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

D. Communications Rules (continued)

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 the availability of this information 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 will not be considered an impermissible offer under the Securities Act. Such an approach will avoid hindering issuer communications except where necessary for investor protection. We are, therefore, adopting rules that clarify the Securities Act application to communications that might not fall within the 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

i. Scope of Exclusion

We are adopting, substantially as proposed, Rule 163A to 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 will be excluded from the definition of offer for purposes of Securities Act Section 5(c).¹⁵⁵ As we noted in the Proposing Release, a bright-line test will 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 will 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.¹⁵⁶

As adopted, the 30-day bright-line exclusion from the gun-jumping provisions is subject to the following conditions:

• a communication made in reliance on the Rule cannot reference a securities offering that is or will be the subject of a registration statement;¹⁵⁷

• a communication made in reliance on the Rule will have to be made “by or on behalf of the issuer”; and

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

We have made minor revisions to the Rule from the proposals. We have made clear that the exemption is non-exclusive. In addition, we have revised the definition of “by or on behalf of” the issuer in the same manner as in Rules 168 and 169 to explicitly exclude offering participants who are underwriters or dealers from being considered agents or representatives of the issuer for purposes of the Rule. We have narrowed the restriction on references to securities offerings to apply to a securities offering that is or will be the subject of a registration statement.

The Rule is designed to preclude issuers and offering participants from circumventing the registration requirements of the Securities Act. Because the Rule does not permit information about a securities offering that is or will be the subject of a registration statement, the communications made in reliance on the Rule are less likely to be used to condition the market for the issuer’s securities. In addition, the communications are still subject to provisions addressing deficient disclosure, including the anti-fraud provisions.¹⁵⁸ Finally, the safe harbor is available only for communications made by or on behalf of the issuer so that other potential offering participants cannot use the exemption. Communications within the scope of Rule 163A made prior to the 30 days before filing are protected by the safe harbor. Communications made during the 30 days before the filing are outside the safe harbor. Because of these factors and the bright-line nature of the Rule, we have eliminated the proposed preliminary note that indicated that the exemption was not available for schemes to evade the registration requirements of the Securities Act because we do not believe it is necessary.

The 30-day bright-line exclusion is not available for enumerated categories of offerings and for specified issuers that pose the greatest risk of abuse of that exclusion. Specifically, Rule 163A is not 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.¹⁵⁹

The Rule as adopted also excludes communications regarding business combination transactions from being able to rely on the exclusion, as those communications are regulated separately.¹⁶⁰ The Rule also is not available for communications regarding offerings made by a registered investment company or a business development company.

ii. Comments on 30-day Bright-Line Exclusion

Commenters expressed strong support for the Rule and suggested certain expansions and clarifications.¹⁶¹ Some commenters wanted the Rule to provide an exemption from the definition of offer for all purposes under the Securities Act.¹⁶² We do not believe that it is appropriate to exclude from the definition of offer for all purposes any communications occurring more than 30 days from the date of filing the registration statement. The Rule contains no content restriction, other than a prohibition against referencing a securities offering that is or will be the subject of a registration statement. The intent of the Rule is to provide certainty that an issuer will not be considered to be “gun jumping” by engaging in communications more than 30 days before it files its registration statement, not to provide certainty that it will not be liable for material disclosure deficiencies in its communications.¹⁶³

Commenters also suggested that we provide more guidance as to what actions will constitute “reasonable steps within the issuer’s control,” particularly with respect to information posted on web sites prior to 30 days before the filing of the registration statement.¹⁶⁴ The “reasonable steps” condition is already contained in Rule 165 for business combination transactions. We do not believe that it is appropriate to provide bright lines as to when an issuer will be considered to have taken reasonable steps within its control to prevent further dissemination of the communication.¹⁶⁵ As to the treatment of information posted on an issuer’s web site, we do not expect that an issuer will necessarily remove the information from the web site and, provided that the information is appropriately dated, otherwise identified as historical material, and not referred to as part of the offering activities, we will not object to an issuer maintaining the information on the web site.

Commenters also suggested that registered investment companies and business development companies should be permitted to rely on Rule 163A.¹⁶⁶ We are not adopting this suggestion because we believe that it would be more appropriate to consider changes to our requirements as they apply to registered investment companies and business development companies in the context of a broader reconsideration of the separate framework applicable to such issuers.

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

i. Overview

The rules we are adopting today, when taken together, provide exemptions generally from the applicability of the gun-jumping provisions for eligible well-known seasoned issuers. The safe harbors for regularly released factual business and forward-looking information and the exemption from the prohibition on offers for purposes of Securities Act Section 5(c) for communications more than 30 days prior to filing of a registration statement are available to well-known seasoned issuers. In addition, as discussed below, the broadened exemption for routine offering-related communications and the 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 are available to well-known seasoned issuers. However, because the gun-jumping provisions prohibit all offers – written or oral – before the filing of a registration statement, we believe well-known seasoned issuers could be unnecessarily constrained in their capital formation activities.¹⁶⁷

ii. Exemption for Pre-Filing Offers

To address communications made in the 30 days prior to filing a registration statement that are not otherwise excluded from the gun-jumping provisions and to complete the set of rules permitting all communications by well-known seasoned issuers under the gun-jumping provisions, we are adopting essentially as proposed 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.¹⁶⁸ The exemption permits these issuers to engage in unrestricted oral and written offers before a registration statement is filed without violating the gun-jumping provisions. These communications, while exempt from the gun-jumping provisions, are still considered offers and subject to liability standards applicable to such offers.¹⁶⁹ The exemption is available only for communications made “by or on behalf of” the issuer.¹⁷⁰ Moreover, any communication for which disclosure is required under Securities Act Section 17(b) will be deemed to be a communication that is an offer for purposes of the Rule and, if written, the communication will be a free writing prospectus of the issuer.¹⁷¹ As with the other exemptions, exclusions, and safe harbor rules we are adopting today, we have made clear that the exemption is non-exclusive.

We also have modified the Rule to eliminate the preliminary note regarding the unavailability of the exemption if it is part of a scheme to avoid or evade the requirements of the gun-jumping provisions. We have not included this preliminary note in the adopted Rule because we believe that the Rule provides an exemption for the communication from the gun-jumping provisions only for well-known seasoned issuers and because the disclosure liability and anti-fraud provisions of the federal securities laws continue to apply.

In view of the automatic shelf registration process we describe below, we expect that well-known seasoned issuers usually will have a registration statement on file that it can use for any of its registered offerings. Consequently, it generally will be unusual for these issuers to make offers prior to the filing of a registration statement;¹⁷² however, we have provided this exemption from the prohibition on pre-filing offers to liberalize communications for these issuers to the appropriate extent. A written offer made by or on behalf of a well-known seasoned issuer under the exemption will, however, meet our definition of “free writing prospectus” and will need to include a legend and be filed promptly by the issuer when and if the issuer files its registration statement.¹⁷³ We also have provided in the Rule as adopted that filing is not required if the communication has previously been filed with or furnished to us (for example pursuant to Regulation FD on Form 8-K). The Rule as adopted also provides that filing is not required if filing would not be required under Rule 433 regarding free writing prospectuses, discussed below, if the communication was a free writing prospectus used after filing of the registration statement. Finally, the filing conditions of Rule 163 will be satisfied if the filing conditions of Rule 433 (other than timing of filing) are satisfied. As a result, for example, the accommodations provided in Rule 433 regarding media publications that are free writing prospectuses also will apply under Rule 163.¹⁷⁴

Any written communication used in reliance on this exemption will be subject to the same provisions applicable to free writing prospectuses used after a registration statement is filed with regard to the ability to “cure” a failure to meet the legend or filing condition in reliance on our rules governing free writing prospectuses discussed below.¹⁷⁵

iii. Comments on Exemption for Pre-Filing Offers

Commenters broadly supported the proposed exemption for pre-filing offers by well-known seasoned issuers.¹⁷⁶ One commenter thought the exemptions should be expanded to cover all seasoned issuers, not just well-known seasoned issuers.¹⁷⁷ Some commenters suggested that the filing condition for free writing prospectuses apply only when and if the registration statement is filed.¹⁷⁸ In addition, commenters wanted clarification that the availability of the exemption does not depend on the issuer filing the free writing prospectus within a particular time frame.¹⁷⁹ Finally, commenters requested clarification that media publications, as with other free writing prospectuses, do not need to be filed until the registration statement is filed.¹⁸⁰ One commenter also suggested that Regulation FD should not apply to offering-related information communicated in reliance on the exemption.¹⁸¹

We believe it is appropriate at this time to limit the exemption for pre-filing offers to well-known seasoned issuers only and not expand the benefits to all seasoned issuers. The level of following of well-known seasoned issuers by market participants lessens our concerns that these issuers, in general, will use the exemption to evade the registration requirements of the Securities Act. Accordingly, we are limiting this exemption to well-known seasoned issuers.

We have not made any revisions to the provisions of Rule 163 regarding the applicability of Regulation FD to offering-related information. Well-known seasoned issuers thus must comply with the provisions of Regulation FD with regard to communications made pursuant to Rule 163 to which Regulation FD would apply.¹⁸²

In response to commenters’ suggestions, we have clarified the filing condition to apply only when and if a registration statement or amendment covering the offered securities is filed. Accordingly, if no such registration statement or amendment is filed, a free writing prospectus used pursuant to Rule 163 does not have to be filed. Finally, media publications that are permissible free writing prospectuses pursuant to Rule 433 will be treated the same as other communications under Rule 163, and will therefore only be subject to filing if a registration statement is filed.

¹⁵⁵  While communications made in reliance on the Rule could, depending on the particular facts, be an “offer” as defined in Securities Act Section 2(a)(3), the Rule provides that the communication is not an “offer” for purposes of Securities Act Section 5(c). See Rule 163A.

As Rule 163A provides a safe harbor from the application of Securities Act Section 5(c), it necessarily applies only prior to the filing of a registration statement. This exclusion will thus not apply to issuers offering securities off a shelf registration statement on file, whether or not effective, as to which the prohibition in Section 5(c) does not apply to the offering of the securities covered by such shelf registration statement.

See also Harold Bloomenthal and Samuel Wolff, Emerging Trends in Securities Laws [2003-2004 ed.], “Securities Act Reform—Déjà Vu All Over Again,” Commissioner Roel C. Campos (the “Campos Article”) at §1:28.

¹⁵⁶ We chose a 30-day timeframe because it is consistent with the timeframe in Securities Act Rule 155 regarding integration of abandoned offerings and Securities Act Rule 254 regarding pre-filing solicitations of interest in Regulation A offerings [17 CFR 230.254].

¹⁵⁷ Securities Act Rule 155, relating to integration of abandoned offerings, permits issuers to register a securities offering immediately following the abandonment of a private offering made to accredited or sophisticated persons and not involving general solicitation and general advertising. The 30-day exclusion, on the other hand, applies to public communications made prior to a registered offering. Because Rule 155 treats any private offers made in the abandoned private offering as not part of the subsequent registered offering, issuers relying on Rule 155 in connection with a subsequently registered offering would continue to rely on Rule 155 and need not rely on the 30-day bright-line exclusion for public communications before a registration statement is filed.

¹⁵⁸ Communications made in reliance on the Rule 163A safe harbor also would not be made in connection with a registered securities offering for purposes of the exclusion in Regulation FD. See Rule 100(b)(2)(iv) of Regulation FD.

¹⁵⁹ See Securities Act Rule 419(a)(2) [17 CFR 230.419(a)(2)], Exchange Act Rule 3a51-1 [17 CFR.240.3a51-1], and amendments to Rule 405 defining “shell company. See the Shell Company Release, note 109. The Rule also excludes issuers who were or any of whose predecessors in the prior three years were blank check companies, shell companies (other than business combination related shell companies), or issuers that issued penny stock. Other than for well-known seasoned issuers, Rule 163A also excludes offerings registered on Form S-8 [17 CFR 239.16b].

¹⁶⁰ See the Regulation M-A Release, note 95. The Rule excludes any business combination transaction, including an exchange offer.

¹⁶¹ See, e.g., letters from ABA; Davis Polk; Fried Frank; IBA; ICI; NYCBA; NYSBA; and Reuters.

¹⁶² See, e.g., letters from ABA; Alston; Cleary; and NYSBA.

¹⁶³ Commenters also asked that we clarify further that information released during the 30 days before the registration statement filing in reliance on another exemption would not affect the ability of the issuer to rely on the 30-day safe harbor. See, e.g., letters from ABA; Alston; Cleary; Fried Frank; and TBMA. We have clarified that the Rule is a non-exclusive safe harbor and issuers can rely on other available exemptions, exclusions, or safe harbors from the gun-jumping provisions for the communications. Conversely, reliance on other safe harbors, exemptions, and exclusions during the 30-day period does not preclude reliance on the 30-day safe harbor.

¹⁶⁴ See, e.g., letters from ABA; Alston; Cleary; and Fried Frank.

¹⁶⁵ The Rule as adopted limits the exclusion to issuers. While we do not expect an issuer to be able to control the republication or accessing of previously published press releases, we expect issuers and persons acting on their behalf to be able to control their own involvement in any subsequent redistribution or publication and, therefore, believe that it is an appropriate condition to the ability to rely on the exclusion. For example, if an issuer or its representative gives an interview to the press prior to the 30-day period, it will not be able to rely on the exclusion if the interview is published during the 30-day period. We have addressed the same issues in the context of free writing prospectuses discussed below.

¹⁶⁶See letters from ABA; Allied; and Fried Frank.

¹⁶⁷ See Securities Act Section 5(c).

¹⁶⁸ See Rule 163. The exemption is not available to communications involving registered business combination transactions or communications in offerings by registered investment companies or business development companies.

¹⁶⁹ Any written offer will be a prospectus under Securities Act Section 2(a)(10) relating to a public offering of the securities to be covered by the registration statement to be filed. All oral communications that are offers and all prospectuses will be subject to liability under Securities Act Section 12(a)(2). The communications also will be subject to other provisions addressing deficient disclosure, including Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.

Communications made in reliance on the Rule also will not be considered to be in connection with a registered securities offering for purposes of the exclusion from Regulation FD. See Rule 100(b)(2)(iv) of Regulation FD.

The Rule is different from Securities Act Rule 254. Securities Act Rule 254 permits solicitations of interest in Regulation A offerings provided the conditions of the rule, including pre-use submission of the materials to the Commission, are satisfied, and does not treat the materials as prospectuses. Rule 163 does not require pre-filing of the communications and written offers will be prospectuses.

¹⁷⁰ In addition, as with the other exemptions and safe harbors that are available only to the issuer, the definition of by or on behalf of the issuer explicitly excludes offering participants who are underwriters or dealers.

¹⁷¹ See Rule 163(d). Securities Act Section 17(b) [15 U.S.C. 77q(b)] generally requires persons who make statements describing an issuer’s securities to disclose the receipt (and the amount) of consideration given, directly or indirectly, by an issuer, underwriter, or dealer in exchange for making the statements.

¹⁷² See the discussion in Section V.B.2 below under “Automatic Shelf Registration for Well-Known Seasoned Issuers,” with regard to the availability of an “automatic shelf” registration process for these issuers.

¹⁷³ The legend is similar to the one we are providing as a condition for free writing prospectuses used after a registration statement is filed. We have made minor modifications to the legend, including eliminating issuer-specific language and references to risk factors. We also have provided that the legend may include an e-mail address and web site where the prospectus can be requested or is available. See the discussion in Section III.D.3 below under “Legend Condition” with regard to the conditions for use of a “free writing prospectus.” Under Rule 163 and Rule 433, all issuer free writing prospectuses must be filed unless exempt from the filing condition. Under Rule 163 as adopted, free writing prospectuses must be filed only if the issuer files a registration statement or amendment to the registration statement covering the securities offered by the free writing prospectus.

¹⁷⁴ For example, the issuer could satisfy its filing condition under Rule 163 for a media publication for which an issuer could file an interview transcript under Rule 433 by similarly filing such a transcript, as described below.

¹⁷⁵ See discussion in Section III.D.3 below under “Cure for Unintentional or Immaterial Failure to Include a Legend” and “Unintentional Failures to File” regarding Rules 164 and 433 with respect to the cure provisions.

¹⁷⁶ See, e.g., letters from ABA; Cleary; NYSBA; S & C: SIA; and TBMA.

¹⁷⁷  See letter from ABA.

¹⁷⁸  See, e.g., letters from Fried Frank and NYSBA.

¹⁷⁹ See, e.g., letters from ABA and Davis Polk.

¹⁸⁰ See, e.g., letters from Davis Polk and NYSBA.

¹⁸¹ See letter from ABA.

¹⁸² We note the recent cases regarding private investment in public equity (PIPE) offerings that have involved trading on the basis of inside information, including the existence of a private offering. See Hilary L. Shane, Lit. Rel. 19227 (May 18, 2005); SEC v. Hilary L. Shane, Civ. Action No. 05 CIVIL 4772 (S.D.N.Y.). See also Guillaume Pollet, Lit. Rel. 19199 (Apr. 21, 2005); SEC v. Guillaume Pollet, Civ. Action No. 05-CV-1937 (SLT/RLM) (E.D.N.Y.).