CLIENT ALERT. Loosen restrictions on the quiet period that precedes an initial public offering

Transcription

1 CLIENT ALERT SEC ADOPTS SECURITIES OFFERING REFORMS On July 19, 2005, the SEC published new rules modifying the registration, communications and offering processes under the Securities Act of 1933 (the Securities Act ) that were originally proposed on November 3, The adopted rules, which will be effective as of December 1, 2005: Generally ease the regulation of new stock offerings Loosen restrictions on the quiet period that precedes an initial public offering Establish new classifications of issuers, including a class of well-known seasoned issuers or WKSIs, which may engage at any time in oral and written communications during the registration process, including use at any time of a new type of written communication called a free writing prospectus Modernize the offering rules to address electronic communications, including electronic road shows and internet-based information Revise the liability provisions to reflect these changes Categories of Issuers The extent to which the adopted rules apply depends upon the type of issuer, the issuer's reporting history, equity market capitalization and historical debt issuance. Many of these adopted rules require an issuer to meet certain eligibility criteria. The adopted rules divide issuers into four specifically enumerated categories: Non-Reporting Issuer: Any issuer not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act ), regardless of whether it is filing such reports voluntarily. Unseasoned Issuer: Any issuer required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act, that does not satisfy the requirements for the use of Form S-3 or Form F-3 for a primary offering of its securities. Seasoned Issuer: Any issuer eligible to use Form S-3 or Form F-3 to register primary offerings of its securities. In certain circumstances, a majority-owned subsidiary of a seasoned issuer may also be considered a seasoned issuer. Well-Known Seasoned Issuer (WKSI): Any issuer current in its Exchange Act reporting obligations for the preceding 12 months that is eligible to register a primary

2 offering of its securities on Form S-3 or Form F-3 and that has either $700 million of worldwide public common equity float (which in the case of non-u.s. issuers may include certain participating preferred stock that is substantially economically equivalent to common equity) or, for limited purposes, has issued at least $1 billion of registered non-convertible securities, other than common equity, in the preceding three years. In certain circum-stances, a majority-owned subsidiary of a WKSI may also be considered a WKSI. The most significant revisions to the SEC's communications rules and registration processes apply to WKSIs. Liberalizing Communications Around the Time of Registered Offerings The adopted rules update and liberalize permitted offering activity and communications to allow more information to reach investors by revising the gun-jumping provisions under the Securities Act as follows: WKSIs permitted to engage in written communications at any time: Well-Known Seasoned Issuers are permitted to engage at any time in oral and written communications, including use at any time of a new type of written communication called a free writing prospectus, subject to certain conditions (including in some cases filing of the free writing prospectus with the SEC, as further described below). Reporting issuers permitted to release business information and forward-looking information in the ordinary course: All reporting issuers are, at any time, permitted to continue to publish regularly released factual business information and forwardlooking information. Non-reporting issuers permitted to release business information in the ordinary course other than to investors or potential investors: Non-reporting issuers are, at any time, permitted to continue to publish factual business information (though not information about the offering or as part of the offering activities or that comprises forwardlooking information) that is regularly released to persons other than in their capacity as investors or potential investors. Quantification of quiet period : Communications by or on behalf of issuers more than 30 days before filing a registration statement are not considered prohibited offers so long as they do not reference a securities offering and the issuer has taken reasonable steps to prevent further distribution or publication during the 30 days leading up to the filing of the registration statement. Certain written communications permitted at any time after registration statement filing: All issuers and other offering participants are permitted to use a free writing prospectus after filing a registration statement, subject to enumerated conditions (including in some cases filing of the free writing prospectus with the SEC), other than certain specified ineligible issuers. Notably, including information in a free writing prospectus which is not included in a registration statement will not, solely by

3 virtue of inclusion of the information in a free writing prospectus, be considered an omission of material information required to be included in the registration statement. Certain communications excluded from the definition of prospectus : A broader category of routine communications regarding issuers, offerings and procedural matters, such as communications about the schedule for an offering or about accountopening procedures, are excluded from the definition of prospectus. Electronic communications: The adopted rules specifically address the treatment under the Securities Act of electronic communications, including electronic road shows and information located on, or hyperlinked to, an issuer's website, including treating such information, in certain circumstances, as free writing prospectuses. The adopted rules notably provide that: o a communication that, at the time of the communication, originates live, in real-time to a live audience and does not originate in recorded form or otherwise as a graphic communication, even if transmitted through graphic means, will not be considered a written communication or a free writing prospectus (though still subject to Securities Act Section 12 and other liability provisions of the federal securities laws); and o other non-written communications (including slides and visual aids) that are provided or transmitted in a manner designed to make it available only as part of the road show, even if it would otherwise be considered a graphic or other written communication, will be deemed to be part of the road show and will not be required to be filed if the road show (even if written) is not required to be filed. Broader exemptions for research reports: The adopted rules expand the set of exemptions relating to published research reports. Filing the free writing prospectus : The adopted rules require filing a free writing prospectus with the SEC if the free writing prospectus is: o prepared by or on behalf of the issuer and used by any person; o prepared by or on behalf of or used by any party participating in the offering other than the issuer and contains material information about the issuer or its securities not already contained or incorporated in the registration statement or a filed free writing prospectus; o used or referred to by any party participating in the offering other than the issuer and is distributed by or on behalf of such party in a manner reasonably designed by such party to lead to its broad unrestricted dissemination; or

4 o prepared by any person containing a description of the final terms of the issuer s securities or the offering. In the case of an electronic road show that is considered a free writing prospectus, the adopted rules generally do not require that the road show or its script be filed. Filings of electronic road shows are only required in the case of issuers that are not required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act at the time of filing of a registration statement for common equity or convertible equity securities, unless such an issuer makes at least one version of a bona fide electronic road show readily available electronically to any potential investor at the same time as the electronic road show. The adopted rules do not require the filing of electronic road shows which are not considered free writing prospectuses. Liability Issues The adopted rules address the liability provisions under the Securities Act as follows. Timing of disclosure for liability purposes: The adopted rules clarify that only information conveyed to an investor at the time of its investment decision is relevant in determining whether a material misstatement or material omission exists, and not information that is only conveyed or filed subsequently. This addresses offerings in which important information in the past has been included only in a final prospectus conveyed to investors after an investment commitment. Disclosure in prospectus supplements: The adopted rules clarify that disclosure in prospectus supplements is deemed to be part of a registration statement and therefore issues are liable for such disclosure. This complements the loosening of the requirement that certain changes be included in amendments that the staff would approve. New effective date for shelf take-downs: The adopted rules provide that the effective date of a shelf registration statement for the purposes of liability with respect to a take-down is the filing date of the related prospectus supplement. Improvements to Registration Procedures The adopted rules modernize the shelf registration process under the Securities Act by: placing in a single rule (Rule 430B) the information that may be omitted from a base prospectus in a shelf registration statement at effectiveness and included later; changing the requirement that issuers register only securities they intend to offer within two years with a requirement that the issuer update the registration statement with a new registration statement that is filed every three years;

5 permitting immediate take-downs of securities off of shelf registration statements, essentially eliminating the convenience shelf doctrine; eliminating restrictions on at-the-market offerings for primary shelf eligible issuers; permitting issuers to use prospectus supplements (rather than post-effective amendments) to make material changes to the plan of distribution described in the base prospectus; for seasoned issuers with a $75 million public float, changing the requirement that selling security holders be identified in a post-effective amendment to permit selling security holders to be identified in a prospectus supplement, provided the securities to be sold are outstanding when the registration statement is filed; and establishing a significantly more flexible version of shelf registration, referred to as automatic shelf registration, for offerings by WKSIs. Automatic shelf registration features automatic effectiveness, pay-as-you-go registration fees and maximum flexibility in the offering process. The adopted rules also contain procedural changes that allow reporting issuers that are current in filing their Exchange Act reports to incorporate by reference previously filed Exchange Act reports into a Securities Act registration statement on Form S-1 or Form F-1. In addition, in light of this flexibility given to reporting issuers to incorporate such information by reference, the adopted rules eliminate Form S-2 and Form F-2. Prospectus Delivery Reforms The adopted rules change final prospectus delivery mechanisms. The change creates an access equals delivery model for final prospectuses. Under the adopted model, unless actual delivery is requested by an investor, filing a final prospectus with the SEC and complying with other conditions will satisfy the prospectus delivery requirements. In addition, to preserve an investor's ability to trace securities to a registered offering, the adopted rules include a separate requirement to notify investors involved in a sale by an issuer or underwriter that such securities were sold in a registered offering or in a transaction in which a final prospectus would have otherwise been required to have been delivered. Required Disclosure in Exchange Act Reports The adopted rules require issuers to include the following additional disclosure in their Exchange Act periodic reports: the inclusion of risk factors in Form 10-Ks where appropriate; whether the issuer is a voluntary filer of Exchange Act reports; and

6 for WKSIs and other companies which fall under the accelerated filing rules (generally companies having a public float greater than $75 million that have been public for more than one year), disclosure in their Exchange Act annual reports of any unresolved material written staff comments issued more than 180 days before the end of the related fiscal year. Application of Proposals to Asset-Backed Securities Certain sections of the adopted rules deal with issuances of asset-backed securities which are not discussed in this memorandum. For further information on these issues please feel free to contact any of the attorneys listed below. * * * Please feel free to discuss these matters with any of the attorneys mentioned below or with your regular contact. As always, we are available to assist you in developing and implementing practices and procedures in response to our recommendations. Questions or requests for additional information may be directed to any of the following persons at, Tweed, Hadley & McCloy LLP: New York: James Ball (212) jball@milbank.com Michael Banks (212) mbanks@milbank.com Michael Fitzgerald (212) mfitzgerald@milbank.com Thomas Janson (212) tjanson@milbank.com Robert W. Mullen, Jr. (212) rmullen@milbank.com Arnold B. Peinado, III (212) apeinado@milbank.com Robert Reder (212) rreder@milbank.com Douglas A. Tanner (212) dtanner@milbank.com Robert B. Williams (212) rwilliams@milbank.com Los Angeles: Ken Baronsky (213) kbaronsky@milbank.com Deborah Ruosch (213) druosch@milbank.com Neil Wertlieb (213) nwertlieb@milbank.com Palo Alto: Marcelo Mottesi (650) mmottesi@milbank.com Melainie Mansfield (650) mmansfield@milbank.com London: Thomas B. Siebens Kevin Muzilla tsiebens@milbank.com kmuzilla@milbank.com

7 Frankfurt: Christian Droop Hong Kong: Anthony Root Tokyo: Gary Wigmore Singapore: David Zemans In addition, if you would like copies of our other Client Alerts or the SEC releases and SRO rules described herein, please contact any of the attorneys listed above. You can also obtain this and our other Client Alerts by visiting our website at and choosing the Current Topics link. July 29, 2005 This Client Alert contains general information of interest to clients and others and does not constitute legal advice.