A.     Introduction

§ 1:1 Where we are and how we got there

There are few Acts drafted by Congress with the thought and care of the Securities Act that in a relatively few concise sections established the basic framework that has governed the offering of securities, private and public, since 1933. That framework contemplated as to a public offering of securities that the securities would be registered with the Securities and Exchange Commission[1] by the filing of a registration statement that would include a prospectus, that there would be a minimum of 20 days for the Commission to review the registration statement and determine whether to allow the registration statement to become effective and for the public offering to commence, and that the sole writing that could be used in connection with the offering would be the statutory prospectus. The Commission had to improvise to allow some means for the underwriters to put together the customary underwriting syndicate during the waiting period and informally gave birth to the red herring or preliminary prospectus. The Act as enacted also required the prospectus to be delivered by dealers in the secondary market for 12 months following the date on which first bona fide offered, envisioning it as a means of keeping the trading market informed.

In 1954 the Act was amended to codify the practice of using a preliminary prospectus during the waiting period, but precluding the use of any communication (written or oral) before the filing of the registration statement that might be deemed an offer to sell or solicitation of an offer to buy the securities. This was done primarily by dividing the Section 2(a)(3)definition of sale of a security into two parts, one to cover an offer to sell or solicitation of an offer to buy and the other to cover the sale or contract to sell a security. A new Section 5(c) was added that precluded an offer of sale or solicitation of offer to buy before the filing of a registration statement. . The Commission subsequently adopted Rule 135 allowing a very limited announcement of a forthcoming public offering before the filing of a registration statement. Section 5(b) was amended so as to permit after the filing of a registration statement not only oral communications but to authorize the Commission to define by rule a limited tombstone type communication that would not constitute a prospectus as defined by Section 2(a)(10) and also prescribe by Rule a Section 10 preliminary prospectus that omitted information necessary to constitute a final prospectus that could be used after a registration statement was filed and before it became effective.  The Commission adopted Rule 134  authorizing limited communications subject to a number of conditions and Rule 430  providing for a preliminary prospectus that could be delivered after the filing of a registration statement. No other written communication was allowed prior to the effective date except for a seldom used Rule 431 summary prospectus .

After the registration statement is filed, an initial public offering proceeds in two related fronts—one involving the marketing of the issue by the lead underwriter and the other involving the give and take of the SEC review process with the staff directing a comment letter(s) to the issuer to which the issuer responds by filing a pre-effective amendment(s). When all goes according to plan, the marketing results in indications of interest and conditional offers to buy on a scale that convinces the underwriting syndicate that a distribution can be completed, and about the same time the Commission’s staff advises that it will have no further comments and the effective date will be accelerated in accordance with the request for acceleration. See Part 8. Up to this point, in the case of an IPO the issue has been marketed with the required estimated range of offering price, Now the issuer and lead underwriter have to agree on pricing the issue. Prior to the adoption of Rule 430A in 1987, this resulted once the pricing decision had been made in preparing in haste a pre-effective amendment with the offering price related information as well as the commitment of each of the members of the underwriting syndicate and managing in some manner (red eye special or otherwise) to file the pre-effective pricing amendment with the Commission early the following morning in order to have the registration statement declared effective by the Commission. As soon as declared effective, the distribution commenced and would be completed in a matter of hours if all went well. In May of 1987, the Commission adopted Regulati0n 430A, which eliminated the need to file a pre-effective amendment that included the offering price related information by allowing a registration statement to go effective without the offering price related information, permitting it to be included in a Rule 424(b)(1) prospectus supplement or in a post-effective amendment. See Part 9.

The Exchange Act of 1934 is multi-faceted; one facet of which is Section 12(b) that requires companies in order to list a class of securities on a national securities to register that class of securities with the SEC, which, among other things, subjects the company to the Section 13(a) reporting requirements of that Act as well as the Section 14 proxies rules.  Section 15(d) of the Exchange Act imposes on companies that register an offering of securities under the Securities Act to file with the Commission such reports as the Commission by rule deems necessary and appropriate.  The annual, quarterly, and current reports required by the rules adopted pursuant to Sections 13(a) and Section 15(d) are identical, but a Section 15(d) reporting company is not subject to the proxy rules and other aspects of the ’34 Act regulatory scheme. See § 7:31. In 1964, Congress amended he Exchange Act by adding a Section 12(g), which with the rules adopted by the Commission requires all companies with a class of equity securities held of record by 500 or more security holders  and more than $10 million in total assets to register that class of securities of the Exchange Act. Such registration subjects such companies to the same Section 13(a) reporting obligations as a listed company, to the proxy rules, and other provisions of the Exchange Act to which listed companies are subject.

The continuous reporting provisions of the Exchange Act and the fact that substantially all public companies are subject to Exchange Act registration made the requirement of the Securities Act that a prospectus be delivered by dealers in the secondary market for 12 months a matter of overkill. Section 4(3) of the Securities Act that required such delivery was amended in 1964 to change the period in which dealers had to deliver a prospectus to either 90 days for first time registrants and 40 days for other issuers.. It also authorized the Commission to modify this provision by Rule and the Commission adopted Rule 174, which eliminated the requirement for reporting company and reduced the period to 25 days for companies that are non-reporting companies at the time the registration statement is filed if the securities are listed on a national securities exchange or the Nasdaq stock market before trading is commenced.

For many years the focus was on the detailed disclosure typically required in the Securities Act registration statement. In 1966 Milton Cohen in a law review article[2] suggested that primary emphasis be placed on the continuous disclosure system of the Securities Exchange Act with less emphasis on the spasmodic and fortuitous disclosure resulting from the registration of securities publicly offered under the Securities Act. The Commission eventually listened, strengthening the information required in ’34 Act reports and in 1982 adopted the integrated disclosure system.  Under the integrated disclosure system description of the content of disclosure that is common to ’34 Act reports and ’33 Act registration statements as well as that peculiar to proxy statements are included in Regulation S-K.  The reports under the ’34 Act and registration statements under the Securities Act specify the disclosure to be included in the report/registration statement by referring to the relevant Regulation S-K item. The integrated disclosure system included the adoption of Form S-3 allowing issuers meeting specified criteria to furnish significant parts of a ’33 Act registration statement by reference to information included in the company’s ’34 Act reports.

The road to integration extended over a period of time  and involved revisions to rules and regulations and adoption of several new rules and forms finalized in a 1982 Release announcing “the adoption of a comprehensive revision to the rules and forms governing the registration of securities under the Securities Act of 1933.”[3] The new rules included “a temporary rule (Rule 415) governing the shelf registration of securities.” Rule 415, which subsequently with some modifications was made permanent, provided for the registration of “an offering to be made on a continuous or delayed basis in the future.” Rule 415(a)(1)(x) provided for the registration on a delayed basis of a primary offering made on Form S-3, permitting issuers that are eligible to use Form S-3 for a primary offering to file a registration statement including at the effective date what came to be described as a base prospectus. A delayed shelf permitted the registrant to determine at some future date after the registration statement was effective to negotiate an underwriting arrangement covering a particular takedown of the securities from the shelf. In 1992, this was broadened to include a so-called unallocated shelf, permitting the registration statement at the effective date to cover several different types of securities and allowing the specific security or securities taken down from the shelf to be determined at a future date. See § 9:85. The March 1982 Release also included revisions to Regulation S-K Item 512(a) undertakings setting forth the circumstances under which the registrant agreed to file post-effective amendments to reflect changes in the prospectus prior to the termination of the delayed or continuous offering. Regulation S-K Item 512(a) undertakings and the staff’s informal interpretations of the undertakings have determined for a number of years whether post-effective developments have to be filed as a post-effective amendment or as a Rule 424(b) prospectus supplement. A distinction of considerable significance as a Rule 424(b) supplement although filed can be used without staff review, whereas a post-effective amendment absent a provision to the contrary is subject to staff review and cannot be used until the Commission declares the post-effective amendment effective.

Proposals to reform the legal framework embodied in the Securities Act of 1933 of the public offering of securities go all the way back to the proposed Federal Securities Code drafted by a committee headed by the late Professor Louis Loss under the auspices of the American Law Institute (ALI) and officially endorsed by the ALI on May 19, 1978.[4] The SEC after extensive negotiations with Professor Loss and the drafting committee and acceptance of a number of revisions proposed by the SEC staff joined in recommending the revised Code to Congress,[5] but never pressed for its adoption. The Code covered all five securities laws, but an integral aspect was the reform of the regulatory framework governing the offering of securities. The Code if adopted would have provided for the registration of issuers rather than securities (see § 1:14), but a registered company offering securities publicly would have to have filed an offering statement and used a prospectus (see § 1:15). We bypass other efforts and fast forward to November 3, 1998 when the Commission proposed a reform so broad in scope that it was referred to as the “aircraft carrier proposal.” The Securities Act reform proposal, although but one aspect of the aircraft carrier proposal, would have dramatically reformed the registration of securities process, introducing a whole new set of registration forms and incidentally liberalizing communications while in registration.[6] The mission, however, was not accomplished when the securities industry and bar association groups found more they disliked about the proposal than they liked, and the proposal went into dry dock for repairs. One part they did like was the liberalization of communications in connection with business combinations and tender offers and a modified version of that aspect of the proposal was adopted in October of 1999.[7]  The Commission in that Release noted “[a]t this time we are not adopting the Securities Act Reform proposals that are unrelated to business combination transactions. We are continuing to evaluate commenters' responses to the Securities Act Reform proposals and in the future we may take action on these proposals.” [8] In April of 2000, the Commission attempted to put some new gloss on old guidance relating to communications while in registration in Interpretative Release III on Use of the Electronic Media.. The Commission noted in that Release it was "considering separately the liberalization of communications by issuers [while in registration] and other market participants." A footnote to this statement added: "We also are considering separately the use of road shows in the capital-raising context.”[9] On November 3, 2004, the Commission published the Securities Offering Reform Proposal (SORP),[10] which in most respects was the promised Securities Act Reform Proposal, although it includes some modest Exchange Act related provisions. On July 19, 2005, the Commission adopted the final SOR Rules, effective on December 1, 2005.

 § 1:2 Overview

SOR bears many similarities to the aircraft carrier proposal and in many respects is as pervasive as that proposal with respect to the reform of securities offerings, but within the framework of the existing registration forms and for apparent reasons does not cover areas of the aircraft carrier proposal that were implemented such as communications relating to business combinations. A principal stimulus for proposed reform as has been recognized for years is the need to liberalize communications while an issuer is “in registration.” In the process of doing so, SOR classifies issuers into four categories for several purposes and has a generic category, ineligible issuer (see § 1:4), that cuts across all four. The four categories are non-reporting companies, unseasoned issuers, seasoned issuers, and well-known seasoned issuers. See § 1:3. Although the Adopting Release alludes to the four categories, only the well-known seasoned issuer is a defined term. When SOR references an unseasoned issuer it refers to a reporting company not eligible to use Form S-3 for a primary offering of its securities.[11] References in the proposed rules to a seasoned issuer is to an issuer eligible to register its securities on Form S-3 (or F-3) for a primary offering of its securities.[12] References to non-reporting companies is to “issuers not subject to the reporting requirements of section 13 or section 15(d)” of the Exchange Act.[13] A well-known seasoned issuer is a defined term included as part of Rule 405[14] the placeholder for defined terms relevant to the registration of securities. A well-known seasoned issuer in addition to being a seasoned issuer must have a public float (market value of outstanding common equity held by non-affiliates) of $700 million or more, OR during the last three years issued at least $1 billion in the aggregate of debt securities registered under the Securities Act and that is registering only debt securities. The principal consequence of being an ineligible issuer is that such issuers are precluded from using a free-writing prospectus except for a very limited free writing prospectus, but there are other consequences as well. On classification of issuers, see § 1:3, and with respect to ineligible issuers see § 1:4.

The approach to liberalizing communications while in registration is a multi-faceted one, but the centerpiece is the Rule 433 free writing prospectus. Subject to a number of conditions, Rule 433 permits all but ineligible issuers to use written communications (including press releases and interviews with the media) unrestricted as to content (subject, to the anti-fraud provisions and exposure to Section 12(a)(2) liability if false or misleading) after the filing of a registration statement. See § 1:10. Graphic communications, broadly defined to include the Internet and other electronic media, are encompassed within the definition of written communication, subjecting, among other things, communications on the Internet to the strictures on the use of free writing prospectuses. See 1:9. Conventional road shows are liberalized in some respects, although generally are not tinkered with (see § 1:16) , but Internet road shows are facilitated in many respects and do not have to be filed as a free writing prospectus if one bona fide version is made available to everyone seeking access. See § 1:17. Historical archived information kept separate and apart on a web site, would not be deemed an offer of securities. See § 1:14. Rule 163A subject to limited conditions in effect deems an issuer not “in registration” with respect to communications that occur thirty or more days out from the filing of the registration statements. See § 1:6. Rule 168 allows a reporting company, including a unseasoned reporting issuer, to continue to distribute before and after the filing of a registration statement factual business information and forward-looking information that it regularly released in the ordinary course of business. See § 1:7.  Rule 169 permits a non-reporting issuer to continue to distribute before and after the filing of a registration statement factual business information (but not forward-looking information) that it regularly released in the ordinary course of business but subject to some important restrictions. See § 1:8. Rule 163 permits a well-known seasoned issuer before the filing of a registration statement unrestricted ability to communicate with the public (subject to anti-fraud provisions and Section 12(a)(2) exposure), provided written communications that might be deemed an offer of securities be filed with the Commission at the time of filing of the registration statement. See § 1:5. All of the above, involve new rules. Rule 134, which is the principal written communication that presently can be used after the filing of a registration statement is amended to expand in certain but limited respects the information that can be included. Rules 139, 138, and 137 relating to the distribution of research reports by participants and non-participants in a distribution are also be liberalized in certain respects. See §§ 1:20-1:23.

SOR as it relates to liberalizing communications while an issuer is “in registration” builds on the existing conceptual scheme of things, redefining in particular contexts Securities Act terms like the Section 2(a)(10) definition of “prospectus” and the Section 2(a)(3) definition of “offer to sell,” and providing exemptions (e.g. from Section 5(c)) when and to the extent necessary to accomplish the liberalization objectives. The Proposing Release included a table that tied together the manner in which the proposed rules conceptually liberalized communications within the Section 5 framework while an issuer is in registration. Because it is helpful in that regard, we have extracted the TABLE from the Adopting Release and attached it.

 The role of a preliminary prospectus will not diminish significantly in connection with an offering by a non-reporting issuer and an unseasoned reporting issuer since a free writing prospectus has to be accompanied by the latest version of the preliminary prospectus if not previously sent in such offerings. See § 1:10. In the case of a seasoned or well-seasoned issuer, however, a free writing prospectus does not have to be accompanied or preceded by a preliminary prospectus. See § 1:10. Rule 15c2-8[16] will require that a preliminary prospectus be available to investors who request a copy and available to dealers and their brokers participating in the offering. See § 1:18. In addition, a free writing prospectus must include a legend advising of the availability of the preliminary prospectus on EDGAR with a link to Edgar and also the availability of a copy by calling a toll free telephone number. See § 1:11. Delivery of the final prospectus with respect to all registered offerings is likely to be limited under the access equals delivery approach. A confirmation will not have to be accompanied or preceded by a copy of the final prospectus. Rather, those who are allocated and purchase the shares in a registered offering will receive a notice of their right to request a copy of the prospectus. Similarly, to the extent Rule 174 requires dealers to deliver a copy of the prospectus in the aftermarket trading, a notice of the right to request the prospectus constitutes delivery (provided, of course, that it is delivered if requested). See § 1:19.

One way to view the impact of SOR on the registration process itself is to compare the resulting framework with the visionary company registration under which information concerning the company is archived at the time the company is registered and kept up to date with periodic reports. When the company makes a public offering it distributes a document that references the archived information as updated and sets forth the relevant terms of the offering. See 1:13. We prior to SOR to some degree a less than elegant form of company registration, some of the limitations of which are dictated by the statutory framework. Companies do not register under the Exchange Act, but companies register a class of equity securities under the Exchange Act and that triggers the requirement that they file periodic (annual reports on Form 10-K and quarterly reports on Form 10-Q) and current reports on Form 8-K.  If the company is a seasoned issuer (i.e. eligible to use Form S-3 for a primary offering) it can file a delayed unallocated shelf registration statement.  The registration statement lists several different types of securities that are being registered (common stock, preferred stock, debt securities, warrants, etc.) without specifying the specific security or specific amount of securities other than to set forth an aggregate maximum offering price, which may be a billion dollars or more. Such a registration statement filed on Form S-3 incorporates substantially all the business related information, financial statements, information relating to management and principal security holders by incorporating the Form 10-K for the last preceding fiscal year, and all periodic and current reports filed since the end of the last fiscal year.  To the extent there have been other material developments not reflected by the incorporated filings, that information must be set forth.[17] The registration statement must also include what we refer to as standard registration items, all of which with one exception are found in Subpart 500 of Regulation S-K. The principal items that may be applicable to a seasoned issuer are risk factors, summary information, plan of distribution, description of securities being registered, use of proceeds, the prescribed content of the outside and inside cover page of the prospectus, including offering price, underwriting commissions etc. The whole purpose of a delayed unallocated shelf is delay the inclusion of much of transaction-offering related standard registration items until the issuer has determined what securities to be offered and in what amount and until it has entered into an underwriting arrangement. The registration statement is allowed to go effective without much of this information and with considerable information, for example, the distribution terms, described in generic fashion to cover the outlines of a yet to be entered into underwriting arrangement. See § 1:28.

The registration statement will be kept up to date to a significant extent since a Form S-3 registration statements incorporates by reference all periodic and current reports filed under the Exchange Act and all filings under the proxy rules subsequent to the effective date until the offering(s) covered by the registration statement terminate. The required Regulation S-K, Item 512(a)(1) undertakings provide that to the extent that facts and events reflecting a fundamental change in the prospectus after the effective date not reflected in the filings incorporated by reference and any material change in the distribution terms must be included in a post-effective amendment. Informal guidance of the staff and practices developed over a period of time determine the post-effective information that can be furnished by a Rule 424(b) prospectus supplement. Since that guidance and actual practice play a large role, and since the prospectus supplement is the generally accepted practice for furnishing the critical information as to specific securities and distribution terms when securities are taken down from the shelf and actually offered to the public, we attempt to describe those practices at length at § 1:28-1:31.

We shall see that SOR in terms of the registration process places considerable focus on a delayed primary shelf offering including an unallocated shelf and in the process for the most part codifies the existing practice. See § 1:32. The really innovative aspect of SOR, however, is Automatic Shelf Registration (ASR) that is limited to well-known seasoned issuers (see § 1:3) and probably comes as close to company registration as is possible given the statutory framework. See § 1:34. A well-known seasoned issuer can file an unallocated shelf registration statement on Form S-3 covering prospective offerings by the issuer and/or unnamed selling security holders that becomes effective on filing without indicating the aggregate offering price and pay only a $100.00 registration fee at that time. The registration statement in addition to omitting the information that can be omitted in a delayed unallocated shelf by a seasoned issuer can omit all information relating to distribution terms and the name of selling security holders and the securities to be offered by them. When there is a takedown the registrant can pay the registration fee on a pay as you go basis and complete the prospectus by filing a post-effective amendment that will become effective on filing with the appropriate information relating to the distribution terms, description of the specific security, offering price and offering price related information, name of selling security holders if there are any and any other material information necessary and not incorporated by reference from periodic reports and current reports under the Exchange Act. In the latter regard, SORP also proposes to amend the Form 10-K to require disclosure of risk factors and to require quarterly reports on subsequent Form 10-Q to reflect any change in risk factors not disclosed in the Form 10-K. See § 1:25. As a result he registration statement when it went effective will already have incorporated the risk factors disclosed in the last Form 10-K and after the effective date will continue to incorporate risk factor disclosures set forth in the Form 10-Qs. Alternatively, under the proposed amendments to the Regulation S-K, Item 512(a)(1) undertaking all of the above could be provided by a Rule 424(b) prospectus supplement rather than a post-effective amendment and that may be the choice to avoid the need to obtain signatures on the post-effective amendment. See § 1:34.

A seasoned issuer, i.e. an issuer that in accordance with General Instruction I.B.1., can use Form S-3 for a primary offering (See § 1:3), is also eligible under Rule 415(a)(1)(x) to file a delayed shelf offering including an unallocated shelf. Although there are some significant differences, such issuers can come close but in a less elegant manner to what we have generically described as company registration. Since the public float requirement is only $75 million in contrast to the $700 million in public float required to be a well-known seasoned issuer, what SORP has to offer to such issuers is likely to have a greater impact. SORP in many respects in this area codifies existing practice based on not easy to find informal staff guidance and in some respects goes beyond that guidance. See § 1:32. The key to what is provided in that regard is to be found in a new proposed Rule 430B, which incorporates the concept of a base prospectus that can omit when the registration statement is declared effective what we refer to as unavailable information although Rule 430B falls short in providing a better description. Rule 430B is complemented by the Item 512(a)(1) undertakings, which is amended in certain critical respects. The Regulation S-K, Item 512(a)(1) undertakings are required of all shelf-registrations and how they are interpreted and applied plays a significant role.

The Item 512(a)(1) undertakings require the filing of a post effective amendment—(1) to bring the prospectus within the aging limitations of Section 10(a)(3); (2) to reflect “any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement,” and (3) to reflect any material change in the plan of distribution. See § 9:83. Item 512(a)(1) includes a proviso to the effect that registrants eligible to use Form S-3 or F-3 (a prerequisite for an unallocated shelf) do not have to file a post-effective amendment to meet the Section 10(a) requirement if the company’s periodic reports filed under Sections 13 or 15(d) and incorporated by reference include the information required to update the prospectus. Similarly, a “fundamental change in information” does not have to be included in a post-effective amendment if incorporated by referenced in such a periodic report. The proviso would be amended in two important respects. Presently it is only incorporation by reference of periodic reports (Form 10-K and Form 10-Q) that can satisfy the undertaking in lieu of a post-effective amendment, which excludes current reports on Form 8-K. The amended proviso in this context  references reports filed pursuant to Section 13, which includes reports filed on Form 8-K as well as Form 10-K and Form 10-Q, and such incorporation by reference can be utilized in lieu of a post-effective amendment to reflect material changes in the distribution terms as well. Alternatively, the information called for by the three undertakings can be “contained in a prospectus supplement filed pursuant to Rule 424(b).” See § 1:32. The past practice has been to provide much of the information called for by the undertakings in a prospectus supplement under the guise that the information changed was not fundamental and that changes in the distribution terms were not material. The amended proviso would make it clear that a prospectus supplement can be used in lieu of a post-effective amendment without regard to whether the information other than as to distribution terms is fundamental and without regard as to distribution terms whether the information is material. Unlike, Automatic Shelf Registration, post-effective amendments are not effective on filing and for this reason if none other a prospectus supplement is a much preferred alternative.

The delayed unallocated shelf filed by a seasoned issuer on Form S-3 will in many respect be similar to that described above relating to an ASR except it will include an aggregate maximum offering price for all the securities to be offered on which the registration fee will be paid, it will be for an offering by the issuer, it will include the outlines of an underwriting arrangement that might be entered into, a description of each type of security that might be offered, which, except as to common stock, will be a generic one, risk factors to the extent not incorporated by reference from the last Form 10-K and subsequently filed 10-Qs and the other standard registration items to the extent known. The registration statement will go effective (but not on filing) omitting the information allowed by Rule 430B. The omitted information relating to the specific security being taken down, the actual distribution terms and underwriting arrangement, and the offering price related information to the extent not incorporated by reference from reports filed under the exchange act will be furnished by a Rule 424(b) prospectus as specifically allowed by the amended proviso to the Regulation S-K, Item 512(a)(1) undertakings. See § 1:32. The prospectus supplement filed to cover a takedown will be filed pursuant to Rule 424(b)(2), which is being expanded in scope, or Rule 424(b)(5), and will become part of the registration statement at the earlier of first use or date of first contract of sale, which determines the effective date of the supplement for Section 11 liability purposes. Other prospectus supplements are to be filed as Rule 424(b)(3) prospectus supplements if they do not relate to a takedown and the effective date for Section 11 liability purposes is the date of first use. See §§ 1:43-1:45.

The other major impact of SOR on shelf offerings is on secondary or resale shelf offerings and since such offerings can be made on Form S-3, Form S-1 or Form SB-2 it cuts a wide swath. The approach to secondary or resale shelf-offerings filed on Form S-3 in part differs depending upon whether the issuer is eligible to use a Form S-3 for a primary offering pursuant to General Instruction I.B.1. (i.e. by a seasoned reporting issuer) or whether the issuer is relying on General Instruction I.B.3. to register a secondary offering on Form S-3 (i.e. an unseasoned reporting issuer with securities listed on a national securities exchange or the Nasdaq stock market and meets all the S-3 requirements except the $75 million public float requirement of General Instruction I.B.1). There is no difference between the two in terms of the amended Item 512(a)(1) undertaking, which permits information omitted from the base prospectus to be furnished by post-effective amendment, incorporation by reference from periodic and current reports filed subsequent to the effective date, and by a Rule 424 (b) prospectus supplement. We assume this is correct because the amended proviso is in terms of a shelf registration on Form S-3 and does not differentiate between primary and secondary shelf offerings or  between secondary shelf offerings filed by a Form S-3 General Instruction I.B.1. registrant and a Form S-3 General Instruction I.B.3. registrant. See § 1:37. Rule 430B, however, is applicable to a secondary shelf offering on Form S-3 by a Form S-3 General Instruction I.B.1. registrant eligible to use Form S-3 for a primary offering (i.e. has a public float of $75 million or more) whereas it is not as to a secondary shelf offering filed on Form S-3 by a General Instruction I.B.3. registrant. See § 1:37. This has consequences as discussed immediately below in terms of secondary shelf offerings.

A secondary or resale shelf offering filed on Form S-3 by a General Instruction I.B.1. registrant under Rule 430B(b)(2) can omit from the base prospectus at the effective date information relating to the name and amount of securities being sold by selling shareholders if not known at the time the registration statement is filed. This is subject to certain conditions including a description of the exempt transaction in which issued and that the securities are issued and outstanding at the time the registration statement is filed. In addition, the base prospectus may omit such other information that is permissible under Rule 430B generally. See § 1:38. The omitted information relating to unknown selling shareholders is to be provided by a newly provided for Rule 424(b)(8) supplement, which becomes part of the registration statement at the earlier of first use or date of first contract of sale and which determines the effective date of the supplement for Section 11 liability purposes. Other prospectus supplements filed on Form S-3 by a General Instruction I.B.1. registrant are filed as Rule 424(b)(3) prospectus supplements if they do not relate to a takedown and the effective date is the date of fist use. If the prospectus supplement relates to a takedown it is to be filed as a Rule 424(b)(2) or (b)(5) prospectus supplement and becomes part of the registration statement at the earlier of first use or date of first contract of sale and determines the effective date of the supplement for Section 11 liability purposes. See § 1:46.

A secondary or resale shelf offering filed on Form S-3 by a General Instruction I.B.3. registrant does not have the benefit of Rule 430B, and presumably is subject to proposed Rule 430C. See § 1:37. Rule 430C is applicable to continuous shelf offerings and secondary shelf offerings filed by a registrant that is a non-reporting company or a reporting company not eligible to use Form S-3 for a primary offering. Accordingly, it is applicable to a secondary shelf offering filed by an issuer pursuant to General Instruction I.B.3. Rule 430C, unlike Rule 430B, does not specifically provide for the omission of any information in the base prospectus at the effective date of a shelf-registration. It does so, however, implicitly in that it provides for the date a prospectus supplement filed by such issuers in connection with a relevant shelf-registration statement shall be deemed part of the registration statement; presumably, to determine the effective date for purposes of Section 11 liability. Rule 430C provides that a Rule 424(b)(3) prospectus filed for the purpose of furnishing information required by Section 10(a) (i.e. a final prospectus) or to reflect substantive changes including information relating to “identified selling security holders)” becomes part of the registration statement as of the date of first use, which, presumably, also becomes the effective date of the supplement for purposes of Section 11. Since a Form S-3 secondary shelf incorporates by reference Exchange Act reports filed subsequent to the effective date and the amended Item 512(a)(1) undertakings can be satisfied by the incorporation of periodic and current reports filed under the Exchange Act, the need to file a prospectus supplement could be avoided largely by filing relevant information in a Form 8-K. It has become customary, however, to file prospectus supplements to cover changes in the selling security holders resulting from exempt transfers after the effective date and Rule 430C specifically takes such supplements into account. This should be distinguished from omitting the names of selling security holders at the effective date, which as discussed above is allowed under certain circumstances by Rule 430B(b)(2), but only as to a General Instruction I.B.1. registrant. Rule 430C also appears to rule out the possibility of a General Instruction I.B.3 registrant using a Rule 424(b)(2) supplement in the unlikely but conceivable event of an underwritten takedown by selling security holders. See § 1:47.

A continuous shelf and a secondary resale shelf offering can also be filed by a registrant on Form S-1 and such shelf registration statements must include the Regulation S-K, Item 512 (a)(1) undertakings and none of them can be taken care of by incorporation by reference of ’34 Act reports. See § 1:41. This is true notwithstanding the proposed amendment to Form S-1 allowing certain registrants to incorporate ’34 Act reports in a Form S-1 registration statement as this is applicable only to the registration statement when filed and pre-effective amendments. Unlike Form S-3, as proposed forward incorporation by reference of ’34 Act reports filed after the effective date of the registration statement will not be allowed with respect to Form S-1 registration statements. See § 1:24. In a continuous and secondary shelf offerings filed on Form S-1 the proposed amendment to the Item 512(a)(1) unlike a Form S-3 cannot be satisfied by the filing of prospectus supplements. The undertaking as to post-effective changes in the prospectus that in the aggregate are fundamental and revisions in the distribution terms that are material have to be made by a post-effective amendment, but past practice and informal staff guidance permits many changes to be reflected in a prospectus supplement by viewing them as not fundamental in the context of revisions not relating to distribution terms and not material in the context of revisions relating to the distribution terms. See § 1:41. We assume that this will continue to be the case and under Rule 430C such changes are to be reflected in a Rule 424(b)(3) prospectus supplement and each such supplement will become part of the registration statement on the date of the first use and such date presumably becomes the effective date for Section 11 liability purposes. See § 1:48.

SOR attempts to assure that each prospectus supplement becomes part of the registration statement and establishes a new effective date for Section 11 purposes. The above description of effective dates in some respects is an oversimplification. The applicable provisions, as in so many other areas, require piecing together several interrelated and in some instances overlapping provisions. Since the prospectus supplement plays such a prominent role under the new/old shelf scheme involving a base prospectus that is incomplete in a number of respects when the registration statement is effective, the role of the prospectus supplement in rounding out the Section 10(a) prospectus is a prominent one. The task of understanding what is being proposed, however, is complicated by the different situations calling for a specific type of prospectus supplements and the effort as to each to establish when the supplement becomes part of the registration statement and constitutes a new effective date for the purpose of determining Section 11 liability. The fact that periodic and current reports filed under the Exchange Act after the effective date are incorporated by reference into a Form S-3 registration statement and that the base prospectus may be modified by post-effective amendments as well as by a prospectus supplement, also must be taken into account in determining what constitutes the prospectus at a particular moment of time as to particular purchasers for Section 11 liability purposes. SOR attempts to make clear through additional undertakings that prospectus supplements used in a primary shelf are part of the registration statement for the purpose of Section 11 liability and to establish the effective date for Section 11 liability purposes as to each prospectus supplement. The key to determining the effective date of each prospectus supplement is the specific Rule 424(b) supplement filed, being the date of first use in the case of a Rule 424(b)(3) supplement and as to all other relevant supplements being the earlier of the date of first contract of sale or date of first use. Given the different scenarios that may arise and the number of prospectus supplements that may be filed, determining the relevant effective date as to particular purchasers will be difficult to sort out at best.

Section 11 is only part of the liability picture. The introduction of an array of communications heretofore not allowed in connection with registered offering necessarily places the spotlight on the Section 12(a)(2) private actions for false or misleading statements made in connection with a public offering of securities by an issuer and to a Section 17(a) enforcement action by the Commission. The Commission in this context has proposed interpretative rules determining when an issuer is a seller for purposes of Section 12(a)(2) that break new ground.. SOR also attempts to distinguish between the available information that may be taken into account for purposes of Section 11 liability and for Section 12(a)(2) purposes. See § 1:53 and § 1:57 respectively.

 

ADOPTING  RELEASE

I.A.  Overview

§ 1:3 Classification of issuers—unseasoned, seasoned, and
well-known seasoned issuers*

For several but not all purposes SOR divides issuers into four classifications--non-reporting issuers, unseasoned reporting issuers, seasoned reporting issuers, and well-known seasoned issuer (WKSI). We need to get out front with the classification in order to avoid the need to redefine them in each instance in which classification becomes significant. The basic requirement (we need not get to the others unless this one is satisfied) of a well-known seasoned issuer is that the public float (worldwide market value of outstanding voting and non-voting common equity held by non-affiliates) is $700 million or more,[1] OR an issuer that during the last three years issued at least $1 billion in the aggregate of non-convertible securities, other than common equity, in primary offerings for cash registered under the Securities Act and that will register only non-convertible securities, other than common equity.[2] The will register only non-convertible securities is subject to an important qualification in that it is not applicable to an issuer that is eligible to register a primary offering of its securities relying on General Instruction I.B.1. of Form S-3 or Form F-3 (i.e. has an a public market cap of voting and non-voting common equity of $75 million or more).[3] Assuming the issuer meets either of the above well-known seasoned issuer criteria, it also must meets all the registrant requirements of General Instruction I.A. of Form S-3 or Form F-3.[4] General Instruction I.A of Form S-3 requires that the issued filed reports pursuant to Section 13(a) or Section 15(d) under the Exchange Act for at least twelve months; be current in its Exchange Act reports and filed such reports timely during the preceding 12 calendar months, and is not in default on certain dividend payments and loan obligations. An ineligible issuer as described below is excluded from the definition of a well-known issuer.[5] Asset-backed issuers and registered investment companies also cannot be a well-known seasoned issuer.[6] There are specific provisions relating to determining the eligibility of a parent or subsidiary as a well-known seasoned issuer that we do not pursue for now.

Although neither term is specifically defined, the criteria for identifying seasoned and unseasoned issuers are relatively familiar For purposes of Rule 433 governing free-writing prospectuses, a seasoned issuer is an issuer eligible to use Form S-3 or F-3 for a primary offering of securities (other than a secondary offering by selling shareholders or a rights offering).[7] This includes an issuer eligible to register a primary offering of securities on Form S-3 (or F-3), which in addition to meeting the reporting requirements of General Instruction I.A. requires a public float of voting and non-voting common equity of $75 million or more.[8] It also includes (without regard to the public float limitation) a primary offering of investment grade non-convertible securities and an offering of investment grade asset-backed securities. An unseasoned reporting issuer includes a reporting company filing reports pursuant to Section 13(a) or 15(d) of the Exchange Act that does not meet the criteria to be deemed a seasoned issuer. The third category consists of non-reporting companies registering securities. Ineligible issuers are discussed below.  See § 1:4.

 

§ 1:4 Classification of issuers—Ineligible issuers*

The concept of ineligible issuers as defined by Rule 405[1] cuts across all of the above classifications and is a very long one, although it was revised in some significant respects in the final rule. Securities practitioners should maintain a check list of such conduct to consult in areas in which eligibility is a prerequisite as it is, for example, as discussed below with respect to Rule 433 and the unlimited use of a free writing prospectus. See § 1:10. The list as might be expected includes issuers that during the last three years were shell companies, blank check companies, offered penny stock., were convicted of a felony relating to the sale of securities. Other grounds that result in classification as an ineligible issuer and of particular significance include as ineligible issuers any issuer that during the past three years “was made the subject of any judicial or administrative decree or order arising out of a governmental action that” resulted in a determination that the issuer violated the anti-fraud provisions of the federal securities laws, or was enjoined from or ordered to cease and desist from a violation of the federal securities laws. This is likely to cast a cloud over settlement negotiations between the SEC arising as they generally do when the Commission’s staff proposes to take enforcement action. Responding to concerns, unlike the other provisions that make an issuer ineligible, this provision is applicable only to a settlememt of such actions that occurred after the effective date of the SOR rules and regulations.[2] One type of ineligible issuer that will not be readily identified by a check list is a reporting issuer that has not filed “all reports and other materials” required by Sections 13 or 15(d) of the Exchange Act during the preceding twelve months.[3] The final rule deleted from this provision the language, “including any certifications required by any reports.” We assume, however, that it was deleted because it is redundant as such certification is part of the pertinent report and is included within “other materials” if the certification is not deemed part of the report. Under this provision it is not merely a failure to file, but the failure to file all required material. This will require attorneys involved in the process to do a significant amount of due diligence as to Form 8-K filings in particular. The final rules include a significant exclusion from this provision for the failure to file Form 8-K reports “required solely pursuant to an item specified in General Instruction I.A.3(b) of Form S-3.” Such exclusion covers the following Form 8-K items: Item 1.01 [Entry into a Material Definitive Agreement]; 1.02 [Termination of a Material Definitive Agreement]; 2.03 [Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant]; 2.04 [Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement; 2.05 [Costs Associated with Exit or Disposal Activities]; 2.06 [Material Impairments]; 4.02(a) [Company’s registered independ public account resigns or declines to stand fo reappointment], 6.01 [Asset Backed Securities-ABS Informational and Computational Material]; 6.03 [Asset Backed Securities-Change in Credit Enhancement or Other External Support]; 6.05 [Asset Backed Securities-Securities Act Updating Disclosure]. Although this provides significant relief, the task remains a formidable one. An issuer is also an ineligible issuer if during the past three years a petition for bankruptcy had been filed by or against the issuer or a receiver, fiscal agent, or similar officer was appointed by the court re the issuer’s business or property.[4] An issuer that is subject to a pending stop order in connection with a registered offering or was during the past three years or is subject to a pending cease and desist proceeding under the Securities Act relating to an offering of securities also is an ineligible issuer.[5] The Commission may determine, “upon a showing of good cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer.” [6]

Although for unrelated reasons (i.e. not involving conduct), an investment company, a business development company, offerings relating to business combinations were ineligible issuers as defined by Rule 405 as proposed,[7] but are not included in the definition of an ineligible issuer under the final rule. An investment company registered under the Investment Company Act and a business development company as defined by the Investment Company Act, however, are excluded from substantially all of the provisions relating to the liberalization of communications while in registration by the specific relevant rule including the Rule 433 free writing prospectus rule.[8]

The most significant consequence of being an ineligible issuer is that with limited exceptions such issuers cannot use a Rule 433 free-writing prospectus. The manner in which this is accomplished takes a circuitous route through Rule 164, but, nonetheless is clear. See § 1:10. In addition, an issuer otherwise qualified for status as a well-known seasoned issuer is not a well-known seasoned issuer.[9] As proposed an ineligible issuer could not rely on Rule 163 pertaining to communications by a well-known seasoned issuer during the pre-filing period[10] Although deleted from Rule 163, the inclusion in the rule was redundant as the definition of well-known seasoned issuer excludes an ineligible issuer. As proposed an ineligible issuer also could not take advantage of the amendments to Form S-1 (and F-1) to allow incorporation by reference for certain items of information contained in periodic or current reports filed under the Exchange Act. The final rules, however, limit the exclusion in this regard to issuers that during the last three years were shell companies, blank check companies, or offered penny stock.[11]

B.     Communications during the pre-effective period

§ 1:5 Rule 163 and well-known seasoned issuers—communications during the pre-filing period*

The impact of SORP is pervasive, but in many respects lends itself to the traditional approach of dividing the registration process into pre-filing period, waiting period, and post-effective period of an offering of securities registered under the Securities Act. We start with the pre-filing period, beginning from the moment a company is “in registration” and extending to the filing of the registration statement. During the pre-filing period, once “in registration” Section 5(c) of the Securities Act precludes the issuer from disseminating any communication (written or oral) that constitutes an offer to sell the security (which as defined by Section 2(a)(3) includes solicitation of an offer to buy a security). The Commission after Arvida in this context took a very broad view of an offer to sell or solicitation of offer to buy to include communications “even though not couched in terms of an express offer,[that] condition the public mind or arouse public interest in the particular securities.”[1] The Commission defined “in registration” as early as 1971 as beginning “at least from the time an issuer reaches an understanding with the broker-dealer which is to act as managing underwriter prior to the filing of a registration.”[2] Traditionally the understanding takes the form of a letter of intent designed not to be a binding agreement between an investment banking firm and an issuer. Previously, the only announcement of a contemplated offering before the filing of the registration statement was that allowed by Rule 135,[3] which permits a limited notice of the offering including the name of the issuer, amount of offering, anticipated time of the offering, and manner and purpose of the offering, “without naming the underwriter.”

Not surprisingly, the greatest liberalization proposed relates to the new category of well-known seasoned issuers, which for apparent reasons leaves out substantially (if not) all IPOs. The Adoptng Release noted that “[i]n 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..[1] A well-known seasoned issuer at any time during the pre-filing period, subject to certain conditions, may make any communication written or oral, including an offer to sell or solicitation of offer to buy, as Rule 163 exempts such communications from Section 5(c).[2] It is available, however, only for communications “made by or on behalf of an issuer if the issuer or an agent or representative of the issuer, other than an offering participant who is an underwriter or dealer, authorizes or approves the communication before it is made.” Accordingly, Rule 163 would not be available for a prospective underwriter or other offering participants. [3]  A written communication must include the following legend:[4]

The issuer may file a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the company will arrange to send you the prospectus after filing if you request it by calling toll-free 1-8[xx-xxx-xxxx].

The legend may provide an e-mail address at which the documents can be requested, and may indicate that the documents also are available by accessing the issuer’s Web site, and provide the Internet address and the particular location of the documents on the Web site.[5] A Rule 163 written communication is a free writing prospectus and must be filed with the Commission promptly on the filing of the registration statement or an amendment covering the securities being offered.[6] In addition to being unavailable to ineligible issuers, since such issuers are excluded from the definition of well-known seasoned issuer, Rule 163 is unavailable for communications relating to a business combination, to registered investment companies or business development companies.[7] A communication exempt under Rule 163 is not considered to be “in connection with a securities offering registered under the Securities Act” for purposes of Regulation FD,[8] which has Regulation FD selective disclosure implications. Oral communications subject to the Rule for apparent reasons do not have to include a legend and there is no filing requirement.

§ 1:6 Rule 163A communications more than 30 days before filing—Substantially all issuers *

Rule 163A has the effect for most issuers and most communications of not starting the quiet period until the 30^th days preceding the filing of the registration statement. Except for excluded issuers described immediately below, it is available to issuers that are well-known issuers, seasoned issuers, other reporting issuers and non-reporting issuers (hence includes IPOs). It is available, however, only for communications made by or on behalf of the issuer.[1] Accordingly, Rule 163A would not be available for a prospective underwriter or other offering participants. As proposed it  would not have been available to ineligible issuers, but the final rule limits the exclusion in this regard to companies that during the prior three years were blank check companies, shell companies, or offered penny stock.[2] Accordingly, Rule 163A is applicable to most IPOs. Rule 163 is also unavailable to registered investment companies, business development companies, and business combinations subject to Rule 165.[3]

The principal restriction on Rule 163 communications is that the communication must not reference “a securities offering that is or will be the subject of a registration statement. (presumably, the contemplated offering if one is contemplated). [4] Conceptually communications made by or on behalf of an issuer more than 30 days before filing a registration statement in compliance with Rule 163A are not deemed “an offer to sell, offer for sale, or offer to buy” the security to be registered for purposes of Section 5(c).[5] The further condition of Rule 163A is that the issuer takes reasonable steps within its control to keep the communication from being published or distributed during the 30 days immediately preceding the filing of the registration statement.[6] Rule 163A is available to well-known seasoned issuer as well as other issuers, although in the light of Rule 163 such issuers have relatively little need to rely on Rule 163A. Rule 163A, however, would permit a well-known seasoned issuer when applicable to avoid the need to file the communication as a free writing prospectus and it does not have the consequences that flow from being a free writing prospectus described below. See § 1:10. Other communications during the pre-filing period satisfying the requirements of rules 168 or 169 discussed immediately below are not subject to the take reasonable steps to prevent the publication or distribution of the communication during the 30 days immediately preceding the filing of the registration statement requirement. Nothing in the SOR rules limits the availability of Rule 135[7] and a communication limited to the information allowed by Rule 135 could refer to a contemplated offering more than 30 days out from (or any time prior to) the filing date of the registration statement.

§ 1:7 Rule 168 limited communications during the pre-filing and waiting period
for reporting issuers and certain non-reporting foreign issuers*

Rules 168[1] and Rule 169[2] allow certain limited written or oral communications prior to the filing of a registration statement and after the filing of a registration statement. For apparent reasons, permissiveness of oral communications is of greater significance before the filing of the registration statement since Section 5(b) of the Securities Act, subject to the anti-fraud provisions and Section 12(a)(2) liability exposure, does not limit oral communications after the filing of a registration statement, whereas Section 5(c) limits them before the filing of a registration statement. Written communications have the benefit of the rule before and after filing the registration statement; and, unlike Rule 433 free writing prospectuses. Rule 168 and 169 written communications do not have to be filed. Rule 168 as proposed was available only to issuers that are required to file reports under Section 13 or 15(d) of the Exchange Act. The final rule limits it to reporting companies and certain foreign private issuers not reporting companies that meet specified criteria, and certain asset-backed securities. For our immediate purposes we consider it applicable to reporting companies and discuss its application to foreign private issuer separately below. Rule 168 does not exclude ineligible issuers; however. it is not available to investment companies and business development companies.[3]  Rule 168 is not available to domestic (U.S.) non-reporting companies; hence, it would seldom be available for an IPO. Rule 169 as discussed below is available to non-reporting companies, but it is a more limited counterpart. Rule 168, as is Rule 169, is limited to communications made and authorized “by or on behalf of the issuer…or [by] an agent or representative of the issuer, other than an offering participant who is an underwriter or dealer.”[4]

Rule 168 permits reporting companies to continue the regular release and dissemination of factual business information and forward-looking information without constituting an “an offer to sell or offer for sale” of the security registered or to be registered for purposes of Section 5(c) or Section 2(a)(10).[5] Insofar as Section 5(c) is concerned it has application during the pre-filing period as Section 5(c) makes unlawful an “offer to sell or offer to buy…unless a registration statement has been filed as to such security” (the term offer to sell includes under §2(a)(3) solicitation of offer to buy). Accordingly, a Rule 168 communication during the pre-filing period would not be a violation of Section 5(c).The definition of a prospectus in § 2(a)(10) of the Securities Act makes a communication that would otherwise be a prospectus a prospectus only if it “offers any security for sale.” Rule 168 if complied with, therefore, keeps such communications from being a prospectus after the registration statement is filed and after the registration statement is effective as it is not an offer to sell or offer for sale.. Since it is not a prospectus it does not trigger the provision of Section 5(b)(1) that precludes the use of a prospectus that is not a Section 10 prospectus after a registration statement is filed. It also is not a free writing prospectus, the Rule 405 definition of which excludes a written communication that falls “within the exception from the definition of prospectus in clause (a) of section 2(a)(10) of the Act.”[6] Accordingly, such written communications are not subject to the filing requirements pertaining to a free writing prospectus, which, as discussed below (see § 1.11), with some exceptions require a filing with the Commission in order to avoid a violation of § 5(b)(1). Similarly, after the effective date it does not trigger the need to be accompanied or preceded by the delivery of a final prospectus after the effective date. In some respects Rule 168 codifies with a good deal of detail what the Commission attempted to say back in 1971 in Release 5180[7] and more recently in Interpretative Release III,[8] relating to use of electronic media, with respect to factual business information, although Release 5180 did not extend to forward-looking information and Interpretative Release III was not clear in that regard.

Determining whether the requirements of Rule 168 are met, however, is no easy matter. First, there are the definitions of factual business information and of forward-looking information.  Factual business information is limited to the following:[9]

(i) Factual information about the issuer, business or financial developments, or other aspect of its business;

(ii) Advertisements of, or other information about, the issuer’s products or services, and (iii) Dividend notices.

Such factual information includes without limitation factual information set forth in any report that the issuer files or furnishes pursuant to the Securities Exchange Act of 1934

Forward-looking information is limited to-—[10]

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

(ii) Statements about the issuer management’s plans and objectives for future operations, including plans or objectives relating to the products or services of the issuer;

(iii) Statements about the issuer’s future economic performance, including statements of the type contemplated by the management’s discussion and analysis of financial condition and results of operation described in Item 303 of Regulations S-B and S-K (or the operating and financial review and prospects described in Item 5 of Form 20-F for a non-U.S. issuer); and

(iv) Assumptions underlying or relating to any of the information described above.

Forward-looking information includes, without limitation, forward-looking information set forth in any report that the issuer files or furnishes pursuant to the Securities Exchange Act of 1934.

BUT, as to both factual business information and forward-looking information the communication can not “include information about the registered offering or information released or disseminated as part of the offering activities in the registered offering.”[11] Further, both factual business information and forward-looking information must meet the continued regular release requirement discussed below. Exclusion of information “released or disseminated as part of the offering activities” will raise some issues. The Adopting Release in reference to “offering activities” as used in Rule 169 includes the following cautionary language: “For example, while the safe harbor could be available for factual business information contained in an Exchange Act report at the time it is initially filed, the safe harbor will not be available for the distribution of that information to investors or potential investors as part of offering activities, such as incorporation by reference into a prospectus that is part of a registration statement, disclosure at a road show, or disclosure in a free writing prospectus. As another example, as permitted by the ‘regularly released’ condition, an issuer could rely on the safe harbor for the publication of an earnings release consistent with past practice, including the posting of and maintaining the release on an issuer's web site, whether or not located in a separate section of the web site for historical information. The distribution of that earnings release, however, as part of the marketing activities to potential investors will be outside the scope of the safe harbor.”[12]The latter needs to be qualified since if communicated orally at a road show after the registration statement is filed and there is no written communication there is no need to rely on Rule 168. The Adopting Release discusses the exclusion from Rule 168 under the sub-caption “Exclusion for Offering Related Information,” stating that it is not available for “any information about the registered offering itself.”[13] This suggests that any information otherwise within Rule 168 is excluded from its protection if used as part of the selling effort. Further, both factual business information and forward-looking information must also conform to the following conditions:[14]

(1) The issuer has previously released or disseminated information of the type described in this section in the ordinary course of its business; and

(2) The timing, manner and form in which the information is released or disseminated is materially consistent with similar past disclosures.

Rule 168 is available as in the case of U.S. issuers to foreign private issuers that are reporting companies under the Exchange Act because they have a class of securities registered under the Exchange Act or previously registered an offering of securities under the Securities Act and are subject to the reporting provisions of Section 15(d) of the Exchange Act. Foreign private issuers that are not reporting companies that meet the following criteria also may rely on Rule 168:[15]

1.       Meet the General Requirement I.A. of Form F-3 other than I.A.1 and I.A.2, which primarily requires that since the end of its last fiscal year it not have (a) failed to pay any dividend or sinking fund installment on preferred stock; or (b) defaulted (i) on any installment or installments on indebtedness for borrowed money, or (ii) on any rental on one or more long term leases, which defaults in the aggregate are material to the financial position of the registrant and its consolidated and unconsolidated subsidiaries, taken as a whole.”;

2.       Is making a primary offering and has a worldwide public float of voting and non-voting common equity of $75 million or more, or is offering investment grade non-convertible securities, and

3.       Its equity securities trade on and have traded for at least 12 months on a designated overseas trading market or its equity securities have a worldwide public float of $700 million or more.