SEC Release 33-6235

Release No. 33-6235

Release No. IC-11327

September 2, 1980

PROPOSED COMPREHENSIVE REVISION TO SYSTEM FOR REGISTRATION OF SECURITIES OFFERINGS

ACTION: Proposed rulemaking.

SUMMARY: The Commission is publishing for comment three proposed new forms to be used to register offerings of securities under the Securities Act of 1933. This action represents another major step in the Commissions efforts to integrate the disclosure systems under the various federal securities laws and to simplify and streamline the disclosure requirements imposed under those systems. The three new forms proposed today would constitute the basic disclosure document format for most Securities Act registration, with different levels of disclosure and delivery requirements applicable for different levels of companies registering offerings of securities.

DATE: Comments should be submitted on or before January 15, 1981.

ADDRESSES: Comments should be submitted in triplicate to George A. Fitzsimmons, Secretary, Securities and Exchange Commission, 500 North Capitol Street, Washington, D.C. 20549. Comment letters should refer to File No. S7-849. All comments received will be available for public inspection and copying in the Commissions Public Reference Room, 1100 L Street N.W., Washington, D.C. 20549.

FOR FURTHER INFORMATION CONTACT: Mary Margaret W. Hammond (202) 272-3059, Bruce S. Mendelsohn (202) 272-2589, or Catherine Collins McCoy (202) 272-2589, Office of Disclosure Policy, Division of Corporation Finance, Securities and Exchange Commission, 500 North Capitol Street, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing three new registration statement forms to be used to register offerings of securities under the Securities Act of 1933 (the "Securities Act") 15 U.S.C. 77a et seq.. These three forms, denominated Forms A, B and C for proposal purposes, would replace the most widely used existing registration statement forms and would constitute the basic framework for Securities Act registration. ¹

This proposal should be considered together with a number of final rulemaking actions also announced today. Those actions are: (1) the adoption of amendments to Form 10-K (17 CFR 249.310), Rule 14a-3 (17 CFR 240.14a-3), and Regulation S-K (17 CFR 229.20) to reduce certain regulatory burdens thereunder and to facilitate the integration of disclosure systems; (2) the adoption of amendments to Regulation S-X (17 CFR Part 210) to establish uniform financial statement instructions for certain forms and reports required to be filed pursuant to the Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act") 15 U.S.C. 78a et seq.; (3) the adoption of amendments to Regulation S-X to eliminate, to the extent possible, the differences between the requirements of that regulation and the requirements of generally accepted accounting principles ("GAAP"); and (4) the adoption of Form S-15 (17 CFR 239.29), a new simplified form for the registration of securities issued in certain types of business combination transactions. These four rulemaking actions (Securities Act Release Nos. 6231, 6232, 6233, and 6234, respectively, September 2, 1980) were published for comment in January 1980 ² and constituted a major effort to achieve a simplified and integrated disclosure system. The new Securities Act registration framework being proposed today builds up that effort and implements its objectives for simplifying and streamlining Securities Act disclosure requirements.

The framework contemplates dividing issuers into three categories. ³ The category to which an issuer belongs would determine the extent to which previously disseminated information would also be required to be presented in the prospectus or otherwise delivered to potential investors. Because of its prior impact on the market and to ensure its accuracy, information not actually delivered would be incorporated by reference.

Proposed Forms A, B, and C are designed to work as a coordinated system using standard disclosure requirements for the registration of securities under the Securities Act. ⁴ Form A, which is analogous to existing Form S-16 and is to be used by companies widely followed by the market, serves as the initial repository of the uniform disclosure item requirements. In this respect, Forms B and C refer to Form A for much of their content. Form A itself calls for very little prospectus disclosure and would primarily entail incorporation by reference from Exchange Act information. Form B provides an option to allow companies to incorporate certain information and either to deliver the annual report to security holders or to present substantially equivalent disclosure in the prospectus. Form C is a streamlined Form S-1 and provides for very little incorporation by reference.

The proposed three forms represent a detailed implementation of the approach adumbrated by the Commission in January. The Commission believes that the new Securities Act system which would be implemented by adoption of the forms should reduce unnecessary costs and burdens of registration to issuers without attendant losses in the quality of information flowing to investors. By taking advantage of existing, high quality Exchange Act disclosure documents wherever possible, the approach embodied in these proposed Securities Act forms integrates the disclosure systems under the two Acts. By eliminating unnecessary disclosure items and by making those retained uniform wherever possible, these proposed forms should greatly simplify registration of securities under the Securities Act.

This release contains a general discussion of the fundamental questions integration poses; the legislative and administrative background of the integration proposals published today; and the current characteristics of the securities markets and of the technology of information dissemination which also contributed to shape the proposals. This introductory discussion is followed by a detailed synopsis of the proposed forms to assist in a better understanding of their provisions.

I. Integration

The Commissions integration program involves a comprehensive evaluation of the disclosure policies and procedures underlying the Securities Act of 1933 and the Securities Exchange Act of 1934 with a view toward integrating the information systems under those Acts so that investors and the marketplace are provided meaningful, non-duplicative information periodically and when securities are sold to the public, while the costs of compliance for public companies are decreased.

The shape of the program will be influenced by the answers to two fundamental questions:

(1) What information is material to investment decisions in the context of public offerings of securities; and

(2) Under what circumstances and in what form should such material information be disseminated and made available by companies making public offerings of securities to the various participants in the capital market system?

The task of identifying what information is material to investment and voting decisions is a continuing one in the field of securities regulation. Integration, as a concept, involves a conclusion as to equivalency between transactional (Securities Act) and periodic (Exchange Act) reporting. If a subject matter is material information (other than a description of the transaction itself), then it will be material both in the distribution of securities and to the trading markets. Moreover, requirements governing the description of such subject matters should be the same for both purposes. As an example, if a managements discussion of the financial statements is important for transactions involving distributions, then it would also be equally important for an informed trading market. Thus, both prospectuses and periodic reports should take this information into account. Also, the requirements for its content should be essentially the same. This principle of equivalency has led to the development and expansion of Regulation S-K, a technical device designed to state in one place uniform requirements which both Securities Act and Exchange Act items incorporate by reference. It also has led to increasing the quality of reports under the Exchange Act, a trend that started in 1970 when Form 10 was amended. ⁵

Integration consists, however, of more than just the notion of equivalency of reportable material information under both Acts. It involves answers to the second question posed above: Under what circumstances and to whom should this information be made available? Equivalency alone might be read to suggest that all the information contained, for example, in a Form 10-K should also be reiterated in all prospectuses.

However, the concept of integration also proceeds from the observation that information is regularly being furnished to the market through periodic reports under the Exchange Act. This information is evaluated by professional analysts and other sophisticated users, is available to the financial press and is obtainable by any other person who seeks it for free or at nominal cost. To the extent that the market accordingly acts efficiently, and this information is adequately reflected in the price of a registrants outstanding securities, there seems little need to reiterate this information in a prospectus in the context of a distribution. The fact of market availability of information for sophisticated users also allows the exploration of other values in addition to cost reductions afforded through non-duplication: in particular, readability and effective communication in specific contexts.

Set forth below as additional background information for these proposals is a review of the evolution of the Securities Act and the Exchange Act, the nature of and participants in the securities marketplace, and recent technological advances.

A. Background

1. The Law

The Securities Act and the Exchange Act were enacted as separate legislation and in response to different needs. The Securities Act was intended to prevent frauds in the sale of securities by providing full and fair disclosure in the context of public offerings of securities. ⁶ The Exchange Act was enacted to regulate brokers and dealers and securities markets. ⁷ The disclosure framework of the Exchange Act contemplated in 1934 pertained primarily to classes of securities traded on stock exchanges. While both statutes were designed to provide disclosure to investors and the marketplace, the framework of the Securities Act was transaction oriented, i.e., the focus was upon the public offering of securities by any company. The framework of the Exchange Act was status oriented, i.e., the focus was upon issuers with a class of securities listed and traded on an exchange. Also, the two frameworks operated independently. Information required in the Securities Act context was not modified because of the existence of Exchange Act reporting and was only triggered by public offerings at varying times.

While the disparate orientations of the two statutes still exist, the gap between the disclosure frameworks has significantly narrowed since 1934. In 1936, Section 15(d) was added to the Exchange Act to provide that under certain circumstances the continuing reporting system would apply to unlisted companies with respect to classes of their securities for which a registration statement had become effective under the Securities Act. Thus, Section 15(d) expanded investor protection under the Exchange Act to the over-the-counter market, but only on a fragmentary basis.

The disparity between Exchange Act disclosure requirements for listed and unlisted classes of securities was not resolved until the passage of the Securities Acts Amendments of 1964 ⁸ which brought many more companies into the continuous reporting system of the Exchange Act. ⁹ With the passage of Section 15(d) and the 1964 amendments, all issuers of a certain size and issuers with certain characteristics selling securities to the public pursuant to an effective registration statement were subjected to the registration and reporting obligations of the Exchange Act. ¹⁰ It is estimated that over 9,000 companies are now required to file periodic reports under the Exchange Act.

These amendments not only closed a gap under the Exchange Act, but also narrowed the gap between the disclosure framework under the Securities Act--information concerning the issuer and the transaction given only in the context of the public offering--and that under the Exchange Act--continuous disclosure about the issuer. Milton Cohen, a principal advocate of the concept of integration, opined that the disclosure frameworks under the Acts would have been quite different--and perhaps more congruent--if they "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 disclosure in connection with public offerings had then been faced in this setting." ¹¹ In large part, the Commissions efforts will attempt to redress this legislative anomaly by establishing an integrated system of disclosure which will provide investor protection both in public offerings and in the securities markets, at a minimum burden to public companies.

2. Nature of the Securities Markets

The basic issues relating to Securities Act disclosure, i.e., the type of information that should be available and the dissemination of that information, must also be considered in light of the composition of todays markets. The participants in the markets, and therefore the users of the information made available to the markets, are varied and have correspondingly varied needs. They include the professional analyst, the institutional investor, the financial press, and the individual investor.

The professional analysts, widespread throughout the country, constantly digest and synthesize market and company-specific information. These professionals use, and often implore the Commission to require, increasingly complex and sophisticated information. The influx of institutional investors, and their financial advisors, also contributes to the constituency for technical but important statistical data. To a large extent, these professionals act as essential conduits in the flow of information to the ordinary investor and as intermediaries acting on behalf of participants in collective investment media.

In addition, this country has a uniquely active and responsive financial press which facilitates the broad dissemination of highly timely and material company-oriented information to a vast readership. The information needs of the individual investor must be considered in this context, recognizing that information reaches the individual investor through both direct and indirect routes. ¹²

It is incumbent upon the Commission to consider the entire community of users of company information in developing the proposed system and its model information package and to maintain a balance between the needs of the more and less sophisticated users.

3. Technological Advances

The instant proposals are also evidence of an awareness by the Commission of the increasingly easy availability of Exchange Act information through improved technological means. Computerization and electronics are progressing to such a level that information necessary to trading markets is becoming available on a timely and inexpensive basis. Additionally, a large volume of such information can be synthesized, analyzed and presented quickly and in almost any format desired by the user.

The system of public dissemination of Exchange Act information has improved dramatically in recent years. The Commission now employs an outside contractor to microfiche all filed reports. This microfiche is produced not only for the Commissions use, but also for the subscribers include individual and institutional investors, law firms, corporations and other specialized financial research services. The microfiche covers the entire Exchange Act reporting system, is becoming more timely, and is relatively inexpensive. Should subscribers wish to extract only certain financial data or information regarding insiders or litigation, for instance, they may also subscribe to on-line computer data base systems which will provide such information. Financial research services break down this acquired information into a myriad array of informational matrices depending upon either the purposes of the users research or the ultimate users needs. Also developed in the last few years are magnetic tape systems which will extract numerous data items on a particular company and provide the user with a long-term historic view of such company by carrying this information back five to twenty years. The services bureaus which buy and sell Exchange Act information, either directly from the Commissions contractor or through other information providers, furnish the market with sophisticated research which is further disseminated to broker dealers and investment advisers and through them, to the public at large.

B. Materiality of Disclosure Under the Securities Act

As noted above, the determination of what information is material to an investment decision in the context of a public offering is a critical question in establishing an integrated system of disclosure. Prior to the adoption of Regulation S-K (17 CFR 229.20) in December, 1977, there were disparate informational requirements between Securities Act registration forms and Exchange Act reporting forms. Regulation S-K reflects the perception of equivalency discussed above--that information necessary for investment or voting decisions (other than that relating to the transaction itself) should be similar for distribution and for trading markets. With that acknowledgement, the Commission is in a position to develop what information is material, then to shift to determine under what circumstances this information must be reiterated in a prospectus.

Regulation S-K has been designed as the repository for the Commissions requirements for standard and integrated disclosure requirements. In December 1977, the Commission adopted Items 1 and 2 of Regulation S-K, the first significant steps in achieving standard disclosure under both Acts. ¹³ In the following year, Items 3 through 6 were added as an express response to the suggestions of the Advisory Committee. ¹⁴ The Regulation represented the first step in the definition of that company information which is material to an investment or voting decision, whether that decision is under the purview of the Securities Act or the Exchange Act. Accordingly, the multiplication of disclosure item requirements in Regulation S-K is a recognized prerequisite to full integration of the registration and reporting requirements under the two Acts. Consequently, in addition to the present Regulation S-K items pertaining to disclosures regarding an issuers business, property, directors and executive officers, their remuneration and security ownership, and legal proceedings, the Commission has adopted six more item requirements. ¹⁵ These new items will ensure uniform disclosure under both Acts of information regarding market price of the issuers common stock, selected financial data, managements discussion and analysis of the issuers financial condition, supplementary financial information, and exhibits. It is anticipated that Regulation S-K will develop in time to encompass further disclosure requirements.

C. Dissemination and Availability of Disclosure

The second major issue, concerning under what circumstances and to whom the various elements of the disclosure package should be made available, has been addressed to some extent during the promulgation and subsequent amendments of Forms S-7, S-16, S-8, S-14, and S-15. ¹⁶ The goals of the Commission in this area have been to: (1) avoid duplicative disclosure wherever possible; (2) provide appropriate information for each type of market participant; and (3) foster readability and effective communication wherever possible. Duplicative disclosure stems from similar requirements imposed on registrants when they sell securities to the public, file periodic reports, or solicit proxies. All of these requirements seek to enhance the flow of company-specific disclosure within different, but not mutually exclusive, arenas and at different times. In many cases, the ability to take advantage of prior disclosure is increasingly attractive.

An early step towards examining Securities Act disclosure requirements, taking into consideration the availability of similar information as a result of Exchange Act reporting, was taken in 1967 when Form S-7 was adopted. ¹⁷ Form S-7 was envisioned as a simplified form for registration of securities to be offered for cash by companies subject to the reporting requirements of the Exchange Act and having long records of earnings and stability of management and business. ¹⁸ The benefits to be attained from such a shortened form and integration were expressed in terms of easing the burden on the issuer of preparing a registration statement and on the staff of processing it. ¹⁹ However, the rationale and benefits of a system of integrated disclosure were not thoroughly analyzed and discussed. Instead, the Commission took advantage of the occasion of Form S-7s adoption to announce a subsequent review of the Exchange Act requirements which was designed to improve both the quality and timeliness of reports filed under that Act.

The Wheat Report, which was the product of the Commissions study, strongly recommended closer coordination of Exchange Act and Securities Act disclosures. ²⁰ Many of the recommendations of the Report (including those related to registration of securities under the Securities Act) anticipated substantial improvement in Exchange Act reporting. Such improved Exchange Act reporting was suggested not only to better the information provided to the trading markets, but also to allow closer coordination between Securities Act and Exchange Act disclosures, resulting in the substitution of Exchange Act disclosure for information otherwise required in the Securities Act context. In the Studys view, the phrase "improvement in 1934 Act reporting, had at least three aspects: (1) more comprehensive reporting forms, (2) better administration and enforcement of requirements relating to the preparation and filing of such forms, and (3) better dissemination of the information contained in such forms." ²¹

Since the enactment of the 1964 amendments and the suggestion of the Wheat Report that the Exchange Act forms contain more comprehensive disclosure, the quantity and quality of information in the Exchange Act reports have increased significantly. For instance, in 1965 the basic form for registration of a class of securities pursuant to Section 12 of the Exchange Act, Form 10, required only a brief general description of the business of the registrant, its property, directors and officers, their remuneration, principal holders of the registrants securities, and other similar information. ²² Today Form 10 requires extensive detailed disclosure pertaining to these topics in compliance with the requirements in Items 1 through 6 of Regulation S-K. In addition to the broad expansion of these requirements with todays action, the Form also requires such information as selected financial data and an analysis of the registrants financial condition. ²³

Besides the expansion of disclosure requirements in pre-existing Exchange Act forms, the Commission also adopted another reporting form, Form 10-Q, for quarterly reports. ²⁴ The adoption of Form 10-Q keeps filed financial information regarding publicly-held companies more current. ²⁵

A further response implementing the recommendations of the Wheat Report was the adoption of Form S-16 in 1970. ²⁶ This registration statement form contains minimal prospectus disclosure and places more reliance on information reported under the Exchange Act by simply incorporating by reference Exchange Act documents containing otherwise required information into the registration statement, not by relying upon reiteration and delivery of such information to investors. The issuer is still responsible for such information as if it had been set forth in the prospectus, since the premise is that the existing stock price reflects that information. Initially, this new short form registration statement was limited in its use for the most part to secondary offerings of securities of issuers meeting the Form S-7 eligibility requirements.

The Commissions rulemaking efforts have also focused on the increased use and availability of annual reports to security holders. ²⁷ In 1974 minimum disclosure requirements were mandated in Rule 14a-3(b) (17 CFR 240.14a-3(b)) for annual reports to security holders which either accompanied or preceded the issuers solicitation of proxies for election of directors at an annual meeting of shareholders. At the time these amendments were adopted the Commission stated that "it is in the public interest that all security holders be provided with meaningful information regarding the business, management operations and financial position of the issuer and that the annual report to security holders is the most suitable vehicle presently available for providing this information." ²⁸ The Commission also adopted rules to improve the dissemination of the annual report. Thus, the Commission could be assured that the most successfully disseminated document contained some minimal information content. ²⁹

In 1976, the Commission continued its program to integrate and streamline disclosure under the two Acts in recognition of the improved quality of reports filed under the Exchange Act. Once again, the availability of Form S-7 was substantially broadened, both in terms of those issuers eligible to use it and those transactions for which it could be used. ³⁰ These amendments underscored the Commissions resolve toward simplification and integration and permitted the improved information reported pursuant to the requirements of the Exchange Act continuous disclosure system to be relied upon in lieu of Securities Act disclosure by a certain class of issuers.

At the same time that these amendments were adopted, the Commission published a concept release seeking public comments on the advisability of and methodology to be used in making Form S-16 available for certain primary offerings by a limited category of large companies. ³¹ The release focused on the selection of appropriate criteria for delimiting the availability of this abbreviated prospectus.

However, before the concept could be set forth in proposal form, the Commission received the report of the Advisory Committee on Corporate Disclosure. Like the study group which produced the Wheat Report, the Advisory Committee conditioned its support for further integration and its recommendations as to ways of achieving this goal on additional improvements in the quality and dissemination of disclosures in Exchange Act reports. ³² It also suggested that more staff emphasis be placed on review of Exchange Act reports. ³³

The Advisory Committee also made specific recommendations as to how the Commission could accomplish the goal of integration. It recommended that the Commission adopt a single integrated disclosure form which would contain all the disclosure requirements necessary to comply with the registration, reporting and proxy requirements of both Acts. ³⁴ For purposes of compliance with the Securities Act, it suggested that companies be divided into three levels. ³⁵ Such classification would be appropriately reflected in the integrated disclosure form. More specifically, the Advisory Committee recommended that Form S-16 be made available for primary offerings by the top level of companies, and that a short form registration statement with the Form S-16 type incorporation by reference feature be adopted for exchange offers or transactions subject to Rule 145(a) (17 CFR 230.145(a)) under the Securities Act. ³⁶

The rationale for this proposed system of integration was set forth as follows:

When a company is engaged in a public offering of its securities, the Committee believes that the necessity of providing information to offerees should vary with the type of company and the type of security involved, and the amount of information already available. Accordingly, it is the Committees view that a further integration of the 1933 and 1934 Acts, by means of substitution of 1934 Act filed information for that traditionally required in a statutory prospectus, could be effectuated by varying the particular combination of (1) the information comprising the registration statement; (2) the information delivered to offerees; and (3) the information available on request. ³⁷

This is basically the same rationale for the Securities Act disclosure system proposed for comment today.

The Commission responded to a specific recommendation of the Advisory Committee with the adoption in 1978 of amendments to Form S-16 which made it available to certain issuers for certain specified primary offerings. ³⁸ The benefits to be gained from an integrated system of disclosure were highlighted in the adopting release: reducing the cost of registration, and hence the costs of raising capital; facilitating timely access to the markets by issuers anxious to make public offerings; making Exchange Act reports more meaningful; and eliminating needless duplication which results in increased costs to investor. ³⁹ The Commissions proposing release stated that the expanded use of this abbreviated Form was considered appropriate only for those "transactions or issuers for which detailed disclosure in a registration statement is believed to be unnecessary for the protection of investors because of the wide availability of such information under other provisions of the federal securities acts." ⁴⁰ In this regard, the Commission believed that the additional standards it imposed for primary offerings followed the theory suggested by the Advisory Committee--that Form S-16 be available for the primary offerings of securities by a "small top tier of companies... which usually provide high quality corporate communication documents, including 1934 Act reports, and whose corporate information is widely disseminated" because "members of this class of registrants are widely followed by debt and equity analysts." ⁴¹ For example, an eligibility criterion was adopted providing that an issuer may register securities offered to the public in a primary offering on the Form if the aggregate market capitalization of its voting stock held by non-affiliates were $50 million or, if the issuer were a majority-owned subsidiary, its parent met this condition and fully guaranteed the securities. The origin of the $50 million standard was a report by the Financial Analysts Federation to the Advisory Committee concluding, among other things, that New York City-based brokerage firms, and especially institutions, generally follow companies having at least $50 million in market capitalization.

The Commissions action in expanding the availability of Form S-16 to primary offerings was premised on the interest of professionals in the securities industry in certain issuers. The theory relied on then, as now, is that the operation of todays markets is such that investors are protected by the markets analysis of information about certain companies which is widely-available, both from the Commissions files and other sources, and that such analysis is reflected in the price of the securities offered. Therefore, with companies whose shares are actively traded, disclosure to potential investors in a prospectus may be strictly limited to essential matters concerning the issuer and the offering without loss of investor protection or market efficiency. However, even though the registration statement is abbreviated, it should incorporate by reference the issuers Exchange Act information which otherwise would be included in the prospectus to ensure that the information previously furnished is accurate in all material respects. Thus, the system operates in an effective manner: interested investors have access to the detailed Exchange Act reports which generally confirm or supplement information previously in the market and all investors are presented with short, readable prospectuses.

D. The Proposals

The three proposed registration forms under the Securities Act attempt to address the two basic issues the Commission faces for Securities Act disclosure, identifying the necessary information package and determining how and to whom such information should be made directly available. The proposed system addresses these issues by dividing issuers into three classes. ⁴² The class or category to which an issuer belongs would determine what information would be required to be presented in the prospectus or otherwise delivered to potential investors, and what already-disseminated information could be relied on, by incorporation by reference, in place of actual delivery in or with the prospectus.

Proposed Forms A, B, and C are designed to work as a coordinated system. Using standard requirements wherever possible they will serve as the framework for the registration of securities under the Securities Act. Form A, as has been indicated, is analogous to existing Form S-16 and is to be used by companies widely followed by the market. Form B contemplates an option to allow companies to incorporate certain information and either to deliver the annual report to security holders or to provide substantially the same disclosure in the prospectus as is in the annual report. Form C is a streamlined Form S-1 and provides for minimal incorporation by reference. ⁴³

The system proposed today is designed to be consonant with the purpose of Regulation S-K: to foster uniform and integrated disclosure. Indeed, many of the specific disclosure requirements refer directly to items in Regulation S-K. ⁴⁴ Further, it is intended that the other uniform disclosure requirements of the three proposed Securities Act forms ultimately will be placed in one or more sections of a reorganized Regulation S-K. ⁴⁵ Although the items contained in the three Forms would represent the basis for Securities Act disclosure, items addressing specialized circumstances and industries also will be considered for inclusion in that Regulation. ⁴⁶

In the Commissions view, Form A would take full advantage of the markets having digested and synthesized material company-specific information. Form B, representing the transitional phase, strives for improved readability by streamlining disclosure requirements and allowing certain disclosure obligations to be satisfied either through the delivery of the annual report to security holders or by a presentation of comparable updated information in the prospectus. In addition, the primary source of Exchange Act disclosure, the Form 10-K, would be incorporated by reference and would always be available. Form C would be used by companies in the reporting system for less than three years and by companies having certain financial characteristics that would preclude the use of the top two Forms. It sacrifices readability, to some extent, in order to ensure that analysts and other participants in the market have access to the necessary building blocks of disclosure embodied in Regulation S-K. The Commission believes that for certain companies, especially new issuers, there is no realistic alternative to full disclosure within the confines of the prospectus.

As is apparent from the above brief description of the content and eligibility requirements of Forms A, B, and C, there is substantial overlap with the present registration system under the Securities Act. Specifically, Forms A, B and C overlap with Forms S-1, S-2, S-7 and S-16 both in function and content. Accordingly, the Commission believes it is necessary to concurrently propose the recission of these existing forms.

SYNOPSIS

The following discussion of the proposed forms is included in order to assist all interested persons in their understanding of the proposed registration form system under the Securities Act published herein. However, attention is directed to the text of the proposed forms for a more complete understanding.

Eligibility Rules for Use of Forms A, B and C

Form A

Proposed Form A is designed to be used by the same qualified issuers and for the same primary and secondary offerings as existing Form S-16 is now used. This means that Form A could be used by an issuer which meets the following conditions: (1) the issuer has a class of securities registered pursuant to Section 12 of the Exchange Act or is required to file reports pursuant to Section 15(d) of the Exchange Act; (2) the issuer has been subject to the requirements of those Sections, has filed all applicable reports for 36 months prior to filing the registration statement, has timely filed all required reports for the 12 months preceding the filing of the registration statement, and, if subject only to Section 15(d), has sent security holders a report containing the disclosure required by Rule 14a-3(b); (3) the issuer and its subsidiaries have not failed to pay a dividend or sinking fund installment on preferred stock or had a payment default on material indebtedness or on a material long-term lease within the past 36 months; ⁴⁷ and (4) the issuer has had consolidated net income of at least $250,000 for three of the last four years, including the most recent year. With regard to condition (3) above, which is also in proposed Form B, the Commission is soliciting comment on whether some exception should be made for material defaults ⁴⁸ which have been "cured" prior to the filing of the registration statement and, if advisable, on how such an exception should be structured. In addition, like existing Form S-16, if proposed Form A is to be used for primary offerings of debt or equity securities to be offered for cash, the issuer must also meet a "float" test, i.e., the aggregate market value of its voting stock held by non-affiliates must be at least $50 million.

The eligibility criteria for proposed Form A, as stated above, are based upon the understanding that information about companies using the form is already known or is so readily available it need not be repeated in a prospectus. The Commission notes that the reliance on dissemination of Exchange Act information in the Securities Act context, the use of a short form prospectus allowed by Form S-16, and the volatility of the market have all contributed increasing pressure on the staff to reduce drastically processing time for registration statements on Form S-16. In some extreme instances, the staff is requested to declare the registration statement effective within twenty-four hours of filing. The Commission anticipates that market conditions will cause this pressure on the staff to continue. However, such short processing time may overly diminish the opportunity afforded underwriters to make independent verification of the disclosure in the registration statement, and may deprive investors of sufficient time to review Exchange Act information if they so choose. It also raises questions as to whether the eligibility criteria of Form S-16 are sufficiently stringent so that only those companies carefully followed by the market are eligible to come to the market so quickly. If such criteria were too low, there would be danger of companies availing themselves of quick access to a market which has not in fact followed the issuer closely enough to have assimilated publicly available Exchange Act information. The Commissions Directorate of Economic and Policy Analysis has developed a profile of Form S-16 issuers since May of 1978 which is attached as Appendix I. This profile provides empirical data which may be of assistance in formulating eligibility criteria. ⁴⁹ The Commission urges commentators to address these eligibility criteria questions, particularly in the context of the data presented in Appendix I. In addition, commentators are specifically invited to respond to the following inquiries:

(1) Should the eligibility criteria for proposed Form A be changed from those of existing Form S-16? Specifically, is the net income test of $250,000 too low? Is the "float" test of $50 million adequate to restrict use of Form A to qualified companies? If not, to what number should it be raised?

(2) Should there be a minimum time period between filing and effectiveness of a registration statement on Form A?

Primary offering use of proposed Form A would be limited to underwritten offerings. Unlike Form S-16, however, proposed Form A could be used by qualified issuers for primary offerings either pursuant to a firm commitment underwritings in which the underwriters are committed to take down at least 90% of the offering, or pursuant to a best efforts underwriting done on an "all-or-none" basis. ⁵⁰ The Commission believes that the presence of an underwriter who has a degree of responsibility for an offering serves to enhance the likelihood that investor protection will not suffer because of abbreviated disclosure in the prospectus. The Commission invites specific comment with respect to this condition, particularly as to whether proposed Form A should (1) be limited to firm commitment underwritten primary offerings; (2) be available as proposed; (3) be available for all underwritten offerings, regardless of the type of best efforts arrangement involved; or (4) be available to qualified issuers regardless of whether the offering is underwritten at all.

At present, the only foreign private issuers ⁵¹ authorized to use Forms S-7 and S-16 are those that are required to file with the Commission the same reports under Section 13(a) or 15(d) of the Exchange Act as domestic issuers, i.e., Forms 10-K, 10-Q, and 8-K. The financial statements of foreign private issuers included in such forms generally are required to be prepared in accordance with United States generally accepted accounting principles and Regulation S-X, or, if appropriate, material differences are to be reconciled thereto. These same requirements are applicable also to the annual report to security holders which, as a condition to the use of Forms S-7 and S-16, must comply with Rule 14a-3(b) under the Exchange Act. Generally, the only foreign private issuers required to file such reports are certain North American issuers, i.e., Canadian and Mexican issuers, ⁵² and foreign issuers deemed to be essentially United States companies. ⁵³

Some foreign issuers have inquired whether they would be eligible to use Forms S-7 and S-16 if they voluntarily filed reports on Forms 10-K, 10-Q, and 8-K and prepared an annual report to security holders in compliance with Rule 14a-3 provided they otherwise met the requirements for use of Forms S-7 and S-16. The literal language of the existing instructions to Form S-7 precludes this procedure since the foreign issuers are not actually required to file such reports. The Commission is, however, of the view that foreign private issuers who, on a voluntary basis, file the same reports with the Commission as domestic issuers should similarly be entitled to use the short forms for registration of securities under the Securities Act. Accordingly, the Commission is proposing to allow the use of Forms A and B by foreign issuers under these circumstances.

Like existing Form S-16, proposed Form A would also be available for use by qualified issuers to register securities (1) to be offered upon the conversion of outstanding convertible securities or upon the exercise of outstanding transferable warrants, if the issuer has a $50 million non-affiliate float or if no commission is paid for soliciting the conversion or exercise; (2) to be offered upon the exercise of outstanding rights granted by the issuer; (3) to be offered pursuant to dividend or interest reinvestment plans; (4) to be offered for the account of any person other than the issuer, including standby underwriters and affiliates; (5) to be offered by certain closed-end management investment companies; and (6) to be offered by qualified foreign private issuers upon the exercise of outstanding rights. ⁵⁴

The first five of these uses of Form A are consistent with the provisions of existing Form S-16. With respect to the registration of securities to be offered pursuant to dividend or interest reinvestment plans, however, the Commission believes that it is appropriate at this time to announce that consideration is being given to allowing such registration statements to become effective automatically. The Commission took a similar step in February 1980 when amendments were adopted to Form S-8 to provide that original filings on that form become effective automatically 20 days after filing and post-effective amendments on Form S-8 become effective automatically upon filing. ⁵⁵ The same considerations which made automatic effectiveness of registration statements on Form S-8 advisable, i.e., time and cost savings to issuers and the fact that no significant improvement to the quality of disclosure would result from staff review, would appear to be equally applicable to registration statements on Form S-16 or proposed Form A relating to dividend or interest reinvestment plans. Accordingly, commentators are invited to direct comment to the advisability of pursuing this contemplated approach.

Form B

Proposed Form B would be available for the registration of securities to be offered by the middle tier of public companies. The conditions to the Forms use are modeled after but are not entirely the same as those for existing Form S-7. Specifically, proposed Form B would be available where (1) the issuer has a class of securities registered pursuant to Section 12 or is required to file reports pursuant to Section 15(d) of the Exchange Act; (2) the issuer has been subject to the requirements of those Sections, has filed all applicable reports for 36 months prior to filing the registration statement, and has timely filed all required reports for 12 months preceding the filing of the registration statement; (3) the issuer and its subsidiaries have not failed to pay a dividend or sinking fund installment on preferred stock or defaulted in the payment or any material indebtedness or material long-term lease within the past 36 months; and (4) the issuer has had earnings for two of the last three years, including the most recent year. ⁵⁶

The Commission notes that its staff receives a number of requests to waive the present Form S-7 requirement for timely filing of Exchange Act reports during the twelve months preceding the filing of the registration statement. Most of these requests involve rather insubstantial periods of lateness. ⁵⁷ Although the Commission affirms its position that timely reporting is important to the trading markets, commentators are invited to address the appropriateness of this requirement in connection with Form B.

The last condition to the use of proposed Form B is that the issuer does not have any of the financial characteristics specified in General Instruction A(7). These characteristics are: (1) a decline of more than 50% in income from continuing operations over the last fiscal year; (2) any material uncertainty concerning either the issuers financial position or results of operations which is or will be accompanied by a "subject to" opinion in the accountants report (such as subject to realization of assets, claims under long-term contracts, or the favorable outcome of pending litigation); and (3) a downgraded bond rating during the last 12 months.

Form B represents a policy choice to favor the readability and communicability that results from use of annual reports to security holders rather than a prospectus providing the more detailed and complex information of Regulation S-K. However, companies not eligible to use Form A are, by their nature, not sufficiently followed to allow the omission of any reiteration in a prospectus about the companys business. Also, for those companies which may be financially troubled, but which are not sufficiently followed, the Commission does not believe that readability should be chosen over the more detailed presentation required by Form C. Notwithstanding this judgment, however, the Commission recognizes that it may be exceedingly difficult, if not impossible, to develop criteria which indicate when a company may be financially troubled or experiencing difficulty. The three criteria proposed in Form B are not intended to be definitive but rather to stimulate comment as to whether any such criteria can be developed. Moreover, commentators are also specifically asked to address the question of whether there are any characteristics of a company otherwise eligible to use Form A that should require it as well as to use Form C.

Commentators are also asked to consider in this regard whether market criteria, such as the dollar value of voting stock held by non-affiliates, would also be useful characteristics for determining eligibility to use proposed Form B. A deficiency in the extent to which information about a company has been analyzed and assimilated by the market may be as much a reason for a prospectus to contain full Regulation S-K level disclosure as is an indicator of troubled financial condition.

Form C

Proposed Form C would be the basic full form for registering offerings of securities under the Securities Act. ⁵⁸ This Form would be available to all issuers who either do not qualify to use or choose not to use any other Securities Act registration statement form.

Under the three tier system as proposed, only proposed Form C is contemplated to be used to register securities to be issued in an exchange offer for securities of another person. ⁵⁹ Comment is specifically invited as to (1) whether either proposed Form A or proposed Form B, or both, should also be so available and (2) what level of prospectus disclosure with respect to the target company is appropriate where a Form C issuer is exchanging its shares for those of a company qualified to use proposed Form A or Form B.

A general instruction has been included in proposed Forms B and C referring to Guide 4 which interprets Section 6(a) of the Securities Act to limit the types of deferred or extended offerings which may be registered. ⁶⁰ The Commission requests comments as to the appropriateness of the proposed forms for continuous primary offerings of all types, including those at the market. Commentators are also invited to indicate what additional eligibility criteria or disclosure requirements they believe would be appropriate for such offerings.

Disclosure Items

As previously described, proposed Forms A, B, and C are designed to work as a coordinated system. Form A would serve as the initial repository of the uniform disclosure requirements. In this respect, Forms B and C refer to Form A for much of their content.

The following chart is included to assist in the understanding of the proposed forms. The second column of the chart indicates the derivation of the various disclosure items. The third, fourth and fifth columns indicate where disclosure items are uniform among the three forms and also indicate where material is to be presented in the prospectus or otherwise delivered to investors as opposed to incorporated by reference.

CONTENT OF PROPOSED FORMS A, B AND C
ITEM SOURCE FORM A FORM B FORM C
PART 1. PROSPECTUS
CONTENT

Form

1. Distribution Spread S-7,modified X X (modified) X (modified)

New (includes

                       Item 10 of
2. Summary                   Regulation S-K)       X                  X                  X
3. Plan of
Distribution                 Forms S-7, S-16       X                  X                  X

                       Form S-1,
4. Use of Proceeds           modified              X                  X                  X
5. Selling Security          Form S-16,
Holders                      modified              X                  X                  X
6. Description of
Securities to be             Forms S-1, S-7,
Registered                   S-16, modified        X                  X                  X

X Form B has

option to

deliver

annual

report to

security

holders

containing

this

information.

Also,

periodic

All periodic reports are

                                             reports are        incorporated
7. Information with                                incorporated       by
Respect to the Issuer        New                   by reference       reference.         X

14a-3 (and

Incorporated periodic

by reference reports are

from incorporated

periodic by
(a) Business reports reference). Item 1, S-K

Incorporated

by reference

from

periodic

reports

(Note: if Uniform but

Rules 3-07 schedules

or 3-08 of and

S-X are non-consolid

applicable financial

financial statements

statements are

must be in incorporated
(b) Financial Statements prospectus). by reference Uniform

Incorporated

by reference
(c) Segments from 10-k Item 1, S-K Item 1, S-K

Item 6,S-K

incorporated

by reference

Incorporated Incorporated in some

by reference by reference cases from
(d) Beneficial Ownership 10-k 10-k 10-K

Item 9, S-K,

modified

Incorporated

by reference

from annual

report to

Incorporated security

by reference holders in Item 9, S-K,
(e) Market & Dividend Data from 10-k some cases modified

Item 11, S-K

Incorporated

by reference

from annual

Incorporated report to

by reference security

from 10-K holders in
(f) Managements Discussion and 10-Q some cases Item 11, S-K

Item 12, S-K

Incorporated

by reference

from annual

report to

                                             Incorporated       security
(g) Supplementary                                  by reference       holders in
Financial Data                                     from 10-K          some cases         Item 12, S-K
8. Additional               New=based on
Information                  Forms S-7, S-16       X                  X                  X

(Form 10-Q

is in

incorporated

by reference

as are all X(option to

                                             periodic           deliver Form
(a) Quarterly Financials                           reports)           10-Q)              X
(b) Subsequent
Material Changes                                   X                  X
(c) Availability of
1934 Act Reports                                   X                  X                  X
(d) National Exchange Listing                      X                  X                  X
(e) Undertaking to
Provide Periodic
Reports That Are
Incorporated by
Reference Upon Request                             X                  X                  X

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Same as Form

A plus

certain

portions of

annual Part III and

all 34 Act report to Item 4 of

                                             periodic           security           Part I of
9. Incorporation by                                reports=10-K       holders if         Form 10-K if
Reference                    New                   10-Q, 8-K          used               necessary
10. Other Expenses of
Issuance and
Distribution                 Forms S-7, S-16       X                  X                  X
11. Interest of
Experts Named                Forms S-7, S-16       X                  X                  X
12. Indemnification of
Directors and Officers       Form S-7              X                  X                  X

                       Form S-7 and
13. Other Documents          New Item 7 of
Filed; Exhibits              S-K                   X                  X                  X
14. Recent Sales of
Un-registered
Securities                   Form S-1                                                    X

1st 3 same,

1st 3 same, plus adds

4th deleted one

about redelivering

sending annual

shareholders report to

annual security

report to holders with

security prospectus

holders if if used for

Form S-7 issuer 15(d) incorporatin Same as Form
15. Undertakings modified co. by reference A

Forms S-1, S-7,
Signatures S-16 X X X

Form A

Form A, like existing Form S-16, requires only minimal prospectus disclosure and relies heavily, through incorporation by reference, on the high quality and widespread dissemination of Exchange Act information for the balance of the standard disclosure package. For the most part, the disclosure that would be included in the prospectus is limited to summary information concerning the issuer and specific data concerning the offering. Information concerning the offering is the type of disclosure that has not been disseminated to the public and, therefore, should be included in all prospectuses.

Proposed Item 1, "Distribution Spread," was derived from the Form S-7 requirement. The Commission notes that this Item may have to be modified if Form A, when adopted, may be used for other than firm commitment or "all-or-none" best efforts underwritten primary offerings. ⁶¹ In this regard, the corresponding items in Forms B and C would require a presentation reflecting minimum and maximum proceeds that may be received if securities are to be offered on a best efforts basis other than an "all-or-none" type of agency arrangement.

The summary presentation required by proposed Item 2 has its genesis in the existing practice of many issuers and in Guide 59, "Summary of Disclosure in the Prospectus." ⁶² The purpose of the summary is to provide the reader with a succinct picture of the registrant and the offering. In no way is the proposed presentation meant to replace the disclosure found elsewhere in the registration statement or in Exchange Act filings; rather, it is intended to create a starting or reference point in the reading of the prospectus.

Under the proposed formulation of the summary, the text of every prospectus would begin with a brief description of the business conducted by the issuer and the material terms and features of the offering. In addition, the forepart of the prospectus would include selected financial data disclosed in accordance with Item 10 of Regulation S-K, ⁶³ which was adopted today, plus information concerning, net income and net income per share for five fiscal years and for any applicable interim periods.

The new Regulation S-K Item 10 requirement is designed to present significant five year trend data relating to an issuers revenues, income from continuing operations, liquidity, and capital resources. Item 10 also allows issuers flexibility to include additional information which they believe would enhance an understanding of and would highlight trends in their financial condition and results of operations. The Commission believes that while net income and net income per share are not necessarily trend related information if there have been discontinued operations or extraordinary events, they nevertheless should be required in the summary because many investors want and expect that information in a section of financial highlights. Item 10 information therefore is appropriately adoptable for use in a prospectus summary. The Commission wishes the summary to be a useful tool and specifically invites comment concerning what, if any, other financial information, such as an indicator of gross profit margin, would be appropriate to require in the summary. In this regard, the Commission notes that the proposed Summary Information item does not include a requirement to present historical and pro forma ratios of earnings to fixed charges and earnings to combined fixed charges and preferred stock dividends. This ratio information is currently the subject of a separate project of the Office of the Chief Accountant. ⁶⁴ When this project is concluded, the Commission will consider the advisability of adding a ratio requirement to the Summary Information item in the proposed forms.

Instructions to the summary would provide that if the issuer has made a material disposition of assets outside the normal course of business after the end of the most recent fiscal year for which information is included in the summary or if an acquisition has occurred or is expected to occur that would require the filing of information pursuant to Rules 3-07 and 3-08 of Regulation S-X, ⁶⁵ the issuer shall furnish a pro forma condensed balance sheet and a pro forma summary of operations giving effect to the disposition or acquisition for appropriate periods. ⁶⁶ In addition, if the offering involved the redemption of outstanding preferred stock or indebtedness, the summary would have to include earnings per share data to show what the earnings would have been for the latest fiscal year and interim period if the redemption had taken place at the beginning of the respective period. The Commission believes that the combination of this disclosure is necessary in order that an investor may more easily assess the nature of the offering and the interests being purchased. Similarly, an additional summary provision would require the disclosure of a material dilution of the purchasers interest or of the existing shareholders interest. ⁶⁷ In this regard, the Commission requests commentators to address whether a measure of dilution of book value is appropriate in the context of the prospectus summary.

As an adjunct to the above discussion, the Commission invites commentators to indicate whether a table of capital structure should be required in the proposed forms and, if so, whether it should be similar to that required by Item 5 of Form S-1. A capitalization table item has not been included in the proposed forms because it is believed that the information that would be presented therein is readily apparent from other sources such as the financial statement.

Item 3, "Plan of Distribution", would not be changed from the same item in Forms S-16 and S-7. In the Commissions view, this is preferable to but is not significantly different from the Form S-1 item.

Compliance with the disclosure requirements respecting the use of proceeds from the offering has concerned the Commission for some time. Because of the nature of this disclosure, the prospectus is the primary disseminating document of such information into the market. Too often the disclosure in response to this item has become boilerplate. For this reason, the Commission proposes certain modifications to the Form S-1 item for use in all three tiers. ⁶⁸

The proposed Item, which is designated Item 4 in all three Forms, would not include the first sentence of Instruction 1 to Item 3 of Form S-1 which states that "details of proposed expenditures are not to be given; for example, there need be furnished only a brief outline of any program of construction or addition of equipment." Apparently, issuers have been reading this sentence to allow disclosure of minimal substance. The Commission believes that the language of the item itself, which refers to the "principal purposes" of the proceeds and "approximate amounts intended to be used for each purpose," is sufficiently limited in space. In addition, the instructions have been refined to require disclosure of the terms of any indebtedness to be discharged from a material part of the proceeds. Additional changes have been made to Instruction 5 concerning assets to be acquired from the proceeds which would only require the name of the seller and an explanation of cost determining principles if the seller were an affiliate of the issuer or an associate of such affiliate. Again, the Commission wishes to call attention to the importance of meaningful disclosure in this area. Accordingly, commentators are requested to submit suggestions that will assist the Commission in upgrading the use of proceeds information.

All three forms would be available for secondary transactions. Therefore, the selling security holders provision, Item 5 in all three Forms, is the same for all tiers and is similar to that in Form S-16.

The "Description of Securities to be Registered", Item 6 of Form A, is derived from the items in Forms S-1, S-7, and S-16 with minor changes and would be present in all three forms. Unlike Form S-16, all three forms would require a description of the securities to be registered even though they are of a class registered pursuant to Section 12 under the Exchange Act. The Commission believes that such information should be presented in the prospectus rather than incorporated by reference from the Exchange Act registration statement.

In addition, because the presence of charter or bylaw provisions or contractual arrangements designed to restrict the rights or alienability of the subject security or to thwart either changes in control of the issuer or acquisitions above a certain percentage of the class of securities being registered may affect the nature, liquidity and value of the securities being offered or may restrict or prevent registration on an exchange, the Commission believes that a description of such provisions as well as the overall effects, advantages, disadvantages and operation of such provisions should be required in this section of the prospectus. Therefore, subparagraph (a)(5) has been incorporated into proposed Item 6. For some time, the Commission has been concerned with anti-takeover proposals in the context of proxy statements ⁶⁹ and believes that the same concerns are relevant when an initial investment decision is being made. Subparagraph (a)(5) also would require that a legal opinion be set forth or summarized indicating whether a given anti-takeover provision is both lawful and enforceable.

Item 7, "Additional Information", of Form A ⁷⁰ is based on the corresponding items in Forms S-7 and S-16. A statement would be required indicating that certain information has been incorporated by reference and, at the issuers option, a statement could also be included stating that specifically described portions which are not incorporated by reference are not part of the registration statement. Detailed descriptions of all material incorporated by reference would have to be provided in Part II of the registration statement and, at the issuers option, could also be presented in the prospectus.

Perhaps the most important aspect of Item 7 is the requirement for a description of any and all material changes in the issuers affairs which have occurred since the end of the latest fiscal year and which have not been described in a report on Form 10-Q or 8-K. ⁷¹ This Item tracks the present language of Form S-16 and would provide the necessary disclosure link to Exchange Act information which would be incorporated by reference. However, unlike Form S-16, this proposed additional information requirement would not provide that information concerning a material change could be omitted if it had previously been disclosed in a proxy or information statement. This is because the proposed forms only incorporate by reference to periodic reports and not to proxy material.

The corresponding Additional Information item in Form S-16 indicates that financial information may be required in the prospectus if the documents incorporated by reference do not include financial statements which reflect the results of a significant business combination accounted for as a pooling of interests or a change in accounting principles necessitating a substantial restatement of the financial statements. The relevant provisions in Form A reflect todays adoption of Rules 3-07 and 3-08 of Regulation S-X ⁷² which set forth the requirements concerning the type of financial information necessary for significant business combinations, whether they be accounted for as a pooling of interests or as a purchase transaction. These rules are in response to the concerns expressed by the Commission in Securities Act Release No. 4950 (February 20, 1969) regarding compliance with the requirements of Item 27 of Schedule A of the Securities Act. ⁷³ The Commission believes that the information required by these S-X rules is essential to an understanding of the issuers operations and, when applicable, should be included in the prospectus. In addition, since such information is not designed to be presented by itself, historical financial statements of the issuer and its subsidiaries consolidated (as required by Regulation S-X) would have to be presented in the prospectus whenever Rule 3-07 or 3-08 information would be necessary. This represents the only case where Form A would require the presentation of historical financial statements within the prospectus. In this regard, however, the Commission requests specific comment on whether an issuer should be required to file on Form B or C when Rules 3-07 or 3-08 are applicable.

In addition, the Form A Additional Information item indicates that financial information may have to be filed as an exhibit to the registration statement with regard to a material disposition of assets outside the normal course of business where such information had not been previously filed in an Exchange Act periodic report. Likewise, if there had been a change in accounting principles necessitating a substantial restatement of financial statements which had not been previously filed in a report, such restated financial statements would be a required exhibit of Form A. If either of these two exhibits had to be filed, the prospectus would include a brief description of the subject transaction or change in accounting principles and a statement that relevant financial information has been filed as an exhibit. In this way, just as the reader knows he has access to the issuers latest financial statements, he would be put on notice that this additional information was available.

Pursuant to subparagraph (c) of Item 7, the issuer would include an undertaking to provide without charge a copy of any information that has been incorporated by reference, and any financial information exhibit required by the additional information requirement described above, to any requesting person who has been delivered a prospectus. So that each investor will have easy access to the entire disclosure package, the name, address and telephone number of the person to whom a written request for such information is to be directed would be included in the prospectus.

The first item in Part II of the registration statement, Item 8, contains the requirements as to the documents to be incorporated by reference into the registration statement. Although incorporation from the issuers latest Form 10-K and subsequent periodic reports filed under Section 13(a) or 15(d) of the Exchange Act would be mandated, a registration statement filed on Form A, unlike Form S-16, would need not incorporate from any information in a proxy or information statement. The Commission believes that direct incorporation of proxy material would be unnecessary since Part III of the new Form 10-K will include, through incorporation by reference in most cases, relevant proxy information. Furthermore, the Additional Information item would require disclosure respecting any material changes in the issuers affairs, including significant business combinations.

Comments at the time Form S-16 was amended to allow primary offering use ⁷⁴ prompted the Commission to propose certain amendments to Form S-16 which it hoped would alleviate somewhat the concerns of underwriters over potential Section 11 liability for issuers Exchange Act filings which they had not helped prepare, but which are incorporated by reference into Securities Act registration statements. ⁷⁵ Specifically, the Commission proposed amendments to Form S-16 which would: (1) deem the effective date of documents incorporated by reference into registration statements on that Form to be the date of the documents initial filing with the Commission; (2) deem a statement in a document incorporated by reference into the registration statement on that Form not to be part of the registration statement if the statement has been modified or superseded in the registration statement or in subsequently filed documents which are incorporated by reference into a registration statement on that Form; and (3) provide that the making of a modifying or supersedi

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PROPOSED COMPREHENSIVE REVISION TO SYSTEM FOR REGISTRATION OF SECURITIES OFFERINGS

ACTION: Proposed rulemaking.

I. Integration

A. Background

1. The Law

2. Nature of the Securities Markets

3. Technological Advances

B. Materiality of Disclosure Under the Securities Act

C. Dissemination and Availability of Disclosure

D. The Proposals

Form