Release No. 33-8501

Release No. 34-50624

Release No. IC-26649

International Series Rel. No. 1282

69 Fed. Reg. 67391 - Nov. 17, 2004

Securities Offering Reform

ACTION: Proposed rule.

Table of Contents

SUMMARY: The Securities and Exchange Commission is proposing rules that would modify and advance significantly the registration, communications, and offering processes under the Securities Act of 1933. Today's proposals would eliminate unnecessary and outmoded restrictions on offerings. In addition, the proposals would provide more timely investment information to investors without mandating delays in the offering process that we believe would be inconsistent with the needs of issuers for timely access to capital. The proposals also would continue our long-term efforts toward integrating disclosure and processes under the Securities Act and the Securities Exchange Act of 1934. The proposals would accomplish these goals by addressing communications related to registered securities offerings, delivery of information to investors, and procedural restrictions in the offering and capital formation processes.

DATES: Comments should be received on or before January 31, 2005.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.); or

Send an e-mail to rule-comments@sec.gov. Please include File Number S7-38-04 on the subject line; or

Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.

All submissions should refer to File Number S7-38-04. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/ proposed.shtml). Comments also are available for public inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, NW., Washington, DC 20549. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Amy M. Starr, Consuelo Hitchcock, Andrew Thorpe, Daniel Horwood, or Anne Nguyen, at (202) 824-5300, in the Division of Corporation Finance, U.S. Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0402 or, with respect to questions regarding investment companies, Kieran Brown in the Division of Investment Management, at (202) 942-0721.

SUPPLEMENTARY INFORMATION: We are proposing to amend Item 512 ¹ of Regulation S-B,² Item 512 ³ of Regulation S-K,⁴ and Rules 134, 137, 138, 139, 153, 158, 174, 401, 405, 408, 412, 413, 415, 418, 424, 430A, 434, 439, 456, 457, 462, 473, and 902 ⁵ under the Securities Act.⁶ We also propose to add Rules 159, 159A, 163, 163A, 164, 168, 169, 172, 173, 430B, 430C, and 433 under the Securities Act. We further propose to amend Forms S-1, S-3, S-4, F-1, F-3, and F-4 and eliminate Forms S-2 and F-2 ⁷ under the Securities Act; to amend Rule 100 ⁸ of Regulation FD ⁹ and Rule 14a-2 ¹⁰ under the Securities Exchange Act of 1934; ¹¹ to amend Forms 10, 10-K, 10-Q, 10-KSB, and 20-F ¹² under the Exchange Act; and to amend Form N-2 under the Securities Act and the Investment Company Act of 1940.¹³

I. Introduction

A. Overview of Today's Proposals

In 1998, the Commission proposed new rules under the Securities Act that were intended to modernize the securities offering process to recognize the evolution of the securities markets and securities products since the Securities Act's adoption and to enable market participants to capitalize on new technologies.¹⁴ The underlying premise of those proposals--the need to modernize the securities offering and communications processes--was supported by commenters at the time. However, commenters indicated dissatisfaction with a number of the specifics in the 1998 proposals. We believe that the objectives of the 1998 proposals in reforming the offering process continue to be supported, and merit our attention still.

The 1998 proposals were a step in an evaluation of the offering process under the Securities Act that began as far back as 1966, when Milton Cohen noted the anomaly of the structure of the disclosure rules under the Securities Act and the Exchange Act and suggested the integration of the requirements under the two statutes.¹⁵ Mr. Cohen's

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article was followed by a 1969 study led by Commissioner Francis Wheat ¹⁶ and the Commission's Advisory Committee on Corporate Disclosure in 1977.¹⁷ These studies eventually led to the Commission's adoption of the integrated disclosure system, short-form registration under the Securities Act, and Securities Act Rule 415 permitting shelf registration of continuous offerings and delayed offerings.¹⁸

The Commission's attention to the offering and communications processes under the Securities Act has continued more recently. In particular, in March 1996, members of the Commission staff delivered the Report of the Task Force on Disclosure Simplification to the Commission.¹⁹ It recommended a number of areas where simplification and modernization of the registration and offering process could be accomplished. In July 1996, the Advisory Committee on the Capital Formation and Regulatory Processes delivered its report to the Commission.²⁰ Its principal recommendation was that the Securities Act registration and disclosure processes be more directly tied to the philosophy and structure of the Exchange Act through the adoption of a system of ''company registration.'' Under company registration, the focus of Securities Act and Exchange Act registration and disclosure would move from transactions to issuers and corollary steps would be taken to provide for disclosure and registration of individual offerings within the company registration framework.

Promptly after the Advisory Committee on the Capital Formation and Regulatory Processes delivered its report, the Commission issued a concept release regarding regulation of the securities offering process.²¹ The release sought input on a number of significant issues, including:

• whether the concept of company registration should be pursued;

• whether other methods of increasing the integration of Securities Act and Exchange Act disclosure and other processes should be considered;

• whether existing or further reliance on Exchange Act filings should be accompanied by enhancements to Exchange Act reporting;

• whether companies make information about their public securities offerings available to investors in an appropriate and timely manner, including:

• At what point in the offering process delivery of, or access to, information should be assured in connection with registered offerings under the Securities Act and whether current requirements ensure timely delivery of information to the secondary market in connection with such offerings;

• Whether prospectus supplements in shelf offerings should be made part of the registration statement;

• Whether and, if so, in what circumstances electronic access should replace actual delivery of information in connection with offerings registered under the Securities Act; and

• Whether restrictions on written offers under the Securities Act should be liberalized and the liability standards that should attach to such communications;

• Whether adjustments to the roles and responsibilities of traditional ''gatekeepers'' in the Securities Act offering process, such as underwriters and accountants, should be made in light of increases in the speed of and other evolutions in the offering process;

• Whether changes should be made to address evolution in the relationships between the public and private offering processes, including:

• Whether changes in Rules 144A ²² and 144 ²³ under the Securities Act should be considered; and

• Whether there should be any relaxation in our prohibition against general solicitations of interest or offers in unregistered private offerings; and

Whether the review process of issuer filings under the Securities Act and the Exchange Act by the staff of the Division of Corporation Finance should be modified to limit the impact of the process on access to capital markets, at least for some category of large seasoned issuers.²⁴

While many of the issues cited above remain valid matters for consideration, much of the comment in response to our 1998 proposals suggested that the existing system of regulating capital formation in the registered offering market provides a number of advantages that should be carefully considered and retained if we are to make other changes. In putting forward proposed rules today, we have focused primarily on constructive, incremental changes in our regulatory structure and the offering process rather than the introduction of a far-reaching new system, as we believe that we can best achieve further integration of Securities Act and Exchange Act disclosure and processes by making adjustments in the current integrated disclosure and shelf registration systems. Further, consistent with our belief that investors and the securities markets will benefit from greater permissible communications by issuers while retaining appropriate liability for these communications, we have sought to address the need for timeliness of information for investors by building on current rules and processes without mandating delays in the offering process that we believe would be inconsistent with the needs of issuers for timely access to the securities markets and capital.

We are proposing revisions to the registration, communications, and offering processes under the Securities Act that we believe, while limited in scope, properly address the areas that are in need of modernization. Our proposals involve three main areas:

• communications related to registered securities offerings;

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

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• delivery of information to investors, including delivery through access and notice, and timeliness of that delivery.²⁵

Today's proposals reflect our view that revisions to the Securities Act registration and offering processes are appropriate in light of significant developments in the offering and capital formation processes and can provide enhanced protection of investors under the statute. This view is based on our belief that today's proposals would:

• facilitate greater availability of information to investors and the market with regard to all issuers;

• eliminate barriers to open communications that have been made increasingly outmoded by technological advances;

• reflect the increased importance of electronic dissemination of information, including the use of the Internet;

• make the capital formation process more efficient; and

• define more clearly both the information and the timeliness of the availability of information against which a seller's statements are evaluated for liability purposes.

B. Background

1. Advances in Technology

Significant technological advances over the last three decades have increased both the market's demand for more timely corporate disclosure and the ability of issuers to capture, process, and disseminate this information. Computers, sophisticated financial software, electronic mail, teleconferencing, videoconferencing, webcasting, and other technologies available today have replaced, to a large extent, paper, pencils, typewriters, adding machines, carbon paper, paper mail, travel, and face-to-face meetings relied on previously. Our evaluation of the securities offering process and procedural enhancements seeks to recognize the integral role that technology plays in timely informing the markets and investors about important corporate information and developments.

2. Exchange Act Reporting Standards

A necessary starting point in considering reforms to the securities offering process is the role that a public issuer's Exchange Act reports play in investment decision making. Congress recognized that the ongoing dissemination of accurate information by issuers about themselves and their securities is essential to the effective operation of the trading markets. The Exchange Act and underlying rules have established a system of continuing disclosure about issuers that have offered securities to the public, or that have securities that are listed on a national securities exchange or are broadly held by the public. The Exchange Act rules require public issuers to make periodic disclosures at annual and quarterly intervals, with other important information reported on a more current basis. The Exchange Act specifically provides for current disclosure to maintain the timeliness and adequacy of information disclosed by issuers, and we have significantly expanded our current disclosure requirement consistent with the mandate in the Sarbanes-Oxley Act of 2002 ²⁶ that ''[e]ach issuer reporting under Section 13(a) or 15(d) * * * disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer * * * as the Commission determines * * * is necessary or useful for the protection of investors and in the public interest.'' ²⁷

A public issuer's Exchange Act record provides the basic source of information to the market and to potential purchasers regarding the issuer, its management, its business, its financial condition, and its prospects. Because an issuer's Exchange Act reports and other publicly available information form the basis for the market's evaluation of the issuer and the pricing of its securities, investors in the secondary market use that information in making their investment decisions. Similarly, during a securities offering in which an issuer uses a short-form registration statement, an issuer's Exchange Act record often is the largest part of the information about the issuer in the registration statement.

With the enactment of the Sarbanes-Oxley Act and our recent rulemaking and interpretive actions, we have enhanced significantly the amount of disclosure included in issuers' Exchange Act filings and accelerated the filing deadlines for many issuers. The following are examples of recent regulatory actions that have improved the delivery of timely, high-quality information to the securities markets by issuers under the Exchange Act:

• requiring the establishment of disclosure controls and procedures; ²⁸

• requiring a public issuer's top management to certify the content of periodic reports and highlight their responsibilities for and evaluation of the issuer's disclosure controls and procedures and internal control over financial reporting; ²⁹

• modifying the approach to current disclosure by increasing significantly the types of events that must be reported on a current basis and shortening the time for filing current reports; ³⁰

• shortening the timeframe for filing annual reports and quarterly reports by accelerated filers; ³¹

• approving listing standard changes intended to improve corporate governance and enhance the role of the audit committee of the issuer's board of directors with regard to financial reporting and auditor independence; ³² and

• providing further interpretive guidance regarding the content and understandability of Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) '' a disclosure item we believe is at the core of a reporting issuer's periodic reports.³³

Many of the recent changes to the Exchange Act reporting framework provide greater structure and rigor to the process that issuers must follow in preparing their financial statements and Exchange Act reports. Senior management must now certify the material adequacy of the content of periodic Exchange Act reports. Moreover, issuers, with the involvement of senior management, now must implement and evaluate disclosure controls and procedures and internal controls over financial reporting.

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Further, we believe the heightened role of an issuer's board of directors and its audit committee will instill greater confidence in the integrity of the contents of an issuer's Exchange Act reports.

The 1996 Concept Release and the 1998 proposals considered the role of enhanced Exchange Act reporting as an important corollary to reform of the offering process under the Securities Act.³⁴ We believe that the enhancements to Exchange Act reporting described above enable us to rely on these reports to a greater degree as a cornerstone of our proposals to reform the securities offering process.

¹ 17 CFR 228.512.

² 17 CFR 228.10 et seq.

³ 17 CFR 229.512.

⁴ 17 CFR 229.10 et seq.

⁵ 17 CFR 230.134; 17 CFR 230.137; 17 CFR 230.138; 17 CFR 230.139; 17 CFR 230.153; 17 CFR 158; 17 CFR 230, 174; 17 CFR 230.401; 17 CFR 230.405; 17 CFR 230.408; 17 CFR 230.412; 17 CFR 230.413; 17 CFR 230.415; 17 CFR 230.418; 17 CFR 230.424; 17 CFR 430A; 17 CFR 230.434; 17 CFR 230.439; 17 CFR 230.456; 17 CFR 230.457; 17 CFR 230.462; 17 CFR 230.473; and 17 CFR 230.902.

⁶ 15 U.S.C. 77a et seq.

⁷ 17 CFR 239.11; 17 CFR 239.13; 17 CFR 239.25; 17 CFR 239.31; 17 CFR 239.33; 17 CFR 239.34; 17 CFR 239.12; and 17 CFR 239.32.

⁸ 17 CFR 243.100.

⁹ 17 CFR 243.100 through 243.103.

¹⁰ 17 CFR 240.14a-2.

¹¹ 15 U.S.C. 78a et seq.

¹² 17 CFR 249.210; 17 CFR 249.308a; 17 CFR 249.310; 17 CFR 249.310b; and 17 CFR 249.220f.

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

¹⁴ See The Regulation of Securities Offerings, Release No. 33- 7606A (Nov. 13, 1998 [63 FR 67174] (the ''1998 proposals'').

The National Securities Markets Improvement Act of 1996 (NSMIA) provided the Commission with general authority to adopt exemptive rules under the Securities Act to the extent that such exemptive action is ''necessary or appropriate in the public interest and consistent with the protection of investors.'' See Securities Act Section 28 [15 U.S.C. 77z-3]. This authority permitted a number of the proposals put forth in our 1998 proposals to go beyond previous modernization efforts.

¹⁵ Milton H. Cohen, Truth in Securities Revisited, 79 Harv. L. Rev. 1340 (1966). (''It is my thesis that the combined disclosure requirements of these statutes would have been quite different if the 1933 and 1934 Acts * * * had been enacted in opposite order, or had been enacted as a single, integrated statute--that is, if the starting point had been a statutory scheme of continuous disclosures covering issuers of actively traded securities and the question of special disclosures in connection with public offerings had then been faced in this setting. Accordingly, it is my plea that there now be created a new coordinated disclosure system having as its basis the continuous disclosure system of the 1934 Act and treating the ''1933 Act'' disclosure needs on this foundation.'')

¹⁶ See Disclosure to Investors--a Reappraisal of Federal Administrative Policies under the '33 and '34 Acts, Policy Study (the ''Wheat Report''),  (Mar. 27, 1969).

¹⁷ See Report of the Advisory Committee on Corporate Disclosure, Cmte. Print 95-29, House Cmte. On Interstate and Foreign Commerce, 95th Cong., 1st. Sess., Nov. 3, 1977 (Nov. 3, 1977). In addition, beginning in 1968, the American Law Institute (''ALI'') began its work on a Federal Securities Code, which was approved in 1978 by the ALI membership. The ALI Federal Securities Code included company registration as a central component. See American L. Inst., Federal Securities Code (1980).

¹⁸ See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380], Delayed or Continuous Offering and Sale of Securities, Release No. 33-6423 (Sept. 2, 1982) [47 FR 39799], and Shelf Registration, Release No. 33-6499 (Nov. 17, 1983) [48 FR 52889].

¹⁹ Report of the Task Force on Disclosure Simplification, available at http://www.sec.gov/news/studies/smpl.htm (Mar. 5, 1996).

²⁰ Report of the Advisory Committee on the Capital Formation and Regulatory Process, (the ''Advisory Committee Report'') http://www.sec.gov/news/studies/ capform.htm (July 24, 1996).

²¹ Securities Act Concepts and Their Effects on Capital Formation, Release No. 33-7314 (July 25, 1996) [61 FR 40044] (the ''1996 Concept Release'').

²² 17 CFR 230.144A.

²³ 17 CFR 230.144.

²⁴ In addition, the 1996 Concept Release sought input on a number of items suggested for consideration by the Task Force on Disclosure Simplification, including the following: Allowing smaller issuers that have been reporting for a year to make delayed offerings (without altering the disclosure requirements for permitting forward incorporation by reference); eliminating ''at- the-market'' offering restrictions; allowing universal shelf registration for secondary offerings; allowing issuers and majority- owned subsidiaries to be named as possible issuers on a shelf registration (without designating the issuer until takedown); allowing reallocation of securities on a shelf registration statement by post-effective amendment; allowing registration by seasoned issuers without any specification of the classes registered; and allowing seasoned issuers to pay registration fees at the time of the takedown.

²⁵ While we continue to consider possible modifications to our regulatory framework regarding private offerings and the relationship between the public and private offering processes, we do not address these areas in today's proposals.

²⁶ Pub. L. 107-204, 116 Stat. 745 (2002).

²⁷ See Section 409 of the Sarbanes-Oxley Act which added Section 13(l) to the Exchange Act (15 U.S.C. 78m(l). See also Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69 FR 15594] and Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date; Correction, Release No. 33-8400A (Aug. 4, 2004) [69 FR 48370] (''Form 8-K Releases'').

²⁸ See Certification of Disclosure in Companies'' Quarterly and Annual Reports, Release No. 33-8124 (Aug. 28, 2002) [67 FR 57276] (''Certification Release'').

²⁹ See Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, Release No. 33-8238 (June 5, 2003) [68 FR 36636]; Certification Release note 28.

³⁰ See Form 8-K Releases note 27.

³¹ See Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports, Release No. 33- 8128 (Sept. 5, 2002) [67 FR 58480].

³² See Standards Relating to Listed Company Audit Committees, Release No. 33-8220 (Apr. 9, 2003) [68 FR 18788].

³³ See Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations, Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056] (the ''2003 MD&A Release'').

³⁴ Enhanced Exchange Act reporting was also central to the recommendations of the Advisory Committee. See note 20.