Securities Offering Reform, 44722-44831 [05-14560]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 148 (Wednesday, August 3, 2005)]
[Rules and Regulations]
[Pages 44722-44831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-14560]



[[Page 44721]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 200, 228, 229, et al.



Securities Offering Reform; Final Rule

Federal Register / Vol. 70, No. 148 / Wednesday, August 3, 2005 / 
Rules and Regulations

[[Page 44722]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 228, 229, 230, 239, 240, 243, 249, and 274

[Release Nos. 33-8591; 34-52056; IC-26993; FR-75, International Series 
Release No. 1294 and File No. S7-38-04]
RIN 3235-AI11


Securities Offering Reform

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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

EFFECTIVE DATE: December 1, 2005.

FOR FURTHER INFORMATION CONTACT: Amy M. Starr, Daniel Horwood, or Anne 
Nguyen, at (202) 551-3200, in the Division of Corporation Finance, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549 or, with respect to questions regarding investment companies, 
Kieran Brown in the Division of Investment Management, at (202) 551-
6784.

SUPPLEMENTARY INFORMATION: We are amending Rule 30-1 \1\ of the 
Administrative Practice and Procedure, Item 512 \2\ of Regulation S-
B,\3\ Item 512 \4\ of Regulation S-K,\5\ and Rules 134, 137, 138, 139, 
153, 158, 174, 401, 405, 408, 412, 413, 415, 418, 424, 426, 430A, 439, 
456, 457, 462, 473, 497, and 902 \6\ and eliminating Rule 434 \7\ under 
the Securities Act.\8\ We are adding Rules 159, 159A, 163, 163A, 164, 
168, 169, 172, 173, 430B, 430C, and 433 under the Securities Act. We 
are amending Forms S-1, S-3, S-4, F-1, F-3, and F-4 and eliminating 
Forms S-2 and F-2 \9\ under the Securities Act; amending Rule 100 \10\ 
of Regulation FD \11\ and Rule 14a-2 \12\ under the Securities Exchange 
Act of 1934; \13\ amending Forms 10, 10-K, 10-Q, 10-KSB, and 20-F \14\ 
under the Exchange Act; and amending Form N-2 \15\ under the Securities 
Act and the Investment Company Act of 1940.\16\
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    \1\ 17 CFR 200.30-1.
    \2\ 17 CFR 228.512.
    \3\ 17 CFR 228.10 et seq.
    \4\ 17 CFR 229.512.
    \5\ 17 CFR 229.10 et seq.
    \6\ 17 CFR 230.134; 17 CFR 230.137; 17 CFR 230.138; 17 CFR 
230.139; 17 CFR 230.153; 17 CFR 230.158; 17 CFR 230.174; 17 CFR 
230.401; 17 CFR 230.405; 17 CFR 230.408; 17 CFR 230.412; 17 CFR 
230.413; 17 CFR 230.415; 17 CFR 230.418; 17 CFR 230.424; 17 CFR 
230.426; 17 CFR 230.430A; 17 CFR 230.439; 17 CFR 230.456; 17 CFR 
230.457; 17 CFR 230.462; 17 CFR 230.473; 17 CFR 230.497; and 17 CFR 
230.902.
    \7\ 17 CFR 230.434.
    \8\ 15 U.S.C. 77a et seq.
    \9\ 17 CFR 239.11; 17 CFR 239.13; 17 CFR 239.25; 17 CFR 239.31; 
17 CFR 239.33; 17 CFR 239.34; 17 CFR 239.12; and 17 CFR 239.32.
    \10\ 17 CFR 243.100.
    \11\ 17 CFR 243.100 through 243.103.
    \12\ 17 CFR 240.14a-2.
    \13\ 15 U.S.C. 78a et seq.
    \14\ 17 CFR 249.210; 17 CFR 249.308a; 17 CFR 249.310; 17 CFR 
249.310b; and 17 CFR 249.220f.
    \15\ 17 CFR 239.14 and 17 CFR 274.11a-1.
    \16\ 15 U.S.C. 80a-1 et seq.
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Table of Contents

I. Introduction
    A. Overview
    B. Background
    1. Advances in Technology
    2. Exchange Act Reporting Standards
II. Well-Known Seasoned Issuers; Other Categories of Issuers
    A. Well-Known Seasoned Issuers
    1. Definition of Well-Known Seasoned Issuer
    a. Market Capitalization Threshold
    b. Registered Offerings of Non-Convertible Securities Threshold
    2. Timing of Determination of Well-Known Seasoned Issuer Status
    3. Well-Known Seasoned Issuers' Securities Offerings
    4. Comments Regarding the Definition of Well-Known Seasoned 
Issuer
    B. Other Categories of Issuers
III. Communications Rules
    A. Communications Requirements Prior to Today's Rules and 
Amendments
    B. Need for Modernization of Communications Requirements
    1. General
    2. Definition of Written Communication
    a. ``Written Communication'' and ``Graphic Communication''
    b. Comments Regarding Proposals
    C. Overview of Communications Rules
    D. Communications Rules
    1. Permitted Continuation of Ongoing Communications During an 
Offering
    a. Overview
    b. Exception for Regularly Released Factual Business and 
Forward-Looking Information--Available to Reporting Issuers
    i. Factual Business Information
    (A) Scope of the Safe Harbor
    (B) Comments on the Scope of the Safe Harbor
    ii. Forward-Looking Information
    (A) Scope of the Safe Harbor
    iii. Conditions of Safe Harbor in Rule 168
    (A) ``By or on Behalf of'' the Issuer
    (1) Definition
    (2) Comments on Definition
    (B) Regularly Released Information
    (1) Regularly Released Condition
    (2) Comments on Regularly Released Condition
    (C) Exclusion for Offering-Related Information
    (1) Scope of Exclusion
    (2) Comments on Exclusion
    c. Exception for Regularly Released Factual Business 
Information--Available to Non-Reporting Issuers
    i. Scope of the Safe Harbor
    ii. Comments on the Safe Harbor
    2. Other Permitted Communications Prior To Filing a Registration 
Statement
    a. 30-Day Bright-line Exclusion From the Prohibition on Offers 
Prior To Filing a Registration Statement--All Issuers
    i. Scope of Exclusion
    ii. Comments on 30-Day Bright-line Exclusion
    b. Permitted Pre-Filing Offers for Well-Known Seasoned Issuers
    i. Overview
    ii. Exemption for Pre-Filing Offers
    iii. Comments on Exemption for Pre-Filing Offers
    3. Relaxation of Restrictions on Written Offering-Related 
Communications
    a. Rule 134
    i. Expansion of Permitted Information
    ii. Section 10 Prospectus Requirement
    iii. Changes to Required Information
    b. Permissible Use of Free Writing Prospectuses
    i. Overview
    ii. Definition of Free Writing Prospectus
    (A) Scope of Definition
    (B) Comments on Definition
    iii. Permitted Use of a Free Writing Prospectus After the Filing 
of a Registration Statement Under Rule 433
    (A) Overview
    (B) Issuer Eligibility
    (1) Comments on Ineligible Issuer Definition
    (C) Conditions to Permitted Use of a Free Writing Prospectus
    (1) Prospectus Delivery or Availability
    (a) Prospectus Delivery Conditions for Non-Reporting Issuers and 
Unseasoned Issuers
    (b) Prospectus Availability Condition for Seasoned Issuers and 
Well-Known Seasoned Issuers
    (c) Comments on Prospectus Delivery or Availability Condition
    (2) Information in a Free Writing Prospectus
    (a) Information Conditions
    (b) Amendment to Rule 408
    (c) Legend Condition
    (i) Discussion
    (ii) Cure for Unintentional or Immaterial Failure to Include a 
Legend
    (iii) Impermissible Legends or Disclaimers

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    (3) Filing Conditions
    (a) General Conditions
    (i) Scope of General Conditions
    (ii) Conditions Specific to Final Terms of the Securities or 
Offering
    (iii) Asset-Backed Issuers
    (iv) Comments on Filing Condition
    (b) Immaterial or Unintentional Failures to File
    (i) Scope of Cure Provision
    (ii) Comments on Cure Provision
    (4) Record Retention Condition
    (a) Discussion
    (b) Immaterial or Unintentional Failure To Retain a Free Writing 
Prospectus
    (D) Road Shows
    (1) Definition of Electronic Road Show
    (2) Treatment of Electronic Road Shows
    (3) Comments on Electronic Road Shows
    (E) Treatment of Communications on Web Sites and Other 
Electronics Issues
    (1) General
    (2) Historical Information on an Issuer Web Site
    (3) Comments on Treatment of Communications on Web Sites and 
Other Electronics Issues
    (F) Media Publications or Broadcasts
    (1) Overview
    (2) Application of Rule 164 and Rule 433 to Media Publications
    (a) Prospectus Delivery or Availability
    (i) Where Media Publications Are Prepared or Consideration Paid 
by Issuer or Offering Participant
    (ii) Unaffiliated Media Publications
    (b) Filing
    (c) Issuers in the Media Business
    (3) Responses to Comments on Treatment of Media Publications
    (G) Liability Issues Affecting Free Writing Prospectuses
    (1) General
    (2) Filed Free Writing Prospectus Not Part of Registration 
Statement
    (3) Cross-Liability Issues
    c. Interaction of New Communications Rules with Regulation FD
    i. Amendments to Regulation FD
    ii. Comments on Amendments to Regulation FD
    4. Use of Research Reports
    a. Current Regulatory Treatment of Research Reports
    b. Amendments to Exemptions for Research
    i. Definition of Research Report
    (A) Definition
    (B) Comments on Definition of Research Report
    ii. Rule 137
    iii. Rule 138
    (A) Amendments to Rule 138
    (B) Comments on Rule 138 Amendments
    iv. Rule 139
    (A) Issuer-Specific Reports
    (1) Amendments Regarding Issuer-Specific Reports
    (2) Comments on Issuer-Specific Reports
    (B) Industry-Related Reports
    (1) Amendments Regarding Industry-Related Reports
    (2) Comments on Industry-Related Reports
    v. Rule 139a
    vi. Research Report Amendments in Connection With Regulation S 
and Rule 144A Offerings
    vii. Research and Proxy Solicitations
IV. Liability Issues
    A. Information Conveyed by the Time of Sale for Purposes of 
Section 12(a)(2) and Section 17(a)(2) Liability
    1. Interpretation and Rule
    2. Comments and Guidance Regarding Our Interpretation and Rule 
159
    a. The Section 12(a)(2) and Section 17(a)(2) Analysis of the 
Information Conveyed
    b. Determination of Time of Sale
    c. Termination of Old Contract and Creation or Reformation of a 
New Contract
    3. Rule 412 and Rule 430B
    4. Relationship of Section 12(a)(2) and Section 17(a)(2) 
Interpretation and Rule 159 to Section 11 Liability
    B. Issuer as Seller
    C. Due Diligence Interpretation
V. Securities Act Registration Rules and Amendments
    A. Overview
    B. Procedural Rules
    1. Procedural Changes Regarding Shelf Offerings
    a. Overview
    b. Information in a Prospectus
    i. Mechanics
    (A) Rule 430B
    (B) Means for Providing Information
    (C) Identification of Selling Security Holders Following 
Effectiveness
    (1) Scope of Provision
    (2) Comments on Identification of Selling Security Holders
    ii. Information Deemed Part of Registration Statement
    iii. Date of Inclusion of Prospectus Supplements in Registration 
Statements and New Effective Dates of Registration Statements
    (A) Scope of Provisions
    (B) New Effective Dates for Section 11 Purposes
    (C) Comments on Prospectus Supplements and New Effective Dates
    iv. Amendments to Rule 415
    (A) Elimination of Limitation on Amount of Securities Registered
    (1) Revised Provisions
    (2) Comments on Elimination of Limitation on Amount of 
Securities Registered
    (B) Immediate Takedowns From a Shelf Registration Statement 
Filed Under Rule 415(a)(1)(x)
    (C) Eliminating ``At-the-Market'' Offering Restrictions for 
Seasoned Issuers
    v. Rule 424 Amendments
    vi. Elimination of Rule 434
    vii. Issuer Undertakings
    (A) Treatment of Information in Prospectus Supplements
    (B) Prospectus Supplements Deemed Part of a Registration 
Statement and New Effective Dates
    c. Changes to Form S-3 and Form F-3
    2. Automatic Shelf Registration for Well-Known Seasoned Issuers
    a. Overview
    i. Rule Changes
    ii. Comments on Automatic Shelf Registration
    b. Automatic Shelf Registration Mechanics
    i. Eligibility
    ii. Information in a Registration Statement
    (A) Information That May be Omitted From the Base Prospectus
    (B) Mechanics for Including Information
    (C) Registration of Securities to be Offered
    (D) Pay-as-You-Go Registration Fees
    (1) Pay-as-You-Go Fee Rules
    (2) Comments on Pay-as-You-Go Fees
    (E) Registration Under Securities Act Sections 5 and 6
    (F) Immediate Effectiveness
    (G) Duration
    3. Unseasoned Issuers and Non-Reporting Issuers
    a. Overview
    b. Amendments to Form S-1 and Form F-1--Expanded Use of 
Incorporation by Reference
    i. Eligibility
    ii. Procedural Requirements
    iii. Comments on Form S-1 and Form F-1 Amendments
    c. Elimination of Form S-2 and Form F-2
VI. Prospectus Delivery Reforms
    A. Current Prospectus Delivery Requirements
    B. Prospectus Delivery Revisions
    1. Access Equals Delivery
    a. Rule 172
    (i) Scope of Rule
    (ii) Comments on Rule 172
    b. Exceptions to the Rule
    c. Notification
    (i) Rule 173
    (ii) Comments on Rule 173
    2. Written Confirmations and Notices of Allocations
    3. Transactions Taking Place on an Exchange or Through a 
Registered Trading Facility--Rule 153
    4. Aftermarket Prospectus Delivery--Rule 174
VII. Additional Exchange Act Disclosure Provisions
    A. Risk Factor Disclosure
    1. Scope of Requirement
    2. Comments on Risk Factor Disclosure Requirement
    B. Disclosure of Unresolved Staff Comments
    1. Disclosure Requirement
    2. Comments on Disclosure of Outstanding Comments
    C. Disclosure of Status as Voluntary Filer Under the Exchange 
Act
VIII. Paperwork Reduction Act
    A. Background
    B. Summary of Information Collections
    C. Summary of Comment Letters on the PRA Analysis
    D. Paperwork Reduction Act Burden Estimates
    1. Exchange Act Periodic Reports and Registration Statements
    2. Communications and Prospectus Delivery
    3. Securities Act Registration Statements
IX. Cost Benefit Analysis
    A. Background
    B. Summary of Rules
    1. Communications
    2. Securities Act Registration Rules
    3. Prospectus Delivery
    4. Exchange Act Reports
    C. Comments on the Proposals
    D. Benefits

[[Page 44724]]

    1. Increased Information Flow
    2. Investor Protection
    3. Facilitating Capital Formation
    4. Reduced Regulatory Uncertainty
    5. Lower Costs
    E. Costs
    1. Compliance Costs
    2. Potential for Increased Liability
    3. Other Potential Costs
X. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
XI. Final Regulatory Flexibility Act Analysis
    A. Reasons for and Objectives of the Rules and Amendments
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Rules
    D. Reporting, Recordkeping and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
XII. Statutory Authority--Text of the Rules and Amendments

I. Introduction

A. Overview

    On November 3, 2004, we issued proposed rule and form changes under 
the Securities Act and the Exchange Act that would modernize the 
securities offering and communication processes while maintaining 
protection of investors under the Securities Act.\17\ We received over 
130 comment letters on the proposals.\18\ While a large number of 
letters focused on only one area of the proposals,\19\ a significant 
number of the other letters addressed many aspects of the proposals. In 
general, commenters strongly supported the proposals and their 
objectives. A number of commenters believed that the proposals struck 
the appropriate balance between improving the capital formation process 
and modernizing offering communications, while preserving investor 
protection and avoiding unnecessary impediments to the capital 
formation process. As with other rulemakings, including those of the 
magnitude that the proposals represented, commenters provided many 
thoughtful comments and useful suggestions. We are adopting the rules 
and amendments as proposed with certain modifications to address a 
number of points that commenters raised.
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    \17\ Securities Offering Reform, Release No. 33-8501 (Nov. 3, 
2004) [69 FR 67392] (``Proposing Release'').
    \18\ The public comments we received are available for 
inspection in our Public Reference Room at 100 F Street, NE, 
Washington, DC 20549 in File No. S7-38-04, or may be viewed at 
https://www.sec.gov/rules/proposed/s73804.shtml.
    \19\ A large number of commenters submitted comments that 
addressed only issues regarding electronic road shows. See, e.g., 
letters from Robert Alpert; E. Price Ambler; Kenneth Arnot; Richard 
Barrera; Lisa Baudot; Thomas Bengtsson; Barry Bruner; Harold 
Candland; Nikita Chitnis; Herbert Chung; Rick Dowdle; Pat Gilbert; 
Ira Ginsburg; Naval Goel; Bernard Krieg; Francis Lanio; Jimmy Liu; 
Marvin Lutz; Peter Martin; Craig Millar; Piers Monckton; NetRoadshow 
Inc. (``NetRoadshow''); F. Thomas O'Halloran, Paul J. Rasplicka; Kim 
Redding; Eric Ribner; David Schumacher, Andre Shih; Susquehanna 
International Group, LLP (``SIG''); Steve Smart-O'Connor; Bob Smith, 
Forrest Tempel; Chris Wallis; and Adam White.
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    The rules we are adopting today continue the evolution of the 
offering process under the Securities Act that began as far back as 
1966, when Milton Cohen noted the anomaly of the structure of the 
disclosure rules under the Securities Act and the Exchange Act and 
suggested the integration of the requirements under the two 
statutes.\20\ Mr. Cohen's article was followed by a 1969 study led by 
Commissioner Francis Wheat \21\ and the Commission's Advisory Committee 
on Corporate Disclosure in 1977.\22\ These studies eventually led to 
the Commission's adoption of the integrated disclosure system, short-
form registration under the Securities Act, and Securities Act Rule 415 
permitting shelf registration of continuous offerings and delayed 
offerings.\23\
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    \20\ Milton H. Cohen, Truth in Securities Revisited, 79 Harv. L. 
Rev. 1340 (1966). (``It is my thesis that the combined disclosure 
requirements of these statutes would have been quite different if 
the 1933 and 1934 Acts * * * had been enacted in opposite order, or 
had been enacted as a single, integrated statute--that is, if the 
starting point had been a statutory scheme of continuous disclosures 
covering issuers of actively traded securities and the question of 
special disclosures in connection with public offerings had then 
been faced in this setting. Accordingly, it is my plea that there 
now be created a new coordinated disclosure system having as its 
basis the continuous disclosure system of the 1934 Act and treating 
the `1933 Act' disclosure needs on this foundation.'')
    \21\ See Disclosure to Investors--A Reappraisal of Federal 
Administrative Policies under the '33 and '34 Acts, Policy Study 
(the ``Wheat Report''), www.sechistorical.org/museum/Museum_Papers/
museum_Papers_Chron.php#1960 (Mar. 27, 1969).
    \22\ See Report of the Advisory Committee on Corporate 
Disclosure, Cmte. Print 95-29, House Cmte. On Interstate and Foreign 
Commerce, 95th Cong., 1st. Sess., Nov. 3, 1977 (Nov. 3, 1977). In 
addition, beginning in 1968, the American Law Institute (``ALI'') 
began its work on a Federal Securities Code, which was approved in 
1978 by the ALI membership. The ALI Federal Securities Code included 
company registration as a central component. See American L. Inst., 
Federal Securities Code (1980).
    \23\ See Adoption of Integrated Disclosure System, Release No. 
33-6383 (Mar. 3, 1982) [47 FR 11380] (``Integrated Disclosure 
Release''): Delayed or Continuous Offering and Sale of Securities, 
Release No. 33-6423 (Sept. 2, 1982) [47 FR 39799]; and Shelf 
Registration, Release No. 33-6499 (Nov. 17, 1983) [48 FR 52889].
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    The Commission's attention to the offering and communications 
processes under the Securities Act continued more recently. In 
particular, in March 1996, members of the Commission staff delivered 
the Report of the Task Force on Disclosure Simplification to the 
Commission.\24\ It recommended a number of areas where simplification 
and modernization of the registration and offering process could be 
accomplished. In July 1996, the Advisory Committee on the Capital 
Formation and Regulatory Processes delivered its report to the 
Commission.\25\ Its principal recommendation was that the Securities 
Act registration and disclosure processes be more directly tied to the 
philosophy and structure of the Exchange Act through the adoption of a 
system of ``company registration.'' Under company registration, the 
focus of Securities Act and Exchange Act registration and disclosure 
would move from transactions to issuers, and corollary steps would be 
taken to provide for disclosure and registration of individual 
offerings within the company registration framework.
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    \24\ Report of the Task Force on Disclosure Simplification, 
available at www.sec.gov/news/studies/smpl.htm (Mar. 5, 1996).
    \25\ Report of the Advisory Committee on the Capital Formation 
and Regulatory Process (the ``Advisory Committee Report''), 
available at www.sec.gov/news/studies/capform.htm (July 24, 1996).
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    Promptly after the Advisory Committee on the Capital Formation and 
Regulatory Processes delivered its report, the Commission issued a 
concept release regarding regulation of the securities offering 
process.\26\ The release sought input on a number of significant 
issues, including:
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    \26\ Securities Act Concepts and Their Effects on Capital 
Formation, Release No. 33-7314 (July 25, 1996) [61 FR 40044] (the 
``1996 Concept Release'').
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     Whether the concept of company registration should be 
pursued;
     Whether other methods of increasing the integration of 
Securities Act and Exchange Act disclosure and other processes should 
be considered;
     Whether existing or further reliance on Exchange Act 
filings should be accompanied by enhancements to Exchange Act 
reporting;
     Whether companies make information about their public 
securities offerings available to investors in an appropriate and 
timely manner, including:
    [cir] At what point in the offering process delivery of, or access 
to, information should be assured in connection with registered 
offerings under the Securities Act and whether current requirements 
ensure timely delivery of information to the secondary market in 
connection with such offerings;
    [cir] Whether prospectus supplements in shelf offerings should be 
made part of the registration statement;

[[Page 44725]]

    [cir] Whether and, if so, in what circumstances electronic access 
should replace actual delivery of information in connection with 
offerings registered under the Securities Act; and
    [cir] Whether restrictions on written offers under the Securities 
Act should be liberalized and what liability standards should attach to 
such communications;
     Whether adjustments to the roles and responsibilities of 
traditional ``gatekeepers'' in the Securities Act offering process, 
such as underwriters and accountants, should be made in light of 
increases in the speed of and other evolutions in the offering process;
     Whether changes should be made to address evolution in the 
relationships between the public and private offering processes, 
including:
    [cir] Whether changes in Rules 144A \27\ and 144 \28\ under the 
Securities Act should be considered; and
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    \27\ 17 CFR 230.144A.
    \28\ 17 CFR 230.144.
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    [cir] Whether there should be any relaxation in our prohibition 
against general solicitations of interest or offers in unregistered 
private offerings; and
     Whether the review process of issuer filings under the 
Securities Act and the Exchange Act by the staff of the Division of 
Corporation Finance should be modified to limit the impact of the 
process on access to capital markets, at least for some category of 
large seasoned issuers.\29\
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    \29\ In addition, the 1996 Concept Release sought input on a 
number of items suggested for consideration by the Task Force on 
Disclosure Simplification, including the following: Allowing smaller 
issuers that have been reporting for one year to make delayed 
offerings (without altering the disclosure requirements or 
permitting forward incorporation by reference); eliminating ``at-
the-market'' offering restrictions; allowing universal shelf 
registration for secondary offerings; allowing issuers and majority-
owned subsidiaries to be named as possible issuers on a shelf 
registration (without designating the issuer until takedown); 
allowing reallocation of securities on a shelf registration 
statement by post-effective amendment; allowing registration by 
seasoned issuers without any specification of the classes 
registered; and allowing seasoned issuers to pay registration fees 
at the time of the takedown.
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    In 1998, the Commission proposed new rules under the Securities Act 
that were intended to modernize the securities offering process.\30\ As 
we recognized in the Proposing Release, much of the comment in response 
to the 1998 proposals suggested that the system of regulating capital 
formation in the registered offering market provides a number of 
advantages that should be considered carefully and retained if we are 
to make other changes.
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    \30\ See The Regulation of Securities Offerings, Release No. 33-
7606A (Nov. 13, 1998 [63 FR 67174] (the ``1998 proposals''). The 
Commission proposed these new rules after it was granted general 
exemptive authority under the Securities Act. The National 
Securities Markets Improvement Act of 1996 (NSMIA) (Pub. L. 104-290, 
110 Stat. 3416 (Oct. 11, 1996)) provided the Commission with general 
authority to adopt exemptive rules under the Securities Act to the 
extent that such exemptive action is ``necessary or appropriate in 
the public interest and consistent with the protection of 
investors.'' See Securities Act Section 28 [15 U.S.C. 77z-3].
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    The rules we are adopting today are focused primarily on 
constructive, incremental changes in our regulatory structure and the 
offering process rather than the introduction of a far-reaching new 
system, as we believe that we can best achieve further integration of 
Securities Act and Exchange Act disclosure and processes by making 
adjustments in the current integrated disclosure and shelf registration 
systems. Further, consistent with our belief that investors and the 
securities markets will benefit from greater permissible communications 
by issuers while retaining appropriate liability for these 
communications, we have sought to address the need for timeliness of 
information for investors by building on existing statutory provisions 
and processes without mandating delays in the offering process that we 
believe would be inconsistent with the needs of issuers for timely 
access to the securities markets and capital.
    We are adopting the proposed revisions to the registration, 
communications, and offering processes for registered transactions 
under the Securities Act with certain modifications. We believe the 
rules we are adopting, while limited in scope, properly address the 
areas that are in need of modernization. The adopted rules involve 
three main areas:
     Communications related to registered securities offerings;
     Registration and other procedures in the offering and 
capital formation processes; and
     Delivery of information to investors, including delivery 
through access and notice, and timeliness of that delivery.
    Today's rules reflect our view that revisions to the Securities Act 
registration and offering procedures are appropriate in light of 
significant developments in the offering and capital formation 
procedures and can provide enhanced protection of investors under the 
statute. We believe that the rule changes we adopt today will:
     Facilitate greater availability of information to 
investors and the market with regard to all issuers;
     Eliminate barriers to open communications that have been 
made increasingly outmoded by technological advances;
     Reflect the increased importance of electronic 
dissemination of information, including the use of the Internet;
     Make the capital formation process more efficient; and
     Define more clearly both the information and the 
timeliness of the availability of information against which a seller's 
statements are evaluated for liability purposes.
    The rules we are adopting today reflect certain modifications from 
the proposals to address important points commenters raised. The 
modifications to the proposals include the following:
     The definitions of graphic communication and written 
communication (including as to road shows) exclude live, in real-time 
communications to a live audience that are transmitted graphically;
     The free writing prospectus rules address ``cross-
liability'' concerns among offering participants arising from the use 
of free writing prospectuses;
     The free writing prospectus rules clarify the filing 
conditions applicable to media publications, descriptions of the final 
terms of securities and offerings, and electronic and other road shows, 
and modify the record retention provisions;
     The shelf registration rules address issues regarding the 
liability of officers, directors, and accountants and other experts 
arising from the new effective dates triggered by the filing of 
prospectus supplements;
     The definition of ineligible issuer more closely conforms 
the definition to other ineligibility provisions in the Securities Act;
     The rule permitting specified written notices that are not 
prospectuses narrows the types of information for which a preliminary 
prospectus will have to include a price range as a condition;
     The definition of well-known seasoned issuer enables 
issuers to include all registered non-convertible securities, other 
than common equity, issued for cash in measuring the amount of 
registered fixed income securities over the prior three years; and
     The prospectus delivery rule addresses concerns about 
potential underwriter liability due to an issuer's failure to timely 
file its final prospectus.

We also have endeavored to provide more guidance to market participants 
regarding our interpretation of the liability provisions of Securities 
Act Sections 12(a)(2) and 17(a)(2).\31\
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    \31\ 15 U.S.C. 77l(a)(2) and 15 U.S.C. 77q(a)(2).

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[[Page 44726]]

B. Background

1. Advances in Technology
    As we noted in the Proposing Release, significant technological 
advances over the last three decades have increased both the market's 
demand for more timely corporate disclosure and the ability of issuers 
to capture, process, and disseminate this information. Computers, 
sophisticated financial software, electronic mail, teleconferencing, 
videoconferencing, webcasting, and other technologies available today 
have replaced, to a large extent, paper, pencils, typewriters, adding 
machines, carbon paper, paper mail, travel, and face-to-face meetings 
relied on previously. The rules we are adopting today seek to recognize 
the integral role that technology plays in timely informing the markets 
and investors about important corporate information and developments.
2. Exchange Act Reporting Standards
    The role that a public issuer's Exchange Act reports play in 
investment decision making is a key component of the rules we are 
adopting today. Congress recognized that the ongoing dissemination of 
accurate information by issuers about themselves and their securities 
is essential to the effective operation of the trading markets. The 
Exchange Act and underlying rules have established a system of 
continuing disclosure about issuers that have offered securities to the 
public, or that have securities that are listed on a national 
securities exchange or are broadly held by the public. The Exchange Act 
rules require public issuers to make periodic disclosures at annual and 
quarterly intervals, with other important information reported on a 
more current basis. The Exchange Act specifically provides for current 
disclosure to maintain the timeliness and adequacy of information 
disclosed by issuers, and we have significantly expanded our current 
disclosure requirements consistent with the provision in the Sarbanes-
Oxley Act of 2002 \32\ that ``[e]ach issuer reporting under Section 
13(a) or 15(d) * * * disclose to the public on a rapid and current 
basis such additional information concerning material changes in the 
financial condition or operations of the issuer * * * as the Commission 
determines * * * is necessary or useful for the protection of investors 
and in the public interest.'' \33\
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    \32\ Pub. L. 107-204, 116 Stat. 745 (2002).
    \33\ See Section 409 of the Sarbanes-Oxley Act, which added 
Section 13(l) to the Exchange Act (15 U.S.C. 78m(l)). See also 
Additional Form 8-K Disclosure Requirements and Acceleration of 
Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69 FR 15594] and 
Additional Form 8-K Disclosure Requirements and Acceleration of 
Filing Date; Correction, Release No. 33-8400A (Aug. 4, 2004) [69 FR 
48370] (``Form 8-K Releases'').
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    A public issuer's Exchange Act record provides the basic source of 
information to the market and to potential purchasers regarding the 
issuer and its management, business, financial condition, and 
prospects. Because an issuer's Exchange Act reports and other publicly 
available information form the basis for the market's evaluation of the 
issuer and the pricing of its securities, investors in the secondary 
market use that information in making their investment decisions. 
Similarly, during a securities offering in which an issuer uses a 
short-form registration statement, an issuer's Exchange Act record is 
very often the most significant part of the information about the 
issuer in the registration statement.
    With the enactment of the Sarbanes-Oxley Act and our recent 
rulemaking and interpretive actions, we have enhanced significantly the 
disclosure included in issuers' Exchange Act filings and accelerated 
the filing deadlines for many issuers. The following are examples of 
recent regulatory actions that have improved the delivery of timely, 
high-quality information to the securities markets by issuers under the 
Exchange Act:
     Requiring the establishment of disclosure controls and 
procedures; \34\
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    \34\ See Certification of Disclosure in Companies' Quarterly and 
Annual Reports, Release No. 33-8124 (Aug. 28, 2002) [67 FR 57276] 
(``Certification Release'').
---------------------------------------------------------------------------

     Requiring a public issuer's top management to certify the 
content of periodic reports and highlight their responsibilities for 
and evaluation of the issuer's disclosure controls and procedures and 
internal control over financial reporting; \35\
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    \35\ See Management's Report on Internal Control Over Financial 
Reporting and Certification of Disclosure in Exchange Act Periodic 
Reports, Release No. 33-8238 (June 5, 2003) [68 FR 36636]; 
Certification Release, note 34.
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     Modifying the approach to current disclosure by increasing 
significantly the types of events that must be reported on a current 
basis and shortening the time for filing current reports; \36\
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    \36\ See Form 8-K Releases, note 33.
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     Approving listing standard changes intended to improve 
corporate governance and enhance the role of the audit committee of the 
issuer's board of directors with regard to financial reporting and 
auditor independence; \37\ and
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    \37\ See Standards Relating to Listed Company Audit Committees, 
Release No. 33-8220 (Apr. 9, 2003) [68 FR 18788].
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     Providing further interpretive guidance regarding the 
content and understandability of Management's Discussion and Analysis 
of Financial Condition and Results of Operations (MD&A)--a disclosure 
item we believe is at the core of a reporting issuer's periodic 
reports.\38\
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    \38\ See Commission Guidance Regarding Management's Discussion 
and Analysis of Financial Condition and Results of Operations, 
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056] (the ``2003 MD&A 
Release'').
---------------------------------------------------------------------------

    Many of the recent changes to the Exchange Act reporting framework 
provide greater rigor to the process that issuers must follow in 
preparing their financial statements and Exchange Act reports. Senior 
management now must certify the material adequacy of the content of 
periodic Exchange Act reports. Moreover, issuers, with the involvement 
of senior management, now must implement and evaluate disclosure 
controls and procedures and internal controls over financial reporting. 
Further, we believe the heightened role of an issuer's board of 
directors and its audit committee provides a structure that can 
contribute to improved Exchange Act reports.
    As we recognized in the Proposing Release, the 1996 Concept Release 
and the 1998 proposals also considered the role of enhanced Exchange 
Act reporting as an important corollary to reform of the offering 
process under the Securities Act.\39\ We believe that the enhancements 
to Exchange Act reporting described above enable us to rely on these 
reports to a greater degree in adopting our rules to reform the 
securities offering process.
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    \39\ Enhanced Exchange Act reporting also was central to the 
recommendations of the Advisory Committee. See note 25.
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II. Well-Known Seasoned Issuers; Other Categories of Issuers

A. Well-Known Seasoned Issuers

    We are modifying the framework for communications in connection 
with public offerings for all issuers and the framework of the 
registration process for most issuers that report under the Exchange 
Act. As we explained in the Proposing Release, we believe that the most 
far-reaching revisions of our communications rules and registration 
processes should be considered for issuers that have a reporting 
history under the Exchange Act and are presumptively the most widely 
followed in the marketplace.\40\
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    \40\ Today's rules will provide a class of well-known seasoned 
issuers greater flexibility in registering their securities 
offerings under a more streamlined registration process known as 
automatic shelf registration. Under the automatic shelf registration 
process, eligible well-known seasoned issuers can register, on a 
more flexible basis than is currently the case, offerings of 
different types of securities using Form S-3 or Form F-3 
registration statements that are effective upon filing. See 
discussion in Section V.B.2. below under ``Automatic Shelf 
Registration for Well-Known Seasoned Issuers.''

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[[Page 44727]]

    Today, the largest issuers are followed by sophisticated 
institutional and retail investors, members of the financial press, and 
numerous sell-side and buy-side analysts that actively seek new 
information on a continual basis. Unlike smaller or less mature 
issuers, large seasoned public issuers tend to have a more regular 
dialogue with investors and market participants through the press and 
other media. The communications of these well-known seasoned issuers 
are subject to scrutiny by investors, the financial press, analysts, 
and others who evaluate disclosure when it is made.
1. Definition of Well-Known Seasoned Issuer
    We are adding a new category of issuer--a ``well-known seasoned 
issuer''--that will be permitted to benefit to the greatest degree from 
the modifications to our rules we are adopting today regarding 
communications and the registration processes.\41\ We are defining a 
well-known seasoned issuer as an issuer that is required to file 
reports pursuant to Section 13(a) or Section 15(d) the Exchange Act and 
satisfies the following requirements as of the date on which its status 
as a well-known seasoned issuer is determined:
---------------------------------------------------------------------------

    \41\ Except for expanding eligibility for certain majority-owned 
subsidiaries, as discussed below, we are not changing the existing 
eligibility standards for the use of Form S-3 and Form F-3.
---------------------------------------------------------------------------

     The issuer must meet the registrant requirements of Form 
S-3 or Form F-3; \42\
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    \42\ Through the form requirements, the definition requires that 
a well-known seasoned issuer be current and timely in its Exchange 
Act reporting obligations.
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     The issuer either:
    [cir] As of a date within 60 days of its eligibility determination 
date must have a worldwide market value of its outstanding voting and 
non-voting common equity held by non-affiliates of $700 million or 
more; or
    [cir] As of a date within 60 days of its eligibility determination 
date, must have issued in the last three years, at least $1 billion 
aggregate principal amount of non-convertible securities, other than 
common equity,\43\ in primary offerings for cash, not exchange, 
registered under the Securities Act; \44\ and
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    \43\ ``Common equity'' is defined in Securities Act Rule 405 as 
``any class of common stock, or an equivalent interest, including 
but not limited to a unit of beneficial interest in a trust or a 
limited partnership interest.''
    \44\ As we discuss below, these issuers generally are limited in 
the types of securities they may register on an automatic shelf 
registration statement as a well-known seasoned issuer. See Section 
II.A.3 below under ``Well-Known Seasoned Issuers Securities 
Offerings.''
---------------------------------------------------------------------------

     The issuer must not be an ineligible issuer.\45\
---------------------------------------------------------------------------

    \45\ See definition of ``ineligible issuer'' added to Securities 
Act Rule 405 and discussed in Section III.D.3 below under ``Issuer 
Eligibility.'' Further, an issuer will not meet the definition of 
well-known seasoned issuer if it is an asset-backed issuer (as 
defined in Item 1101(b) of Regulation AB [17 CFR 229.1101(b)], an 
investment company registered under the Investment Company Act of 
1940, or a business development company. Business development 
companies are a category of closed-end investment companies that are 
not required to register under the Investment Company Act. See 
Section 2(a)(48) of the Investment Company Act of 1940 [15 U.S.C. 
80a-2(a)(48)].
---------------------------------------------------------------------------

    If it does not itself meet the conditions for eligibility as a 
well-known seasoned issuer, a majority-owned subsidiary of a well-known 
seasoned issuer will nonetheless be a well-known seasoned issuer in 
connection with the offer and sale of its own securities if:
     The securities are non-convertible securities, other than 
common equity, and the parent of the majority-owned subsidiary is a 
well-known seasoned issuer and fully and unconditionally guarantees 
those securities; \46\
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    \46\ Whether a guarantee is full and unconditional is analyzed 
under the same principles as those used under Rule 3-10 of 
Regulation S-X [17 CFR 210.3-10] and Exchange Act Rule 12h-5 [17 CFR 
240.12h-5]. In addition, the guarantee may only be of securities 
that have a limited duration and are not perpetual. This analysis is 
not different from the current analysis under Form S-3 or Form F-3 
for registered guaranteed securities.
---------------------------------------------------------------------------

     The securities are guarantees of non-convertible 
securities, other than common equity, of (1) its well-known seasoned 
issuer parent or (2) another majority-owned subsidiary where those non-
convertible securities are fully and unconditionally guaranteed by the 
well-known seasoned issuer parent; \47\ or
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    \47\ See amendments to Securities Act Rule 405. Unless the 
majority-owned subsidiary itself meets the eligibility conditions 
for a well-known seasoned issuer, it may, of course, only register 
securities as a well-known seasoned issuer on its parent's automatic 
shelf registration statement.
---------------------------------------------------------------------------

     The majority-owned subsidiary is offering non-convertible 
investment grade securities.\48\
---------------------------------------------------------------------------

    \48\ These offerings would be required to meet the conditions of 
General Instruction I.B.2 of Form S-3 or Form F-3.
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    Overall, the issuers that will meet our thresholds for well-known 
seasoned issuers are the most active issuers in the U.S. public capital 
markets. In 2004, those issuers, which represented approximately 30% of 
listed issuers, accounted for about 95% of U.S. equity market 
capitalization. They have accounted for more than 96% of the total debt 
raised in registered offerings over the past eight years by issuers 
listed on a major exchange or equity market. These issuers, 
accordingly, represent the most significant amount of capital raised 
and traded in the United States. As a result of the active 
participation of these issuers in the markets and, among other things, 
the wide following of these issuers by market participants, the media, 
and institutional investors, we believe that it is appropriate to 
provide communications and registration flexibilities to these well-
known seasoned issuers beyond that provided to other issuers, including 
other seasoned issuers.
a. Market Capitalization Threshold
    As we discussed in the Proposing Release, we believe that non-
affiliate equity market capitalization, or ``public float,'' of a 
reporting issuer can be used as a proxy for whether the issuer has a 
demonstrated market following.\49\ We are adopting as a threshold a 
public float of $700 million or more. We have used market 
capitalization as a proxy for public float in evaluating this threshold 
and its implications.
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    \49\ Public float also is one of the key determinants for 
eligibility for current short-form registration on Form S-3 or Form 
F-3.
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    To determine whether an issuer meets the $700 million threshold 
under the definition, the issuer will calculate its public float in the 
same manner that it calculates its public float for purposes of 
determining Form S-3 or F-3 eligibility.\50\ We have revised the 
definition from the proposal to clarify that the non-affiliate equity 
market capitalization is determined on a worldwide basis, as it 
historically has been for purposes of eligibility to use Form F-3. In 
addition, for purposes of calculating public float of a non-U.S. issuer 
to determine eligibility as a well-known seasoned issuer and 
eligibility to use Form S-3 or F-3, we interpret

[[Page 44728]]

``common equity'' as defined in Securities Act Rule 405 as including a 
class of participating voting or non-voting preferred stock of a 
foreign issuer where the issuance of the preferred stock results from 
requirements of the applicable foreign jurisdiction or market and where 
the class of preferred stock has liquidation or dividend preferences 
and other terms that cause it to be the substantial economic equivalent 
of a class of common stock.
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    \50\ The determination of public float is based on a public 
trading market. This is the same requirement in General Instruction 
I.B.1 of Form S-3 and Form F-3 that a registrant have a $75 million 
market value and in the definition of accelerated filer in Exchange 
Act Rule 12b-2 [17 CFR 240.12b2]. Therefore, an entity with $700 
million of common equity securities outstanding but not trading in 
any public trading market would not be a well-known seasoned issuer 
based on market capitalization. See Simplification of Registration 
Procedures for Primary Securities Offerings, Release No. 33-6964 
(Oct. 29, 1982) [57 FR 48970]; Simplification of Registration 
Procedures for Primary Securities Offerings, Release No. 33-6943 
(July 22, 1992) [57 FR 32461] (proposing release); Integrated 
Disclosure Release, note ; and Reproposal of Comprehensive Revision 
to System for Registration of Securities Offerings, Release No. 33-
6331 (Aug. 18, 1981) [46 FR 41902].
---------------------------------------------------------------------------

    To evaluate the implications of a $700 million public float 
threshold, staff in our Office of Economic Analysis (``OEA'') obtained 
data on the 12,551 registered offerings that were conducted from 1997 
to 2004 by 2,875 issuers that had public equity outstanding and were 
listed on a major exchange or equity market.\51\ Of these offerings, 
9,164 were debt offerings that raised proceeds of $1,927 billion, and 
3,387 were equity offerings that raised proceeds of $567 billion. The 
average issuer conducted 4.2 debt offerings and 1.1 equity offerings 
per calendar year, although as many as 209 debt offerings have been 
conducted by a single issuer within a calendar year.
---------------------------------------------------------------------------

    \51\ OEA compiled and analyzed the supporting data for the 
public float (using market capitalization) and outstanding debt 
thresholds.
---------------------------------------------------------------------------

    OEA also analyzed data on the financial market conditions under 
which these offerings were made. High levels of analyst coverage, 
institutional ownership, and trading volume are useful indicators of 
the scrutiny that an issuer receives from the market, although no one 
statistic can fully capture the extent to which an issuer is followed 
by the market.\52\ Issuers with market capitalization in excess of $700 
million that conducted offerings from 1997 to 2004 typically had an 
average of 12 analysts following them prior to the offering.\53\ This 
includes only sell-side analysts and is, we believe, a conservative 
indicator of analyst scrutiny. Institutional investors accounted for an 
average of 52% of equity ownership prior to offerings by issuers with 
market capitalization above $700 million. Those issuers had an average 
daily trading volume of nearly $52 million prior to offerings in this 
period and accounted for the following percentages of capital raised:
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    \52\ See, e.g., Harrison Hong, Terrence Lim, and Jeremy C. 
Stein, Bad News Travels Slowly: Size, Analyst Coverage and the 
Profitability of Momentum Strategies, 55 Journal of Finance 265 
(2000); Robert C. Merton, A Simple Model of Capital Market 
Equilibrium with Incomplete Information, 42 Journal of Finance 483 
(1987).
    \53\ Issuers with a market capitalization of between $75 million 
and $200 million, in most cases, have between zero to five analysts 
following them, with approximately 50% having zero to two analysts 
following them.
    \54\ Because the methodology includes only listed issuers, it 
excludes debt-only issuers (including companies that will be well-
known seasoned issuers), including those that are subsidiaries of 
companies with listed public equity but that are not themselves 
listed.

 Offering Proceeds, by Issuer Capitalization Primary Seasoned Offerings,
                               1997-2004 *
    [$Billions (%) Proceeds from Offerings, by Issuer Capitalization]
------------------------------------------------------------------------
                                       Market Capitalization of Issuers
                                     -----------------------------------
                                                            >$0 (All
                                           >$700mm          Issuers)
------------------------------------------------------------------------
Equity..............................        $396 (70%)       $567 (100%)
Debt \54\...........................       1,849 (96%)      1,927 (100%)
Total...............................       2,245 (90%)     2,494 (100%)
------------------------------------------------------------------------
* Source: OEA estimates using Center for Research in Securities Prices
  at the University of Chicago and Securities Data Corporation data.

b. Registered Offerings of Non-Convertible Securities Threshold
    Issuers that do not meet the public equity float test will be 
considered well-known seasoned issuers if they have issued for cash 
more than an aggregate of $1 billion in non-convertible securities, 
other than common equity, through registered primary offerings over the 
prior three years. These issuers also will have to satisfy the other 
conditions of the well-known seasoned issuer definition, such as the 
form eligibility requirement.\55\ In determining compliance with this 
threshold:
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    \55\ As we discuss below, these issuers generally are limited in 
the types of securities they may register on an automatic shelf 
registration statement as a well-known seasoned issuer. See Section 
II.A.3 below under ``Well-Known Seasoned Issuers Securities 
Offerings.''
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     Issuers may aggregate the amount of non-convertible 
securities, other than common equity, issued in registered primary 
offerings during the prior three years;
     Issuers may include only such non-convertible securities 
that were issued in registered primary offerings for cash--they may not 
include registered exchange offers in this aggregation; and
     Parent company issuers only may include in their 
calculation the principal amount of their full and unconditional 
guarantees, within the meaning of Rule 3-10 of Regulation S-X,\56\ of 
non-convertible securities, other than common equity, of their 
majority-owned subsidiaries issued in registered primary offerings for 
cash during the three-year period.
---------------------------------------------------------------------------

    \56\ 17 CFR 210.3-10.
---------------------------------------------------------------------------

    The aggregate principal amount of non-convertible securities that 
may be counted toward the $1 billion issuance threshold may have been 
issued in any registered primary offering for cash, on any form (other 
than Form S-4 or Form F-4). Those non-convertible securities need not 
be investment grade securities to be included in the calculation. In 
calculating the $1 billion amount, issuers generally may include the 
principal amount of any debt and the greater of liquidation preference 
or par value of any non-convertible preferred stock that were issued in 
primary registered offerings for cash.\57\
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    \57\ Some commenters asked for clarification on how to value 
certain types of debt issuances, such as debt issuances involving 
original issue discount or debt issued in foreign currency 
denominations. See, e.g., letters from the American Bar Association 
(``ABA'') and the New York State Bar Association (``NYSBA''). We 
have not made any modifications to the definition in response to 
these comments. Issuers should use the same calculation that they 
use to determine the dollar amount of securities that they are 
registering for purposes of determining their filing fees under 
Securities Act Rule 457.
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    Issuers may not include the principal amount of securities that 
were offered in registered exchange offers by the issuer when 
determining compliance with the $1 billion non-convertible securities 
threshold. A substantial portion of these offerings involve registered 
exchange offers of substantially identical securities for securities 
that were sold in private offerings. In those cases, the original sale 
to investors in the private offering, relying upon, for example, the 
exemptions of Securities Act Section 4(2) \58\ and Rule 144A, is not 
registered and is not carried out under the Securities Act's disclosure 
or liability standards. Moreover, in the subsequent registered exchange 
offers purchasers may not be able, in certain cases, to avail 
themselves effectively of the remedies otherwise available to 
purchasers in registered offerings for cash. While these exchange 
offers are permitted in some circumstances, the policy preference for 
registered offerings, in conjunction with the streamlining of the 
registration process we provide today, lead us to conclude that such 
exchange offers should not count towards the $1 billion threshold.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 77d(2).
---------------------------------------------------------------------------

    OEA analyzed statistics on issuers that did not meet the $700 
million public equity threshold. OEA found that very few issuers that 
had public common equity but did not meet the $700 million public float 
threshold would meet the $1 billion non-convertible securities 
threshold. However, OEA also found that a number of issuers without any 
public common equity would meet the $1 billion threshold. Based on 
OEA's analysis, from 1997 to 2004 the issuers of fixed

[[Page 44729]]

income securities that did not have outstanding public common equity 
but met the $1 billion threshold accounted for 16.7% of all of the 
issuers without public common equity that issued public debt, but 
accounted for 65% of total debt and preferred stock issued by all of 
such issuers. None of the debt offerings of issuers meeting the 
threshold was rated below investment grade, and 86% of their debt 
offerings were rated A or higher by a nationally recognized security 
rating organization (an ``NRSRO''). This group of issuers also on 
average had 19 basis points lower yield spread for their issues 
relative to issuers without public common equity that had issued less 
than $1 billion of fixed income securities in the past three years. We 
believe that this lower yield spread reflects lower default risk 
(higher ratings) and higher liquidity and transparency of the 
issuers.\59\
---------------------------------------------------------------------------

    \59\ See Gordon J. Alexander, William F. Sharpe, and Jeffrey V. 
Bailey, Fundamentals of Investments (2001 ed.) at 530.
---------------------------------------------------------------------------

2. Timing of Determination of Well-Known Seasoned Issuer Status
    Whether an issuer satisfies the eligibility requirements for being 
a well-known seasoned issuer generally will be determined on an 
approximately annual basis. We revised the timing of determination of 
status as a well-known seasoned issuer in response to comments.\60\ As 
adopted, the definition uses the 60-day window period used in Form S-3 
and Form F-3 and provides that the eligibility determination will be 
made as of the later of the time of filing of the issuer's most recent 
shelf registration statement or the time of its most recent amendment 
(by post-effective amendment, incorporated Exchange Act report, or form 
of prospectus) to a shelf registration statement for purposes of 
complying with Securities Act Section 10(a)(3).\61\ In the event that 
the issuer has not filed a shelf registration statement or amended a 
shelf registration statement for purposes of complying with Securities 
Act Section 10(a)(3) for sixteen months, the determination date will be 
the time of filing of the issuer's most recent annual report on Form 
10-K or Form 20-F. If the issuer does not accomplish its Section 
10(a)(3) update or file its annual report when due, the due date will 
become the date of determination and, because the issuer will be 
neither timely nor current in its reporting obligations under the 
Exchange Act at that time, it will cease to be a well-known seasoned 
issuer. It can of course become a well-known seasoned issuer again in 
the future if and when it meets applicable requirements.
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    \60\ See, e.g., letters from Alston & Bird LLP (``Alston''); 
Davis Polk & Wardwell (``Davis Polk''); Ernst & Young LLP (``E&Y''); 
and the Association of the Bar of the City of New York (``NYCBA'').
    \61\ See 15 U.S.C. 77j(a)(3). Under Form S-3 and Form F-3, the 
Section 10(a)(3) update need not be made through a post-effective 
amendment. Rather, under these Forms, the Section 10(a)(3) update 
generally occurs when the issuer files its annual report on Form 10-
K or Form 20-F containing the issuer's audited financial statements 
for its most recently comp