New SEC Rules for Securities Offering Reform

In a recent release¹ (the "Final Release"), the Securities and Exchange Commission (the "SEC") adopted numerous changes to its rules that are intended to modify significantly the registration, communications and offering processes under the Securities Act of 1933 (the "Securities Act"). This article summarizes certain of the rules (the "Final Rules") adopted in the Final Release. The Final Rules will be effective on December 1, 2005.

The Final Rules were adopted to a large degree as originally proposed (the "Proposed Rules") by the SEC in its November 2004 release (the "Proposing Release")². It also follows, and to some extent modifies, the SEC’s December 2004 release³ (the "ABS Release"), which codified and revised SEC requirements with respect to asset-backed securities ("ABS"). The ABS Release was separately described in a Cadwalader Clients & Friends Memorandum dated January 4, 2005.⁴ A summary of the impact of the Final Rules on ABS issuers is set out below beginning on page 20.

In the Proposing Release, the SEC indicated that, rather than adopting a radical new disclosure system, it intended to make adjustments to the current integrated disclosure and shelf registration systems. Nevertheless, the Final Release reflects a fundamentally different approach to disclosure in connection with SEC-registered securities offerings, particularly if made by seasoned issuers, by

• encouraging more widespread dissemination of information through filings under the Securities Exchange Act of 1934 (the "Exchange Act") and other sources, even during the offering process, rather than continuing to restrict the availability of information prior to delivery of a final prospectus, and
• taking the view that, in the modern era, electronic access to disclosure through the SEC’s EDGAR website is equivalent to physical delivery.

As suggested in the Proposing Release, the Final Release includes a codification of the SEC’s view that liability under Section 12(a)(2) and Section 17(a)(2) of the Securities Act is based on information conveyed to an investor at or before the time of the investor’s investment decision, regardless of any modification to such disclosure, while liability under the stricter Section 11 standards is based on the contents of the registration statement, including a final prospectus.

The Final Rules relate to three principal topics covered by the Proposed Rules:

• communications related to registered securities offerings;
• registration and other procedures in the offering and capital formation processes; and
• delivery of information to investors, including delivery through access and notice, and timeliness of that delivery.

While the Final Rules are largely consistent with the Proposed Rules, the Final Rules reflect certain modifications from the Proposed Rules, including the following:

• the definitions of graphic communication and written communication (including as to road shows) exclude live, in real-time communications to a live audience that are transmitted graphically;
• the free writing prospectus rules address "cross-liability" concerns among offering participants arising from the use of free writing prospectuses;
• the free writing prospectus rules clarify the filing conditions applicable to media publications, descriptions of the final terms of securities and offerings, and electronic and other road shows, and modify the record retention provisions;
• the shelf registration rules address issues regarding the liability of officers, directors, and accountants and other experts arising from the new effective dates triggered by the filing of prospectus supplements;
• the definition of "ineligible issuer" more closely conforms the definition to other ineligibility provisions in the Securities Act;
• changes to Rule 134, permitting specified written notices, that are not prospectuses, narrow the circumstances in which a preliminary prospectus will have to include a price range as a condition;
• the definition of "well-known seasoned issuer" enables issuers to include all registered nonconvertible securities, other than common equity, issued for cash in measuring the amount of registered fixed income securities over the prior three years; and
• the prospectus delivery rule addresses concerns about potential underwriter liability due to an issuer’s failure to timely file its final prospectus.

The SEC has also endeavored to provide more guidance to market participants regarding their interpretation of the liability provisions of Sections 12(a)(2) and 17(a)(2) of the Securities Act.

Categories of Issuers

To deal with the rules governing communications, registration and the offering process, the Final Rules divide issuers into four categories:

• Well Known Seasoned Issuers
. A well-known seasoned issuer is a new category of issuer that meets the following requirements at some point during a 60-day period preceding the date the issuer satisfies its obligation to update its shelf registration statement (generally the date of filing its Form 10-K): (a) it must be eligible to register a primary offering of its securities on Forms S-3 or F-3, (b) as of some date within 60 days of its eligibility determination date, it must have had an outstanding minimum $700 million in worldwide market value of voting and nonvoting equity held by non-affiliates or have issued in the last three years at least $1 billion aggregate amount of non-convertible securities other than common equity (a change from Proposed Rules, which would have limited the test to debt securities), in primary offerings for cash, not exchange, and (c) it must not be an Ineligible Issuer (as described below). Issuers of ABS cannot qualify as well-known seasoned issuers.
• Seasoned Issuers
. A seasoned issuer is an issuer that is eligible to use Forms S-3 or F-3 to register primary offerings of securities on its behalf, on behalf of its majority-owned subsidiary or on behalf of its parent. Issuers of ABS registered on Form S-3 are classified as seasoned issuers.
• Unseasoned Issuers
. An unseasoned issuer is an issuer that is required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act, but does not satisfy the requirement of Forms S-3 or F-3 for a primary offering of securities. Voluntary filers do not qualify.
• Non-Reporting Issuers
. A non-reporting issuer is an issuer that is not required to file reports pursuant to section 13 or Section 15(d) of the Exchange Act, regardless of whether it is filing voluntarily.

Communications Rules

The Final Rules substantially change the long-standing "gun-jumping" restrictions under the Securities Act that govern the substance and timing of communications permitted in connection with a registered offering of securities. The previous "gun jumping" rules have restricted communications based on the timing of such communications relative to the timing of certain steps in the SEC registration process. In the period prior to the filing of a registration statement, all offers, in whatever form, have been prohibited. In the period after filing of the registration statement, but before effectiveness of the registration statement, written offers (including by e-mail or Internet) have been limited to a prospectus that conforms to the requirements of Section 10 of the Securities Act (e.g., a preliminary prospectus that must be filed with the SEC). In the period after effectiveness of the registration statement, delivery of additional written offering materials has been permitted only if a final prospectus that meets the requirements of Section 10(a) of the Securities Act accompanies such materials or has been previously delivered.

The Final Release notes that such "gun-jumping" restrictions are anachronistic because, in today’s world, issuers engage in all types of communications on an ongoing basis, including communications required under the Exchange Act. In addition, the old restrictions did not take into account information that is already in the market due to Exchange Act filings and the access to such information provided by the Internet. In recognition of these factors, the Final Rules seek to modernize the restrictions on communications so that investors and the market will benefit from greater access to information.

The Final Rules focus on four principal areas of communication:

• introducing safe harbors for reporting and non-reporting companies for the continued release of "regularly released" factual business and forward-looking information during an offering period.
• introducing a 30-day bright line exclusion from other communications made prior to the filing of a registration statement.
• permitting the use of written materials in advance of delivery of a final prospectus, subject to certain restrictions and filing requirements.
• expanding and clarifying the safe harbors with respect to research reports provided by Rules 137, 138 and 139.

Permitted Ongoing Communications During an Offering

Introduction

. A company that enters an "offering period" with respect to the issuance of its securities is generally prohibited from engaging in any activities that may be regarded as an attempt to condition the market before the registration statement for such issuance has been filed and declared effective. Current securities law does not define "offering period" in any ascertainable way, and companies contemplating issuance of securities have struggled to determine when they are deemed to be in an offering period and what information can be provided and in what manner during such period.

Faced with the uncertainty of these concepts, practitioners have generally advised potential issuers to refrain from any communications that could arguably be viewed as preparing the market for an offering of their securities or that had not undergone the rigors of due diligence typically required of information to be included in a prospectus. Particularly in the age of the Internet, where controlling and managing information produced by or relating to a company beyond a company’s own website has become extremely difficult, some issuers have completely suspended all communications with the investing public during an offering period. This trend, however, has left the investing public without timely disclosure of material facts that would otherwise be disclosed to them in an ordinary course of business.

In order to alleviate these problems, the SEC has adopted two non-exclusive safe harbors in its Final Rules that would allow potential issuers to continue publication of certain information during the offering period without violating the gun-jumping rules. By adopting the safe harbors, the SEC has recognized that certain communications with the investing public in the ordinary course of business do not constitute market-conditioning and therefore should not be treated as a prospectus.

Safe Harbor for Reporting and Nonreporting Issuers

. New Rules 168 and 169 establish separate safe harbors for reporting issuers and nonreporting issuers, respectively.

The first safe harbor will allow a reporting issuer to continue to publish and disseminate at any time (including around the time of an offering) any factual business and forward-looking information that have been regularly released by or on behalf of the reporting issuer. The publication of information within the first safe harbor will be exempt from the definition of a "prospectus" under section 2(a)(10) of the Securities Act and will prevent the application of the prohibition under section 5(b)(1) of the Securities Act on the use of a prospectus that does not meet the statutory requirements of a prospectus.

The second safe harbor applies to nonreporting issuers. It will allow nonreporting issuers to release and disseminate factual business information that is regularly released in the ordinary course of business to persons receiving the information other than in their capacity as investors or potential investors, such as customers and suppliers.

An issuer’s release or dissemination of information that satisfies the conditions of the Final Rules would be exempt from being an impermissible prospectus and from violating the prohibition on pre-filing offers. In the Final Release, the SEC specifically extended the relief to ABS issuers (including a depositor, sponsor, servicer or affiliated depositor, whether or not the issuer) and to certain nonreporting foreign private issuers.

Types of Information Covered by the Safe Harbors

. Under the Final Rules, both reporting and nonreporting issuers will be permitted to disseminate certain types of factual business information, including (a) factual information about the issuer or some aspect of its business; (b) advertisements of, or other information about, the issuer’s products or services; and (c) factual information about the business or financial developments with respect to the issuer. Reporting issuers (but not nonreporting issuers) will be entitled to disseminate certain additional information tied more closely to the issuer’s securities, such as dividend notices and factual information set forth in the issuer’s reports required under the Exchange Act. Only reporting issuers will be permitted to disseminate forward-looking information, such as projections of the revenues, income and earnings and other financial items, the issuer’s management plans and objectives, and the issuer’s future economic performance. The information must be factual in nature to be exempt, and false information will presumably fall outside the safe harbor.

Meaning of "By or On Behalf of the Issuer" and "Regularly Released".

The SEC indicated that information would be considered released or disseminated "by or on behalf of the issuer" if an agent of the issuer or a representative of the issuer has authorized or approved its use before its release or dissemination, but noted that offering participants who are underwriters or dealers are not to be considered as acting on behalf of the issuer for purposes of the rule. The SEC also clarified that the safe harbors are "use" safe harbors, and accordingly that information in Exchange Act filings may be within the safe harbor when first filed and disseminated, but subsequent use in the context of an offering, including by incorporation by reference, would not benefit from the safe harbor.

The safe harbors apply only to such information as is "regularly released," meaning that it would be consistent in scope and in the manner of release with the issuer’s historical practices. The SEC indicated that in determining whether information is regularly released, it would examine (a) the timing, manner and form of release as compared with the issuer’s similar past releases or disseminations of such information; and (b) the frequency and regularity with which the issuer has released such information in the past.

The safe harbors do not establish any minimum time period to satisfy the "regularly released" element of the Final Rules. While the SEC has stated that one prior release or dissemination could establish a track record if such communication is the industry norm, we believe that commencing a practice for the purpose of meeting this requirement of the safe harbor will have significant risk until there is more clarification on this point.

As an example of information regularly released by a reporting company, an issuer would be able to rely on the proposed 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 website, whether or not located in a separate section of the website for historical information. The use of an earnings release (or its contents), however, as part of the marketing activities to potential investors by an underwriter or dealer participating in distribution of the issuer’s securities in the registered offering would fall outside the purview of the safe harbor.

The safe harbor for reporting issuers excludes the following types of information:

• Any information about the registered offering itself; publication of information about an offering outside the applicable registration statement would be limited to statements allowed under certain exemptions or safe harbors currently available under Rule 134 or Rule 135, or contained in a permissible free writing prospectus;
• text of an Exchange Act report that is incorporated by reference into a registration statement;
• a copy of a prior release that originally had been regularly released in accordance with the safe harbor but was specifically provided to investors or potential investors as part of offering activities; and
• disclosure of information at a road show.

Pursuant to a separate safe harbor, employees of a nonreporting issuer who have historically been responsible for providing information to customers and suppliers would be able to continue to provide such information to customers and suppliers during an offering of securities. Because nonreporting issuers are generally not releasing information in connection with securities market activities and therefore lack a discernable history of disseminating such information in the marketplace, the scope of the safe harbor has been restricted to the factual business information that would be regularly released to persons receiving such information other than in their capacity as investors or potential investors. For the same reason, the safe harbor for nonreporting issuers would also exclude forward-looking information.

Permitted Communications Prior to Filing a Registration Statement

In addition to the foregoing safe harbors, the SEC has adopted Rule 163A to permit communications by all issuers made more than 30 days prior to filing a registration statement and communications by well-known seasoned issuers both prior to, and during, the 30 days prior to filing a registration statement.

30-Day Bright Line Exclusion From Prohibition of Offers During Pre-Filing Period

. New Rule 163A will provide all issuers a bright-line time period, ending 30 days before the filing of a registration statement, during which issuers may communicate information (other than certain excluded information) without risk of violating the gun-jumping provisions. Such communications would be excluded from the definition of "offer" for purposes of Section 5(c) of the Securities Act, and therefore could be used by any type of issuer without doubt as to their effect on an upcoming public offering. The exclusion would apply to a communication if the following conditions are satisfied:

(i) the communication does not reference a securities offering that is or will be the subject of a registration statement;

(ii) the communication is made by or on behalf of the issuer (underwriters or dealers are explicitly excluded from being considered agents or representatives of the issuer for this purpose); and

(iii) the issuer takes reasonable steps within its control to prevent further distribution or publication of the communication during the 30-day period immediately prior to filing of a registration statement.

The exclusion would not be available for certain categories of "Ineligible Issuers" and "Ineligible Transactions" (both as described below). The SEC clarified that the new Rule is a non-exclusive safe harbor and issuers can rely on other available exemptions, exclusions or safe harbors from the gun-jumping provisions for the communications.

Permitted Pre-Filing Offers for Well-Known Seasoned Issuers

. The Final Rules will permit wellknown seasoned issuers to engage in unrestricted oral and written offers before a registration statement is filed without violating the gun-jumping provisions. The exemption will only apply for communications made by or on behalf of the issuer, with underwriters and dealers explicitly excluded from being considered agents or representatives of the issuer for this purpose. Unless they come within the protections of the safe harbors or 30-day bright line test described above, these communications will still be considered "offers" and therefore would be subject to liability standards applicable to "offers" under Section 12(a)(2) of the Securities Act and the anti-fraud provisions of the federal securities laws. In addition, the Final Rules provide that these communications would still be subject to Regulation FD.

Any written offer made under this Final Rule would be considered a "free writing prospectus" and be subject to the conditions for use of free writing prospectuses discussed below. The SEC clarified that the condition to promptly file the communication under the free-writing prospectus requirements will apply only when and if a registration statement or amendment covering the offered securities is filed.

An interesting issue arises when a well-known seasoned issuer intends to spin-off or split-off a subsidiary in a public offering. The safe harbor for the parent, which allows broader communication, may in fact be restricted by the more narrow rules applicable to the subsidiary’s safe harbor. In this instance, prudence would dictate limiting communications about the subsidiary to information within the parameters of Rule 163A even if it could otherwise be released under Rule 163

Expansion of Information Permitted in "Tombstone" Advertisements

The SEC is amending Rule 134 of the Securities Act to expand the information that is permitted to be included in "tombstone" advertisements beyond what has typically been permitted. Rule 134 provides a safe harbor from the gun-jumping provisions for limited public notices about an offering after an issuer files its registration statement. The amendments will permit, among other things:

(i) increased information about an issuer and its business, such as issuer contact information;

(ii) greater information about the terms of the securities being offered, including, in the case of fixed income securities, information about final interest rates and yields (including yield information on other fixed income securities with comparable maturities and credit ratings) and ratings of the securities;

(iii) more factual information about the offering process, such as dates and times of road shows;

(iv) listing the names of selling security holders (if included in the prospectus filed at the time of the communication); and

(v) identifying the names of securities exchanges or other markets where any offered securities are to be listed and their ticker symbols.

Although revised Rule 134 will permit additional information concerning the terms of an offering, it does not permit unlimited flexibility in describing all details of the securities being offered. Description of additional details may, however, be provided in the form of a free writing prospectus, as described below.

Free Writing Prospectuses

General

. One of the most important new features of the Final Rules is the introduction of the concept of the "free writing prospectus." Through this new device, the SEC will allow issuers and underwriters to deliver a variety of written materials to investors earlier in the offering process (including materials that currently can only be delivered during the so called "free writing period," which follows delivery of a final prospectus). However, use of free writing prospectuses will be subject to satisfaction of certain conditions discussed below.

The term "free writing prospectus" means any written communication that constitutes an offer of SEC-registered securities that (i) does not qualify as a "statutory prospectus" (i.e., a final Cadwalader, Wickersham & Taft LLP 10 prospectus, a preliminary prospectus or certain other categories of prospectus that meet the requirements of Section 10 of the Securities Act), (ii) is not a communication made in reliance on special rules for ABS issuers permitting the use of ABS informational and computational materials, and (iii) is not accompanied or preceded by a final prospectus. Free writing prospectuses can take any form and are not limited to information otherwise contained in the issuer’s registration statement, but may not contain information that conflicts with information contained in the issuer’s current registration statement. Free writing prospectuses will not include written materials that would not be prospectuses (and delivery of which therefore is not restricted) on the basis that they do not constitute "offers", such as qualifying Rule 134 notices and Rule 135 communications, qualifying research reports and other media publications not involving an offering participant where the information in such media publications is derived from public sources such as SEC filings.

As long as the sender complies with certain conditions, a free writing prospectus would qualify as a statutory prospectus for purposes of Section 5(b)(1) of the Securities Act, which requires that after filing a registration statement, but prior to effectiveness, written offers are limited to statutory prospectuses.

Use of Free Writing Prospectuses by Well-Known Seasoned Issuers Prior to Filing a Registration

Statement

. Well-known seasoned issuers are permitted to make written offers at any time prior to (as well as after) the filing of a registration statement. Any such written offer will be considered a free writing prospectus that must comply with the conditions for use of a free writing prospectus described below. Other issuers may do so only after filing a registration statement.

Use of Free Writing Prospectuses by Seasoned Issuers and Well-Known Seasoned Issuers Following Filing of a Registration Statement

. Seasoned issuers and well-known seasoned issuers may use free writing prospectuses following the filing of a registration statement without delivery of a preliminary prospectus, as long as the registration statement contains a qualifying preliminary prospectus or, in the case of a shelf registration statement, a qualifying base prospectus.

Use of Free Writing Prospectuses by Non-Reporting and Unseasoned Issuers Following Filing of a Registration Statement

. Issuers that are neither (i) required to file periodic reports under the Exchange Act nor (ii) eligible to use Form S-3 or Form F-3 registration statements are permitted to use free writing prospectuses after filing of a registration statement, but must, under most circumstances, accompany or precede the delivery of such materials with a copy of the preliminary prospectus for the offering. If the free writing prospectus is in electronic form delivery of the preliminary prospectus may be satisfied by an active hyperlink from the free writing prospectus.

Ineligible Issuers and Ineligible Transactions

. Certain types of issuers ("Ineligible Issuers"), which the SEC deems to have greater potential for abuse, are more restricted in their use of free writing prospectuses. Ineligible issuers include (i) reporting issuers who are not current in their Exchange Act reports and other materials required to be filed during the past twelve months, (ii) any issuer that has been convicted of any felony or misdemeanor in connection with violations of certain provisions of the Exchange Act or violated the anti-fraud provisions of the federal securities laws, (iii) any issuer that has been subject to refusal or stop orders, (iv) any issuer that has been in bankruptcy during the prior three years and (v) certain classes of issuers such as shell companies, blank check issuers and penny stock issuers.

Under the Proposed Rules, Ineligible Issuers would have been prohibited from using free writing prospectuses. Under the Final Rules, use by Ineligible Issuers described in clauses (i) through (iv) of the preceding paragraph is permitted, but free writing prospectuses may include only a description of the securities and the terms of the offering. In other changes from the Proposed Rules, eligibility will be determined only at the commencement of an offering as opposed to the time of reliance on the Final Rules for each free writing prospectus, and offering participants other than the issuer need only have a reasonable belief that the issuer is not ineligible. Offerings made by registered investment companies or business development companies are also ineligible under the Final Rules, as well as exchange offers and certain business combination transactions (collectively, "Ineligible Transactions").

Conditions for Use of Free Writing Prospectuses

. The Final Rules set forth several conditions for use of free writing prospectuses, including the following:

• Legend. Free writing prospectuses must contain a prominent legend in the form prescribed by the Final Rules. The legend must include a statement that potential investors should read the issuer’s registration statement, including the prospectus, for more complete information, together with information about how to obtain the prospectus from EDGAR or from the issuer or underwriters (including by telephone or email request from the issuer’s website). The Final Rules prescribe a more generic legend than in the Proposed Rules, which should simplify the preparation of free writing prospectuses. Inadvertent omission of the required legend can be cured by taking steps to correct such omission, in accordance with procedures prescribed by the Final Rules. The Final Release makes clear that certain types of legends will not be permitted to be included in free writing prospectuses, such as disclaimers regarding the accuracy or completeness of the materials and indications that the materials do not constitute a prospectus.
• Filing. Free writing prospectuses, or information contained in a free writing prospectus, prepared by or on behalf of, or used or referred to by, the issuer, or containing material information about the issuer or its securities that has been provided by or on behalf of the issuer ("issuer information"), must be filed by the issuer with the SEC. Where a free writing prospectus is prepared by a party other than the issuer (e.g., an underwriter) and is distributed in a manner reasonably designed to lead to broad unrestricted dissemination (e.g., on an unrestricted website), it must be filed by such other party unless already filed. Except as noted below, filing of a free writing prospectus must be made no later than the date of first use. Free writing prospectuses, or the portions of them, that contain a description of the final terms of the issuer’s securities must be filed by the issuer with the SEC, whether prepared by the issuer or by an underwriter or dealer, but need only be filed within two days of the later of first use or the date on which the final terms have been established for all classes in the offering. Unless distributed in a manner resulting in broad unrestricted dissemination (for instance, on an unrestricted website), free writing prospectuses that are not prepared by or on behalf of the issuer and do not contain issuer information generally are not required to be filed with the SEC. In a change from the Proposed Rules, the Final Rules provide that in ABS offerings a free writing prospectus, or portion of it, required to be filed that contains only "ABS informational and computational materials" may be filed within the time frame required for such materials under the ABS Release, namely, by the later of the due date for filing the final prospectus under Rule 424(b) or two days after first use.

Such filings will not be deemed part of the issuer’s registration statement (unless the issuer elects to treat them so) and will therefore not be subject to the strict liability standards of Section 11 of the Securities Act. Both filed and unfiled free writing prospectuses are, however, subject to liability under Section 12(a)(2) of the Securities Act (which provides the sender of such materials with a due diligence defense), as well as under other anti-fraud provisions of federal securities laws.

Record Retention Requirement

. Issuers and all offering participants using free writing prospectuses are required to retain copies of all free writing prospectuses not filed with the SEC for a period of three years following the commencement of the offering. The records retention requirement (which was set at three years to be consistent with the period that copies of trade confirmations are required to be retained by brokers and dealers) is intended to facilitate any necessary review of free writing prospectuses by the SEC. An immaterial or unintentional failure to keep such a record will not, however, result retroactively in a violation of Section 5 for delivering such free writing prospectuses so long as a good faith and reasonable effort was made to comply.

Media Coverage Can Constitute a Free Writing Prospectus

. The Final Rules provide that any media coverage of an issuer or its securities will constitute a free writing prospectus if the media coverage constitutes an offer and if the issuer or other offering participant provides, authorizes or approves the information for such media coverage. Newspaper or magazine articles or other media coverage that constitute free writing prospectuses will only be subject to the requirements regarding delivery or availability of a preliminary prospectus, and to the normal requirements for legending and filing with the SEC, if the issuer or other offering participant prepares, pays for or gives consideration for the preparation, publication or dissemination of the article or other media coverage or uses or refers to the article or media coverage. If published or broadcast by unaffiliated media and the publication or broadcast was not prepared or paid for by the issuer or other offering participant, it must be filed within four business days after the issuer or another offering participant becomes aware of its publication or first broadcast. The Final Rules permit the filing condition to be satisfied by filing (i) the media publication itself, (ii) all of the information provided to the media in lieu of the publication, or (iii) a transcript of the interview or similar materials that the issuer or other offering participant provided to the media, provided that all information provided is filed.

Communications on Websites Can Constitute a Free Writing Prospectus

. The Final Rules will enable issuers and market participants to make greater use of the Internet and other electronic media to communicate and provide information to investors. To provide issuer responsibility for communications on its website, the Final Rules provide that an offer of an issuer’s securities contained on the issuer’s website or hyperlinked by the issuer from such issuer’s website to a third party website is considered a written offer made by the issuer. As such, unless otherwise exempt, the offer would be a free writing prospectus subject to the requirements described earlier. The same would be the case with information contained on or hyperlinked to an offering participant’s website.

The Final Rules provide that historical information that otherwise could be considered a current offer, but that is properly identified as historical information and archived and located in a separate section of the issuer’s website containing historical information, will not be considered a free writing prospectus. This exception will apply only if the historical information is not incorporated or otherwise included in a prospectus or used, identified, updated or modified in connection with the offering. Under the Final Rules, issuers will need to review information on their websites to determine whether information constitutes an offer or has been archived properly.

Electronic Roadshows are Free Writing Prospectuses

. The SEC has previously issued a series of no-action letters permitting the use by issuers and underwriters of electronic roadshows, subject to satisfaction of various conditions (including prior delivery of a preliminary prospectus, no taping or copying of the presentation and other requirements). In the Final Rules, the SEC has made clear that an electronic communication that originates live, in real-time to a live audience and does not originate in recorded form would not be a "graphic communication" or "written communication" constituting a free writing prospectus. The Final Rules make clear that other types of electronic roadshows are free writing prospectuses, subject to the free writing prospectus requirements described above. The SEC is withdrawing the electronic roadshow no-action letters in favor of the free writing prospectus regime.

Roadshows that constitute free writing prospectuses are generally not subject to the filing requirements for other types of free writing prospectuses described above, unless the issuer in question is not required to file Exchange Act reports and is issuing common equity or securities convertible into common equity. With respect to such roadshows for initial public offerings of common equity or convertible securities that do trigger the filing requirement, the entire transcript of an electronic roadshow would not be required to be filed if the issuer makes available, without restriction, one version of a "bona fide electronic road show" (a new defined term designed to assure availability of an electronic road show which, though not necessarily identical to all other road shows, at least covers the same general topics presented by the issuer’s management) to any person including any potential investor.

Research Reports

General

. In light of recent legislation such as the Sarbanes-Oxley Act, Regulation AC (Analyst Certification), the global research analyst settlement and other legislation intended to address many of the abuses related to analyst research, the Final Rules broaden the safe harbors for research reports currently provided by Rules 137, 138 and 139 under the Securities Act. These changes recognize the ongoing flow of information that is already available in the market, especially for reporting issuers, and seek to avoid restrictions that would discourage dissemination of information. Under the Final Rules, none of the safe harbors will be available to any company that was a blank check company, a shell company or a penny stock company within the prior three years.

In a change from the Proposed Rules, the definition of "research report" goes beyond the definition in Regulation AC. The term is now defined as a "written communication that includes information, opinions or recommendations with respect to securities of an issuer or an analysis of a security or an issuer, whether or not it provides information reasonably sufficient upon which to base an investment decision."

Rules 137, 138 and 139 contain a series of safe harbors under which a broker or dealer that publishes a research report will not be considered as "offering" the securities referenced in the report. The Final Rules expand Rule 137 (relating to research reports by broker-dealers who are not participating in the securities offering) to cover reports on non-reporting issuers as well as reporting issuers. Rule 138, relating to broker-dealers participating in offerings of securities of the issuer other than securities that are the subject of the research report (e.g., debt versus equity), was expanded to include any reporting company that is current in its Exchange Act filings, as well as larger non-reporting foreign private issuers, so long as the broker-dealer publishes reports on similar types of securities (but not necessarily the specific security subject to the report) in its regular course of its business.

Rule 139 (relating to broker-dealers participating in offering of the securities that are the subject of the research report) is being modified to allow the broker-dealer to publish such a report if it is in a publication distributed in the regular course of its business and the broker-dealer has issued at least one research report about the issuer or its securities (that is, the current report cannot initiate coverage of the issuer). The prior research report need not cover the same securities as those being offered. Issuer specific reports will only be permitted for issuers with one year of reporting history under the Exchange Act who are current in their Exchange Act reports and are eligible to use Form S-3 or Form F-3, as well as larger non-reporting foreign private issuers. With respect to industry reports, the safe harbor will only apply to reporting companies, but will no longer be limited to those eligible to use Form S-3 or Form F-3. The Final Rule eliminates the restriction that the report cannot have a more favorable recommendation of the issuer or its securities in an industry report than the recommendation in its last report.

As a result of the elimination of the foregoing restriction in Rule 139, Rule 139a is being amended to eliminate a comparable restriction on recommendations in reports on ABS. However, although the SEC eliminated the requirement in Rule 139 that the publication be distributed with reasonable regularity, the SEC decided to retain the requirement in Rule 139a that the broker or dealer have previously published with reasonable regularity information, opinions or recommendations relating to ABS backed directly or indirectly by substantially similar assets.

Liability Issues

In conjunction with the provisions of the Final Release to liberalize the type and content of communications in connection with public offerings, the SEC has adopted Rule 159 to codify its view that liability under Sections 12(a)(2) and 17(a)(2) of the Securities Act (which prohibit material misstatements or omissions in disclosures to investors) attaches based on the information conveyed to the investor at or before the contract of sale (viewed by the SEC as the time the investor makes its investment decision rather than a later date when such sale is evidenced by delivery of a confirmation of sale, citing certain cases and a 1994 amendment to the UCC to permit an oral contract of sale for the purchase of securities). In the SEC’s view, information that is only delivered after that point, such as a final prospectus or prospectus supplement, should not be considered in determining liability under these sections. Under this view, particularly in a shelf offering, the contract of sale could occur well before the delivery of a final prospectus, and liability would be based solely on the contents of any preliminary prospectus, free writing prospectus or other information delivered or otherwise conveyed or made available to investors prior to their investment decision. Any subsequent corrections or additions reflected in the final prospectus would be ineffective for purposes of determining a seller’s liability under Sections 12(a)(2) and 17(a)(2). The SEC emphasized in the Final Release that it interprets Section 12(a)(2) as requiring only that the information provided contain no material misstatements and no material omissions that would cause the communication to be misleading in light of the circumstances in which it was made, not that it include all information required in a registration statement. Nevertheless, the net effect of the SEC’s position, as reflected in new Rule 159, will likely lead to an increased focus, for liability purposes, on communications between the seller and purchaser that occur at or before the contract of sale, particularly for transactions in which no preliminary prospectus is used.

The SEC notes that this interpretation will not affect the purchaser’s and the seller’s ability to consider subsequently provided facts or disclosure and modify their sale contract by agreement, but the Final Release clarifies the view that any such modification must be the equivalent of the termination of the prior contract by mutual agreement and the entering into a new contract of sale, and the investor must have full disclosure of the information the seller seeks to convey, and must be provided with a meaningful ability to elect to terminate or not terminate the prior contract and to enter into or not enter into a new contract. In the event that the investor agrees to terminate the prior contract, after being given such disclosure and meaningful ability, the time of sale would be when the purchaser and seller entered into the new agreement.

Rule 159 will not affect liability under Section 11 of the Securities Act, which imposes liability on issuers, underwriters, and others for material misstatements or omissions in a registration statement when the registration statement becomes effective. Unlike the SEC’s interpretation of liability timing under Sections 12(a)(2) and 17(a)(2) — and as a result of one of the Final Rules discussed below, to deem the effective date under Section 11 to be the date a prospectus supplement is first used or, if earlier for shelf takedowns, a contract of sale is entered into — any information contained in a prospectus or prospectus supplement that is filed and first conveyed to the investor after the contract of sale (and is therefore not considered in determining liability under Section 12(a)(2) and Section 17(a)(2)) but is deemed to be a part of the registration statement at its date of effectiveness will be considered for purposes of Section 11 liability. Conversely, any information conveyed to an investor at or before the contract of sale (and which forms the basis of liability under Sections 12(a)(2) and 17(a)(2)) is ignored for purposes of Section 11 unless it is information that is, or is deemed to be, part of the registration statement.

Finally, to remedy uncertainty as to whether an issuer is a seller for purposes of Section 12(a)(2), new Rule 159A provides that the issuer in a primary offering of securities is a seller and is considered to offer a security for sale for purposes of Section 12(a)(2) if certain communications are made by or on behalf of the issuer in connection with the primary offering. The enumerated communications include the issuer’s registration statement, preliminary prospectus, prospectus supplement, a free writing prospectus prepared by or on behalf of an issuer or information about the issuer or its securities provided by or on behalf of the issuer in any other free writing prospectus, or any other communication made by or on behalf of the issuer. Accordingly, materials prepared by an underwriter without issuer involvement and not using issuer information would not be the responsibility of the issuer for purposes of Section 12(a)(2). In response to concerns that the proposed rule might impose liability on one underwriter for materials prepared by another, in the Final Release, the SEC clarified that an offering participant other than the issuer will not be considered to offer or sell securities to a person "by means of" a free writing prospectus unless the offering participant itself used or referred to it in connection with such sale or participated in its preparation.

Securities Act Registration Rules

The section of the Final Release covering Securities Act registration is intended to modernize many procedural aspects of registered securities offerings and to streamline the process (including an automatic registration process) for well-known seasoned issuers. The Final Rules also clarify and codify many current practices. Many of these changes are technical. This section will briefly describe the changes applicable to issuers and underwriters.

Shelf Registrations

With respect to shelf registrations, the changes in the Final Rules relate primarily to delayed and continuous offerings where the terms of the securities offered in different takedowns vary and which consequently require a supplement to the base prospectus contained in the registration statement at the time of effectiveness. These prospectuses and supplements are filed under Rule 424 but there previously was no rule that specified the relationship between the forms of the base prospectuses and prospectus supplements and the information to be included in one or the other. New Rule 430B describes the type of information that primary shelf eligible and automatic shelf issuers may omit from a base prospectus in delayed offerings and include in a prospectus supplement. The Final Rule states that the filed form of prospectus in a Form S-3 or F-3 filing may omit information that is unknown or not reasonably available to the issuer pursuant to Rule 409. The Final Rule is intended to be largely consistent with current practice for delayed offerings on Forms S-3 and F-3.

Amendments to Forms S-3 and F-3 permit all information required in the prospectus about the issuer and its securities to be incorporated by reference from Exchange Act reports. This is intended to eliminate the need for post-effective amendments by permitting amendments by incorporation of Exchange Act reports or by using prospectus supplements. Information contained in prospectus supplements would be deemed to be part of, and included in, the registration statement when first used or, for shelf takedowns, the earlier of first use or the relevant time of the contract of sale. That date, for takedowns, would be deemed a new effective date for the shelf registration. This clarifies that information in a prospectus supplement would be deemed to be part of the registration statement at the time it became effective for liability purposes.

However, except for an effective date resulting from the filing of a form of prospectus for purposes of updating the registration statement to make the information contained in the prospectus be as of a date not more than 16 months prior to use of the prospectus or reflecting fundamental changes in information in the registration statement pursuant to the issuer’s undertakings, the prospectus filing will not create a new effective date for directors, signing officers or experts of the issuer.

For secondary offerings of privately placed securities where the holders may change after the private placement, Rule 430B and changes to Forms S-3 and F-3 permit seasoned issuers that are current and timely in their periodic and current reporting obligations under the Exchange Act and that have at least $75 million in non-affiliate voting and non-voting common equity market capitalization to identify these holders after effectiveness, either by amendment, prospectus supplement or an Exchange Act filing incorporated by reference in the registration statement, and identified in a prospectus supplement that gets filed. Consistent with current practice, the private offerings would have to be completed before the resale registration statement could be filed. Where the privately placed securities had not been issued but investors were contractually bound to acquire the securities from the issuer, issuers could not rely on these provisions and would be required to identify the selling security holders in the registration statement at the time of filing and prior to effectiveness.

Amendments to shelf registration Rule 415, for other than continuous offerings and business combination transactions, eliminate the limitation on the amount of securities registered to that intended to be offered within two years from the effective date. The new requirement limits the use of a shelf registration statement to three years after the initial effective date. A new registration statement would have to be filed every three years, with unused securities and fees carried over. As long as the new registration statement is filed within the three-year period, the issuer may continue to offer and sell securities from the old registration statement for up to 180 days after the end of such three-year period until the effective date of the new registration statement.

Another amendment to Rule 415 permits primary offerings on Forms S-3 or F-3 to occur promptly after effectiveness of the shelf registration. The Final Rules also eliminate the restrictions on primary "at-the-market" offerings of equity securities and permit such offerings without requiring identification of an underwriter in the registration statement and without volume limitations.

Automatic Shelf Registration

The Final Release contains provisions for automatic shelf registration for well-known seasoned issuers. This is designed to facilitate immediate market access by permitting the issuer to structure securities on a real-time basis and take advantage of market opportunities. One goal of automatic registration is to reverse the current practice by foreign private issuers of not extending rights offerings to U.S. persons by providing a mechanism compatible with the timing of those offerings.

The Final Rules permit eligible issuers to register unspecified amounts of different specified types of securities on automatically effective Form S-3 or F-3 registration statements for primary and secondary offerings (other than business combinations and exchange offers) and to add additional classes of securities and eligible majority-owned subsidiaries as additional registrants after effectiveness. Filing fees can be paid in advance or on a pay-as-you-go basis. The Final Rules permit more information to be omitted from the base prospectus in an automatic registration statement than from a regular registration statement and permit such information to be included in the prospectus supplement. These registration statements will become effective upon filing without staff review. A new automatic shelf registration statement would be required every three years.

Unseasoned Issuers

The Final Release expands the circumstances under which reporting issuers that are unseasoned issuers may incorporate information from their Exchange Act reports, if they are made available on the issuer’s website, into their Securities Act registration statements on Forms S-1 and F-1 (and, as a result, eliminated the infrequently used Forms S-2 and F-2). This incorporation would not be available to Ineligible Issuers. No forward incorporation of documents not identified in and filed after the registration statement becomes effective will be permitted.

Prospectus Delivery Reforms

Previously, a final prospectus meeting the statutory requirements had to accompany or precede a written confirmation of sale, and under Section 5(b)(2) of the Securities Act, had to accompany or precede the delivery of a security. The SEC observed in the Final Release that if no other written materials are delivered to investors (such as a preliminary prospectus), the investment decision may occur without full and adequate information in the hands of investors. One of the important goals of the Final Rules is therefore to provide "more information to investors when they need it to make informed investment decisions," by ensuring access to information at the time of the investment decision. Recognizing that the final prospectus is not the means by which such information is disseminated to investors, the SEC is liberalizing the physical delivery requirements and de-linking the delivery of a confirmation with the final prospectus. The two more significant changes are summarized below.

"Access Equals Delivery"

The new prospectus delivery rules assume timely access to filed information and documents. Under new Rule 172, a final prospectus filed with the SEC within the time period required under Rule 424 would be deemed "delivered" for purposes of Section 5(b)(2).⁵ When an investor purchases securities, under new Rule 173, a notice that the sale was made must be sent to each purchaser not later than two business days after the sale, in lieu of a final prospectus. Such notice may be included in the confirmation of sale. Investors could request a physical final prospectus, but the prospectus would not have to be provided before settlement. The Final Rule differs from the Proposed Rule by adding a cure provision for an untimely filing if a good faith and reasonable effort was made to file on a timely basis.

Confirmation and Notices of Allocation

If a registration statement is effective and a Section 10(a) final prospectus has been filed with the SEC, written confirmations containing customary information and notices of allocations will not need to be accompanied or preceded by a final prospectus.

Aftermarket Prospectus Delivery

The Final Rules permit dealers to rely on Rule 172 to satisfy aftermarket prospectus delivery obligations (other than for blank check companies).

Additional Exchange Act Disclosure Rules

In the Final Release the SEC required that plain English risk factors disclosure in Securities Act registration statements be included in annual reports on Form 10-K and registration statements on Form 10, with quarterly updates (the Final Rules have added an exception to this requirement for ABS issuers). In support of their belief that incentives may be needed to induce resolution of comments to Exchange Act reports, the SEC is requiring that all accelerated filers and well-known seasoned issuers disclose, in their annual reports of Forms 10-K or 20-F, written comments of the staff, which the issuer believes are material, made to Exchange Act reports more than 180 days before the end of the fiscal year covered by the annual report that remain unresolved as of the date of the filing of the annual report. Voluntary filers under the Exchange Act will be required to check a box to be added to the Forms 10-K, 10-KSB and 20F indicating their status as such.

Impact of New Rules on ABS Issuers

Issuers of "asset-backed securities" (as defined in Form S-3) will qualify as "seasoned issuers" under the Final Rules so long as they are not Ineligible Issuers as described above including, in particular, issuers who are not current in their Exchange Act reports (other than certain Form 8-Ks) required to be filed during the preceding 12 months. ABS issuers offering securities on Form S-1 would be treated as non-reporting issuers. We have assumed for this discussion that the ABS issuer is issuing pursuant to Form S-3 and is current in its Exchange Act filings, and otherwise qualifies as an eligible seasoned issuer. As mentioned above, no ABS issuer would be treated as a well-known seasoned issuer receiving the benefits of automatic shelf registration and other benefits described above for well-known seasoned issuers.

Communications

The Final Rules relating to communications in the offering process principally affect ABS issuers during the period following the effective date of a shelf registration statement and before delivery of a final prospectus, and include rules which are similar to those adopted in the ABS Release. As is currently the case, an issuer or underwriter may freely provide written materials which are accompanied or preceded by a final prospectus, but the SEC has historically restricted delivery of such materials earlier. Under the Final Rules, permitted communications in advance of delivery of a final prospectus fall into five categories relevant to an ABS issuer: (1) "free writing prospectuses", including electronic road shows, (2) purely historical information which is regularly published, (3) limited public notices (tombstones) under Rule 134, (4) qualifying research reports and (5) certain other communications (Rule 135 communications, and other regularly released factual business information or forward-looking statements coming within prescribed safe harbors) which generally are less likely to be applicable to ABS issuers.

Regularly Released Information

. The Final Rules explicitly extend to ABS issuers (and to a depositor, sponsor, servicer, or affiliated depositor, whether or not the issuer), the benefits of the safe harbor in new Rule 168 for regularly released factual business and forward-looking information. The new Rule looks to definitions for the foregoing parties set forth in the rules adopted in the ABS Release, and does not require that the asset-backed issuer be currently reporting under the Exchange Act. This change is designed to permit such parties to continue to release information about pre-existing pools of assets and transactions during the offering of new ABS, provided the historical materials do not refer to the new offering.

Free Writing Prospectuses

. For a qualifying ABS issuer, a free writing prospectus would include ABS informational and computational materials which may be delivered before a final prospectus under rules adopted in the ABS Release, but is more broadly defined to include any written, electronic, graphic or similar communication (essentially anything but an oral communication) that constitutes an offer to sell or a solicitation of an offer to buy a security, and that is not a qualifying prospectus, or preceded or accompanied by a final prospectus. In effect, for materials coming within both rules, ABS issuers will have a choice of following either rule, and can therefore choose either (a) to regard them as ABS informational and computational materials permitted by Rule 167 and Rule 426, which require filing by Form 8-K and incorporation of such filings into the registration statement, or (b) to regard them as free writing prospectus which may require filing, but such filing would not be so incorporated by reference. We assume issuers will generally prefer to treat such documents as free writing prospectuses to avoid the strict liability standards of Section 11, particularly since the timing of filing of free writing prospectuses that would contain only ABS informational and computational materials has been modified from the Proposed Rules to conform to the filing requirements under the ABS Release.

A free writing prospectus may not be inconsistent with the related registration statement. There are no other requirements as to content of free writing prospectuses other than the requirement to include a legend referring to the availability of the registration statement and the prospectus on the SEC’s website and providing a toll-free telephone number through which a prospectus may be obtained. As further discussed below, filing of the free writing prospectus with the SEC would be required if it is prepared by or on behalf of, or used or referred to by, the issuer or is prepared by an offering participant and contains material information about the issuer or its securities that was provided by or on behalf of the issuer. Other materials (such as yield tables prepared by the underwriters which are not widely disseminated) would not have to be filed. A free writing prospectus would not considered part of the registration statement and therefore would not attract Section 11 strict liability unless the issuer chooses to file it as part of an Exchange Act filing that is incorporated by reference, or otherwise intentionally includes it in the registration statement (such as by including it as part of a prospectus supplement). Any free writing prospectus nevertheless would remain subject to liability under Section 12(a)(2) and the general antifraud provisions of the Securities Act and the Exchange Act.

Note that the SEC is trying to encourage media coverage, and has therefore become more flexible with respect to information provided to the press, and certain communications which previously would have constituted prohibited "gun jumping" are now permitted. However, to the extent the media reports constitute an offer and if the issuer or another participant in the offering provided, authorized or approved the information in the report, the report would be considered a free writing prospectus. As a result, for example, press could be invited to a road show, but the resulting news article, if constituting an offer, would be considered a free writing prospectus.

The SEC did not revise the Final Rules in response to comments requesting clarification of the treatment of rating agency pre-sale reports. However, the SEC did indicate that whether information prepared and distributed by third parties that are not offering participants is attributable to an issuer or other offering participant depends upon whether the issuer or other offering participant has involved itself in the preparation of the information or explicitly or implicitly endorsed or approved the information (such as by distributing the report in connection with an offering).

An issuer must file (a) any free writing prospectus if it is prepared by or on behalf of, or is used or referred to by, the issuer (an "issuer free writing prospectus"), and (b) material information about the issuer or its securities provided by or on behalf of the issuer ("issuer information") contained in any free writing prospectus prepared by the underwriter or another participant in the offering other than the issuer. The SEC expressed its view in the Final Release that, in the case of ABS issuers, "issuer information" includes structural term sheets, collateral term sheets, information about key transaction parties, static pool data and computational materials prepared by the issuer. The issuer must also file a description of the final terms of the issuer’s securities contained in a free writing prospectus or portion thereof, regardless of which offering participant prepared it, after the final terms have been established for all classes of the issuer’s securities (consistent with current practice of filing structural term sheets only with respect to the final transaction structure). An underwriter would not have any filing requirement of its own, except that if an underwriter or other third party prepares a free writing prospectus and distributes it in a manner reasonably designed to lead to a broad unrestricted dissemination (for example, posting it on an unrestricted website or providing it to the media), it would have to be filed by such party. Filing would generally be required on or before the date of first use, except that a free writing prospectus containing only the final terms of the securities being offered may be filed two days after the later of first use or the date such terms become final. If the free writing prospectus or portion of it required to be filed contains only ABS computational and informational materials, it may be filed within the time period permitted under the ABS Release for ABS computational and informational term sheets — namely, by the later of the due date for the filing of the final prospectus under Rule 424(b) or two business days after first use.

The Final Rules give the ability to cure an unintentional failure to file by filing as soon as practicable after discovery of the failure to file. Copies of all free writing prospectuses, to the extent not filed, must be retained for three years.

Electronic Road Shows

. Separate rules apply to electronic road shows. Although the SEC would view electronic road shows that are not in live, real-time format as free writing prospectuses, neither the electronic road show nor its script must be filed other than for nonreporting issuers issuing common equity or securities convertible into common equity, and accordingly would not be required for typical ABS.

Static Pool Information

. Static pool information provided on a website can be included in a free writing prospectus. The website address can be referred to in a written communication, and in the case of an electronic communication an active hyperlink can be provided. Where filing is required, the filing of the free writing prospectus containing the address or hyperlink satisfies this requirement.

Tombstone Advertisements

. The information which may be included in a "tombstone" advertisement is being expanded to permit inclusion of anticipated credit ratings, more details as to the terms of the securities, identification of the key parties (such as the servicer and the trustee), factual information about the offering process and contact information for the issuer as well as the underwriter.

Research Reports

. The Final Rules expand the definition of research reports which may be delivered under the safe harbors provided by Rules 137, 138 and 139 under the Securities Act. In addition, Rule 139a is being amended to eliminate a prohibition on an industry report having a more favorable recommendation with respect to an ABS than in the last publication of the broker or dealer. However, the SEC decided to retain the requirement for ABS research reports that they be distributed with reasonable regularity.

Liability

In a significant change from existing practice, term sheets and computational materials, if treated as free writing prospectuses, need not be filed on Form 8-K and thereby incorporated by reference into a registration statement (even though in many cases the free writing prospectus would be filed with the SEC). Accordingly, the Section 11 strict liability provisions would not apply to such filings. Instead, they would be subject to the provisions of Section 12(a)(2) under the Securities Act (which permits a due diligence defense) and other anti-fraud provisions of the Securities Act and the Exchange Act.

New Rule 159 states that information conveyed to the investor only after the time of a contact of sale of a security is not considered in determining liability with respect to that sale under Section 12(a)(2) and Section 17(a)(2) under the Securities Act. As a result, greater scrutiny will be required with respect to the content of preliminary prospectuses, term sheets and other free writing prospectuses delivered or made available to investors prior to the time they make their investment decision. The stricter liability standards of Section 11 would continue to apply to the final prospectus even though it may not have been delivered to the investor at the time of sale.

To remedy uncertainty as to whether an issuer is a seller for purposes of Section 12(a)(2), new Rule 159A provides that the issuer in a primary offering of securities is a seller and is considered to offer a security for sale for purposes of Section 12(a)(2) if certain communications are made by or on behalf of the issuer in connection with the primary offering. The enumerated communications include the issuer’s registration statement, preliminary prospectus, prospectus supplement, a free writing prospectus prepared by or on behalf of an issuer or information about the issuer or its securities provided by or on behalf of the issuer in any other free writing prospectus, or any other communication made by or on behalf of the issuer. Accordingly, materials prepared by an underwriter without issuer involvement and not using issuer information would not be the responsibility of the issuer for purposes of Section 12(a)(2).

Shelf Registration System

The SEC has adopted changes in shelf registration procedures, in part due to its philosophy of greater dependence on Exchange Act filings for disclosure relating to new securities offerings as well as outstanding securities. Among the changes are the following: Clarifying Requirements for a Base Prospectus; Prospectus Supplement Part of Registration Statement; Ease of Amendment. The Final Rules define information that must be included in a base prospectus for a shelf registration by permitting the registrant to omit information which is unknown or not reasonably available to the issuer. They also permit amendment by means other than a posteffective amendment, most notably by using Exchange Act filings or a prospectus supplement filed pursuant to Rule 424, including for information related to a plan of distribution, amendment of which previously required filing of a post-effective amendment. Prospectus supplements used in connection with takedowns would be deemed included in a registration statement on the earlier of first use or the time of the contract of sale.

New Requirement for Exchange Act Filings

. The Final Rules exclude ABS issuers from new requirements to update risk factors disclosure in annual reports under the Exchange Act on Form 10-K, and quarterly reports on form 10-Q.

Liberalizing Shelf Availability

; Mandatory Amendments. Rule 415 previously limited the amount of a shelf filing to an amount expected to be used in the following two years. That limitation is being eliminated, and in its place the SEC has added a rule requiring amendment of the registration statement at least once every 3 years, thereby giving the SEC an opportunity to comment and assure that the registration statement has been updated for a subsequent rules changes or other events. Previous restrictions on immediate takedowns off a shelf registration statement have also been eliminated.

Prospectus Delivery

. The Final Rules liberalize use of electronic means for delivery of prospectuses, by adopting an "access equals delivery" approach in new Rule 172, under which the filing of the final prospectus with the SEC is treated as the equivalent of delivery. Instead, an underwriter may satisfy final prospectus delivery requirements by giving notice within two business days after the sale that the sale was made pursuant to a registration statement or in a transaction in which a final prospectus would have been required to be delivered in the absence of Rule 172. An investor has the right to request delivery of a final prospectus if one has not been sent. A final prospectus would not have to be delivered with confirmations and notices of allocations.

Capital Markets Department Attorneys

:

Charles E. Bryan, Jim Croke, Angus Duncan, Michael S. Gambro, Karen B. Gelernt, Karsten P. Giesecke, Anna H. Glick, Stuart N. Goldstein, Gregg S. Jubin, Henry A. LaBrun, Robert O. Link Jr., Peter C. Manbeck, David S. Mitchell Christian Parker, Frank Polverino, Patrick T. Quinn, Y. Jeffrey Rotblat, Richard M. Schetman, Jordan M. Schwartz, Ray I. Shirazi, Lary Stromfeld, Robert L. Ughetta, Neil J. Weidner

Corporate/M&A Department Attorneys:

Maurine R. Bartlett, Louis J. Bevilacqua, Dennis J. Block,Diana R. de Brito, Edwin L. Lyon, William P. Mills III, Richard L Nevins, Kevin O’Mara, Mark Roppel, Michael C. Ryan, Ira J. Schacter, Robert L. Vitale, Jonathan M. Wainwright, Malcolm P. Wattman

Footnotes

1 Release Nos. 33-8591; 34-52056; File No. S7-38-04. Available for review at http://www.sec.gov/rules/final.shtml.

2 Release Nos. 33-8501; 34-50624; File No. S7-38-04. Available for review at http://www.sec.gov/rules/proposed/33-8501.htm.

3 Release Nos. 33-8518; 34-50905; File No. S7-21-04. Available for review at http://www.sec.gov/rules/final.shtml.

4 Available at www.cadwalader.com.

5 Ineligible Transactions and offerings pursuant to Form S-8 are excluded.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.