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Release No. 33-6276 Release No. 34-17399 Dec. 23, 1980
PROPOSED REVISION OF REGULATION S-K AND GUIDES FOR THE PREPARATION AND FILING OF REGISTRATION STATEMENTS AND REPORTSACTION: Proposed rulemaking.SUMMARY: The Commission is publishing for comment proposals (i) to categorize by subject matter Regulation S-K, the repository of standard instructions for disclosure under the Securities Act of 1933 and the Securities Exchange Act of 1934; and (ii) to expand that Regulation by adding uniform disclosure requirements with respect to the distribution of securities. Registration statement forms would also be revised to incorporate by reference such uniform disclosure requirements. The Commission is also publishing for comment proposals (i) to eliminate the Guides for the Preparation and Filing of Registration Statements and Reports, with the exception of the Guides for disclosure by registrants in a particular industry; and (ii) to incorporate certain of the requirements thereof into Regulation S-K, Regulation C (the rules governing the registration of securities under the Securities Act), and the General Rules and Regulations under the Securities Act and the Exchange Act. These proposals would eliminate out-moded and duplicative requirements, would enhance the integration of disclosure systems by consolidating and organizing disclosure provisions in Regulation S-K, and would consolidate procedural provisions in general rules and regulations. DATE: Comments should be received on or before March 6, 1981. ADDRESSES: Comments should be addressed in triplicate to George A. Fitzsimmons, Secretary, Securities and Exchange Commission, 50 North Capitol Street, Washington, D.C. 20549. Comment letters should refer to File No. S7-869. 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: Elizabeth Norsworthy, (202) 272-2390 or Beverly Rubman, (202) 272-2604, Office of Disclosure Policy, Division of Corporation Finance, and with respect to market-related matters, Carlos Morales, (202) 272-2878, Division of Market Regulation, Securities and Exchange Commission, 500 North Capitol Street, Washington, D.C. 20549. SUPPLEMENTARY INFORMATION: As the next major step in the integration of disclosure requirements under the Securities Act of 1933 (the "Securities Act") 15 U.S.C. 77a et seq. and the Securities Exchange Act of 1934 (the "Exchange Act") 15 U.S.C. 78a et seq., and as the first major step in a "sunset" review of all existing rules and regulations, the Commission is proposing certain revisions of (i) Regulation S-K 17 CFR 229.20; (ii) the Guides for the Preparation and Filing of Registration Statements and Periodic Reports (the "Guides") (as originally adopted in Release No. 33-4936 (December 9, 1968) 33 FR 18617); and (iii) the General Rules and Regulations under the Securities Act 17 CFR 230.100 et seq. and under the Exchange Act 17 CFR 240.0-1 et seq.. Registration statement forms 17 CFR 239.11 et seq.; 17 CFR 249.210 et seq. would also be revised to incorporate by reference new uniform disclosure requirements included in Regulation S-K. These proposals would eliminate unnecessary regulations and consolidate and organize substantive and procedural rules.
I. OVERVIEWA. Regulation S-KSince the publication of the Report of the Advisory Committee on Corporate Disclosure on November 3, 1977 1, the Commission has implemented as rapidly as possible that Committees recommendation to integrate the disclosure systems under the Securities Act and the Exchange Act 2, and to avoid "duplicative, unnecessary, or impractical reporting requirements." 3 The implementation of the Advisory Committees recommendations commenced with the promulgation of Regulation S-K as the source of uniform disclosure items 4 and accelerated during the past year with the proposal and adoption of additional uniform disclosure items 5 the revision of certain Exchange Act periodic reports 6 and the revision of Securities Act registration statements to incorporate by reference such revised periodic reports. 7 In the release proposing new registration forms, the Commission recognized that "the multiplication of disclosure item requirements in Regulation S-K is a recognized prerequisite to the full integration of the registration and reporting requirements under the two Acts." 8 The proposed revision of Regulation S-K represents the next major step in the Commissions program to integrate the disclosure requirements under the Securities Act and the Exchange Act. In this release the Commission is proposing the categorization by subject matter of the uniform disclosure items in Regulation S-K and the expansion of that Regulation to include uniform disclosure items with respect to the distribution of securities. Revision of registration statement forms to incorporate such items by reference is also proposed. Generally, if the proposals are adopted, Regulation S-K would be subdivided into seven categories: (1) Application 17 CFR 229.10; (2) Business 17 CFR 229.20; (3) Financial Information 17 CFR 229.21; (4) Management 17 CFR 229.22; (5) Securities of the Registrant 17 CFR 229.23; (6) Distribution of Securities 17 CFR 229.24; and (7) Other 17 CFR 229.25. The existing items of Regulation S-K would be renumbered and relocated without change according to subject matter; for example, Item 3 Directors and Executive Officers would become Item 20 under Management 17 CFR 229.22. In addition, most of the disclosure items of proposed Forms A, B and C 9 would become uniform disclosure items under Distribution of Securities 17 CFR 229.24; for example, Item 3 of proposed Form A Plan of Distribution 10 would become Item 42 Plan of Distribution in that subsection of Regulation S-K. Finally, proposed Forms A, B and C, as well as other commonly used registration statement forms, 11 would be revised to substitute references to the applicable Regulation S-K item for the proposed, or current, text of the registration statement item; for example, proposed Form A, when adopted in final form, would substitute reference to Item 42 of Regulation S-K Plan of Distribution for the proposed text of Item 3 Plan of Distribution in Form A itself. Table I, infra, Proposed Revisions of Regulation S-K (appearing as section II-C hereof, Regulation S-K--Table of Proposals) summarizes the changes proposed with respect to regulation S-K. B. Guides for the Preparation and Filing of Registration Statements and Reports Following the Advisory Committees suggestion that a periodic "re-evaluation of all of the outstanding rules and regulations of the Commission will keep the disclosure requirements current and effective and prevent the development of an encrusting layer of unnecessary and irrelevant information," 12 the Commission has undertaken to review its rules and regulations with a view to eliminating unnecessary and out-moded requirements. These proposals represent the first major step in this sunset review program, 13 and involve the following: (1) the proposed withdrawal of most of the Guides except those which pertain to disclosure by certain industries; (2) the transfer to Regulation C of those Guides which relate to procedural matters; and (3) the transfer to Regulation S-K of those Guides which set forth certain disclosure requirements. Thus, if the proposals are adopted, of the 68 present Guides, 22 or over 30% of the existing Guides would be withdrawn entirely as being out-of-date, 6 would remain as industry guides, and the remainder would be incorporated with generally minor and non-substantive modifications into Regulation S-K and Regulation C. In a few cases modifications are proposed in the General Rules under the Securities Act and the Exchange Act. Table II, infra, Proposed Revision of Guides, (appearing as Section III-D hereof, Guides--Table of Proposals) indicates what changes have been proposed with respect to each Guide. Table III, infra, Proposed Revisions to Rules Based on Changes in Guides (appearing as Section III-F hereof, Guides--Table of Rules Affected by Proposals) indicates the changes which are proposed in rules arising from revision of the Guides. C. Relationship with Existing and Proposed Disclosure RequirementsThese proposals should be considered in conjunction with other existing regulations, such as the specific items of Regulation S-K, and with other proposals, particularly the three-tier system of registration under the Securities Act which was recently proposed--Forms A, B, and C. 14 In general, these proposals transfer material from the Guides to other forms and rules, while making only minimal technical changes in those other forms and rules. This approach was taken in order to identify clearly the changes which are proposed and to avoid confusion. Special care was taken not to alter the text of existing items of Regulation S-K or proposed items of Forms A, B and C. Accordingly, if these proposals are adopted, it may be necessary to make additional technical changes to avoid duplication and to consolidate and revise the requirements based on the Guides into existing or already proposed requirements. For example, at the time of adoption, the references in existing and proposed forms to the present items in Regulation S-K would be changed to comport with the new numbering scheme. In addition, where the requirements of an item of Regulation S-K are to be incorporated into a particular form, it will be necessary to amend the form at that time to provide for such incorporation. Table I (Section II-C, infra) sets forth each form into which each proposed item of Regulation S-K would be incorporated. As noted above, the uniform disclosure items with respect to the distribution of securities proposed to be added to Regulation S-K consist of the text of the disclosure items contained in proposed Forms, A, B and C, plus certain disclosure requirements based on the Guides. The proposed uniform disclosure items with respect to the distribution of securities as finally adopted will therefore reflect comments received with respect to proposed Forms A, B and C 15 as well as comments received with respect to the instant release. Moreover, the Commission may consolidate additional provisions of existing and proposed forms, such as the provisions relating to incorporation by reference, in new items of Regulation S-K. The Commission intends to consider the adoption of proposed Forms A, B and C and these proposals at or about the same time. If these proposals are adopted, the only Guides that will remain will be those pertaining to disclosure by certain industries: Guide 30, relating to disclosure of principal sources of electric or gas revenues; Guide 55, relating to interests in oil and gas programs, which will be subject to separate re-evaluation in the near future; Guide 57, relating to preparation of registration statements involving insurance premium funding programs; Guide 60, relating to preparation of registration statements for interests in real estate limited partnerships, which will be subject to separate re-evaluation in the near future as part of a joint effort with the North American Securities Administrators Association; and Guide 61 (and Exchange Act Guide 3), relating to statistical disclosure by bank-holding companies. It is proposed that, at the time of adoption, the Commission will renumber these industry Guides, and make all of them applicable under both the Securities Act and the Exchange Act. D. "Sunset" Review of Regulation CWhile the transfer of certain Guide provisions to Regulation C has necessitated proposed modifications to certain existing rules and the proposal of new rules, such as proposed Rule 462A relating to registrations for delayed or continuous offerings, these proposals do not otherwise involve a revision of Regulation C. The Commission currently intends as part of its "sunset" program to review Regulation C for the purpose of deleting unnecessary and outmoded procedural requirements. While this "sunset" review will be the subject of a separate notice and comment process, the Commission does request specific comment now on any changes in Regulation C that might be necessary in connection with implementation of the proposals in this release or proposed Forms A, B and C, all of which the Commission expects to consider for adoption at or about the same time. * * * * * The remainder of this release consists of two parts. One discusses the proposed revisions to Regulation S-K, with an introductory discussion of the development of Regulation S-K, and a detailed explanation and table of the proposed revisions to that Regulation. The next contains an introductory discussion of the development of the Guides, a discussion of commentator reaction to the general issues which were raised by an advance concept release, 16 an explanation and table of the proposed revisions, and a table of the rules which would be affected by such revisions. II. REGULATION S-KA. BackgroundRegulation S-K was adopted on December 23, 1977 in response to the recommendation of the Advisory Committee on Corporate Disclosure that the disclosure systems under the Securities Act and under the Exchange Act be integrated further. 17 In the decade prior to the publication of the Advisory Committee Report, commentators expressed concern over the bifurcated disclosure systems and called for closer coordination of Securities Act and Exchange Act disclosure. 18 In response to that concern, in the years preceding the publication of the Advisory Committee Report, the Commission announced its objective of coordinating and integrating the two systems; 19 attempted to conform disclosure requirements under both Acts 20; introduced simplified registration statement Forms S-7 and S-16 21; and proposed an integrated disclosure Form SK. 22 Following the Advisory Committees endorsement of the integration concept in November 1977, the Commission promulgated proposed Form SK as Regulation S-K 23 so that the new integrated disclosure regulation would be included in the Code of Federal Regulations ("CFR"). By inclusion in CFR, the Regulation is updated annually and is more readily available to registrants who need to obtain a current copy. 24 Although Regulation S-K initially contained only two items (Description of Business and Description of Property), the Commission stated that additional items would be adopted "as disclosure provisions involving more than one of the various forms for the registration of securities or for the reporting to or solicitation of security holders are amended." 25 In July 1978, the Commission added four additional items to Regulation S-K Item 3--Directors and Executive Officers, Item 4--Management Remuneration and Transactions, Item 5--Legal proceedings and Item 6--Security Ownership of Certain Beneficial Owners and Management, noting that most of the commentators believed that uniform disclosure requirements save registrants time in securing interpretations and gathering facts, thereby enabling them to concentrate on the resolution of complex disclosure issues. In view of the favorable reaction to Regulation S-K, the Commission stated that eventually all general disclosure requirements under the securities acts would be contained therein. 26 With the acceleration of integration over the past six months--the proposal and adoption of six more uniform disclosure items in Regulation S-K, 27 the revision of Exchange Act periodic reports 28 and the revision of Securities Act registration statement forms to incorporate by reference such reports 29 --the categorization and expansion of Regulation S-K is now appropriate. B. ProposalsThe Commission proposes that Part 229 Standard Instructions for Filing Forms under Securities Act of 1933 and Securities Exchange Act of 1934--Regulation S-K be divided into seven sections relating to the following subjects: 1. Application (§229.10)2. Business (§229.20)3. Financial Information (§229.21)4. Management (§229.22)5. Securities of the Registrant (§229.23)6. Distribution of Securities (§229.24)7. Other (§229.25)The existing twelve uniform disclosure items would be relocated without change, according to subject matter; for example, Item 4 Management Remuneration and Transactions would become Item 21 in Section 229.22 Management. The substantive disclosure requirements proposed in Forms A, B and C 30 and the provisions from twenty-eight of the existing Guides, with only minor modifications, would also be incorporated in Regulation S-K. Substantive disclosure provisions from the Guides would be added to the distribution items from Forms A, B and C to which they relate; e.g., the disclosure required by Guide 5 with respect to the absence of a market for the securities to be registered is proposed to be added to the text of Item 6 of proposed Form A and consolidated as proposed Item 45 Securities to be Registered of Regulation S-K. As noted above, the Commission currently anticipates that proposed Forms A, B and C and the proposed revisions to Regulation S-K and the Guides will be considered for adoption contemporaneously. At that time, certain technical changes may be necessary in order to achieve consistency between the text of the items in proposed Forms A, B and C and the text of the proposed additions from the Guides. C. Table of ProposalsA table of the proposed revision of Regulation S-K appears below. The table shows the number and caption of the proposed item, the source of that item, for example, an existing item of Regulation S-K, an item in proposed Forms A, B or C, a substantive disclosure provision of a Guide, or a rule or release), and the registration statement forms which would incorporate by reference that item. It should be noted that the numbering system of proposed items in Regulation S-K may be changed at the time of final adoption in order to allow for the addition of uniform disclosure items in the future. It should also be noted that, at the time of adoption, cross-references to Regulation S-K items in the existing rules, forms and schedules will be updated to reflect the new numbers assigned to those items. TABLE I PROPOSED REVISION OF REGULATION S-K Existing Proposed S-K Item Forms A, B or C Guide Rule Introductory
B, C, S-14, 10,
C, S-14, 10, C, S-11, S-14,
10, 10-K, 10-Q, A, B, C, S-11,
S-14,
S-15, 10,
A, B, C,,
S-11,
C, S-11, S-14,
C, S-11, S-14, 5,
7, 15, A, B, C, S-8, 6,
47, A, B, C, S-11, 5, 6, 11, 14, 16, 17,
35, A, B, C, S-11,
A, B, C, S-14, 5, 6, 12, 13, 18, 32,
33, A, B, C, S-8,
A, B, C, S-8,
A,
B, C, S-8, A, B, C, S-8, S-11, S-14,
S-15, 10, 8-K, All forms, regulations and schedules under
the Securities III. GUIDESA. BackgroundIn early 1962, Chairman William L. Cary announced the Commissions concern over a substantial increase in the number of filings under the Securities Act, particularly filings by first-time public issuers. The backlog in filings and inordinate length of the pre-effective period was attributable primarily to the high volume and low quality of first-time filings. These registration statements were subject to as many as four major amendments, apparently due to the inexperience of counsel and accountants, the scarcity of financial information available concerning the company and the complexity of the re-organization which usually prefaces the decision "to go public." 31 In order to shorten the comment process, the Commission announced one month after Chairman Carys speech--its intent of "publishing from time to time expressions of its views which may be of assistance to issuers, their counsel and other preparing registration statements. 32 The Commission published the predecessors of Guide 35, requiring the registrant to identify, where practicable, any member(s) of the board of directors selected by the underwriters, and Guide 23, outlining the circumstances under which the registrant should update financial statements and related data contained in the preliminary prospectus. In February 1964, the Commission published thirty-two guides for the preparation and filing of registration statements, including the original two guides described above. At that time, the Commission stated that it was expected that such guides would be of assistance not only to the public but also to the staff by relieving the staff of the necessity of commenting on the matters covered. The Commission also alerted registrants that "some of the policies might be incorporated later in the rules or forms." 33 In December 1967, the Commission proposed a revised and expanded package of guides, noting that the staff and the public had suggested in the interim certain modifications of the original guides. The Commission again alerted the public to the possibility that some of the policies might later be incorporated in the rules and forms after suitable publication and opportunity for comment. 34 The fifty-three guides adopted in late 1968 35 have been subsequently modified and expanded to add ten additional guides for the preparation and filing of registration statements, as well as five guides for the preparation and filing of periodic reports under the Exchange Act. These guides have been added serially, without organization by subject matter. The modification and expansion of the Guides were responsive primarily to (i) anticipated disclosure problems; (ii) the findings arising out of the Commissions investigation of the hot issues securities markets 36; (iii) recommendations of the Industrial Issuers Advisory Committee 37; and (iv) recommendations of the Advisory Committee on Corporate Disclosure. 38 (i) Anticipated disclosure problems. The amendment of Guide 28 Disclosure of Extractive Reserves and Natural Gas Supplies in 1974 exemplifies the Commissions use of the Guides to deal with anticipated disclosure problems in a given area. In late 1973, the Commission warned registrants of their obligation to disclose any material impact that potential fuel shortages might have on certain industries and issuers. 39 A few months later, the Commission proposed amendment of Guide 28 to add a new paragraph relating to disclosure lby companies engaged in the gathering, transmission or distribution of natural gas. 40 The Commission reiterated the need for prompt and accurate disclosure of favorable and unfavorable information concerning such firms current and anticipated supplies of natural gas and the actual or possible impact which a demand for natural gas in excess of current supply might have. 41 (ii) Investigation of Hot Issues. Several amendments of the Securities Act Guides resulted from the Commissions publication of the results of the hot issues hearings. 42 On October 20, 1971, the Commission ordered a public investigation in the matter of the hot issues securities market. Public hearings were held on a continuous basis from February 28, 1972 to June 8, 1972 to investigate those instances where a new offering of securities is sold at a substantial premium over the initial offering price immediately, or very soon after, the securities are first distributed to the public. The Commission concluded that since such issues are highly speculative the disclosure contained in the registration statements and offering circulars should "reflect...the true economic realities" of the investment. 43 In order to elicit better disclosure, particularly with respect to highly speculative initial offerings, the Commission introduced Guide 59, requiring that any lengthy or complex prospectus be preceded by a summary of its contents, 44 and adopted amendments to Guide 5 instructing registrants to avoid "boiler plate" and to disclose the manner in which the offering price was determined 45; Guide 6 instructing registrants to illustrate graphically the dilution of shareholders equity 46; Guide 16, stating that the Commission may request the underwriter of a new or speculative issue to explain supplementally the steps taken in its due diligence inquiry to verify the disclosure in the prospectus 47; and Guide 21, instructing registrants to illustrate graphically the intended use of proceeds from the offering. 48 (iii) Report of the Industrial Issuers Advisory Committee. The Industrial Issuers Advisory Committee was appointed by Chairman Casey in 1972 to review the application of the reporting and other paperwork requirements of the Commission to industrial issuers. The Industrial Issuers Report, published on December 22, 1972, recommended that the use of the guideline technique be extended to disclosure documents filed under the Exchange Act, specifically to registration statements under Section 14 and annual reports on Form 10-K 49. In response to this recommendation, the Commission adopted the text of Securities Act Guide 22 Summary of Earnings as Exchange Act Guide 1 Summary of Earnings 50 and the text of Guide 28 Disclosure of Extractive Reserves and Natural Gas Supplies as Exchange Act Guide 2. 51 The Commission also adopted Exchange Act Guide 4 Integrated Reports to Shareholders, which permits registrants to integrate annual and quarterly shareholder reports in Forms 10-K and 10-Q under certain conditions. 52 (iv) Report of the Advisory Committee on Corporate Disclosure. The Advisory Committee was appointed by the Commission on February 2, 1976: (1) "to identify the characteristics and functions of the present system of corporate disclosure and the role of the Commission within that system; (2) to assess the costs of the present system of corporate disclosure and to weigh those costs against the benefits it produces; (3) to articulate the objectives of a system of corporate disclosure and to measure the Commissions present disclosure policies against those objectives; and (4) if necessary, to formulate recommendations to the Commission for adjustments to Commission policies to better effectuate those objectives." 53 In addition to recommending the integration of the substantive disclosure requirements of the Securities Act and the Exchange Act and a "sunset" review of all existing rules and regulations, as discussed above, the Committee also recommended that the Commission encourage disclosure of "soft information," that is, disclosure of information concerning anticipated future company economic performance, planned capital expenditures and financing, management plans and objectives, dividend policies, and management capital structure policies. 54 The Commission, in response to that recommendation, authorized the publication of Securities Act Guide 62 and Exchange Act Guide 5 Disclosure of Projections of Future Economic Performance which encourage registrants to include projections of future economic performance in filings under the Securities Act and the Exchange Act. 55 The Advisory Committee also endorsed the concept of industry guidelines, proposing that the Commission continue and expand the approach taken in adopting Guide 55, relating to interests in oil and gas programs, Guide 60, relating to preparation of registration statements for interests in real estate limited partnerships, and Guide 61, relating to statistical disclosure for bank holding companies. The Committee noted that the use of industry guidelines minimizes the extent to which registrants would have to comply with inapplicable disclosure requirements, secures disclosure of vital importance to understanding a company in a particular industry, and provides the Commission staff with a ready reference to a particular industry. 56 B. Concept ReleaseIn order to initiate the "sunset" review of the Commissions outstanding rules and regulations recommended by the Advisory Committee, 57 the Commission issued an advance concept release on December 5, 1979 58, requesting commentator assistance in the reevaluation of the Guides. In that release, the Commission asked for comments upon the following issues: (i) whether or not the Guides were useful; (ii) whether or not certain Guides or provisions thereof should be deleted or revised; (iii) whether or not other disclosure requirements, particularly Regulation S-K, should be revised in conjunction with the revision of the Guides; and (iv) whether or not the Guides occasioned certain costs and other burdens. While a limited number of commentators responded to Release No. 33-6163, 59 the commentators who did respond discussed each of the issues raised in considerable detail, furnished comments with respect to specific guides as well 60, and proposed certain additional guides. Most of the commentators agreed that the Guides have served a useful function in producing better disclosure and in saving time and money by publicizing the policies and practices of the Division of Corporation Finance. However, most of the commentators also agreed that the usefulness of the Guides has been offset by outdated information, lack of organization by subject matter and confusing and at times conflicting staff interpretations. A primary focus of those who commented was the development of a workable system whereby disclosure requirements currently appearing throughout the rules, regulations, Guides and interpretative releases would be conformed and centralized in one location. The ultimate goal would be to have information with respect to common subject matter located in the same guide, rule, regulation or form. Certain of the commentators urged the preservation of the guideline concept to the extent possible. Those commentators characterized the Guides as generally applicable, interpretative aids which can be applied flexibly to unique fact situations. Those commentators argued that transformation of the Guides into rules would necessitate multiple and complex exceptions and qualifications and stated further that those Guides which discuss staff approaches to filings should not be evaluated to the status of rules and regulations. Most of the commentators, however, recommended that the substantive disclosure provisions of the Guides be codified after a notice and comment period. Those commentators expressed a clear preference for transforming the Guides into rules and regulations. In their opinion, the status of the Guides was ambiguous, for although the Guides technically do not have the legal effect of existing rules and regulations, the staff and the securities bar nevertheless apply them as though they did. The commentators observed that this uncertainty should be eliminated and recommended that any disclosure requirements should be fully set forth in the forms or regulations after appropriate notice and comment. Those commentators who advocated incorporation of the Guides into the rules, regulations and forms generally agreed that substantive disclosure requirements should be codified in Regulation S-K, the control source of substantive regulation. The commentators, however, were divided in their recommended treatment of the procedural Guides, with some advocating the incorporation of such Guides into Regulation C or Regulation S-K and others advocating the retention of such Guides as guidelines. The commentators were similarly divided in their recommended treatment of the industry Guides, with some advocating the incorporation of such Guides into Regulation S-K and others advocating the retention of such Guides as guidelines. 61 In order to clarify, conform, codify and centralize certain substantive and procedural provisions of the Guides, as suggested by the majority of the commentators, the Commission is proposing that, with the exception of the industry Guides, the Guides be withdrawn and relocated where appropriate, in Regulation S-K or in the procedural rules of the Securities Act and the Exchange Act. As discussed in detail below, the proposals would (i) retain the industry Guides in guideline form, to be re-evaluated periodically by separate notice and comment; (ii) relocate certain substantive disclosure provisions in Regulation S-K; and (iii) relocate certain procedural provisions in Regulation C and the General Rules under the Securities Act and the Exchange Act. The Commission generally believes that disclosure requirements should be set forth in rules, forms and regulations. Guidelines, on the other hand, should pertain only to those areas, such as industry specific information, where more specific guidance is appropriate yet flexibility is necessary to tailor disclosures to particular facts and circumstances. Thus, the scope and detail of a particular Guide may not be appropriate to every registrant within the Guides purview. If such Guides, particularly industry Guides, were codified as formal regulations, waiver procedures would also be necessary where the rule technically applied but where disclosure was neither necessary nor appropriate. The Commission expects that guidelines will relate primarily to disclosure by registrants in certain industries because, as observed by the Advisory Committee, 62 the use of industry guidelines minimizes the extent to which registrants must comply with inapplicable disclosure requirements, maximizes the quality of disclosure made with respect to particular industries, and provides the Commission staff with a frame of reference for examining filings by particular industries. C. New Proposals--Low Priced IssuesAs noted previously, certain commentators suggested the issuance of additional guidelines relating to procedural and substantive disclosure issues which generally affect a registrant. These commentators suggested that guidelines be issued with respect to disclosure which should be required with respect to unconventional distributions of securities, e.g., "block trades" or "spot" secondary offerings and first-time offerings which are initially priced below $5.00 per share. 63 The proposal relating to first-time offerings recommended special provisions applicable where an issuer is not subject to reporting under the Exchange Act and is publicly offering securities for the first time. If such an issuer proposed to offer a security price at $5.00 or less per share, the issuer would be required to submit, at the time of filing the registration statement, a letter signed by the representative of the underwriters explaining the reasons for selecting such a low stock price 64 and undertaking, under certain circumstances, to furnish the staff with certain information relating to the purchasers of the securities. In particular, it was suggested that the underwriter should be required to furnish the staff with a list of the addresses, numbers of shares purchased and consideration paid or received by all purchasers if the offering price doubles during the three months after the date of the prospectus or if the offering price triples during the six months after the date of the prospectus. For the reasons discussed above, the Commission believes that the resolution of questions relating to block trades and new or unconventional offerings in future guidelines is inappropriate. Specific comment, however, is requested as to whether the proposal on low-priced issues outlined above should be incorporated in the rules and regulations and, if so, where such requirements should be located. D. Table of ProposalsThe following table outlines the proposed revision of the Guides, showing the number and caption of each Guide, whether it is proposed to be eliminated altogether, and, if not, the proposed relocation of requirements of the Guide in Regulation S-K, Regulation C or the General Rules under the Securities Act and the Exchange Act. TABLE II PROPOSED REVISION OF GUIDES Relocated Retained as in Reg. C Guide Number and Caption Eliminated a Guide S=K I Other Pre=Filing Conferences with Applicability of Amended Rules and Registration of Securities for Pictorial or Graphic Representations Registration of Options, Warrants or Rights and Other Securities Issued or Over=the=Counter Trading in Rights or Market Quotations = Absence of Underwriters Compensation from Conversion of Funds into Foreign Underwriters Experience and Due Disclosure of Underwriting
Discounts 400B, Original Issue Discount of Debt Distribution of Preliminary Mailing of Amended Preliminary Current Financial Statements and Currencies in Which Amounts are to be Manner of Showing Distributions by Real Estate Syndicates and Real Disclosure of Extractive Reserves and Disclosure of Material Long=term Disclosure of Principal Sources of Disclosure of Recent Liability of Shareholders to Laborers, Servants or Employees under Notice of Redemption of Convertible Identification of Members of Board of Directors Selected by the Effect of Issuance of Options or Charter Amendments Authorizing New Reports or Memoranda Concerning the Representations from Selling Security Securities Act Exemption for Shares Information as to Over=the=Counter=Market for Enforceability of Civil Liabilities Revision of Prospectuses Where a Company and its Employee Plan Have Disclosure of Confidential Material Release of Price Data on Subscription Disclosure as to Listing on an Secondary Distributions "at the Misleading Character of Certain Prospectuses Relating to Interests in Interests of Counsel and Experts in Registration Statements Relating to "Insurance Premium Funding" Disclosure in Prospectus of Registrants Business Address and Summary of Disclosure in the Preparation of Registration Statements Relating to Interests in Statistical Disclosure by Bank Disclosure of Projections of Future Disclosure Relating to Management Remuneration by Certain Foreign Exchange Act Guides 1. Summary of Operations X 2. Disclosure of Extractive Reserves and Natural Gas Supplies X 3. Statistical Disclosure by Bank Holding Companies X Rule 0=10 under the Exchange 4. Integrated Reports to Shareholders Act 5. Disclosure of Projections of Future Economic Performance 52 E. Explanation of ProposalsGuide 1--Pre-filing Conferences with Registrants. Guide 1 describes the practice of the Division of Corporation Finance of holding its staff available for pre-filing conferences. The Guide does state, however, that a request for a pre-filing conference may be refused and that registrants should not attempt to use the conference as a means of having the staff draft language for filing. In view of its procedural nature, the Commission is proposing that Guide 1 be deleted and recast as Rule 400A of Regulation C Pre-Filing Conferences. Proposed Rule 400A would state that registrants may request a pre-filing conference in order to discuss problems encountered in preparing the registration statement. In order to save both staff and registrants time, the rule would state that the request should be in writing, should outline the proposed subject matter, and should only be made when there are unusual or difficult disclosure issues. The rule would further indicate that pre-filing conferences are in the sole discretion of the staff and that the staff will not prepare materials for filing. Guide 2--Letter of Comment Guide 2 describes the circumstances under which a letter of comment will or will not be sent to a registrant. The Guide states that a letter is ordinarily sent when the disclosure does not meet existing requirements and may not be sent when an investigatory or stop order proceeding is deemed more appropriate. The comment process has always been discretionary with the Commission staff. The Commission sees no need for a specific guide or rule in this area, particularly in light of the evolving nature of the review process with respect to Securities Act and Exchange Act filings. Accordingly, the Commission is recommending that Guide 2 be withdrawn. Guide 3--Applicability of Amended Rules and Forms to Previously Filed Statements Guide 3 refers to Rule 401 Requirement as to Proper Form and Rule 432 Application of Amendments to Rules Governing Contents of Prospectuses. Rule 401 provides that a registration statement shall be prepared in accordance with the form prescribed therefor as in effect on the date of filing. Rule 432 provides that a prospectus must conform to the rules in effect at the time the registration statement becomes effective unless a stop order has been in effect under Section 8(d) of the Securities Act. After a stop order is lifted, the prospectus must conform to the rules in effect on the date the stop order is lifted. The first paragraph of Guide 3 states that the filing date referred to in Rule 401 is the initial filing date and, in the absence of specific provisions to the contrary in subsequent amendments to forms and rules, those subsequent amendments do not apply, even if the registration statement is amended. The second paragraph of Guide 3 indicates that the term "rules" as used in Rule 432 includes "forms." The commentators generally stated that this Guide should be incorporated in Rules 401 and 432 and that any inconsistencies should be resolved. The Commission agrees and is proposing to delete Guide 3 and to codify the Guides interpretation of Rules 401 and 432 in those Rules. Specifically, Rule 401 would be amended to refer to the initial date of filing, and Rule 432 would be amended to refer to the applicability of forms as well as rules in effect on the effective date of the registration statement. Commentators have already noted the possible conflict between Rules 401 and 432, in that Rule 401 refers to the rules and forms in effect on the initial filing date to determine the proper form of the registration statement and pre-effective amendments while Rule 432 refers to the rules and forms in effect on the effective date to determine the form and contents of prospectuses. The Commission specifically solicits further comment on possible changes to clarify the interrelationship between these rules and Rule 470 17 CFR 230.470 Formal Requirements for Amendments which pertains to the formal requirements for amendments to registration statements, other than delaying amendments. Guide 4--Registration of Securities for Delayed Offering The last sentence of Section 6(a) of the Securities Act provides: "A registration statement shall be deemed effective only as to the securities specified therein as proposed to be offered." 15 U.S.C. 77f(a). Guide 4 interprets that sentence to prohibit the registration of securities for a delayed or postponed offering, commonly referred to as "shelf" offering or registration. The Guide, however, cites several instances in which such registration is permitted, for example, where the registrant proposes to engage in a continuing acquisition program. The majority of the commentators favored retaining the Guide, with substantial revision to reflect current staff policy on shelf registration. Two commentators, however, recommended the elimination of the Guide. One of those commentators argued that the concept of a shelf registration has been difficult to work with and would be unnecessary if expanded short forms of registration for seasoned "continuous reporting" registrants were made available; the other commentator asserted that the permissible categories of shelf registration are so broad as to render the Guides interpretation of Section 6(a) almost meaningless. The Commission is proposing that Guide 4 be withdrawn because: (1) it no longer reflects all current staff policies regarding shelf registrations; and (2) its interpretation of the last sentence of Section 6(a) may not, under certain circumstances, be necessary or appropriate for the protection of investors. The Commission is also proposing to replace Guide 4 with a new Rule 462A Delayed or Continuous Offering and Sale of Securities, to be added to Regulation C, that would permit shelf registration for delayed and continuous offerings. The proposed rule would require compliance with certain conditions designed to insure that the registered securities are in fact proposed to be offered, that investors receive accurate and current information, and that the liability protections of the Securities Act apply to the information on which the investment decisions are based. For the most part, the conditions in proposed Rule 462A are codifications of the current administrative practice. Accordingly, proposed Rule 462A would permit shelf registration for delayed offerings as currently described in Guide 4, with certain modifications discussed herein. The proposal would also allow registration for additional continuous offerings that comply with the conditions set forth in the proposed rule. 65 This portion of the release discusses (1) Section 6(a) of the Securities Act and practice under Guide 4; (2) proposed Rule 462A; and (3) certain offerings that would be permitted under the proposal. Section 6(a) of the Securities Act and Practice under Guide 4 In the absence of any specific legislative comment upon the meaning of the last sentence of Section 6(a) of the Securities Act, as enacted by Congress in 1933, 66 early opinions of the Commission and its staff interpreted the provision as requiring that a registration statement be effective only as to those securities proposed to be offered "in the proximate future," and this position is currently contained in Guide 4. This general prohibition against shelf registration was designed to effectuate the clear policy underlying the last sentence of Section 6(a) that "the registration statements and prospectuses on which they rely, so far as is reasonably possible, provide current information." 67 This interpretation was, in turn, premised upon the assumption that the registration of securities which are to be offered at "some remote future time" gives "the appearance of a registered status" 68 without providing its true substance--accurate and current information. In practice, the Commission has never adhered to such an absolute prohibition. Recognizing that the early interpretations were based in large part on concerns about the currency of information, the Commission and the staff developed, by changes in rules and practice, more effective means--particularly through post-effective amendments and undertakings--for updating and assuring the adequacy of disclosure. Because the statutory terminology, "proposed to be offered," has no specific time frame, it has been considered reasonable to take into account the availability of adequate information in administering agency policy with respect to shelf registration. 69 Guide 4 itself (after stating the general rule against shelf registration) consists mainly of a description of situations in which shelf registration will be permitted. In fact, such registration has been permitted for several types of offerings not referred to in the guide. To date the staff has processed shelf registrations for the following: (1) Offerings of securities which are to be issued in a continuing acquisition program, which are pledged by persons in control of the issuer, and which underlie options, warrants, rights or convertible securities (covered by Guide 4); (2) secondary offerings made by persons who may be deemed to be statutory underwriters, and secondary offerings of securities received as underwriter compensation (covered by Guide 4); (3) Continuous offerings of securities pursuant to a dividend or interest reinvestment plan or employee benefit plan (not covered by Guide 4); (4) Continuous offerings of debt securities at fixed maturity dates, interest rates and other terms at the market on a best efforts basis (not covered by Guide 4). 70 As a condition of allowing shelf registration under Guide 4 or otherwise, the staff has required undertakings to update information by post-effective amendment and to provide that the statutes of limitations contained in the Securities Act begin a new with the filing of each post-effective amendment. 71 After substantial experience with these types of shelf registration, the Commission is not aware of major abuses that have harmed investors. In addition, the integration of the Securities Act and Exchange Act disclosure systems provides an increasingly efficient basis for updating disclosure in securities offerings. Shelf registrations can utilize integration effectively, thereby facilitating the development of important new capital raising techniques. Accordingly, the Commission believes that a restrictive policy on shelf registration is not appropriate or necessary for the protection of investors. The Commission is proposing that Guide 4 be withdrawn and that its stated prohibition of shelf registration be replaced with proposed Rule 462A. Proposed Rule 462A Proposed Rule 462A provides that offerings meeting the conditions in the Rule would be deemed to satisfy the statutory provision that the registration statement shall register only securities that are "proposed to be offered." The essential conditions of the proposal are designed to assure: a bona fide intent to offer and sell, accurate current information, and liability protection under the Securities Act. The first condition, that the securities registered are intended to be sold, is covered by subparagraph (a)(1) of the proposed rule. Subparagraph (a)(1)(i) sets out the general requirement that a registration statement for a continuous or delayed offering must pertain only to an amount of securities that can reasonably be expected to be offered and sold within two years from the effective date of the registration statement. The two year limitation would apply not to the actual sale of securities but to the reasonable expectations of the sellers at the time the initial registration statement is filed. If the amount of securities registered is reasonable at that time, and if there continues to be a reasonable expectation of sales, it would not be necessary to deregister shares remaining after two years, and then reregister them and pay another registration fee in order to offer and sell them, provided that the other conditions inproposed Rule 462A were met. 72 Under current practice, in determining whether securities are "proposed to be offered" under Section 6(a), the staff uses its judgment in evaluating the reasonableness of the amount of securities registered in light of the purposes of the proposed offering. 73 That process would not |
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