- 1 - SECURITIES AND EXCHANGE COMMISSION 17 CFR PARTS 200, 202, 210, 228, 229, 230, 232, 239, 240 and 249 RELEASE NO. 33-7606A; 34-40632A; IC-23519A INTERNATIONAL SERIES RELEASE NO. 1167A FILE NO. S7-30-98 RIN 3235-AG83 THE REGULATION OF SECURITIES OFFERINGS AGENCY: Securities and Exchange Commission. ACTION: Notice of Proposed Rulemaking. SUMMARY: The Commission is proposing to modernize and clarify the regulatory structure for offerings under the Securities Act of 1933 while maintaining investor protection. The proposals cover five major topics: * registration system reform; * communications around the time of an offering; * prospectus delivery requirements; * integration of private and public offerings; and * periodic reporting under the Securities Exchange Act of 1934. Under the proposals, larger seasoned issuers could offer securities at any time as long as they file a registration statement before sale. Other seasoned issuers could do the same when they make offerings to relatively sophisticated or informed investors. The Commission staff would not review these registration statements before effectiveness. Those issuers and their underwriters would designate the effective dates and have complete control over when they offer and sell in those registered offerings. Their communications to the market and to investors, while governed by antifraud and civil liability provisions, would no longer be limited based on the filing or effectiveness of their registration statements. The proposals also would provide predictability to medium- sized seasoned issuers that register offerings. The registration statements they file to raise capital would become effective when they designate. Those registration statements would not be subject to pre-effective review by the Commission staff. Seasoned companies of any size would benefit from the proposals as well. We would allow them to incorporate Exchange Act disclosure in registration statements earlier than the current rules permit. To provide greater certainty to small and medium- sized issuers planning a registered offering, we also are proposing new communication rules. One rule would provide that communications made by or for such an issuer more than 30 days before the registration statement is filed would not be treated as offers. Other proposed rules would guide those issuers as to the types of communications that we permit within that 30-day period. Our proposals also would give issuers of all sizes and their underwriters greater freedom to communicate with investors in writing during the offering process. The proposed exemptive rules would allow use of any document (not just the traditional prospectus) at any time during an offering by a larger seasoned issuer or an offering to sophisticated or informed investors by a smaller seasoned issuer. Those "free writing" communications would be subject to antifraud and civil liability provisions. In all other offerings, the proposed exemptions would allow an issuer and underwriter the same flexibility after the issuer has filed a registration statement. The free writing proposals would allow use of documents tailored specifically for the investors reading them. Other proposed revisions would increase investor access to analyst research reports. We would allow their distribution around the time of an offering in more cases than permitted today. The proposals affecting prospectus delivery in registered offerings would re-focus those requirements for the benefit of investors. Delivery of a prospectus or a term sheet would be required before investors make their investment decisions rather than at the time a sale is confirmed. The proposals addressing the integration of offerings would provide flexibility for issuers that have difficulty assessing the extent of market interest in a planned offering. Those revisions would enable an issuer to change an unregistered private offering into a registered public offering, or vice versa, after it commences the offering. Small companies that begin a registered public offering would still have the option to make an unregistered, exempt offering to qualified buyers even though they broadly solicited potential investors. Finally, we are proposing various revisions to expedite and expand some of the disclosure required in periodic reports filed under the Exchange Act. Investors would have more timely access to company disclosure. DATES: You should send us your comments so that they arrive at the Commission by April 5, 1999. ADDRESSES: You should send 3 copies of your comments to Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., Stop 6-9, Washington, D.C., 20549. You also may submit your comments electronically to the following electronic mail address: rule-comments@sec.gov. All comment letters should refer to File No. S7-30-98; this file number should be included in the subject line if you use electronic mail. Comment letters will be available for public inspection and copying at the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. We will post electronically submitted comment letters on the Commission's Internet Web site (http://www.sec.gov). FOR FURTHER INFORMATION CONTACT: Anita Klein at (202) 942- 2980, Julie Hoffman, Joseph Babits, Patricia Miller or Rani Doyle at (202) 942-2900, or, with respect to small business issuer aspects, John Reynolds at (202) 942-2950, Division of Corporation Finance, U.S. Securities and Exchange Commission, Washington, D.C. 20549. [1] SUPPLEMENTARY INFORMATION: TABLE OF CONTENTS I. Executive Summary. . . . . . . . . . . . . . 10 A. Registration System Reforms 10 1. Contents of Prospectuses 11 2. Timing of Registration 13 3. Underwriter Guidance 14 4. Small Business Issuers 14 B. Easing Restrictions on Communications 15 1. Issuer Communications 15 2. Safe Harbors for Research Reports 16 C. Prospectus Delivery Reforms 16 D. Public and Private Offering Flexibility 17 E. Periodic Reporting . . . . . . . 18 **FOOTNOTES** [1]: The Commission also wishes to recognize the contributions to this release of Jennifer Bethel. - 2 - II. History of Registration Under the Securities Act 18 A. Evolution of the Registration System 19 B. Review of the Capital Formation Process 22 III. Recent Reform Initiatives . . . . . . . 23 A. Task Force Report. . . . . . . . 23 B. The Advisory Committee on Capital Formation 24 C. The Commission's Concept Release 24 D. The National Securities Markets Improvement Act 25 IV. Scope of the Proposals. . . . . . . . . . 26 V. Proposals Altering the Securities Act Registration Process 27 A. Form B Offerings. . . . . . . . 29 1. How Form B Works. . . . . . 29 a. Registration Statement Contents 29 i. Company Disclosure 30 ii. Transactional Disclosure 32 b. Free Writing Materials 35 c. Time of Filing 37 d. Becoming Effective 37 e. Delayed Shelf Offerings and Form B 39 2. Offerings Eligible for Registration on Form B 43 a. Offerings by Larger Seasoned Issuers 43 b. Offerings to QIBs 47 i. Advantages of Registered Offerings 49 ii. Limitations on QIB Purchases 49 iii. QIB Definition 50 iv. Other Reporting and Non-Reporting Issuers 52 c. Offerings to Certain Existing Security Holders 53 i. Dividend or Interest Reinvestment Plans 54 ii. Offerings to Existing Common Stock Holders 57 iii. Convertible Securities, Transferable Warrants and Rights Offerings 59 iv. Exercise of Outstanding Transferable Options 63 d. Non-convertible Investment Grade Securities 65 e. Market Making Transactions by Affiliated Broker-Dealers 65 f. Small Business Issuers 68 g. Form B Disqualifications 70 h. Secondary Offerings 72 B. Form A Offerings. . . . . . . . . 75 1. Structure of Form A. . . 76 a. Part I -- Information Required in the Prospectus 76 i. Cover Pages 76 ii. Transactional Information 76 iii. Company Information 77 (A) "Seasoned" Form A Issuers 77 (B) "Unseasoned" Issuers 80 b. Part II -- Information Not in the Prospectus 80 2. Timing of Form A Offerings 80 a. Seasoned Issuers 80 b. Unseasoned Issuers 83 3. Solicitation of Comments on Definition of Form A Seasoned Issuer 84 4. Disqualification for Seasoned Form A Companies 85 5. Real Estate Companies 85 C. Applicability of Civil Liability Provisions to Offerings Registered on Proposed Forms A and B 87 1. Form A Offerings. . . . 87 2. Form B Offerings. . . . . . 90 a. Section 11. . . . . . . 90 b. Section 12(a)(2). . 91 c. Section 17(a) and Exchange Act Section 10(b) 92 D. Form C Offerings . . . . . . . . 93 1. Use of Form C. . . . . . 93 2. Relationship with Exchange Act Rules 93 3. Timing of Form C . . . 94 4. Structure of Form C. . . 95 a. Part I -- Information Required in the Prospectus 95 i. Information About the Transaction 95 ii. Information About the Registrant 96 (A) Form B Eligible Registrants 96 (B) Seasoned Form A Registrants 97 (C) All Other Registrants 97 iii. Information About the Company Being Acquired 98 iv. Voting and Management Information 99 b. Part II -- Information Not Required in the Prospectus 99 5. General Instruction G. of Form S-4 99 6. Small Business -- Business Combinations 100 E. Small Business Issuers . . . . . . 101 1. Small Business Issuers' System 101 2. Re-defining "Small Business Issuer" 101 3. Proposed Changes to Form SB-2 104 a. Conditions for Using Incorporation by Reference 105 b. How to Incorporate by Reference 106 c. Delivery of Exchange Act Reports 108 d. Other Changes to the Forms 110 4. Form SB-3. . . . . . . . . 110 a. Use and Timing of Form SB-3 110 b. Structure of Form SB-3 111 i. Part I - Information Required in the Prospectus 111 (A) Information About the Transaction 111 (B) Information About the Registrant 111 (1) Transitional Small Business Issuers 111 (2) Seasoned Small Business Issuers 112 (3) All Other Small Business Issuers 112 (C) Information About the Company Being Acquired 112 (D) Voting and Management Information 112 ii. Part II - Information Not Required in the Prospectus 113 c. Request for Comments 113 5. Small Business Issuers that Become Reporting Companies 113 6. Small Business Issuer Registration Fees 115 F. MJDS Issuers . . . . . . . . . . . . 117 G. Foreign Government Issuers 120 H. Exxon Capital Transactions. . . .. . . . . . . . . . . . . . . . . . . 121 I. The Offset of Filing Fees and Other Technical Changes to the Calculation of Filing Fees 123 J. Solicitation of Comments Regarding Offerings Asset-Backed Securities Offerings 124 VI. Concurrent Exchange Act Registration 126 VII. Communications During the Offering Process 127 A. Issuer Communications Relating to a Registered Offering 130 1. The Pre-Filing Period 130 a. Form B Registrants 130 b. Foreign Governments 135 c. All Other Registrants 136 i. Bright Line Communications Safe Harbor 138 ii Communications Safe Harbor 141 (A) Factual Business Communications 141 (B) Regularly Released Forward-Looking Information 142 (C) Notice of Proposed Offerings 144 2. Communications During the Waiting Period 144 B. Filing Under EDGAR. . . . . . . . . . 148 C. Technology Implications of the Communications Proposals 149 - 3 - D. Research Reports. . . . . . . . . 151 1. Proposals in Connection with Registered Offerings 153 a. Rule 137 . . . . . . 153 b. Rule 138 . . . . . . 155 c. Rule 139 . . . . . . 159 i. Form B and Schedule B Offerings 160 ii. All Other Offerings 161 iii. Focused Reports 162 iv. Consideration to Expand Rule 139 to IPOs and Offerings by Unseasoned Issuers 163 v. Industry-Related Reports 164 vi. Section 17(b) 165 2. Proposals and Interpretation in Connection with Regulation S and Rule 144A Offerings 166 3. Research and Proxy Solicitation 168 VIII.Prospectus Delivery. . . . . . . . . . . . . 169A. Congressional History . . . . . . 169 B. Commission History . . . . . . . . . 170 C. Prospectus Delivery Proposals 171 1. Adequacy of Current Rules 172 2. Prospectus Delivery and Developments in Communications 173 3. Final Prospectus Delivery Exemption 174 a. Conditions to the Exemption 176 b. Business Combination and Exchange Offers 177 c. Rule 434 Final Prospectus Delivery Method 178 4. Delivery of Preliminary Prospectus Information 179 a. Form B Offerings 179 b. Offerings by Small or Unseasoned Issuers 181 c. Foreign Government Issuers 182 d. Canadian MJDS Issuers 185 e. Effectiveness and Prospectus Delivery 186 f. Secondary Offerings 187 5. Aftermarket Prospectus Delivery 187 a. Background of Aftermarket Prospectus Delivery 188 b. Aftermarket Underwriter Activities 190 c. Recent Case Law Relating to Aftermarket Delivery Obligations 191 d. Aftermarket Prospectus Delivery Proposals 192 6. Proposed Repeal of Rule 153 195 7. Record Keeping of Prospectus Delivery 196 - 4 - IX. The Role of Underwriters. . . . . . . . 197 A. Legislative Shaping of the Underwriters' Role 197 B. Case Law Interpretation of the Underwriter's Role 198 C. Commission Interpretation of the Underwriters' Role 199 D. Proposed Guidance on Underwriter Due Diligence 201 1. Proposed Practices Reflect Current Practice 204 2. The Role of Analysts 205 3. Other Due Diligence Practices 206 a. Disclosure Review by an Issuer's Independent Accountants 206 b. Disclosure Review by an Independent Qualified Professional 207 E. Interpretation of the Guidance 208 F. Investment Grade Debt Offerings 209 G. Requests for Comment on the Proposed Guidance 209 H. Liability Safe Harbor. . . . . . . 210 X. Integration of Registered and Unregistered Offerings 211 A. The Integration Doctrine. . . . . 211 B. Rule 152. . . . . . . . . . . . . . . 212 C. Proposed Safe Harbors for Completed and Abandoned Offerings; Related Rule Proposals 213 1. Completed Offerings. . . . . 214 a. Issuer Transactions 214 b. Resale Transactions 215 c. Lock-up Agreements 216 2. Abandoned Offerings 218 a. Private to Public 218 b. Public to Private 220 3. Definition of Private Offering 223 D. Proposed Changes to Rule 477 224 XI. Proposals Relating to Exchange Act Disclosure 225 A. Annual and Quarterly Reports 228 1. Risk Factor Disclosure 228 2. Due Dates for Annual Reports of Foreign Private Issuers 230 3. Treating Quarterly Information as "Filed" 231 4. Request for Comment on Management Report to Audit Committee 233 B. Interim Reports on Form 8-K 234 1. Timely Disclosure of Annual and Quarterly Results of Domestic Companies 234 a. Form 8-K Requirement for Item 301 Information 234 - 5 - b. Solicitation of Comment on Whether Accelerate Due Dates 237 2. Other Reporting Events 238 a. Material Modifications to the Rights of Security Holders 239 b. Departure of the CEO, CFO, COO or President 240 c. Material Defaults on Senior Securities 241 d. Reliance on Prior Audit 242 e. Name Changes 244 f. Due Dates for Reporting Events 245 C. Signatures. . . . . . . . . . . . . . 246 1. Exchange Act Reports and Registration Statements 246 2. Securities Act Filings 249 D. Form 6-K Submissions. . . . . 250 E. Solicitation of Comment Regarding Plain English in Exchange Act Reports 251 XII. Staff Review Policy. . . . . . . . . . . . 252 A. Notification of Selection for Review 253 B. Voluntary Pre-Review of Filings 254 XIII. Request for Comments About Investment Company Issuers and Market Value Adjustment Contracts 254 A. Investment Company Issuers 254 B. Market Value Adjustment Contracts 255 XIV. Cost-Benefit Analysis . . . . . . . . . . 255 A. Impact on Investors . . . . . . . 256 B. Impact on Issuers . . . . . . . . 265 C. Impact on Other Parties . . . . . 271 XV. Initial Regulatory Flexibility Analysis 274 A. Reasons and Objectives for Proposed Action 274 B. Objectives and Legal Basis 275 C. Small Entities Subject to the Rules 275 D. Reporting, Recordkeeping and Other Compliance Requests 275 E. Significant Alternatives. . . . . . 276 F. Overlapping or Conflicting Federal Rules 281 XVI. Paperwork Reduction Act. . . . . . . . . 281 XVII. General Request for Comments . . . . . 305 XVIII. Statutory Basis. . . . . . . . . . . . . . . 306 I. EXECUTIVE SUMMARY Through the Securities Act registration system, issuers and underwriters reach out to the public and sell securities. The registration system provides investors with the dual benefits of: full and fair disclosure (or effective remedies if there is faulty disclosure), and freely tradeable securities. Registration also benefits the markets at large by providing everyone with access to the most up-to-date information about the company making the offering. This disclosure is significant both to the market, for accuracy in pricing, and to the individual investor, for determining the suitability of the investment. Today's proposals are based on a recognition that investors will receive these benefits of registration only if the Commission continues to make the registration system flexible enough to be a viable alternative in the capital markets of today and the future. A. Registration System Reforms Our reforms to the registration system are designed to make registration more attractive to issuers without compromising investor protection. We believe that registration benefits all participants: issuers, by lowering their cost of capital; investors, by enhancing disclosure and providing remedies; and the marketplace, by increasing depth and liquidity. In 1990, the Commission adopted Rule 144A which permits unregistered sales to and by qualified institutional buyers ("QIBs"). [2] Since then, this institutional market, which exists virtually side-by-side with the public market, has expanded significantly. Recent data illustrates the size of this parallel market: in 1997, Rule 144A offerings comprised 17% of all offerings on a dollar basis, including 21% of all equity and 16% of all debt. [3] In some types of securities, the Rule 144A market has become predominant. In 1997, 76% of the high-yield debt, 72% of the convertible investment grade debt, and 10% of the non-convertible investment grade debt were issued for the Rule 144A market. [4] Our proposed reforms seek to apply the issuer advantages of offering securities in the private and Rule 144A markets -- timing and disclosure flexibility -- to the public market. We believe that, as a result, more offerings will be registered. We propose to create a three-tiered registration system for offerings consisting of: Form A, Form B and Form C. Form A offerings generally would be those made by smaller or unseasoned companies. Form B offerings would be those made by larger, seasoned, well-followed issuers and those made to relatively informed or sophisticated investors. Form C offerings would relate to business combinations or exchange offers. Today the Commission also is publishing a companion release regarding the regulation of takeovers, including tender offers, mergers and other extraordinary transactions. You should read that release for a detailed discussion of the regulation of business combinations and exchange offers registered on Form C. [5] 1. Contents of Prospectuses Current requirements strictly mandate the content of an offering prospectus. Because we believe that larger seasoned issuers attract a large market following and operate in an efficient market, we are considering providing them with a larger measure of flexibility to craft disclosure about their offerings. We are asking for comment on two alternative proposals for Form B offerings. The first, while requiring all material transactional disclosure, would limit the itemized requirements for such disclosure. The second would continue to require all itemized transactional disclosure. Under both proposals, we would continue to mandate that issuers incorporate by reference the current itemized company information in their periodic reports. Thus, we would maintain the same standards for information about the company while we seek comment on the level of freedom to allow the issuer and the underwriter when crafting information about the offering itself. Where the issuer or its representative uses disclosure to promote sales in the offering, it would have to file that disclosure, which would be subject to civil liability provisions prohibiting material misstatements and omissions. This "inclusive prospectus" approach would reflect the reality that investment decisions in these offerings would be based on more than the information contained in a single disclosure document. By shifting some itemized disclosure requirements to materiality-based requirements, as one of our proposals would permit, we seek to discourage drafters from just routinely providing the boilerplate transactional disclosure that some have suggested the standardized disclosure items have evoked. This alternative would re-focus drafters on analyzing and including the information particular to that deal that is material to investors. More focused disclosure could result. On the other hand, under our alternative proposal, all current transactional disclosure requirements specified in Regulation S-K that are in Form S-3 and/or Form F-3 would continue to apply. This alternative would provide investors with more certain core transactional information. Under either proposal, issuers and third party participants such as underwriters and auditors would continue to ensure the quality of disclosure due to both market pressures and their legal responsibility to do so. We believe that analysts and the financial press, among others, also will test the accuracy of disclosure by larger, seasoned issuers. [6] By allowing issuers some more freedom to craft their transactional disclosure and communicate with investors in Form B offerings for which there is evidence of an efficient market, we also hope to reduce selective disclosure by allowing access to more information. We are considering the same alternative approaches to disclosure in offerings limited to sophisticated investors and in offerings to investors with a pre-established relationship with the issuer. Historically, we have given issuers more flexibility in these types of offerings on the theory that these purchasers are able to fend for themselves. For smaller issuers or unseasoned issuers of any size, we believe that the current strict itemization of transactional information in the prospectus remains important to the dissemination of adequate offering information. Some of those issuers would have little experience with crafting offering disclosure and the same market scrutiny is not present. We would therefore maintain all current itemized offering disclosure requirements in Form A. We would, however, allow more freedom for seasoned smaller issuers to rely on their periodic reports for disclosure about their companies in an offering. In the case of business combinations and exchange offers on Form C, we would maintain the itemized requirements for transactional disclosure. 2. Timing of Registration Under the revised registration system, issuers would have complete flexibility in timing the registration of Form B offerings. By operation of rule, those registration statements would become effective at the issuer's discretion, either immediately upon filing or at whatever later date and time the issuer chooses. The staff would not review these registration statements before the offering or take action to make the registration statement effective. Form B registration statements would be screened by the Commission staff shortly after receipt by the Commission to determine whether the offering was eligible for registration on Form B and whether the disclosure raises any "red flags" concerning the antifraud provisions of the federal securities laws. Therefore, the only timing constraint for Form B offerings would be the statutory requirement that the registration statement must be effective before the first sale. We are not proposing to exempt issuers from that requirement because, among other reasons, filing of a final prospectus would ensure prompt disclosure to the market about the offering. We would continue to require that issuers registering offerings on Form A file a registration statement before making their first offer. The Commission staff would continue to review all initial public offerings and selectively review repeat offerings by smaller, unseasoned issuers. We would, however, allow seasoned medium-sized issuers to control the timing of registration in their Form A offerings. We also would allow certain other Form A issuers that incorporate recent Exchange Act reports that have been fully reviewed by the Commission staff to control the timing of their offerings. Those filings, like Form B offerings, would be screened (but not reviewed) by the staff shortly after receipt. We believe that this increased flexibility in the timing of registration will encourage issuers to register more offerings and thus extend the investor protection benefits of registration to more purchasers. Further, although offerings by these issuers that we would not review under the proposed system are currently subject to staff review, these reforms essentially mirror current practice with respect to review of what would be Form B-type filings and recently examined Form A-type filings. 3. Underwriter Guidance In connection with the proposed registration system, we would add a new provision to the Securities Act rule concerning due diligence. That rule currently lists circumstances to consider in deciding whether a person has met the "reasonable investigation" and "reasonable ground for belief" standards that apply in defending against liability under Section 11 of the Securities Act. The new provision would cover only certain Form B offerings completed on an expedited basis and would expand upon the existing guidance in the rule to reflect current practices. 4. Small Business Issuers For purposes of registration and reporting, we are proposing to revise the definition of "small business issuer" to increase the number of companies qualifying as small business issuers. We would raise the annual revenues ceiling from $25 to $50 million and remove the public float limitation. We propose to update the definition to reflect significant economic and market changes that have occurred in the six years since we adopted the definition. Also, our successful experience with the small business disclosure system indicates that we could classify companies with higher revenues as small business issuers while at the same time maintaining investor protection. To provide small businesses with greater flexibility in raising capital, we also propose to delay the time at which they must pay registration fees, allow earlier incorporation by reference of their Exchange Act reports and allow increases in the size of their offerings in an expedited fashion. B. Easing Restrictions on Communications Our proposals would loosen the strict controls that exist today on communications to investors and the market around the time of an offering. Our intent in proposing the communications reforms is to ensure that investors and the market have greater access to more timely information, which we believe is the foundation of investor protection. We are not proposing any diminution in the remedies that would be available to investors in the event of defective disclosure made by or on behalf of an issuer around the time of an offering. 1. Issuer Communications The extent to which we would ease communications by the issuer or deal participants depends on the type of offering. For Form B offerings, we would allow oral and written communications in any format at any time regardless of whether the offering is imminent or ongoing. Of course, the antifraud provisions and civil liability provisions of the securities laws would apply to those communications and provide the necessary investor protections. In Form A offerings on the whole, we have less reason to assume that plentiful, thoroughly scrutinized issuer information is available. A barrage of sales-related communications could affect prospective investors, especially if those communications are the only ones publicly available. The greatest need for investor protection in that case would occur before the investor has access to reliable, balanced prospectus disclosure. Thus, for these offerings, we propose to maintain the prohibition on offers prior to filing a registration statement. Once the issuer's prospectus is on file with the Commission, however, our proposals would lift existing restrictions on written communications for Form A offerings because an investor would be able to test the sales materials against the registration statement. Moreover, our proposals on prospectus delivery would ensure timely delivery, not just access, to this more balanced information. For the period before filing the registration statement, we propose to create greater certainty about the timing and scope of remaining restrictions on communications. We are aware that the restrictions on communications before a filing have been criticized as unclear. This is especially true due to the recent increased use of the Internet. Consequently, we are proposing a bright-line rule that would define the 30 days immediately before filing the registration statement as the period during which communications would be limited due to the upcoming offering. In addition, our proposed rules provide that, even during that 30-day limited communications period, issuers could disclose factual business information and regularly released forward-looking information. Our proposals also would permit issuers to announce limited offering information during the 30- day period without indicating whether the offering will be registered or exempt. 2. Safe Harbors for Research Reports For Form B offerings and many Schedule B offerings by foreign governments, the proposals would allow analysts to publish research reports without any interruption due to the registered offering. For other offerings, we propose expanded safe harbors to make it easier for analysts to report about foreign government issuers and smaller, unseasoned companies. We also are proposing to expand those safe harbors to address the distribution of research reports in connection with Regulation S and Rule 144A offerings. C. Prospectus Delivery Reforms To provide investors with the maximum benefit from prospectus disclosure, the proposals re-focus prospectus delivery requirements on when the prospectus is needed most: before investors make an investment decision. Where we would require that offering participants deliver prospectus information earlier, we would allow them to decide whether or not to deliver a final prospectus. Where they do not deliver a final prospectus, we would require that they tell investors where they can obtain it free of charge. In Form B offerings, we would not require that offering participants deliver a full prospectus. We would, however, require earlier delivery of a "securities term sheet" outlining the key features of the securities. Delivery of that securities term sheet would precede the investment decision -- when the investor gives its oral or written commitment to purchase. We also are considering, as an alternative for Form B offerings, requiring delivery of a prospectus containing all mandated transactional information listed in Subpart 500 of Regulation S-K that would be contained in a short-form registration statement today. In Form A offerings by unseasoned issuers (issuers that have registered their initial public offerings within the past year), underwriters and dealers participating in the offering would have to deliver a preliminary prospectus at least 7 days before the date of pricing. In all other Form A offerings, issuers, underwriters and participating dealers would have to deliver a preliminary prospectus at least 3 days before the date of pricing. These requirements would ensure that investors that are offered securities of smaller, unseasoned issuers have more time in which to assess the disclosure. Issuers and other participants in Form A offerings also would have to inform investors no later than 24 hours before pricing about any material change that has occurred since they delivered prospectuses. D. Public and Private Offering Flexibility Today's capital markets can change quickly. Companies, especially small businesses, may find that the desirability of making a public offering versus a private offering can change just as quickly. Current rules prevent most companies from changing their minds in a timely fashion once they have started an offering one way. Our proposals would remove most of those impediments. Under the proposed safe harbor, if an issuer started to register a public offering but then decided to abandon it, the issuer could withdraw the registration statement and either wait 30 days to sell privately or sell privately sooner and accept a higher liability standard for written disclosure provided to purchasers. Similarly, if an issuer started a private offering but then decided to abandon it, the issuer could file a registration statement for a public offering immediately unless it had offered the securities to persons that would not have been eligible to buy in a private offering under Securities Act Section 4(2). In that event, the issuer would have to wait for 30 days after abandoning the private offering to file its registration statement. This safe harbor would be particularly useful to small issuers. It would allow a small private company to "test the waters" for a public offering of its securities through this mechanism. Doing so would not prevent the small issuer from selling privately if it finds too few investors to make it worthwhile to become a public company. Similarly, small issuers that find more investor interest than expected could change from a private offering to a registered public offering. E. Periodic Reporting We are proposing several changes to Exchange Act disclosure requirements, some of which the Advisory Committee on Capital Formation and Regulatory Processes recommended. These changes would require issuers to report annual and quarterly financial results sooner, to make and update risk factors disclosure in their Exchange Act reports, to accelerate the due dates for some Form 8-K reports and to expand the events about which Form 8-K requires a report. The changes also would require persons signing Exchange Act filings to indicate that they have reviewed the disclosure and, to their knowledge, the registration statement or report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. These Exchange Act disclosure reforms would provide key investor protections in a further streamlined registration process. Additionally, if the proposed registration system is adopted, the Commission envisions shifting staff resources to the review of Exchange Act filings. II. HISTORY OF REGISTRATION UNDER THE SECURITIES ACT The Securities Act and the regulations thereunder have long provided the foundation for a capital-raising system of unparalleled integrity, fairness, and liquidity. The regulatory scheme seeks to ensure that investors receive full and fair disclosure with respect to securities offerings by issuers and their affiliates. The Securities Act was adopted in response to the activities culminating in the 1929 market crash. [7] President Franklin D. Roosevelt articulated the underlying philosophy of regulating securities offerings which continues today: [t]here is ... an obligation upon us to insist that every issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information, and that no essentially important element attending the issue shall be concealed from the buying public. [8] Congress has made relatively few broad-reaching amendments to the Securities Act since its inception. In administering the statute, we strive to be responsive to changing markets and capital-raising practices. Over the years, the Commission has interpreted the statute through rules and regulations to give continuing life to the original statute. A. Evolution of the Registration System Modern efforts at reforming registration stem in part from a commentary on Securities Act regulation published in 1966. In his article, "Truth in Securities," Milton H. Cohen theorized that the: combined disclosure requirements of these statutes would have been quite different if the 1933 and 1934 Acts ... had been enacted in opposite order, or had been enacted as a single, integrated statute.... [9] Cohen argued for a coordinated disclosure system having as its basis the continuous disclosure system of the Exchange Act with the Securities Act disclosure requirements built upon it. [10] The Commission soon thereafter instituted a study, chaired by Commissioner Francis M. Wheat, to examine disclosure to investors.[11] The Wheat Report, published in 1969, recommended expanded periodic disclosure under the Exchange Act and the coordination of the disclosure requirements of the Securities Act and the Exchange Act. [12] The Commission followed up on the Wheat Report by adopting a short-form Securities Act registration statement. That registration statement permitted incorporation by reference of Exchange Act reports by larger issuers and in specified types of offerings. [13] This approach allowed companies to avoid reiterating in their registration statements the company disclosure contained in annual and other periodic reports. In 1977, the Commission adopted Regulation S-K, which began the effort to establish a single set of disclosure requirements for issuers under both the Securities Act and the Exchange Act. [14] That effort was substantially completed with the adoption of the "Integrated Disclosure System" in 1982. [15] The Commission's integrated disclosure system eliminated overlapping and unnecessary disclosure required by the Securities Act and the Exchange Act. The Commission also adopted the modern-day "shelf registration" system in connection with the integrated disclosure system. [16] That permits registration of securities offerings that are conducted on a delayed basis sometime after the effective date. [17] In 1992, the Commission extended short-form and shelf registration to smaller issuers and new offerings, including asset-backed securities offerings. [18] The Commission also permitted registration of shelf offerings without requiring that the amount of securities be allocated upon registration to specific classes of the issuer's securities. This approach permitted issuers to decide as late as the point of sale which of its securities to use. Another significant change in the registration system occurred with the Commission's adoption in 1990 of Rule 144A. [19] Rule 144A provides a safe harbor from registration for resales of restricted securities to QIBs. By creating certainty about when registration is not required in these transactions, the Commission enhanced the attractiveness of alternatives to registration of securities. [20] B. Review of the Capital Formation Process Both within and outside the Commission, debate periodically has centered on the Securities Act and the best way to regulate the securities offering process. Over the years, industry participants, academics and Commission members have voiced opinions that there are strains in the regulatory framework and have called for changes. Their proposed solutions have ranged from minor rule changes to the abolition of the Commission. There also has been recent discussion about the extent to which the regulatory system requires an overhaul in the face of the ever-changing market and offering practices. [21] Factors identified as causing strain in the current regulatory regime include: 1. technological developments in the field of electronic communications; [22] 2. the gradual erosion of traditional distinctions between public and private offerings; [23] 3. novel financing instruments, methods of capital-raising and risk management initiatives; [24] and 4. regulatory initiatives that reduce other market risks, such as the T+3 clearance and settlement system. [25] III. RECENT REFORM INITIATIVES The Commission has been cognizant of the call for change in the regulatory framework governing the capital formation process. For the last several years, the Commission has been actively reevaluating the current registration system. Recent Commission steps in that process have included: the March 1996 Report of the Task Force on Disclosure Simplification (the "Task Force"); the July 1996 Report of the Commission-impaneled Advisory Committee on the Capital Formation and Regulatory Processes (the "Advisory Committee"); and the Commission's Securities Act Concept Release in July 1996 (the "Concept Release"). [26] A. Task Force Report The Commission's Task Force was organized in August 1995 to conduct a broad-based review of existing disclosure requirements to identify outdated or unnecessary requirements that clutter the regulatory framework. That review encompassed the forms and rules relating to: capital-raising transactions; periodic reporting pursuant to the Exchange Act; proxy solicitations and tender offers; and beneficial ownership reports under the Williams Act. The goal was to simplify the disclosure process, consistent with investor protection, by eliminating unnecessary requirements. [27] In its March 1996 report, the Task Force recommended that the Commission eliminate or modify a quarter of the rules and half the forms. To this end, the Commission has abolished 45 rules and 6 forms. [28] B. The Advisory Committee on Capital Formation The Advisory Committee was established in 1995 by the Commission and chaired by then-Commissioner Steven M.H. Wallman. The Advisory Committee's objective was to evaluate the efficiency and effectiveness of the regulatory process relating to public offerings of securities, secondary market trading, and corporate reporting. After 18 months of study, the Advisory Committee published a report in 1996 calling for reform. Its primary recommendation was that the Commission further its integrated disclosure system by implementing a "company registration" concept first envisioned by the ALI's Federal Securities Code. The report advocated refocusing the registration system on registration not of transactions, but of companies, with greater reliance on periodic disclosure than prospectus disclosure. The Advisory Committee suggested that the Commission implement the concept as a pilot program for larger companies. C. The Commission's Concept Release In light of diverse developments in the markets and the work of the Advisory Committee and Task Force, the Commission published the Concept Release on offering regulation in July 1996. In the Concept Release, the Commission announced that it was reexamining the application of the Securities Act and the rules thereunder to securities offerings. The Concept Release sought comment on the best methods for eliminating unnecessary obstacles to capital formation while improving the quality and timing of disclosure and, therefore, investor protection. The Commission focused its questions in the Concept Release on broad concepts underlying Securities Act regulation. They included: * whether investors are receiving all material information in a timely manner in the offering process; * whether limitations on the use of written communications other than the statutory prospectus during the offering process ought to be eased; * whether the speed of takedowns of securities under the Commission's shelf registration system results in procedures that do not adequately inform the market; * whether the role of independent gatekeepers in the offering process needs to be reconfigured to work in conjunction with issuers' quick access to capital; and * whether the periodic disclosure under the Exchange Act needs improvement. The Commission also asked questions in the Concept Release about the Advisory Committee's company registration idea and suggestions about regulatory reform that had been made by others. The Commission received 55 comment letters in response to its requests. [29] D. The National Securities Markets Improvement Act Following the publication of the Concept Release, the National Securities Markets Improvements Act of 1996 ("NSMIA") was enacted. [30] This legislation was designed to update the securities laws to promote investment, decrease the cost of capital, and encourage competition. To this end, Congress granted the Commission for the first time general exemptive authority under the Securities Act. [31] In order to exercise our new exemptive authority, NSMIA requires us to find that such action is "necessary or appropriate in the public interest and consistent with the protection of investors." [32] That exemptive authority gives the Commission substantial additional flexibility in administering the Securities Act. Congress believed that this additional flexibility would allow the Commission to adopt more easily new approaches to registration and disclosure in order to promote efficiency, competition and capital formation. [33] After the enactment of NSMIA, the Commission began to study possible reform of the regulatory structure for offerings even more broadly. For the past two years, the Commission staff has researched and studied the existing regulatory system and possible improvements that could be made to it. Some of our proposals rely upon our new exemptive authority. IV. SCOPE OF THE PROPOSALS The Commission is proposing a variety of revisions to the current regulatory structure for securities offerings. [34] While many revisions address problems identified by offering participants, the overall goal of the proposed reforms is to make the registration system more workable for issuers and underwriters and more effective for investors in today's capital markets. In the last decade, the Commission has seen the results of a registration structure that has been perceived as having too much rigidity to comport with the realities of modern global markets. Sellers have used to their fullest extent available methods of offering without registration. Increasingly, they have tried to create new ways around registration strictures. They also have stretched the boundary between registered and exempt offerings in seeking to acquire the benefits of both. Where registration has taken place, too many offerings have been accomplished with a divergence between the disclosure about the transaction in the registration statement and the disclosure actually used to convince investors to buy. A large share of the stress on the registration structure in recent years has stemmed from the issuers' and underwriters' need to raise capital on a schedule that they can control. Our proposals seek to fulfill that need through the registration system where consistent with investor protection. In addition, the speed at which offerings are accomplished today, and the limitations on communications imposed by the statute, have called into question whether investors are being informed in a timely manner. Rather than continuing the statute's "exclusive prospectus" approach to disclosure, our proposals take an "inclusive" approach to disclosure. We seek to ensure that material information is within the reach of investors when they need it most. We also seek to lessen the gap in offerings done quickly between the disclosure about the offering actually being used to sell the securities and the disclosure that is filed with the Commission in a registration statement. Overall, the revisions should create a more flexible registration system under which public offerings proceed with benefits to both buyers and sellers. Our proposals are primarily focused on the structure of the regulation of offerings; they are not primarily focused on the contents of disclosure requirements. In the process of considering structural reform, however, the Commission has recognized that it needs to study whether the specific disclosure that is mandated both in Exchange Act periodic reports and Securities Act registration statements should be re-focused to serve the investing public better. As a result, the Commission's reform work is not done. The next step in our ongoing process will be to revisit the quantity and quality of required disclosure. V. PROPOSALS ALTERING THE SECURITIES ACT REGISTRATION PROCESS A principal premise of the existing Securities Act registration system is that a prospectus containing mandated disclosure should be virtually the exclusive written document used to offer the securities. In the years since adoption, especially with the recent explosion of information technology, this exclusivity premise is less a reality than a theory, at least for certain offerings and issuers. We believe that it is time to recognize that a different approach would be better for those offerings. For larger seasoned issuers, communications made around the time of a typical registered offering, whether or not part of a traditional prospectus, provide the basis for investment decisions in the offering. Those issuers are well followed by the market and the important statements that they make are quickly disseminated and considered by investors even when the issuers are not making an offering. When they are making an offering, any communication those issuers and other offering participants make is of even greater interest to the markets. For those issuers, therefore, we propose a transformation from the "exclusive" prospectus approach to the "inclusive" prospectus approach as a means of facilitating informed investment decisions. That approach would embrace as part of the registration system all information used by or on behalf of the issuer during the offering period that would be material to an investor in the offering. All investors in the offering would receive or have access to such information as well as the required material company and transactional disclosure. The proposed system would maintain investor protection by subjecting this information to the antifraud and civil liabilities provisions of the Securities Act and the Exchange Act. For most offerings by smaller or unseasoned issuers, and in business combinations and exchange offers, we would primarily rely on the current mandated prospectus to provide written offering communication to investors, although there too we would allow them more freedom to communicate in any medium by means other than the prospectus. [35] The proposed system would have three main registration forms: Form A for smaller issuers and larger unseasoned issuers, Form B for larger seasoned issuers and offerings to relatively well-informed or sophisticated investors, and Form C for business combinations and exchange offers. Both domestic and foreign issuers would use each of these Forms. [36] Small business issuers would continue to be permitted to use Form SB-1 and revised Form SB-2 for their offerings and would have to use new Form SB-3 for business combinations and exchange offers. The new forms reflect our understanding of when investors need more, or less, mandated disclosure and when investors benefit from access to information from more than one source. In addition, the proposed divisions of issuers and offerings would create a system that more accurately reflects when an efficient market exists and when an issuer has a significant market following. The new system also would enhance the use of Exchange Act disclosure to satisfy Securities Act disclosure requirements. A. Form B Offerings 1. How Form B Works a. Registration Statement Contents At the time of effectiveness, a Form B registration statement would consist of: * a cover page with a calculation of registration fee table; * a prospectus that contains: - offering information; - the registrant's Exchange Act reports, via incorporation by reference; - a foreign private issuer's Item 18 reconciliation (or Item 17, as applicable) to U.S. GAAP (if not already in an incorporated report); [37] - the securities term sheet; [38] - undertakings to provide investors upon their request, and free of charge, with information incorporated by reference but not delivered. * signatures; * selected exhibits: [39] - any instrument that defines the rights of the security holders (incorporated by reference if previously filed); - consents; [40] - statement of eligibility of trustee, where applicable (Form T-1); - legal opinions; and - a representation that underwriters concur with the issuer's designated effective date. [41] Form B issuers would be required to deliver promptly a prospectus, free of charge, to any investor who requests it. In addition to that obligation, Form B issuers would be required to deliver a securities terms sheet. [42] i. Company Disclosure Investors, as always, will obtain company information from a variety of sources such as the Internet, television, newspapers and radio. They also may acquire company information from securities analysts or the company itself. While there are many possible sources of information about Form B issuers that investors can access today, [43] one reliable source is the information that issuers make public through filing their Exchange Act reports with the Commission. Investors can rely on this information because it is subject to the regulatory and antifraud provisions of the federal securities laws as well as subject to review by the staff of the Commission. This structure compels issuers to come forward with information about their businesses that they might not choose to make public otherwise. The proposed registration system takes account of this source of information by providing that an issuer must incorporate by reference into its effective registration statement on Form B: 1. its latest annual report [44] filed under the Exchange Act; and [45] 2. any Exchange Act reports filed since the end of the fiscal year covered by its latest annual report. [46] Issuers that use Forms S-3 or F-3 currently must incorporate their Exchange Act reports into those Forms. The 12-month reporting requirements under those Forms, however, do not assure that an issuer incorporates an annual report into either of those registration statements because annual reports are not due until three months (or 6 months, for foreign private issuers) after the end of a company's fiscal year. In addition to this information, issuers would be required to disclose in their Form B registration statements updated company information that describes material changes not reflected in any Exchange Act reports incorporated by reference. **FOOTNOTES** [2]: "Qualified institutional buyers" is defined in Securities Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1). Even though some proportion of the Rule 144A securities are eventually registered, the investor benefits of registration are not maximized. It is not uncommon for securities sold in Rule 144A transactions to end up in the public market because they are registered for resale or exchanged for registered securities in "Exxon Capital" transactions (named after the Commission staff interpretive letter sanctioning the practice). [3]:Securities Data Corp's New Issues Database. Virtually all of that market share has moved to the Rule 144A market in the last 5 years. Rule 144A is not available for securities listed on a national securities exchange or quoted on a U.S. automated inter-dealer quotation system. [4]:Non-convertible investment grade debt is eligible for short-form registration under our current system, whereas the other two categories are not. [5]:Exchange Act Release No. 40633 (Nov. 3, 1998). [6]:We recognize that analysts, especially so-called "sell- side" analysts, have inherent conflicts of interest. There is a risk that impartiality may be compromised when their firms seek to participate in the issuers' distributions. We believe, nevertheless, that analysts in general, and the expanding "buy side" analysts in particular, are in a unique position to gather and analyze information about issuers. They represent an undeniably significant method of corporate disclosure and dissemination. [7]:The Securities Act was the first of six securities statutes to be enacted during the 1933-1940 period. The other five acts include: the Securities Exchange Act of 1934, Pub. L. No. 73-291, 48 Stat. 881 (1934) (codified as amended at 15 U.S.C. §§ 78a-78kk (1994, Supplemented 1996)); the Public Utilities Holding Company Act of 1935, Pub. L. No. 74-333, 49 Stat. 803 (1935) (codified as amended at 15 U.S.C. §§ 79-79z-6 (1994, Supplemented 1996)); the Trust Indenture Act of 1939, Pub. L. No. 76-253, 53 Stat. 1149 (1939) (codified as amended at 15 U.S.C. §§ 77aaa-77bbbb (1994, Supplemented 1996)); the Investment Company Act of 1940, Pub. L. No. 76-768, 54 Stat. 789 (1940) (codified as amended at 15 U.S.C. §§ 80a-1-80a-64 (1994, Supplemented 1996)); and the Investment Advisors Act of 1940, Pub. L. No. 76-768, 54 Stat. 847 (1940) (codified as amended at 15 U.S.C. §§ 80b-1-80b-21 (1994, Supplemented 1996)). [8]:H.R. Rep. No. 85, 73d Cong. 1st Sess., at 1-2 (1933). [9]:Cohen, "Truth in Securities" Revisited, 79 Harv. L. Rev. 1340, 1341 (1966). [10]:Id. at 1342. [11]:Disclosure to Investors - A Reappraisal of Administrative Policies Under the 1933 and 1934 Acts, Report and Recommendations to the SEC from the Disclosure Policy Study (Mar. 27, 1969)[hereinafter "Wheat Report"]. [12]:The securities bar also acted upon the ideas in Cohen's article. The American Law Institute commissioned several industry experts, led by Professor Louis Loss, to combine all six federal statutes into one comprehensive code, American Law Institute, Federal Securities Code (1980) (the "ALI Code"). See also Loss, The American Law Institute's Federal Securities Code Project, 25 Bus. Law. 27 (1969). Upon its completion ten years later in 1980, the Commission and many in the securities industry expressed support for the ALI Code. See Securities Act Release Nos. 6242 (Sept. 18, 1980) [20 S.E.C. 1483 (1980)] and 6377 (Jan. 21, 1982) [24 S.E.C. Docket 788 (1961)] (releases stating and reaffirming support for the ALI Code). See also Coffee, Re- Engineering Corporate Disclosure: The Coming Debate Over Company Registration, 52 Wash. & Lee L. Rev. 1143, 1145 (1995). The ALI Code was in turn presented to Congress. Congress, however, took no action with respect to the ALI Code. [13]:Securities Act Release No. 5117 (Dec. 23, 1970) [36 FR 777]. [14]:Securities Act Release No. 5893 (Dec. 23, 1977) [42 FR 65554]. As originally adopted, Regulation S-K contained only two items: "Description of Business" and "Description of Property." [15]:Securities Act Release No. 6383 (Mar. 3, 1982) [47 FR 11380]. In that release, the Commission stated that "in reliance on the efficient market theory" Form S-3 would allow for maximum use of incorporation by reference [47 FR at 11382]. [16]:Temporary Rule 415 was adopted in March of 1982. Securities Act Release No. 6383 (Mar. 3, 1982). In November of 1983, the Commission announced the adoption of a revised shelf registration rule. Securities Act Release No. 6499 (Nov. 17, 1983) [48 FR 52889]. [17]:See Securities Act Release No. 6499 (Nov. 17, 1983) and Securities Act Rule 415, 17 CFR 230.415. Short-form registration is used for delayed shelf offerings. [18]:Securities Act Release No. 6964 (Oct. 22, 1992) [57 FR 32461]. [19]:Securities Act Release No. 6862 (Apr. 23, 1990) [55 FR 17933]. [20]:According to Securities Data Co., the deal value of Rule 144A private placements in 1997 was $254.4 billion, approximately $83 billion of which was raised by foreign issuers. Tibbitts, Private Placement Volume Explodes as Structured Deals Rule 144A Market, Investment Dealers' Digest, Feb. 2, 1998. The amount of non-convertible bonds issued in the Rule 144A market in the first quarter of 1998 ($30 billion) is almost equal to the entire amount (equity, preferred and debt) placed in the Rule 144A market from its inception in 1990 to the end of 1992 ($31 billion). [21]:Compare Merrill Lynch comment letter (Oct. 31, 1996) ("[W]e believe that what the registration process needs today is a tune up, not an overhaul.") with American Bar Ass'n comment letter (Dec. 11, 1996) ("[T]he time has come to recognize that the current jury-rigged system requires fundamental reforms."). These letters are available for inspection and copying in the Commission's public reference room. Refer to File No. S7-19-96. [22]:See, e.g., Report to the Congress: The Impact of Recent Technological Advances on the Securities Markets, (Sept. 1997). That Report, like all Commission reports issued after 1996, is available on the Commission's Internet web site (http://www.sec.gov). [23]:See, e.g., Keller, Securities Act Concepts: The Private/Public Offering Dichotomy and Proposals for Reform, Mass. Continuing Legal Educ., 15 Ann. Bus. & Sec. L. Conf. (Oct. 31, 1997). [24]:Seligman, The Obsolescence of Wall Street: A Contextual Approach to the Evolving Structure of Federal Securities Regulation 93 Mich. L. Rev. 649, 666-72 (1995). See also Securities Act Release No. 7386 (Jan. 31, 1997) [62 FR 6044]. [25]:See, e.g., Securities Act Release No. 7168 (May 11, 1995) [60 FR 26604]. [26]:Securities Act Release No. 7314 (July 31, 1996) [61 FR 40044]. [27]:The Task Force met with issuers, investor groups, underwriters, accounting firms, lawyers, and others who participate daily in the capital markets. The Task Force reported that none of the participants suggested wholesale deregulation, and virtually all emphasized the importance of the Commission's basic regulatory goals to preserve orderly markets. See Task Force Report at pp. 1-6. [28]:Securities Act Release No. 7300 (May 31, 1996) [61 FR 30397] and Securities Act Release No. 7431 (July 18, 1997) [62 FR 39755]. These releases are available on the Commission's Internet web site (http://www.sec.gov). [29]:Those letters and a summary of them may be read and copied at the Commission's Public Reference Room, 450 Fifth Street N.W., Washington, D.C. 20549. Refer to File No. S7-19-96. [30]:Pub. L. No. 104-290, 104th Cong., 2d. Sess. (1996). [31]:See Section 28 of the Securities Act, 15 U.S.C. § 77z- 3. [32]:15 U.S.C. § 77z-3. [33]:H.R. Rep. No. 104-622, 104 Cong. 2d Sess. at (1996). [34]:The proposals do not purport to affect any rules or regulations imposed by self-regulatory organizations in connection with securities offerings. [35]:See Section VII. of this release regarding proposed changes in the regulation of offering communications. [36]:While disclosure for foreign private issuers currently is made through a separate set of registration forms, we believe that it would be simpler to formulate a single set of forms for both foreign and domestic issuers. In doing so, foreign private issuers registering on Form A would be subject to the same disclosure requirements as they are currently. In Form B, foreign private issuers would have at least as much flexibility as domestic issuers. Through designations on the front of the registration forms, it will be possible to track the use by foreign private issuers regardless of whether they register on the same forms as domestic issuers. [37]:See Items 17 and 18 of Form 20-F. [38]:See Section VIII.C.4.a. of this release for a discussion of this securities term sheet and delivery requirements relating to it. [39]:See proposed revisions to Item 601 of Regulation S-K, 17 CFR 229.601. [40]:See infra note 73 for a discussion of consents of auditors in delayed shelf registration statements. [41]:See Sections V.A.1.d. and V.B.2.a. of this release for a discussion of this underwriter concurrence. [42]:We discuss prospectus delivery obligations for Form B issuers at Section VIII.C.4.a. of this release. [43]:We also believe our proposal to free communications by Form B registrants, discussed below, would spur diverse public discourse about the merits of the issuer and its offering, all of which would be open to the public investor. [44]:We do not, however, permit incorporation by reference of annual reports on Form 40-F. See General Instruction I.B.7. of proposed Form B. [45]:Financial statements included in the Form must be no older than permitted in the age of financial statements requirements of Regulation S-X. See Rules 3-12 and 3-19 of Regulation S-X, 17 CFR 210.3-12 and 210.3-19. Foreign issuers using Form B would be required to reconcile to U.S. GAAP any financial statements either incorporated by reference into or set forth in the Form. We would require reconciliation in accordance with Item 17 or Item 18 of Form 20-F under the same standards used today. [46]:The proposed system would not permit Form B registrants to incorporate by reference any Exchange Act report filed after the end of the offering period. For delayed shelf offerings, each takedown would have its own separate offering period. - 6 - ii. Transactional Disclosure We are seeking comment on two alternatives on Form B transactional disclosure. The first would mandate the inclusion of "offering information" that includes some of the traditional items of transactional disclosure. This alternative would allow issuer discretion as to materiality and applicability of other traditional items of transactional disclosure. The second alternative would simply mandate that issuers set forth in Form B the items of transactional disclosure required today. Both alternatives would require that the registrant file any offering information disclosed by or on behalf of the issuer (including by the underwriter or participating dealer) during the offering period. [47] Under the first proposal, the registrant would file offering information as part of the prospectus in the effective registration statement. [48] "Offering information" consists of: * the amount of securities being offered; [49] * material changes in the issuer's affairs since the end of the latest fiscal year that are not reflected in incorporated Exchange Act reports; * the information required by Item 504 of Regulation S-K regarding use of proceeds; * the information about underwriter's discounts and commissions required by Item 501(b)(3) of Regulation S- K; * information about the risks of the offering of the type described in Item 503 of Regulation S-K; * information concerning who is selling the securities of the type described in Item 507 of Regulation S-K; * material information about the terms of the securities offered as required by Item 202 of Regulation S-K, unless capital stock is to be registered and securities of the same class are registered pursuant to Section 12 of the Exchange Act; * all information regarding the transaction that is material, which may include where applicable, but is not limited to: - information about dilution of the type described in Item 506 of Regulation S-K; - information about the determination of the offering price of the type described in Item 505 of Regulation S-K; - information about the plan of distribution of the type described in Item 508 of Regulation S-K; - ratio of earning to fixed charges, as described in Item 503 of Regulation S-K; * any offering information disclosed by or on behalf of the issuer during the offering period, [50] other than information communicated orally; and * offering information communicated orally that the issuer chooses to file. This alternative could provide registrants, and those acting on their behalf, more flexibility to craft a selling document shaped by their particular offering, the market demands for information, and the requirements to provide material information to investors. We believe the greater freedom may allow issuers to cut some boilerplate disclosure and to omit non-material disclosure from the prospectus. We solicit comment, however, with regard to whether issuers would use that freedom to accomplish those objectives. At the same time, the Form's requirements should ensure investor protection by requiring issuers to disclose all material offering information in the prospectus that is part of the effective Form B. We solicit comment on this point. We solicit comment on whether traditional transactional line items not included in Form B should be retained. If so, which of the items? Conversely, should we permit Form B issuers to craft their transactional disclosure based on what they believe is material information, and what the market and investors would demand, rather than based on traditional transactional line items? If so, should we limit that flexibility to a narrower class of Form B issuers, such as those with a minimum public float of $750 million or $1 billion? The second alternative would mandate that issuers disclose in Form B all the information required by the Regulation S-K transactional disclosure items currently required in Form S-3 and/or Form F-3. In addition to the information that would be required by the first alternative, this alternative would require the registrant to provide further information in accordance with Regulation S-K. [51] Should Form B include as mandated itemized information all of the topics listed under that requirement? Should mandated itemized disclosure be a different subset of the Regulation S-K information currently required in Form S-3 and/or Form F-3? **FOOTNOTES** [47]:We would not permit a Form B registrant to file information that had not been disclosed during the offering period. See Form B "Information Required in the Prospectus that is Part of the Effective Registration Statement," paragraph 1.(c), and proposed Securities Act Rule 172(e), 17 CFR 230.172(e). Information communicated orally during that period could be reduced to writing and filed as part of the registration statement if the registrant so chooses. [48]:Information communicated orally would not have to be filed and would be subject to Section 12(a)(2) liability. [49]:Under Rule 457(a), 17 CFR 230.457(a), a number of securities may be registered. Under Rule 457(o), 17 CFR 230.457(o), a dollar amount may be registered. The registrant may choose between these two alternatives in a typical capital-raising offering. [50]:For purposes of this Form, "offering period" means the period beginning 15 days in advance of the first offer made by or on behalf of the issuer in connection with the offering and ending when the offering is completed. [51]:That additional information would be: certain portions of Item 501 of Regulation S-K (forepart of registration statement and outside front cover page of prospectus); Item 502 of Regulation S-K (inside front and outside back cover pages of prospectus); certain portions of Item 503 of Regulation S-K (prospectus summary and address and telephone number); Item 509 of Regulation S-K, where applicable (interests of named experts and counsel) and Item 510 of Regulation S-K, where applicable (disclosure of Commission position on indemnification for Securities Act liabilities). - 7 - b. Free Writing Materials For Form B issuers, written information [52] disclosed during the "offering period" would be classified as either "offering information" or "free writing" materials. [53] The "offering period" with respect to a Form B offering would be defined as the period beginning 15 days before the first offer made by or on behalf of the issuer and ending at the time of completion of the offering. "Free writing" materials would include all written information disclosed by or on behalf of the issuer during the offering period, other than "offering information," factual business communications [54] and limited notices of proposed offerings. [55] Free writing could include, but would not be limited to, sales literature and selling documents that include forward-looking information. [56] A document that contains both offering information and "free writing" would be treated as "free writing," if the offering information was filed as part of the issuer's registration statement. If the offering information was not filed as part of the issuer's registration statement, the document, including the "free writing" portion, would be treated as offering information and would be required to be filed as part of the registration statement. The registrant would file, at the same time it files its Form B registration statement, the free writing materials it disseminated before filing its Form B. [57] It would file free writing materials used after the filing of its Form B at the time of first use. [58] The registrant would not file free writing materials as part of the effective registration statement, nor would it have to file information in the effective registration statement as free writing materials. [59] Given the significance of the offering period, should the Commission require the registrant to state on the front cover page of the registration statement the date of the first offer in connection with the offering being registered? Should the Commission require free writing materials to be filed at the time of their first use since investors might prefer access to them as they make their investment decisions? c. Time of Filing A registrant could file a registration statement on Form B at any time before the first sale of the securities. [60] Issuers wishing to file immediately before sale could do so. [61] Because issuers may wish to price Form B offerings before filing and because many offerings are currently priced after hours, we would allow registrants to file Form B registration statements with the Commission after hours via EDGAR or facsimile until 10:00 p.m. [62] Issuers would pay the filing fee under the same procedures used today by issuers filing Rule 462(b) registration statements after hours via facsimile. [63] d. Becoming Effective A Form B and any amendment to a Form B would be effective by operation of rule at the issuer's discretion to give issuers maximum flexibility. [64] The issuer would simply select one of three choices on the cover page: (1) effective upon filing; (2) effective _________________ (date and time specified by the issuer); or (3) effective as specified in a later amendment to the registration statement. [65] The Commission staff would not have to take action for the registration statement to become effective. In most underwritten offerings under the current registration system, the Commission requires that a request for effectiveness of a registration statement be made by the underwriters in addition to the issuer. [66] Both underwriters and issuers are subject to liability under Section 11 for the disclosure in an effective registration statement. A request for effectiveness is therefore an acknowledgment by each requester that it is aware of its obligations under the Securities Act. [67] Because the issuer would have complete control over effectiveness by controlling the filing, we would include in Form B a requirement that the issuer obtain and file as an exhibit evidence of the managing underwriters' or principal underwriters' concurrence with the issuer's designation of effectiveness. [68] The issuer would have to obtain that concurrence before it files the Form B registration statement in which it requests either immediate effectiveness or effectiveness at a specified date. Would the requirement to file the evidence of the underwriters' concurrence as an exhibit to Form B be unnecessarily burdensome? Alternatively, should we require the issuer to represent in the registration statement that it obtained the underwriters' concurrence, but not require it to file the concurrence, and require it to retain the concurrence for 5 years? Should we require that the issuer obtain the concurrence, but not require that the concurrence be evidenced in writing? Would an oral concurrence provide the issuer and the underwriters with sufficient assurance of agreement and protection against misunderstanding? e. Delayed Shelf Offerings and Form B Form B would provide much the same flexibility to issuers that delayed shelf registration on Forms S-3 and F-3 has provided, [69] and those benefits would be available to approximately the same issuers. [70] Unlike current shelf registration, however, issuers using Form B would not need to file a base or core prospectus to be able to offer and sell at will. Base prospectuses today, particularly those used for unallocated delayed shelf registration statements, tend to describe in the broadest of terms the many different types of securities and offerings that might be done off the shelf. Thus, in offerings off the shelf, the key offering disclosure is usually filed in the Rule 424 prospectus supplement. Form B would allow an issuer to avoid writing transactional disclosure that covers "everything but the kitchen sink" and simply file whatever transactional disclosure it gives to investors at the time of the offering. There are also other Form B benefits as compared to the current delayed shelf system. First, the Form B registration statement would not be subject to pre-effective staff review. Under the existing delayed shelf system, the Form S-3 or F-3 containing the core prospectus is subject to the staff's selective pre-review. Second, issuers may have less concern about market overhang effects on its stock price under Form B. [71] Under the current system, an issuer wishing to put equity securities on the shelf has to include them in the registration statement even before it intends to offer those securities. Under the proposed system, a registrant need only file a Form B registration statement before sale. The absence of a filing that signals an upcoming offering well before the time it can be completed may be welcomed by issuers, but may be of concern to secondary market participants. [72] Another advantage for issuers in Form B as compared to existing shelf registration relates to fees. In shelf registration today, an issuer must file the base prospectus and pay the full filing fee at that time, even though it may not take down securities from the shelf until much later. An issuer using Form B other than for delayed offerings would pay upon filing but generally that would not occur until sale. There would be no need to register more than is needed for that offering at that time. We believe that the way Form B operates would largely eliminate the incentive for a registrant to set up a delayed shelf registration statement. We recognize, however, that some issuers are accustomed to doing shelf takedowns and do so on a frequent basis. As proposed, a registrant wishing to file some preliminary information could still do so on Form B and either become effective then and file the remaining disclosure concerning the offering in a post-effective amendment or delay effectiveness of the Form B until the rest of the information is available. The issuer could designate when those post-effective amendments become effective. The current delayed shelf does not require directors and officers to sign the Rule 424(b) supplements filed for each takedown. [73] Under the proposal, registrants may use a power of attorney to avoid the inconvenience of obtaining multiple signatures upon the filing of a pre-effective or post-effective amendment. We also would provide in delayed shelf offerings that when the persons signing a Form B do not appoint a person to sign via a power of attorney, a signature on a post-effective amendment by an authorized representative of the registrant shall be deemed to constitute signature by the persons signing the original filing unless otherwise specified in the amendment. [74] Delayed shelf offerings on Form B would, however, improve upon the Form S-3/F-3 shelf registration system in two ways that would enhance investor protection. First, we would provide clearly in Form B that any transactional disclosure used in connection with a Form B offering is within the effective registration statement. With Form B, transactional information disclosed to investors before the end of the offering period would have to be filed either as part of the effective registration statement or on a post-effective amendment that becomes effective whenever the issuer wishes before the time of sales. That information would be within the scope of Section 11 under the Securities Act. That transactional disclosure would include information filed under Rule 424 as prospectus supplements to shelf registration statements today. We also would provide clearly in Form B that historical and forward- incorporated Exchange Act reports would be part of the effective registration statement. That information also would be within the scope of Section 11. We recognize that certain commentators have questioned whether Section 11 applies to Rule 424 information [75] and forward-incorporated Exchange Act reports. [76] While we believe that under existing law such Section 11 liability applies, and do not accept the views of those commentators on these issues, we recognize that an explicit statement in the proposed Form would serve to eliminate any uncertainty practitioners may believe exists. The other change to the way delayed shelf would operate relates to the time of filing with the Commission information about the offering off the shelf. Today, that information may be filed pursuant to Rule 424 up to two business days after the earlier of pricing of the securities or first use of the prospectus supplement. Under the proposed registration system, we would require that Form B issuers file this information as part of the effective registration statement by the time of sale. [77] We believe that both investors and the market are better served by having this disclosure filed promptly. Moreover, because the transactional information that may be filed as part of the Form B registration statement includes only information about which investors have been informed before committing to purchase the securities, there is less reason to contemplate a filing after the sale takes place. In addition, the Commission is aware that some investors trading in shelf registrants' securities after a takedown and before the filing have been troubled by the absence of disclosure during that period. We have concerns that some investors are aware of the shelf takedowns while others become aware days later when notice is filed with the Commission. Although a two-business-day wait may not have been considered a material delay at the outset of modern shelf registration, it appears to be one in today's market framework. Eliminating this delay would support our goal of reducing the risks of selective disclosure. We solicit comment on whether there is a continued need for a delayed shelf concept under Form B. Do registrants see advantages to delayed registration on Form B over and above what would be allowed on Form B without that concept? Does the delayed shelf concept needlessly complicate the system? Is there a reason to retain the two-year limitation on the amount registered? Would concerns about market overhang keep issuers from taking advantage of any extension? Should we limit the extension to 3 or 4 years? Would issuers benefit more if we remove completely any restrictions on the amount of securities that issuers could register for a delayed shelf? What if we extended the possible life of a shelf registration statement to 6, 7 or 10 years? Would issuers register securities to be offered over those periods of time? 2. Offerings Eligible For Registration on Form B An issuer may register on Form B only offerings that fit in one of the following categories. a. Offerings by Larger Seasoned Issuers Given the envisioned disclosure and delivery aspects of Form B, we believe that only those issuers with a demonstrated market following should be eligible to use Form B to register primary and secondary offerings of any type to the general public. The current threshold for short-form registration (Forms S-3 and F-3) is a public float of $75 million. Based on our research, we believe that the most accurate measurement to attain the goal of choosing issuers for which there is an efficient market is a combination of public float of the issuer's common equity securities [78] and average daily trading volume ("ADTV") of the issuer's equity securities. [79] We propose that an issuer able to use Form B should either have: * a public float of $75 million or more and an ADTV of $1 million or more; [80] or * a public float of $250 million or more. [81] Thus, if an issuer has a public float of less than $250 million then it must have an ADTV of at least $1 million in addition to a public float of $75 million. In determining these thresholds, we considered, among other things, the level of analysts coverage that would result at different public float and ADTV thresholds. Our research indicates that companies that meet the proposed combined public float/ADTV test would have an average of 14 analysts following them. We looked at analyst coverage not because we believe that analysts create market following or because we believe that analysts statements are wholly accurate and unbiased or because we believe that all investors would have access to or rely upon analysts reports. Instead, we looked to analyst coverage because we believe that the number of analysts that cover companies that fit a certain profile is indicative of the level of investor interest in companies within the profile. Like news organizations, analysts tend to cover companies that are of interest to their customers. [82] For purposes of Form B, issuers would be required to measure their ADTV during the three full calendar months (or any 90 consecutive calendar days ending within 10 calendar days) immediately preceding the filing of the registration statement. They would measure their public float as of the end of their last fiscal quarter. While the alternative stand-alone public float test of $250 million may be used by both domestic and foreign issuers to qualify for Form B eligibility, we propose it primarily for the benefit of large foreign issuers whose shares trade principally on foreign markets. [83] In comparison to current Form S-3 and F-3 public float levels, 1,175 fewer companies would be eligible to register on Form B due to size. [84] Those companies, and even smaller ones, would, however, be eligible to register on Form B under other criteria discussed below, such as when offering only to QIBs or offering investment grade securities. In addition to the public float/ADTV criteria, Form B would be available only to issuers that have a history of reporting under the Exchange Act. The reporting history would ensure that issuers have been reporting long enough so that adequate information about them is publicly available. It also gives issuers enough time to adjust to the disclosure requirements applicable to reporting companies. We propose a one-year reporting history requirement coupled with the requirement that the issuer have filed at least one annual report. Because annual reports are due months after the end of a fiscal year, simply requiring that Form B issuers have a one-year reporting history would not necessarily ensure that all issuers using the Form had prepared and filed at least one annual report. [85] We believe the annual report requirement would provide benefits to investors, due to the fact that they would have more Exchange Act information to use in evaluating the issuer and also because the issuer would have more reporting experience. In addition, an issuer would not qualify to use Form B unless it had filed all Exchange Act reports due and had filed all of its reports on a timely basis in the 12 months immediately before the filing. [86] We request your comment on this proposal. Should the $75 million threshold used in conjunction with the ADTV threshold be higher (e.g., $100 million, $150 million, $200 million or $250 million)? [87] Should the ADTV test used with the public float test be higher (e.g., $1.5 million or $2 million)? [88] Should the ADTV test be lower (e.g., $750,000)? [89] Should we raise the proposed stand-alone public float test of $250 million (e.g., to $300 million, $350 million, $400 million or $450 million)? Should we lower the stand-alone public float test (e.g., to $200 million)? [90] Should we raise the one-year and one annual report reporting requirement to two years? [91] Is there any reason why the ADTV/public float test thresholds should be consistent with the thresholds used for the actively-traded security exception in Rule 101(c)(1) of Regulation M? Instead of worldwide volume, which is used in Regulation M, would U.S. market volume, as proposed, be a better indicator of market following by U.S. investors? Unlike Regulation M and the proposals, should ADTV be calculated solely on the basis of trading conducted on the NYSE, AMEX or Nasdaq-NMS so as to exclude microcap companies? [92] b. Offerings to QIBs As the Commission determined in adopting Rule 144A, larger institutional investors, or QIBs as denominated in the rule, are presumed to be sophisticated securities investors. [93] Their investing experience and size purportedly puts them in a position to insist upon as much information as would be provided by registration. [94] Also, their size, which may be viewed as signifying buying and bargaining power, should allow them to demand from issuers protective covenants and restrictions. In other words, their sophistication enables them to fend for themselves. [95] Rule 144A applies both with respect to securities of reporting companies and non-reporting companies. [96] If QIBs can fend for themselves in unregistered transactions involving securities of both reporting and non-reporting companies, they certainly should be able to fend for themselves at least as easily in connection with an offering by a public company registered on Form B. Moreover, when QIBs fend for themselves in Form B offerings, they will share the benefit of the disclosure they acquire with the rest of the investing public through the filing of that disclosure. To encourage registration of offerings that otherwise would be made in reliance on Rule 144A, we propose to extend Form B for registration of offerings made solely to QIBs, as defined in Rule 144A, where the QIBs are purchasing for their own accounts or for the accounts of other QIBs. [97] Those offerings could be made where the issuer has been a reporting company for at least one year, has filed at least one annual report under Section 13(a) of the Exchange Act and is current and timely in fulfilling its reporting requirements. i. Advantages of Registered Offerings Domestic issuers and foreign issuers that are already reporting would have the same key advantage under Form B registration that they find today in making Rule 144A offerings: they would find it just as easy to time their offerings because the issuer would control when its registration statement becomes effective and it need only file before the first sale. We believe issuers and investors would realize two significant benefits from registration of securities that otherwise would be sold only in reliance on Rule 144A: 1. Unlike Rule 144A, securities fungible with those that are listed on exchanges or quoted on NASDAQ could be offered and sold under Form B registration. 2. Unlike Rule 144A securities, the securities generally would be freely resalable because they would be covered by a registration statement. Because the securities would not be restricted, some QIBs that otherwise would be subject to limitations on the amount of restricted securities they may hold would be permitted to purchase these registered securities freely. [98] ii. Limitations on QIB Purchases Because the securities registered on Form B would not be restricted securities, there is some chance that investors and issuers would arrange to use the Form where the offering is not truly a QIB-only offering but instead is a distribution to the public using a QIB as a conduit. [99] We therefore would provide that certain QIBs would be ineligible to purchase under a Form B QIB-only offering. Dealers and investment advisers would be excluded from those offerings. Those purchasers do not generally purchase securities for their own investment. Dealers are in the business of selling securities. Moreover, the size threshold in Rule 144A for dealers is significantly lower than the thresholds for other QIBs. Given those factors, we believe the risk of indirect distribution by QIBs in those categories is sufficient to warrant precluding their participation. Should other QIB groups be excluded? If so, which ones? Furthermore, issuers and QIBs that attempt to effect an indirect public distribution of securities through a QIB-only offering on Form B would violate Section 5 absent an applicable exemption. The transaction that the issuer would register under this provision of Form B would be its sale of securities to QIBs, not a sale to the public. If the securities do not come to rest with the QIBs and the QIBs are mere conduits for sales to the public, the offering would be ineligible for registration on Form B. [100] If a QIB purchases and effects a distribution, it will be acting as an underwriter as defined in Section 2(a)(11) of the Securities Act. Its transaction would not be registered and likely would not be exempt and therefore would be illegal. iii. QIB Definition The current general QIB test, which was established with the adoption of Rule 144A, is whether the institution, acting for its own account or for that of other QIBs, in the aggregate owns and invests on a discretionary basis at least $100 million of securities of non-affiliates. [101] The QIB threshold differs for dealers and banks, savings associations and equivalent institutions. We solicit comment on whether the thresholds for defining "qualified institutional buyer" for purposes of Form B and Rule 144A should be revised upward in light of the length of time since Rule 144A was adopted and the changes that have occurred in the markets since then. [102] Taking into account only inflation since 1990, use of the $100 million threshold today would have been the same as if the Commission in 1990 had approved a 144A threshold of $81 million dollars. [103] Taking into account only market changes since 1990, our use of the $100 million QIB threshold today is equivalent to us adopting in 1990 a threshold of only $29.2 million. [104] Thus, taking into account market changes, the $100 million 1990 threshold would translate to approximately $240 million today. Even with some adjustments, therefore, we believe more entities would qualify as QIBs today than could have qualified at the time we adopted Rule 144A in 1990. We solicit comment on whether one should have to own and invest on a discretionary basis at least $125, $150 or $200 million in securities of non-affiliated issuers to qualify as a QIB. We also solicit comment on whether we should increase the $10 million eligibility requirement for dealers acting for their own accounts or for the accounts of other QIBs. Should it be raised to $15, $20 or $25 million? Should we increase the net worth test for banks, savings associations and equivalent institutions? If so, should it be raised from $25 to $30, $35 or $50 million in order for them to qualify as QIBs? [105] Should a net worth test be applied to those institutions at all? Are upward revisions necessary to provide continued assurance that QIBs are sophisticated investors with some ability to require appropriate disclosure from the sellers? If so, should they be based on inflation only or should we revise them in accordance with market-related measures? We also request your comment on whether we should expand the eligibility standards for Rule 144A QIB status. If so, what categories of entities should we make eligible as QIBs? For example, should we permit certain state pension funds to qualify as QIBs if they meet the current thresholds in Rule 144A? iv. Other Reporting and Non-Reporting Issuers In light of the sophistication of QIB purchasers, we solicit comment about whether we should extend Form B to issuers subject to the Exchange Act reporting requirements that do not satisfy a one-year and one annual report reporting history. If we were to extend Form B in that way, an issuer could choose to register not long after registering for the first time another offering under the Securities Act or a class of securities under the Exchange Act. Even in that event, however, the issuer would have filed virtually the same company information in its prior registration statement that it otherwise would file in its periodic reports. That information, like periodic reports, could be incorporated into its Form B registration statement. In the case of offerings made only to QIBs, is a year of seasoning as a reporting company going to provide significant investor protections that the QIBs themselves could not attain? Alternatively, should we increase the reporting requirement to two years for offerings to QIBs on Form B by issuers that do not meet the public float/ADTV threshold? Non-reporting foreign issuers that currently make Rule 144A offerings would not be eligible for Form B even for QIB-only offerings. We solicit comment concerning whether the largest non-reporting foreign issuers (e.g., those with a public float over $500 or $750 million) should be permitted to use Form B to register offerings to QIBs of investment grade securities. These issuers would be required to reconcile their financial statements to conform to U.S. GAAP. This alternative would allow large foreign issuers to enter the U.S. markets in a registered context rather than through Rule 144A, and would give the initial investors freely tradeable securities. [106] By registering, those companies would become reporting issuers. We would require reconciliation of their financial statements in the Form B registration statement. Also, because these issuers would not have Exchange Act reports to incorporate by reference, we would require that they disclose in the Form B registration statement the company information set forth in Regulation S-K. Under those circumstances, would allowing foreign issuers the opportunity to register investment grade securities on an expedited basis encourage them to enter the U.S. registration and reporting system? Would they be unlikely to register even on that basis due to the reporting and disclosure requiremen