Memorandum
T o O u r F r i e n d s a n d C l i e n t s
SEC Adopts Dramatic Reforms to the Public Offering Process
August 22, 2005
The SEC has adopted a wide-ranging package of rules which will have a significant impact on the U.S. public offering process.1 The new SEC rules broaden the amount of communications permissible before and during an offering, liberalize the rules governing shelf registration statements, eliminate the need to physically deliver final prospectuses in most cases, clarify and in some cases increase the liability for material misstatements in prospectuses, and require additional disclosures in periodic reports.
Almost all of the SEC’s rules are deregulatory in nature and allow issuers, underwriters and other offering participants to take actions that are currently prohibited or restricted, particularly in the areas of written offering
communications, research reports and prospectus delivery requirements. A new category of well-known seasoned issuers will particularly benefit from flexible automatic shelf registration procedures—without having to worry about potential staff review—and relaxed communication rules in the period prior to filing a registration statement. On the other hand, several of the new rules and interpretations regarding securities law liability will increase the liability of issuers, underwriters and other offering participants compared to prior law. The rules will become effective on December 1, 2005. In general, the new rules cover the following key areas:
Communications in Connection with a Public Offering
New Safe Harbors to Avoid “Gunjumping” Concerns. Several new safe harbors will make it easier for companies to communicate with investors in the period prior to and during a public offering, although some communications will need to be filed with the SEC.
Regularly Released Factual Information. Regularly released factual information may be released at any time by all issuers, so long as the timing, manner and form of release is materially consistent with similar past disclosures, with certain limitations for non-reporting issuers.
1 See Release No. 33-8591 (July 19, 2005) (adopting release) and Release No. 33-8501 (November 3, 2004) (proposing release).
• Regularly Released Forward Looking Information. Regularly released forward-looking information may be released at any time by reporting issuers (not IPO issuers), so long as the timing, manner and form of release is materially consistent with similar past disclosures.
• Communications More Than 30 Days Before Filing. Any communications made more than 30 days before the date of filing a registration statement which do not reference a securities
offering will be permitted so long as “reasonable steps” are taken to prevent republication during the 30 days before filing.
• Communications Within 30 Days Before Filing. Well-known seasoned issuers (a new category of Form S-3/F-3 issuers with more than $700 million of public equity held by nonaffiliates or which have issued at least $1 billion of nonconvertible securities (other than equity) in registered offerings during the past three years) can make oral or written
communications within 30 days before the date of filing a registration statement. Any written communication made under this exemption will need to be filed with the SEC upon the filing of the registration statement.
Free Writing Prospectuses. Free writing prospectuses (generally any writing other than a statutory prospectus) can be used by all issuers and other offering participants (such as underwriters) after a registration statement is filed. For this purpose, most forms of electronic communication (such as email, video, web postings, audiotapes and blast voicemails) are considered to be writings. Free writing prospectuses used or prepared by or referred to by an issuer will need to be filed with the SEC, but those prepared by underwriters will not need to be filed so long as they are not designed to achieve broad unrestricted dissemination. For example, an email from an underwriter to all of its clients will not need to be filed. Also, information disseminated to brokers or within a selling group will not have to be filed. Nonreporting issuers and unseasoned issuers, including voluntary filers (such as high yield issuers when their Section 15(d) obligations are suspended), can use free writing prospectuses only if they are accompanied or preceded by a statutory prospectus, which could be accomplished by hyperlink (and additional free writing materials can be distributed without an accompanying
prospectus so long as there has been no material change made to the statutory prospectus); in contrast, seasoned issuers can use free writing prospectuses as long as a statutory prospectus is on file with the SEC.
Electronic Road Shows. Whereas live, in real time road shows (and related slides and other visual aids) will not be deemed free writing prospectuses, electronic road shows will be considered free writing prospectuses and will need to comply with the conditions applicable to free writing prospectuses. However, electronic road shows are not required to be filed with the SEC, with one exception. The electronic road show is required to be filed in the case of a road show for an offering of common equity or convertible equity securities by an issuer that is a nonreporting issuer at the time of the filing of the registration statement for the offering, unless the issuer makes at least one version of a “bona fide electronic road show” available without restriction electronically to any person, including any potential investor in the securities.
Rule 134 Notices (e.g., Press Releases Announcing an Upcoming Offering). The categories of information that may be included in Rule 134 releases will be expanded to include, for example, the schedule for the offering, account opening procedures, the exchange and ticker symbol of the securities and anticipated securities ratings. Rule 134 releases do not need to be filed with the SEC.
Research Reports. The safe harbors in Rules 137, 138 and 139 of the Securities Act governing the issuance of research reports generally will be extended to more issuers and will contain fewer restrictions. Also, Rules 138 and 139 will be amended to specify that if the conditions of the rule are satisfied, the publication or dissemination of research will not (1) be considered an offer or general solicitation or general advertising in connection with a Rule 144A offering or (2) constitute directed selling efforts for Regulation S offerings or be inconsistent with the offshore transaction requirement under Regulation S.
Shelf Registration Statements
Automatic Shelf Registration. Well-known seasoned issuers will be able to file shelf registration statements which will become effective immediately without SEC review, could cover primary and secondary securities without allocation, will allow the addition of new securities and issuers on automatically effective post-effective amendments, and will have the benefit of a pay-as-you-go registration fee mechanism.
Immediate Takedowns. Immediate takedowns from a shelf registration statement will be permitted.
Base Prospectuses. The base prospectus of shelf registration statements on Forms S-3 and F-3 will be able to incorporate by reference virtually all information from Exchange Act reports, or such
information could be included in prospectus supplements, rather than in a post-effective amendment.
Material Changes to the Plan of Distribution. Material changes to the plan of distribution on Forms S-3 and F-3 can be reflected in the prospectus supplement or reports incorporated by reference, rather than in a post-effective amendment as previously required.
Selling Shareholders. Issuers eligible to use Forms S-3 and F-3 for primary offerings will be able to add the names of selling shareholders to shelf registration statements after effectiveness in prospectus supplements, rather than in post-effective amendments as previously required, subject to certain requirements.
Three Year Shelf Period. Primary shelf registration statements on Forms S-3 and F-3 will no longer be limited to the amount which is reasonably expected to be offered and sold within two years. Instead, the shelf registration statement can be used for three years after effectiveness, and thereafter can be used for an additional 180 days in order to allow the issuer to file a new registration statement which will need to be reviewed and declared effective by the SEC.
At the Market Offerings. The new rules eliminate restrictions on at the market offerings—offerings into an existing trading market at other than a fixed price—such as the requirement to name an underwriter in the prospectus and the 10% volume limitation.
Prospectus Delivery
Access Equals Delivery. Issuers, underwriters and dealers will not need to deliver physically final prospectuses in most cases if a statutory prospectus is filed with the SEC. However, preliminary prospectuses will still need to be delivered in IPO’s pursuant to Rule 15c2-8, and investors will have the right to request physical delivery of a final prospectus in any offering.
Written Confirmations/Notices of Allocation. Underwriters, brokers and dealers will be able to deliver written confirmations and notices of allocation after effectiveness of a registration statement without an accompanying final prospectus, as long as a statutory prospectus is filed with the SEC.
Notice of Registration. Underwriters participating in a registered offering will be required to provide purchasers either a final prospectus or a notice stating that the sale was made pursuant to a registered offering.
Liability Provisions
Information Delivered After Investment Decision. Information delivered to an investor after the investor has made his or her investment decision will not be taken into account in determining whether the investor has received all material information for purposes of liability under Sections 12(a)(2) and 17(a)(2) of the Securities Act. Accordingly, information included in a final prospectus after pricing will not be taken into account in determining whether all material information was delivered to investors.
Issuers as Sellers. Issuers will generally be deemed to be “sellers” for purposes of Section 12(a)(2) liability, which imposes liability on sellers of securities. This rule change is significant because a number of courts had found that issuers in firm commitment underwritings were not necessarily sellers to the ultimate purchasers of the securities.
Prospectus Supplements. Information in prospectus supplements will be deemed part of shelf registration statements and, therefore, subject to Section 11 liability.
Shelf Takedown Effective Date. Each takedown from a shelf registration statement will have its own effective date for Section 11 liability purposes for issuers and underwriters, which will be the earlier of the date the prospectus supplement is first used or the date and time of the first contract of sale to which the supplement relates. As a result, issuers and underwriters will be subject to liability on the same date.
Free Writing Prospectuses. The free writing prospectus (including, for example, electronic road shows) will not be subject to Section 11 liability but will be subject to liability under Section 12(a)(2) and the antifraud provisions of the securities laws. Underwriters will not have cross-liability under Section 12(a)(2) for free writing prospectuses of others that they do not use or refer to.
Other New Rules
Form S-1/F-1 Incorporation by Reference. Issuers who have filed at least one annual report and have filed all required periodic reports in the prior 12 months now will be allowed to incorporate by
reference their prior periodic reports into Forms S-1 and F-1.
Elimination of Form S-2/F-2. Forms S-2 and F-2 are eliminated.
Additional Disclosures. Annual reports will need to include disclosure of risk factor, “where
appropriate,” material unresolved staff comments (only by accelerated filers and well-known seasoned issuers), and whether or not the issuer is a voluntary filer or a well-known seasoned issuer.
Attached as Appendix A is a chart which summarizes the impact of the communications rules on various different types of companies. Attached as Appendix B is a more detailed description and discussion of the new rules. If you wish to discuss the new rules, please call your regular Fried Frank contact or any of the following Fried Frank attorneys.
New York
London
Jeffrey Bagner 212.859.8136 Robert P. Mollen 44.20.7972.9604 Kenneth R. Blackman 212.859.8280 Timothy E. Peterson 44.20.7972.9676 Daniel J. Bursky 212.859.8248 Justin T. Spendlove 44.20.7972.9601 Jessica Forbes 212.859.8558 Karen C. Wiedemann 44.20.7972.9624 Stuart H. Gelfond 212.859.8272 Sian Withey 44.20.7972.9140 Stephanie J. Goldstein 212.859.8254
David C. Golay 212.859.8164
Paris
Jean E. Hanson 212.859.8198 Eric Cafritz 33.140.62.2200 Lois F. Herzeca 212.859.8076 Patrick Jais 33.140.62.2200 Valerie Ford Jacob 212.859.8158
Michael A. Levitt 212.859.8735
Frankfurt
Kenneth I. Rosh 212.859.8535 Sven Schulte-Hillen 49.69.133.868.16 Steven Scheinfeld 212.859.8475 Juergen van Kann 49.69.133.868.15 Paul Tropp 212.859.8933 Gregg L. Weiner 212.859.8579
Washington, D.C.
Lawrence R. Bard 202.639.7047 Mark J. Dorsey 202.639.7173 Karl A. Groskaufmanis 202.639.7314 Dixie L. Johnson 202.639.7269 Richard A. Steinwurtzel 202.639.7120 Vasiliki B. Tsaganos 202.639.7078 Andrew P. Varney 202.639.7032Appendix A
Overview of New SEC Communications Rules
Nonreporting Issuer (e.g.,
IPO’s)* Unseasoned Reporting Issuer** Seasoned Issuer*** Well-Known Seasoned Issuer**** Regularly released factual information in accordance with past practice
Any time, but only to persons other than in their capacities as investors.
Any time Any time Any time
Regularly released forward-looking information in accordance with past practice
No safe harbor Any time Any time Any time
Communications more than 30 days before a filing, so long as an offering is not discussed
Permitted Permitted Permitted Permitted
Communications within the 30 days before a filing (a “quiet period”)
No additional safe harbor other than Rule 135
No additional safe harbor other than Rule 135
No additional safe harbor other than Rule 135
Safe harbor for any oral or written communication Rule 134 Notices,
which have been expanded to include additional information such as offering procedures
Permitted, but pricing and ratings information can be included only if the prospectus contains a price range.
Permitted Permitted Permitted
Free Writing Prospectuses After SEC Filing
Permitted, but only if accompanied or preceded by a Section 10(b) prospectus
Permitted, but only if accompanied or preceded by a Section 10(b) prospectus Permitted, but only if a Section 10(b) prospectus is on file with the SEC.
Permitted, but only if a Section 10(b) prospectus is on file with the SEC.
Free Writing After Effectiveness
Permitted, and not deemed a “prospectus” if
accompanied or preceded by a Section 10(a) prospectus
Permitted, and not deemed a “prospectus” if accompanied or preceded by a Section 10(a) prospectus Permitted, and not deemed a “prospectus” if accompanied or preceded by a Section 10(a) prospectus
Permitted, and not deemed a “prospectus” if accompanied or preceded by a Section 10(a) prospectus *
Nonreporting issuers are issuers that are not required to report with the SEC, whether or not the issuer is filing voluntarily.
**
Reporting unseasoned issuers are issuers that are required to report with the SEC but are not qualified to make primary offerings on Forms S-3 or F-3.
***
Seasoned issuers are issuers eligible to use Form S-3 or F-3 for primary offerings of securities.
****
Well-known seasoned issuers, among other things, either have more than $700 million of common equity held by nonaffiliates or have issued at least $1 billion of non-convertible securities in registered offerings during the past three years.
Appendix B
Detailed Description of the New Rules
I.
Modifications to Gunjumping Rules
A.
Overview of the New Communications Rules
Communications before, during and after a securities offering are currently severely restricted by Section 5 of the Securities Act and the SEC’s gunjumping interpretations. The SEC’s new rules, as summarized in the chart in Appendix A, significantly clarify which communications are permitted and allow greater communication prior to and during a public offering.
Pre-Filing Period.
Before a registration statement is filed, Section 5(c) of the Securities Act prohibits all oral and written offers. The term “offer” includes any attempt or offer to dispose of a security for value, but the SEC also interprets the term broadly to include “the publication of information and publicity efforts made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or its securities.” The new rules clarify that during this period (1) regularly released factual information may be issued by reporting issuers and nonreporting issuers, (2) regularly released forward-looking information may be issued by reporting issuers, (3) any statement by any issuer made more than 30 days prior to filing a registration statement is not a prohibited offer so long as it does not refer to a securities offering and the issuer takes reasonable steps to prevent further distribution during the 30 days prior to the filing of a registration statement and (4) well-known seasoned issuers can make any oral or written statement within the 30 days prior to filing a registration statement (but written statements would need to be filed with the SEC).Pre-Effective Period
.
After a registration statement is filed but before it is declared effective, under current SEC rules oral offers are permitted, but written offers (including offers made in writing, by email, over the Internet, by radio or on television) can only be made pursuant to a statutory prospectus that meets the requirements of Section 10 of the Securities Act. The only written materials that can be used during this period are preliminary prospectuses filed with the SEC and Rule 134 notices that contain limited information about the offering.The new rules (1) clarify that during this period regularly released factual information may be issued by reporting issuers and nonreporting issuers, (2) clarify that during this period regularly released forward-looking information may be issued by reporting issuers, (3) broaden the categories of information that may be disclosed under Rule 134 and (4) permit the use of “free writing prospectuses” (generally any writing other than a statutory prospectus), subject to satisfaction of various requirements including in many cases filing with the SEC.
Post-Effective Period
.
After a registration statement is declared effective, under current SEC rules written offers can only be made with a statutory prospectus. However, under Section 2(a)(10) of the Securities Act, additional written offering materials may also be distributed if a final prospectus that meets the requirements of Section 10(a) of the Securities Act (a standard final prospectus) is sent or given prior to or with those additional materials.The new rules (1) clarify that during this period regularly released factual information may be issued by reporting issuers and nonreporting issuers, (2) clarify that during this period regularly released forward-looking information may be issued by reporting issuers and (3) for seasoned
issuers, broaden the use of “free writing prospectuses” which are not accompanied or preceded by a statutory prospectus.
Violations of Section 5 of the Securities Act and the SEC’s gunjumping rules and interpretations can have severe consequences for an issuer and related offering participants. The SEC may delay an offering, require additional disclosures to be added to the prospectus, or bring an enforcement action against the violator. In addition, under Section 12(a)(1) of the Securities Act, any purchaser of securities issued in violation of Section 5 of the Securities Act can bring a rescission action against the issuer and require the issuer to repurchase the securities at the price at which they were sold. The SEC in turn may require an issuer to disclose in its prospectus the existence of these rescission rights. The new rules provide clearer answers to issues raised in the communications area and will make compliance with Section 5 before an offering more certain for most companies.
B.
Regularly Released Factual Business Information
While the SEC has long taken the position that companies are permitted to issue ordinary course press releases if an offering is contemplated or ongoing, there has been concern that release of positive information might be deemed by the SEC to be conditioning of the market for an offering. Although companies may want to release material information to the public for public relations purposes or may believe that the securities laws require the release of such information, because of concern that the SEC might delay an offering, some companies may elect not to release information or may narrow the type of information released.
In order to address these uncertainties, the new rules contain a safe harbor that provides that communications containing factual business information issued by or on behalf of a “reporting issuer” are
permitted at any time, are not deemed an “offer” under Section 5(c) and are not deemed a prospectus under Section 2(a)(10).2 The release of such information will not constitute an offer of a security which is the subject of an offering pursuant to a registration statement that the issuer proposes to file, or has filed, or that is effective.
Specifically, new Rule 168 provides a gunjumping safe harbor for regularly released factual business information subject to the following conditions:
Required to file reports. The issuer is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act and is not a voluntary filer (e.g., a filer that is not required to file reports with the SEC but does so voluntarily, typically as a result of a contractual requirement), a registered investment company or a business development company;3
Factual information. The information includes some or all of the following, including without limitation such information contained in reports or other materials filed with, furnished to or submitted to the SEC: (i) factual information about the issuer, its business or financial
developments, or other aspects of its business, (ii) advertisements of, or other information about, the issuer’s products or services, and/or (iiii) dividend notices (only for reporting issuers); By or on behalf of the issuer. The communication is released “by or on behalf of” the issuer (a communication is released by or on behalf of an issuer if the issuer or an agent or representative
2 Since it would not be an offer under Section 5(c), dissemination of such information would be permitted in the pre-filing period. Since it would not be a prospectus under Section 2(a)(10), dissemination of such information without an accompanying statutory prospectus would be permitted in the post-filing and post-effective periods.
3 The exemption is also available to a non-reporting foreign private issuer that (1) meets all of the registrant
requirements of Form F-3 other than the reporting history provisions, (2) either satisfies the public float threshold (in General Instruction I.B.1. of Form F-3) or is issuing non-convertible investment grade securities (in accordance with General Instruction I.B.2. of Form F-3) and (3) either has equity securities trading on a designated offshore securities market and has had them so traded for at least 12 months, or has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more.
of the issuer, other than an offering participant who is an underwriter or dealer, authorizes or approves such release or dissemination before it is made);4
Not about the offering. The communication may not contain information about the registered offering or be released as part of the offering activities in the registered offering (in the adopting release the SEC declined to define “part of the offering activities”);5
Ordinary course. The issuer has previously released or disseminated information of this type in the ordinary course of its business (although there is no particular length of time requirement);6
and
Similar timing, manner and form. the timing, manner, and form in which the information is released is consistent in material respects with similar past releases or disseminations. The SEC’s adopting release discussed a number of concerns raised by commenters:
• Non-scheduled releases of information. Several commenters were concerned about the availability of the safe harbor for non-scheduled releases of information. In response, the SEC stated in its adopting release that “there are circumstances in which communications made outside a predetermined schedule or not at regular intervals would be covered by the safe harbor. The Rule is not intended to cover only scheduled releases of information but also could cover communications, such as product advertising and product release information or earnings guidance changes, that are made on an unscheduled or episodic basis, provided that the issuer has previously provided such communications containing factual business and forward-looking information in that manner. Thus, for unscheduled or episodic releases, the nature of the event triggering the communication would be taken into account in determining whether the regularly released condition is satisfied. For example, if an issuer only gives guidance upon the occurrence of certain types of developments, a release of guidance when a materially similar event occurs
4 The SEC’s adopting release states that “[we] have not taken the suggestions that the Rule provide that issuers are
responsible only for communications made by authorized or approved speakers. The circumstances under which issuers are responsible for the acts of individuals may be determined in accordance with principles not addressed in today’s rules. In addition, we have not defined further who may be considered an agent or representative of the issuer, other than to specifically exclude offering participants who are underwriters and dealers. The definition could cover legitimate representatives or agents of the issuer such as, for example, advertising agencies and public relations companies who normally release or disseminate product advertising or promotional communications containing such information on behalf of an issuer. We have also modified the definition to provide that the communication does not have to be both approved and authorized for it to be considered to be made by or on behalf of the issuer.”
5 Information about the registered offering is limited to statements allowed under Rule 134, Rule 135, or another exemption, or contained in a permitted free writing prospectus. The SEC’s adopting release states with respect to the safe harbors for factual information and forward looking information that “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.”
6 The SEC’s adopting release states: “While the Rule does not establish or require any minimum time period to satisfy
the regularly released element, the safe harbor requires the issuer to have some track record of releasing the particular type of information. One prior release or dissemination could establish this track record. Issuers should consider the frequency and regularity with which they have released the same type of information. For example, an issuer’s release of new types of financial information or projections just before or during a registered offering will likely prevent a conclusion that the issuer regularly released that type of forward-looking or financial information in the ordinary course of its business.”
could be materially consistent, even if not done at regular intervals. As another example, if an issuer launches a product only episodically, disclosure or advertising of a product launch still could be materially consistent.”
• New or different technologies. Other commenters questioned whether information distributed using new or different technologies could qualify for the safe harbor. In response, the SEC stated in the adopting release that “[m]erely using new or different technologies will not be necessarily inconsistent in material respects under the conditions of the Rule. An issuer will have to determine whether its use of new or different technologies to release information falls within the safe harbor, including whether the release or dissemination is consistent in material respects with how the issuer is already releasing or disseminating its communications containing factual business or forward-looking information using analogous methods. For example, whether the new or different technology makes a material difference in terms of the breadth of dissemination to investors or other reach of the communication to investors is relevant in determining whether manner or form is consistent in material respects.”
• Offshore communications. Other commenters questioned how the safe harbor would apply to offshore communications. In response, the SEC stated in the adopting release that
“[c]ommunications that are considered not to be offers because they are made offshore and meet other criteria we have previously discussed would be treated in the same manner as they are today.”7
• Applies to communications, not information. Also in response to comments, the safe harbors for factual business information and forward-looking information now clarify that if an issuer relies on the exemption for a particular communication, and then uses the same information a second time in an offering-related manner, use of the information as part of the offering activities will not affect the ability of the issuer to rely on the safe harbor for the initial protected
communication.
A similar new rule also allows “non-reporting issuers” (including voluntary filers) to regularly release factual business information.8 However, new Rule 169 specifies that, in the case of non-reporting issuers, the
information must be released or disseminated for intended use by persons, such as customers and suppliers, other than in their capacities as investors or potential investors in the issuer’s securities, by the issuer’s employees or agents who historically have provided such information. The fact that a customer also may be a potential investor in the issuer’s securities, or that the information may be received by other persons, does not affect the availability of the safe harbor if the conditions are otherwise satisfied.9
The new rules allowing factual information and forward-looking information are only non-exclusive safe harbors, and communications that do not meet the safe harbor criteria may still be permissible under Section 5. The SEC’s adopting release states that attempted reliance on one of the exemptive rules “will not preclude reliance on
7 The SEC cited “Statement of the Commission Regarding Use of Internet Web Sites to Offer Securities, Solicit Securities Transactions or Advertise Investment Services Offshore, Release No. 33-7516 (Mar. 27, 1998) and “Offshore Press Conferences, Meetings with Company Representatives Conducted Offshore and Press-Related Materials Released Offshore, Release No. 33-7470 (Oct. 17, 1997).
8 New rule 169 actually applies to all issuers. However, since Rule 168 is more flexible and applies mainly to reporting issuers and also to some non-reporting foreign private issuers and asset backed issuers, it is expected that Rule 169 will be primarily useful for non-reporting issuers.
9 The adopting release states that the rule “is aimed at assuring that the communication is intended for use by an
audience that is other than an investor audience, not at ensuring that the communication is not received by or available to an investor or potential investor. . . . For example, a widely disseminated communication (such as a press release) intended for use by a non-investor audience and otherwise meeting the conditions of the safe harbor will not lose protection if it is available to or received by investors or potential investors.”
another available exemption or exclusion. In particular, it will not preclude reliance on the argument that under general securities law principles and our earlier interpretative guidance the communication in question is not an offer under Securities Act Section 2(a)(3).”10
The new safe harbor provides an exemption only from Section 5 of the Securities Act. Factual business information will continue to be subject to the provisions of Regulation FD (prohibiting selective disclosure of material information), Regulation G (governing use of non-GAAP measures in any context), Item 10 of Regulation S-K (governing use of non-GAAP measures in SEC filings) and Item 2.02 of Form 8-K (covering disclosure of earnings information for a completed fiscal period).
C. Regularly
Released
Forward-Looking Information
As with the release of factual information, companies have long been concerned that the release of earnings guidance or expectations information at the time of a potential offering could be viewed by the SEC as conditioning the market for the offering. Not only might the SEC delay an offering, but the SEC might also require the
projections information to be included in the registration statement, a result that might be an anathema to companies, their officers and directors and underwriters.
In order to address this concern, the SEC’s new rules provide that forward-looking information issued by or on behalf of a reporting issuer is permitted at any time, will not be deemed an “offer” under Section 5(c) and will not be deemed a prospectus under Section 2(a)(10). The release of such information will not constitute an offer of a security which is the subject of an offering pursuant to a registration statement that the issuer proposes to file, or has filed, or that is effective.
Specifically, new Rule 168 provides a gunjumping safe harbor for regularly released forward-looking information subject to the following conditions:
the issuer is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act and is not a voluntary filer, a registered investment company or a business development company;
the information includes some or all of the following, including without limitation such forward-looking information contained in reports or other materials filed with, furnished to or submitted to the SEC: (i) projections of the issuer’s revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items (including, for example, earnings
expectations and guidance information), (ii) statements about management’s plans and objectives for future operations, (iii) statements about the issuer’s future economic performance, including statements of the type contemplated by MD&A and/or (iv) assumptions underlying or relating to any of the foregoing;11
10 The adopting release states: “In general, as we recognized many years ago, ordinary factual business communications
that an issuer regularly releases are not considered an offer of securities. See, e.g., the guidelines contained in [Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000)], at Section II.B.2; Guidelines for the Release of Information by Issuers Whose Securities are in Registration, Release No. 33-5180 (Aug. 16, 1971); Publication of Information Prior to or After the Filing and Effective Date of a Registration Statement Under the Securities Act of 1933, Release No. 33-5009 (Oct. 7, 1969); Offers and Sales by Underwriters and Dealers, Release No. 33-4697 (May 28, 1964); and Publication of Information Prior to or After the Effective Date of a Registration Statement, Release No. 33-3844 (Oct. 8, 1957). The non-exclusive safe harbors we are adopting today will not affect in any way the Securities Act analysis regarding ordinary course business communications that are not within the safe harbors and we have made that clear in the Preliminary Note to the Rule. Such communications will not be presumed to be offers, and whether they are offers will depend on the facts and circumstances.”
11 An issuer’s communications of forward-looking information made in reliance on the gunjumping safe harbor would still have to satisfy the conditions of Section 27A of the Securities Act (a safe harbor from liability for the substance of forward looking statements) if the issuer wished to rely on the statutory safe harbor for the content of the information. Section 27A provides a safe harbor from liability for looking statements if (1) the forward-looking statement is identified as a forward-forward-looking statement and is accompanied by meaningful cautionary
the communication is issued “by or on behalf of” the issuer (information is released 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 such release or dissemination before it is made);
the communication may not contain information about the registered offering or be released as part of the offering activities in the registered offering;
the issuer has previously released or disseminated information of this type in the ordinary course of its business (although there is no particular length of time requirement); and
the timing, manner, and form in which the information is released is consistent in material respects with similar past releases or disseminations.12
Unlike the rules for factual business information, there is no similar safe-harbor for non-reporting issuers (for example, in the case of an IPO). Issuers in IPO’s will not be permitted to make forward looking statements without a detailed analysis of whether the statement constitutes an “offer” in violation of Section 5 of the Securities Act.
In the proposing release the SEC acknowledged issuer concerns about whether the SEC staff would require disclosure of forward-looking information in a registration statement if such information was provided publicly in accordance with the safe harbor. The SEC’s proposing release stated that “[p]ublic statements by issuers would not necessarily require that the disclosed information be included in registration statements.” However, citing Rule 40813 under the Securities Act and Rule 12b-20 under the Exchange Act, the SEC also said in the proposing
release that “[t]he information may be required to be included in the registration statement pursuant to some other disclosure obligation.”
The new safe harbor only provides an exemption from Section 5 of the Securities Act. Regularly-released forward looking information continues to be subject to the provisions of Regulation FD, Regulation G, Item 10 of Regulation S-K and Item 2.02 of Form 8-K.
D.
Communications More than 30 Days Prior to Filing a Registration
Statement
While it has long been clear that “offers” are not permitted prior to filing a registration statement, there has not been a clear rule as to when such restricted period commences. In order to address this uncertainty, the SEC’s new rules provide that any communication made by or on behalf of an issuer more than 30 days before the date of the filing of the registration statement will not be prohibited by the gunjumping rules and will not be deemed an offer under Section 5(c) of the Securities Act.
statements identifying important factors that could cause actual results to differ materially from those in the looking statement, (2) the looking statement is immaterial, or (3) the plaintiff fails to prove that the forward-looking statement (a) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading or (b) if made by a business entity, was made by or with the approval of an executive officer of that entity and made or approved by such officer with actual knowledge by that officer that the statement was false or misleading.
12 The SEC’s proposing release stated that “if an issuer has consistently released certain forward-looking information on a quarterly basis through ordinary course press releases, it could not satisfy the condition if it instituted a stepped-up media campaign just before or during an offering to release that type of forward-looking information on a different basis or with different timing.”
13 Rule 408 under the Securities Act provides that “[i]n addition to the information expressly required to be included in a
registration statement, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.” Rule 12b-20 under the Exchange Act is similar.
Specifically, the 30-day safe harbor contained in new Rule 163A is subject to the following conditions: the communication must be made “by or on behalf of” the issuer (even an IPO issuer), not other offering participants such as underwriters or dealers;
the communication cannot reference a securities offering that is or will be the subject of a registration statement; and
the issuer is required to take “reasonable steps” within its control to prevent further distribution or publication of the communication during the 30 days immediately preceding the date of filing the registration statement.
The SEC declined to provide bright lines as to when an issuer will be considered to have taken
“reasonable steps” within its control to prevent further dissemination of communications. However, with respect to information posted on web sites prior to 30 days before the filing of the registration statement, the SEC adopting release states that “we do not expect that an issuer will necessarily remove the information from the web site and, provided that the information is appropriately dated, otherwise identified as historical material, and not referred to as part of the offering activities, we will not object to an issuer maintaining the information on the web site.” The SEC adopting release also states that “[w]hile we do not expect an issuer to be able to control the republication or accessing of previously published press releases, we would expect issuers and persons acting on their behalf to be able to control their own involvement in any subsequent redistribution or publication and, therefore, believe that it is an appropriate condition to the ability to rely on the exclusion. For example, if an issuer or its representative gives an interview to the press prior to the 30-day period, it will not be able to rely on the exclusion if the interview is published during the 30-day period.”
The 30-day exemption is a non-exclusive safe harbor. The issuer also may claim the availability of any other applicable exemption, and reliance on the 30-day exemption does not affect the availability of any exemption or exclusion from the requirements of Section 5 of the Securities Act. In addition, statements made in reliance on the 30-day exemption are still subject to Regulation FD, as well as the antifraud provisions of the securities laws.14
E. Pre-Filing
Communications
by Well-Known Seasoned Issuers
The new rules further loosen the gunjumping prohibitions with respect to a category of large issuers called “well-known seasoned issuers.”15 Like other issuers, well-knownseasoned issuers will benefitfrom the safe harbors for regularly-released factual information and regularly-released forward-looking information, as well as the safe harbor for communications made more than 30 days prior to filing a registration statement. However, the SEC rules also provide a safe harbor for these issuers for all pre-filing communications within the 30 days prior to filing a registration statement, subject to satisfaction of various conditions.
1.
Definition of “Well-Known Seasoned Issuer”
14 The 30-day safe harbor is not applicable to (1) communications relating to business combination transactions that are
subject to Rule 165 or Rule 166 (Rule 166 provides an exemption from Section 5(c) of the Securities Act for certain communications in connection with business combination transactions before the first public announcement of the offering), (2) communications made in connection with offerings registered on Form S-8 (the registration form for employee benefit plans), other than by well-known seasoned issuers, (3) communications in offerings of securities of an issuer that is, or during the past three years was (or any of whose predecessors during the last three years was) a blank check company, a shell company other than a business combination related shell company, or an issuer for an offering of penny stock or (4) communications made by an issuer that is a registered investment company or a business development company.
15 The SEC calculated that in 2004 well-known seasoned issuers represented approximately 30% of listed issuers but accounted for about 95% of U.S. equity market capitalization and 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.
As adopted, a “well-known seasoned issuer” is any company that meets all of the following criteria as of the most recent eligibility determination date:
It meets the registrant requirements under Form S-3 or F-3, including with respect to Form S-3 the following:
Required to File Reports. It has a class of securities registered pursuant to Exchange Act Section 12(b) or a class of equity securities registered pursuant to Exchange Act Section 12(g) or is required to file reports pursuant to Exchange Act Section 15(d). Filers who voluntarily file reports with the SEC are not able to satisfy this criteria and thus cannot be well-known seasoned issuers—although they could elect to become reporting issuers by registering under Section 12(g).
Current. It has been subject to Section 12 or 15(d) of the Exchange Act and has filed all material required to be filed for at least 12 calendar months preceding the filing of the registration statement.
Timely. It has timely filed all reports required to be filed in the 12 calendar months and any portion of a month immediately preceding the filing of the registration statement, other than reports required pursuant to Item 1.01 (material agreements), 1.02 (termination of a material agreement), 2.03 (creation of a direct financial obligation), 2.04 (acceleration or increase of a direct financial obligation), 2.05 (costs associated with an exit or disposal plan), 2.06
(impairment of assets) and 4.02(a) (non-reliance on audited financial statements) of Form 8-K. (Form F-3 does not have the exception for specified Forms 8-K.)
No Material Defaults. It and its subsidiaries have not, since the end of the last fiscal year for which financial statements were included, failed to pay any dividend on preferred stock, or defaulted on any installment of debt for borrowed money or 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 subsidiaries taken as a whole.
It meets one of the following two tests:
$700 Million Common Equity. As of a date within 60 days of the determination date, the worldwide market value of the issuer’s outstanding voting and nonvoting common equity held by nonaffiliates is U.S.$700 million or more.16
16 The SEC’s adopting release includes guidance regarding how to calculate a company’s public float.
(a) Public float will be calculated in the same manner that it is calculated for purposes of determining Form S-3 or F-3 eligibility.
(b) The determination of public float is based on a public trading market. Therefore, an entity with $700 million of common equity securities outstanding but not trading in any public trading market would not be a well-known seasoned issuer based on market capitalization.
(c) In response to comments, the final rule clarifies that public float is calculated on a worldwide basis, not solely on a U.S. basis.
(d) In response to comments, the SEC stated in the adopting release that, for purposes of calculating the public float of a U.S. issuer, the SEC will interpret “common equity” as including a class of participating voting or non-voting preferred stock of a foreign issuer where the issuance of the preferred stock results from requirements of the applicable foreign jurisdiction or market and where the class of preferred stock has liquidation or dividend preferences and other terms that cause it to be the substantial economic equivalent of a class of common stock.
$1 billion of Non-Convertible Securities, Other Than Common Equity. As of a date within 60 days of the determination date, the issuer has issued during the last three years at least U.S.$1 billion aggregate principal amount of non-convertible securities, other than common equity, in primary offerings for cash registered under the Securities Act, not including exchange offers. The issuer satisfying the $1 billion test may register only non-convertible securities, other than common equity, and full and unconditional guarantees, unless at the determination date the issuer also is eligible to register a primary offering of its securities under Form S-3 or F-3 because it has a public float of $75 million or more.
As originally proposed, the $1 billion test only counted debt securities. As adopted, the test counts any non-convertible securities (such as non-convertible preferred stock), other than common equity. The adopting release states that the non-convertible security may be registered on any form (other than Form S-4 or F-4) and the security need not be investment grade. Debt securities issued pursuant to Rule 144A, Section 4(2) of the Securities Act or pursuant to another private placement exemption, or issued in connection with registered exchange offers, such as an Exxon-Capital exchange offer, will not count toward the $1 billion threshold. The SEC’s adopting release states that this reflects a specific policy preference for registered offerings rather than offerings made pursuant to Rule 144A with an accompanying registered exchange offer.
For purposes of calculating the $1 billion amount, a parent issuer may include the aggregate principal amount of non-convertible securities, other than common equity, of its majority-owned subsidiaries issued in registered primary offerings for cash, not in exchange offers, that it has fully and unconditionally guaranteed in the last three years.17
It is not an “ineligible issuer” (discussed in the following section).
It is not a “voluntary filer.” Voluntary filers are not required to file reports and therefore cannot be a seasoned issuer or a well-known seasoned issuer. In addition, voluntary filers will not be treated as reporting issuers, for example, for purposes of the safe harbors contained in Rule 138 (certain research reports), Rule 168 (regularly released factual business information) or Rule 433 (free writing prospectuses). This reflects the SEC’s view that these issuers should be required to register under the Exchange Act if they wish to avail themselves of the benefits accorded seasoned issuers. As
proposed, voluntary filers would have been treated as unseasoned reporting issuers. It is not an asset-backed issuer.
It is not a registered investment company or a business development company.
It is not a Schedule B issuer (a foreign government or a political division of a foreign government). The SEC specifically rejected comments that WKSI status be extended to Schedule B issuers, stating that “we expect that the staff will continue to consider disclosure and other shelf issues affecting Schedule B issuers in the same manner that they do today.”
17 The SEC adopting release states that in calculating the $1 billion amount, issuers generally may include the principal
amount of any debt and the greater of liquidation preference or par value of any non-convertible preferred stock that were issued in primary registered offerings for cash. In response to comments which questioned how to value debt issuances involving original issue discount or debt issued in foreign currency denominations, the adopting release states that issuers should use the same calculation that they use to determine the dollar amount of securities that they are registering for purposes of determining their filing fees.
A majority-owned subsidiary of a parent that is a well-known seasoned issuer can also be a well-known seasoned issuer if one of three conditions is met: (1) the subsidiary’s securities are non-convertible securities, other than common equity, and its well-known seasoned issuer parent has provided a “full and unconditional” guarantee of the payment obligations on the subsidiary’s securities;18 (2) the subsidiary’s securities are guarantees of (A)
non-convertible securities, other than common equity, of its parent being registered or (B) non-convertible securities, other than common equity, of another majority-owned subsidiary being registered where there is a full and unconditional guarantee of such convertible securities by the parent; or (3) the subsidiary’s non-convertible securities are investment-grade securities offered for cash (where at least one nationally recognized statistical rating organization has rated the security in one of its generic rating categories which signifies
investment grade). Unless the majority owned subsidiary is itself a well-known seasoned issuer, it can only register securities on its parent’s automatic shelf registration statement.
The SEC’s adopting release states that, in general, well-known seasoned issuer status will be determined on an approximately annual basis. The determination date as to whether an issuer is a well-known seasoned issuer is the latest of
(i) the time of filing of its most recent shelf registration statement,
(ii) the time of its most recent amendment (by post-effective amendment, incorporated Exchange Act report or form of prospectus) to a shelf registration statement for purposes of complying with section 10(a)(3) of the Securities Act, which typically occurs when the issuer files its annual report on Form 10-K or Form 20-F19 or
(iii) if the issuer has not filed a shelf registration or amended a shelf registration statement for purposes of complying with section 10(a)(3) for 16 months, the time of filing of the issuer’s most recent annual report on Form 10-K or Form 20-F (or, if no such report has been filed by its due date, such due date).20
An issuer that meets the definition of well-known seasoned issuer based on the $700 million public float test can use an automatic shelf registration statement to register any offering of securities, other than those for business combination transactions. An issuer that satisfies the $1 billion non-convertible securities test, and is eligible to register a primary offering of its securities on Form S-3 or F-3 because it has a public float of at least $75 million, can register any offering of securities using automatic shelf registration, other than those for business combination transactions. An issuer that satisfies the $1 billion non-convertible securities test, but does not have a public float of at least $75 million, can use automatic shelf registration only to register offerings for cash of non-convertible securities, other than common equity.
18 The SEC’s adopting release states that (1) whether a guarantee is “full and unconditional” is analyzed under the same
principles as those used under Rule 3-10 of Regulation S-X and that (2) the guarantee may only be of securities that have a limited duration and are not perpetual. The SEC has interpreted the phrase “full and unconditional” for purposes of Rule 3-10 of Regulation S-X in Release No. 33-7878 (August 4, 2000) (“Financial Statements and Periodic Reports for Related Issuers and Guarantors”). Among other things, according to the release, (1) a guarantee is not full and unconditional when it is not operative until some time after default, (2) a guarantee can be full and unconditional even if it has a fraudulent conveyance “savings clause,” and (3) a guarantee can be full and unconditional even if it has different subordination terms than the guaranteed securities.”
19 The SEC’s adopting release states that the Section 10(a)(3) update generally occurs with respect to Form S-3 and Form F-3 when the issuer files its annual report on Form 10-K or Form 20-F containing the issuer’s audited financial statement for its most recently completed fiscal year by the due date of such annual report.
20 In response to comments that sought greater certainty for market participants as to whether a particular company was
a well-known seasoned issuer, the final rules as adopted will also require issuers to indicate by checkmark on the front cover of their Form 10-K or Form 20-F whether or not they are a well-known seasoned issuer.
In response to comments regarding the threshold amounts of $700 million and $1 billion, the SEC directed the SEC staff to undertake a study in three years after full implementation of the rules to evaluate the operation of the definition of well-known seasoned issuer and any material changes in the data upon which the thresholds are based. The SEC staff was directed, as part of that study, to recommend any potential changes to the thresholds based on such new data.
2.
Definition of “Ineligible Issuer”
Under the new rules, status as an “ineligible issuer” has two main consequences: the issuer cannot be characterized as a well-known seasoned issuer (and thus cannot use automatic shelf registration) and cannot use free writing prospectuses (other than for descriptions of the terms of the securities).
An “ineligible issuer” includes:
(1) any issuer that is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act that has not filed all reports and other materials required to be filed during the preceding 12 months (or such shorter period that such issuer was required to file such reports), other than reports on Form 8-K required pursuant to Items 1.01 (material agreements), 1.02 (termination of a material agreement), 2.03 (creation of a direct financial obligation), 2.04 (acceleration or increase of a direct financial obligation), 2.05 (costs associated with an exit or disposal plan), 2.06 (impairment of assets), and 4.02(a) (non-reliance on audited financial statements) (the rule requires issuers to be current, but not necessarily timely);21
(2) any issuer that is (or was, or any of its predecessors was, during the past three years) a blank check company, an issuer in an offering of penny stock, or a shell company22 (a company with no or nominal operations and with either no or nominal assets or assets consisting only of cash, or assets consisting of any amount of cash and cash equivalents and nominal other assets) other than a business combination related shell company, or an issuer in an offering of penny stock;
(3) a limited partnership that is offering and selling securities other than through a firm commitment underwriting;
(4) an issuer if a bankruptcy petition was filed by or against the issuer within the past three years, unless subsequent to such event the company filed an annual report with audited financial statements (in the case of involuntary bankruptcy, ineligibility commences on the earlier to occur of 90 days following the date of the filing and conversion of the case to a voluntary bankruptcy);
(5) an issuer if, during the past three years, the issuer or any entity that at the time was a subsidiary of the issuer has been convicted of certain felonies or misdemeanors described in Section 15(b)(4)(B) of the Exchange Act such as forgery, extortion or embezzlement (the final rules clarify that a subsidiary is covered only if the conviction occurred at the time it was a subsidiary of the issuer—pre-acquisition convictions in acquired entities will not disqualify the acquiring issuer);
21 The failure to file these specified Form 8-K’s will still be relevant to status as a well-known seasoned issuer because
of the requirement that the well-known seasoned issuer be eligible for Form S-3.
22 See “Use of Form S-8, Form 8-K and Form 20-F by Shell Companies,” Release No. 33-8587 (July 15, 2005). A shell company is defined as a company, other than an asset-backed issuer, with no or nominal operations and either no or nominal assets or assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. In addition, a business combination related shell company is a shell company formed by an entity that is not a shell company solely for the purpose of changing that entity’s domicile solely within the United States, or a shell company formed by an entity that is not a shell company solely for the purposes of completing a business combination transaction among one or more entities other than the sell company, none of which is a shell company.
(6) an issuer if, during the past three years, the issuer or any entity that at the time was a subsidiary of the issuer was made the subject of any judicial or administrative decree or order (in the case of a
settlement, entered into after December 1, 2005) arising out of a governmental action that prohibits certain conduct or activities regarding the anti-fraud provisions of the federal securities laws, requires that the person cease and desist from violating the anti-fraud provisions of the federal securities laws, or determines that the person violated the anti-fraud provisions of the federal securities laws (this includes settlements in which the issuer or its subsidiary neither admits nor denies that it violated the anti-fraud provisions of the securities laws) (the rules as proposed would have covered any violation of the securities laws, not just the anti-fraud provisions); and
(7) an issuer that has filed a registration statement that is the subject of any pending proceeding or examination under Section 8 of the Securities Act or has been the subject of any refusal order or stop order under Section 8 within the past three years, or an issuer that is the subject of any pending proceeding under Section 8A of the Securities Act in connection with an offering.
The SEC may determine, upon a showing of “good cause,” that it is not necessary under the circumstances that a particular issuer be considered an ineligible issuer.
The date of determination of whether or not an issuer is an ineligible issuer will vary depending on whether the determination relates to the issuer’s status as a well-known seasoned issuer or whether it relates to an issuer or offering participant’s ability to use free writing prospectuses.
• For determinations of ineligibility with respect to status as a well-known seasoned issuer, the determination will be made at the time of determination of well-known seasoned issuer status— the later of the time of filing its most recent shelf registration statement, the time of its most recent amendment to the shelf to comply with Section 10(a)(3) of the Securities Act (which may be accomplished at the time of filing its annual report which is incorporated by reference into the registration statement), or (if the issuer has not filed a shelf) the time of filing of the issuer’s latest Form 10-K or Form 20-F.
• For determinations of ineligibility with respect to use of free writing prospectuses, the
determination will be made at the time of filing the registration statement covering the offering or, with respect to a shelf registration, the earliest time after the filing of the registration statement at which the issuer or another offering participant makes a bona fide offer in the offering. Offering participants only are required to have a reasonable belief that the issuer is an eligible issuer on the date of determination.
3.
Oral or Written Offers Made by Well-Known Seasoned Issuers Within 30
Days of Filing a Registration Statement
The new SEC rules provide a safe harbor for all pre-filing communications by well-known seasoned issuers in connection with the prohibition in Securities Act Section 5(c) on offers before a registration statement has been filed.23 This safe harbor, contained in new Rule 163, is subject to satisfaction of the following criteria:
By or on Behalf of the Issuer. The safe harbor only applies to offers “by or on behalf of” the issuer (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).
23 The SEC’s adopting release states that because well-known seasoned issuers usually will have a registration statement on file that they can use for any of their registered offerings, it will be rare for these issuers to make offers prior to the filing of a registration statement.
Intended to be Registered. The safe harbor applies to an offering by or on behalf of a well-known seasoned issuer that will be or is at the time intended to be registered under the Securities Act.
Filing. Every written communication that is an offer made in reliance on this safe harbor must be filed by the issuer with the SEC “promptly” upon the filing of the registration statement (if one is filed) or an amendment (if one is filed) covering the securities that have been offered in reliance on this provision. The condition that an issuer file a free writing prospectus with the SEC under this provision does not apply with respect to any communication that has previously been filed with, or furnished to, the SEC or that the issuer would not be required to file with the SEC pursuant to the conditions of Rule 433 (the free writing prospectus rule) if the communication was a free writing prospectus used after the filing of the registration statement. The condition that the issuer file a free writing prospectus with the SEC under this provision will be satisfied if the issuer satisfies the filing conditions (other than timing of filing which is provided in this provision) that would apply under Rule 433 if the communication was a free writing prospectus used after the filing of the registration statement. An “immaterial or unintentional” failure to file or delay in filing the communication will not result in a Section 5(c) violation or loss of the safe harbor if a good faith and reasonable effort was made to comply and the document is filed as soon as practicable after discovery of the failure to file.
Legend. Any written communication that is an offer made in reliance on this safe harbor must contain substantially the following legend: “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-xxx].” The legend also may provide an email 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.
Curing Failure to Include the Legend. An immaterial or unintentional failure to include the specified legend will not result in a violation of Section 5(c) or the loss of the ability to utilize the safe harbor if (A) a good faith and reasonable effort was made to comply with the specified legend condition, (B) the document is amended to include the specified legend as soon as practicable after discovery of the omitted or incorrect legend, and (C) if the document was transmitted without the specified legend, it is
retransmitted with the legend by substantially the same means as the original document, and directed to substantially the same prospective purchasers to whom the free writing prospectus was originally transmitted.
Liability. Any written communication that is an offer made in reliance on the safe harbor will be deemed a “prospectus” under Section 2(a)(10) of the Securities Act relating to a public offering of the securities to be covered by the registration statement to be filed. The SEC’s adopting release states that “all oral communications that are offers and all prospectuses will be subject to liability under Securities Act Section 12(a)(2). The communications also will be subject to other provisions addressing deficient disclosure, including Securities Act Section 17(a), Exchange Act Section 10(b) and Exchange Act Rule 10b-5.”
Excluded Communications. This exemption is not available to (1) communications relating to business combination transactions that are subject to Rule 165 or Rule 166 or (2) communications by an issuer that is a registered investment company or a business development company.
Subject to Regulation FD. Communications made in reliance on this rule are subject to Regulation FD and cannot rely on the exclusion in Regulation FD for statements made in connection with a registered securities offering.
