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

III. Communications Proposals

A. Current Communications Requirements

The Securities Act restricts the types of offering communications that an issuer or other parties subject to the Act's provisions (such as underwriters) may use during a registered public offering. The nature of the restrictions depends on the period during which the communications are to occur. The restrictions do not depend on the accuracy of the information contained in the communication. Before the registration statement is filed, all offers, in whatever form, are prohibited.⁵² Between the filing of the registration statement and its effectiveness, offers made in writing (including by e-mail or Internet), by radio, or by television are limited to a ''statutory prospectus'' that conforms to the information requirements of Securities Act Section 10.⁵³ As a result, the only written material that is permitted in connection with the offering of the securities during the period between filing and

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effectiveness of a registration statement is a preliminary prospectus meeting the requirements of Section 10, which must be filed with the Commission. Even after the registration statement is declared effective, offering participants may still make written offers only through a statutory prospectus, except that they may use additional written offering materials if a final prospectus that meets the requirements of Securities Act Section 10(a) is sent or given prior to or with those materials.⁵⁴ Violations of these restrictions are often generally referred to as ''gun-jumping'', and we use the term ''gun- jumping provisions'' to describe the statutory provisions of the Securities Act that set forth these restrictions.

B. Need for Modernization of Communications Requirements

1. General

The gun-jumping provisions of the Securities Act were enacted at a time when the means of communications were limited and restricting communications (without regard to accuracy) to the statutory prospectus appropriately balanced available communications and investor protection. They were designed to make the statutorily mandated prospectus the primary means for investors to obtain information regarding a registered securities offering. The capital markets, in the United States and around the world, have changed significantly since those limitations were enacted. Today, issuers engage in all types of communications on an ongoing basis, including, importantly, communications mandated or encouraged by our rules under the Exchange Act. Modern communications technology, including the Internet, provides a powerful, versatile, and cost-effective medium to communicate quickly and broadly.⁵⁵ The changes in the Exchange Act disclosure regime and the tremendous growth in communications technology are resulting in more information being provided to the market on a more non- discriminatory, current and ongoing basis. Thus, while the investor protection concerns remain, the gun-jumping provisions of the Securities Act impose substantial and increasingly unworkable restrictions on communications that would be beneficial to investors and markets and consistent with investor protection.

The following factors, combined with the advances in technology described above, lead us to believe that investors and the market would benefit from access to greater permissible communications where protection for investors in connection with these communications is retained through the appropriate liability standards under the Securities Act for materially deficient disclosures in prospectuses and oral communications:

much of our recent rulemaking is intended to encourage reporting issuers to provide additional materially accurate and complete information to the market on a more current basis.⁵⁶ The Securities Act's constraints on communications during an offering have, however, caused issuers to be concerned about the treatment of their ongoing communications and whether, if they are engaged, or will soon be engaged, in capital raising, their customary disclosures will be considered an impermissible offer of securities; ⁵⁷

the multiplicity of means of communication has led us to recognize that restricting written offers to a statutory prospectus inhibits desirable methods of timely communication of information;

there are many more offerings of increasingly complex securities where written communications, such as term sheets, would enhance significantly the offering process for the benefit of investors; ⁵⁸ and

the continuing trends towards globalization of securities markets and multinationalization of issuers and offerings increase the need for a regulatory framework that accommodates more flexible communications.

When we first proposed a broad relaxation of the gun-jumping provisions during an offering in 1998, the majority of commenters favored the proposals.⁵⁹ Commenters raised concerns regarding certain other elements of those proposals, however, and we did not go forward with those proposals. In view of the many recent changes to the Exchange Act reporting system that are designed to produce more timely and extensive disclosures and greater scrutiny of, and confidence in, those reports, it is appropriate at this time to revisit the concept of communications and offering reforms.⁶⁰

2. Definition of Written Communication

As a starting point for reform, we propose to define all methods of communication, other than oral communications, as written communications for purposes of the Securities Act. While we have addressed the issue of electronic communications in a number of different contexts, at this time we are proposing a rule making it clear that all electronic communications (other than telephone as noted below) are graphic and, therefore, written communications for purposes of the Securities Act. In this manner, we intend to encompass new technologies without needing to revisit our rules in the future.

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Accordingly, we are proposing new definitions of ''written communication'' and ''graphic communication'' to ensure consistent understanding of what constitutes such a communication in view of the technological developments since the enactment of the Securities Act and to eliminate any remaining uncertainty regarding the permitted means for delivery of information under the Securities Act.

Under the proposals, ''written communication'' would mean any communication that is written, printed, broadcast, or a graphic communication. The definition would not cover oral communications, such as live telephone calls (whatever the medium by which they are carried, including the Internet) ⁶¹ and other direct oral communications.

We are proposing to amend the definition of ''graphic communication'' contained in Securities Act Rule 405 to provide that it includes any form of electronic media, such as audiotapes, videotapes, facsimiles, CD-ROM, electronic mail, Internet web sites, and computers, computer networks and other forms of computer data compilation.⁶² Because written communications would, therefore, include Internet communications, e-mails and other electronic and web-based communications, electronic postings on web sites--including electronic road shows--would be written communications within the scope of the definition.⁶³

Request for Comment

Does the proposed definition of graphic communication provide a workable framework within which to analyze electronic communications?

Are there communications not covered by the proposed definitions that should be considered written or graphic? Should we provide that only interactive communications, such as those allowing face-to-face or telephonic interactions, would still be considered oral?

Although the analysis required for any particular communication would be fact-specific, should we provide further guidance or examples regarding the use of specific technologies? If so, which technologies should we address at this time?

C. Overview of Communications Proposals

In this section of the release, we will discuss proposals that relate to the following:

Rregularly released factual business information;

regularly released forward-looking information;

communications made more than 30 days before filing a registration statement;

communications by well-known seasoned issuers during the 30 days before filing a registration statement;

written communications made in accordance with the safe harbor in Securities Act Rule 134; and

written communications by any issuer (other than the statutory prospectus) after filing a registration statement.

The following table provides a brief overview of the operation of these proposals. While the table clearly does not include the level of detail necessary to explain the proposals, we have included it to help readers in commenting on the proposals.

We are proposing communications rules that recognize the value of ongoing communications as well as the importance of avoiding unnecessary restrictions on offers during a registered offering. In particular, the proposals would eliminate requirements that can interrupt unnecessarily an issuer's normal and routine communications into the market while an issuer is engaging in a securities offering, and would enhance the ability of issuers and other offering participants to make written offers outside the statutory prospectus.

Our proposals contemplate a communications framework that, in some cases, would operate along a spectrum based on the type of issuer, its reporting history, and its equity market capitalization or historical debt issuance. Thus, eligible well-known seasoned issuers would have freedom generally from the gun-jumping provisions to communicate around the time of a registered offering, including by means of a written offer other than a statutory prospectus. Varying levels of restrictions would apply to other categories of issuers. We believe these distinctions are appropriate because the market has more familiarity with large, more seasoned issuers and, as a result of the ongoing market following of their activities, including the role of market participants and the media, these issuers' communications would have less potential for conditioning the market for the issuers' securities to be sold in a registered offering. Disclosure obligations and practices outside the offering process, including under the Exchange Act, also determine the scope of communications flexibility the proposals would give to issuers and other offering participants.⁶⁴

The cumulative effect of the proposals under the gun-jumping provisions would be the following:

Well-known seasoned issuers would be permitted to engage at any time in oral and written communications, including use at any time of a free writing prospectus,⁶⁵ subject to enumerated conditions (including, in specified cases, filing with the Commission).⁶⁶

All reporting issuers would, at any time, be permitted to continue to publish regularly released factual business information and forward-looking information.⁶⁷

Non-reporting issuers would, at any time, be permitted to continue to publish factual business information that is regularly released to persons other than in their capacity as investors or potential investors.⁶⁸

Communications by issuers more than 30 days before filing a registration statement would not be considered prohibited offers so long as they did not reference a securities offering.⁶⁹

Issuers and other offering participants would be permitted to use free writing prospectuses after the filing of the registration statement, subject to enumerated conditions (including, in specified cases, filing with the Commission).⁷⁰

A broader category of routine communications regarding issuers, offerings, and procedural matters, such as communications about the schedule for an offering or about account-opening procedures, would be excluded from the definition of ''prospectus''.⁷¹

The exemptions for research reports would be expanded.⁷²

As discussed below, a number of these new proposals would include conditions of eligibility. Most of the proposals, for example, would not be available to blank check companies, penny stock issuers, or shell companies.⁷³

Commenters on the 1998 proposals were concerned that increased liability would diminish the utility of the proposed communications reform. Today's proposals would address this concern by ensuring that appropriate liability is maintained for the communications. For example, all free writing prospectuses would have liability under the same provisions as apply today to oral offers and statutory prospectuses.⁷⁴ Written communications not constituting prospectuses would not be subject to disclosure liability applicable to prospectuses ⁷⁵ under Securities Act Section 12(a)(2). This result would not affect their status for liability purposes under other provisions of the federal securities laws, including the anti-fraud provisions.⁷⁶

D. Proposed Rules

1. Permitted Continuation of Ongoing Communications During an Offering

We are proposing two separate safe harbors from the gun-jumping provisions for continuing ongoing business communications.⁷⁷ The first safe harbor would permit a reporting issuer's continued publication or dissemination of regularly released factual business and forward-looking information at any time, including around the time of a registered offering.⁷⁸ The second safe harbor would permit a non- reporting issuer's publication or dissemination of factual business information that had been regularly released to persons other than

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in their capacity as investors or potential investors.⁷⁹

Investment companies registered under the Investment Company Act of 1940 and business development companies would be ineligible to use the proposed safe harbors for factual business information and forward- looking information.⁸⁰ These issuers are subject to a separate framework governing communications with investors.⁸¹

a. Regularly Released Factual Business and Forward Looking Information--Reporting Issuers

Our proposals applicable to reporting issuers would provide a safe harbor from the gun-jumping provisions for continued publication or dissemination of regularly released factual business and forward- looking information. Our proposed safe harbor would apply to factual business and forward-looking information that has been regularly released in the ordinary course by or on behalf of a reporting issuer.⁸²

i. Factual Business Information

We believe it is important to provide certainty regarding when the gun-jumping provisions would be inapplicable to the continuing ongoing communication of factual business information. We are proposing Securities Act Rule 168, which would provide for such a communication a safe harbor from being an impermissible prospectus and from violating the prohibition on pre-filing offers.⁸³ We want to encourage reporting issuers to continue to provide this information. For purposes of these proposals, factual business information would be defined as: ⁸⁴

factual information about the issuer or some aspect of its business;

advertisements of, or other information about, the issuer's products or services;

factual information about business or financial developments with respect to the issuer;

Dividend notices; and

Factual information set forth in the issuer's Exchange Act reports.⁸⁵

ii. Forward-Looking Information

Our view of the value of forward-looking information in the market has evolved through the years. Through the 1970's we were most concerned with the potentially misleading effect that forward-looking information could have on investors.⁸⁶ Beginning in the 1980's we have encouraged issuers to disclose forward-looking information and, in some situations (such as the disclosures in MD&A),⁸⁷ required them to do so.⁸⁸ The existing safe harbors for the content of forward-looking statements are designed to encourage the provision of forward-looking information.⁸⁹

Where an issuer regularly releases forward-looking information in the ordinary course, we believe that the purpose of such communication is to keep the market informed about the issuer and its future prospects and, thus, the continued release or dissemination of this information in the ordinary course is not for the purpose of offering securities or conditioning the market for new issuances of the issuer's securities. We understand that issuers increasingly have been disclosing earnings forecasts and other forward-looking information publicly to provide more information to the markets and to enable them to continue to have discussions to which Regulation FD applies.⁹⁰ We do not believe that it is beneficial to investors or the markets to force reporting issuers to suspend their ordinary course communications of this information because they are raising capital in a registered offering.

Our proposals would provide for the use of such a communication a safe harbor from being an impermissible prospectus and from violating the prohibitions on pre-filing offers. Under our proposals, the safe harbor would apply to the release or dissemination of the following forward-looking information if the release or dissemination satisfies the other conditions of the Rule: ⁹¹

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projections of the issuer's revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure, or other financial items;

statements about the issuer management's plans and objectives for future operations, including plans or objectives relating to the products or services of the issuer;

statements about the issuer's future economic performance, including statements of the type contemplated by MD&A described in Item 303 of Regulation S-K and Regulation S-B, or Item 5 of Form 20-F; and

assumptions underlying or relating to any of the foregoing information.

Given our expressed intention through Item 2.02 of Form 8-K to make such earnings expectations and guidance information public,⁹² we believe it is appropriate to include these communications within the scope of the proposed safe harbor if the issuer satisfies the safe harbor's other conditions.

iii. Conditions of Safe Harbors

(A) ''By or on Behalf of'' the Issuer

As proposed, factual business and forward-looking information would be considered released or disseminated by or on behalf of an issuer if the issuer, an agent of the issuer, or a representative of the issuer authorized and approved its use before its release or dissemination.⁹³ Satisfaction of this condition is separate from the ''regularly released'' condition. The proposed safe harbor would not be available for information released in a manner intended to circumvent either the conditions to use or the permitted manner of use of the information.

Request for Comment

Is the definition of ''by or on behalf of an issuer'' clear? If not, why not?

Should we provide more specificity limiting the approval or authorization to specific persons acting for the issuer, whether as an employee, agent, or representative? For example, should we specify that the approval and authorization must be made by persons who regularly provide such approval and authorization? In addressing this question, discuss whether there should be different formulations depending on the applicable contexts for determining whether information is provided or actions are taken ''by or on behalf of'' a person.

The ''by or on behalf of'' condition is included in many of our proposed rules, should we include a general definition of ''by or on behalf of'' in Securities Act Rule 405?

Is it clear when communications are made ''by or on behalf'' of an issuer? If not, what additional conditions should we include?

(B) Regularly Released Information

The purpose of the proposed safe harbor is to enable a reporting issuer to continue its past ordinary course practice of releasing or disseminating publicly factual business and forward-looking information. Communications of both factual business information and forward-looking information must satisfy the same conditions regarding regular release.

As proposed, information will be considered regularly released or disseminated if the issuer has previously released or disseminated the same type of information in the ordinary course of its business, releases or disseminated the information in the ordinary course of its business, and the release or dissemination is materially consistent in timing, manner and form with the issuer's similar past releases or disseminations of such information. The method of releasing or disseminating the information, thus, must also be consistent with prior practice. These conditions seek to ensure that the information is not being released to condition the market for the registered offering of the issuer's securities.

While the proposal does not establish any minimum time period to satisfy the regularly released element, the safe harbor would require the issuer to have a track record of releasing the particular type of information. Issuers should consider the frequency and regularity with which they have released the same type of information. For example, an issuer's release of new types of financial information or projections just before or during a registered offering would likely prevent a conclusion that the issuer regularly released that type of forward- looking information in the ordinary course of its business. As another example, if an issuer has consistently released certain forward-looking information on a quarterly basis through ordinary course press releases, it could not satisfy the condition if it instituted a stepped-up media campaign just before or during an offering to release that type of forward-looking information on a different basis or with different timing.

(C) Non-Offering Related Information

The proposed safe harbor would exclude from its operation any information about the registered offering itself. Publication of information about an offering outside the registration statement would be limited to statements allowed under Rule 134, Rule 135, or other exemptions or safe harbors, or contained in a permissible free writing prospectus, as discussed below.⁹⁴

Because the proposed safe harbor is intended to facilitate continued release or dissemination of regularly released ordinary course factual business and forward-looking communications, it also excludes information released as part of the offering activities in the registered offering. For example, the safe harbor would be unavailable for the text of an Exchange Act report that is incorporated by reference into a registration statement, a copy of a prior release that originally had been regularly released in accordance with the safe harbor but was specifically provided to investors or potential investors as part of offering activities, or disclosure of information at a road show. As another example, as permitted by the ''regularly released condition,'' an issuer would be able to rely on the proposed safe harbor for the publication of an earnings release consistent with past practice, including the posting of and maintaining the release on an issuer's Web site, whether or not located in a separate section of the Web site for historical information. The use of that earnings release (or its contents), however, as part of the marketing activities to potential investors by an underwriter or dealer

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participating in distribution of the issuer's securities in the registered offering would be outside the scope of the proposed safe harbor.⁹⁵

Commenters on the 1998 proposals, which contained similar provisions, were concerned about staff practice with regard to requiring disclosures of forward-looking information in an issuer's registration statements if such information was provided publicly. Public statements by issuers would not necessarily require that the disclosed information be included in registration statements.⁹⁶

Request for Comment

Does the safe harbor provide sufficient certainty for issuers as to when particular types of communications can be made? If not, how could additional certainty be provided without opening the door to risks of abuse?

Are there other categories of factual business information or forward-looking information that should be added to the list of permitted communications within the safe harbor? Should any of the proposed categories be deleted?

Should we require a particular history, or length of time that the issuer has been regularly releasing this information as a condition to reliance on the exemption? For example, six months; one year; or a different period? What would be an appropriate period?

Should there be any limitation on the availability of the safe harbor for issuers that have been determined to have not complied with Regulation FD, Regulation G, or any Form 8-K requirements for earnings releases?

Would reporting issuers involved in registered offerings be reluctant to release ordinary course forward-looking information despite the proposed safe harbors? More or less reluctant than they are today? What other changes could we make to eliminate this reluctance?

Should there be a specified history of releasing information for only certain categories of forward-looking information, such as financial projections?

Is the proposal regarding forward-looking information appropriate? Are the risks of this information conditioning the market greater than with the release of factual business information? If so, how? Should there be additional restrictions in this safe harbor?

Should there be a distinction between releasing such information in the pre-filing and post-filing periods?

Should the safe harbor identify the specific conditions under which communications would constitute ordinary course communications?

Should we consider defining what ''part of the offering activities'' means for purposes of the safe harbors?

As we note above, a voluntary filer would fall into the category of unseasoned issuers because it is not required to file periodic or current reports under the Exchange Act. Should voluntary filers be permitted to rely on the safe harbor available to reporting issuers even though they are not required to file Exchange Act reports?

Should registered investment companies and business development companies be eligible to use the proposed safe harbors for factual business information and forward-looking information?

b. Regularly Released Factual Business Information--Non-Reporting Issuers

We are proposing a narrower safe harbor from the gun-jumping provisions for a non-reporting issuer's regularly released factual business information.⁹⁷ The proposal would provide a safe harbor for a non-reporting issuer's release or dissemination of regularly released ordinary course factual business information to persons receiving the information other than in their capacity as investors or potential investors, such as customers and suppliers.⁹⁸ Because a condition of the proposed Rule involves the manner and timing of the communication, the same issuer employees who have historically been responsible for providing the information to, for example, customers and suppliers, should communicate the information provided in reliance on this safe harbor. As proposed, non-reporting issuers' release or dissemination of factual business information that satisfy the conditions of the proposed Rule would have a safe harbor from being an impermissible prospectus and from violating the prohibition on pre-filing offers.⁹⁹

Under the proposed safe harbor, factual business communications would be defined as:

factual information about the issuer or some aspect of its business;

advertisements of, or other information about, the issuer's products or services; and

factual information about business or financial developments with respect to the issuer.

As with the safe harbor for reporting issuers, the safe harbor requires that the information be regularly released in the ordinary course, disseminated by or on behalf of the issuer, and not include information about the registered offering or information released as part of the offering activities in the registered offering.

Because non-reporting issuers generally are not releasing information in connection with securities market activities, we believe it is appropriate to restrict the scope of the safe harbor to limited regularly released ordinary course factual business information.¹⁰⁰ Further, we are not proposing a safe harbor for forward-looking information for non-reporting issuers because of the lack of such information or history for these issuers in the marketplace. In those circumstances, we believe that the potential for abuse in permitting a safe harbor for the continued release of forward-looking information as a way to condition the market for the issuer's securities outweighs the legitimate utility to the issuer of the safe harbor.

Request for Comment

We request comment on the same issues regarding the regularly released concept as in the safe harbor for reporting issuers.

Should the factual business information safe harbor permit some related forward-looking information so long as the information is not projections?

In initial public offerings by non-reporting issuers, should we consider using our authority, including our exemptive authority in Section 27A, to propose a projections and forward-looking information safe harbor from liability for the forward-looking statements that would be similar to the liability safe harbor for forward-looking statements contained in Securities Act Section 27A?

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If we determine to propose a safe harbor of this type for initial public offerings, what kinds of conditions should we consider for its use?

As a condition for this safe harbor or one for initial public offerings, should we require the issuer to file projections or other forward-looking information as part of the registration statement? Should the projections be required to follow Item 10 of Regulation S-K or S-B as applicable? Should projections be required to be accompanied by an accountant's report on the projections or forecasts? ¹⁰¹

Would a liability safe harbor for initial public offerings cause issuers to provide more projections publicly? Would there be concerns about the quality of these projections in light of the safe harbor?

2. Other Permitted Communications Prior To Filing a Registration Statement

Beyond the continuing ongoing release of information discussed above, there is an increased amount of information disseminated to the market about issuers, including through the Internet. We believe that information availability should be encouraged, subject to appropriate standards of liability. At times when the risk of conditioning the market for a securities offering is sufficiently remote, it is important to provide issuers with greater certainty that the release of information would not be considered impermissible offers under the Securities Act. Such an approach would avoid hindering issuer communications except where necessary for investor protection. We are, therefore, proposing rules that would be aimed at communications that might not fall within the proposed safe harbors for regularly released factual business and forward-looking information.

a. 30-Day Bright Line Exclusion From the Prohibition on Offers Prior To Filing a Registration Statement--All Issuers

The proposed rule would provide all issuers a bright-line time period, ending 30 days prior to filing a registration statement, during which issuers may communicate without risk of violating the gun-jumping provisions. Such communications would be excluded from the definition of offer for purposes of Securities Act Section 5(c).¹⁰² A bright- line test would provide greater certainty in the offering process and avoid unnecessary limitations on issuer communications more than 30 days prior to the filing of the registration statement. Further, we believe that the 30-day timeframe adequately assures that these communications would not condition the market for a securities offering by providing a sufficient time period to cool any interest in the offering that might arise from the communication.¹⁰³

As proposed, the 30-day bright line exclusion from the gun-jumping provisions would be subject to the following conditions:

communications made in reliance on the proposed rule could not reference a securities offering; ¹⁰⁴

communications made in reliance on the proposed rule would have to be made ''by or on behalf of the issuer''; ¹⁰⁵ and

the issuer would have to take reasonable steps within its control to prevent further distribution or publication of the information during the 30-day period immediately before the issuer files the registration statement.

We included a similar exclusion in our 1998 proposals. Commenters generally agreed that a bright-line exclusion would be helpful, although they expressed some concerns. Some commenters were concerned that issuers might make misleading statements in connection with a proposed registered offering prior to the 30-day period and claim protection of the exclusion.¹⁰⁶We believe that our proposals address those concerns in a number of ways. First, the proposals would not permit information about a securities offering so that the communications are less likely to be used to condition the market for the issuer's securities. Second, for all reporting issuers, the communications would still be subject to Regulation FD

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and other disclosure requirements, as well as the anti-fraud provisions.¹⁰⁷ Third, the proposed safe harbor would be available only for communications made by or on behalf of the issuer so that other potential offering participants could not use the exemption to condition the market for the issuer's securities.

We propose to preclude reliance on the 30-day bright-line exclusion for enumerated categories of offerings and issuers that pose the greatest risk of abuse of that exclusion. Specifically, our proposed rule excluding communications made more than 30 days before filing of the registration statement from the definition of offer would not be available to communications made in connection with:

offerings by a blank check company;

offerings by a shell company; or

offerings of penny stock by an issuer.¹⁰⁸

We also would exclude communications regarding business combination transactions from being able to rely on the proposed exclusion, as those communications are regulated separately.¹⁰⁹ The proposed rule would also not be available for communications regarding offerings made by a registered investment company or a business development company.¹¹⁰

Request for Comment

Should we restrict the ability to rely on the exclusion only to the issuer or should we allow other offering participants to rely on the exclusion? If so, why?

Is the 30-day timeframe sufficient? Should it be longer? Should it be shorter?

Would issuers engage in communications using the exclusion prior to the 30-day period before registration?

Would issuers be able to establish appropriate procedures to ensure compliance with the ''reasonable steps'' requirement?

Does the concept of ''reasonable steps'' in the proposed rule provide sufficient guidance to issuers? If not, what additional restrictions or provisions should be included?

If the issuer puts information on its web site or another web site prior to the 30-day period and the information remains on the web site, thus being available during the 30-day period prior to the registration statement being filed, should the issuer be able to rely on the proposed 30-day exclusion for such information?

Is it clear when communications made in reliance on the 30-day exemption are made ''by or on behalf'' of an issuer? If not, what additional conditions should we include?

Are the classes of ineligible issuers and offerings appropriate? Should the exclusion not be available to any other type of issuers or offerings?

Should the exclusion apply to offerings registered on Form S-8?

Should the exclusion be available for non-reporting issuers? Would there be greater potential for abuse with this category of issuers?

Should there be a restriction on inclusion of securities offering-related information in view of Securities Act Rule 135?

Should we limit the condition restricting any reference to securities offering only to references to registered securities offerings?

Should communications in offerings relying on Rule 155 be permitted during the 30-day period without further conditions?

Should Regulation FD continue to apply to these communications, as we propose? If not, why not?

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

As noted above, our proposals taken together are intended to provide exemptions generally from the applicability of the gun-jumping provisions for eligible well-known seasoned issuers. The proposed safe harbors for regularly released factual business and forward-looking information and the exemption from the definition of offer for communications more than 30 days prior to filing of a registration statement would also apply to well-known seasoned issuers. In addition, as discussed below, the proposed broadened exemption for routine offering-related communications and the proposed availability of an exemption for eligible issuers from the gun-jumping provisions for free-writing prospectuses, in both cases after filing of a registration statement, also would be available to well-known seasoned issuers. However, the gun-jumping provisions prohibit all offers--written or oral--before the filing of a registration statement.¹¹¹ To address communications made in the 30 days prior to filing a registration statement not otherwise excluded from the gun-jumping provisions and to complete the set of proposals permitting all communications by well- known seasoned issuers under the gun-jumping provisions, we are proposing an exemption from the prohibition on offers before the filing of a registration statement for offers made by or on behalf of eligible well-known seasoned issuers.¹¹² The proposed exemption would permit these issuers to engage in unrestricted oral and written offers before a registration statement is filed without violating the gun-jumping provisions. As proposed, these communications, while exempt from the gun-jumping provisions, would still be considered offers and subject to liability standards applicable to such offers.¹¹³ In addition, while ''offers,'' all such communications would still be subject to Regulation FD.¹¹⁴ The anti-fraud provisions of the federal securities laws would also continue to apply to these communications. The exemption would be available only for communications made ''by or on behalf of'' the issuer. We have included as a condition to

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reliance on this exemption that communications cannot be used as part of a scheme to avoid or evade the requirements of the gun-jumping provisions.

In view of the proposed ''automatic shelf'' registration process we describe below, we expect that well-known seasoned issuers usually would have a registration statement on file that it could use for any of its registered offerings.¹¹⁵ Consequently, it would be rare for these issuers to make offers prior to the filing of a registration statement; ¹¹⁶ however, to liberalize communications for these issuers to the appropriate extent, it is appropriate to provide this exemption from the prohibition on pre-filing offers. A written offer made under the proposed exemption would, however, meet our proposed definition of ''free writing prospectus'' ¹¹⁷ and would need to include a legend and be filed promptly upon the issuer filing its registration statement.¹¹⁸ Any written communication used in reliance on this proposed exemption would be subject to the same cure and record retention provisions as those applicable to free writing prospectuses used after a registration statement is filed in reliance on our proposed rules governing free writing prospectuses discussed below.¹¹⁹

Request for Comment

Should we permit any written or oral offer to be made by a well-known seasoned issuer before a registration statement is filed?

In addition to provisions that would allow issuers to cure an omission of the legend, should there be cure provisions in the event that the issuer failed to file the written offer when the registration statement was filed?

Should the requirement for filing written offers made in reliance on the proposed exemption apply to written offers that only contain a description of the securities being offered?

Should communications made in reliance on the proposed rule be subject to Regulation FD, as we propose? If not, why not? Or should there be specific exceptions? If so, what type of communications should be excluded?

Should there be other exclusions from the filing requirement?

Should the filing obligation apply if the issuer fails to file a registration statement covering the securities offered within a particular time period after the offer? If so, how long?

3. Relaxation of Restrictions on Written Offering Related Communications

Our proposals would expand the amount and types of permitted written offering related communications that may be made by offering participants under the gun-jumping provisions after a registration statement is filed.¹²⁰ The two main elements of these proposals are expansion of information that Securities Act Rule 134 permits to be communicated and the permitted use of free writing prospectuses in connection with a registered offering.

a. Rule 134

Rule 134 provides a safe harbor from the gun-jumping provisions for limited public notices about an offering made after an issuer files its registration statement.¹²¹ The Rule was intended originally to provide an ''identifying statement'' that could be used to locate persons that might be interested in receiving a prospectus.¹²² All issuers, including well-known seasoned issuers, are precluded from relying on Rule 134 until the issuer files a registration statement.¹²³

i. Expansion of Permitted Information

We are proposing to modify and expand the information permitted under Rule 134 to include information that issuers, underwriters, and investors would find helpful and to permit the types of written communications during an offering that we would not consider to be prospectuses. We propose a limited expansion of the information permitted in the notice about the issuer and the registered offering. The proposed amendments to Rule 134 would:

permit increased information about an issuer and its business, including where to contact the issuer;

permit more information about the terms of the securities being offered; ¹²⁴

expand the scope of permissible factual information about the offering itself, including underwriter information, more details about the mechanics of and procedures for transactions in connection with the offering process, the anticipated schedule of the offering, and a description of marketing events; ¹²⁵

allow more factual information about procedures for account opening and submitting indications of interest and conditional offers to buy the offered securities; ¹²⁶ and

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expand the disclosure permitted regarding credit ratings to include the security rating that is reasonably expected to be assigned.

While we have proposed to expand the amount of information regarding the terms of an offering that may be included in a Rule 134 notice, the proposed expansion would not permit use of a Rule 134 notice to provide a detailed term sheet for securities being offered. There is increased ability under our proposals to deliver such a term sheet as a free writing prospectus, as discussed below.

ii. Changes to Required Information

We also are proposing to modify the information that must be included in a Rule 134 notice. First, we are proposing to eliminate the reference in the legend to state securities laws, as we believe that other provisions of the Rule already address any state securities law requirements, as applicable.¹²⁷ Second, we are proposing to eliminate the requirement to specify whether the financing is a new financing or refunding, as we believe that such information is no longer necessary because such information would, with regard to non-reporting or unseasoned issuers, be provided by the issuer's disclosure of the use of the proceeds of the offering in the filed preliminary prospectus.¹²⁸

Request for Comment

Is there information that we propose to permit under Rule 134 that should be prohibited or limited because it will further the use of ''selling'' documents that are not prospectuses?

Is there other information that we should permit under Rule 134? For example, is there information about the issuer or the offering that should be included in Rule 134 but is not part of these proposals? If so, address whether the additional information might transform the notice into a selling document.

Should the Rule permit more information about the underwriters or the syndicate, such as information about the allocation of shares among the members of the underwriting syndicate?

Should we permit more information about allocations and auction mechanics?

Should we revise the information requirements of Rule 134 with regard to solicitations of offers to buy or indications of interest? If so, would it be appropriate to require a communication containing such a solicitation to describe how and when offers to buy would be accepted, including the methods and timing of notification of the registration statement's effective date, the purchase price of the securities, and how indications of interest would become offers to buy?

Where Rule 134 requires that a notice be accompanied or preceded by a prospectus, should we permit notification of the location of the prospectus to satisfy this requirement? Should we permit this for a certain class of issuers such as well-known seasoned issuers? Other seasoned issuers?

b. Permissible Use of Free Writing Prospectuses

i. Overview

As discussed above, even after the filing of a registration statement, under the gun-jumping provisions issuers and other offering participants currently may make written offers only in the form of a statutory prospectus. After effectiveness of a registration statement, written offers other than a statutory prospectus may be made if prior to or at the same time as the written offer a final prospectus meeting the requirements of Securities Act Section 10(a) is sent or given.¹²⁹ We believe that written communications during the offering process are unnecessarily restricted and that this would be the case even if the substantial relaxations in restrictions on communications that would result from the proposals that we describe above were adopted.

We are proposing to permit written communications that constitute offers, including electronic communications, outside the statutory prospectus beyond those currently permitted by the Securities Act, if certain conditions are met. We are proposing to define such a written offer outside of the statutory prospectus, beyond those currently permitted by the Securities Act, as a ''free writing prospectus.'' ¹³⁰

Our proposals would not affect the statutory framework allowing written offers after effectiveness if prior to or at the same time as the written offer is made a final prospectus meeting the requirements of Section 10(a) is sent or given. Those written offers would not be prospectuses and therefore would not be free writing prospectuses.¹³¹

As proposed, a free writing prospectus that satisfies specified conditions could be used by a well-known seasoned issuer at any time. Further, as proposed, a free writing prospectus that satisfies specified conditions could be used by any other issuer or offering participant after a registration statement has been filed and, in some cases, as discussed below, if a statutory prospectus precedes or accompanies the free writing prospectus or if a statutory prospectus is available.¹³² A free writing prospectus used after a registration statement is filed and that satisfies specified conditions could be used without violation of the gun-jumping provisions.¹³³ A free writing prospectus could take any form and would not be required to meet the informational requirements otherwise applicable to prospectuses.¹³⁴ In general, our proposals would allow offering participants to use free writing prospectuses in conjunction with most registered capital formation transactions, although we do not treat all issuers and offerings the same.¹³⁵

The issuer and any other offering participant satisfying the conditions of our proposed rules could use a free writing prospectus after a registration

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statement is filed to communicate information about a registered offering of securities.¹³⁶ This would permit affiliates, underwriters, dealers, and others acting on behalf of the parties to the transaction to use a free writing prospectus without violating the gun-jumping provisions. A free writing prospectus would not be part of a registration statement subject to liability under Securities Act Section 11, unless the issuer elected to file it as a part of the registration statement. We propose to condition the use of free writing prospectuses prepared by an issuer or containing information provided by an issuer on filing, as a free writing prospectus, but not as part of the registration statement. We generally would not condition the use of free writing prospectuses prepared by other persons, such as underwriters, not containing such information on filing. Regardless of whether a free writing prospectus is filed, any person using the free writing prospectus would be subject to liability for prospectuses under Securities Act Section 12(a)(2) and liability under the anti-fraud provisions of the federal securities laws.¹³⁷

ii. Definition of Free Writing Prospectus

(A) General

We are proposing to define ''free writing prospectus'' to include, except as otherwise provided specifically or otherwise required by the context, any written communication that constitutes an offer to sell or a solicitation of an offer to buy securities that are or will be the subject of a registration statement that is not a prospectus satisfying the requirements of Securities Act Section 10(a) or our rules permitting the use of preliminary or summary prospectuses or prospectuses subject to completion, or that, by virtue of the exception in clause (a) of Section 2(a)(10), is not a prospectus because, at or prior to that time, a final prospectus meeting the requirements of Section 10(a) was sent or given.¹³⁸ The proposed definition would make clear that, although a free writing prospectus would not be filed as part of a registration statement, regardless of the method of its use or distribution, it would still be considered to be used in connection with a public offering of securities that is or would be the subject of a registration statement.¹³⁹

A communication would be a free writing prospectus only where it constituted an offer of a security under the Securities Act. Whether a particular communication constituted such an offer would, as today, be determined based on the particular facts and circumstances. Communications that would not be considered offers or prospectuses for purposes of the gun-jumping provisions, such as Rule 134 notices, Rule 135 communications, regularly released factual business information and forward-looking information falling within our proposed safe harbors, and research reports falling within the safe harbors provided by our rules, would not be free writing prospectuses.¹⁴⁰

(B) Media Publications

We believe it is important to identify the circumstances under which information released or disseminated to the media by an issuer or offering participant in connection with a registered offering would be considered the use of a free writing prospectus under our proposals. We recognize that the financial news media are a valuable source of information about issuers to the public at large. Issuers and offering participants use the media to disseminate important information about themselves, such as through the use of press releases and interviews. The media plays an integral role, therefore, in providing information about issuers to the market.

While we want to encourage the continued role of the media as an important communicator of information, we do not want issuers and offering participants to use the media to avoid our current or proposed communications rules. Under our proposals, if an issuer or any offering participant provided information about the issuer or the offering that constituted an offer, whether orally or in writing, to a member of the press or other media that was published (in any form), where dissemination in writing by the issuer or offering participant would constitute a free writing prospectus, we would consider the publication to be a free writing prospectus that would have been made by or on behalf of the issuer or offering participant. If the communication occurred after the filing of the registration statement, it would be subject to the requirements of proposed Rule 433.¹⁴¹

The treatment of a media publication that constituted a free writing prospectus under our proposed rules would depend on whether the issuer or other offering participant prepared the publication or broadcast or paid for or provided other consideration for the publication or broadcast, or whether independent media prepared and published or broadcast the communication for no consideration or payment from an issuer or offering participant. If an issuer or offering participant prepared, paid, or gave consideration for, a published article, broadcast, or advertisement, the issuer would have to satisfy the conditions to the use of a free writing prospectus at the time of the publication or broadcast. For example, in the case of a non-reporting issuer a statutory prospectus would have to precede or accompany the communication.¹⁴² As a consequence of this requirement, in offerings by non-reporting and unseasoned issuers, issuers and offering participants would not be able to

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publish or broadcast written advertisements, ''infomercials,'' or broadcast spots about the issuer, its securities, or the offering that included information beyond that permitted by Rule 134. For seasoned issuers, the most recent statutory prospectus would have to be on file with us and the issuer or offering participant would have to file the free writing prospectus with us not later than the date of first use.

Where, however, the free writing prospectus is prepared by persons in the media business that are unaffiliated ¹⁴³ with and not paid for by the issuer or offering participants, our proposed rules would make certain accommodations that would, we believe, permit the publication by the media under the gun-jumping provisions.¹⁴⁴ In those cases, the statutory prospectus would not be required to precede or accompany the media communication, although a filed registration statement and availability of a statutory prospectus would be conditions. Therefore, an interview or other media publication or broadcast where an issuer or offering participant participates (but does not prepare or pay for the event) could be a free writing prospectus, but because of the media intervention, we are prepared to conclude that its use should not be conditioned on prior or simultaneous delivery of the statutory prospectus. In addition, any such free writing prospectus would be subject to filing by the issuer or offering participant involved within one business day after first publication or first broadcast. Persons in the media would have no filing or other obligations under these provisions. For example, unlike today, an underwriter or issuer would be permitted to invite the press to a live road show or an electronic road show, but we would consider an article including information obtained at that road show to be a free writing prospectus of the issuer or underwriter and subject to the proposed rules.¹⁴⁵ As another example, if a chief executive of a non-reporting issuer gave an interview to a financial news magazine without payment to the magazine for the article, the publication of the article after the filing of the registration statement would be a free writing prospectus of the issuer that would have to be filed by the issuer after publication. In that case, there would be no requirement that a statutory prospectus precede or accompany the article at the time of the publication.

Request for Comment

Does the proposed definition cover all the types of communications that issuers and other persons participating in the offer and sale of the issuer's securities would use outside the statutory prospectus?

Do our proposals regarding information provided to the media by or on behalf of the issuer or other offering participants provide enough guidance for issuers and other offering participants to determine when such a communication is a free writing prospectus?

Should the free writing prospectus be considered part of the registration statement?

Should the issuer have to approve every free writing prospectus before its use?

iii. Permitted Use of a Free Writing Prospectus After the Filing of a Registration Statement Under Proposed Rule 433

Proposed Rule 164 would permit the use of a free writing prospectus where an eligible issuer has filed a registration statement and the conditions of proposed Rule 433 are satisfied.¹⁴⁶ The proposed rules permitting the use of free writing prospectuses would not be available for any communication that, while in technical compliance with the rule, was part of a plan or scheme to evade the requirements of Section 5 of the Act.

(A) Conditions to Permitted Use of a Free Writing Prospectus

Proposed Rule 164 provides that, after the filing of a registration statement, a free writing prospectus that satisfies the conditions of proposed Rule 433 would be a permitted prospectus under Section 10(b) for purposes of Securities Act Section 5(b)(1). Proposed Rule 433 sets out eligibility, information, legend, filing, and record retention conditions for the use of free writing prospectuses after the filing of the registration statement.

(1) Prospectus Delivery and/or Availability

The ability of any person participating in the offer and sale of the securities to use free writing prospectuses under proposed Rules 164 and 433 would be conditioned on availability of the issuer's most recently filed statutory prospectus (other than a summary prospectus) satisfying the requirements of Securities Act Section 10 and, in certain cases, on prior or concurrent delivery of the issuer's most recently filed statutory prospectus.

(a) Non-Reporting Issuers and Unseasoned Issuers

In offerings of securities of an eligible non-reporting issuer, including initial public offerings, or offerings of securities of an eligible unseasoned issuer, use by offering participants of free writing prospectuses would be conditioned on filing of the registration statement for the offering. If the free writing prospectus was prepared by or on behalf of an issuer or offering participant, if consideration was or would be given by the issuer or an offering participant for the publication or broadcast (in any format) of any free writing prospectus (including any published article, publication or advertisement), or if Securities Act Section 17(b) ¹⁴⁷ required disclosure that consideration was or would be given by the issuer or an offering participant for any activity described therein, then the use of the free writing prospectus would be conditioned on its being accompanied or preceded by the most recent statutory prospectus that satisfied the requirements of Section 10.¹⁴⁸ If a final prospectus satisfying the requirements of Section 10(a) is sent or given with or prior to the written offer, proposed Rules 164 and 433 would not apply, but the written offer is not a prospectus under the exception in clause (a) of Section 2(a)(10) and would be permitted.

The result of this framework would be that these categories of issuers and offering participants would have to

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assure that the most recent statutory prospectus was actually provided to people who might receive a free writing prospectus. Thus, in the following situations, for example, use of the free writing prospectus would be conditioned on the most recent statutory prospectus preceding or accompanying the free writing prospectus or the communication could not be made in reliance on proposed Rules 164 and 433:

a direct written communication by an issuer or offering participant;

an interview in print or broadcast given or prepared by an issuer, its officers, directors or representatives or an offering participant, the publication or broadcast (in any format) of any free writing prospectus (including any published article, publication or advertisement) for which consideration was or would be given by the issuer or an offering participant, or for which Securities Act Section 17(b) required disclosure of a payment made or consideration given by an issuer or other offering participant;

a press release disseminated by an issuer or offering participant and rebroadcast by the media; or

a paid advertisement, in any format, by an issuer or offering participant.¹⁴⁹

In these situations, following effectiveness of a registration statement, if a final prospectus meeting the requirements of Section 10(a) was previously or at the same time sent or given to each person to whom the written offer was made, proposed Rules 164 and 433 would not apply, but, as is currently the case, a written offer is permitted.

As we discuss above, in cases where a free writing prospectus is prepared by a person in the media business that is not affiliated with or paid by the issuer or an offering participant, the statutory prospectus would not be required to precede or accompany the media communication.¹⁵⁰ The issuer or other offering participant would be required to file the article within one business day following publication or broadcast.

In offerings of securities of eligible non-reporting or unseasoned issuers, where a free writing prospectus was prepared by or on behalf of, or paid for by, an issuer or offering participant, or Securities Act Section 17(b) required disclosure that a payment was made or consideration was given for distribution or publication of the free writing prospectus,¹⁵¹ we believe it is important to deliver the preliminary prospectus to the recipient of the free writing prospectus. Conditioning use of the free writing prospectus on the fact that a statutory prospectus precede or accompany the free writing prospectus will assure that an investor has a balanced disclosure document of an issuer with no or limited reporting history against which to evaluate the free writing prospectus and to place the statements made in context. Although unseasoned issuers are reporting issuers, we believe that there is less reason to assume that the issuer would be well followed and thoroughly scrutinized or that plentiful issuer information would exist. The existing statutory provisions of Section 2(a)(10) would produce substantially the same result after effectiveness by requiring that the final prospectus meeting Securities Act Section 10(a) be sent or given prior to or at the same time as a written offer.

The condition that the statutory prospectus accompany or precede the free writing prospectus would not require that it be provided through the same medium, so long as it was provided at the required time. Although the prospectus would not have to be sent by the same means (paper or electronic) as the free writing prospectus, merely referring to its availability would not satisfy this condition.

Once the required statutory prospectus was sent or given to an investor, additional free writing prospectuses could be provided without having to send or give an additional statutory prospectus, unless there were material changes in the most recent statutory prospectus from the provided prospectus.¹⁵² For example, once an investor had been sent a preliminary prospectus, absent a material change, the proposed rule would permit subsequent e-mail communications by an offering participant that constitute free writing prospectuses without the user having to hyperlink to or otherwise redeliver a statutory prospectus with each communication. After effectiveness and availability of a final prospectus meeting the requirements of Securities Act Section 10(a), no earlier statutory prospectus may be provided, and such final prospectus must precede or accompany any free writing prospectus provided after such availability, whether or not an earlier statutory prospectus had been previously provided to the recipient.¹⁵³

We believe that in a situation where a written communication is not prepared or paid for by an offering participant but rather by independent media, it still may be an offer and thus a free writing prospectus. There is less need in this situation, however, to have a statutory prospectus precede or accompany the free writing prospectus if a registration statement containing a statutory prospectus is on file with us and available.

(b) Seasoned Issuers and Well-Known Seasoned Issuers

In offerings of securities of eligible seasoned issuers and eligible well-known seasoned issuers, we propose that issuers and other offering participants could use a free writing prospectus after the filing of a registration statement containing a statutory prospectus. For shelf offerings, this preliminary prospectus could be a base prospectus that satisfied our requirements.¹⁵⁴ For offerings of securities of eligible seasoned issuers, we would not propose to condition use of the free writing prospectus on actual delivery of the preliminary prospectus. Instead, we would propose that the user of the free writing prospectus notify the recipient, through a required legend, of where the recipient can access or hyperlink to the preliminary or base prospectus by providing the URL for the prospectus.¹⁵⁵

In addition, in offerings of securities of eligible well-known seasoned issuers, we are proposing that free writing

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prospectuses may be used by issuers at any time before or after the filing of a registration statement, and by any other offering participants after the filing of a registration statement containing a preliminary or base prospectus that satisfies our requirements, as detailed above.¹⁵⁶

Instead of relying on Rules 164 and 433, the issuer or offering participant can, as is currently the case, make a written offer in reliance on the exception to the definition of prospectus contained in clause (a) of Securities Act Section 2(a)(10) if a final prospectus meeting the requirements of Securities Act Section 10(a) is previously sent or given to the person receiving the written offer. If the provisions of Section 2(a)(10) are followed, the written offer is not a prospectus.

Request for Comment

Should the proposed rule make the proposed distinctions among the types of issuers?

Should the proposed rule's distinction in methods of providing the preliminary prospectus apply to different issuers?

For initial public offerings or offerings by unseasoned issuers, should the proposed rules provide as a condition to use of a free writing prospectus that a copy of the prospectus be delivered at or before access to a free writing prospectus, or should it suffice that the preliminary prospectus has been filed with us before then and is available?

For all other issuers, should availability of a prospectus on file with us be sufficient when a free writing prospectus is used or should there be a delivery obligation?

Rule 434 permits the use of term sheets together with prospectuses in certain types of offerings. Should we retain Rule 434 in light of the free writing prospectus proposals? If so, how and when would the rule be used and for what types of offerings?

Should the proposed rule include additional limitations or restrictions for free writing prospectuses that are broadcast over television or radio?

(2) Ineligible Issuers

For any offering participant to use free writing prospectuses the issuer may not be an ineligible issuer.¹⁵⁷ As proposed, ineligible issuers are: ¹⁵⁸

reporting issuers who are not current in their Exchange Act reports;

issuers who are (or were, or their predecessors were, in the past three years) blank check issuers;

issuers who are (or were, or their predecessors were, in the past three years) shell companies;

issuers who are (or were, or their predecessors were, in the past three years) penny stock issuers;

issuers who are limited partnerships offering and selling their securities other than in a firm commitment underwriting; ¹⁵⁹

issuers who have received a ''going concern'' opinion from their auditors for the most recent fiscal year;

issuers who have filed for bankruptcy or insolvency during the past three years;

issuers who have been or are the subject of refusal or stop orders under the Securities Act; or

issuers who, or whose subsidiaries, have been found to have violated the federal securities laws, have entered into a settlement with any government agency involving allegations of violations of federal securities laws, or have been made the subject of a judicial or administrative decree or order prohibiting certain conduct or activities regarding the federal securities laws ¹⁶⁰ during the past three years.¹⁶¹

The proposed new rule also would not apply to offerings by registered investment companies or business development companies or offerings that are exchange offers or business combination transactions that are subject to Regulation M-A.

The categories of ineligible issuers include issuers that are not compliant with their Exchange Act reporting obligations, issuers that may raise greater potential for abuse, and issuers that have violated the federal securities laws previously. Certain of these issuers have been viewed historically as unsuited for short-form registration or ineligible for disclosure-related relief. For instance, we have repeatedly stated our belief that penny stock and blank check offerings and shell companies may give rise to disclosure abuses.¹⁶² In addition, Congress determined not to extend the safe harbors for forward-looking statements to issuers of blank check and penny stock securities offerings, as well as issuers previously convicted of certain felonies and misdemeanors and issuers subject to a decree or order involving a violation of the securities laws.¹⁶³

We propose to exclude registered investment companies and business development companies from eligibility for use of proposed Rules 164 and 433 because they are already subject to separate rules permitting use of a Section 10(b) prospectus. Securities Act Rule 482 ¹⁶⁴ permits investment companies to advertise investment performance data and other information, and Securities Act Rule 498 ¹⁶⁵ permits open- end management investment companies to use a profile.

Request for Comment

Should other categories of issuers also be precluded from reliance on our communications and automatic shelf registration proposals? For example, is there any reason we should disqualify offerings by certain types of entities, such as limited partnerships or limited liability companies?

On the other hand, should any of the offerings we propose to disqualify instead be permitted to use our proposed communications and automatic shelf registration process if

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they are otherwise eligible? For example, are there other ways to distinguish penny stock offerings that should be disqualified from those involving legitimate capital raising?

Should issuers be required to have filed their Exchange Act reports timely for the preceding 12 months as well as being current in their Exchange Act reports for purposes of relying on the new proposed communications rules?

Should we extend or shorten the look-back periods used to disqualify issuers in any category?

Would disqualification from our proposals on the basis of a ''going concern'' opinion from the issuer's independent auditor cause undue pressure to be placed on auditors not to issue those opinions? Should we replace that disqualification with one dependent on whether the issuer had: (1) Net losses or negative cash flows from operations for two or more of the past three annual fiscal periods; or (2) a deficit in net worth at the date of the most recent balance sheet?

Should an issuer's disclosure of a material weakness in its internal controls over financial reporting make an issuer ineligible for purposes of the proposals?

Should blank check companies, penny stock issuers or shell companies be able to rely on some aspect of our proposals for capital- raising transactions?

Are there other types of offerings that also should be excluded from our proposals?

Should an issuer be considered an ineligible issuer if it or its subsidiary were found to have violated, entered into a settlement with a state agency or another governmental agency with regard to, or been made the subject of a judicial or administrative order or decree, for violating or allegedly violating state securities laws or any securities laws? Should an issuer be considered ineligible if an affiliate of an issuer were found to have violated, settled allegations of violations of, or been made the subject of a judicial or administrative order or decree for violating or alleged violations of securities laws?

Should registered investment companies or business development companies be able to rely on our proposed rules permitting use of a free-writing prospectus?

Certain of today's proposals regarding communications apply to certain types of communications made around the time of registered business combination transactions as defined in Rule 165(f)(1), while others are not available to registered business combination transactions. As a result, the rules and regulations adopted pursuant to Regulation M-A will continue to apply to business combination transactions. We request comment as to whether the inclusions and exclusions of business combination transactions in the proposed amendments and rules are proper and whether such inclusions and exclusions are clear and unambiguous. Should we make any modifications to the Regulation M-A model in light of our proposals?

Should an issuer that undertakes a registered capital formation transactions at the same time as it engages in a business combination transaction be eligible to rely on our communications proposals for the capital formation transaction? If yes, should any limitations be placed on the communications or should the issuer, if otherwise eligible, be able to use the proposals for free writing prospectuses or our other proposals?

(3) Filing Conditions

(a) General Conditions

Under our proposal, use of a free writing prospectus would be conditioned on filing of that prospectus or information contained in that prospectus in the following circumstances: ¹⁶⁶

where a free writing prospectus is prepared by or on behalf of the issuer, known as an ''issuer free writing prospectus,'' and used by any person, the issuer shall file that free-writing prospectus; ¹⁶⁷

where a free writing prospectus prepared by a party participating in the offering other than the issuer contains material information about the issuer or its securities that has been provided by or on behalf of an issuer, known as ''issuer information,'' that is not already contained or incorporated in the registration statement or a filed free writing prospectus, the issuer shall file that information;

where a free writing prospectus is prepared by a party other than the issuer and is distributed in a manner reasonably designed by such party to lead to its broad unrestricted dissemination, the other party shall file the free writing prospectus, unless it has already been filed; and

where a free writing prospectus prepared by any person contains only a description of the terms of the issuer's securities, the issuer must file the free writing prospectus that contains the final terms of the issuer's securities.¹⁶⁸

The conditions would provide that the issuer file the issuer- prepared free writing prospectus or material issuer information on or before the date of first use, except in the case of final terms of securities. Because the free writing prospectus would be either that of the issuer or would contain material issuer information, we believe the proposed timing is appropriate. The issuer would have control over the use or would know that it provided the information for use. Issuer information contained in free writing prospectuses would be publicly available on our EDGAR system ¹⁶⁹ as a result of the proposed rule's filing condition.¹⁷⁰

reports, proxy and information statements, and other information regarding issuers that file electronically with us through EDGAR.

In most cases, there would be no condition that underwriters and participating dealers file the free writing prospectuses that they prepare. This would include information prepared by underwriters and others on the basis of, but not containing, issuer information.¹⁷¹ Examples of this information would include information prepared by underwriters that could be, but would not be limited to, information that is proprietary to an underwriter.

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Our proposals contain an exception to the general principle that underwriter free writing prospectuses would not need to be filed. If any person, other than the issuer, participating in the offer or sale of the securities distributed a free writing prospectus in a manner that was reasonably designed to achieve broad unrestricted dissemination, such use would be conditioned on such person filing the free writing prospectus on or before the date of first use.¹⁷² For example, the filing condition would apply where: ¹⁷³

an underwriter included a free writing prospectus on an unrestricted Web site or hyperlinked from an unrestricted Web site to information that would be a free writing prospectus ¹⁷⁴ or if a dealer or other offering participant released or gave a copy of its free writing prospectus to a newspaper or other media; or

an underwriter or other offering participant sent out a press release regarding the issuer or the offering that would be a free writing prospectus.

A free writing prospectus including information about the issuer, its securities, or the offering, provided by or on behalf of the issuer or an offering participant that is prepared by persons in the media business who are not affiliated with or paid by the issuer or an offering participant would be subject to filing by the issuer or offering participant involved within one business day after first publication or first broadcast. Persons in the media would have no filing or other obligations under these provisions.

A free writing prospectus that contained only a description of the securities offered, regardless of whether the issuer or other offering participant prepared or used it, would be subject to filing only if it reflected the final terms of the securities being offered. The issuer would have to file the free writing prospectus within two days after the later of the date such terms became final or the date of first use.¹⁷⁵ We believe this filing condition is appropriate for free writing prospectuses that contain only a description of the final terms of a security. Preliminary term sheets and other descriptive material containing only the terms of the securities that do not reflect final terms of securities or transactions would not be subject to filing. All such written offering materials, whether or not filed, would be free writing prospectuses.

The 1998 proposals would have required all free writing to be filed, regardless of whose communications were involved. This filing condition caused commenters to raise concerns that participants might be liable for communications they had not made or used.¹⁷⁶ By providing that the filing condition applies only to an issuer free writing prospectus and issuer information, whether contained in an issuer free writing prospectus or in another participant's free writing prospectus, or to information in a free writing prospectus broadly disseminated, we believe we have addressed the concerns about cross- liability under Securities Act Section 12(a)(2) for other participants' free writing materials.¹⁷⁷ Comments regarding the 1998 proposals also expressed concern that the public filing would cause competitive harm to underwriters by making their confidential proprietary products public.¹⁷⁸ The filing condition in proposed Rule 433 would not extend to a free writing prospectus prepared by an underwriter, including information prepared on the basis of issuer information that does not include issuer information, unless the free writing prospectus fell into the ''broad dissemination'' category. Free writing prospectuses sent directly to customers of an offering participant, without regard to number, would not be broadly disseminated.

Request for Comment

Is it appropriate to distinguish between issuer information and information prepared by an underwriter on the basis of issuer information for purposes of filing? If not, why not? Should the proposed rule provide additional specificity regarding the determination of whether a free writing prospectus is prepared on the basis of issuer information but does not include issuer information? If so, please describe the manner in which the proposed rule should provide that specificity.

Should all offering participants free writing prospectuses be required to be filed?

Have the proposals to limit filing to issuer free writing prospectuses, issuer information in any other person's free writing prospectus and broadly disseminated free writing prospectuses of other participants alleviated concerns about cross-liability for free writing prospectuses used by other offering participants?

Is the phrase ''manner reasonably designed to lead to broad dissemination'' clear enough or should we consider a more precise definition? If yes, then what definition should be used?

Should we define issuer information differently? If yes, how should we define it?

Should we require free writing prospectuses that contain only preliminary terms of a securities offering to be filed? If yes, why?

(b) Electronic Road Shows

Issuers and underwriters frequently conduct presentations known as ''road shows'' to market their offerings to the public. These road shows are a primary means by which issuers are involved directly and actively with investors in the selling effort. Historically, these presentations were conducted in person and limited to institutional investors. Today, due to advances in electronic media, road shows also are being conducted or re-transmitted over the Internet or other electronic media.

We intend to make clear that electronic communications, including electronic road shows, are graphic communications that fall within our proposed definition of written

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communication.¹⁷⁹ Thus, under our proposed rules, an electronic road show would be a written offer and a prospectus, but it would also be a free writing prospectus. It would therefore be permitted if the conditions of proposed Rule 433 were satisfied. Issuer involvement or participation in an electronic road show would make it an issuer free writing prospectus.¹⁸⁰ Our proposals would apply to electronic road shows in all registered securities offerings, not just initial public offerings.¹⁸¹

Electronic road shows--those road shows transmitted electronically by the Internet, videos, e-mail, CD-ROM or any other medium--have to date proceeded in reliance on a series of no-action letters granted by the staff of the Division of Corporation Finance.¹⁸² Our proposals would permit the use of electronic road shows without many of the conditions in the electronic road show no-action letters,¹⁸³ provided the issuer satisfies the conditions of Rule 433.¹⁸⁴ We believe that, once we categorize electronic road shows as graphic communications and thus as written communications and free writing prospectuses, we should not subject them to additional conditions. Indeed, we believe broadly available electronic road shows treated as free writing prospectuses should be encouraged. Therefore, our proposals would provide that an electronic road show or its script would not be subject to filing, except for material issuer information not previously included (including by incorporation by reference) in the registration statement or in a free writing prospectus related to the offering, if the issuer does the following:

makes at least one version of a bona fide electronic road show ¹⁸⁵ readily available electronically to any potential investor at the same time as the electronic road show; and

files any issuer free writing prospectus or material issuer information used at an electronic road show (other than the road show itself).

We believe that our proposed treatment of electronic road shows would strike the appropriate balance between the need to market an issuer's securities to institutional investors and the desires of retail and other investors to have access to issuer information, such as management presentations, that are normally available only at road shows that often have not been open to retail investors generally. We also believe that our proposal would address concerns that important information about an issuer or an offering can be communicated at electronic (as well as live) road shows, rather than in the statutory prospectus. In this regard, the Report and Recommendations of the NASD/ NYSE IPO Advisory Committee recommended that issuers be required to make a version of their IPO road show available electronically to unrestricted audiences.¹⁸⁶ While we are not proposing to require that road shows be made available to unrestricted audiences, issuers and underwriters would be free to open road shows to all investors, and we believe that our proposal will encourage issuers to do so.

Request for Comment

Should we include a definition of road show to describe these activities? If so, what should the description cover? That the road show be made to more than a specified number of persons?

Will our proposal, if adopted, lead to more widespread use of electronic road shows? To such road shows being available to all potential investors? Should we make it a condition that electronic road shows be available to all potential investors?

Should we consider including any of the conditions in the electronic road show no-action letters that we are not including in our proposals? If so, which ones and why?

Is our proposed definition of what constitutes a ''bona fide electronic road show'' adequate? Is there any reason to discourage transmission of different versions of a road show? For example, could an issuer prepare a road show for some investors and a second, less- informative version for others? Should we otherwise limit this possibility?

Should an issuer be permitted to edit a retransmitted road show? Should the rule expressly permit editing?

Should visual presentations such as slides or power point presentations used but not distributed at live road shows be considered free writing prospectuses? Should we consider the use of electronic media to transmit an otherwise oral presentation to an audience overflow room as a written communication and an electronic road show, even if the presentation to the overflow room is not interactive?

Should electronic road shows transmitted over the television or radio be treated differently from electronic road shows transmitted through the Internet?

Should electronic road shows in business combination transactions be treated in the same manner as proposed