The Securities and Exchange Commission adopted significant changes to the securities registration and offering processes under the Securities Act of 1933 (the “Securities Act”). Release No. 33-8591 dated July 19, 2005, available at <http://sec.gov/rules/final/33-8591.pdf>. The new rules are effective December 1, 2005 and were adopted substantially as proposed in Release No. 33-8501 dated November 3, 2004, available at <http://sec.gov/rules/proposed/33-8501.htm>. The SEC has provided transition guidance in the form of FAQs dated September 13, 2005, available at <http://www.sec.gov/divisions/corpfin/transitionfaq.htm>.
The new rules, which are set forth in the 468-page final release, will result in significant changes in the way substantially all issuers conduct their registered securities offerings and will eliminate unnecessary and outmoded restrictions on the capital raising process. In addition, the new rules require public companies to provide more timely investment information to investors. Finally, the new rules continue the SEC’s efforts toward integrating the disclosure processes under the Securities Act and the Securities Exchange Act of 1934.
The changes focus on three main areas:
Categories of Issuers
The new rules create four categories of public companies. These categories are generally based on the type of issuer, the issuer’s Exchange Act reporting history and the issuer’s equity market capitalization or fixed income issuance history. The category into which a company falls will determine how it fits into the new disclosure regime and the benefits it will be able to obtain from the new rules. The most far-reaching revisions and the greatest benefits apply to those issuers that are “well-known seasoned issuers,” because the SEC believes they are the most widely followed in the marketplace. In 2004, issuers that would meet the definition of “well-known seasoned issuer” represented about 30 percent of publicly traded issuers and accounted for about 95 percent of U.S. equity market capitalization.
The four issuer categories will be:
1. Well-known seasoned issuer. An issuer that (1) is eligible to register a primary offering of its securities on Form S-3 or Form F-3, (2) within 60 days of an eligibility determination date, either has a voting and nonvoting common equity market capitalization, or “public float,” of at least $700 million on a worldwide basis held by non-affiliates, or, if the issuer does not meet the public float test and is registering non-convertible securities only, has issued $1 billion aggregate principal amount of registered non-convertible securities, other than common equity, for cash during the past three years, and (3) neither the offering nor the issuer is otherwise ineligible. A majority-owned subsidiary of a well-known seasoned issuer will be considered a well-known seasoned issuer if it meets the tests itself, the securities are non-convertible investment-grade securities and any parent guarantee meets certain requirements;
2. Seasoned issuer. An issuer that is eligible to register a primary offering of its securities on Form S-3 or Form F-3 or that is eligible to offer a primary offering of non-convertible investment grade securities or investment-grade asset-backed securities or is a majority-owned subsidiary of such an issuer, in each case eligible to use Form S-3 or Form F-3;
3. Unseasoned issuer. An issuer that is required to file reports with the SEC but is not eligible to register a primary offering of its securities on Form S-3 or Form F-3; and
4. Non-reporting issuer. An issuer that is not required to file reports with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act.
For purposes of determining its status as a well-known seasoned issuer, an issuer will measure its public float and the aggregate amount of its issuances of non-convertible securities using any day within 60 days following the later of the filing of the issuer’s most recent (1) shelf registration statement or (2) amendment to a shelf registration statement for purposes of complying with Section 10(a)(3) of the Securities Act. This amendment will most commonly occur through the filing of a Form 10-K but can also occur by filing a post-effective amendment or a new form of prospectus under Rule 424. If an issuer has not filed a shelf registration statement or amended a shelf registration statement for purposes of Section 10(a)(3) of the Securities Act during the prior 16 months, the determination date shall be the date of filing of the issuer’s most recent Annual Report on Form 10-K or Form 20-F, as applicable. These rules have the effect of making the issuer’s determination occur annually.
Voluntary filers, such as most high-yield debt issuers, are considered non-reporting issuers for purposes of the new rules.
Offering Communications Reforms
Under current “gun-jumping” rules and interpretations, no communications that could be deemed offers of securities are permitted before a registration statement for the securities is filed with the SEC, and written communications that could be deemed an offer of securities are required, with limited exceptions, to conform to the content requirements of a statutory prospectus.
As a starting point to applying the new rules, it is important to note that the SEC has defined “written communication” as any communication that is written, printed, broadcast on television or radio or is a graphic communication. It does not include oral communications, such as telephone calls or other direct oral communications, such as live, real-time communications to a live audience. A graphic communication includes any form of electronic medium, such as audiotapes, videotapes, facsimiles, CD-ROMs, e-mail, Internet Web sites and computers, computer networks and other forms of computer data compilation. As a result, electronic postings on Web sites, including electronic Road shows, are considered written communications. In addition, written communications include broadly disseminated or “blast” voicemail messages that are more like broadcasts than communications that are commonly regarded as oral, or live, communications.
Reflecting existing SEC staff guidance and issuer practice, the new rules eliminate requirements that can interrupt unnecessarily an issuer’s normal and routine communications to the market while an issuer is preparing for or engaged in a securities offering, as well as enhance the issuer’s ability to make written offers outside the statutory prospectus. Well-known seasoned issuers will now generally be free from the gun-jumping provisions. Other issuers now have additional freedoms from the gun-jumping provisions to communicate around the time of a registered offering, including by means of a written offer other than a statutory prospectus, but will be subject to various levels of restrictions based on their issuer category. In light of the scope of these changes, Regulation FD has been amended to more narrowly exclude communications during a registered offering.
Rule 137, Rule 138 and Rule 139, which describe the circumstances in which a broker or dealer may publish research that might be deemed to constitute an offer without violating Section 5 of the Securities Act if that research is published around the time of a registered offering, have been amended to generally liberalize the existing limitations.
Regularly Released Factual Business and Forward-Looking Information (Rules 168 and 169)
Rule 168 provides a safe harbor from the definition of “prospectus” in the Securities Act for continued publication or dissemination of regularly released factual business and forward-looking information by reporting issuers.
Rule 168 defines factual business information as:
Rule 168 defines forward-looking information as:
The safe harbor covers any factual business information and forward-looking information included in any of the issuer’s Exchange Act reports.
The following conditions must be satisfied in order to rely on the safe harbor provided by Rule 168:
Rule 169 provides a narrower safe harbor from the definition of prospectus for the release or dissemination of regularly released factual business information for all issuers, including non-reporting issuers. However, this safe harbor is not available for forward-looking information. To rely on the safe harbor, the information must be intended to be used by persons other than in their capacity as investors or potential investors (i.e., customers and suppliers).
Permitted Communications By All Issuers Prior to Filing a Registration Statement (Rule 163A)
Rule 163A provides all issuers with a bright-line time period, ending 30 days prior to the filing of a registration statement, during which issuers may communicate with others without risk of violating the gun-jumping provisions of Section 5 of the Securities Act. Communications prior to this 30-day period are excluded from the definition of “offer” for purposes of Section 5(c) of the Securities Act but are subject to Regulation FD.
To rely on the 30-day bright-line test of Rule 163A:
Pre-Filing Offers Permitted for Well-Known Seasoned Issuers (Rule 163)
Rule 163 provides well-known seasoned issuers with a much broader exemption from the prohibition on offers before the filing of a registration statement than Rule 163A provides for other issuers. The exemption permits eligible well-known seasoned issuers to make unrestricted oral and written offers before a registration statement is filed without violating the gun-jumping provisions. The exemption is only available for communications made by or on behalf of the issuer.
These communications are still considered offers of securities and are subject to the existing liability standards that are applicable to offers of securities. All such communications are also subject to Regulation FD. All written offers are generally considered “free-writing prospectuses” and are required to include a legend and be filed with the SEC promptly upon the filing of the related registration statement, unless it has previously been filed with, or furnished to, the SEC or is otherwise exempt from the filing requirements of new Rule 433. The legend informs the reader that the issuer may file a registration statement with the SEC for the proposed offering, and, before investing, the reader should read the prospectus and other documents the issuer has filed with the SEC for more complete information about the issuer and the offering. The legend also informs the reader where these documents can be obtained.
Expansion of Information Permitted To Be Disclosed (Rule 134)
Existing Rule 134 provides a safe harbor from the gun-jumping provisions for limited public notices about an offering made after an issuer files its registration statement. Rule 134 has been amended to:
Free-Writing Prospectuses (Rules 163, 164 and 433)
Rules 163, 164 and Rule 433 have been adopted to permit written communications that constitute offers, including electronic communications, outside the statutory prospectus to a greater extent than was previously permitted by the Securities Act, if certain conditions are met. These written communications are called “free-writing prospectuses.” Written communications made after the effectiveness of the registration statement that are accompanied or preceded by a prospectus will not be considered prospectuses and, therefore, will not be subject to the requirements for free-writing prospectuses.
Rule 405 defines a “free-writing prospectus” as any written communication that constitutes an offer to sell or a solicitation of an offer to buy securities that are or will be the subject of a registration statement and that is not a prospectus satisfying the requirements of Section 10(a) of the Securities Act or was not accompanied or preceded by a prospectus satisfying the requirements of Section 10(a) of the Securities Act or the SEC’s rules permitting the use of a preliminary or summary prospectus subject to completion. Communications that comply with Rule 134, Rule 135, Rule 168, Rule 169 and research reports falling with the safe harbors for such communications are not free-writing prospectuses.
Rule 433 permits information in a free-writing prospectus to go beyond the substance of the information contained in the related registration statement. However, the information in the free-writing prospectus must not conflict with the information in the registration statement.
Rules 164 and 433 require that each free-writing prospectus contain a legend indicating where the prospectus satisfying the requirements of Section 10 is available, recommending that potential investors read the prospectus, including the risk factors and the documents incorporated by reference into the prospectus. The legend must also state that the communication constitutes a written offer pursuant to a free-writing prospectus that is part of a registered public offering and must inform investors that a copy of the registration statement, and the documents incorporated by reference into the prospectus, can be obtained for free through the SEC’s Web site and that a copy of the prospectus can be obtained from the issuer, or any underwriter or dealer, by calling a provided toll-free number.
If a free-writing prospectus is unintentionally used without the required legend, the issuer is permitted to cure the defect by retransmitting a copy of the free-writing prospectus that includes the required legend to each person who received the defective free-writing prospectus. If the legend cannot be included in the free-writing prospectus, in the case of a published article for example, this information need only be contained in the free-writing prospectus that is filed with the SEC. However, disclaimers regarding accuracy, completeness or reliance by investors and legends that the communication is neither a prospectus nor an offer to sell or a solicitation of an offer to buy cannot be included in a free-writing prospectus. If such legend or disclaimer is included, the communication will not qualify as a free-writing prospectus and will be required to meet the requirements of a statutory prospectus in order to be used.
A free-writing prospectus is required to be filed by an issuer or an offering participant generally no later than the day it is first used. Rule 164 provides for the ability to cure any immaterial or unintentional failure to file, or delay in filing, a free-writing prospectus if a good faith and reasonable effort was made to comply with the filing condition and the free-writing prospectus is filed as soon as practicable after the discovery of the failure to file.
Rule 433 conditions the use of a free-writing prospectus on issuers and offering participants, such as underwriters, retaining any free-writing prospectuses they have used that have not been filed with the SEC for three years from the date of the bona fide initial offering of the securities in question, although immaterial or unintentional violations of this record-keeping requirement would not be violations of the rule. The SEC is authorized to request a copy of any free-writing prospectus, whether or not it was filed with the SEC.
Although each free-writing prospectus prepared by an issuer or containing information provided by an issuer is generally required to be filed, a free-writing prospectus is not deemed part of a registration statement subject to liability under Section 11 of the Securities Act unless the issuer elects to file it as part of the registration statement. Free-writing prospectuses are, however, subject to disclosure liability under Section 12(a)(2) of the Securities Act and under the antifraud provisions of the securities laws.
A media publication could be a free-writing prospectus if an issuer or any offering participant provides information about the issuer or the offering that constitutes an offer, whether orally or in writing, for the media publication. If an issuer or offering participant prepares, pays for or gives consideration for the preparation, publication or dissemination of, or uses or refers to, a published article, television or radio broadcast or advertisement, the issuer or offering participant will have to satisfy the conditions for use of a free-writing prospectus as of the time of the publication or broadcast. If the free-writing prospectus is prepared and published or broadcast by persons in the news media who are not affiliated with and not paid by the issuer or offering participant, a statutory prospectus is not required to precede or accompany the communication. For example, if a member of the press who is invited to a road show writes an article containing information from the road show, the article is a free-writing prospectus that is subject to the rules, unless the road show is readily accessible to an unrestricted audience. Any such free-writing prospectus is required to be filed with the SEC by the issuer or offering participant involved within four business days after the issuer or offering participant becomes aware of its publication or broadcast. The filing obligation may be met by filing (1) the media publication, (2) all of the information provided to the media in lieu of the publication or (3) a transcript of the interview or similar materials that the issuer or other offering participant provided to the media. A media publication does not need to be filed if the substance of the written communication has previously been filed with the SEC. Finally, the issuer or offering participant is permitted to file information the issuer reasonably believes is necessary or appropriate to correct information included in the media publication.
Under Rule 163, an eligible well-known seasoned issuer may use a free-writing prospectus at any time before or after the filing of a registration statement. If it is used before the filing of a registration statement, the free-writing prospectus must be filed at the time of the filing of the registration statement. Under Rule 164, a free-writing prospectus may be used by an offering participant after the filing of a registration statement containing a statutory prospectus, which may be a base prospectus that meets the requirements of Rule 430B in the case of shelf offerings.
Under Rule 433, an eligible seasoned issuer is permitted to use a free-writing prospectus if the following conditions are satisfied:
A non-reporting or unseasoned issuer may use a free-writing prospectus if the following conditions are satisfied:
√ The free-writing prospectus is prepared by or on behalf of, or used or referred to by, an issuer or is prepared by or on behalf of, or used or referred to by, other offering participants;
√ Consideration has been or will be given by the issuer or an offering participant for the dissemination of any free-writing prospectus, including any published article, publication or advertisement; or
√ Section 17(b) of the Securities Act requires disclosure that consideration has been or will be given by the issuer or an offering participant for any activity in connection with the free-writing prospectus.
The statutory prospectus need not be delivered by the same means as the free-writing prospectus, so long as it is provided at the required time. For example, the free-writing prospectus could contain a hyperlink to the statutory prospectus. However, merely referring to the availability of a statutory prospectus would not satisfy this condition. Thus, publications in print media and radio or television broadcasts will generally not be permitted for free-writing prospectuses, while e-mails and other Internet media could be used for free-writing prospectuses. Once a statutory prospectus has been delivered, additional free-writing prospectuses may be delivered without delivering a new prospectus unless a material change has been made in the statutory prospectus. After the effectiveness of the registration statement, the final prospectus must accompany or precede any further free-writing prospectuses. In addition, in the case of an IPO, the statutory prospectus must contain a price range.
To use free-writing prospectuses, generally an issuer may not be an ineligible issuer. However, an ineligible issuer other than a blank check company, shell company or penny stock issuer, is permitted to use free-writing prospectuses that are limited to descriptions of the terms of the securities being offered and the offering. Eligibility will be determined at the commencement of an offering (either the time of filing of the registration statement or, in the case of a shelf takedown, the earliest time after the filing of the registration statement for the offering at which the issuer or another offering participant made a bona fide offer) and will not result in a change of status during an offering. Any person using a free-writing prospectus other than the issuer must have a reasonable belief that the issuer is not an ineligible issuer.
In general, ineligible issuers are issuers that are not compliant with their Exchange Act reporting obligations, have filed for bankruptcy or insolvency during the last three years, have violated the federal securities laws previously, or are blank check issuers, shell companies or penny stock issuers. These same issuers generally are not eligible for the automatically effective shelf registration statement procedures described below, as well as the newly adopted communications safe harbors, exemptions and exclusions. Upon an issuer’s request, the staff of the SEC may waive an issuer’s ineligibility upon its finding of good cause.
Electronic Road Shows (Rule 433)
Generally, all electronic communications, including electronic road shows, are considered graphic communications (and, therefore, a free-writing prospectus) and are permitted only if the conditions of Rule 433 described above are satisfied. However, excluded from the definition are communications that, at the time of communication, originate live, in real-time to a live audience and do not originate in recorded form or otherwise as a graphic communication, although the communication may be transmitted through graphic means. Each road show presentation that does not meet that exclusion from the definition of graphic communications is considered a written communication that is treated as a free-writing prospectus. Road Shows that are free-writing prospectuses do not need to be filed with the SEC unless the road show is with respect to an issuer that is not required to file reports under the Exchange Act and is registering an offering of common equity or convertible equity securities. In that case, the road show must be filed unless the issuer makes at least one version of a bona fide electronic road show for the offering in question readily available electronically without restriction to any potential investor at the same time as the other versions of the electronic road show. A bona fide road show is one that contains a presentation by at least some members of the issuer’s management and, if more than one version exists, that covers the same general areas regarding the issuer, its management and the securities offered as the other versions. It need not contain all of the same information and need not provide an opportunity for questions and answers or other interaction. These electronic road show requirements replace the long line of no-action letters, beginning with Private Financial Network (Mar. 12, 1997), addressing the permissibility of electronic Road shows.
Treatment of Information on a Web Site and Other Electronic Communication Issues (Rule 433)
An offer of an issuer’s securities that is contained on the issuer’s Web site or hyperlinked by the issuer from the issuer’s Web site to a third-party Web site is considered a written offer of such securities made by the issuer and, unless otherwise exempt, a free-writing prospectus. While a research report generally will not be an offer, an issuer’s hyperlink to that research report would make the research report a free-writing prospectus of the issuer.
Historical issuer information that otherwise could be considered an offer but that is properly identified as historical information and located in a separate section of the issuer’s Web site containing historical issuer information will not be considered a current offer of the issuer’s securities. The issuer is required to be able to demonstrate that the information is historical, which could be done by making sure that all such information is dated.
Automatically Effective Shelf Registration for Well-Known Seasoned Issuers (Form S-3 and Form F-3)
Eligible well-known seasoned issuers can now register unspecified amounts of different types of identified securities on automatically effective Form S-3 or F-3 registration statements. All such shelf registration statements and post-effective amendments thereto become effective automatically upon filing, without staff review. The effect is that the SEC staff can focus substantially all of their review effort with respect to these issuers on their Exchange Act reports.
Automatically effective shelf registration is available for all primary and secondary offerings of securities by eligible well-known seasoned issuers, other than those in connection with business combination transactions or exchange offers. As with Form S-3 eligibility, eligibility for automatically effective shelf registration will be assessed at the time of initial filing of the registration statement and at the time of each updated prospectus required by Section 10(a)(3) of the Securities Act. If an issuer is no longer eligible for automatically effective shelf registration at the time of such update, a post-effective amendment will have to be filed to amend the registration statement onto the form the issuer is then eligible to use or a new registration statement would have to be filed. Continuous offerings can continue on the automatically effective shelf registration until a post-effective amendment or new registration statement that is filed in a timely manner (within 120 days after the issuer’s most recent fiscal year-end) is declared effective.
The new rules permit more information to be excluded from the base prospectus than is currently permitted to be excluded from a shelf registration statement, including:
The new rules permit most information required in the prospectus about the issuer and its securities to be incorporated by reference from Exchange Act reports or to be contained in the prospectus or prospectus supplement that is deemed part of the registration statement. A shelf registration statement could theoretically be as brief as two pages. The principal exceptions are that a post-effective amendment to a registration statement is required to be filed to add new types of securities or new eligible issuers, including guarantors, to the registration statement, although the post-effective amendment will also be automatically effective. New issuers and their officers and directors are required to sign the post-effective amendment.
Eligible well-known seasoned issuers can register unspecified amounts of securities to be offered, without distinguishing between primary and secondary offerings. Issuers that satisfy the definition of well-known seasoned issuer based only on their debt issuances are only permitted to register non-convertible obligations, unless they are also primarily eligible to use Form S-3 or Form F-3 for a primary offering because they have a public float of $75 million or more. The calculation of the registration fee table also need not include a dollar amount or specific number of securities, unless a fee based on an amount of securities is paid at the time of filing, but need only specify each class of security registered and indicate if the filing fee will be paid on a pay-as-you-go basis.
Eligible issuers are permitted to pay filing fees in advance, as is the case today, or on a “pay-as-you-go” basis at the time of each shelf takedown. Under the “pay-as-you-go” system, issuers pay no filing fee at the time of filing the registration statement. For each takedown, the prospectus supplement must include a calculation of the registration fee table. Alternatively, a post-effective amendment including the same information could be filed based on the fee schedule then applicable to a securities offering. The filing fee must be paid within the time required to file the prospectus supplement under Rule 424.
Liability Issues
Timing (Rule 159)
Rule 159 provides that, for purposes of liability under Section 12(a)(2) and Section 17(a)(2) of the Securities Act, whether a prospectus, oral statement or a statement includes an untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, only the information conveyed to the purchaser at or prior to the time of sale will be taken into account, not the final prospectus delivered with the confirmation. Rule 159 also provides that, for purposes of Section 12(a)(2) only, a purchaser’s “knowing of such untruth or omission in respect of a sale means knowing at the time of such sale.” The “time of sale” for this purpose is the date that the investor agrees to purchase, not the settlement date. Rule 430B has been adopted to make clear that information filed by an issuer after the time of sale and incorporated by reference into the prospectus will also not be considered for this purpose.
If material information arises after the date of sale, the issuer and purchaser can elect to terminate the previous contract, the material information can be conveyed to the investor and a new contract can be entered into.
The SEC has revised Rule 412 to provide that information in a prospectus or prospectus supplement that is filed after the time of sale will be considered to be a part of and included in the registration statement at the time of effectiveness of the registration statement. Accordingly, this information would now be subject to liability under Section 11 of the Securities Act.
Other
Some courts have held in a firm commitment underwriting that the underwriters and selling dealers are the sellers of the securities and that the issuer therefore does not have exposure to liability under Section 12(a)(2) of the Securities Act. Rule 159A provides that an issuer in a primary offering of securities, regardless of the form of underwriting arrangement, is considered to offer and sell the securities to the purchaser in the initial distribution of the securities as to:
Rule 159A also provides that an offering participant other than the issuer will not be considered to offer or sell securities by means of a free-writing prospectus unless:
All free-writing prospectuses may give rise to liability under the same provisions that apply to oral offers and statutory prospectuses. A free-writing prospectus is not part of a registration statement subject to liability under Section 11 of the Securities Act (unless the issuer otherwise makes it a part of the registration statement) but will be subject to liability under Section 12(a)(2) of the Securities Act. Written communications not constituting offers of securities will continue to not be subject to disclosure liability applicable to prospectuses under Section 12(a)(2) of the Securities Act.
Other Changes
Set forth below is a brief summary of some of the more notable changes included in the final release.
Shelf Offerings (Rule 415)
The SEC has amended Rule 415 to:
Prospectus Delivery Changes
The SEC has revised the prospectus delivery requirements based on an “access equals delivery” concept. Specifically, sellers of securities are only required to provide investors with prescribed means of having access to a final prospectus rather than physically delivering a final prospectus. Under the changes, investors are presumed to have access to the Internet, and sellers of securities can satisfy their obligations to deliver a final prospectus by posting it on a Web site. In particular, Rule 172:
Rule 173 requires that, for each transaction involving a sale by an issuer or underwriter to a purchaser or a sale in which the final prospectus delivery requirements apply, each underwriter, broker or dealer participating in the offering may send to each purchaser purchasing from it, not later than two business days after the completion of the sale, in lieu of a final prospectus, a notice providing that the sale was made pursuant to a registration statement and informing the investor that the investor may request a final prospectus.
Rule 153 has been revised so that brokers or dealers effecting transactions on an exchange, through any trading facility of a registered national securities association or through a registered alternative trading system, are deemed to satisfy their prospectus delivery obligations with regard to transactions in securities if:
Physical copies of the prospectus no longer need to be sent to the exchange or market maker, and the exchange or market maker no longer needs to keep track of any prospectuses. However, the amendments do not affect delivery obligations to purchasers other than brokers and dealers.
Rule 174 has been revised to provide that, during the aftermarket delivery period, dealers may rely on Rule 172 to satisfy any aftermarket delivery obligations.
Requirements for a Base Prospectus (Rule 430B)
Rule 430B describes the types of information that primary shelf eligible issuers (seasoned issuers) and issuers eligible to use the new automatically effective shelf registration provisions (well-known seasoned issuers) may omit from a base prospectus in delayed offerings and include instead in a prospectus supplement, an Exchange Act report incorporated by reference or a post-effective amendment. For example, all information concerning the issuer and its securities would be permitted to be omitted from the base prospectus and incorporated by reference from its Exchange Act reports or included in a prospectus supplement. However, if omitted information about an offering is included in Exchange Act reports incorporated by reference, a prospectus supplement that identifies the Exchange Act reports containing such information still must be prepared and filed pursuant to Rule 424. Also, material changes to a plan of distribution could be made in a prospectus or prospectus supplement, rather than being required to be made only in a post-effective amendment to the registration statement, as is currently the case. The trade-off for this increased flexibility is that prospectus supplements and final prospectuses are now deemed to be part of and included in the registration statement, which means that they may give rise to liability under Section 11 of the Securities Act.
Rule 430B also deems information contained in prospectus supplements to be included in the related registration statement as follows:
Rule 430B also establishes a new effective date for a shelf registration statement for purposes of Section 11 of the Securities Act in connection with a shelf takedown. In such cases, the new effective date is the date a prospectus supplement filed in connection with the shelf takedown is deemed part of the relevant registration statement, although it would not be considered the filing of a new registration statement for form eligibility purposes. This change largely eliminates the current timing discrepancy in the application of disclosure liability to issuers (whose potential liability currently is tested at the effectiveness of a registration statement), as compared with underwriters and other parties (whose liability is tested at the time when they agree to participate in a takedown). The change does not affect the timing of liability with respect to directors, signing officers and experts, which will remain at the time of effectiveness of a registration statement, but not at the time of filing of a subsequent form of prospectus that is deemed part of the registration statement.
Identification of Selling Security Holders
The SEC has amended Form S-3 and Form F-3 to allow seasoned issuers eligible to use those forms for primary offerings of securities to identify selling security holders, and all information about them, after effectiveness of the registration statement through either an amendment to the registration statement or a prospectus supplement. The ability to identify selling security holders in this manner is available only for automatically effective shelf registration statements in which the specific private transaction or transactions pursuant to which the securities were sold are described and the related shares are issued and outstanding.
Registration Statement Undertakings
The SEC has amended the undertakings that an issuer includes in Part II of its registration statement. Item 512(a) of Regulation S-K has been revised to make clear that an issuer’s updating requirements can also be met by including the required information in a prospectus supplement that is filed and deemed part of and included in a registration statement or any Exchange Act report. In addition, automatically effective shelf issuers are permitted to use these same methods to include all other information that has been omitted from the base prospectus, subject, in the case of a shelf takedown, to the filing of a prospectus supplement.
In addition, pursuant to Rule 430B and Rule 430C, an issuer must include a new undertaking in registration statements in which the issuer agrees that information in filed prospectus supplements is deemed to be part of and included in the related registration statements and that, for liability purposes, new effective dates for those registration statements are deemed to occur upon the earlier of the date they are first used or the date of the first sale of the securities to which they relate.
Incorporation by Reference
The new rules permit reporting issuers that have filed at least one annual report and that are current in their Exchange Act reporting obligations to incorporate by reference into their Form S-1 or F-1 information from their previously filed Exchange Act reports. However, reporting issuers that are ineligible issuers are not able to incorporate by reference their previously filed reports. In addition, in order to incorporate by reference, unseasoned issuers must make the documents incorporated by reference readily available on their Web sites, state that they will provide copies of any incorporated reports on request and indicate that reports are available from the SEC. However, unseasoned issuers are not able to “forward incorporate” by reference (that is, they cannot incorporate Exchange Act reports filed after the effective date of the registration statement). They are only able to incorporate by reference documents that are specifically referenced in the registration statement.
New Disclosures in Exchange Act Reports
Under the new rules, an issuer is required to include the following in its Exchange Act reports: