Release No. 33-6331

Release No. 34-18007

Release No. IC-11888

August 5, 1981

Reproposal of Comprehensive Revision to System for Registration of Securities Offerings.

ACTION: Proposed rulemaking.

SUMMARY: The Commission is republishing for public comment three proposed forms to be used to register offerings of securities under the Securities Act of 1933. The three proposed forms would constitute the basic framework for registration statements under the Securities Act, with different levels of disclosure and delivery requirements applicable for different levels of companies registering offerings of securities. Republication of these and related proposals is intended to afford the public an opportunity to consider in a comprehensive manner the various elements of the Commissions integrated disclosure system. This action is a significant part of the Commissions program to integrate the disclosure systems under the various Federal securities laws and to simplify and improve the disclosure requirements imposed under these systems.

DATE: Comments should be submitted on or before October 30, 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. S7-893. 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: William H. Carter 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 reproposing for comment 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 new forms, which are denominated Forms S-1, S-2 and S-3, ¹ would replace the most widely used registration statement forms and would constitute the basic framework for Securities Act registration. ²

Table of Contents

I. The Integrated Disclosure System

New Securities Act registration forms, designated Forms A, B and C, previously were proposed on September 2, 1980. ³ As discussed more fully below, these earlier forms have undergone substantial revisions, both as the result of commentators suggestions ⁴ and further study by the Commission. Accordingly, proposed new Forms S-1, S-2 and S-3 are the culmination of the Commissions efforts to adopt three basic registration forms which implement its comprehensive integration program and improve and simplify disclosure requirements where possible.

The concept of integrating the various disclosure systems under the Federal securities laws has been the subject of theoretical discussion for quite some time. ⁵ It was long been clear that the transaction-oriented framework of the Securities Act and the disclosure system which has developed thereunder often overlap with, and produce disclosure duplicative of, that prepared independently in response to the status oriented framework of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. 78a et seq.) and the continuous disclosure system operating thereunder.

The Commissions integration program involves a comprehensive evaluation of the disclosure policies and procedures underlying the Securities Act and the Exchange Act with a view toward integrating the information systems under those Acts so that investors and the market place are provided meaningful, nonduplicative information both periodically and when securities distributions are made to the public, while the costs of compliance for public companies are decreased. In addition, this program utilizes the concept of encouraging registrants, on a voluntary basis, to combine their formal Commission filings with their informal corporate reports to security holders and to the public.

The crucial task in developing an integrated disclosure system is to determine the answers to two fundamental questions:

(1) What information is necessary for decision-making both in the context of the distribution of securities and in the context of the trading markets? and

(2) Under what circumstances and in what form should such information be disseminated to shareholders, investors and the market place?

The need to identify what information is material to investment and voting decisions is a continuing one in the field of securities regulation. As mentioned above, integration, as a concept, involves a conclusion as to equivalency between transactional Securities Act and periodic Exchange Act reporting. If a subject matter constitutes material information (other than a description of the transaction itself), then generally it will be material both in the distribution of securities and to the trading markets.

Moreover, requirements governing the description of such subject matter 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 be equally important for an informed trading market. Thus, both prospectuses and periodic reports should include this information, and requirements for its content should be essentially the same. This principle of equivalency has led to the development and expansion of Regulation S-K, discussed more fully below, a technical device designed to consolidate in one regulation uniform disclosure requirements utilized by both Securities Act and Exchange Act forms. It also has led to improving the quality of reports under the Exchange Act, a trend that started in 1970 when Form 10 was amended. ⁶

Integration consists, however, of more than the concept of equivalency of reportable material information under both Acts. It also involves answers to the second question posed above: under what circumstances and in what form should this information be disseminated to shareholders, investors and the marketplace? Equivalency alone might suggest that all the information contained, for example, in a Form 10-K should also be reiterated in all prospectuses. However, integration also in predicated on the fact that information regularly is being furnished to the market, in part, through periodic reports under the Exchange Act. This information is evaluated by professional analysis 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 uses this information, and it is adequately reflected in the price of a registrants outstanding securities, there seems to be 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 nonduplication, including readability and effective communication in specific contexts. ⁷

These proposals should be considered together with the other elements of the Commissions integration program, some of which were adopted previously and some of which are being proposed (or reproposed) today. Of the earlier rulemaking actions the following are particularly relevant: (1) the adoption of amendments to Form 10-K (17 CFR 249.310), Regulation S-K (17 CFR 229), and Rule 14a-3 (17 CFR 240.14a-3) relating to the annual report to security holders, ⁸ amendments which reduce duplicative disclosure and facilitate the integration of the disclosure systems under the Securities Act and Exchange Act, as well as the "formal" and "informal" disclosure systems; ⁹ (2) the adoption of amendments to Regulation S-X (17 CFR 210) to establish uniform financial statement instructions for certain forms and reports required to be filed pursuant to the Securities Act and the Exchange Act; ¹⁰ (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" in order to facilitate integration of the "formal" and "informal" disclosure systems; ¹¹ (4) the adoption of amendments to Form 10-Q (17 CFR 249.308a) to make quarterly reporting on this Form both complement and update annual reporting on Form 10-K; ¹² and (5) the adoption of Form S-15 (17 CFR 239.29), an experimental simplified form for the registration of securities issued in certain types of business combinations which utilizes the concept of multiple document delivery. ¹³

Seven other major proposals or reproposals are being published today. First is the reproposal of the Regulation S-K amendments originally published for comment last December based on a sunset review of the Guides for the Preparation and Filing of Registration Statements and Reports under the Securities Act and the Exchange Act ("Guides"). ¹⁴ As proposed today, Regulation S-K would be the repository of uniform content requirements relating to substantially all of the information to be set forth in registration statements and annual and other periodic reports required pursuant to the Securities Act and the Exchange Act. This comprehensive proposal, together with proposed new Forms S-1, S-2 and S-3, revises the system of registration under the Securities Act, integrating it to the fullest extent possible with the Exchange Act system and with informal corporate communications. The proposal is designed to improve the organization and rationality of Regulation S-K by classifying the items by subject matter. As reproposed, the Regulation would be subdivided into the following nine classifications: (1) General; (2) Business; (3) Securities of the Registrant; (4) Financial Information; (5) Management and Certain Security Holders; (6) Registration and Prospectus Provisions; (7) Exhibits; (8) Miscellaneous; and (9) List of Industry Guides. The existing items of Regulation S-K would be renumbered and relocated, with minimal change, according to subject matter. In addition, the Regulation would be expanded significantly. Certain disclosure requirements now located in the Guides would be added to it, as would certain provisions currently contained in Regulation C (17 CFR 230.400 through 230.494), and the Guides, other than those relating to specific industries, would be rescinded. Also added to Regulation S-K would be certain disclosure items which are now common to various Securities Act registration forms and Exchange Act forms and which would no longer have to be repeated in each form.

Second is the proposal of amendments to Regulation C, commencing the Commissions "sunset" review of this Regulation. ¹⁵ In general, this proposal would rescind certain rules which are outmoded, revise other rules to clarify them or increase their utility, delete rules which are being transferred to Regulation S-K and add new rules and definitions where needed, such as by consolidating, in one regulation, definitions which currently are scattered throughout various Securities Act registration forms.

Third is a reproposal of a new rule designed to clarify and expand the availability of delayed or continuous offerings ("shelf" offerings) of securities under the Securities Act. ¹⁶

Fourth is a proposed Securities Act rule designed to provide guidance to underwriters and others as to what constitutes a "reasonable investigation" and a "reasonable ground for belief" under Section 11(b) of the Securities Act. ¹⁷ In addition, this release reproposes certain provisions regarding the effective date of information incorporated by reference in a registration statement and the treatment of modified or superseded statements, which address the concerns of underwriters over potential Section 11 liability for a registrants Exchange Act filings which they had not helped to prepare but which are incorporated by reference into a registration statement. ¹⁸

The fifth proposal involves a policy statement and rulemaking proposal concerning disclosure of security ratings for debt securities, convertible debt and preferred stock in registration statements and reports. ¹⁹ The Commission believes this proposal is particularly relevant since proposed Form S-3 utilizes, as one of its eligibility criteria, the security ratings of the debt being offered.

The sixth release proposes amendments to a number of rules, forms, and schedules under the Exchange Act. ²⁰ These proposed amendments would include amendments to Form 8-K (17 CFR 240.308) to improve the reporting of current information under the Exchange Act, an essential element in the integrated disclosure system. In addition, the release contains other proposed amendments which make necessary changes to conform schedules, rules and forms to the additional changes being proposed today, primarily those proposed in the Regulation S-K Release. The release also includes proposed amendments to the safe harbor rules for projections under the various securities acts and proposes the rescission of several rarely used forms.

The seventh proposal involves amendments to conform existing Securities Act forms to the changes being proposed in the Regulation S-K Release ²¹ and in this release. In addition, it proposes the rescission of several rarely used forms.

II. Overview

Under the proposed registration statement framework, registrants would be classified into three categories: (1) companies which are widely followed by professional analysis; (2) companies which have been subject to the periodic reporting system of the Exchange Act for three or more years, but which are not widely followed; and (3) companies which have been in the Exchange Act reporting system for less than three years. The first category would be eligible to use proposed Form S-3, which relies on incorporation by reference of Exchange Act reports and contains minimal disclosure in the prospectus. This form is predicated on the Commissions belief that the market operates efficiently for these companies, i.e., that the disclosure in Exchange Act reports and other communications by the registrant, such as press releases, has already been disseminated and accounted for by the market place. The second category would be eligible for Form S-2, which represents a combination of incorporation by reference of Exchange Act reports and presentation in the prospectus or in an annual report to security holders of certain information. The third category would use Form S-1, which requires complete disclosure of information in the prospectus and does not permit incorporation by reference. As with the present system, a company eligible to use Form S-3 could also use either of the other forms and a Form S-2 company could also use Form S-1 and, for certain offerings, Form S-3. While the eligibility criteria for each category are based on the proposals and specific inquiries in the ABC Release, they would represent a distinct departure from both the proposals and the present system.

Currently, the availability of Form S-7 or Form S-16 is predicated on a combination of factors, relating to Exchange Act status and experience, economic indicia and market criteria. The conditions for use of Form S-7 include the registrants status under the Exchange Act, minimum periods of being subject to the reporting provisions of that Act and having filed the required reports in a timely manner, the transmittal of an annual report to security holders in certain situations, the absence of specified defaults over a thirty-six month period and a minimum net income of $250,000 for three of the last four fiscal years, including the most recent fiscal year. ²² To use Form S-16 in a primary offering for cash, a registrant, in addition to complying with the conditions of Form S-7, is required, among other things, to have a minimum value of voting stock held by non-affiliates (hereinafter referred to as "float") of $50 million. ²³ In contrast, the proposed framework markedly reduces or eliminates those criteria relating to the "quality" of the registrant, and premises eligibility generally on dissemination of information in the market place, as represented by the length and nature of compliance by the company with the reporting requirements of the Exchange Act, and, with respect to proposed Form S-3, on the registrants float. ²⁴

The Commission believes that the standards of Exchange Act experience and float are more appropriate than the quality of the registrant in determining the type and amount of disclosure which is set forth in the prospectus delivered to investors. In the Commissions view, the "quality" of the registrant indicia, such as net income, are more appropriately disclosure matters, rather than criteria for eligibility to use a form. Thus, the eligibility criteria are designed to recognize the realities of the marketplace by matching a registrant to the form which will furnish investors with the appropriate disclosure for delivery in the prospectus.

Proposed Form S-3 recognizes the applicability of the efficient market theory to the registration statement framework with respect to those registrants which usually provide high quality corporate reports, including Exchange Act reports, and whose corporate information is broadly disseminated, because such companies are widely followed by professional analysts and investors in the market place. Because these registrants are widely followed, the disclosure set forth in the prospectus may appropriately be limited, without the loss of investor protection, to information concerning the offering and material facts which have not been disclosed previously. The abbreviated disclosure is made possible by the use of incorporation by reference of the registrants Exchange Act information into the prospectus. Because of the abbreviated disclosure, the utility of proposed Form S-3 is limited to widely followed companies. Based on the comments to the ABC Release, consultations with the investment community discussed below and the Commissions experience, the number of widely followed companies is not large and is much smaller than the number of companies currently eligible to use Form S-16. Since the length of reporting experience under the Exchange Act does not ensure widespread market following, a different criterion for Form S-3 eligibility is necessary. The proposed float requirement is designed to correlate the use of abbreviated Form S-3 to widely followed registrants.

As proposed, fewer companies would be able to meet the float requirement for primary offerings on Form S-3 than currently are eligible to use Form S-16. The Commission believes, however, that the contraction in the use of Form S-3 will not disadvantage companies which formerly were able to use Form S-16. These companies will be able to use Form S-2, which will be available to any company which has been in the reporting system for three years. A liberalization of current Form S-7, proposed Form S-2 is designed 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 presentation of comparable updated information in the prospectus. More specifically, the financial statements, managements discussion and analysis and the brief business description required by proposed Form S-2 are identical to those already presented in the annual report to security holders. Moreover, it is contemplated that the processing time under the Commissions selective review system will be comparable for both Form S-2 and Form S-3. ²⁵ Additionally, Form S-3 will be available to any Form S-2 registrant for offerings of debt securities which have received one of the four highest ratings by a nationally recognized statistical rating organization and for the registration of securities under dividend and interest reinvestment plans and rights offerings, conversions and warrants.

Therefore, the Commission believes that the restriction of proposed Form S-3 to widely followed registrants is appropriate, especially with respect to equity offerings, and that in light of the streamlined nature of the disclosure in proposed Form S-2, the availability of proposed Form S-3 for certain offerings by eligible issuers and the anticipated comparability of review time for both forms, companies currently eligible to use Form S-16 will not be subject to substantially different burdens under the proposed registration statement framework.

Finally, proposed Form S-1, like its predecessor, would be used to register securities when no other form is authorized or prescribed and would be used by companies in the Exchange Act reporting system for less than three years, such as new issuers. To ensure that adequate information concerning these registrants is readily available to investors, proposed Form S-1 requires delivery of a more lengthy and comprehensive prospectus than either proposed Form S-2 or Form S-3. While the proposed form represents a streamlined version of current Form S-1, the Commission believes that full presentation of disclosure in the prospectus without the use of incorporation by reference is necessary and appropriate in such offerings.

III. Synopsis

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

A. Eligibility Rules for Use of Forms S-3, S-2 and S-1

The most significant changes made in proposed Forms S-3, S-2 and S-1, as compared to proposed Forms A, B and C, is in the various eligibility requirements of Forms S-3 and S-2 (Forms A and B). This aspect of Form S-1 (Form C) is virtually unchanged. Eligibility requirements also were addressed by more of the commentators than any other aspect of the ABC Release.

Proposed Forms A and B had eligibility requirements relating to such diverse factors as Exchange Act filing requirements, defaults, net income, "float", number of debt/equity security holders, earnings, income declines, "subject to" accountants opinions, and downgrading of bond ratings. Most commentators, however, objected to what they perceived as certain theoretical inconsistencies in these requirements. For example, certain eligibility requirements of Form A were viewed as being based upon an efficient market theory of information dissemination, such as the Exchange Act report requirements and the "float" requirements, while others, such as the net income requirements and the non-default requirements, were viewed as "quality of issuer" requirements having little or nothing to do with an efficient market. The same type of inconsistency was seen in the "downgraded bond rating" condition in proposed Form B, which was clearly meant to be a "quality of issuer" test and, according to many commentators, was not an appropriate criterion. As a consequence, in drafting proposed Forms S-3 and S-2, the Commission has made a concerted effort to revise the eligibility requirements in a manner that is simple and rational and is consistent with its intention to classify registrants on the basis of the degree of information disseminated and analyzed in the marketplace.

1. Form S-3. The eligibility requirements for use of Form S-3 are broken down into two classifications, "Registrant Requirements" and "Transaction Requirements." A registrant first must meet the Registrant Requirements (which are identical for Forms S-3 and S-2) and then must meet at least one of the Transaction Requirements before it can use Form S-3.

a. Registrant Requirements. The first three Registrant Requirements are quite similar to those proposed in Form A and in existing Form S-7. The first requires that the registrant be organized under the laws of the United States, its various states or territories, and have its principal business operations located there. The second requires that the registrant have a class of securities registered pursuant to Section 12(b) or 12(g) of the Exchange Act or be required to file reports pursuant to Section 15(d) of that Act. The third requires that the registrant have filed all the information required by Sections 13, 14 or 15(d) of the Exchange Act for at least 36 months and have been timely in such filings for the preceding 12 months. These requirements are necessary because the operation of an efficient market for a security depends on such information being made public promptly and its inclusion in filings made under the Exchange Act helps ensure its accuracy. One change from the Forms S-7 format should be noted, namely, the requirement that a "Section 15(d) company" send its security holders a report complying with Exchange Act Rule 14a3(b). This requirement seemed too broad and was deleted. ²⁶ The distribution of such a report to existing common shareholders, for example, would not appear to add much to the quantum of information in the market place when a primary offering of common stock is being made. Conversely, however, the distribution of such a report to existing common shareholders could be quite helpful in a rights offering of common stock. Accordingly, while the broad requirement to disseminate such reports was deleted, a narrower and more appropriate application was adopted for all registrants making rights offerings, or having outstanding warrants, convertible securities or dividend or interest reinvestment plans (See Transaction Requirements below).

The fourth Registrant Requirement extensively revises existing "default criteria" by disqualifying only those registrants with material defaults that occurred since the filing of the last Exchange Act report containing certified financial statements. This change is believed to be more consistent with the concept that Form S-3 should be available to those registrants about whom information is broadly disseminated, i.e., widely followed registrants whose defaults are common knowledge should not be barred from using a short form just because a default has occurred. The new requirement that disclosure of the default must have undergone the scrutiny of at least one audit is believed sufficient to ensure its adequate dissemination. In addition, the default criteria also were revised in an effort to clarify the applicable materiality standards.

The fifth Registrant Requirement deems certain foreign private issuers that supply Exchange Act reports comparable to their domestic counterparts to have complied with the first three Registrant Requirements.

The seventh eligibility requirement, which grants to a majority-owned subsidiary the Form S-3 eligibility of a parent that guarantees the subsidiarys securities, is substantially similar to its Form S-7 predecessor. However, a sentence has been added to remind registrants that such a guarantee constitutes a separate security.

b. Transaction Requirements. The Transaction Requirements have been significantly simplified and reduced from their counterparts in proposed Form A and existing Form S-16, with Form S-3 containing only four such requirements. If a registrant, which meets the eligibility requirements, meets the conditions of any one of the Transaction Requirements, it may use Form S-3 for the covered transaction.

i. Primary and Secondary Offerings. The first requirement proposes that, in order to use Form S-3 for primary and secondary offerings, an issuer must have a minimum of $150 million in aggregate value of voting stock held by non-affiliates (hereinafter referred to as "float"). This test was designed to make the Form available for such offerings only to those issuers which are actively and widely followed in the securities markets. The proposed standard is the product of Commission consideration of the comments received on the ABC eligibility criteria and supplementary research and consultations undertaken during the interim period. These research and consultation activities included reviewing the eligibility criteria used by trading market organizations to identify similarities of objectives and criteria with those of the Commission; examining the research and reporting practices of investment institutions and other financial information disseminators to assess the breadth of information dissemination in security markets; and examining the factors considered in the adoption of similar eligibility standards for Form S-16.

In addition, a survey of a sample of registrants provided the Commission with background information for its deliberations. The Registrant Monitoring Survey was used to gather information on various issuer specific financial and market characteristics that potentially could serve as eligibility criteria for the proposed Forms. The survey was based on a statistical sample of registrants listed on the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), and the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), a sample universe consistent with the Commissions interest in differentiating among companies based on market following. For each registrant, information was collected on financial characteristics, such as earnings, revenues and asset size, and market characteristics such as market capitalization, float and trading volume. The survey permits an assessment of the statistical relationships between various prospective criteria and an understanding of the impact of various eligibility frameworks on the sample universe of companies. ²⁷

The proposed criteria are the product of two related considerations. First, the Commission sought to identify the types of criteria that have the strongest relationship to widespread dissemination in and following by the market place. Second, the Commission sought to determine the threshold levels that delineate those companies for which information is widely disseminated. These considerations are consistent with the view that, for certain companies that are widely and actively followed by the market, prospectus disclosure to potential investors may be limited to essential matters concerning the issuer and the offering without decreasing investor protection or market efficiency.

The Commission believes that the proposed eligibility standard for primary and secondary offerings defines that segment of issuers which are subject to extensive ongoing monitoring and evaluation in the securities markets. The Commission specifically invites commentators to address the proposed criterion, with particular attention to whether it fulfills this objective. Commentators are urged to supplement their views with specific standards employed by securities market participants in making research or investment coverage decisions. The following discussion of the considerations that led to its proposal is provided in order to acquaint commentators with factors they should address.

(A) Types of Criteria

In considering prospective types of criteria, the Commission did not limit itself to simply reexamining the existing Form S-16 standards or the earlier proposed Form A standards. The Commission reviewed various types of criteria used by investment institutions in research coverage decisions, by financial publishers and service providers in reporting decisions, by trading market organizations in listing and delisting situations and by the Federal Reserve Board in determining marginable over-the-counter stocks. In the course of its deliberations, the Commission considered as possible criteria market capitalization, float, asset size, net income, revenues, trading volume, number of shareholders, and number of market makers. In addition, the use of multiple year trends for such criteria was considered.

The decision to propose float as an eligibility standard resulted from the comments received on the ABC Release and the Commissions research, consultations and experience. Float is a widely used eligibility criterion among trading market organizations that seek to measure the breadth of market following in listing and delisting situations. The NYSE, AMEX and NASDAQ each use float as an eligibility standard. In addition, the Federal Reserve Board uses float as a criterion to delineate over-the-counter issues that may be traded on margin. Moreover, commentators on the ABC Release, with few exceptions, supported the continued use of float as an eligibility standard, although there was a diversity of views on the appropriate threshold level.

Among information disseminators, the types of criteria used by investment institutions are viewed as having the greatest relevance to the development of eligibility criteria. Other types of information disseminators, such as general economic and financial publishers, analytical/advisory services, and statistical/reference services, appear to use sparse numerically-defined criteria in reporting coverage decisions. Moreover, only investment institutions have the capacity to both synthesize market information and directly translate their research into investment decisions, thereby impacting market prices. Consultations with nine investment institutions revealed that float is a prominent, numerically-defined standard in making research coverage decisions. ²⁸ The prominence of this criterion apparently reflects the concern of investment institutions that covered issues have sufficient market depth to support "buy" and "sell" recommendations without price distortion. Moreover, float is often viewed as an indicator of potential investor demand for research products of the investment institutions, i.e., the greater the outside holdings and visibility of an issue, the greater the likely interest of investors in research products. Regardless of the reasons for the wide use of public float as a coverage consideration, the Commission views as significant the strong relationship between float and information dissemination to the market and following by investment institutions.

In addition to float, the Commission also considered utilizing trading volume units as an eligibility standard. Trading activity also appears to shape the nature of information dissemination to and following by the market. Trading volume was among the prominent criteria used by the surveyed investment institutions in making research coverage decisions. Like float, this standard is often viewed as an indicator of the market depth of an issue. However, the use of trading volume as an eligibility criterion can arguably add uncertainty to an issuers eligibility to use Form S-3. Also, the use of trading volume as a criterion may tend to operate against those issues that are held by investors for an extended length of time. In view of these and other concerns, the Commission is not proposing the use of trading volume units as an eligibility criterion. However, in the discussion of threshold levels below, the Commission requests comments on the tandem use of trading volume and public float as an eligibility test to supplement a separate float standard.

Other types of measures also were considered by the Commission, but rejected for use as eligibility standards. These measures include earnings, market capitalization, number of shareholders, number of market makers, asset size and revenues. The various measures were deemed inappropriate for either of two reasons: (1) the measure appeared to have no relationship to the breadth of information dissemination in the market; or (2) the measure was so statistically related to float that the criterion would have had a largely duplicative effect as an eligibility standard.

Proposed Form A instructions contained an earnings-based eligibility criterion. This earnings test, which required the issuer to have had consolidated income of at least $250,000 for at least three of the past four years, arose from the historical antecedents of the form, existing Form S-7 and S-16. Commentators expressed a diversity of opinion regarding the earnings standard. A few commentators suggested that the earnings test was an appropriate criterion, but that the $250,000 threshold was too low. Others recommended that the standard be lowered or eliminated as a criterion. This latter group of commentators posited that the earnings test would deny some of the largest, most widely followed public companies use of a short from registration statement during years in which they had a loss. Consultations with investment institutions and other information disseminators confirmed that earnings was not among the most important considerations in coverage decisions. A computer analysis of the relationship between earnings and the other proposed criteria revealed little basis for retaining an earnings-based standard. For these reasons, the Commission removed the earnings standard from the eligibility framework.

A measure closely related to float is market capitalization. While float represents the aggregate market value of stock held by non-affiliates, market capitalization represents the aggregate market value of all outstanding stock. The similar definitional bases for the two standards pressage a strong statistical relationship. This relationship renders the use of both standards as eligibility criteria duplicative and unnecessary. Consultations and research suggest that, although market capitalization is a consideration in the research coverage decisions of investment institutions, float is more consistent with the objectives of the eligibility framework. This finding is consistent with the Commissions earlier decision to reject market capitalization as an eligibility factor for Form S-16, determining that `float available for public trading is more indicative of general market interest in a company than total market capitalization which may include significant amounts of stock not available for trading." ²⁹

Other factors considered as eligibility criteria included the number of shareholders of an issuer, which did not prove to be necessarily indicative of the general interest in the securities of an issuer. A test based on the number of shareholders may tend to operate against issuers with relatively higher proportions of investors with large holdings. By definition, issues attracting large numbers of investors with large holdings have a smaller number of shareholders for the same number of shares outstanding. As a result, a company with a relatively large number of substantial investors might not qualify, while a company with a larger number of small investors might qualify for eligibility. This effect would be inconsistent with the Commissions interest in the breadth of information dissemination, as the coverage decisions of investment firms can be influenced by the needs of their larger institutional clients.

The number of market makers for a particular issue may be an indicator of brokerage following in the over-the-counter market, but it is not an applicable measure for all issues listed on exchanges. Conversely, the Commission believes that the float standard is an acceptable indicator of information dissemination regardless of the trading market. In the absence of a demonstrated reason to supplement the float requirement for over-the-counter issues, the Commission finds that a market maker standard is not a necessary component of an eligibility framework.

The asset size and revenues of a company tend to be more strongly related to the nature of the issuers business than securities market following. Moreover, the use of revenues as a standard would tend to operate against companies suffering temporary business downturns due to cyclical changes in the economy.

(B) Threshold Levels

In determining that float is an important factor in information dissemination decisions, the Commission sought to establish numerical threshold levels that delineate those companies for which information is widely and effectively disseminated. This release proposes a threshold level of $150 million in float. The proposed threshold is the product of a review of the comments on the ABC Release, an assessment of the practices of investment institutions in making research coverage decisions, and an analysis of the implications of various thresholds through the use of the Registrant Monitoring Survey. In addition, the Commission considered the factors that led to the adoption of the $50 million standard for Forms S-7 and S-16.

ABC commentators on the $50 million standard in Form A generally opined that the float threshold should be raised. Of those few commentators that suggested specific alternative levels, several recommended $100 million as a more appropriate standard. One commentator recommended that the float test be increased to at least $150 million since few companies with market capitalization of less than $250 million are followed by analysts of even the brokerage firms with the largest staffs. Among those supporting a lower threshold, one commentator suggested a $25 million standard, so as to allow use of Form S-3 by companies in service-related industries that do not requirements amounts of capital to generate revenues and profits.

Commission consultations with the investment community confirmed the use of numerically-defined criteria by investment institutions to assist in coverage decisions. Of the consulted institutions using float as a criteria, the numerical thresholds ranged from $20 million to $100 million. However, the role of these numerically defined criteria do not allow ready conclusions on the scope or breadth of widely followed issues. Investment institutions typically view the numerical criteria as an aid to decision-making. Companies meeting the criteria are not assured of coverage; they are merely assured of further consideration for ongoing monitoring and evaluation. In practice, only a portion of the companies meeting the numerical threshold actually receive ongoing monitoring and evaluation. For example, a major investment firm requires that an issue have a float of at least $20 million and a daily trading volume of at least 2000 shares in order to be considered for coverage. But, in practice, most of the issues actively followed by the firm have a float of over $100 million, and even at that level an issue is not assured of coverage.

Since investment institution coverage thresholds are at best an indicator of the segment of companies not followed by analysts (i.e., those companies failing to meet the threshold level), a more relevant factor is the threshold over which all issuers are covered on a regular basis. Among the investment firms contacted, none felt confident in identifying such a threshold. However, there appeared to be general recognition that as the public float level increases the proportion of actively followed issuers in the group also increases.

The release which adopted the $50 million requirement for the use of Form S-16 ³⁰ stated that "this requirement will provide some assurance that, in addition to wide dissemination of information about companies in the marketplace, security analysts follow companies of this size." ³¹ Based on its recent research and consultations, the Commission now believes that the $50 million standard does not provide the necessary level of assurance for the use of proposed Form S-3.

The origin of the $50 million standard was a report by the Financial Analysts Federation ("FAF") to the Advisory Committee on Corporate Disclosure. ³² The FAF was requested to survey the practices of investment institutions in order to determine if, "in the universe of publicly held companies,... there (is) an identifiable segment of companies which are not the focus of significant fundamental security analysis" (emphasis added). ³³ The FAF report described a range of coverage thresholds based on market capitalization, varying from less than $15 million to over $200 million. At the time, the $50 million threshold was viewed as meeting Commission objectives. However, in the context of the proposed forms, the Commission views the more important consideration to be that segment of companies which are the focus of extensive ongoing monitoring and evaluation, rather than those which are not. As noted, the threshold level of this segment if likely to be considerably higher than that segment of companies which is not actively followed on an ongoing basis.

In the absence of conclusive threshold data from the investment community, the SEC Registrant Monitoring Survey was used to provide supplemental background information. The survey results allowed the Commission to test the implications of various eligibility thresholds on a selected sample of issuers listed with the NYSE, AMEX and NASDAQ. The Commission considered threshold levels ranging from $50 million to $250 million. The reasons underlying the proposed $150 million standard are articulated in the discussion that follows.

A $50 million float standard was considered by the Commission but rejected because it failed to provide the necessary level of assurance that eligible issuers indeed are actively followed by the securities markets. The survey results indicated that 49.7 percent of the sample issuers would be eligible to use Form S-3 if the float threshold was established at $50 million. ³⁴ Extending this percentage to the universe of all NYSE, AMEX and NASDAQ listed companies, roughly 2,460 companies (49.7 percent) would be eligible to use proposed Form S-3, ³⁵ or estimated 27.3 percent of all publicly reporting companies. ³⁶ The Commission does not believe that such a large number of companies is actively and widely followed in the marketplace. Consultations suggest that, with one notable exception, the research operations of larger investment institutions tend to focus their analytical efforts on 300-500 issuers at any one time. Given the propensity for wide overlapping to research activities, and indeed the need for such extensive overlapping to assure wide and intensive information dissemination, the Commission did not have sufficient comfort that a $50 million threshold was appropriate for proposed Form S-3.

The Commission also considered proposing a $250 million threshold for the float criterion. As noted previously, there seems to be general recognition that as the level of public float increases the proportion of actively followed issuers also increases. In other words, the proportion of issuers with a float over $250 million that are not actively followed by the markets will likely be less than the proportion of similarly followed issuers with a float over $100 million. Moreover, the percentage of the companies in the survey sample that met the $250 million float requirement coincides with the Commissions original proposal of making the form available to a "small top tier of companies... whose corporate information is widely disseminated. ³⁷ The survey results indicate that 21.9 percent of the issuers in the sample would be eligible to use Form S-3 with an eligibility threshold at $250 million. If this percentage is extended to the universe of all NYSE, AMEX, and NASDAQ-listed issuers, roughly 1,084 companies (21.9 percent) would be eligible to use Form S-3, ³⁸ an estimated 12.0 percent of all publicly reporting companies. ³⁹

The desirable features of the $250 million standard are somewhat dampened by the absence of conclusive data on the numerical bounds of actively followed issuers. While desiring to limit the use of Form S-3 to issuers which are subject to ongoing monitoring and evaluation in securities markets, the Commission conversely does not intend to unduly restrict the use of the abbreviated prospectus. While tentatively deciding against a $250 million standard, the Commission invites comments on the applicability of a $250 million float requirement to its concern for limiting eligibility to widely and actively followed issuers.

The Commission today proposes that an issuer must have a minimum float of $150 million in order to be eligible to use Form S-3 for primary and secondary offerings. Although significantly below the $250 million standard, the Commission tentatively considers this criterion as providing the necessary level of assurance that eligible issuers will be subject to ongoing monitoring and evaluation. Moreover, the results of the Registrant Monitoring Survey suggests an eligible universe of issuers that is consistent with its original "top tier" approach. The survey results indicate that 30 percent of the issuers in the sample would be eligible to use the short-form prospectus under a $150 million standard. Extending this percentage to the universe of all NYSE, AMEX and NASDAQ-listed issuers, roughly 1,485 companies (30 percent) would be eligible to use Form S-3, ⁴⁰ or an estimated 16.5 percent of all publicly reporting companies. ⁴¹

The numerical impact of the $150 million standard on issuers having previously used Form S-16 for registering primary equity offerings should be minimal. In the Registrant Monitoring Survey, it is estimated that less than 1.4 percent of the sample companies with a public float of under $150 million previously used Form S-16 for primary equity purposes. ⁴²

The Commission also is considering supplementing the $150 million float standard with an alternative eligibility test. Under the alternative test, an issuer with a public float of $100 million and an annual trading volume of 3 million shares would also be eligible to use Form S-3. This tandem standard, when coupled with the $150 million float test, results in approximately 32 percent of the issuers in the survey sample being eligible to use the short-form prospectus. ⁴³ Extending this percentage to the universe of all NYSE, AMEX and NASDAQ--listed companies, roughly 1584 companies would be eligible to use Form S-3 under the eligibility framework, ⁴⁴ or an estimated 17.6 percent of all publicly reporting companies. ⁴⁵

Although the trading volume remains a somewhat volatile standard, its coupling with float would provide additional stability. And while the use of trading volume as an eligibility certain may tend to operate against issues with investors holding stock for long periods, this dual standard may provide a means for recognizing those issuers intensively followed in regional markets. Although the Commissions consultations suggest a relatively high level of float is required before a nationally traded issue is actively followed, it might be posited that for certain regionally traded issues with high trading volumes a lower level of float may be more indicative of the extent of active following, due to the more limited character of the regional trading areas. While the Commission is tentative in its views on this approach, the complementary relationship between trading volume and float would allow the Commission to propose a lower level of float while assuring a minimal level of active following through a relatively strenuous trading market standard. The Commission requests specific comment on whether the alternative approach is preferable to that pertaining only to float and whether Form S-3 should have both approaches as alternatives. The Commission encourages commentators to supplement their views on float and trading volume with empirical data.

ii. Investment Grade Debt Securities. Under the second Transaction Requirement any registrant which meets the Registrant Requirements, even one which does not meet the float criteria, would be able to register certain high grade non-convertible debt securities, defined as "investment grade debt securities," on Form S-3. This proposal reflects the views of a number of commentators on the ABC Release and the Commissions position that with respect to offerings of high quality debt issues a detailed prospectus is unnecessary since such securities are generally purchased on the basis of interest rates and security ratings. ⁴⁶

Formerly, the Commission provided a short registration statement, form S-9, which permitted the registration of certain high quality debt securities. ⁴⁷ The criteria for use of former Form S-9 related primarily to the quality of the issuer. They included net income during each of the registrants last five fiscal years, no defaults in the payment of principal, interest or sinking funds on debt or of rental payments for leases, and various fixed charge coverages at least three for utilities and six for other industries. While these eligibility criteria delineated the type of issuer of high quality debt for which Form S-9 was intended, certain of its requirements may have overly restricted the availability of the form. Rather than base the availability of Form S-3 on specified quality of the issuer criteria, the Commission believes that security ratings are a more appropriate standard. In addition to considering indicia of the quality of the registrant, security ratings are also based on marketplace information ⁴⁸ about the registrant which is analogous to the efficient market for widely followed equity securities. Moreover, security ratings issued by nationally recognized statistical rating organizations are widely used and relied upon by the marketplace. Thus, security ratings appear to provide a recognized criterion for the use of proposed Form S-3.

The proposed Form would define an "investment grade debt security" as a non-convertible debt security which, at the time the registration statement becomes effective, is rated in one of the top four corporate bond categories by at least one nationally recognized statistical rating organization. ⁴⁹ The proposed use of the top four categories is consistent with the Commissions current use of securities ratings ⁵⁰ and with the categories used by the rating organizations themselves, i.e., Standard & Poors Corporation, Moodys Investor Service and Fitch Investors Service, Inc.

In view of the significance of this criterion to the use of Form S-3, the Commission requests specific comment on this threshold and on the concept of using security ratings to determine eligibility to use the abbreviated form. In addition, the Commission also is specifically requesting comments on a second possible definition of "investment grade debt securities", namely a definition utilizing specific fixed charges coverage ratios as was done in rescinded Form S-9. It would appear that most state statutes that use fixed charges coverage ratios in defining suitable debt investments for banks and other "fiduciaries" use a coverage ratio of 1.5, ⁵¹ although there are significant variations. However, such a low ratio may be inconsistent with the proposed security rating category parameters. Accordingly, commentators focusing on this area are requested to address the proper thresholds for such ratios if they were to be adopted.

Finally, it should be noted that the proposed second Transaction Requirement applies only to classes of high grade debt securities. Preferred stock, which also commonly receives ratings assigned by nationally recognized statistical rating organizations, currently is treated in the same fashion as other equity securities with regard to eligibility for use of the proposed Form. The Commission specifically solicits comment on whether this Transaction Requirement should be expanded to permit the registration of preferred stock, such as that issued by the majority-owned subsidiary of a registrant eligible to use proposed Form S-3, that is rated in one of the top four preferred stock categories by one of the nationally recognized statistical rating organizations.

iii. Securities Acquired Under a Form S-8. The third Transaction Requirement continues the current practice under Form S-16 of allowing affiliates who acquire securities under a Form S-8 to resell such securities on a short form. While the Commission recognizes this practice is not entirely consistent with its position on other secondary offerings, ⁵² it believes such an exception is necessary to prevent undue hardships as Form S-8 is no longer available for such resales and, in any event, the quantity of securities sold under such circumstances is small.

iv. Rights Offerings, Dividend and Interest Reinvestment Plans and Conversions or Warrants. The fourth and final Transaction Requirement combines what were three separate requirements in proposed Form A and in existing Form S-16, namely requirements as to rights offerings, dividend or interest reinvestment plans, and conversions or warrants. These requirements cover transactions which are similar to each other, but dissimilar to most other public security offerings, in that they involve offerings to persons who already are security holders of the registrant and accordingly may be presumed to "follow" the registrant through corporate communications and Exchange Act reports. The Commission believes that such a class of offerees does not need the additional assurances of wide information dissemination provided by the test for primary offerings and accordingly is permitting such transactions to be registered on Form S-3 without compliance with such test. Moreover, the Commission also does not believe holders of such convertible securities or warrants need the protection, if any, afforded by the restriction that there can be no commission or other remuneration paid for soliciting a conversion or exercise. It should be noted, however, the registrants are now required to send such offerees a report complying with Exchange Act Rule 14a-3(b) and that Form 10-K is always available to such offerees upon request.

Finally, three other matters should be noted. First, the definition of eligible dividend or interest reinvestment plans is proposed to be contained in Rule 405 17 CFR 230.405 under the Securities Act. Second, dividend or interest reinvestment plans would not be made effective automatically. ⁵³ Third, rights offerings by foreign private issuers will not be made on Form S-3, but presently are being studied, along with the comments received regarding foreign issuers, in connection with possible future form and rulemaking proposals.

v. Deletions From Form S-16 and Proposed Form A. The Commission is proposing to delete a number of transaction requirements currently contained in Form S-16 and proposed in Form A. Proposed Form A and existing Form S-16 are available for use by a registrant which was a majority owned subsidiary and had an eligible parent, a float of $250 million in debt and/or equity, and over 1,000 security holders receiving reports complying with Exchange Act Rule 14a-3(b). This provision is proposed to be deleted, because the Commission believes its float (voting stock) and investment grade (debt) tests have a more direct correlation to information dissemination about that registrant in the marketplace, and that Form S-2 offers a suitable alternative is such a subsidiarys securities are not investment grade debt, especially since the processing of a Form S-2 registration statement will ordinarily be similar to that for a Form S-3.

Another significant requirement of proposed Form A and existing Form S-16 was the requirement that primary offerings be underwritten. This requirement in Form A was the subject of a specific request for comment in the ABC Release. Thirty-six commentators responded, of which twenty-three were opposed to any underwriting requirement. After analyzing these comments, the Commission has decided not to repropose this requirement.

Secondary offerings were permitted on proposed Form A and no existing Form S-16 even if the issuer did not meet the requisite float requirements. This "exception" arose from the historical antecedents of Form A and Form S-16 but, as a number of commentators pointed out, from an investor standpoint there is no rational basis for such a differentiation. The Commission agrees and accordingly proposes to impose the same requirements on secondary offerings as on primary offerings made on Form S-3. Although this will increase the reporting burdens for certain offerors, the Commission believes it is necessary for the protection of investors and is somewhat mitigated by a number of factors. First, Form S-2, which gives a registrant the option of fulfilling many of the prospectus requirements by utilizing the annual report to security holders, would be available for all such secondary transactions. Second, under Securities Act Rule 153 (17 CFR 230.153) the only prospectus delivery requirements in the case of an exchange listed security would be delivery to the exchange, thereby making incorporation by reference of the annual report increasingly practical. Third, with certain limitations, Securities Act Rule 144 (17 CFR 230.144) may be available as an alternative to registration.

While the Commission believes that these changes regarding subsidiary and secondary offerings are appropriate in its new registration system, it requests specific comment on these matters.

In addition, Form A, as proposed, and current Form S-16 both contain provisions allowing secondary offerings by certain closed-end management investment companies. The Commission proposes to exclude investment companies registered under the Investment Company Act of 1940 ("1940 Act") (15 U.S.C. 80a-1 et seq.) and business development companies that have made an election pursuant to Section 54(a) of the 1940 Act 15 U.S.C. 80a-53(a) from eligibility to register securities on proposed Forms S-3 and S-2. The Commissions Division of Investment Management currently is reviewing the disclosure requirements applicable to registered investment companies and business development companies, and it will consider the appropriateness of short-form registration statements for investment companies in that context. To assist in that review, the Commission is hereby soliciting comments on whether short-form registration statements would be appropriate for investment company registrants, and what requirements should be imposed for their use.

2. Form S-2. As mentioned above, the Registrant Requirements of Form S-3 also constitute virtually the entire eligibility requirements for the use of Form S-2 and are modeled after, but are not entirely the same as, those in existing Form S-7. ⁵⁴ The Commission believes that the streamlined nature of the Form S-2 prospectus, while much more complete than that of Form S-3, still should be supplemented by the availability of a complete and current three year series of Exchange Act reports. Accordingly, it has retained the Exchange Act eligibility criteria which also are used for Form S-3.

In proposing Form B, the Commission advanced, for comment purposes, a series of three criteria designed to identify financially troubled companies and to preclude such companies from using the Form. Virtually no other area of the ABC Release elicited as much commentary as these criteria. Moreover, the commentators were almost unanimous in voicing disagreement with the Commissions suggested criteria and many questioned the appropriateness of using any type of "financially troubled company" criteria for determining eligibility to use proposed Form B. After analyzing the comments and undertaking further study, the Commission has decided to drop the "financially troubled company" eligibility criteria from proposed Form S-2. There were two principal reasons for the decision. First, the Commission, like the commentators, has been unable to develop any criteria which accurately reflect when a company is financially troubled. Second, the use of tests measuring the "quality of a registrant," such as these, is inconsistent with the basic precept of registrant classification under Forms S-3, S-2, and S-1, namely, the extent information about a registrant has been disseminated in the marketplace and the accuracy of such information.

Finally, in the ABC Release the Commission specifically requested comments on the advisability of imposing a market criterion, such as float, as a requirement for use of Form B. The majority of commentators was opposed to such a requirement. The Commission believes such criteria, which ensure adequate information dissemination, are necessary where, as in the case of an offering on Form S-3, much of the underlying disclosure is not delivered. However, with Form S-2 there is delivery of the basic disclosure documents and therefore the Commission believes that requirement can be deleted.

3. Form S-1. The eligibility requirements of Form S-1 are unchanged from those of its predecessor Form S-1 or from Form A. Accordingly, this more comprehensive form must be used by first time filers and others who have only been filing reports for a short period of time.

B. Other General Instructions

The Commission also is proposing a number of changes to the remaining General Instructions for the use of proposed Forms S-1, S-2 and S-3. The proposed amendments are intended to simplify the general instructions, to eliminate certain duplication with Regulation C, and to implement a number of changes concerning the use of the respective forms.

1. Application of General Rules and Regulations. In each of the proposed forms, the general instruction entitled "Application of General Rules and Regulations" (formerly General Instruction B) is proposed to be changed in several respects. First, the references to particular Regulation C rules which should be especially noted would be deleted to avoid giving the impression that certain rules under Regulation C are of greater importance than others. The Commission believes that the broad reference to Regulation C should be sufficient notice of the applicability of all of that regulations provisions. Second, a new paragraph would be added to direct registrants attention to Regulation S-K for the requirements as to the content of the registration statement. Finally, the instruction to Form S-3 would differ from those to Forms S-1 and S-2 by adding two provisions uniquely applicable to Form S-3. Those provisions indicate the two minor respects in which Regulation S-K does not apply (no table of contents or cross-reference sheet is required) and specify that registrants may provide information in addition to that expressly required by the form.

2. Elimination of Regulation C Duplication. The Commission is proposing to delete from proposed Forms S-1, S-2 and S-3 certain procedural instructions that were contained in proposed Forms A, B and C. These instructions are those entitled "Documents Comprising Registration Statement," contained in proposed Forms A, B and C; "Form and Content of Prospectus," contained in proposed Forms B and C; and "Preparation of Part II," contained in proposed Forms B and C. The Commission does not believe it is necessary to set forth these instructions in the Securities Act forms because, first, they are largely duplicative of provisions contained in Regulation C and second, where they contain provisions not now part of Regulation C, those provisions are of a similar procedural nature and therefore more appropriately contained in Regulation C. Accordingly, proposed Forms S-1, S-2 and S-3 do not contain these instructions. Those not already set forth in Regulation C are proposed to be added thereto in the Regulation C Release being published concurrently with this release.

3. Automatic Effectiveness of Dividend or Interest Reinvestment Plans. Proposed Form S-3 contains an instruction indicating that registration statements on that form with respect to securities offered pursuant to dividend or interest reinvestment plans will become effective automatically, with original registration statements becoming effective on the twentieth day after filing and post-effective amendments becoming effective upon filing. The Commission announced in the ABC Release that consideration was being given to allowing such registration statements to become effective automatically. A similar step was taken in February 1980, when amendments were adopted to Form S-8 (17 CFR 239.16b) to provide that original filings on that form become effective automatically twenty days after filing and post-effective amendments on Form S-8 become effective automatically upon filing. ⁵⁵ The commentators agreed with the Commission that the same considerations that 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, are equally applicable to registration statements on proposed Form S-3 relating to dividend or interest reinvestment plans. Accordingly, the Commission is proposing to allow automatic effectiveness for such registration statements. Included in Form S-3 is an instruction modeled after the Form S-8 instruction for the same purpose. In addition, because not all Form S-3 filings would become effective automatically, a box has been added to the cover page of Form S-3 indicating for processing purposes the registration of securities pursuant to dividend or interest reinvestment plans. Finally, the Regulation C Release contains proposals for corresponding amendments to Rules 464, 473, 475A, 477 and 485 to reflect the automatic effectiveness of such registration statements.

4. Foreign Subsidiaries. The Commission also is proposing to delete from proposed Forms S-1 and S-2 the general instruction concerning the omission of information regarding foreign subsidiaries. That instruction, which was contained in proposed Forms B and C and is now contained in Forms S-1 and S-7, provides that required non-financial statement information with respect to any foreign subsidiary may be omitted to the extent that disclosure would be detrimental to the registrant and establishes the procedures to be followed in such cases. The Commission believes that instances of reliance on this provision are sufficiently unusual that a specific general instruction to the forms is unwarranted. Instead, any such cases would be addressed by the Commissions exercise of its administrative discretion.

5. Exchange Offers. Under the three tier system proposed in the ABC Release, only proposed Form C was contemplated for use in registering securities issued in an exchange offer for securities of another person. Comment was specifically invited as to whether proposed Forms A or B also should be available and, if so, what disclosure requirements would be appropriate for the various types of companies involved in exchange offer transactions. The Commission agrees with the many commentators who expressed the belief that the full scale disclosure requirements of Form S-1 may not be necessary for all registered exchange offers. The Commission also believes, however, that the unique disclosure needs presented by exchange offers would be better addressed in the context of an overall review of disclosure requirements applicable to all types of business combination transactions, including exchange offers. Accordingly, the Commission is considering the appropriate form and content of exchange offer registration statements as part of its separate business combination project. Therefore, for the time being, only proposed Form S-1 would be able to be used for those offers. In addition, of course, Form S-15 makes a reduced disclosure format available for certain limited exchange offers.

6. Delayed or Continuous Offerings. The ABC Release addressed the subject of offerings of securities on a delayed or continuous basis. First, commentators were invited to direct comments to the appropriateness of using all of the proposed forms for continuous primary offerings of all types and to the appropriateness of additional eligibility criteria or disclosure requirements for such offerings. Second, proposed Form C contained a general instruction referring to existing Guide 4, which interprets Section 6(a) of the Securities Act to limit the types of deferred or extended offerings which may be registered, including those at the market. The Guides Release dealt further with this area, proposing to delete Guide 4 and to replace it with proposed Rule 462A, which would permit shelf registration for delayed and continuous offerings. Commentators favorable responses to both the ABC Release inquiries and the Guides Release proposal have been considered and are reflected in the proposed Rule 462A being published concurrently with this release to permit registration for delayed or continuous offerings. ⁵⁶ The Commission is deleting the general instruction from proposed Form S-1 as unnecessary in light of the other rulemaking being proposed to address shelf registration.

7. Time Between Filing and Effectiveness. Because the proposed Form S-3 eligibility criteria are based on the Commissions belief that information about companies using the form already is known or is so readily available that it need not be repeated in a prospectus, the Commission specifically inquired in the ABC Release whether it should impose a minimum time period between filing and effectiveness of a registration statement on Form A. The Commission indicated that such a minimum period would address the concerns that extremely short time in registration could diminish the opportunity afforded underwriters to make independent verification of the disclosure in the registration statement and could both deprive investors of sufficient time to review Exchange Act information incorporated by reference and deprive the market of sufficient time to assimilate publicly available Exchange Act information and information about the offering contained in the prospectus.

Most of the commentators who responded to this inquiry believed that a minimum period between filing and effectiveness would be of limited utility for underwriter verification purposes because it would occur after the prefiling period during which underwriters due diligence efforts generally are made. A number of commentators also suggested that a specific minimum time requirement would obstruct the ready and flexible access to capital markets which Form S-3 is designed to provide.

The Commission believes that sufficient time should be allowed before a Form S-3 registration statement becomes effective to ensure that the information contained in the registration statement, both that presented directly in the prospectus and that incorporated therein from Exchange Act reports, is publicly available and assimilated by the market. The Commission does not believe that Form S-3 registration statements should become effective unless both the Exchange Act information about the issuer and the disclosure presented in the prospectus have been sufficiently available to the public. Nevertheless, in view of the difference which exist among offerings and the difficulty of setting a uniform time period, the Commission believes it can more effectively deal with this problem through its administrative discretion to grant requests for acceleration, and, therefore, is not proposing a minimum time period requirement before Form S-3 registration statements may become effective.

C. Disclosure Provisions

In proposed Forms S-1, S-2 and S-3, the Commission has developed a Securities Act registration system which identifies the information material to investment decisions in the context of all public offerings and then determines in what form and to whom issuers must disseminate such information. The material information will be required to be part of all Securities Act registration statements, regardless of the form used, through incorporation by reference in some cases. Differences among the forms primarily involve dissemination, i.e., the extent to which the required information must be presented in the prospectus, or may be presented in other documents delivered with the prospectus and incorporated by reference, or may be simply incorporated by reference from information contained in the Exchange Act continuous reporting system.

Generally, it is the issuer-oriented part of the information material to a public offering, as opposed to the transaction-specific information, which, depending on the form available, may be satisfied otherwise than through full prospectus presentation. This information includes the basic package of information about the issuer which the Commission believes is material to investment decisions in all contexts and thus is also required to be presented in annual reports to the Commission on Form 10-K and in annual reports to security holders. ⁵⁷ Information about the offering will not have been reported on in any other disclosure document or otherwise have been publicly disseminated and thus will be required to be presented in all cases.

1. Uniform Disclosure Requirements. The ABC Release proposed to make uniform the disclosure requirements relating to the offering of securities being registered, with proposed Form A serving as the initial repository of the uniform requirements. The Commission stated, however, that it intended these uniform disclosure items ultimately to be placed in Regulation S-K. The Guides Release then proposed moving these items from proposed Form A into Regulation S-K and, where appropriate, proposed to augment the text of the items with provisions proposed to be moved from various of the Guides for the Preparation and Filing of Registration Statements and Periodic Reports ("the Guides"). The Regulation S-K Release being published concurrently with this release reproposes Regulation S-K in its entirety.

Regulation S-K, as currently proposed, includes as §229.500 (Registration statement and Prospectus Provisions) and as Item 202 of §229.200 (Securities of the Registrant) all those uniform disclosure requirements pertaining to public offerings of securities. Proposed §229.500 of Regulation S-K is derived from the uniform items in proposed Form A, the Guides, and the suggestions of public commentators on both proposed Forms A,B and C and the Guides Release, as well as further staff consideration of all aspects of the integration rulemaking program, including the proposed sunset revision of Regulation C. All three forms, proposed Forms S-1, S-2 and S-3, require inclusion of the information specified by each of the items comprising §229.500. Those items are: Item 501, Forepart of the Registration Statement and Outside Front Cover Page of Prospectus; Item 502, Inside Front Cover and Outside Back pages of Prospectus; Item 503, Summary Information and Risk Factors; Item 504, Use of Proceeds; Item 505, Determination of Offering Price; Item 506, Dilution; Item 507, Selling Security Holders; Item 508, Plan of Distribution; Item 509, Interests of Named Experts and Counsel; Item 510, Indemnification of Directors and Officers; Item 511, Other Expenses of Issuance and Distribution; and Item 512, Undertakings. Attention is directed to the Regulation S-K Release for the text of those items and a discussion of the substantive provisions thereof. ⁵⁸

The order of the transaction-oriented disclosure requirements of Proposed Forms S-1, S-2, and S-3 calling for the disclosure specified in the provisions of §229.500 has been rearranged to correspond to the order of the items within that section of Regulation S-K. This order of presentation of item requirements is intended to simplify registration statement preparation by corresponding to what is the most commonly employed registration statement format. Included in this reorganization of items within all three proposed forms is the proposed move of the item calling for disclosure with respect to the interests of experts and counsel named in the prospectus from Part II (information not required in prospectus) to Part I (information required in prospectus) of the registration statement. The Commission believes that such disclosure appropriately is presented in the prospectus. ⁵⁹

Part II of all three proposed forms will contain the disclosure concerning indemnification of directors and officers, information on other expenses of issuances and distribution, undertakings, and exhibits. In addition, Part II of proposed Form S-1 will call for financial statement schedules and disclosure with respect to recent sales of unregistered securities (proposed Item 701 of Regulation S-K).

2. Incorporation by Reference. The technique of incorporation by reference of Exchange Act disclosure documents is central to the integrated Securities Act registration system represented by proposed Forms S-1, S-2 and S-3. Proposed Form S-3 relies on incorporation by reference to replace prospectus representation of information about the issuer of the securities being registered. Proposed Form S-2 uses incorporation by reference to allow streamlining of the prospectus presentation of issuer-specific information. Proposed Form S-1 uses no incorporation by reference and instead requires full disclosure about the issuer of the securities to be presented in the prospectus.

The specific incorporation by reference provisions of proposed Forms S-2 and S-3 reflect a number of changes from those of proposed Forms A and B. First, the incorporation by reference items (Item 12 of both proposed Forms S-2 and S-3) would now be contained in Part I of the forms and would require incorporation of the specified reports and information by reference into the prospectus itself rather than into Part II of the registration statement. ⁶⁰ Moving this item to Part I of the forms means that the prospectus will be deemed to contain full disclosure about both the issuer and the transaction regardless of whether the information is actually presented in the prospectus or is allowed to be incorporated therein by reference from other documents. Investors thus will be afforded the full protections of the liability provisions under the Securities Act, both those of Section 11 and those of Section 12(2), with respect to information about the issuer without regard to the particular form used to register the securities offered. ⁶¹

Second, unlike proposed Forms A and B, proposed Forms S-2 and S-3 would require the prospectus to contain the detailed description listing all material incorporated by reference therein. A number of commentators were of the view that this information is most appropriately placed in the prospectus itself, as is the case with existing Forms S-8 and S-16. The Commission agrees that investors should be given the benefit of being informed that other documents or information are deemed part of the prospectus, particularly in light of the fact that investors may request and have provided to them without charge the documents incorporated by reference. The Commission believes that the benefit of notice to investors outweighs the advantages of flexibility and prospectus brevity which were sought in the proposed Forms A and B formulation.

Third, the Commission has deleted from the proposed Form S-2 and S-3 incorporation by reference items the provisions contained in item 8(b) of proposed Forms A, B and C concerning potential liability for documents incorporated by reference. These provisions were originally proposed as amendment to Form S-16 in 1978 ⁶² and were designed to address the concerns of underwriters and others 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. These provisions are proposed to be included in proposed Rules 412 and 418 of Regulation C. They, as well as a new rule relating to be responsibility of persons subject to Section 11 of the Securities Act in an integrated disclosure system, Rule 176, are discussed in a separate release published concurrently with this release. ⁶³

3. Disclosure Requirements by Form. a. Form S-3. Proposed Form S-3 provides the shortest form for Securities Act registration. The prospectus would be required to present the same uniform Regulation S-K items calling for information about the offering which are discussed above. The Commission shares the views of the commentators who questioned the need for summary information in a short form prospectus, but believes that the proposed Regulation S-K item dealing with summary information and risk factors (Item 503), which directs registrants to consider whether the length or complexity of the prospectus makes inclusion of a summary of information therein appropriate, would call for a summary in a Form S-3 prospectus only where one would be meaningful. Similarly, in response to the commentators, the proposed Regulation S-K dilution item (Item 506) has been drafted to be sufficiently flexible so that it, too, would necessitate disclosure only where there could be material dilutive effects.

Information concerning the registrant would be incorporated by reference from Exchange Act reports, which would be available to investors on request. The documents required to be incorporated are the latest annual report on Form 10-K and all other reports filed pursuant to section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the Form 10-K, including all Section 13(d) or 15(d) reports filed subsequent to effectiveness of the registration statement and prior to termination of the offering. ⁶⁴ Unless there has been a material change in the registrants affairs which has not been reported in an Exchange Act filing, the prospectus would not be required to present any information concerning the registrant. Where not reflected in filed Exchange Act reports incorporated by reference the following information would have to be included in the prospectus (1) financial information required by Rules 3-07 and 3-08 of Regulation S-X where the registrant has effected or is about to effect a transaction involving successions to a business for which such information is required; ⁶⁵ (2) restated financial statements where there has been a change in accounting principles or a correction of an error and such change or correction requires a substantial restatement of financial statements or where a business combination accounted for as a pooling of interests has been consummated subsequent to the most recent fiscal year end; or (3) any financial information required because of a material disposition of assets outside the normal course of business. Where such information is incorporated by reference, the prospectus would be required to so state and to describe briefly the transaction, accounting change, error, or disposition. The Commission requests comment on the need for a brief prospectus description of subsequent material developments which are described in reports incorporated by reference.

The formulation of Proposed Form S-3 differs from that of proposed Form A in several major respects. First, the proposed Regulation S-K summary information item does not contain a requirement to include selected financial data. Thus, proposed Form S-3 does not require selected financial data concerning the registrant to be presented in the prospectus but relies instead on incorporating that data by reference from the registrants Form 10-K. Second, only if an Exchange Act report has not been filed containing the information called for by Rule 3-07 or 3-08 would that information be included. Third, restated financial statements and information concerning material dispositions of assets would be treated the same as past or future successions to other businesses; all would trigger either full prospectus disclosure or a prospectus description of the incorporated information. This change reflects the public commentators general agreement that the shortest form registration statement should still be available despite the occurrence of a transaction to which rule 3-07 or 3-08 is applicable and that mandatory presentation of Rule 3-07 or 3-08 financial information in all cases would be inconsistent with the theory of the Commissions shortest form registration statement, as well as with the treatment of restatements of financial statements and of material dispositions of assets.

b. Form S-2. Proposed Form S-2 provides a simplified form for registration by certain registrants. While it requires delivery of information about the registrant in addition to delivery of the same information about the offering as required by Form S-3, proposed Form S-2 significantly streamlines the registrant-specific disclosure by making required level of disclosure delivered to investors that of the annual report to security holders pursuant to Rule 14a-3 rather than that of the annual report on Form 10-K. Required information about the registrant includes the basic information package components (market price and dividend data, selected financial data, financial statements ⁶⁶ and managements discussion and analysis) and such other items (brief descriptions of business, segments, supplementary financial information) as are required to be included in the annual report to security holders pursuant to Rule 14a-3. Moreover, registrants are granted the option of providing this information either by presenting it in the prospectus or by delivering the latest annual report to security holders along with the prospectus. ⁶⁷ Finally, the registrants latest annual report on Form 10-K and periodic reports on Form 10-Q and Form 8-K must be incorporated by reference into the prospectus, and made available upon request, to round out the information provided about the registrant.

Several of the commentators who addressed proposed Form B questioned the value of providing registrants the option of satisfying information delivery requirements by either furnishing the annual report to security holders or including specified information about themselves in the prospectus. The Commission believes, however, that the option of annual report delivery provides registrants the opportunity to take advantage of an existing document to effect registration cost savings where appropriate, particularly since, as the form indicates, a legible facsimile of the annual report may be used. Because this provision is optional, registrants may elect not to deliver their annual reports in cases where doing so would be impracticable or where they choose not to do so for other reasons. The Commission believes that the option of delivering the annual report to security holders with the prospectus would be most helpful and cost effective in transactions which do not involve large numbers of offerees or which will be made at the market or over an exchange. For example, companies could avail themselves of this inexpensive method to register securities that might otherwise be offered in private placements or be the subject of fairness hearings required for exemption under Section 3(a)(10) of the Securities Act. ⁶⁸

A number of commentators suggested that the Commission designate the annual report on Form 10-K as the document to be used in Securities Act transactions. The Commission has determined, however, not to alter its choice of the annual report to security holders as the existing disclosure document which is allowed to be delivered in lieu of prospectus reiteration. This choice represents a policy decision to favor the readability of the annual report to security holders over the fuller disclosure of the annual report on Form 10-K. Experience to date with Form S-15, ⁶⁹ which is an optional form for registration in limited types of business combinations usually not involving large numbers of offerees and which mandates delivery of the issuers annual report to security holders, indicates that the use of the annual report to security holders for the purpose of Securities Act registration is viable. Registration statements on Form S-15 have been filed in ever-increasing numbers since the form was first adopted. ⁷⁰ Of perhaps greater significance is the fact that a number of Form S-15 issuers have made maximum use of existing annual reports to security holders by electing to deliver the acquired companys annual report to security holders in addition to their own reports.

If the Form S-2 registrant elects the alternative of delivering its annual report, it must incorporate certain information in that document by reference and describe in the prospectus any material changes in its affairs since the end of the latest fiscal year reported in the delivered annual report. In addition, it must provide updating information but may avoid duplication of previously reported quarterly information because updating may be accomplished by any one of three means: (1) including in the prospectus such financial and other information as would be required to be reported in a report on Form 10-Q; (2) delivering a copy of the latest Form 10-Q with the prospectus and annual report; (3) delivering a copy of the latest informal quarterly report to shareholders if such report contained the same required information. In response to commentators concerns about a loss of flexibility, the Commission has deleted the instruction which would have required a Form 10-Q used to accompany a prospectus to be filed at least ten days prior to effectiveness of the registration statement because it believes such an instruction unnecessary. At the same time, however, the Commission is proposing an amendment to Rule 402(a)(2) in the Regulation C Release for the same staff processing purposes that prompted the now deleted instruction. Rule 402(a)(2) would require that copies of Form 10-Q reports which registrants using Form S-2 or S-15 have chosen to deliver with the prospectus in lieu of prospectus reiteration must be included with all copies of the registration statement filed with the Commission. Finally, the Commission has added the informal quarterly report, if delivered with the prospectus, to the documents which must be incorporated by reference therein.

Proposed Form B would have disallowed the annual report option if the registrant has effected or is about to effect a transaction for which information is required by Rule 3-07 or 3-08 of Regulation S-X. Proposed Form S-2 has been changed to reflect the Commissions view, as well as that of the commentators, that the annual report option should be available in the case of a past or future succession to another business so long as information respecting the succession is presented in the prospectus or the annual report delivered with the prospectus. ⁷¹

Proposed Form S-2 also reflects a change from proposed Form B in the treatment of disclosure with respect to oil and gas operations. Proposed Form B allowed registrants with oil and gas operations to use their annual reports to security holders but would have required such registrants which not elect the annual report option to include in the prospectus the same level of disclosure with respect to oil and gas operations as is required in annual reports on Form 10-K. As was pointed out by the commentators, this provision would have meant delivery of different disclosure respecting oil and gas operations depending on whether the registrant used the annual report option. Proposed Form S-2 contains no separate provision concerning oil and gas operations and thus requires consistent disclosure levels regardless of delivery method, because a prospectus would have to contain only the same level of information as required to be included in the annual report to security holders.

C. Form S-1

Proposed Form S-1 presents a simple format. Full disclosure of all material information about the offering and the registrant is required to be presented in the prospectus itself. No incorporation by reference to any Exchange Act documents is allowed. Proposed Form S-1 looks entirely to Regulation S-K for its non-financial substantive disclosure provisions. First, like proposed Forms S-2 and S-3, proposed form S-1 requires prospectus presentation of the offering-oriented items of §229.500 of Regulation S-K and the description of securities (proposed Item 202 of Regulation S-K). In addition, the proposed Form S-1 prospectus must include the same information about the registrant as is required to be reported in an annual report on Form 10-K. This information includes, in addition to the basic information package with respect to the registrant, ⁷² the full Regulation S-K descriptions of business, properties and legal proceedings as well as the Regulation S-K disclosures with respect to management and security holders. ⁷³

With regard to disclosure concerning management and security holders, proposed Form c would have allowed registrants who have been reporting companies for three years to incorporate the required information by reference rather than set it forth in the prospectus. The Commission agrees with the view of some commentators that information as to the identity and background of management and the identity of principal shareholders is relevant information which should be included in the Form S-1 prospectus. Accordingly, proposed Form S-1 does not allow information on management and security holders to be incorporated by reference.

D. Other Aspects of Proposed Forms

1. Audit Committees. In proposing Forms A, B and C, the Commission specifically requested comment on whether to require disclosure concerning audit committees. ⁷⁴ The Commission inquired as to whether such disclosure should be required and, if so, whether it should simply go to the existence of an audit committee or should, like Schedule 14A (17 CFR 240.14a-101), go further and include the functions performed and the number of meetings held. The Commission also pointed out that in the cases of reporting companies, this information is disclosed in election of director proxy statements and therefore requested comment on whether such a disclosure requirement should be limited to first time issuers.

All of the commentators who responded to the Commissions inquiry questioned the necessity for audit committee disclosure, especially for registrants other than first time issuers. These commentators generally favored the concept of audit committees but believed proxy statement disclosure is adequate with respect to the committees and their functions. Accordingly, the Commission is not proposing to require disclosure concerning audit committees in proposed Forms S-1, S-2, or S-3.

2. Signature Provisions, Several clarifying changes have been made in the signature provisions of proposed Forms S-1, S-2, and S-3. First, a sentence has been added to Instruction 1 to make explicit the staffs longstanding position that, where the issuer is a limited partnership and where a signing general partner is a corporation, a majority of its board of directors also must sign the registration statement. Second, Instruction 2 has been augmented by a reference to Rule 402 concerning manual signature and signatures pursuant to powers of attorney. Finally, in light of the selective review procedures employed by the Division of Corporation finance and the proposed automatic effectiveness of certain Form S-3 registration statements, the signature provisions of proposed Forms S-2 and S-3 have been changed so that the registrant certifies that it meets the requirements for filing on the respective form. This provision is modeled after a similar provision added to the signature provision of Form S-8 when that form was amended to become effective automatically. ⁷⁵

3. Summary Prospectuses. Rule 434A (17 CFR 230.434a) sets forth conditions for the use of summary prospectuses permitted under Section 10(b) of the Securities Act, including a condition that the form used to register the securities provides for the use of summary prospectuses, and states that a summary prospectus shall contain the information specified in the instructions as to summary prospectuses in the registration form used. The Commission believes that the use of Rule 434A summary prospectuses in connection with registration on Forms S-1 and S-2 would be appropriate and, accordingly, proposed Forms S-1 and S-2 both contain instructions as to summary prospectuses. These instructions are derived from the similar instructions in existing Forms S-1 and S-7, both of which now provide for the use of summary prospectuses. The instructions have been modified to be consistent with the revised disclosure provisions of Forms S-1 and S-2, which in turn look to the proposed provisions of Regulation S-K. With the exception of the requirement to include a brief statement concerning material pending legal proceedings required in a Form S-1 summary prospectus, both forms would require summary prospectuses to contain the same information.

Text of Proposed Forms

17 CFR Chapter II is proposed to be amended as follows:

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

By proposing new registration statement Forms S-1, S-2 and S-3 set forth below:

§239.13 Form S-3, for registration under the Securities Act of 1933 of securities of certain issuers offered pursuant to certain types of transactions.

Securities and Exchange Commission

Form S-3.--Registration Statement Under the Securities Act of 1933

____________________

(Exact name of registrant as specified in its charter)

____________________

(State or other jurisdiction of incorporation or organization)

____________________

(I.R.S. Employer Identification No.)

____________________

(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)

____________________

(name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public__________

If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 462A under the Securities Act of 1933, please check the following box.

               Calculation of Registration Fee
 Title of
each class                        Proposed       Proposed

of                            maximum        maximum
securities       Amount to        aggregat       aggregat        Amount of
  to be              be            price         offering       registration
registered       registered       per unit       price              fee

Form S-3--General Instructions

I. Eligibility Requirements for Use of Form S-3

This instruction sets forth registrant requirements and transaction for the use of Form S-3. Any registrant which meets the requirements of I. A. below ("Registrant Requirements") may use this Form for the registration of securities under the Securities Act of 1933 ("Securities Act") which are offered in any transaction specified in I.B. below ("Transaction Requirement") provided that the requirements applicable to the specified transaction are met.

A. Registrant Requirements. All registrants must meet the following conditions in order to use this Form S-3 for registration under the Securities Act of securities offered in the transactions specified in I.B. below:

1. The registrant is organized under the laws of the United States or any State or Territory or the District of Columbia and has its principal business operations in the United States or its territories.

2. The registrant has a class of securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") or a class of equity securities registered pursuant to Section 12(g) of the Exchange Act or is required to file reports pursuant to Section 15(d) of the Exchange Act.

3. The registrant: (a) has been subject to the requirements of Section 12 or 15(d) of the Exchange Act and has filed all the material required to be filed pursuant to Sections 13, 14 or 15(d) for a period of at least thirty-six calendar months immediately preceding the filing of the registration statement on this Form; and (b) has filed in a timely manner all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement and, if the registrant has used (during the twelve calendar months and any portion of a month immediately preceding the filing of the registration statement) Rule 12b-25(b) (17 CFR 240.12b-25(b)) under the Exchange Act with respect to a report or a portion of a report, that report or portion thereof has actually been filed within the time period prescribed by the Rule.

4. Neither the registrant nor any of its consolidated or unconsolidated subsidiaries have, since the end of the last fiscal year for which certified financial statements of the registrant and its consolidated subsidiaries were included in a report filed pursuant to Section 13(a) or 15(d) of the Exchange Act: (a) failed to pay any dividend or sinking fund installment on preferred stock; or (b) defaulted (i) on any installment or installments on indebtedness for borrowed money, or (ii) on any rental on one or more long term leases, which defaults in the aggregate are material to the financial position of the registrant and its consolidated and unconsolidated subsidiaries, taken as a whole.

5. A foreign private issuer which satisfies all of the above provisions of these registrant eligibility requirements except the provisions in I.A.1. relating to organization and principal business shall be deemed to have met these registrant eligibility requirements provided that such foreign issuer files the same reports with the Commission under Section 13(a) or 15(d) of the Exchange Act as a domestic registrant pursuant to I.A.3. above.

6. If the registrant is a successor registrant, it shall be deemed to have met conditions 1., 2., 3., and 4. above if: (a) its predecessor and it, taken together, do so, provided that the succession was primarily for the purpose of changing the state of incorporation of the predecessor or forming a holding company and that the assets and liabilities of the successor at the time of succession were substantially the same as those of the predecessor; or (b) if all predecessors met the conditions at the time of succession and the registrant has continued to do so since the succession.

7. If a registrant is a majority-owned subsidiary it shall be deemed to have met the conditions of these registrant eligibility requirements (or the conditions of the Transaction Requirements below) if its parent meets the conditions and if the parent fully guarantees the securities being registered as to principal and interest. Note: In such an instance the parent-guarantor is the issuer of a separate security consisting of the guarantee which must be concurrently registered.

B. Transaction Requirements. Security offerings meeting any of the following conditions and made by registrants meeting the Registrant Requirements above may be registered on this Form:

1. Primary And Secondary Offerings By Certain Registrants. Securities to be offered for cash by or on behalf of a registrant, or outstanding securities to be offered for cash for the account of any person other than the registrant, including securities acquired by standby underwriters in connection with the call or redemption by the registrant of warrants or a class or convertible securities; provided that the aggregate market value of the voting stock held by non-affiliates of the registrant is $150 million or more.

Instructions. The aggregate market value of the registrants outstanding voting stock shall be computed by use of the price at which the stock was last sold, or the average of the bid and asked prices of such stock, as of a date within 60 days prior to the date of filing. (See the definition of "affiliate" in Securities Act Rule 405 (17 CFR 230.405)).

2. Primary Offerings of Certain Debt Securities. Non-convertible debt securities to be offered for cash by or on behalf of a registrant, provided such debt securities are "investment grade debt securities," as defined below. A non-convertible debt security is an "investment grade debt security" if, at the time of effectiveness of the registration statement, it has been rated in one of the four highest rating categories fo