Release No. 33-8591

Release No. 34-52056

Release No. IC-26993

Financial Reporting Rel. No. 75

International Series Rel. No. 1294

70 Fed. Reg. _____ - ____

Table of Contents

Securities Offering Reform

III. Communications Rules

A. Communications Requirements Prior to Today’s Rules and Amendments

The Securities Act restricts the types of offering communications that issuers 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.⁸⁸ 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 10.⁸⁹ As a result, the only written material that is permitted in connection with the offering of the securities during the period between filing and effectiveness of a registration statement is a preliminary prospectus meeting the requirements of Section 10, which must be filed with us. Even after the registration statement is declared effective, offering participants still may 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.⁹⁰ Violations of these restrictions generally are referred to as “gun jumping,” and we use the term “gun-jumping provisions” in this release to describe the statutory provisions of the Securities Act that set forth these restrictions.

B. Need for Modernization of Communications Requirements

1. General

As we noted in the Proposing Release, 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. The gun-jumping provisions 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 very 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, rules or listing standards of national securities exchanges, and comparable requirements in foreign jurisdictions. Modern communications technology, including the Internet, provides a powerful, versatile, and cost-effective medium to communicate quickly and broadly.⁹¹ 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 investor protection remains a paramount interest, the gun-jumping provisions of the Securities Act impose substantial and increasingly unworkable restrictions on many communications that would be beneficial to investors and markets and would be consistent with investor protection.

The following factors, combined with the advances in technology described above, lead us to believe that investors and the market will benefit from access to greater permissible communications where protection for investors is maintained through the appropriate Securities Act liability standards 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.⁹² The Securities Act’s constraints on communications during an offering, however, have 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;⁹³

• 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 detailed descriptions of securities and offerings, would enhance significantly the offering process for the benefit of investors;⁹⁴ and

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

As we discussed in the Proposing Release, 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 adopt communications and offering reforms.⁹⁵

2. Definition of Written Communication

a. “Written Communication” and “Graphic Communication”

As a starting point for reform, we are defining 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 adopting rules making it clear that all electronic communications (other than telephone and other live, in real-time communications to a live audience, as discussed below) are graphic and, therefore, written communications for purposes of the Securities Act. In this manner, we intend to encompass new technologies. Accordingly, we are adopting new definitions of “graphic communication” and “written communication” to promote consistent understanding of what constitutes such a communication in view of the technological developments since the enactment of the Securities Act and to significantly reduce remaining uncertainty regarding the permitted means for delivery of information under the Securities Act.

We are adopting the proposed revisions to the definition of “graphic communication” with some modifications. As adopted, the definition of “graphic communication” 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.⁹⁶

The definition of graphic communication does not include a communication that, at the time of the communication, originates live, in real-time, to a live audience and does not originate in recorded form or otherwise as a graphic communication.⁹⁷ Any such communication is not a graphic communication even if it is transmitted through a means of graphic communication. A basic concept of the definition we adopt today is that communications that are graphic communications when they are transmitted are treated as graphic communications under the definition and communications that are live, in real-time communications to a live audience when they are transmitted are not treated as graphic communications. We believe that live, in real-time communications to a live audience, including those transmitted by graphic means, have less of the permanence of communications that originate in graphic form or that appear on the printed page. Accordingly, we believe that the distinctions in the definitions we are adopting today are appropriate updatings of the Securities Act’s distinctions between oral and written communications.

As adopted, “written communication” means any communication that is written, printed, or television or radio broadcast (regardless of the transmission means), or a graphic communication. All communications that fall outside the definition are oral communications, including for purposes of Securities Act Section 12(a)(2). It also excludes live telephone calls (through whatever means by which they are transmitted, including the Internet) and, as discussed above, other live, in real-time communications to a live audience transmitted by graphic means. The definition as adopted clarifies that television or radio broadcasts will be covered regardless of the transmission means.

We thus make a clearer distinction between communications that are broadcast and those that are graphic communications. We have clarified that a television or radio broadcast in Securities Act Section 2(a)(10) and in our definition of written communication encompasses all radio or television broadcasts, regardless of the means of transmission of the signals. For example, a cable television show will be considered a television broadcast that is a written communication, and a television show or radio program that may be seen or heard through the Internet on a computer will also be considered a television or radio broadcast that is a written communication. A communication may fall outside the definition of graphic communication because it originates live, in real-time to a live audience but such communication (for example, a live business news program broadcast by traditional means or on cable) may be a television or radio broadcast. On the other hand, a live, in real-time communication that is transmitted by graphic means to a live audience would be an oral communication. Given the potentially unlimited and uncontrolled nature of dissemination of broadcast communications and the language of the Securities Act, we believe that this is an appropriate distinction.

The following are examples of the application of these definitions:

• a live telephone call is not a written communication;

• a live telephone call that is recorded by the recipient is not a written
  communication;

• e-mails, facsimiles, and electronic postings on web sites, by their nature, originate in graphic form and, therefore, are graphic communications;

• a live, in-person road show to a live audience is not a written communication;

• a live, in real-time road show to a live audience that is transmitted graphically is not a graphic communication;

• a live, in real-time road show to a live audience that is transmitted to an “overflow room” is not a graphic communication;

• a webcast or video conference that originates live and in real-time at the time of transmission and is transmitted through video conferencing facilities or is webcast in real-time to a live audience is not a graphic communication;

• the ability of a member of the audience to record a webcast or video conference that is presented live and in real-time to a live audience would not affect the status of that webcast or video conference;

• a live telephone call or video or webcast conference that is recorded by or on behalf of the originating party or parties and then transmitted, or is otherwise transmitted other than live and in real-time, will be a graphic communication and therefore a written communication;

• a live telephone call or video or webcast conference that is recorded by the recipient and then re-transmitted by the recipient is a graphic communication by the recipient when it is re-transmitted; and

• an interview with an issuer’s chief executive officer conducted live as part of a television program is a written communication regardless of how the television signal is transmitted (whether over the airwaves, or through cable, satellite, or Internet) and regardless of how it is received by the recipient (whether a television set or a computer).

With respect to road shows, as explained below, we also have added a Note to Rule 433 that states that a communication that is provided or transmitted simultaneously with a road show and is provided or transmitted in a manner designed to make the communication available only as part of the road show and not subsequently is deemed to be part of the road show.

b. Comments Regarding Proposals

Commenters raised several questions about the proposed definitions, particularly as the definitions affected live audio transmissions, live telephone calls, and live road shows transmitted over the Internet.⁹⁸ Commenters were concerned that the definitions of written communication and graphic communication did not explicitly address the treatment of live telephone calls, regardless of the medium of transmission, although the Proposing Release provided that live telephone calls (other than blast voice mails) would not be considered written communications.⁹⁹

We believe that the modifications that we made to the definitions of graphic communication and written communication will address commenters’ issues regarding live, in real-time communications, including telephone calls, conference calls, videocasts, and live webcasts.

C. Overview of Communications Rules

Today, we are adopting rules that relate to the following:

• regularly 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 (other than a statutory prospectus) by any eligible issuer after filing a registration statement.

The following table provides a brief overview of the operation of the new and amended rules. While the table clearly does not include the level of detail necessary to explain the rules, we have included it to help readers in understanding the basic scope of the new communications scheme.

The communications rules we are adopting recognize the value of ongoing communications as well as the importance of avoiding unnecessary restrictions on offers during a registered offering. In particular, the new and revised rules will 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 will enhance the ability of issuers and other offering participants to make written offers outside the statutory prospectus.

The new and revised rules we are adopting establish a communications framework that, in some cases, will operate along a spectrum based on the type of issuer, its reporting history, and its equity market capitalization or recent issuances of fixed income securities. Thus, under the rules we are adopting, eligible well-known seasoned issuers will have freedom generally from the gun-jumping provisions to communicate at any time, including by means of a written offer other than a statutory prospectus. Varying levels of restrictions will 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 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 rules give to issuers and other offering participants.¹⁰⁰

The cumulative effect of the rules under the gun-jumping provisions is the following:

• well-known seasoned issuers are permitted to engage at any time in oral and written communications, including use at any time of a free writing prospectus,¹⁰¹subject to enumerated conditions (including, in specified cases, filing with us).¹⁰²

• all reporting issuers are permitted, at any time, to continue to publish regularly released factual business information and forward-looking information.¹⁰³

• non-reporting issuers are permitted, at any time, to continue to publish regularly released factual business information that is intended for use by persons other than in their capacity as investors or potential investors.¹⁰⁴

• communications by issuers more than 30 days before filing a registration statement are not prohibited offers so long as they do not reference a securities offering that is or will be the subject of a registration statement.¹⁰⁵

• All issuers and offering participants are permitted to use free writing prospectuses after the filing of the registration statement, subject to enumerated conditions (including, in specified cases, filing with us).¹⁰⁶

• 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, are excluded from the definition of “prospectus.”¹⁰⁷

• the exemptions for research reports are expanded.¹⁰⁸

As discussed below, a number of these rules include conditions of eligibility. Most of the new and amended rules, for example, are not available to blank check companies, penny stock issuers, or shell companies.¹⁰⁹

The rules we are adopting today ensure that appropriate liability standards are maintained. For example, all free writing prospectuses have liability under the same provisions as apply today to oral offers and statutory prospectuses.¹¹⁰ Written communications not constituting prospectuses will not be subject to disclosure liability applicable to prospectuses¹¹¹under Securities Act Section 12(a)(2). This result will not affect their status for liability purposes under other provisions of the federal securities laws, including the anti-fraud provisions.¹¹²

⁸⁸ See Securities Act Section 5(c) [15 U.S.C. 77e(c)]. Securities Act Section 2(a)(3) [15 U.S.C. 77b(a)(3)] defines “offer” as any attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value. The term “offer” has been interpreted broadly and goes beyond the common law concept of an offer. See Diskin v. Lomasney & Co., 452 F.2d 871 (2d. Cir. 1971); SEC v. Cavanaugh, 1 F. Supp. 2d 337 (S.D.N.Y. 1998). The Commission has explained that “the publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer . . .” Guidelines for the Release of Information by Issuers Whose Securities are in Registration, Release No. 33-5180 (Aug. 16, 1971) [36 FR 16506].

⁸⁹ See Securities Act Section 5(b)(1) [15 U.S.C. 77e(b)(1)] and Securities Act Section 10 [15 U.S.C.77j].

⁹⁰ See Securities Act Section 2(a)(10) [15 U.S.C. 77b(a)(10)] and Section 5(b)(1).

⁹¹ For example, the Internet provides a medium through which to deliver electronic documents, to broadcast radio and television programs, to issue press releases or print advertisements, to conduct telephone or videoconferences with investors, prospective investors, and other parties, and to send personal e-mails.

⁹² Other recent rulemaking initiatives addressing disclosure issues include those referenced in notes 33 through 38 and those contained in Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Boards of Directors, Release No. 33-8340 (Nov. 24, 2003) [68 FR 66992]; and Disclosure in Management’s Discussion and Analysis About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Release No. 34-47264 (Jan. 28, 2003) [68 FR 5982] (the “Off-Balance Sheet Disclosure Release”).

⁹³ See, e.g. letter from the American Bar Association Committee on Federal Regulation of Securities to the Director of the Division of Corporation Finance, Aug. 22, 2001 (available at www.abanet.org); comment letters in File No. S7-3098 from Gerald S. Backman, et. al.; Fried Frank; Service Employees International Union Master Trust; and S & C. See also Edward F. Greene and Linda C. Quinn,“Building on the International Convergence of the Global Markets: a Model for Securities Law Reform,” presented at A Major Issues Conference: Securities Regulation in the Global Internet Economy, Washington, D.C., Nov. 14-15, 2001 (available at www.law.northwestern.edu).

⁹⁴ For example, we and the staff have already recognized the usefulness of descriptions of securities and related materials in offerings of asset-backed securities. See the Asset-Backed Securities Adopting Release, note 82.

⁹⁵ We have considered communications reform in other contexts for a number of years. With our adoption of the communications reforms for business combination transactions in 1999, we reduced the regulation of offers and brought the regulatory structure closer to the practices in those offerings while ensuring continued investor protection. See Regulation of Takeovers and Security Holder Communications, Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408] (the “Regulation M-A Release”). We recently have adopted communications reforms for asset-backed securities offerings as well. See the Asset-Backed Securities Adopting Release, note 82.

⁹⁶ The forms of media that are described in the definition encompass the forms of media that are addressed in our interpretive guidance on the use of electronic media. See, e.g., Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000) [65 FR 25843] (the “2000 Electronics Release”). In recognition of continuing developments in technology, the forms of electronic media described in the definition are intended to be illustrative rather than exhaustive.

⁹⁷ Written communications will not include individual telephone voice mail messages from live telephone calls but will include broadly disseminated or “blast” voice mail messages, including those that originate in graphic form. The latter is included in the definition because we believe they are not to a live audience and therefore more closely resemble graphic communications than oral communications.

⁹⁸ See, e.g., letters from Citigroup; Cleary; Davis Polk; S & C; and SIA.

⁹⁹ See, e.g., letters from Citigroup; Merrill Lynch & Co., Inc. (“Merrill Lynch”);
S & C; and SIA.

¹⁰⁰ See, e.g., Regulation FD, Regulation G [17 CFR 244.100 et seq.], and Form 8-K [17 CFR 249.308].

¹⁰¹ A “free writing prospectus” is defined in Securities Act Rule 405. This definition is discussed in Section III.D.3 below under “Definition of Free Writing Prospectus.”

¹⁰² See Rule 163.

¹⁰³ See Rule 168. Certain asset-backed issuers and non-reporting foreign private issuers also will be able to rely on the Rule.

¹⁰⁴ See Rule 169.

¹⁰⁵ See Rule 163A.

¹⁰⁶ See Rules 164 and 433.

¹⁰⁷ See amendments to Securities Act Rule 134.

¹⁰⁸See amendments to Securities Act Rules 137, 138, and 139.

¹⁰⁹ We have adopted rules that contain a definition of shell company. See Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies, Release No. 33-8587 (July 15, 2005) (“Shell Company Release”). For purposes of the rules we are adopting today, we have excluded business combination related shell companies from the restrictions otherwise applicable to shell companies. Therefore, all references to shell companies in this release excludes business combination related shell companies.

¹¹⁰ These liability provisions include Securities Act Section 12(a)(2) and 17(a), Exchange Act Section 10(b) [15 U.S.C. 78j(b)], and Exchange Act Rule 10b-5 [17 CFR 240.10b-5].

¹¹¹ See Securities Act Section 2(a)(10) and Rule 134.

¹¹² See, e.g., Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange Act Rule 10b-5.