capital Corporation (“Allied”);

IBA; and TBMA.

eligibility conditions,79 we have adopted the definition as proposed in that regard. As a

result, well-known seasoned issuer status is not available to voluntary filers, asset-backed

issuers, or Schedule B issuers.80 Voluntary filers are not required to file reports under the

Exchange Act, and we believe that such issuers should be required to register under the

Exchange Act, and thus become subject to all of the results of registration for all

purposes, if they wish to avail themselves of the benefits of reporting issuer, seasoned

issuer, or well-known seasoned issuer status.81 For Schedule B issuers, we expect that

the staff will continue to consider disclosure and other shelf issues affecting Schedule B

issuers in the same manner that they do today. Finally, we have recently adopted rules

and regulations covering the offering of and reporting by asset-backed issuers.82 This

new regulatory structure is not yet fully operational. The advantages of a reporting

history under the Exchange Act that influenced our decision to create the well-known

seasoned issuer category are essentially absent for asset-backed issuers.

Commenters wanted market participants to have greater certainty that issuers

were eligible as well-known seasoned issuers.83 We have modified the timing for

79 See, e.g., letters from AICPA; BDO Seidman; Deloitte; and E & Y.

80 As noted above, the definition of well-known seasoned issuer explicitly excludes

investment companies registered under the Investment Company Act of 1940 and

business development companies.

81 As later discussed and consistent with our proposal, an issuer not subject to the

reporting requirements of Exchange Act Section 13 or Section 15(d), but filing

Exchange Act reports voluntarily, will not be a well-known seasoned issuer or a

seasoned issuer. In addition, because voluntary filers are not required to report,

they will not be treated as reporting issuers, for example, for purposes of Rule

138, Rule 168, or Rule 433.

82 See Asset-Backed Securities, Release No. 33-8518 (Dec. 22, 2004) [70 FR 1506]

(the “Asset-Backed Securities Adopting Release”).

83 See, e.g., letters from ABA-ABS; American Securitization Forum (“ASF”); and

Richard Hall.

determination of well-known seasoned issuer status to provide more certainty. We have

provided generally for an approximately annual determination of well-known seasoned

issuer status. We also are adopting a change to Form 10-K and Form 20-F that will

modify the cover page of those forms to include a check box for issuers to indicate if they

are considered well-known seasoned issuers at the time of the filing of the Form 10-K or

Form 20-F.

B. Other Categories of Issuers

We also are using existing categories of issuers, including seasoned issuers,

unseasoned Exchange Act reporting issuers, and non-reporting issuers, in the new rules

regarding communications and the registration process. A seasoned issuer is an issuer

that is eligible to use Form S-3 or Form F-3 to register primary offerings of securities

pursuant to General Instruction I.B.1 of such Forms or is registering securities in reliance

on General Instruction I.B.2, I.B.5, or I.C. of Form S-3 or General Instruction I.A.5 or

I.B.2 of Form F-3.84 Majority-owned subsidiaries registering offerings of their securities

on Form S-3 or Form F-3 pursuant to General Instruction I.C. of Form S-3 or I.A.5. of

Form F-3 also are considered seasoned issuers.85 As commenters requested, we are

clarifying that issuers of asset-backed securities eligible for registration on Form S-3 also

are considered seasoned issuers.86

84 See Form S-3 and Form F-3.

85 We are expanding the majority-owned subsidiary eligibility in Form S-3 and

Form F-3 to allow majority-owned subsidiaries to use the forms under the same

circumstances in which majority-owned subsidiaries may be well-known

seasoned issuers. For example, see General Instruction I.C. to Form S-3.

86 Asset-backed securities (as defined in Item 1101 of Regulation AB [17 CFR

229.1101]) may be offered and sold on Form S-3 if the issuer meets the

requirements of General Instruction I.A.4 of Form S-3 and the transaction meets

the requirements of General Instruction I.B.5 of such Form, including that the

An unseasoned issuer is an issuer that is required to file reports pursuant to

Section 13 or Section 15(d) of the Exchange Act, but does not satisfy the requirements of

Form S-3 or Form F-3 for a primary offering of its securities. A non-reporting issuer is

an issuer that is not required to file reports pursuant to Section 13 or Section 15(d) of the

Exchange Act, regardless of whether it is filing such reports voluntarily.

A number of commenters suggested that the rules treat voluntary filers as

seasoned issuers even though they are not required to file reports pursuant to Exchange

Act Section 13 or Section 15(d).87 As we note above with respect to eligibility for

well-known seasoned issuer status, voluntary filers are not required to file reports under

the Exchange Act, and we believe that such issuers should be required to register under

the Exchange Act if they wish to avail themselves of the benefits accorded seasoned

issuers under the rules we are adopting today.

III. Communications Rules

A. Communications Requirements Prior to Today’s Rules and

Amendments

The Securities Act restricts the types of offering communications that issuers or

other parties subject to the Act’s provisions (such as underwriters) may use during a

registered public offering. The nature of the restrictions depends on the period during

which the communications are to occur. The restrictions do not depend on the accuracy

of the information contained in the communication. Before the registration statement is

filed, all offers, in whatever form, are prohibited.88 Between the filing of the registration

asset-backed securities are investment grade.

87 See, e.g., letters from ABA; Alston; Fried Frank; and TBMA.

88 See Securities Act Section 5(c) [15 U.S.C. 77e(c)]. Securities Act Section 2(a)(3)

[15 U.S.C. 77b(a)(3)] defines “offer” as any attempt or offer to dispose of, or

statement and its effectiveness, offers made in writing (including by e-mail or Internet),

by radio, or by television are limited to a “statutory prospectus” that conforms to the

information requirements of Securities Act Section 10.89 As a result, the only written

material that is permitted in connection with the offering of the securities during the

period between filing and effectiveness of a registration statement is a preliminary

prospectus meeting the requirements of Section 10, which must be filed with us. Even

after the registration statement is declared effective, offering participants still may make

written offers only through a statutory prospectus, except that they may use additional

written offering materials if a final prospectus that meets the requirements of Securities

Act Section 10(a) is sent or given prior to or with those materials.90 Violations of these

restrictions generally are referred to as “gun jumping,” and we use the term “gun-jumping

provisions” in this release to describe the statutory provisions of the Securities Act that

set forth these restrictions.

solicitation of an offer to buy, a security or interest in a security, for value. The

term “offer” has been interpreted broadly and goes beyond the common law

concept of an offer. See Diskin v. Lomasney & Co., 452 F.2d 871 (2d. Cir.

1971); SEC v. Cavanaugh, 1 F. Supp. 2d 337 (S.D.N.Y. 1998). The Commission

has explained that “the publication of information and publicity efforts, made in

advance of a proposed financing which have the effect of conditioning the public

mind or arousing public interest in the issuer or in its securities constitutes an

offer . . .” Guidelines for the Release of Information by Issuers Whose Securities

are in Registration, Release No. 33-5180 (Aug. 16, 1971) [36 FR 16506].

89 See Securities Act Section 5(b)(1) [15 U.S.C. 77e(b)(1)] and Securities Act

Section 10 [15 U.S.C.77j].

90 See Securities Act Section 2(a)(10) [15 U.S.C. 77b(a)(10)] and Section 5(b)(1).

B. Need for Modernization of Communications Requirements

1. General

As we noted in the Proposing Release, the gun-jumping provisions of the

Securities Act were enacted at a time when the means of communications were limited

and restricting communications (without regard to accuracy) to the statutory prospectus

appropriately balanced available communications and investor protection. The gun-

jumping provisions were designed to make the statutorily mandated prospectus the

primary means for investors to obtain information regarding a registered securities

offering.

The capital markets, in the United States and around the world, have changed

very significantly since those limitations were enacted. Today, issuers engage in all types

of communications on an ongoing basis, including, importantly, communications

mandated or encouraged by our rules under the Exchange Act, rules or listing standards

of national securities exchanges, and comparable requirements in foreign jurisdictions.

Modern communications technology, including the Internet, provides a powerful,

versatile, and cost-effective medium to communicate quickly and broadly.91 The changes

in the Exchange Act disclosure regime and the tremendous growth in communications

technology are resulting in more information being provided to the market on a more

non-discriminatory, current, and ongoing basis. Thus, while investor protection remains

a paramount interest, the gun-jumping provisions of the Securities Act impose substantial

91 For example, the Internet provides a medium through which to deliver electronic

documents, to broadcast radio and television programs, to issue press releases or

print advertisements, to conduct telephone or videoconferences with investors,

prospective investors, and other parties, and to send personal e-mails.

and increasingly unworkable restrictions on many communications that would be

beneficial to investors and markets and would be consistent with investor protection.

The following factors, combined with the advances in technology described

above, lead us to believe that investors and the market will benefit from access to greater

permissible communications where protection for investors is maintained through the

appropriate Securities Act liability standards for materially deficient disclosures in

prospectuses and oral communications:

• much of our recent rulemaking is intended to encourage reporting issuers to

provide additional materially accurate and complete information to the market on

a more current basis.92 The Securities Act’s constraints on communications

during an offering, however, have caused issuers to be concerned about the

treatment of their ongoing communications and whether, if they are engaged or

will soon be engaged in capital raising, their customary disclosures will be

considered an impermissible offer of securities;93

• the multiplicity of means of communication has led us to recognize that restricting

written offers to a statutory prospectus inhibits desirable methods of timely

communication of information;

92 Other recent rulemaking initiatives addressing disclosure issues include those

referenced in notes 33 through 38 and those contained in Disclosure Regarding

Nominating Committee Functions and Communications Between Security

Holders and Boards of Directors, Release No. 33-8340 (Nov. 24, 2003) [68 FR

66992]; and Disclosure in Management’s Discussion and Analysis About Off-

Balance Sheet Arrangements and Aggregate Contractual Obligations, Release No.

34-47264 (Jan. 28, 2003) [68 FR 5982] (the “Off-Balance Sheet Disclosure

Release”).

93 See, e.g. letter from the American Bar Association Committee on Federal

Regulation of Securities to the Director of the Division of Corporation Finance,

Aug. 22, 2001 (available at www.abanet.org); comment letters in File No. S7-30-

98 from Gerald S. Backman, et. al.; Fried Frank; Service Employees International

Union Master Trust; and S & C. See also Edward F. Greene and Linda C.

Quinn,“Building on the International Convergence of the Global Markets: a

Model for Securities Law Reform,” presented at A Major Issues Conference:

Securities Regulation in the Global Internet Economy, Washington, D.C., Nov.

14-15, 2001 (available at www.law.northwestern.edu).

• there are many more offerings of increasingly complex securities where written

communications, such as detailed descriptions of securities and offerings, would

enhance significantly the offering process for the benefit of investors;94 and

• the continuing trends towards globalization of securities markets and

multinationalization of issuers and offerings and corresponding increase in

information and information requirements increase the need for a regulatory

framework that accommodates more flexible communications.

As we discussed in the Proposing Release, in view of the many recent changes to the

Exchange Act reporting system that are designed to produce more timely and extensive

disclosures and greater scrutiny of, and confidence in, those reports, it is appropriate at

this time to adopt communications and offering reforms.95

2. Definition of Written Communication

a. “Written Communication” and “Graphic Communication”

As a starting point for reform, we are defining all methods of communication,

other than oral communications, as written communications for purposes of the Securities

Act. While we have addressed the issue of electronic communications in a number of

different contexts, at this time we are adopting rules making it clear that all electronic

communications (other than telephone and other live, in real-time communications to a

live audience, as discussed below) are graphic and, therefore, written communications for

94 For example, we and the staff have already recognized the usefulness of

descriptions of securities and related materials in offerings of asset-backed

securities. See the Asset-Backed Securities Adopting Release, note 82.

95 We have considered communications reform in other contexts for a number of

years. With our adoption of the communications reforms for business

combination transactions in 1999, we reduced the regulation of offers and brought

the regulatory structure closer to the practices in those offerings while ensuring

continued investor protection. See Regulation of Takeovers and Security Holder

Communications, Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408] (the

“Regulation M-A Release”). We recently have adopted communications reforms

for asset-backed securities offerings as well. See the Asset-Backed Securities

Adopting Release, note 82.

purposes of the Securities Act. In this manner, we intend to encompass new

technologies. Accordingly, we are adopting new definitions of “graphic communication”

and “written communication” to promote consistent understanding of what constitutes

such a communication in view of the technological developments since the enactment of

the Securities Act and to significantly reduce remaining uncertainty regarding the

permitted means for delivery of information under the Securities Act.

We are adopting the proposed revisions to the definition of “graphic

communication” with some modifications. As adopted, the definition of “graphic

communication” includes any form of electronic media, such as audiotapes, videotapes,

facsimiles, CD-ROM, electronic mail, Internet web sites, and computers, computer

networks, and other forms of computer data compilation.96

The definition of graphic communication does not include a communication that,

at the time of the communication, originates live, in real-time, to a live audience and does

not originate in recorded form or otherwise as a graphic communication.97 Any such

communication is not a graphic communication even if it is transmitted through a means

of graphic communication. A basic concept of the definition we adopt today is that

communications that are graphic communications when they are transmitted are treated

96 The forms of media that are described in the definition encompass the forms of

media that are addressed in our interpretive guidance on the use of electronic

media. See, e.g., Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000)

[65 FR 25843] (the “2000 Electronics Release”). In recognition of continuing

developments in technology, the forms of electronic media described in the

definition are intended to be illustrative rather than exhaustive.

97 Written communications will not include individual telephone voice mail

messages from live telephone calls but will include broadly disseminated or

“blast” voice mail messages, including those that originate in graphic form. The

latter is included in the definition because we believe they are not to a live

audience and therefore more closely resemble graphic communications than oral

as graphic communications under the definition and communications that are live, in real-

time communications to a live audience when they are transmitted are not treated as

graphic communications. We believe that live, in real-time communications to a live

audience, including those transmitted by graphic means, have less of the permanence of

communications that originate in graphic form or that appear on the printed page.

Accordingly, we believe that the distinctions in the definitions we are adopting today are

appropriate updatings of the Securities Act’s distinctions between oral and written

communications.

As adopted, “written communication” means any communication that is written,

printed, or television or radio broadcast (regardless of the transmission means), or a

graphic communication. All communications that fall outside the definition are oral

communications, including for purposes of Securities Act Section 12(a)(2). It also

excludes live telephone calls (through whatever means by which they are transmitted,

including the Internet) and, as discussed above, other live, in real-time communications

to a live audience transmitted by graphic means. The definition as adopted clarifies that

television or radio broadcasts will be covered regardless of the transmission means.

We thus make a clearer distinction between communications that are broadcast

and those that are graphic communications. We have clarified that a television or radio

broadcast in Securities Act Section 2(a)(10) and in our definition of written

communication encompasses all radio or television broadcasts, regardless of the means of

transmission of the signals. For example, a cable television show will be considered a

television broadcast that is a written communication, and a television show or radio

communications.

program that may be seen or heard through the Internet on a computer will also be

considered a television or radio broadcast that is a written communication. A

communication may fall outside the definition of graphic communication because it

originates live, in real-time to a live audience but such communication (for example, a

live business news program broadcast by traditional means or on cable) may be a

television or radio broadcast. On the other hand, a live, in real-time communication that

is transmitted by graphic means to a live audience would be an oral communication.

Given the potentially unlimited and uncontrolled nature of dissemination of broadcast

communications and the language of the Securities Act, we believe that this is an

appropriate distinction.

The following are examples of the application of these definitions:

• a live telephone call is not a written communication;

• a live telephone call that is recorded by the recipient is not a written

communication;

• e-mails, facsimiles, and electronic postings on web sites, by their nature, originate

in graphic form and, therefore, are graphic communications;

• a live, in-person road show to a live audience is not a written communication;

• a live, in real-time road show to a live audience that is transmitted graphically is

not a graphic communication;

• a live, in real-time road show to a live audience that is transmitted to an “overflow

room” is not a graphic communication;

• a webcast or video conference that originates live and in real-time at the time of

transmission and is transmitted through video conferencing facilities or is webcast

in real-time to a live audience is not a graphic communication;

• the ability of a member of the audience to record a webcast or video conference

that is presented live and in real-time to a live audience would not affect the status

of that webcast or video conference;

• a live telephone call or video or webcast conference that is recorded by or on

behalf of the originating party or parties and then transmitted, or is otherwise

transmitted other than live and in real-time, will be a graphic communication and

therefore a written communication;

• a live telephone call or video or webcast conference that is recorded by the

recipient and then re-transmitted by the recipient is a graphic communication by

the recipient when it is re-transmitted; and

• an interview with an issuer’s chief executive officer conducted live as part of a

television program is a written communication regardless of how the television

signal is transmitted (whether over the airwaves, or through cable, satellite, or

Internet) and regardless of how it is received by the recipient (whether a television

set or a computer).

With respect to road shows, as explained below, we also have added a Note to

Rule 433 that states that a communication that is provided or transmitted simultaneously

with a road show and is provided or transmitted in a manner designed to make the

communication available only as part of the road show and not subsequently is deemed to

be part of the road show.

b. Comments Regarding Proposals

Commenters raised several questions about the proposed definitions, particularly

as the definitions affected live audio transmissions, live telephone calls, and live road

shows transmitted over the Internet.98 Commenters were concerned that the definitions

of written communication and graphic communication did not explicitly address the

treatment of live telephone calls, regardless of the medium of transmission, although the

Proposing Release provided that live telephone calls (other than blast voice mails) would

not be considered written communications.99

98 See, e.g., letters from Citigroup; Cleary; Davis Polk; S & C; and SIA.

99 See, e.g., letters from Citigroup; Merrill Lynch & Co., Inc. (“Merrill Lynch”);

S & C; and SIA.

We believe that the modifications that we made to the definitions of graphic

communication and written communication will address commenters’ issues regarding

live, in real-time communications, including telephone calls, conference calls, videocasts,

and live webcasts.

C. Overview of Communications Rules

Today, we are adopting rules that relate to the following:

• regularly released factual business information;

• regularly released forward-looking information;

• communications made more than 30 days before filing a registration statement;

• communications by well-known seasoned issuers during the 30 days before filing

a registration statement;

• written communications made in accordance with the safe harbor in Securities

Act Rule 134; and

• written communications (other than a statutory prospectus) by any eligible issuer

after filing a registration statement.

The following table provides a brief overview of the operation of the new and

amended rules. While the table clearly does not include the level of detail necessary to

explain the rules, we have included it to help readers in understanding the basic scope of

the new communications scheme.

Could it be an

“offer” as

defined in

Section

2(a)(3)?

Is it a

“prospectus”

as defined in

Section

2(a)(10)?

Is it a

prohibited pre-

filing offer for

purposes of

Section 5(c)?

Is it a prohibited

prospectus for

purposes of

Section 5(b)(1)?

Regularly

Released Factual

Business

Information

Yes No

Rule defines it

as not an offer

for Section 5(c)

purposes

Section 5(b)(1)

relates only to

“prospectuses” –

it is not applicable

Could it be an

“offer” as

defined in

Section

2(a)(3)?

Is it a

“prospectus”

as defined in

Section

2(a)(10)?

Is it a

prohibited pre-

filing offer for

purposes of

Section 5(c)?

Is it a prohibited

prospectus for

purposes of

Section 5(b)(1)?

Regularly

Released

Forward-Lookin

Information

Yes No

Rule defines it

as not an offer

for Section 5(c)

purposes

Section 5(b)(1)

relates only to

“prospectuses” –

it is not applicable

Communications

Made More Than

30 Days Before

Filing of

Registration

Statement

Yes

Possibly, based

on facts and

circumstances

Rule defines it

as not an offer

for Section 5(c)

purposes

Section 5(b)(1)

does not apply in

the pre-filing

period – it is not

applicable

Well-Known

Seasoned Issuers -

- Oral Offers

Made Within 30

Days of Filing of

Registration

Statement

Yes No

Is exempted

from

prohibition of

Section 5(c)

Section 5(b)(1)

does not apply in

the pre-filing

period – it is not

applicable

Well-Known

Seasoned Issuers -

- Written Offers

Made Within 30

Days of Filing of

Registration

Statement

Yes

Yes. It also is a

free-writing

prospectus

Is exempted

from

prohibition of

Section 5(c)

Section 5(b)(1)

does not apply in

the pre-filing

period – it is not

applicable

Well-Known

Seasoned Issuers -

- Free Writing

Prospectuses

Used Before

Filing of

Registration

Statement

Yes Yes

Is exempted

from

prohibition of

Section 5(c)

Section 5(b)(1)

does not apply in

the pre-filing

period – it is not

applicable

Identifying

Statements in

Accordance with

Rule 134

Yes No

Section 5(c) is

not applicable,

as Rule 134

relates only to

the period after

the filing of a

registration

statement

Section 5(b)(1)

relates only to

“prospectuses” –

it is not

applicable

Could it be an

“offer” as

defined in

Section

2(a)(3)?

Is it a

“prospectus”

as defined in

Section

2(a)(10)?

Is it a

prohibited pre-

filing offer for

purposes of

Section 5(c)?

Is it a prohibited

prospectus for

purposes of

Section 5(b)(1)?

All Eligible

Issuers -- Free

Writing

Prospectuses

Used After Filing

of Registration

Statement

Yes Yes

Section 5(c) is

not applicable,

as it does not

apply in the

post-filing

period

Section 5(b)(1)

will be satisfied,

as the free writing

prospectus will be

a permitted

Section 10(b)

prospectus

The communications rules we are adopting recognize the value of ongoing

communications as well as the importance of avoiding unnecessary restrictions on offers

during a registered offering. In particular, the new and revised rules will eliminate

requirements that can interrupt unnecessarily an issuer’s normal and routine

communications into the market while an issuer is engaging in a securities offering, and

will enhance the ability of issuers and other offering participants to make written offers

outside the statutory prospectus.

The new and revised rules we are adopting establish a communications

framework that, in some cases, will operate along a spectrum based on the type of issuer,

its reporting history, and its equity market capitalization or recent issuances of fixed

income securities. Thus, under the rules we are adopting, eligible well-known seasoned

issuers will have freedom generally from the gun-jumping provisions to communicate at

any time, including by means of a written offer other than a statutory prospectus.

Varying levels of restrictions will apply to other categories of issuers. We believe these

distinctions are appropriate because the market has more familiarity with large, more

seasoned issuers and, as a result of the ongoing market following of their activities,

including the role of market participants and the media, these issuers’ communications

have less potential for conditioning the market for the issuers’ securities to be sold in a

registered offering. Disclosure obligations and practices outside the offering process,

including under the Exchange Act, also determine the scope of communications

flexibility the rules give to issuers and other offering participants.100

The cumulative effect of the rules under the gun-jumping provisions is the

following:

• well-known seasoned issuers are permitted to engage at any time in oral and

written communications, including use at any time of a free writing prospectus,101

subject to enumerated conditions (including, in specified cases, filing with us).102

• all reporting issuers are permitted, at any time, to continue to publish regularly

released factual business information and forward-looking information.103

• non-reporting issuers are permitted, at any time, to continue to publish regularly

released factual business information that is intended for use by persons other

than in their capacity as investors or potential investors.104

• communications by issuers more than 30 days before filing a registration

statement are not prohibited offers so long as they do not reference a securities

offering that is or will be the subject of a registration statement.105

• All issuers and offering participants are permitted to use free writing prospectuses

after the filing of the registration statement, subject to enumerated conditions

(including, in specified cases, filing with us).106

100 See, e.g., Regulation FD, Regulation G [17 CFR 244.100 et seq.], and Form 8-K

[17 CFR 249.308].

101 A “free writing prospectus” is defined in Securities Act Rule 405. This definition

is discussed in Section III.D.3 below under “Definition of Free Writing

Prospectus.”

102 See Rule 163.

103 See Rule 168. Certain asset-backed issuers and non-reporting foreign private

issuers also will be able to rely on the Rule.

104 See Rule 169.

105 See Rule 163A.

106 See Rules 164 and 433.

• a broader category of routine communications regarding issuers, offerings, and

procedural matters, such as communications about the schedule for an offering or

about account-opening procedures, are excluded from the definition of

“prospectus.”107

• the exemptions for research reports are expanded.108

As discussed below, a number of these rules include conditions of eligibility.

Most of the new and amended rules, for example, are not available to blank check

companies, penny stock issuers, or shell companies.109

The rules we are adopting today ensure that appropriate liability standards are

maintained. For example, all free writing prospectuses have liability under the same

provisions as apply today to oral offers and statutory prospectuses.110 Written

communications not constituting prospectuses will not be subject to disclosure liability

applicable to prospectuses111under Securities Act Section 12(a)(2). This result will not

affect their status for liability purposes under other provisions of the federal securities

laws, including the anti-fraud provisions.112

107 See amendments to Securities Act Rule 134.

108 See amendments to Securities Act Rules 137, 138, and 139.

109 We have adopted rules that contain a definition of shell company. See Use of

Form S-8, Form 8-K, and Form 20-F by Shell Companies, Release No. 33-8587

(July 15, 2005) (“Shell Company Release”). For purposes of the rules we are

adopting today, we have excluded business combination related shell companies

from the restrictions otherwise applicable to shell companies. Therefore, all

references to shell companies in this release excludes business combination

related shell companies.

110 These liability provisions include Securities Act Section 12(a)(2) and 17(a),

Exchange Act Section 10(b) [15 U.S.C. 78j(b)], and Exchange Act Rule 10b-5 [17

CFR 240.10b-5].

111 See Securities Act Section 2(a)(10) and Rule 134.

112 See, e.g., Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange

Act Rule 10b-5.

D. Communications Rules

1. Permitted Continuation of Ongoing Communications During an

Offering

a. Overview

We are adopting substantially as proposed two separate, non-exclusive safe

harbors from the gun-jumping provisions for continuing ongoing business

communications. The first safe harbor permits a reporting issuer’s continued publication

or dissemination of regularly released factual business and forward-looking information

at any time, including around the time of a registered offering.113 The second safe harbor

permits a non-reporting issuer’s continued publication or dissemination of regularly

released factual business information that is intended for use by persons other than in

their capacity as investors or potential investors.114 The safe harbors are not exclusive

and do not create a presumption that any communication that falls outside the safe harbor

is an offer. Accordingly, reliance on one of the safe harbors does not affect the

availability of any other exemption or exclusion under the Securities Act. Further,

attempted compliance with one of the safe harbors does not act as an exclusive election.

For example, attempted reliance on one of the exemptive rules or exclusions we adopt

today will not preclude reliance on another available exemption or exclusion. In

particular, it will not preclude reliance on the argument that under general securities law

principles and our earlier interpretive guidance the communication in question is not an

offer under Securities Act Section 2(a)(3).

113 See Rule 168.

114 See Rule 169.

Investment companies registered under the Investment Company Act of 1940 and

business development companies are ineligible to use the safe harbors for factual

business information and forward-looking information. These issuers are subject to a

separate framework governing communications with investors.115

b. Exception for Regularly Released Factual Business and

Forward-Looking Information – Available to Reporting Issuers

We are adopting substantially as proposed the safe harbor for reporting issuers, as

well as asset-backed issuers and certain non-reporting foreign private issuers, from the

gun-jumping provisions for continued publication or dissemination of communications of

regularly released factual business and forward-looking information.116 This safe harbor

is a “use” safe harbor in that it applies to communications of factual business and

forward-looking information that have been regularly released in the ordinary course by

or on behalf of a reporting issuer.117

Commenters supported the proposed safe harbor with certain suggested changes

to its scope.118 Commenters suggested that the safe harbor should be available to

voluntary filers, non-reporting foreign private issuers, asset-backed issuers, registered

investment companies, and business development companies.119 As adopted, the rule is

115 See, e.g., Securities Act Rules 156, 482, and 498 [17 CFR 230.156; 17 CFR

230.482; 17 CFR 230.498]; Investment Company Act Rule 34b-1 [17 CFR

270.34b-1].

116 The safe harbor also covers communications that incorporate regularly released

factual business or forward-looking information.

117 See Rule 168.

118 See, e.g., letters from ABA; Cleary; Davis Polk; Fried Frank; NYSBA; and

SCSGP.

119 See, e.g., letters from ABA; ABA-ABS; Allied; Alston; the Commercial

Mortgage Securities Association (“CMSA”); Davis Polk; Fried Frank; Richard

Hall; NYCBA; NYSBA; and S & C.

available to non-reporting foreign private issuers meeting certain conditions and to asset-

backed issuers (and to a depositor, sponsor, servicer, or affiliated depositor, whether or

not the issuer) with regard to registered offerings of asset-backed securities.120 We

believe that non-reporting foreign private issuers qualifying under the safe harbors, like

reporting issuers in the United States, are providing information to the markets even

though they are not reporting companies in the United States. Similarly, asset-backed

issuers and issuers that are affiliated depositors provide and are encouraged to provide

information on an ongoing basis in a manner consistent with that covered by Rule 168.

The reference to depositors, sponsors, servicers, and affiliated depositors, whether or not

the issuer, is intended to permit communication of information regarding pre-existing

transactions or asset pools within the safe harbor where its conditions are satisfied.

As we note above, voluntary filers are not required to report under the Exchange

Act and therefore do not fall within Rule 168. Voluntary filers will have available to

them the safe harbor for non-reporting issuers in new Rule 169.121 We also note above

that registered investment companies and business development companies are subject to

a separate framework governing communications with investors, and we believe that it

would be more appropriate to consider investment company issues in the context of a

broader reconsideration of this separate framework.

120 The eligibility conditions for non-reporting foreign private issuers will be the

same as the eligibility conditions for such issuers contained in Securities Act

Rules 138 and 139 as we are amending them today.

121 These issuers may, of course, continue to rely on existing Commission

interpretations concerning ongoing business disclosures. See the discussion at

note 122 below regarding the interpretive releases on factual business

information.

i. Factual Business Information

(A) Scope of the Safe Harbor

We believe it is important to provide increased certainty regarding when the

gun-jumping provisions will be inapplicable to the continuing ongoing communication of

specified factual business information. We are adopting Securities Act Rule 168, which

provides a non-exclusive safe harbor that such a communication is not an impermissible

prospectus and does not violate the prohibition on pre-filing offers.122 We want to

encourage reporting issuers and other issuers eligible to rely on the safe harbor to

continue to provide this information. For purposes of Rule 168, factual business

information is defined as:123

122 Rule 168 is a safe harbor from the definition of “prospectus” in Securities Act

Section 2(a)(10) and, therefore, prevents the application of the prohibition in

Securities Act Section 5(b)(1) on the use of a prospectus that is not a statutory

prospectus. The Rule also is a safe harbor from the prohibitions on pre-filing

“offers” in Securities Act Section 5(c).

In general, as we recognized many years ago, ordinary factual business

communications that an issuer regularly releases are not considered an offer of

securities. See, e.g., the guidelines contained in the 2000 Electronics Release.

note 96 at Section II.B.2; Guidelines for the Release of Information by Issuers

Whose Securities are in Registration, Release No. 33-5180 (Aug. 16, 1971) [36

FR 16506]; Publication of Information Prior to or After the Filing and Effective

Date of a Registration Statement Under the Securities Act of 1933, Release No.

33-5009 (Oct. 7, 1969) [34 FR 16870]; Offers and Sales by Underwriters and

Dealers, Release No. 33-4697 (May 28, 1964) [29 FR 7317]; and Publication of

Information Prior to or After the Effective Date of a Registration Statement,

Release No. 33-3844 (Oct. 8, 1957) [22 FR 8359]. The non-exclusive safe

harbors we are adopting today will not affect in any way the Securities Act

analysis regarding ordinary course business communications that are not within

the safe harbors and we have made that clear in the Preliminary Note to the Rule.

Such communications will not be presumed to be offers, and whether they are

offers will depend on the facts and circumstances.

123 Under the Rule as adopted, regularly released factual business information does

not include the release of information about the registered offering or the release

of information as part of the offering activities in the registered offering.

• factual information about the issuer, its business or financial developments, or

other aspects of its business;

• advertisements of, or other information about, the issuer’s products or services;

and

• dividend notices.

This information includes without limitation in each case such factual business

information contained in reports or materials filed with, furnished to, or submitted to us

pursuant to the Exchange Act.124

(B) Comments on the Scope of the Safe Harbor

Some commenters suggested broadening the categories of factual business

information,125 including the suggestion that only offering-related information be

excluded from the definition of factual business information.126 We are adopting the

definition of factual business information that in substantive respects is substantially as

proposed. The simplification of the definition in the Rule as adopted does not narrow the

information included in the definition. We believe that the purpose of the safe harbor is

to permit reporting issuers to continue their ordinary course factual business

communications, not to define when an offer is considered to occur in all cases. As we

124 As we discuss below, some commenters expressed concern about the treatment of

information contained in Exchange Act reports at the time they are originally filed

with, furnished to, or submitted to us. See, e.g., letters from ABA and Fried

Frank. We believe this modification will make clear that all covered information

within Exchange Act filings will be covered by the safe harbor.

Factual business information that reporting issuers release or disseminate will

continue to be subject to the provisions of Regulation FD, Regulation G, Item 10

of Regulation S-K and Regulation S-B [17 CFR 229.10 et seq. and 17 CFR

228.10 et seq.], and Item 2.02 of Form 8-K.

125 See, e.g., letters from ABA and SCSGP.

126 See, e.g., letters from Davis Polk and SCSGP.

have noted, whether or not a communication that is outside the safe harbor would be an

offer is a facts and circumstances determination.

We have modified the definition from the proposal to make clear that factual

business information may be communicated within the safe harbor by including it in any

report or material filed with, furnished to, or submitted to us. The other conditions of the

safe harbor, for example, the “regularly released,” condition of course also must be

satisfied. In addition, in response to commenters’ concerns, we have made clear in a

preliminary note that the safe harbor addresses use and relates to a communication, and,

therefore, that another communication of the information in an offering-related manner

will not affect the ability to rely on the safe harbor for the protected communication.

ii. Forward-Looking Information

(A) Scope of the Safe Harbor

As we stated in the Proposing Release, our view of the value of forward-looking

information in the market has evolved through the years. Through the 1970’s we were

most concerned with the potentially misleading effect that forward-looking information

could have on investors.127 Since the 1980’s, we have encouraged issuers to disclose

forward-looking information and, in some situations (such as the disclosures in MD&A),

required them to do so.128 The existing safe harbors for the content of forward-looking

127 Until the 1970’s, the Commission prohibited disclosure of forward-looking

information in any disclosure document. In 1979, the Commission adopted a safe

harbor for release of forward-looking information. See Statement by the

Commission on the Disclosure of Projections of Future Economic Performance,

Release No. 33-5362 (Feb. 2, 1973) [38 FR 7220]; Safe Harbor Rule for

Projections, Release No. 33-6084 (June 25, 1979) [44 FR 38810]. See also, the

Wheat Report, note 21, at 94.

128 See Item 303 of Regulation S-K and Regulation S-B [17 CFR 229.303 and 17

CFR 228.303]. In our 2003 MD&A Release discussed at note 38, we issued

statements are designed to encourage the provision of forward-looking information.129

Where an issuer regularly releases forward-looking information in the ordinary

course, we indicated in the Proposing Release that we believe that the purpose of such

communication is to keep the market informed about the issuer and its future prospects

and, thus, the continued release or dissemination of this information in the ordinary

course is not for the purpose of offering securities or conditioning the market for new

issuances of the issuer’s securities. Many issuers disclose earnings forecasts and other

forward-looking information publicly to provide more information to the markets and to

enable them to continue to have discussions to which Regulation FD applies. We do not

believe that it is beneficial to investors or the markets to force reporting issuers to

interpretive guidance on MD&A which stated:

In addressing prospective financial condition and operating performance,

there are circumstances, particularly regarding known material trends and

uncertainties, where forward-looking information is required to be

disclosed. We also encourage companies to discuss prospective matters

and include forward-looking information in circumstances where that

information may not be required, but will provide useful material

information for investors that promotes understanding…

[M]aterial forward-looking information regarding known material trends

and uncertainties is required to be disclosed as part of the required

discussion of those matters and the analysis of their effects. In addition,

forward-looking information is required in connection with the disclosure

in MD&A regarding off-balance sheet arrangements.

129 See Securities Act Section 27A [15 U.S.C. 77z-2] and Securities Act Rule 175 [17

CFR 230.175]. Section 27A provides a safe harbor for certain forward-looking

statements. See also, the Off-Balance Sheet Disclosure Release at note 92 (stating

that any forward-looking information required pursuant to the off-balance sheet

arrangement disclosure in Items 303(a)(4) and (a)(5) of Regulation S-K and

Regulation S-B would be subject to the statutory safe harbor contained in Sections

27A of the Securities Act and 21E of the Exchange Act [15 U.S.C. 78u-5]). Rule

175 provides a limited safe harbor for the content of forward-looking statements

contained in documents filed with us, including in registration statements and

periodic reports.

suspend their ordinary course communications of regularly released information that they

would otherwise choose to make because they are raising capital in a registered offering.

We are adopting the definition substantially as proposed to provide for the use of

such a communication a safe harbor from being an impermissible prospectus and from

violating the prohibitions on pre-filing offers. As adopted, the safe harbor in Rule 168

will apply to the release or dissemination of communications containing some or all of

the following forward-looking information if the release or dissemination satisfies the

other conditions of the Rule:130

• projections of the issuer’s revenues, income (loss), earnings (loss) per share,

capital expenditures, dividends, capital structure, or other financial items;

• statements about the issuer management’s plans and objectives for future

operations, including plans or objectives relating to the products or services of the

issuer;

• statements about the issuer’s future economic performance, including statements

of the type contemplated by MD&A described in Item 303 of Regulation S-K and

Regulation S-B, or Item 5 of Form 20-F; and

• assumptions underlying or relating to any of the foregoing information.

130 The listed categories of forward-looking information in the safe harbor are

essentially the same categories of statements that are defined as forward-looking

statements under the safe harbor in Securities Act Section 27A(i)(1) [15 U.S.C.

77z-2(i)(1)]. The safe harbor covering the release or dissemination is available

for the regular release of earnings expectations and guidance information. Rule

168 provides a safe harbor for the use of such information, not the content of the

communication. An issuer’s communications of forward-looking information

made in reliance on the safe harbor will still have to satisfy the conditions of

Securities Act Section 27A if the issuer wishes to rely on the statutory safe harbor

for the content of the information.

The comments on the definition of forward-looking information related primarily

to the interplay between such information and the exclusion of offering-related

information from the scope of the safe harbor and the way in which newer issuers

would establish a history of regular release of such information. See letter from

ABA.

As with factual business information, we have clarified that any such information may be

communicated by including it in a report filed with, or furnished to, or submitted to us.

The safe harbor for forward-looking information also addresses “use,” and the

preliminary note discussed above applies.

iii. Conditions of Safe Harbor in Rule 168

(A) “By or on Behalf of” the Issuer

(1) Definition

Under the Rule as adopted, factual business and forward-looking information will

be considered released or disseminated by or on behalf of an issuer if the issuer or an

agent or a representative of the issuer, other than an offering participant who is an

underwriter or dealer, authorizes or approves the release or dissemination of the

communication before it is made.131 Satisfaction of this condition is separate from the

“regularly released” condition. The safe harbor is not available for information released

in a manner intended to circumvent either the conditions to use or the permitted manner

of use of the information.

(2) Comments on Definition

Commenters supported the concept of “by or on behalf of” the issuer.132

Commenters also supported placing the definition of the term in a single rule, rather than

131 We are using a similar definition as contained in Securities Act Rule 146 [17 CFR

230.146].

As we note above, for asset-backed securities offerings, the safe harbor is

available to asset-backed issuers, depositors, affiliated depositors, sponsors, and

servicers. We have included a provision regarding communication by or on

behalf of such persons.

132 See, e.g., letters from ABA; Cleary; S & C; and William J. Williams, Jr.

a separate definition in each safe harbor.133 Some commenters suggested further

clarifications of the definition, such as identifying the persons authorized or approved to

speak on behalf of the issuer, eliminating any issuer responsibility for communications by

unauthorized persons, and providing that the communication either be authorized or

approved but not both.134

We have considered these suggestions carefully and have made some revisions to

the definition of “by or on behalf of” the issuer. We have determined not to provide a

single definition, instead including an appropriate definition in each relevant rule. We

also have not taken the suggestions that the Rule provide that issuers are responsible only

for communications made by authorized or approved speakers. The circumstances under

which issuers are responsible for the acts of individuals may be determined in accordance

with principles not addressed in today’s rules. In addition, we have not defined further

who may be considered an agent or representative of the issuer, other than to specifically

exclude offering participants who are underwriters and dealers. The definition could

cover legitimate representatives or agents of the issuer such as, for example, advertising

agencies and public relations companies who normally release or disseminate product

advertising or promotional communications containing such information on behalf of an

issuer. We also have modified the definition to provide that the communication does not

have to be both approved and authorized for it to be considered to be made by or on

behalf of the issuer.

A few commenters suggested that the Rule not include the preliminary note that

contains the “scheme to evade” language because they believed it would cause

133 See Id.

uncertainty about the ability to rely on the safe harbors.135 The preliminary note to the

Rule is substantially the same preliminary note contained in a significant number of

exemptions under the Securities Act upon which market participants have relied and we

are adopting the Rule with the preliminary note regarding the “scheme to evade”

language as proposed.136

(B) Regularly Released Information

(1) Regularly Released Condition

As we discussed in the Proposing Release, the purpose of the safe harbor is to

enable a reporting issuer to continue its past ordinary course practice of releasing or

disseminating publicly factual business and forward-looking information.

Communications of both factual business information and forward-looking information

must satisfy the same conditions regarding regular release.

We are adopting the regularly released condition substantially as proposed.

Under Rule 168, information will be considered regularly released or disseminated if the

issuer has previously released or disseminated the same type of information in the

ordinary course of its business, and the release or dissemination is consistent in material

respects in timing, manner, and form with the issuer’s similar past release or

dissemination of such information.137 The method of releasing or disseminating the

information, thus, also must be consistent in material respects with prior practice. These

134 See, e.g., letters from ABA; Alston; Cleary; Davis Polk; and S & C.

135 See, e.g., letters from ABA and William J. Williams, Jr.

136 See, e.g., Regulation D [17 CFR 230.501 et seq.] and Rule 155 [17 CFR 230.155].

137 In the case of asset-backed issuers, the regularly released requirement will be

tested against the previous communications of those persons included in the

Rule’s provisions, taken together.

conditions seek to ensure that the information is not being released to condition the

market for the registered offering of the issuer’s securities.

While the Rule does not establish or require any minimum time period to satisfy

the regularly released element, the safe harbor requires the issuer to have some track

record of releasing the particular type of information. One prior release or dissemination

could establish this track record. Issuers should consider the frequency and regularity

with which they have released the same type of information. For example, an issuer’s

release of new types of financial information or projections just before or during a

registered offering will likely prevent a conclusion that the issuer regularly released that

type of forward-looking or financial information in the ordinary course of its business.

(2) Comments on Regularly Released Condition

Commenters on the regularly released condition suggested that we further clarify

the concept of regularly released information by elaborating on the meaning of timing,

manner, and form.138 Some of these commenters were concerned about the availability

of the safe harbor for non-scheduled releases of information and information distributed

using new or different technologies.139 Other commenters on this point, however, desired

greater flexibility with no definition of “ordinary course.”140

138 See, e.g., letters from Davis Polk; the Investment Company Institute (“ICI”); and

TBMA.

139 See Id.

140 Some commenters also expressed concern about offshore communications. See,

e.g., letters from ABA and Fried Frank. Communications that are considered not

to be offers because they are made offshore and meet other criteria we have

previously discussed would be treated in the same manner as they are today. See

Statement of the Commission Regarding Use of Internet Web Sites to Offer

Securities, Solicit Securities Transactions or Advertise Investment Services

Offshore, Release No. 33-7516 (Mar. 27, 1998) [63 FR 14806]; Offshore Press

Conferences, Meetings with Company Representatives Conducted Offshore and

We have not changed the “regularly released” language from the proposal

because we do not believe that a bright-line test of “regularly released” is appropriate.

We believe that it is more appropriate to provide issuers the flexibility to use the means

and timing they believe is appropriate for their ongoing business communications. We

would note, however, that there are circumstances in which communications made

outside a predetermined schedule or not at regular intervals would be covered by the safe

harbor. The Rule is not intended to cover only scheduled releases of information but also

could cover communications, such as product advertising and product release information

or earnings guidance changes, that are made on an unscheduled or episodic basis,

provided that the issuer has previously provided such communications containing factual

business and forward-looking information in that manner. Thus, for unscheduled or

episodic releases, the nature of the event triggering the communication would be taken

into account in determining whether the regularly released condition is satisfied. For

example, if an issuer only gives guidance upon the occurrence of certain types of

developments, a release of guidance when a materially similar event occurs could be

materially consistent, even if not done at regular intervals. As another example, if an

issuer launches a product only episodically, disclosure or advertising of a product launch

still could be materially consistent.

Merely using new or different technologies will not be necessarily inconsistent in

material respects under the conditions of the Rule. An issuer will have to determine

Press-Related Materials Released Offshore, Release No. 33-7470 (Oct. 17, 1997)

[62 FR 53948].

whether its use of new or different technologies to release information falls within the

safe harbor, including whether the release or dissemination is consistent in material

respects with how the issuer is already releasing or disseminating its communications

containing factual business or forward-looking information using analogous methods.

For example, whether the new or different technology makes a material difference in

terms of the breadth of dissemination to investors or other reach of the communication to

investors is relevant in determining whether the manner or form is consistent in material

respects.

(1) Scope of Exclusion

We are adopting as proposed the exclusion from the safe harbor of any

information about the registered offering itself. Publication of information about a

registered offering outside the registration statement or a prospectus is limited to

statements allowed under other exemptions or exclusions, including Rule 134 and Rule

135.141

As we discussed in the Proposing Release, because the safe harbor is a “use”

exemption intended to facilitate continued release or dissemination of regularly released

ordinary course factual business and forward-looking communications, it also excludes

the release of that information as part of the offering activities in the registered offering.

For example, while the safe harbor could be available for factual business information

contained in an Exchange Act report at the time it is initially filed, the safe harbor will

141 See 17 CFR 230.135. Our other rules address communications in the offering

context. For example, we are amending Rule 134 to increase the amount of

communication allowed under that rule about a registered offering without it

not be available for the distribution of that information to investors or potential investors

as part of offering activities, such as incorporation by reference into a prospectus that is

part of a registration statement, disclosure at a road show, or disclosure in a free writing

prospectus. As another example, as permitted by the “regularly released” condition, an

issuer could rely on the safe harbor for the publication of an earnings release consistent

with past practice, including the posting of and maintaining the release on an issuer’s web

site, whether or not located in a separate section of the web site for historical information.

The distribution of that earnings release, however, as part of the marketing activities to

potential investors will be outside the scope of the safe harbor.

(2) Comments on Exclusion

Commenters requested further clarification that release of a communication

containing information in reliance on the safe harbor will not be affected by release of the

same information in offering-related communications.142 We have made clear in a

preliminary note in the adopted Rule that the release of communications containing

information outside the safe harbor will not affect the availability of the safe harbor for

any other release or dissemination of a communication containing the same information

that is (or was) within the scope of the safe harbor.

Some commenters requested that we define “offering-related” or “part of the

offering activities.”143 We decline to do so. An issuer must determine, based upon the

particular facts and circumstances, whether or not a communication contains information

about the registered offering or is being used as part of the offering activities.

being considered a prospectus.

142 See, e.g., letters from Fried Frank and SCSGP.

143 See, e.g., letters from Davis Polk and SCSGP.

Certain commenters requested that we clarify the impact Rule 168 and Rule 169

(as discussed below) would have on our guidance regarding the filing requirement for

ordinary or routine business communications that refer to a business combination

transaction in a non-substantive way.144 We believe that guidance is unaffected by the

adoption of the safe harbors of Rule 168 and Rule 169, regardless of whether the

communication falls within the scope of such safe harbors or our other interpretive

guidance regarding ongoing factual and business communications.145

c. Exception for Regularly Released Factual Business Information –

Available to Non-Reporting Issuers

i. Scope of the Safe Harbor

We are adopting substantially as proposed a non-exclusive safe harbor from the

gun-jumping provisions for regularly released factual business information that, unlike

Rule 168, is available to all eligible issuers, including non-reporting issuers.146 The Rule

provides a non-exclusive safe harbor for the issuer’s release or dissemination of regularly

released ordinary course factual business information intended for use by persons other

than in their capacity as investors or potential investors, such as customers and

suppliers.147 Under the safe harbor, a non-reporting issuer’s release or dissemination of

144 See, e.g., letters from ABA; Alston; and S & C.

145 See the Regulation M-A Release, note 95, at footnote 45.

146 See Rule 169. Because Rule 168 is available to reporting issuers and some non-

reporting issuers (including asset-backed issuers and certain non-reporting foreign

private issuers), the principal practical relevance of Rule 169 is to other non-

reporting issuers.

147 The fact that a customer also may be a potential investor in the issuer’s securities

or that the information may be received by other persons will not affect the

availability of the safe harbor if the conditions are otherwise satisfied. For

purposes of the safe harbor, the communication must be intended for use by an

audience that is other than an investor audience.

factual business information that satisfies the conditions of the Rule would not be an

impermissible prospectus and would not violate the prohibition on pre-filing offers.148

As we noted in the Proposing Release, because a condition of the safe harbor involves the

manner and timing of the communication, the same issuer employees or agents who

historically have been responsible for providing the information for intended use by

customers and suppliers must communicate the information provided in reliance on this

safe harbor.

Under the safe harbor, factual business information is defined as:

• factual information about the issuer, its business or financial developments, or

other aspects of its business; and

• advertisements of, or other information about, the issuer’s products or services.149

As with the safe harbor for reporting issuers, the safe harbor requires that the

information be regularly released in the ordinary course of business, released or

disseminated by or on behalf of the issuer, and not include information about the

registered offering or information released or disseminated as part of the offering

activities in the registered offering. We have made the same modifications to these

conditions and to the preliminary note to Rule 169 as in new Rule 168 for reporting

issuers.

148 Rule 169 is a safe harbor from the definition of “prospectus” in Securities Act

Section 2(a)(10) and therefore disapplies the prohibition in Securities Act Section

5(b)(1) on the use of a prospectus that is not a statutory prospectus. The Rule also

is a safe harbor from the prohibitions on pre-filing “offers” in Securities Act

Section 5(c).

149 We have not included dividend notices within the definition because the

communications covered by the Rule are those intended for use by persons other

than in their capacity as investors or potential investors.

As we discussed in the Proposing Release, because non-reporting issuers

generally are not releasing information in connection with securities market activities, we

believe it is appropriate to limit the scope of the safe harbor to the specified regularly

released ordinary course factual business information.150 Further, we are not adopting a

safe harbor for forward-looking information for non-reporting issuers because of the lack

of such information or history for these issuers in the marketplace. In those

circumstances, we believe that the potential for abuse in permitting a safe harbor for the

continued release of forward-looking information as a way to condition the market for the

issuer’s securities outweighs the legitimate utility to the issuer of the safe harbor.

ii. Comments on the Safe Harbor

Commenters supported the proposed safe harbor and suggested certain expansions

and clarifications.151 Commenters wanted us to clarify that information that was directed

to customers, suppliers, etc., would be covered by the safe harbor even if the information

became available to other persons, including investors or potential investors.152 As we

discuss above, the Rule is aimed at assuring that the communication is intended for use

by an audience that is other than an investor audience, not at ensuring that the

communication is not received by or available to an investor or potential investor. We

have modified the Rule to clarify this point. For example, a widely disseminated

communication (such as a press release) intended for use by a non-investor audience and

150 These issuers will still be able to rely on our interpretive positions for the release

of factual business information. See note 122. In addition, these issuers may still

be able to rely on Securities Act Rules 134 and 135 and new Securities Act Rules

163A and 164.

151 See, e.g., letters from ABA; NYCBA; NYSBA; and Reuters.

152 See, e.g., letters from ABA and NYSBA.

otherwise meeting the conditions of the safe harbor will not lose protection if it is

available to or received by investors or potential investors.

We had requested comment in the Proposing Release as to whether the safe

harbor also should cover forward-looking information and whether the safe harbor for

forward-looking statements contained in Securities Act Section 27A should be extended

to initial public offerings. We further requested comment on whether we should require

projections or other forward-looking information to be included in initial public offering

registration statements. In response, some commenters supported extending the Section

27A safe harbor for forward-looking statements to initial public offerings but did not

support requiring projections to be included in registration statements.153 Some

commenters were concerned that, because of the relatively untested nature of companies

engaging in initial public offerings, there was limited basis to assess the reasonableness

of assumptions underlying the projections about the issuer’s business.154 We appreciate

commenters’ input on these points and, in light of the fact that these companies are

generally untested, as commenters noted, we have determined not to include

forward-looking statements in the Rule 169 safe harbor we are adopting today or to

extend the safe harbor for forward-looking statements in Securities Act Section 27A to

initial public offerings.

2. Other Permitted Communications Prior to Filing a Registration

Statement

Beyond the continuing ongoing release of information discussed above, there is

an increased amount of information disseminated to the market about issuers, including

153 See, e.g., letters from AICPA; E & Y; KPMG LLP (“KPMG”); and

PricewaterhouseCoopers LLP (“PwC”).

through the Internet. We believe that the availability of this information should be

encouraged, subject to appropriate standards of liability. At times when the risk of

conditioning the market for a securities offering is sufficiently remote, it is important to

provide issuers with greater certainty that the release of information will not be

considered an impermissible offer under the Securities Act. Such an approach will avoid

hindering issuer communications except where necessary for investor protection. We

are, therefore, adopting rules that clarify the Securities Act application to

communications that might not fall within the safe harbors for regularly released factual

business and forward-looking information.

a. 30-Day Bright-Line Exclusion From the Prohibition on Offers Prior

to Filing a Registration Statement – All Issuers

i. Scope of Exclusion

We are adopting, substantially as proposed, Rule 163A to provide all issuers a

bright-line time period, ending 30 days prior to filing a registration statement, during

which issuers may communicate without risk of violating the gun-jumping provisions.

Such communications will be excluded from the definition of offer for purposes of

Securities Act Section 5(c).155 As we noted in the Proposing Release, a bright-line test

154 See, e.g., letters from AICPA and E & Y.

155 While communications made in reliance on the Rule could, depending on the

particular facts, be an “offer” as defined in Securities Act Section 2(a)(3), the

Rule provides that the communication is not an “offer” for purposes of Securities

Act Section 5(c). See Rule 163A.

As Rule 163A provides a safe harbor from the application of Securities Act

Section 5(c), it necessarily applies only prior to the filing of a registration

statement. This exclusion will thus not apply to issuers offering securities off a

shelf registration statement on file, whether or not effective, as to which the

prohibition in Section 5(c) does not apply to the offering of the securities covered

by such shelf registration statement.

will provide greater certainty in the offering process and avoid unnecessary limitations on

issuer communications more than 30 days prior to the filing of the registration statement.

Further, we believe that the 30-day timeframe adequately assures that these

communications will not condition the market for a securities offering by providing a

sufficient time period to cool any interest in the offering that might arise from the

communication.156

As adopted, the 30-day bright-line exclusion from the gun-jumping provisions is

subject to the following conditions:

• a communication made in reliance on the Rule cannot reference a securities

offering that is or will be the subject of a registration statement;157

• a communication made in reliance on the Rule will have to be made “by or on

behalf of the issuer”; and

• the issuer will have to take reasonable steps within its control to prevent further

distribution or publication of the communication during the 30-day period

immediately before the issuer files the registration statement.

See also Harold Bloomenthal and Samuel Wolff, Emerging Trends in Securities

Laws [2003-2004 ed.], “Securities Act Reform—Déjà Vu All Over Again,”

Commissioner Roel C. Campos (the “Campos Article”) at §1:28.

156 We chose a 30-day timeframe because it is consistent with the timeframe in

Securities Act Rule 155 regarding integration of abandoned offerings and

Securities Act Rule 254 regarding pre-filing solicitations of interest in Regulation

A offerings [17 CFR 230.254].

157 Securities Act Rule 155, relating to integration of abandoned offerings, permits

issuers to register a securities offering immediately following the abandonment of

a private offering made to accredited or sophisticated persons and not involving

general solicitation and general advertising. The 30-day exclusion, on the other

hand, applies to public communications made prior to a registered offering.

Because Rule 155 treats any private offers made in the abandoned private offering

as not part of the subsequent registered offering, issuers relying on Rule 155 in

connection with a subsequently registered offering would continue to rely on Rule

155 and need not rely on the 30-day bright-line exclusion for public

communications before a registration statement is filed.

We have made minor revisions to the Rule from the proposals. We have made

clear that the exemption is non-exclusive. In addition, we have revised the definition of

“by or on behalf of” the issuer in the same manner as in Rules 168 and 169 to explicitly

exclude offering participants who are underwriters or dealers from being considered

agents or representatives of the issuer for purposes of the Rule. We have narrowed the

restriction on references to securities offerings to apply to a securities offering that is or

will be the subject of a registration statement.

The Rule is designed to preclude issuers and offering participants from

circumventing the registration requirements of the Securities Act. Because the Rule does

not permit information about a securities offering that is or will be the subject of a

registration statement, the communications made in reliance on the Rule are less likely to

be used to condition the market for the issuer’s securities. In addition, the

communications are still subject to provisions addressing deficient disclosure, including

the anti-fraud provisions.158 Finally, the safe harbor is available only for communications

made by or on behalf of the issuer so that other potential offering participants cannot use

the exemption. Communications within the scope of Rule 163A made prior to the 30

days before filing are protected by the safe harbor. Communications made during the 30

days before the filing are outside the safe harbor. Because of these factors and the bright-

line nature of the Rule, we have eliminated the proposed preliminary note that indicated

that the exemption was not available for schemes to evade the registration requirements

of the Securities Act because we do not believe it is necessary.

158 Communications made in reliance on the Rule 163A safe harbor also would not

be made in connection with a registered securities offering for purposes of the

exclusion in Regulation FD. See Rule 100(b)(2)(iv) of Regulation FD.

The 30-day bright-line exclusion is not available for enumerated categories of

offerings and for specified issuers that pose the greatest risk of abuse of that exclusion.

Specifically, Rule 163A is not available to communications made in connection with:

• offerings by a blank check company;

• offerings by a shell company; or

• offerings of penny stock by an issuer.159

The Rule as adopted also excludes communications regarding business

combination transactions from being able to rely on the exclusion, as those

communications are regulated separately.160 The Rule also is not available for

communications regarding offerings made by a registered investment company or a

business development company.

ii. Comments on 30-day Bright-Line Exclusion

Commenters expressed strong support for the Rule and suggested certain

expansions and clarifications.161 Some commenters wanted the Rule to provide an

exemption from the definition of offer for all purposes under the Securities Act.162 We

do not believe that it is appropriate to exclude from the definition of offer for all purposes

159 See Securities Act Rule 419(a)(2) [17 CFR 230.419(a)(2)], Exchange Act Rule

3a51-1 [17 CFR.240.3a51-1], and amendments to Rule 405 defining “shell

company. See the Shell Company Release, note 109. The Rule also excludes

issuers who were or any of whose predecessors in the prior three years were blank

check companies, shell companies (other than business combination related shell

companies), or issuers that issued penny stock. Other than for well-known

seasoned issuers, Rule 163A also excludes offerings registered on Form S-8 [17

CFR 239.16b].

160 See the Regulation M-A Release, note 95. The Rule excludes any business

combination transaction, including an exchange offer.

161 See, e.g., letters from ABA; Davis Polk; Fried Frank; IBA; ICI; NYCBA;

NYSBA; and Reuters.

any communications occurring more than 30 days from the date of filing the registration

statement. The Rule contains no content restriction, other than a prohibition against

referencing a securities offering that is or will be the subject of a registration statement.

The intent of the Rule is to provide certainty that an issuer will not be considered to be

“gun jumping” by engaging in communications more than 30 days before it files its

registration statement, not to provide certainty that it will not be liable for material

disclosure deficiencies in its communications.163

Commenters also suggested that we provide more guidance as to what actions will

constitute “reasonable steps within the issuer’s control,” particularly with respect to

information posted on web sites prior to 30 days before the filing of the registration

statement.164 The “reasonable steps” condition is already contained in Rule 165 for

business combination transactions. We do not believe that it is appropriate to provide

bright lines as to when an issuer will be considered to have taken reasonable steps within

its control to prevent further dissemination of the communication.165 As to the treatment

162 See, e.g., letters from ABA; Alston; Cleary; and NYSBA.

163 Commenters also asked that we clarify further that information released during

the 30 days before the registration statement filing in reliance on another

exemption would not affect the ability of the issuer to rely on the 30-day safe

harbor. See, e.g., letters from ABA; Alston; Cleary; Fried Frank; and TBMA. We

have clarified that the Rule is a non-exclusive safe harbor and issuers can rely on

other available exemptions, exclusions, or safe harbors from the gun-jumping

provisions for the communications. Conversely, reliance on other safe harbors,

exemptions, and exclusions during the 30-day period does not preclude reliance

on the 30-day safe harbor.

164 See, e.g., letters from ABA; Alston; Cleary; and Fried Frank.

165 The Rule as adopted limits the exclusion to issuers. While we do not expect an

issuer to be able to control the republication or accessing of previously published

press releases, we expect issuers and persons acting on their behalf to be able to

control their own involvement in any subsequent redistribution or publication and,

therefore, believe that it is an appropriate condition to the ability to rely on the

of information posted on an issuer’s web site, we do not expect that an issuer will

necessarily remove the information from the web site and, provided that the information

is appropriately dated, otherwise identified as historical material, and not referred to as

part of the offering activities, we will not object to an issuer maintaining the information

on the web site.

Commenters also suggested that registered investment companies and business

development companies should be permitted to rely on Rule 163A.166 We are not

adopting this suggestion because we believe that it would be more appropriate to consider

changes to our requirements as they apply to registered investment companies and

business development companies in the context of a broader reconsideration of the

separate framework applicable to such issuers.

b. Permitted Pre-Filing Offers for Well-Known Seasoned Issuers

i. Overview

The rules we are adopting today, when taken together, provide exemptions

generally from the applicability of the gun-jumping provisions for eligible well-known

seasoned issuers. The safe harbors for regularly released factual business and

forward-looking information and the exemption from the prohibition on offers for

purposes of Securities Act Section 5(c) for communications more than 30 days prior to

filing of a registration statement are available to well-known seasoned issuers. In

addition, as discussed below, the broadened exemption for routine offering-related

exclusion. For example, if an issuer or its representative gives an interview to the

press prior to the 30-day period, it will not be able to rely on the exclusion if the

interview is published during the 30-day period. We have addressed the same

issues in the context of free writing prospectuses discussed below.

166 See letters from ABA; Allied; and Fried Frank.

communications and the availability of an exemption for eligible issuers from the gun-

jumping provisions for free writing prospectuses, in both cases after filing of a

registration statement, also are available to well-known seasoned issuers. However,

because the gun-jumping provisions prohibit all offers – written or oral – before the filing

of a registration statement, we believe well-known seasoned issuers could be

unnecessarily constrained in their capital formation activities.167

ii. Exemption for Pre-Filing Offers

To address communications made in the 30 days prior to filing a registration

statement that are not otherwise excluded from the gun-jumping provisions and to

complete the set of rules permitting all communications by well-known seasoned issuers

under the gun-jumping provisions, we are adopting essentially as proposed an exemption

from the prohibition on offers before the filing of a registration statement for offers made

by or on behalf of eligible well-known seasoned issuers.168 The exemption permits these

issuers to engage in unrestricted oral and written offers before a registration statement is

filed without violating the gun-jumping provisions. These communications, while

exempt from the gun-jumping provisions, are still considered offers and subject to

liability standards applicable to such offers.169 The exemption is available only for

167 See Securities Act Section 5(c).

168 See Rule 163. The exemption is not available to communications involving

registered business combination transactions or communications in offerings by

registered investment companies or business development companies.

169 Any written offer will be a prospectus under Securities Act Section 2(a)(10)

relating to a public offering of the securities to be covered by the registration

statement to be filed. All oral communications that are offers and all prospectuses

will be subject to liability under Securities Act Section 12(a)(2). The

communications also will be subject to other provisions addressing deficient

disclosure, including Securities Act Section 17(a), Exchange Act Section 10(b),

and Exchange Act Rule 10b-5.

communications made “by or on behalf of” the issuer.170 Moreover, any communication

for which disclosure is required under Securities Act Section 17(b) will be deemed to be

a communication that is an offer for purposes of the Rule and, if written, the

communication will be a free writing prospectus of the issuer.171 As with the other

exemptions, exclusions, and safe harbor rules we are adopting today, we have made clear

that the exemption is non-exclusive.

We also have modified the Rule to eliminate the preliminary note regarding the

unavailability of the exemption if it is part of a scheme to avoid or evade the

requirements of the gun-jumping provisions. We have not included this preliminary note

in the adopted Rule because we believe that the Rule provides an exemption for the

communication from the gun-jumping provisions only for well-known seasoned issuers

and because the disclosure liability and anti-fraud provisions of the federal securities laws

continue to apply.

In view of the automatic shelf registration process we describe below, we expect

that well-known seasoned issuers usually will have a registration statement on file that it

Communications made in reliance on the Rule also will not be considered to be in

connection with a registered securities offering for purposes of the exclusion from

Regulation FD. See Rule 100(b)(2)(iv) of Regulation FD.

The Rule is different from Securities Act Rule 254. Securities Act Rule 254

permits solicitations of interest in Regulation A offerings provided the conditions

of the rule, including pre-use submission of the materials to the Commission, are

satisfied, and does not treat the materials as prospectuses. Rule 163 does not

require pre-filing of the communications and written offers will be prospectuses.

170 In addition, as with the other exemptions and safe harbors that are available only

to the issuer, the definition of by or on behalf of the issuer explicitly excludes

offering participants who are underwriters or dealers.

171 See Rule 163(d). Securities Act Section 17(b) [15 U.S.C. 77q(b)] generally

requires persons who make statements describing an issuer’s securities to disclose

the receipt (and the amount) of consideration given, directly or indirectly, by an

can use for any of its registered offerings. Consequently, it generally will be unusual for

these issuers to make offers prior to the filing of a registration statement;172 however, we

have provided this exemption from the prohibition on pre-filing offers to liberalize

communications for these issuers to the appropriate extent. A written offer made by or

on behalf of a well-known seasoned issuer under the exemption will, however, meet our

definition of “free writing prospectus” and will need to include a legend and be filed

promptly by the issuer when and if the issuer files its registration statement.173 We also

have provided in the Rule as adopted that filing is not required if the communication has

previously been filed with or furnished to us (for example pursuant to Regulation FD on

Form 8-K). The Rule as adopted also provides that filing is not required if filing would

not be required under Rule 433 regarding free writing prospectuses, discussed below, if

the communication was a free writing prospectus used after filing of the registration

statement. Finally, the filing conditions of Rule 163 will be satisfied if the filing

conditions of Rule 433 (other than timing of filing) are satisfied. As a result, for

issuer, underwriter, or dealer in exchange for making the statements.

172 See the discussion in Section V.B.2 below under “Automatic Shelf Registration

for Well-Known Seasoned Issuers,” with regard to the availability of an

“automatic shelf” registration process for these issuers.

173 The legend is similar to the one we are providing as a condition for free writing

prospectuses used after a registration statement is filed. We have made minor

modifications to the legend, including eliminating issuer-specific language and

references to risk factors. We also have provided that the legend may include an

e-mail address and web site where the prospectus can be requested or is available.

See the discussion in Section III.D.3 below under “Legend Condition” with

regard to the conditions for use of a “free writing prospectus.” Under Rule 163

and Rule 433, all issuer free writing prospectuses must be filed unless exempt

from the filing condition. Under Rule 163 as adopted, free writing prospectuses

must be filed only if the issuer files a registration statement or amendment to the

registration statement covering the securities offered by the free writing

prospectus.

example, the accommodations provided in Rule 433 regarding media publications that are

free writing prospectuses also will apply under Rule 163.174

Any written communication used in reliance on this exemption will be subject to

the same provisions applicable to free writing prospectuses used after a registration

statement is filed with regard to the ability to “cure” a failure to meet the legend or filing

condition in reliance on our rules governing free writing prospectuses discussed below.175

iii. Comments on Exemption for Pre-Filing Offers

Commenters broadly supported the proposed exemption for pre-filing offers by

well-known seasoned issuers.176 One commenter thought the exemptions should be

expanded to cover all seasoned issuers, not just well-known seasoned issuers.177 Some

commenters suggested that the filing condition for free writing prospectuses apply only

when and if the registration statement is filed.178 In addition, commenters wanted

clarification that the availability of the exemption does not depend on the issuer filing the

free writing prospectus within a particular time frame.179 Finally, commenters requested

clarification that media publications, as with other free writing prospectuses, do not need

to be filed until the registration statement is filed.180 One commenter also suggested that

174 For example, the issuer could satisfy its filing condition under Rule 163 for a

media publication for which an issuer could file an interview transcript under

Rule 433 by similarly filing such a transcript, as described below.

175 See discussion in Section III.D.3 below under “Cure for Unintentional or

Immaterial Failure to Include a Legend” and “Unintentional Failures to File”

regarding Rules 164 and 433 with respect to the cure provisions.

176 See, e.g., letters from ABA; Cleary; NYSBA; S & C: SIA; and TBMA.

177 See letter from ABA.

178 See, e.g., letters from Fried Frank and NYSBA.

179 See, e.g., letters from ABA and Davis Polk.

180 See, e.g., letters from Davis Polk and NYSBA.

Regulation FD should not apply to offering-related information communicated in reliance

on the exemption.181

We believe it is appropriate at this time to limit the exemption for pre-filing offers

to well-known seasoned issuers only and not expand the benefits to all seasoned issuers.

The level of following of well-known seasoned issuers by market participants lessens our

concerns that these issuers, in general, will use the exemption to evade the registration

requirements of the Securities Act. Accordingly, we are limiting this exemption to well-

known seasoned issuers.

We have not made any revisions to the provisions of Rule 163 regarding the

applicability of Regulation FD to offering-related information. Well-known seasoned

issuers thus must comply with the provisions of Regulation FD with regard to

communications made pursuant to Rule 163 to which Regulation FD would apply.182

In response to commenters’ suggestions, we have clarified the filing condition to

apply only when and if a registration statement or amendment covering the offered

securities is filed. Accordingly, if no such registration statement or amendment is filed, a

free writing prospectus used pursuant to Rule 163 does not have to be filed. Finally,

media publications that are permissible free writing prospectuses pursuant to Rule 433

will be treated the same as other communications under Rule 163, and will therefore only

be subject to filing if a registration statement is filed.

181 See letter from ABA.

182 We note the recent cases regarding private investment in public equity (PIPE)

offerings that have involved trading on the basis of inside information, including

the existence of a private offering. See Hilary L. Shane, Lit. Rel. 19227 (May 18,

2005); SEC v. Hilary L. Shane, Civ. Action No. 05 CIVIL 4772 (S.D.N.Y.). See

also Guillaume Pollet, Lit. Rel. 19199 (Apr. 21, 2005); SEC v. Guillaume Pollet,

Civ. Action No. 05-CV-1937 (SLT/RLM) (E.D.N.Y.).

3. Relaxation of Restrictions on Written Offering-Related

Communications

The rules we are adopting today will expand the amount and types of permitted

written offering-related communications that may be made by offering participants under

the gun-jumping provisions after a registration statement is filed.183 The two main

elements of these rules are expansion of information that Securities Act Rule 134 permits

to be communicated and the permitted use of free writing prospectuses in connection

with a registered offering.

a. Rule 134

Rule 134 provides a safe harbor from the gun-jumping provisions for limited

public notices about an offering made after an issuer files its registration statement.184

The Rule was intended originally to provide an “identifying statement” that could be used

to locate persons that might be interested in receiving a prospectus. All issuers, including

well-known seasoned issuers, are precluded from relying on Rule 134 until the issuer

files a registration statement that includes a statutory prospectus.185

183 As noted previously, Securities Act Section 5(b)(1) limits the means by which

written offers may be made following the filing of a registration statement.

Section 5(b)(1) does not include a limitation on oral offers after the filing of a

registration statement.

184 The safe harbor operates by excluding such notices from the definition of

prospectus under Securities Act Section 2(a)(10). See Rule 134 and Adoption of

Rules 134 and 135, Release No. 33-3568 (Aug. 29, 1955) [20 FR 6523]. Rule

134 does not apply to communications relating to a registered investment

company or a business development company. See Rule 134(e) [17 CFR

230.134(e)].

185 Rule 134 is not available until a preliminary prospectus, or in the case of shelf

registration, a base prospectus, has been filed. This does not mean, however, that

a final prospectus meeting the requirements of Securities Act Section 10(a),

including a price, is required as a condition to Rule 134. Further, the prospectus

required for reliance on Rule 134(d) is a statutory prospectus that satisfies the

requirements of Securities Act Section 10, including a price range where required

i. Expansion of Permitted Information

We are modifying and expanding the information permitted under Rule 134 to

include information that issuers, underwriters, and investors will find helpful and to

permit the types of written communications during an offering that we do not consider

raise the risk of offering abuses. We are adopting a limited expansion of the information

permitted in the notice about the issuer and the registered offering. The amendments to

Rule 134 will:

• permit increased information about an issuer and its business, including where to

contact the issuer;

• permit more information about the terms of the securities being offered;186

• expand the scope of permissible factual information about the offering itself,

including underwriter information, more details about the mechanics of and

procedures for transactions in connection with the offering process, the

anticipated schedule of the offering, and a description of marketing events;187

(other than a free writing prospectus), and it need not be a prospectus that satisfies

Section 10(a).

If a well-known seasoned issuer makes a written communication of information

of the type covered by Rule 134 prior to filing its registration statement, and that

communication constitutes an offer, the communication will be a free writing

prospectus and the issuer will need to look to the Rule 163 exemption of pre-filing

offers from the gun-jumping provisions.

186 For example, for fixed income securities, the changes will allow greater

information about final interest rates and yield information, including yield

information on fixed income securities with comparable maturities and credit

ratings. We believe that yield disclosure also covers disclosure of the anticipated

spread over a benchmark. We also have revised the Rule to allow issuers to

disclose whether securities are convertible, exercisable, or exchangeable, and the

ranking of the securities. The revised Rule also allows disclosure of the

permissibility or status of the investment under the Employee Retirement Income

Security Act of 1974 [29 U.S.C. 1001 et seq.] (“ERISA”).

187 The information on marketing events, such as road shows, can include greater

detail on the date, time, location, and procedures for attending or otherwise

accessing the events.

• allow more factual information about procedures for account opening and

submitting indications of interest and conditional offers to buy the offered

securities;188

• allow more factual information regarding procedures for directed share plans and

other participation in offerings by officers, directors, and employees;

• permit the correction of inaccuracies in permissible information previously

disclosed pursuant to the Rule; and

• expand the disclosure permitted regarding credit ratings to include the security

rating that is reasonably expected to be assigned.

While we have expanded the amount of information regarding the terms of an

offering that may be included in a Rule 134 notice, the expansion does not permit use of a

Rule 134 notice to provide a detailed description of securities being offered. There is

increased ability under our rules to provide such a detailed description, such as a term

sheet, as a free writing prospectus, as discussed below.

Commenters suggested a number of additional items of information that they

believed should be included in the Rule 134 safe harbor.189 This additional information

generally focused on more extensive information about the terms of the securities being

offered. As we have noted, Rule 134 is not intended as a substitute for a detailed

description of the securities, such as a term sheet, or information included in a

prospectus. We have expanded the information categories from those in the proposal to

188 For example, a broker or dealer can inform investors of the procedural aspects of

an auction or a directed share program. The changes will not include written

notices of allocations of securities, including those delivered electronically.

These notices will be a type of written confirmation of sale and, thus,

prospectuses. The rules we are adopting regarding prospectus delivery reforms,

as discussed later, will apply to these notices.

189 See, e.g., letters from ABA; ABA-ABS; Alston; ASF; Citigroup; Cleary; CMSA;

Fried Frank; Merrill Lynch; Morgan Stanley; NYCBA; S & C; SIA; and TBMA.

include items that provide more procedural information about the offering or the

securities.190

ii. Section 10 Prospectus Requirement

We have modified the changes to Rule 134 from the proposals in one significant

regard. We had proposed that Rule 134 explicitly condition the availability of the Rule

on the issuer filing a statutory prospectus meeting the requirements of Securities Act

Section 10 which, in the case of an initial public offering, would include a bona fide

estimate of the initial offering price range and the maximum amount of securities to be

offered. While commenters recognized that the registration statement had to be filed, a

number of commenters were concerned that including an explicit requirement of a bona

fide price range and maximum amount of securities to be offered would change current

practice and would not permit a number of communications, including press releases

announcing the filing of the registration statement and naming underwriters, or even lead

managers, and other notices that would be appropriate before the commencement of

marketing efforts.191 These commenters noted that, in many cases, the bona fide price

range is not included in registration statements for initial public offerings until a later

point in time that is closer to the commencement of marketing activities for the

offering.192

190 Rule 134 and the other communications safe harbors are non-exclusive; therefore,

if a communication falls outside of the safe harbor it still may, depending on the

facts and circumstances, not be deemed an “offer.”

191 See, e.g., letters from ABA; Citigroup; Cleary; Davis Polk; Fried Frank; Merrill

Lynch; Morgan Stanley; NYCBA; NYSBA; and SIA.

192 See, e.g., letters from ABA and SIA.

We are modifying the Rule to provide that much of the information permitted

under the Rule may be disclosed under the Rule before the inclusion of a bona fide price

range in the registration statement. This modification does not mean, however, that the

prospectus in an initial public offering satisfies Section 10 without the bona fide price

range. Rather, the purpose of the modification is to permit notices to contain information

that is not dependent on the price range or amount of securities being offered prior to

inclusion of that information. In addition, information related to the pricing and rating of

the security can be provided only if a price range is included where required.

The amended Rule also provides that the Rule is available for certain other

information only if it also is disclosed at that time in the filed registration statement. For

example, notices including information about the use of proceeds of the offering can be

provided only after information about the use of proceeds is included in the filed

registration statement.193 Rule 134(d) continues to require that a price range be included

where required. We are not modifying the provisions of Rule 134(d). The procedures

that market participants have developed with the staff of the Division of Corporation

Finance to facilitate offerings of securities using Internet facilities are not affected by the

amendments to Rule 134 that we are adopting today.

iii. Changes to Required Information

We are modifying the information that must be included in a Rule 134 notice, as

proposed. First, we are eliminating the reference in the legend to state securities laws, as

we believe that other provisions of the Rule already address any state securities law

193 The Rule also provides that identities of selling security holders and the type of

underwriting can be provided if the information has been included in the

registration statement.

requirements, as applicable.194 Second, we are eliminating the requirement to specify

whether the financing is a new financing or refunding, as we believe that such

information is no longer necessary because it will be provided where appropriate by the

issuer’s disclosure of the use of the proceeds of the offering.

One commenter suggested that the Rule 134 requirement that issuers alert

investors where they can obtain a copy of the statutory prospectus should include a means

for receipt of a prospectus by electronic delivery.195 Several commenters also suggested

that we allow issuers to satisfy the requirement that certain Rule 134 notices be

accompanied or preceded by a statutory prospectus through the inclusion of a hyperlink

in the Rule 134 notice to the statutory prospectus.196 While we are not expanding “access

equals delivery” to Rule 134, we are amending Rule 134(c)(1) to allow persons providing

notices relying on Rule 134 to include a uniform resource locator (“URL”) address to the

statutory prospectus that alerts investors where they can obtain a statutory prospectus.197

For purposes of Rule 134, including a URL address to the statutory prospectus that is not

an active hyperlink in an electronic communication does not mean that the prospectus has

been delivered. However, an active hyperlink to a statutory prospectus in an electronic

194 See paragraphs (a)(13) and (a)(16) of the amendments to Rule 134.

195 See letter from NYCBA.

196 See, e.g., letters from ABA; Alston; Cleary; and S & C.

197 Rule 134 requires in some cases that the notice must be accompanied or preceded

by a written prospectus meeting the requirements of Section 10 of the Securities

Act, which may be satisfied in an electronic notice by including an active

hyperlink to such a prospectus. The notice itself cannot, however, include

information beyond that permitted by the Rule, and, as such, the notice cannot

include a hyperlink or URL for an address containing information beyond that

permitted by Rule 134. See the 2000 Electronics Release, note 96, at II.B.2.

Rule 134 notice will satisfy the requirement that the prospectus accompany or precede

that notice.198

b. Permissible Use of Free Writing Prospectuses

i. Overview

After the filing of a registration statement, the gun-jumping provisions permit

issuers and other offering participants to make written offers only in the form of a

statutory prospectus. After effectiveness of a registration statement, written offers other

than a statutory prospectus may be made only if a final prospectus meeting the

requirements of Securities Act Section 10(a) is sent or given prior to or at the same time

as the written offer.199 We believe that written communications during the offering

process are unnecessarily restricted, even with the substantial relaxations in restrictions

on communications resulting from the rules we discuss above. The rules we are adopting

permit written offers, including electronic communications, outside the statutory

prospectus beyond those currently permitted by the Securities Act, if certain conditions

are met. We are defining such a written offer outside of the statutory prospectus as a

“free writing prospectus.”200

Under the rules we are adopting today, a free writing prospectus that satisfies

specified conditions can be used by a well-known seasoned issuer at any time.201 Further,

198 See example (19) under Section II.D. of Use of Electronic Media for Delivery

Purposes, Release No. 33-7233 (Oct. 6, 1995)[60 FR 53458] (the “1995

Electronics Release”), which states that a URL address can be included in an

electronic Rule 134 notice.

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

200 We are adding this definition to Securities Act Rule 405.

201 As we discuss above, a free writing prospectus can be used by a well-known

seasoned issuer prior to filing the registration statement pursuant to Rule 163.

a free writing prospectus that satisfies the specified conditions can be used by any other

eligible issuer or offering participant after a registration statement has been filed.202 In

general, the rules we are adopting will allow offering participants to use free writing

prospectuses in conjunction with most registered primary and secondary offerings,

although we do not treat all issuers and offerings the same.203

The issuer and any other offering participant in an eligible issuer’s registered

securities offering satisfying the conditions of our rules can use a free writing prospectus

after a registration statement is filed to communicate information about a registered

offering of securities.204 This will permit affiliates, underwriters, dealers, and others

acting on behalf of the parties to the transaction to use a free writing prospectus without

violating the gun-jumping provisions. The conditions to the use of a free writing

prospectus will depend on the nature of the issuer and the offering. A free writing

202 The rules provide that such a free writing prospectus is a permitted prospectus for

purposes of Securities Act Section 10(b) [15 U.S.C.77j(b)] and, as such, can be

used without violating Securities Act Section 5(b)(1). A free writing prospectus

used other than in accordance with our new rules will continue to be a prospectus.

203 The rules do not extend to business combination transactions, for which we have

already adopted rules. See Securities Act Rule 162 [17 CFR 230.162], Rule 165,

Rule 166, and Rule 425 [17 CFR 230.425]. Rule 162 relates to submission of

tenders in registered exchange offers. Communications relating to business

combinations are covered by Rule 165 and Rule 166. Rule 425 relates to the

filing of certain prospectuses and communications in connection with business

combination transactions. See also the Regulation M-A Release note 95; and

Cross-Border Tender and Exchange Offers, Business Combinations and Rights

Offerings, Release No. 33-7759 (Oct. 22, 1999) [64 FR 61382] (exemptive rules

for cross-border tender and exchange offers, business combinations, and rights

offerings relating to the securities of foreign issuers). Where appropriate, we have

included provisions that are intended to ensure consistency among the rules and,

with respect to filing conditions, permit a single filing to satisfy the conditions

under both regulatory schemes. See Rule 425 and Rule 433.

204 Prior to filing a registration statement, only a well-known seasoned issuer will be

able to use a free writing prospectus. This use of a free writing prospectus by a

well-known seasoned issuer is permitted by Rule 163.

prospectus can take any form and is not required to meet the informational requirements

otherwise applicable to prospectuses.

ii. Definition of Free Writing Prospectus

(A) Scope of Definition

We are adopting the proposed definition of “free writing prospectus.” A free

writing prospectus is, except as otherwise provided specifically or otherwise required by

the context, a written communication that constitutes an offer to sell or a solicitation of an

offer to buy securities that are or will be the subject of a registration statement and is not:

• a prospectus satisfying the requirements of Securities Act Section 10(a);

• a prospectus satisfying our rules permitting the use of preliminary or summary

prospectuses or prospectuses subject to completion;

• a communication made in reliance on the special rules for asset-backed issuers

permitting the use of ABS informational and computational materials;205 or

• a prospectus because a final prospectus meeting the requirements of Section 10(a)

was sent or given with or prior to the written communication.206

205 See Rules 167 and 426 [17 CFR 230.167 and 17 CFR 230.426]. Asset-backed

issuers also may use free writing prospectuses as discussed below. We have

excluded free writing prospectuses used in reliance on Rule 164 and Rule 433

(including the filing requirements) from the filing requirements for ABS

informational and computational materials. See the amendments to Rule 426.

The content of ABS free writing prospectuses may include, but is not limited to,

the same information as material used pursuant to Rule 167 and Rule 426.

206 See clause (a) of Securities Act Section 2(a)(10). After effectiveness of a

registration statement, any written offer that is accompanied or preceded by a

final prospectus that meets the requirements of Securities Act Section 10(a) (such

as sales literature used after effectiveness) will continue to be permitted without

having to satisfy the requirements of any safe harbor or other rule permitting its

use or Rule 433. Such a written offer is excluded from the definition of

“prospectus” under the Securities Act by reason of clause (a) of Securities Act

Section 2(a)(10) if a final prospectus meeting the Section 10(a) information

requirements is sent or given before or at the same time as the written offer. A

base prospectus included in a shelf registration statement that omits information is

not a final prospectus meeting the requirements of Section 10(a).

Further, the definition makes clear that, although a free writing prospectus will not be

filed as part of a registration statement, it will still be considered to relate to a registered

public offering of securities that is or will be the subject of a registration statement,

regardless of the method of its use or distribution.

A written communication will be a free writing prospectus only where it

constitutes an offer by an offering participant of a security under the Securities Act.

Whether a particular communication constitutes such an offer will continue to be

determined based on the particular facts and circumstances.207 While the definition of

“offer” is broad, not all communications relating to an offering are offers or offers by an

offering participant. As a non-exclusive illustration, the gun-jumping provisions have

been administered in a manner that excludes from categorization as an offer a media

publication or television or radio broadcast that is based solely on information that is filed

with us or available on an unrestricted basis or on other information the dissemination of

which did not represent an offer by an issuer or other offering participant, where there is

no other involvement or participation by an offering participant. On that basis, for

example, a newspaper article about an initial public offering that is based on the filed

registration statement, on a press release that is filed with or furnished to us, on a filed

free writing prospectus, or on filed issuer information where the issuer and other offering

participants have refused to comment and not otherwise been involved, would not be

categorized as an offer under the gun-jumping provisions.

207 In addition, communications that are not considered offers or prospectuses for

purposes of the gun-jumping provisions, such as Rule 134 notices, Rule 135

communications, regularly released factual business information and forward-

looking information falling within the new safe harbors, and research reports

falling within the safe harbors provided by our rules, will not be free writing

(B) Comments on Definition

Commenters supported the concept of free writing prospectuses.208 Commenters

suggested that we exclude offshore communications and rating agency reports from the

scope of the definition.209 We are not including any specific provision in the rules

regarding offshore communications and, as such, the treatment of offshore

communications under the free writing prospectus rules will be no different than the

treatment of any offshore communication prior to the Rules we adopt today.210 We also

have not revised the Rule in response to commenters’ request for clarification of the

treatment of rating agency reports. Our treatment of NRSROs is currently the subject of

rulemaking and other consideration.211

prospectuses.

208 See, e.g., letters from Cleary; NYSBA; and SIA.

209 See, e.g., letters from ABA; ABA-ABS; ASF; Fried Frank; NYSBA; S & C; SIA;

and TBMA. But see letter from State Street Global Advisors (“SSGA”).

210 Whether an offshore communication is considered an offer in the United States

subject to the federal securities laws will depend on when and how the

communication is made and the availability of other exemptions, such as those for

offshore press conferences. See Rule 135e [17 CFR 230.135e] and note 140

above. See also Rule 902(c)(3)(vii) [17 CFR 230.902(c)(3)(vii)].

211 In addition, as we have said previously, whether information prepared and

distributed by third parties that are not offering participants is attributable to an

issuer or other offering participant depends upon whether the issuer or other

offering participant has involved itself in the preparation of the information or

explicitly or implicitly endorsed or approved the information. The courts and we

have referred to the first line of inquiry as the entanglement theory and the second

as the adoption theory. See the 2000 Electronics Release, note 96, at fn. 48 and

accompanying text. We think these theories are equally applicable with respect to

issuer or offering participant involvement regarding rating agency reports. For

example, if an issuer or underwriter distributes the rating agency report in

connection with an offering of the securities, it is appropriate to conclude that

such party has adopted that report and should be liable for its contents. Liability

under the entanglement theory depends upon the level of pre-publication

involvement in the preparation of the information. See the Asset-Backed

Securities Adopting Release, note 82, at part III.C.3.

iii. Permitted Use of a Free Writing Prospectus After the Filing of a

Registration Statement Under Rule 433

(A) Overview

We are adopting Rule 164 and Rule 433 substantially as proposed. Rule 164 will

permit the use of a free writing prospectus where an eligible issuer has filed a registration

statement, the other requirements of Rule 164 are met, and the conditions of Rule 433 are

satisfied.212 The Rules permitting the use of free writing prospectuses are not available

for any communication that, while in technical compliance with the Rule, is part of a plan

or scheme to evade the requirements of Securities Act Section 5.213

(B) Issuer Eligibility

For any offering participant to use free writing prospectuses, other than free

writing prospectuses that consist only of descriptions of the securities in the offering or of

the offering, the issuer may not be an ineligible issuer.214 We have modified the

consequences of ineligibility in the context of use of free writing prospectuses to permit

ineligible issuers, other than blank check companies, shell companies, and penny stock

issuers, to use free writing prospectuses that are limited to descriptions of the terms of the

securities being offered and the offering because we believe that the permitted use of

212 The discussion in this section relates to the use of free writing prospectuses after

the filing of a registration statement. For a discussion of the use of free writing

prospectuses by well-known seasoned issuers prior to filing a registration

statement, see the discussion in Section III.D.2 above under “Permitted Pre-Filing

Offers for Well-Known Seasoned Issuers.”

213 As with certain of the safe harbors and other exemptions we are adopting today,

we have included language in the Preliminary Note to Rule 164 making clear that

the exemption in that Rule is non-exclusive.

214 These descriptions cannot be used in any case if the issuer is or it or any of its

predecessors in the last three years was a blank check company, a shell company

(other than a business combination related shell company), or a penny stock

issuer.

such free writing prospectuses can provide advantages to investors that justify the risks of

use of such materials by some classes of ineligible issuers. Such use would be subject to

all of the other requirements of the new rules.

We have revised the definition of ineligible issuer from the proposals in response

to comments. As adopted, ineligible issuers are, as of the relevant date of

determination:215

• reporting issuers who are not current in their Exchange Act reports and other

materials required to be filed during the prior 12 months (or such shorter period

that the issuer was required to file such reports and materials), other than reports

on Form 8-K required solely pursuant to an item specified in General Instruction

I.A.3(b) of Form S-3;216

• in the case of asset-backed issuers, the depositor, or any issuing entities

previously established, directly or indirectly by the depositor who are not current

in their Exchange Act reports and other materials required to be filed during the

prior 12 months (or such shorter period that the issuer was required to file such

reports and materials), other than reports on Form 8-K required solely pursuant to

an item specified in General Instruction I.A.4 of Form S-3;217

215 We have adopted as proposed a waiver provision that will allow us to grant or

deny a request to waive an issuer’s ineligibility if we find good cause to provide

the waiver. We are adopting rules today delegating authority to the Division of

Corporation Finance to grant or deny waivers from any of the ineligibility

provisions. See revisions to Rule 30-1 of the Rules of Organization and Program

Management Governing Delegations of Authority to the Director of the Division

of Corporation Finance [17 CFR 200.30-1].

216 The exception for reports solely for specified items of Form 8-K from the

requirement that issuers be current effectively applies only for purposes of the

ineligible issuer definition in the context of the use of free writing prospectuses.

In the context of the determination of status as a well-known seasoned issuer, the

requirement that the issuer be current at the determination date applies separately

(without the Form 8-K exceptions) by virtue of the requirement that the issuer be

eligible for Form S-3. (The Form 8-K exceptions in the Form S-3 requirements

apply in determining whether an issuer is timely for purposes of Form S-3

eligibility, but not in determining whether it is current.)

217 The requirements for Form S-3 eligibility for asset-backed issuers include not

only this condition, but also the condition that filings be timely, and extend the

requirements to reports of affiliated depositors regarding the same asset class.

The timeliness condition and extension to affiliated depositors do not apply here.

• issuers who are or during the prior three years were or any of their predecessors

were:

{ blank check companies;

{ shell companies (other than business combination related shell companies);

{ issuers for an offering of penny stock;

• issuers who are limited partnerships offering and selling their securities other than

through a firm commitment underwriting;218

• issuers who have filed for bankruptcy or insolvency during the past three years;219

• issuers who have been or are the subject of refusal or stop orders under the

Securities Act during the past three years, or are the subject of a pending

proceeding under Securities Act Section 8220 or Section 8A;221 or

• issuers who, or whose subsidiaries at the time they were subsidiaries of the issuer,

have been convicted of any felony or misdemeanor described in certain provisions

of the Exchange Act, have been found to have violated the anti-fraud provisions

of the federal securities laws, or have been made the subject of a judicial or

administrative decree or order (including a settled claim or order) prohibiting

certain conduct or activities regarding the anti-fraud provisions of the federal

securities laws222 during the past three years. The definition as adopted provides

218 These issuers are subject to our interpretations in Limited Partnership

Reorganizations and Public Offerings of Limited Partnership Interests, Release

No. 33-6900 (June 17, 1991) [56 FR 28979].

219 Ineligibility based on an involuntary bankruptcy filing arises on the earlier of 90

days after the date of filing of an involuntary petition (if the case was not earlier

dismissed) or the conversion of the case to a voluntary proceeding under federal

bankruptcy or state insolvency laws. As a result, issuers will not immediately be

considered ineligible because an involuntary bankruptcy petition has been filed.

In addition, ineligibility tied to bankruptcy will no longer apply after an issuer

files an annual report with audited financial statements after emergence from

bankruptcy.

220 15 U.S.C. 77h.

221 15 U.S.C. 77h-1.

222 The covered decrees or orders (including settlements) are prohibitions on future

violations of the anti-fraud provisions of the federal securities laws, orders

requiring issuers to cease and desist from violating the anti-fraud provisions of the

federal securities laws, and determinations of violations of the anti-fraud

provisions of the federal securities laws. The settlements include settlements in

that ineligibility of an issuer based on a settlement will be prospective only and

thus arise only for settlements entered into after the effective date of the new

rules.223

The categories of ineligible issuers include issuers that at the time of the

eligibility determination are not current (with specified Form 8-K exceptions) for 12

months in their Exchange Act reporting obligations, issuers that may raise greater

potential for abuse, and issuers that have violated the anti-fraud provisions of the federal

securities laws. Certain of these issuers have been viewed historically as unsuited for

short-form registration or ineligible for disclosure-related relief. For instance, we have

repeatedly stated our belief that blank check companies, shell companies, and penny

stock issuers may give rise to disclosure abuses.224 In addition, Congress determined not

to extend the safe harbors for forward-looking statements to issuers of blank check and

penny stock securities, as well as issuers previously convicted of certain felonies and

misdemeanors and issuers subject to a decree or order involving a violation of the anti-

fraud provisions of the federal securities laws.225

We are adopting as proposed the exclusion of registered investment companies

and business development companies from eligibility for use of Rules 164 and 433

which the issuer or its subsidiary neither admits nor denies that it violated the

anti-fraud provisions of the federal securities laws.

223 See amendments to Securities Act Rule 405.

224 See, e.g., Penny Stock Definition for Purposes of Blank Check Rule, Release No.

33-7024 (Oct. 25, 1993) [58 FR 58099] (the Commission stated that Congress

found blank check companies to be common vehicles for fraud and manipulation

in the penny stock market, and concluded that the Commission's disclosure-based

regulation and review of such offerings protects investors); Delayed Pricing for

Certain Registrants, Release No. 33-7393 (Feb. 20, 1997) [62 FR 9276] (blank

check and penny stock issuers would be ineligible to use rule providing for

delayed pricing because of “prior substantial abuses”); and the Shell Companies

Release, note 109.

because they are already subject to separate rules permitting use of a Section 10(b)

prospectus.226 Securities Act Rule 482 permits investment companies to advertise

investment performance data and other information, and Securities Act Rule 498 permits

open-end management investment companies to use a profile. We also are adopting as

proposed the exclusion of offerings that are business combination transactions subject to

Regulation M-A. We also are excluding all offerings registered on Form S-8, except for

those by well-known seasoned issuers.

We have revised the Rules from the proposal to change the time of determination

of status as an ineligible issuer. We have concluded that eligibility, in most cases, should

not be determined at the time of reliance on our new Rules for each free writing

prospectus. We have adopted an approach to eligibility determination that generally

looks to the commencement of an offering and will not result in a change of status during

an offering. As adopted, eligibility determinations will be made:

• if the offering is registered pursuant to Rule 415, our shelf registration rule, the

earliest time after the filing of the registration statement covering the offering at

which the issuer, or in the case of an underwritten offering the issuer or another

offering participant, makes a bona fide offer, including without limitation through

the use of a free writing prospectus, in the offering; or

• otherwise at the time of filing of a registration statement covering the offering.

This timing of determination as to eligibility to use a free writing prospectus (with

the enumerated exceptions from the prohibition) applies to all issuers, including well-

known seasoned issuers. The timing of determination of whether an issuer is a well-

225 See Securities Act Section 27A and Exchange Act Section 21E.

226 Two commenters suggested that business development companies should be

permitted to rely on the rules permitting the use of a free writing prospectus. See

letters from Allied and Fried Frank. A third commenter suggested that Securities

known seasoned issuer, described above, is different and is made on an approximately

annual basis.

(1) Comments on Ineligible Issuer Definition

Commenters expressed a number of concerns about the ineligibility conditions,

including those relating to prior securities law violations and settlements,227 going

concern opinions in audit reports covering financial statements,228 and certain involuntary

bankruptcy petitions.229 Commenters also requested clarification of the time frame for

which the issuer must be current in its reports for purposes of the definition.230

Commenters did not believe that issuers should be ineligible based on disclosure of

material weaknesses in internal controls over financial reporting.231 Commenters also

stated that offering participants should be able to rely on the various exemptions based on

a reasonable belief that the issuer was not an ineligible issuer.232

With regard to the ineligibility based on securities law violations or settlements of

alleged violations, commenters believed that the disqualifying violations were too broad

and should be limited to violations of the anti-fraud provisions, not any provision of the

Act Rule 482 should be conformed to Rule 433 for registered investment

companies and business development companies. See letter from ABA.

227 See, e.g., letters from ABA; Alston; the Business Roundtable (“BRT”); Citigroup;

Credit Suisse First Boston, LLC (“CSFB”); Davis Polk; Merrill Lynch; Morgan

Stanley; NYSBA; Paul ,Weiss, Rifkind, Wharton & Garrison LLP (“Paul

Weiss”); S & C; and SCSGP.

228 See, e.g., letters from ABA; AICPA; Davis Polk; Deloitte; E & Y; and KPMG.

229 See, e.g., letters from Davis Polk and TBMA.

230 See, e.g., letters from ABA-ABS; ASF; CMSA; Davis Polk; and TBMA.

231 See, e.g., letters from ABA; AICPA; E & Y; and KPMG.

232 See, e.g., letters from ABA-ABS and ASF.

100

federal securities laws.233 Moreover, commenters stated that the disqualification based

on settled allegations of violations of the securities laws should be prospective only,

because the settling parties would not have known, at the time of the negotiated

settlement, also to negotiate a waiver of the ineligible issuer disqualifications.234

Commenters did not believe that the settlement of an alleged violation should be a

disqualification.235 Other commenters did not believe that a securities law violation or

settlement by a subsidiary should affect the eligibility of an issuer to use the various

exemptions and safe harbors that we proposed.236

Commenters addressing ineligibility based on bankruptcy were concerned that an

involuntary bankruptcy disqualification could disadvantage issuers in their relationships

with their creditors.237 They were concerned that a creditor could cause an issuer to be an

ineligible issuer by filing an involuntary bankruptcy petition against the issuer. These

commenters suggested that the involuntary bankruptcy petition be a disqualification only

after the lapse of a period of time or conversion of the petition to a voluntary petition,

enabling issuers to attempt to resolve the issues with their creditors.

233 See, e.g., letters from ABA; Alston; BRT; Citigroup; Richard Hall; Merrill

Lynch; Morgan Stanley; the NYSBA; Paul Weiss; SCSGP; and SIA.

234 See, e.g., letters from ABA; Alston; BRT; Citigroup; Cleary; CSFB; Davis Polk;

Intel Corporation (“Intel”); Morgan Stanley; NYSBA; SCSGP; S & C; SIA; and

TBMA.

235 See, e.g., letters from Richard Hall; Paul Weiss; and TBMA.

236 See, e.g., letters from Alston; Morgan Stanley; NYSBA; Paul Weiss; S & C; and

SIA. Some commenters were concerned that acquired subsidiaries that had

securities law violations prior to the acquisition would cause the acquiring issuer

to be ineligible. See, e.g., letters from Alston; Intel; NYSBA; S & C; and

SCSGP.

237 See, e.g., letters from Davis Polk and TBMA.

101

We have revised the definition of “ineligible issuer” to address many of

commenters’ concerns. Under the definition we are adopting, an issuer must be current,

but not necessarily timely, in its required filings under the Exchange Act for the past

twelve months or such shorter period that the issuer is subject to the Exchange Act

reporting requirements. We have limited the ineligibility condition for securities law

violations to those involving the anti-fraud provisions and have eliminated the separate

provision regarding settlements because they are subsumed within the ineligibility

provision based on a settled judicial or administrative decree or order. In addition, we

have provided that ineligibility based on actions of a subsidiary must have arisen at the

time that the entity was a subsidiary of the issuer. We also have eliminated the

ineligibility condition based on a going concern opinion covering the issuer’s most recent

audited financial statements. In addition to the revisions to the specific ineligibility

provisions, we also have revised Rule 164 and Rule 433 to provide that persons relying

on those Rules, other than issuers, must have a reasonable belief that an issuer is not

ineligible.238 We also have provided that ineligibility based on settlements will apply

only to judicial or administrative decrees or orders entered into after the effective date of

the new rules.

Rule 164 as adopted provides that, after the filing of a registration statement, a

free writing prospectus that meets the requirements of Rule 164 and satisfies the

conditions of Rule 433 will be a permitted prospectus under Section 10(b) for purposes of

238 In addition, we believe that the new check box on the Form 10-K and Form 20-F

for issuers to indicate whether they are well-known seasoned issuers should

facilitate an offering participant’s ability to develop such a reasonable belief with

102

Securities Act Section 5(b)(1). The Rule 433 conditions on the use of free writing

prospectuses relate to:

• the delivery or availability of the statutory prospectus at the time the free writing

prospectus is used;

• the information contained in the free writing prospectus;

• the legend that is to be included in the free writing prospectus;

• filing of the free writing prospectus; and

• record retention for the free writing prospectus.

(1) Prospectus Delivery or Availability

The ability of any person participating in the offer and sale of the securities to use

free writing prospectuses under Rules 164 and 433 generally is conditioned on the filing

of a registration statement that includes a prospectus satisfying the requirements of

Securities Act Section 10.239 Further, in specified cases, Rule 433 conditions the use of a

free writing prospectus on prior or concurrent delivery of the issuer’s most recently filed

statutory prospectus.

(a) Prospectus Delivery Conditions for Non-Reporting Issuers and

Unseasoned Issuers

In an offering of securities of an eligible non-reporting issuer, including an initial

public offering, or securities of an eligible unseasoned issuer, the use by an offering

participant of free writing prospectuses is conditioned on:

respect to an issuer’s status as a well-known seasoned issuer.

239 Base prospectuses, preliminary prospectuses, summary prospectuses, and

prospectuses subject to completion that are permitted under our rules are not

prospectuses that satisfy the requirements of Securities Act Section 10(a), but they

are statutory prospectuses that satisfy the requirements of Securities Act Section

10. Rule 433 makes clear that the prospectus condition may be satisfied by any

Section 10 prospectus, other than a summary prospectus permitted by Securities

103

• filing of the registration statement for the offering; and

• the free writing prospectus being preceded or accompanied by the most recent

statutory prospectus that satisfies the requirements of Section 10 if:240

{ the free writing prospectus is prepared by or on behalf of or used or referred to

by an issuer or prepared by or on behalf of or used or referred to by other

offering participants;

{ consideration has been or will be given by the issuer or an offering participant

for the dissemination (in any format)241 of any free writing prospectus

(including any published article, publication, or advertisement); or

{ Securities Act Section 17(b)242 requires disclosure that consideration has been

or will be given by the issuer or an offering participant for any activity

described therein in connection with the free writing prospectus.

In these cases, issuers and offering participants must assure that the most recent

statutory prospectus is actually provided to anyone who might receive a free writing

prospectus. Accordingly, the use of broadly disseminated free writing prospectuses in

registered offerings by these types of issuers and offering participants in these offerings

may not be feasible unless they are in electronic form and contain a hyperlink to the

statutory prospectus. We believe that this is an appropriate result, as conditioning the use

of the free writing prospectus on its being preceded or accompanied by the statutory

Act Rule 431 [17 CFR 230.431] or a free writing prospectus.

240 For purposes of the prospectus delivery condition, Rule 433 provides that a

prospectus will be deemed to accompany a free writing prospectus that is an

electronic communication if the free writing prospectus contains an active

hyperlink to the statutory prospectus. In initial public offerings, a preliminary

prospectus that does not contain a price range does not satisfy our rules or,

therefore, the requirements of Section 10.

241 “In any format” is meant to encompass all means of dissemination of the

materials, including graphic, television or radio broadcast, or written.

242 The rules we are adopting provide that written materials for which Securities Act

Section 17(b) requires disclosure will be treated as free writing prospectuses of

the issuer or other offering participant on whose behalf the payment has been or

will be made or consideration has been or will be given.

104

prospectus will assure that an investor has a balanced disclosure document of an issuer

with no or limited reporting history against which to evaluate the free writing prospectus

and to place the statements made in context. The condition that the statutory prospectus

precede or accompany the free writing prospectus will not require that it be provided

through the same means, so long as it is provided at the required time. Referring to its

availability will not satisfy this condition.

In the following situations, for example, the most recent statutory prospectus must

precede or accompany the free writing prospectus or the communication cannot be made

in reliance on Rules 164 and 433:243

• a direct written communication by an issuer or offering participant;

• a written communication or a television or radio broadcast prepared by or on

behalf of or used or referred to by an issuer or an offering participant;

• the dissemination, in any format including publication or broadcast, of any free

writing prospectus (including any published article, publication, or advertisement)

for which

{ consideration is or will be given by the issuer or an offering participant; or

{ Securities Act Section 17(b) requires disclosure of a payment made or

consideration given by an issuer or other offering participant; or

• a paid published or broadcast advertisement by an issuer or offering participant.

Once the required statutory prospectus is provided to an investor, additional free

writing prospectuses can be provided to that investor without having to provide an

additional statutory prospectus, unless there is a material change in the most recent

statutory prospectus from the provided prospectus.244 For example, once an investor has

243 See the discussion below regarding the treatment of media publications. See

Section III.D.3 below under “Media Publications and Broadcasts.”

244 If there are material changes in a preliminary prospectus, or preliminary

105

been sent a preliminary prospectus, absent a material change, the Rule permits

subsequent e-mail communications to that investor by an offering participant that

constitute free writing prospectuses without the user having to hyperlink to or otherwise

redeliver a statutory prospectus with each communication. After effectiveness and

availability of a final prospectus meeting the requirements of Securities Act Section

10(a), no earlier statutory prospectus may be provided, and such final prospectus, as

revised or supplemented, must precede or accompany any free writing prospectus

provided after such availability, whether or not an earlier statutory prospectus has been

previously provided to the recipient.245

(b) Prospectus Availability Condition for Seasoned Issuers and

Well-Known Seasoned Issuers

In offerings of securities of eligible seasoned issuers (including asset-backed

issuers eligible to use Form S-3) and eligible well-known seasoned issuers, we are

adopting as proposed the provision that these issuers and other offering participants in

their offerings can use a free writing prospectus after the filing of a registration statement

containing a statutory prospectus.246 For shelf offerings, this statutory prospectus can be

prospectus supplement, the issuer and offering participants generally will

recirculate the revised preliminary prospectus or supplement to potential

purchasers.

245 If a final prospectus is given or sent prior to or with a written offer, under the

exception in clause (a) of Securities Act Section 2(a)(10), the written offer is not a

prospectus and therefore will not be a free writing prospectus and Rules 164 and

433 will not apply.

246 Under Rule 433 as adopted, the following offerings are included in this category:

(a) offerings of securities registered on Form S-3 pursuant to General Instruction

I.B.1, I.B.2, I.B.5, I.C., or I.D. thereof;

(b) offerings of securities registered on Form F-3 pursuant to General Instruction

I.A.5, I.B.1, I.B.2,, or I.C thereof;

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a base prospectus.247 For offerings of securities of eligible seasoned issuers (including

eligible well-known seasoned issuers), the Rule does not condition use of the free writing

prospectus on actual delivery of the most recent statutory prospectus. Instead, the user of

the free writing prospectus must notify the recipient, through a required legend, of the

filing of the registration statement and the URL for our web site where the recipient can

access or hyperlink to the preliminary or base prospectus. The Rule as adopted permits

the use of a generic rather than an issuer-specific legend. The legend must contain a toll-

free telephone number, and may contain an e-mail address, through which the statutory

prospectus may be requested.248

Some commenters believed that the requirement that a statutory prospectus

precede or accompany a free writing prospectus in offerings of securities of non-reporting

or unseasoned issuers should be able to be accomplished by the availability of the

well-known seasoned issuer; and

(d) any other offering not excluded from reliance on Rule 164 and Rule 433 of an

issuer eligible to use Form S-3 or Form F-3 for primary offerings pursuant to

General Instruction I.B.1 of such forms.

247 See Rule 430B, described in Section V.B.1 below, which is intended, among

other things, to locate within one rule the information requirements for a base

prospectus in a shelf registration statement.

248 In the event that a well-known seasoned issuer does not have a registration

statement on file, Rule 163 provides that an eligible well-known seasoned issuer’s

written offers are exempt from Section 5(c). While it will be exempt from the

requirements of Section 5(c), a written offer made under the exemption in Rule

163 will fall within our definition of “free writing prospectus.” Rule 163

conditions the Section 5(c) exemption for that free writing prospectus on the

satisfaction of the conditions in Rule 163 including filing and legend conditions.

As discussed above, the filing conditions of Rule 163 apply only if a registration

statement is filed and otherwise are largely determined by those set forth under

Rule 433 if the communication was a free writing prospectus used after filing a

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prospectus on our Electronic Data Gathering, Analysis, and Retrieval system

(“EDGAR”),249 while others thought it should be limited only to non-reporting

companies engaging in their initial public offerings250 or that there should be cure

provisions for failure to provide timely a statutory prospectus.251 We do not believe that

it is appropriate at this time to have access or filing of a registration statement on

EDGAR satisfy this delivery obligation for statutory prospectuses in all cases. In

addition, as we note above, we believe that investors should have the statutory prospectus

for unseasoned issuers when they evaluate free writing prospectuses involving offerings

of securities of such issuers.

(2) Information in a Free Writing Prospectus

(a) Information Conditions

We are adopting substantially as proposed the provisions that will permit a free

writing prospectus meeting the conditions of Rule 433 to be a Section 10(b) prospectus

without having line-item disclosure requirements or otherwise requiring that the free

writing prospectus contain any particular information, other than the legend. The Rule

permits information in a free writing prospectus to go beyond information the substance

of which is contained in the prospectus included in the registration statement. However,

the information in the free writing prospectus must not conflict with the information in

the registration statement, including Exchange Act reports incorporated by reference into

the registration statement. We believe that exempting free writing prospectuses meeting

registration statement.

249 See, e.g., letters from ABA; Alston; and Cleary.

250 See, e.g., letters from NYSBA and S & C.

251 See, e.g., letters from ABA; Cleary; Merrill Lynch; S & C; and SIA.

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the conditions of Rule 433 from limitations on any particular content should not diminish

investor protection. In that regard, we believe that the liability provisions applicable to

free writing prospectuses, particularly Securities Act Section 12(a)(2) and the anti-fraud

provisions of the federal securities laws, provide protection against material

misstatements in and material omissions from information contained in such free writing

prospectus.

Although the proposal stated that the information in the free writing prospectus

did not have to be in the registration statement, some commenters requested further

clarification of the proposed condition that the free writing prospectus cannot contain

information that is “inconsistent” with the information in the prospectus filed as part of

the registration statement.252 In revising the provision to preclude information that

“conflicts” with that in the registration statement, we have clarified that information in

the free writing prospectus may be different from or additional or supplemental to that in

the registration statement, so long as it does not “conflict” with the latter.

Commenters requested clarification as to how information in the free writing

prospectus would be treated in relation to other information that was filed with us or was

otherwise publicly available.253 Commenters believed that liability for free writing

prospectuses should not be considered in isolation but should take into account other

information that is conveyed for purposes of the total mix of information available.254

Free writing prospectuses may incorporate or refer investors to other information, so that

252 See, e.g., letters from ABA; Merrill Lynch; and S & C.

253 See, e.g., letters from ABA; Citigroup; Cleary; CSFB; Davis Polk; Deloitte;

Goldman, Sachs & Co. (“Goldman Sachs”); ICI; Morgan Stanley; and SIA.

254 Id.

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investors will be advised to consider the information presented in the free writing

prospectus in context. We note that the legend that must be included in a free writing

prospectus will direct investors to the filed prospectus contained in the registration

statement. As we discuss below, a free writing prospectus cannot include language that

deems an investor to have read or have knowledge of or rely on the content of other

documents incorporated in or referred to in the free writing prospectus. Whether such

other information is conveyed to the investor will be determined based on the facts and

circumstances.255

Treating a free writing prospectus satisfying the conditions of Rule 433 as a

Section 10(b) prospectus provides for additional continuing Commission oversight and

enforcement authority over the contents and use of the free writing prospectus. As we

discussed in the Proposing Release, we will retain the ability to halt the use of any

materially false or misleading free writing prospectus in accordance with Section 10(b).

Under the amendments to Securities Act Rule 418 we are adopting today, our staff will

be able to request any free writing prospectus that has been used in connection with a

securities offering.

(b) Amendment to Rule 408

Finally, we are amending Securities Act Rule 408 as proposed to make clear that

not including information that is included in a free writing prospectus in a prospectus

filed as part of a registration statement will not, solely by virtue of inclusion of the

information in a free writing prospectus, be considered an omission of material

information required to be included in the registration statement.

255 See, e.g., Starr v. Georgeson Shareholder, Inc., 2005 U.S. App. LEXIS 11250 (2d

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(i) Discussion

We are not adopting any content requirement for free writing prospectuses other

than to condition the use of a free writing prospectus on inclusion of a legend indicating

where a prospectus is available for the offering to which the communication relates and

recommending that potential investors read the prospectus (including Exchange Act

documents incorporated by reference).256 In addition, the legend also advises investors

that they can obtain the registration statement including the prospectus and any

incorporated Exchange Act documents for free through the Commission’s web site at

www.sec.gov, and that they may request the prospectus from the issuer, any underwriter

or any dealer by calling a toll-free number.257 The legend also indicates that the free

writing prospectus relates to a registered public offering. As suggested by commenters,

we are adopting a generic, rather than issuer-specific legend condition.258 We believe

this modification should assist issuers and offering participants in including a legend in a

free writing prospectus without much added cost.259

Cir. 2005).

256 See Rule 433(c). We have eliminated any issuer-specific information as well as

the reference to risk factors.

257 Rules 163 and 433 permit offering participants to include an e-mail address at

which the documents can be requested, a statement that the documents are

available on the issuer’s web site, and the Internet address and particular location

where the documents can be found.

258 See, e.g., letters from Citigroup; Cleary; CSFB; Morgan Stanley; S & C; and SIA.

259 For example, a single toll-free telephone number could be used to request a copy

of the prospectus.

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(ii) Cure for Unintentional or Immaterial Failure to Include a Legend

Rule 164 permits a user to cure an unintentional or immaterial failure to include

the specified legend in any free writing prospectus, as long as a good faith and reasonable

effort is made to comply with the condition and the free writing prospectus is amended to

include the specified legend as soon as practicable after discovery of the omitted or

incorrect legend.260 In addition, if a free writing prospectus has been transmitted to

potential investors without the specified legend, the free writing prospectus must be

retransmitted, with the appropriate legend by substantially the same means as and

directed to substantially the same investors to whom it was originally transmitted.261

The legend condition is intended to identify more clearly materials as free writing

prospectuses used in relation to a registered offering. We believe that this legend will put

investors on notice and assist them in evaluating the content of the free writing

prospectus.

(iii) Impermissible Legends or Disclaimers

As we discussed in the Proposing Release, we understand that issuers or other

users of written communications may sometimes include legends or disclaimers in

offering materials that may be inappropriate. In particular, disclaimers of responsibility

260 See Rule 164(c).

261 Rule 163 contains similar cure provisions. Some commenters were concerned

that the cure provision would require the redelivery of the free writing prospectus

with the correct legend to all potential purchasers. See letters from ABA and

Fried Frank. While the proposal did not require that the free writing prospectus

be delivered to all potential purchasers, we have revised the language to clarify

that the free writing prospectus with the specified legend must be retransmitted by

substantially the same means as and directed to substantially the same prospective

purchasers to whom it was originally transmitted. For example, if a free writing

prospectus without a legend was sent by e-mail to a distribution list, it would have

to be retransmitted with the specified legend by e-mail to the same distribution

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or liability that are impermissible in a statutory prospectus or registration statement also

are impermissible in free writing prospectuses. Examples of impermissible legends or

disclaimers, which are not exclusive, that will cause the materials not to be permissible

free writing prospectuses or not to be effective as to any purchaser for liability purposes

include:

• disclaimers regarding accuracy or completeness or reliance by investors;

• statements requiring investors to read or acknowledge that they have read or

understand the registration statement or any disclaimers or legends;

• language indicating that the communication is neither a prospectus nor an offer to

sell or a solicitation or an offer to buy; and

• for information that must be filed with us, statements that the information is

confidential.262

(3) Filing Conditions

(a) General Conditions

(i) Scope of General Conditions

We are adopting substantially as proposed the provisions conditioning use of a

free writing prospectus on the filing of that prospectus or information contained in that

prospectus,263 unless exempt from filing, in the following circumstances:264

list.

262 Language indicating that the material is not a prospectus or offer would make the

material not a permitted prospectus allowed pursuant to Rule 164 and thus

preclude reliance on Rules 164 and 433. See also the Asset-Backed Securities

Adopting Release., note 82, at III.C.1.d.

263 See Rule 433(d). Under Rule 433, Rule 134 notices and Rule 135 notices are not

considered free writing prospectuses and, therefore, are not subject to the

conditions to use in the Rule. This differs from Securities Act Rule 425, which is

applicable to business combination transactions and covers all communications,

including Rule 135 notices.

264 Under Rule 433, electronic road shows that are written communications are not

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• where a free writing prospectus is prepared by or on behalf of, or used or referred

to by, the issuer, known as an “issuer free writing prospectus,” the issuer shall file

that free-writing prospectus;

• where a free writing prospectus prepared by or on behalf of or used by an offering

participant other than the issuer contains material information about the issuer or

its securities that has been provided by or on behalf of an issuer, known as “issuer

information,” that is not already included or incorporated in the prospectus or a

filed free writing prospectus, the issuer shall file the issuer information;265

• where a free writing prospectus used or referred to by an offering participant other

than the issuer is distributed by or on behalf of such offering participant in a

manner reasonably designed to lead to its broad unrestricted dissemination, the

offering participant shall file the free writing prospectus; and

• where a free writing prospectus or portion thereof prepared by or on behalf of the

issuer or other offering participant comprises a description of the final terms of

the issuer’s securities in the offering or of the offering, the issuer must file such

free writing prospectus or portion thereof after such terms have been established

for all classes of the offering.266

In most cases, there is no condition that underwriters and dealers file the free

writing prospectuses that they prepare, use, or refer to. This includes information

prepared by underwriters and others on the basis of or derived from, but not containing,

issuer information. Such information can be, but is not limited to, information that is

proprietary to the preparer.

subject to the filing condition in certain circumstances. See Section III.D.3 below

under “Electronic Road Shows.”

265 This condition only provides that the issuer information contained in the offering

participant’s free writing prospectus be filed, not necessarily the free writing

prospectus itself. In addition, this condition does not apply where a free writing

prospectus prepared by or on behalf of an offering participant, other than the

issuer, contains information prepared on the basis of or derived from issuer

information but not issuer information.

266 The description of the final terms of the issuer’s securities and of the offering will

either be contained in an issuer free writing prospectus or, if contained in another

party’s free writing prospectus, will be issuer information.

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We are adopting as proposed the exception to the general principle that

underwriter free writing prospectuses do not need to be filed where a free writing

prospectus is used or referred to by and distributed by or on behalf of an offering

participant, other than the issuer, in a manner that is reasonably designed to lead to its

broad unrestricted dissemination. Accordingly, such use of a free writing prospectus is

conditioned on such person filing the free writing prospectus on or before the date of first

use. For example, the filing condition applies where:

• an underwriter includes a free writing prospectus on an unrestricted web site or

hyperlinks from an unrestricted web site to information that would be a free

writing prospectus;267 or

• an underwriter sends out a press release regarding the issuer or the offering that is

a free writing prospectus.

Offering participants include selling security holders. A selling security holder

who is unaffiliated with the issuer and who uses a free writing prospectus is treated for

purposes of Rule 164 and Rule 433 as any other offering participant who may be an

underwriter of the issuer’s securities. If the selling security holder is an affiliate of the

issuer and the selling security holder prepares, uses, or refers to a free writing prospectus,

it should consider, in addition to underwriter status, whether it is acting by or on behalf of

the issuer. Further, the issuer and such affiliated selling security holder should evaluate

whether the selling security holder has access to material information about the issuer and

whether it is including such material issuer information in that free writing prospectus.268

267 Conversely, a web site with access restricted to customers or a subset of

customers will not require filing, nor will an e-mail by an underwriter to its

customers, regardless of the number of customers.

268 While an unaffiliated selling security holder could, depending on the facts and

circumstances, be acting on behalf of an issuer or have access to material

information about the issuer, those situations would be more likely to arise with

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(ii) Conditions Specific to Final Terms of the Securities or Offering

We also have adopted with modifications the provision that a description of the

final terms of the securities in the offering or of the offering contained in a free writing

prospectus must be filed by the issuer, regardless of whether it was prepared by or on

behalf of the issuer or other offering participant prepared or used it. As modified, the

provision applies to final terms of the securities in the offering and of the offering,

whether or not they are the only matters included in the free writing prospectus. Terms

are required to be filed only if they reflect the final terms of the securities or of the

offering. The issuer has to file the description of the terms contained in the free writing

prospectus within two days after the later of the date such terms became final for all

classes of the offering or the date of first use.269 We believe this filing condition is

appropriate for the final terms of a security or offering contained in a free writing

prospectus. Preliminary term sheets and other descriptive material containing only the

terms of the securities or the offering that do not reflect final terms of securities or

transactions are not subject to filing. All such written offering materials, whether or not

filed, are, however, free writing prospectuses. As we note above, we have revised the

Rule as adopted to permit most issuers, whether or not ineligible issuers, to use free

writing prospectuses that consist only of descriptions of the terms of the issuer’s

securities in the offering or of the offering.270

affiliates.

269 This is essentially the same timing for filing for final term sheets as we adopted

for asset-backed securities. The filing condition under this provision of Rule 433

will not be satisfied by the timely filing of a prospectus supplement under Rule

424.

270 The issuers who are not permitted to use these free writing prospectuses are

issuers who are, or during the prior three years were or any of their predecessors

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(iii) Asset-Backed Issuers

Asset-backed issuers and other parties to asset-backed transactions specified in

Rule 167(c) potentially have two sets of rules on which they may rely in using written

offering materials. Under the special rules for asset-backed securities we adopted in

December 2004, if the offering is registered on Form S-3, these persons may use ABS

informational and computation materials as defined in Item 1101 of Regulation AB as

permitted by Rule 167 and Rule 426. Rule 426 in particular includes filing conditions for

the use of such materials using a Form 8-K. The filed materials become part of the

registration statement for the offering of asset-backed securities in question.

These persons may also use free writing prospectuses as permitted by Rules 164

and 433 that we are adopting today. Use of free writing prospectuses is not limited to

offerings registered on Form S-3. Free writing prospectuses are prospectuses subject to

the provisions of Section 12(a)(2) of the Securities Act but are not filed as part of or

included in the registration statement. The contents of free writing prospectuses are not

limited to ABS informational and computational materials. Rule 433 requires filing by

issuers of free writing prospectuses prepared by or on behalf of or used or referred to by,

issuers or, depositors, sponsors, servicers, or affiliated depositors, whether or not the

issuer, but not by underwriters or dealers, unless they contain issuer information or are

distributed in a manner reasonably designed to lead to its broad unrestricted

were, blank check companies, shell companies (other than business combination

related shell companies), and penny stock issuers. Issuers registering business

combination transactions also may not use these free writing prospectuses.

Registered investment companies and business development companies may not

use these descriptions as free writing prospectuses.

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dissemination. Issuers also must file issuer information contained in other free writing

prospectuses.271

271 In the case of asset-backed issuers certain information comprehended within the

definition of ABS informational and computational material is analogous to the

terms of securities and is therefore issuer information. For example, we would

expect that the following categories of such material, which are derived from the

definition of ABS informational and computational materials, are generally issuer

information:

(1) factual information regarding the asset-backed securities being offered and

the structure and basic parameters of the securities, such as the number of classes,

seniority, payment priorities, terms of payment, the tax, ERISA or other legal

conclusions of counsel, and descriptive information relating to each class (e.g.,

principal amount, coupon, minimum denomination, price or anticipated price,

yield, weighted average life, credit enhancements, anticipated ratings, and other

similar information relating to the proposed structure of the offering);

(2) factual information regarding the pool assets underlying the asset-backed

securities, including origination, acquisition and pool selection criteria,

information regarding any prefunding or revolving period applicable to the

offering, information regarding significant obligors, data regarding the contractual

and related characteristics of the underlying pool assets (e.g., weighted average

coupon, weighted average maturity, delinquency and loss information and

geographic distribution) and other factual information concerning the parameters

of the asset pool appropriate to the nature of the underlying assets, such as the

type of assets comprising the pool and the programs under which the loans were

originated;

(3) identification of key parties to the transaction, such as servicers, trustees,

depositors, sponsors, originators and providers of credit enhancement or other

support, including information about any such party;

(4) static pool data, as referenced in Item 1105 of Regulation AB [17 CFR

229.1105], such as for the sponsor's and/or servicer's portfolio, prior transactions

or the asset pool itself; and

(5) to the extent that the information is provided by the issuer, depositor,

affiliated depositor, or sponsor, statistical information displaying for a particular

class of asset-backed securities the yield, average life, expected maturity, interest

rate sensitivity, cash flow characteristics, total rate of return, option adjusted

spread or other financial or statistical information relating to the class or classes

under specified prepayment, interest rate, loss or other hypothetical scenarios.

(Where such information is prepared by an underwriter or dealer, it is not issuer

information, even when derived from issuer information.)

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Under Rule 426, filing is required for ABS informational and computational

materials provided to prospective investors after final terms of all classes of securities in

the offering have been established. Filing also is required of such materials relating to a

class of securities, whether or not final terms of all classes had been established, as to

which a prospective investor had indicated an interest. Filing is required by the later of

the due date for filing the final prospectus with us under Rule 424(b) or two days after the

date of first use.

Under Rule 433, the issuer must file a free writing prospectus or portion thereof

comprising a description of final terms of securities in the offering or of the offering

within two days after the later of the date final terms have been established for all classes

of the offering or the date of first use. Filing is not required of descriptions of securities

or of the offering that do not reflect final terms, even if a prospective investor had

indicated an interest.

Under Rule 164, ineligible issuers may not use free writing prospectuses, except

that most categories of ineligible issuers may use free writing prospectuses comprising

only descriptions of terms of securities and offerings. Rule 164 provides that for

offerings of asset-backed securities, ineligible issuers may use free writing prospectuses

limited to certain categories of ABS informational and computational materials.272 There

272 In asset-backed offerings by ineligible issuers, free writing prospectuses used by

ineligible issuers are limited to the following information:

(1) factual information regarding the asset-backed securities being offered and

the structure and basic parameters of the securities, such as the number of classes,

seniority, payment priorities, terms of payment, the tax, ERISA or other legal

conclusions of counsel, and descriptive information relating to each class (e.g.,

principal amount, coupon, minimum denomination, anticipated price, yield,

weighted average life, credit enhancements, anticipated ratings, and other similar

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is no such ineligible issuer restriction on the use of ABS informational and computational

materials under Rules 167 and 426.

To coordinate the operation of the two available approaches to use of written

offering communications, Rule 433 as adopted today provides that a free writing

prospectus or portion thereof required to be filed under Rule 433 containing only ABS

informational and computational materials, as defined in Item 1101(a) of Regulation AB,

information relating to the proposed structure of the offering);