THE SECURITIES REPORTER The Newsletter of the ABA Section of Business Law Committee on Federal Regulation of Securities

Transcription

1 THE SECURITIES REPORTER The Newsletter of the ABA Section of Business Law Committee on Federal Regulation of Securities Dixie L. Johnson Chair Volume 10 Issue 3 Catherine T. Dixon Editor P.J. Himelfarb Associate Editor Theresa Hyatte Associate Editor category of exempt purchasers, to whom and FROM THE CHAIR among whom restricted securities could be sold by Dixie L. Johnson johnsdi@ffhsj.com As I am sure you are aware, the Commission s recent offering reform becomes effective December 1, Congratulations to the SEC, and to Alan Beller, Amy Starr and their extensive support networks for creating a new system that will provide well known, seasoned issuers with easy access to the capital markets and will eliminate some of the anomalies with which many of us have struggled over the years. The Commission reviewed the registered offering process in light of technological and regulatory developments and enacted meaningful reform. We should view this effort, however, not as an end in itself, but as the first of a series of steps to reform other areas governed by the federal securities laws. As we proposed in our comment letter on the Securities Offering Reform proposal, the SEC should act promptly to address other facets of securities offerings that need to be changed. Our letter suggested that, in particular, there is a strong need to reform the laws governing unregistered and nonpublic offerings, including resales, to eliminate some of the more troublesome traps and adapt to changes in the marketplace. Certain restrictions on resales, and in particular on communications during the resale process, should be eliminated. The question of how much stock or other indicia of control is enough to make one an affiliate is often in doubt and should be addressed with a meaningful safe harbor. The Commission should consider creating a broad without registration or other restrictions. The Commission should consider eliminating some restrictions on the resale of restricted securities. In this age of instantaneous communications, the Commission should also consider de-regulating offers and eliminating the concept of general solicitation with respect to the sale of exempted securities. Regulation D should be made available for affiliates and dealers intermediating between the issuer or affiliates on the one hand and exempt purchasers on the other. The limitation on offers and directed selling efforts outside the United States is unnecessary and should be eliminated. The Commission should clarify the application of the integration doctrine, especially in the context of public and private offerings. Rule 155 has been helpful, but further guidance is needed, especially where exempted offerings and registered offerings are involved. Additionally, the 6-month safe harbor could be shortened. We encourage the Commission and its staff to keep up the momentum inspired by Securities Offering Reform and to continue moving ahead to bring the rest of the offering process into a consistent framework. Dixie L. Johnson, Chair THE SECURITIES REPORTER can be accessed on-line at pub/newsletter.shtml. If you have any questions, please send an to businesslaw@abanet.org. Volume 10, Issue 3

2 CONTENTS PAGE FROM THE CHAIR... 1 by Dixie L. Johnson SECURITIES OFFERING REFORM WKSI AND OTHER SHELF ISSUERS GETTING READY FOR THE CHANGES... 3 by Sullivan & Cromwell LLP ASSESSING THE STRICT LIABILITY IMPLICATIONS FOR OUTSIDE DIRECTORS OF A NEWLY STREAMLINED SHELF REGISTRATION SYSTEM by Catherine T. Dixon SEARCHING GOOGLE FOR MEANING: EQUITY COMPENSATION PITFALLS AND A CHANGED CLIMATE FOR LAWYER RESPONSIBILITY by Stanley Keller SIEBEL SYSTEMS: A SPEED BUMP FOR THE SEC ON THE ROAD TO REGULATION FD ENFORCEMENT?41 by Robert F. Carangelo & Jaclyn G. Braunstein RETHINKING SEC INJUNCTIONS AFTER APPEALS COURT REPRIMAND by Russell G. Ryan UPDATE ON NEW CNIL WHISTLEBLOWER GUIDELINES AND COMPANY SOX COMPLIANCE by Mark E. Schreiber and Jeffrey Held ANONYMOUS SARBANES OXLEY HOTLINES IN THE E.U.: PRACTICAL COMPLIANCE GUIDANCE FOR GLOBAL COMPANIES by Mark E. Schreiber, Jeffrey M. Held, Robert T.J. Bond, Christian Runte, Raphaël Dana, Kate Flower GUIDELINE DOCUMENT ADOPTED BY THE COMMISSION NATIONALE DE L INFORMATIQUE ET DES LIBERTÉS (CNIL) ON 10 NOVEMBER 2005 FOR THE IMPLEMENTATION OF WHISTLEBLOWING SYSTEMS IN COMPLIANCE WITH THE FRENCH DATA PROTECTION ACT OF 6 JANUARY 1978, AS AMENDED IN AUGUST 2004, RELATING TO INFORMATION TECHNOLOGY, DATA FILING SYSTEMS AND LIBERTIES FEDERALISM VS. FEDERALIZATION: PRESERVING THE DIVISION OF RESPONSIBILITY IN CORPORATION LAW by E. Norman Veasey, Shawn Pompian, Christine Di Guglielmo HIGHLIGHTS OF JUDICIAL DECISIONS AND ADMINISTRATIVE ACTIONS REGARDING THE FEDERAL SECURITIES LAWS AND STATE LAW, FALL by Dixie L. Johnson, Tony Regenstreif, Michael Jackman, Nathan Erickson, Brian Thavarajah Page 2 Volume 10, Issue 3

3 SECURITIES OFFERING REFORM WKSI AND OTHER SHELF ISSUERS GETTING READY FOR THE CHANGES * SULLIVAN & CROMWELL LLP October 11, 2005 Summary This memorandum outlines the steps that we recommend a well-known seasoned issuer, or WKSI, take to transition from its currently effective shelf registration statement to automatic shelf registration. The rules adopted by the Securities and Exchange Commission that significantly liberalize the process for conducting registered securities offerings are effective on December 1, Although the new rules generally are permissive, and a seasoned issuer that qualifies as a WKSI may continue to offer securities under its existing shelf registration statement, we recommend that a WKSI transition to automatic shelf registration as soon as reasonably practicable on or after December 1, A non-wksi seasoned issuer, on the other hand, is not entitled to automatic shelf registration and should continue to use its existing shelf registration statement to offer its securities. This memorandum also discusses the improved registration procedures applicable to shelf offerings generally, and outlines general considerations about which shelf issuers should be mindful in conducting future takedowns. This memorandum also includes several sample forms, including a WKSI automatic shelf registration statement, a prospectus supplement for a takedown and a counsel disclosure letter provision addressing the disclosure record at the time of sale. Our recommendations include the following: RECOMMENDATIONS FOR WKSIS Verify status as a WKSI under the definition in Securities Act Rule 405. Adopt appropriate corporate authorizations to transition to automatic shelf registration, if necessary. Prepare and file a new shelf registration statement on or after December 1, 2005 to transition to automatic shelf registration. Make appropriate modifications to offering-related documentation, including the form of shelf underwriting agreement. Consider additional disclosure that may be required by the new rules, including risk factor disclosure and disclosure concerning unresolved SEC staff comments. GENERAL CONSIDERATIONS FOR SHELF-ELIGIBLE ISSUERS WKSIS AND NON-WKSIS A shelf issuer may make material modifications to its existing shelf registration statement s plan of distribution or add or replace selling stockholders by filing a prospectus supplement or incorporating an Exchange Act report by reference rather than by filing a post-effective amendment, thereby avoiding any delay caused by waiting for the SEC staff to declare the post-effective amendment effective. A seasoned issuer may use its existing shelf registration statement to conduct at-the-market offerings of its common stock, even if that type of offering is not already contemplated, by amending the plan of distribution through the filing of a prospectus supplement on or after December 1, A seasoned issuer need not update its existing shelf registration statement under the new three-year updating requirement until December 1, 2008, at the earliest, although it must do so sooner if it depletes the amount of securities registered under its shelf and wishes to continue immediate market access. A seasoned issuer need not amend its existing shelf registration statement solely to include the expanded undertakings required under Regulation S-K. RECOMMENDATIONS FOR WKSIS The securities offering reforms establish for WKSIs automatically effective shelf registration, which provides WKSIs with significant flexibility beyond that provided to non-wksi seasoned issuers. 1 WKSIs may add affiliated registrants or new securities and change plans of distribution on a real-time basis in response to changing market conditions. To take advantage of this additional flexibility, we recommend that WKSIs transition to automatic shelf registration on December 1, 2005 or as soon as reasonably practicable thereafter. While a WKSI may continue to offer securities under its existing shelf registration statement, 2 there are certain advantages to transitioning as soon as possible rather than waiting until the existing shelf is used up or it is necessary to file a new one. These advantages include: * Copyright 2005 by Sullivan & Cromwell LLP. Volume 10, Issue 3 Page 3

4 Advanced Planning and Ease of Offering New Securities. The SEC staff s longstanding position has been that powers of attorney may not extend to future unidentified registration statements. Because the timing of offerings is usually not predictable, waiting until an offering is imminent to file a new registration statement may not allow sufficient lead time to obtain appropriate corporate authorizations and signatures. For example, a WKSI using an automatic shelf registration statement will be able to offer a new class of securities not contemplated in the shelf registration statement by filing an automatically effective post-effective amendment. Although a validity opinion covering the new class will be required at the time of the amendment, and board approval may be required, signatures of officers and directors, via powers of attorney, will already have been obtained in connection with the initial filing. Registration of Unlimited Amounts of Securities. Subject to applicable corporate law and board authorization, an issuer qualifying as a WKSI will be able to register unlimited amounts of securities. It need not pay the related filing fees until the actual takedown. Retention of WKSI Status. An issuer qualifying as a WKSI at the time it files the new automatic shelf registration statement will retain its ability to use the automatic shelf until its status is tested again at the time it files its annual report on Form 10-K or 20-F as described below. If the issuer does not qualify as a WKSI on the later date, such as through a late periodic report, an ineligibility event or a reduction in public float below $700 million, in most cases it will still have the benefits of WKSI automatic registration until the later annual testing date. Verify Status as a WKSI under Securities Act Rule 405 The WKSI category of issuer includes issuers that have an established track record of filing Exchange Act reports with the SEC and are the largest and most widely followed in the capital markets. The definition of a well-known seasoned issuer is contained in Rule 405 under the Securities Act of A summary of Rule 405 is attached to this memorandum as Annex A. The definition includes a three-year lookback for bad boy events, including specified civil and criminal judgments and regulatory orders. Bad boy events generally include those of subsidiaries. A registrant wishing to take advantage of automatic shelf registration should verify its status as a WKSI prior to December 1, 2005, including the absence of bad boy events in the last three years applicable to it or its subsidiaries. WKSI status must also be verified at the times of filing a new registration statement and the annual report on Form 10-K or 20-F. 3 Adopt Appropriate Corporate Authorizations All shelf issuers should examine the adequacy of their corporate resolutions in light of the modifications to the shelf registration process. For example, a shelf issuer may need to adopt new corporate authorizations to: Authorize the filing of a new shelf registration statement and any amendments thereto. Subject to applicable corporate law and authority, authorize the type and amount of securities that may be issued. Given the new flexibility to register one or more classes of securities without indicating the maximum amount of any class or even of all registered classes in the aggregate, the previous approach to corporate authorizations may require change. Approve the existing indentures or new indentures, underwriting agreements and other agreements in connection with the issuance of the registered securities. The corporate authorizations required will vary depending on the procedures that have been established under existing shelf programs. Shelf issuers should review these authorizations and procedures in advance of their first takedown of securities on or after December 1, 2005 in light of the additional flexibility afforded. Prepare and File New Shelf Registration Statement to Transition to Automatic Shelf Registration, If Necessary The SEC staff has stated that an issuer with an effective Form S-3 or F-3 registration statement may transition to an automatically effective shelf registration statement only by filing a new registration statement on Form S-3 or F-3 on or after December 1, Filing a post-effective amendment to a shelf registration statement will not accomplish the transition because the new registration statement (and any amendment) needs to be designated separately as an automatic shelf registration statement to enable it to become effective immediately upon filing. Corporate authorization of the filing, an auditor consent, an opinion of counsel and signatures of officers and directors will be required. Filing the new automatic shelf registration statement should not be difficult. The content of the new registration statement can be largely the same as the issuer s existing shelf, although the issuer may omit additional information from the base Page 4 Volume 10, Issue 3

5 prospectus that, under the new rules, may be furnished by prospectus supplement, Exchange Act report incorporated by reference into the automatic shelf registration statement or immediately effective post-effective amendment. 5 Although a WKSI may continue to use its existing shelf registration statement to offer the registered securities, for the reasons previously discussed, we recommend that a WKSI file a new registration statement on December 1, 2005 or as soon as reasonably practicable thereafter. An illustrative form of automatic shelf registration statement is attached as Annex B. Although the rules permit automatic shelf registration statements to be very basic, we expect that, in practice, they will be very similar to current universal shelf registration statements, and will include descriptions of securities likely to be offered, forms of indentures to be qualified under the Trust Indenture Act and other forms of agreements in order to minimize lastminute document preparation for a takedown and facilitate conveyance of information at the time of sale for Section 12(a)(2) liability purposes. The significant changes in an automatic shelf registration statement are discussed below. Check-the-Box. In order to qualify as an automatic shelf registration statement, the corresponding box on the cover of the registration statement must be checked. See Annex B. Filing Fees. The new rules permit WKSIs to register an unspecified amount of each class of securities, without indicating whether the securities will be sold in primary or secondary offerings, and without allocating the mix of securities registered among those types of offerings. A WKSI is not required to pay the filing fee until it files a prospectus supplement in connection with a takedown of securities from the shelf registration statement. The fee table on the cover page of the registration statement should indicate that: the amount of securities being registered is indeterminate; the payment of the registration fee is being deferred in accordance with Securities Act Rule 456; and if applicable, a portion of the registration fee paid in connection with the filing of the prior registration statement on Form S-3 or F-3 is being carried over to the new registration statement. An illustrative form of prospectus supplement specifying the filing fee in connection with a takedown of securities is attached as Annex C. The issuer may rely on Securities Act Rule 457(p) to carry forward unused filing fees for unsold securities from the prior shelf registration statement. 6 Disclosure of Classes of Securities and Additional Eligible Issuers. Under Securities Act Rules 413(b) and 462(f), new types of securities and new eligible issuers (including the types of securities that they may issue) may be added by post-effective amendment. Although the post-effective amendment will become effective immediately upon filing, a WKSI should consider including in the initial registration statement, at a minimum, the name and class of all securities it or its majorityowned subsidiaries may offer during the next three years. In that case, the description of the specific securities being offered may be provided in the applicable prospectus supplement, without having to file a post-effective amendment (which would require a validity opinion). Listing any classes of debt securities in the shelf registration statement, however, will require the inclusion or incorporation by reference of a related indenture at that time. 7 We recommend that WKSIs include a comprehensive list of classes of securities being registered in the automatic shelf registration statement. Descriptions are no longer required in the base prospectus, although we recommend that WKSIs include full descriptions for those classes of securities that they are likely to offer to avoid lastminute document preparation for a takedown and to facilitate the conveyance of information at the time of sale for Section 12(a)(2) liability purposes. Consider Appropriate Modifications to Offering- Related Documentation Shelf issuers (both WKSIs and non-wksi seasoned issuers) may wish to consider modifying their existing offering-related documentation, including the form of shelf underwriting agreement and the forms of disclosure letter delivered by issuer s and underwriters counsel in connection with takedowns of securities. These changes would be appropriate in light of the fact that the new rules: Clarify that, as codified in Rule 159, Securities Act Section 12(a)(2) liability will be assessed at the time of sale, based on the disclosure record that has been conveyed to the purchaser when the oral sale is made (the Disclosure Record ). New disclosures in the final prospectus, including issuer developments and pricing information, that were not conveyed to purchasers at the time of sale as part of the Disclosure Record (in other words, immediately after pricing) will not count in testing Section 12(a)(2) liability. Volume 10, Issue 3 Page 5

6 Permit issuers and other offering participants greater freedom to communicate during a registered offering. In particular, free writing prospectuses s, faxes, term sheets and other written or electronic communications relating to an offering will be widely permitted. Users of free writing prospectuses will be subject to Section 12(a)(2) liability. Therefore, the use and content of free writing prospectuses should be addressed in the underwriting agreement between the issuer and the underwriters. These aspects of the securities offering reforms will require modification to the forms of shelf underwriting agreement and related documentation. Possible changes that shelf issuers should expect include the following: Representations and Warranties. Shelf issuers should expect underwriters to request that the underwriting agreement include representations that: If applicable, the issuer qualifies as a WKSI and the registration statement is an automatic shelf registration statement. The Disclosure Record at the time of sale (i.e., specified documents in existence at pricing), including any free writing prospectuses required to be filed with the SEC and/or specified in the underwriting agreement, satisfies the Section 12(a)(2) disclosure standard. Free Writing Prospectuses. Consideration should be given to whether to include in the underwriting agreement representations, covenants and indemnity and contribution provisions regarding the content, use and filing of free writing prospectuses by the issuer and underwriters. It is unclear how market practice will evolve. One may consider including in a shelf underwriting agreement mutual representations and covenants that neither the issuer nor any underwriter has used or will use any free writing prospectus not consented to by the other, with the possible exception of underwriter free writing prospectuses that do not trigger a filing obligation. 8 That approach postpones until the actual takedown how to address any particular free writing prospectus the parties may wish to use. If any are expected to be used in a particular offering, such as electronic road shows or preliminary or final term sheets, the parties should agree on the underwriting agreement approach at the outset of the offering and communicate it to the relevant constituencies. A shelf issuer that may use free writing prospectuses should establish procedures to ensure that every free writing prospectus it uses includes the required legend and is timely filed with the SEC. The required legend states: The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at Alternatively, the company will arrange to send you the prospectus after filing if you request it by calling toll-free 1-8[xx-xxx-xxxx]. 9 The new rules require the filing by the issuer of any free writing prospectus on or before the date of first use if the free writing prospectus: (i) is prepared by or on behalf of the issuer or used or referred to by the issuer (unless substantially the same as a previously filed free writing prospectus); (ii) contains material information about the issuer or its securities that has been provided by or on behalf of the issuer and is not already contained or incorporated in the base prospectus or a filed free writing prospectus; or (iii) contains the final terms of the offered securities. Any other offering participant must file any free writing prospectus that is broadly distributed by the offering participant. Rule 164 permits an issuer to cure an unintentional or immaterial failure to include the specified legend in the free writing prospectus or failure to timely file the free writing prospectus if a good faith and reasonable effort is made to comply with the conditions and the free writing prospectus is amended or filed as soon as practicable after discovery of such failure. It is important that issuers establish appropriate procedures to document compliance with these conditions so as to be able to take advantage of the safe harbor in the event of a failure to include the legend in, or timely file, a free writing prospectus. Indemnity and Contribution. Shelf issuers should expect that underwriters will request that the indemnity and contribution provisions be modified to cover liability arising from the Disclosure Record in existence at the time of pricing (including any issuer free writing prospectuses used in connection with the offering of securities). Presumably, indemnification and contribution by the issuer would continue to exclude liability based on information furnished to the issuer in writing by the representatives of the underwriters for use in the offering document constituting part of the Disclosure Record. Page 6 Volume 10, Issue 3

7 Counsel Disclosure Letters. Consistent with the Securities Act Section 12(a)(2) disclosure standard discussed above, underwriters are likely to request that both the issuer s and underwriters counsel address in their disclosure letters the Disclosure Record as it existed at the time of sale. A sample form of disclosure letter provision is attached as Annex D. As a result of these changes, shelf issuers will need to coordinate with their counsel and the underwriters in advance of their first takedown under the new rules regarding the form and content of the underwriting agreement and disclosure letter. If counsel will be asked to extend their disclosure letters to address the Disclosure Record at the time of sale, the parties should consider any additional written offering material that may be required to be prepared and conveyed to investors prior to the time of sale (in other words, prior to pricing), as counsel will be unable to address matters that are conveyed only orally. For example, if there is no preliminary prospectus supplement, a preliminary or final term sheet may be needed to supplement the description of securities in the basic prospectus. If due diligence results in a decision to prepare disclosure about material recent developments, that disclosure would need to be filed as a Form 8-K or, possibly, as a free writing prospectus and conveyed to investors prior to the time of sale. Counsel will expect to be involved in reviewing the disclosures prior to conveyance, which could result in delays. While use of these types of written communications may be advisable in some cases even where the disclosure letters of counsel do not address the timeof-sale Disclosure Record, there may be other situations where oral conveyance of information is desirable and practical. In deciding which approach to take, the parties should weigh the potential speed bump implications of creating and conveying written communications at or prior to the time of sale against the practicality of orally conveying the final terms or other information in light of the complexity of the information, the nature and number of investors, and other factors. Other Readiness Items The new rules include a number of other changes that all shelf issuers will need to consider and implement if appropriate. These changes include: Risk Factor Disclosure. Under the new rules, risk factors must be included in annual reports on Form 10-K, where appropriate, beginning with fiscal years ending on or after December 1, Thereafter, updates must be included in quarterly reports on Form 10-Q. Form 20-F, used for annual reports by non-u.s. issuers, already requires risk factor disclosure where appropriate. Disclosure of Unresolved SEC Staff Comments. The new rules also require all accelerated filers (which includes substantially all Form S-3/F-3- eligible issuers) to disclose in their annual reports on Form 10-K or 20-F material unresolved written comments of the SEC staff on Exchange Act filings that were issued more than 180 days before the end of the issuer s fiscal year and that remain unresolved at the time the issuer files its Form 10- K or 20-F. The issuer will be permitted to include in its disclosure its position on the outstanding comments. Issuers may wish to try to resolve these comments rather than disclose them. Securities Act Rule 159 (which states that Section 12(a)(2) liability will be assessed at the time of sale based on the Disclosure Record conveyed to investors at or prior to that time) will result in an increased emphasis on completing all necessary due diligence prior to pricing a shelf takedown. As a result, shelf issuers should anticipate holding due diligence calls or meetings with the underwriters and their counsel, and preparing any resulting or updated disclosure for the prospectus supplement, in advance of pricing. Shelf issuers should also consider including the disclosure required by Item 503(d) of Regulation S- K relating to the ratio of earning to fixed charges in their Form 10-Ks, with quarterly updates in their Form 10-Qs, rather than including the ratio for the full five-year period in the base prospectus and updating the ratio in the prospectus supplement. Non-U.S. issuers filing on Form 20-F should consider the same approach. The ratio will be incorporated by reference from these reports into the shelf registration statement, which will avoid shelf issuers having to update the information at the time of takedown and facilitate conveyance of information at the time of sale for Section 12(a)(2) liability purposes. Finally, in offerings by all issuers, a final prospectus will no longer be required to be delivered in connection with a takedown. Under Rule 172, issuers and intermediaries satisfy their prospectus delivery requirement if the issuer files or makes a good faith effort to file the prospectus with the SEC by the deadline under Rule 424. Rule 172 allows the issuer to cure an unintentional failure to file if the issuer has made a good faith and reasonable effort to comply with the filing condition and files the prospectus as soon as practicable after discovery of the failure to file. Accordingly, shelf issuers should establish procedures to document compliance with the prospectus filing requirement so as to be Volume 10, Issue 3 Page 7

8 able to take advantage of the safe harbor in the event of a failure to timely file. GENERAL CONSIDERATIONS FOR SEASONED ISSUERS The new rules liberalize the registration process in some respects for all Form S-3/F-3 eligible issuers. The ways in which this additional flexibility may be used, as well as the manner and timing for implementation of changes required under the new rules, are discussed below. As a general matter, a seasoned issuer will have greater flexibility to omit additional information from the base prospectus and to update its prospectuses through incorporation of Exchange Act reports or by prospectus supplements that are deemed to be included in the registration statement rather than by post-effective amendment to the registration statement (which, for non-wksis, will continue to be subject to an effectiveness declaration by the SEC staff). Information That May Be Omitted from the Base Prospectus and Means for Providing That Information On or after December 1, 2005, a seasoned issuer may file a prospectus supplement to make material amendments to the plan of distribution or to add or replace selling securityholders, even for a shelf registration statement that became effective prior to December 1, This avoids a post-effective amendment that would have to be declared effective by the SEC if the issuer is not a WKSI. The flexibility afforded to a non-wksi seasoned issuer to add or replace selling securityholders without having to file a post-effective amendment is subject to the satisfaction of certain conditions. 10 All information in the prospectus may be added or changed for a particular offering by prospectus supplement. In addition, all information required to be contained in a prospectus about the issuer and its securities may instead be incorporated from Exchange Act reports. Securities Act Rule 430B requires that a prospectus supplement be prepared and filed pursuant to Rule 424 if omitted information about an offering, including the terms of the offering, the securities, the plan of distribution or the selling securityholders, is included in an Exchange Act report incorporated by reference. The purpose of the prospectus supplement filing is to disclose in a centralized manner the Exchange Act report or reports containing the omitted information. Conducting At-the-Market Offerings A seasoned issuer having a registration statement that became effective prior to December 1, 2005 may conduct on or after December 1, 2005 at-themarket offerings of securities covered in that distribution does not name the underwriters or describe that offering. If the plan of distribution does not contemplate this type of offering, the seasoned issuer may include the at-the-market-offering description in the prospectus supplement for the offering filed pursuant to Rule Timing of Three-Year Update Shelf issuers must update and restate their shelf registration statements every three years by filing a new registration statement. The three-year period will begin (i) on December 1, 2005 for registration statements that became effective on or before December 1, 2005 (regardless of the length of time that has elapsed since the effective date) or (ii) on the effective date of any subsequent registration statement. 12 Accordingly, a seasoned issuer wishing to retain immediate market access will not be required to file a new registration statement to update an existing shelf until December 1, 2008 at the earliest, unless the issuer has depleted the amount of securities registered under its shelf and wishes to continue immediate market access. Expansion of Issuer Undertakings A seasoned issuer must include the new undertakings in Item 512 of Regulation S-K in all registration statements filed or amended on or after December 1, Incorporation by reference of an Exchange Act report is not treated as an amendment for this purpose. A seasoned issuer is not required to amend a pre-existing shelf registration statement solely to include the new undertakings. 13 ENDNOTES * * * registration statement, even if the plan of Page 8 Volume 10, Issue See Final Rule: Securities Offering Reform, Release Nos and (July 19, 2005), 70 Fed. Reg. 44,722 (Aug. 3, 2005) available at < The final rules are discussed in our Memorandum, dated August 2, 2005, entitled SEC Adopts Landmark Reforms to the Registered Securities Offering Process. See Division of Corporation Finance: Securities Offering Reform Transition Questions and Answers, (Sept. 13, 2005) available at < > [hereinafter, FAQs ], at Question 7. The FAQs are discussed in our Memorandum, dated September 14, 2005, entitled SEC Staff Issues Interpretive Guidance Regarding Securities Offering Reform Transition.

9 WKSI eligibility is determined both at the time the issuer files its shelf registration statement and at the time the issuer files its annual audited financial statements incorporated into that registration statement, which generally occurs upon the filing of each annual report on Form 10-K or 20-F. For purposes of establishing that an issuer satisfies the $700 million market capitalization threshold or has sold at least $1 billion aggregate principal amount of SEC-registered non-convertible securities in the preceding three years, the determination is made within 60 days prior to the dates WKSI eligibility is determined. Ineligibility with respect to the WKSI conditions is determined at the same time as the WKSI determination. 9 See Rule 433(c)(2). The text of the legend required to be included in a free writing prospectus used by a WKSI prior to filing a registration statement is substantially the same. 10 The conditions applicable to a non-wksi seasoned issuer include: (i) the registration statement must identify the original private or other offering pursuant to which the securities were sold; (ii) the original private or other offering must be completed; and (iii) the securities that are the subject of the registration statement must be issued and outstanding prior to the filing of the resale registration statement. WKSIs are not subject to these conditions. 11 See FAQs, supra note 2, at Question 11. See FAQs, supra note 2, at Question See FAQs, supra note 2, at Question 12. Under Securities Act Rule 430B, WKSIs may omit 13 See FAQs, supra note 2, at Questions 4 and 5. from the base prospectus in an automatic shelf registration statement the following types of information: whether the offering is a primary or secondary offering; the names of any selling securityholders; the description of the securities to be offered other than an identification of the name or class of the securities; and any plan of distribution for the offered securities. As described in the body of this memorandum, we nevertheless recommend that WKSIs continue to include the full description of securities in the base prospectus for securities they reasonably expect to offer. See FAQs, supra note 2, at Question 7. Under Rule 457(p), the filing fee associated with unsold securities from a prior shelf registration statement may be carried forward if the subsequent registration statement is filed within five years of the initial filing date of the prior shelf registration statement and it is filed by the same registrant or specified related registrants. This result for debt securities is driven by the Trust Indenture Act, which requires qualification of the indenture at the time the indenture securities are registered under the Securities Act. See Rel. No , supra note 1, at fn If a class of debt securities is not registered until later, by posteffective amendment, the related indenture, if not filed initially, may be filed as an exhibit to the amendment. In this connection, the parties should also consider whether the circumstances of the consent by one party could result in entanglement with or adoption of the other party s free writing prospectus for disclosure liability purposes. Volume 10, Issue 3 Page 9

10 ANNEX A The subsidiary is offering non-convertible investment grade securities where the conditions that would permit the use of Form S-3 of F-3 are satisfied. SUMMARY OF SECURITIES ACT RULE 405 WKSI DEFINED A WKSI is any issuer required to file annual reports on Form 10-K or Form 20-F and other Exchange Act reports pursuant to Exchange Act Section 13(a) or 15(d) that satisfies each of the following conditions: The issuer meets all the registrant requirements under General Instruction I.A of Form S-3 or F-3, the most important of which is that the issuer must be current and timely in its Exchange Act reporting obligations for the 12 immediately preceding months. The issuer either (i) has $700 million of worldwide public common equity float (in which case the WKSI will be eligible to use an automatically effective shelf registration statement to register any securities offering, other than securities issued in business combinations); or (ii) has sold in SECregistered primary offerings for cash (not exchange) at least $1 billion aggregate principal amount of non-convertible securities (other than common stock) in the preceding three years (in which case the WKSI will generally be limited to registering those types of securities on an automatically effective shelf registration statement, except if it has at least $75 million of worldwide common equity public float and is otherwise eligible to register its common equity securities on Form S-3 or F- 3, in which case it may register all types of securities on a WKSI registration statement). The issuer is not an ineligible issuer. Majority-Owned Subsidiaries of WKSIs A majority-owned subsidiary of a WKSI that does not separately meet the eligibility criteria of the WKSI definition is considered a WKSI in respect of offered securities in any of the following circumstances: The subsidiary is offering non-convertible debt or preferred securities having a finite (not perpetual) duration, and its WKSI parent provides a full and unconditional guarantee of the securities being registered. The offered securities are guarantees of nonconvertible debt or preferred securities of the WKSI parent or another majority-owned subsidiary, and the WKSI parent also provides a full and unconditional guarantee of those non-convertible securities. The majority-owned subsidiary may register and offer securities as a WKSI only on its WKSI parent s automatically effective shelf registration statement. Ineligible Issuers An issuer is considered an ineligible issuer under Rule 405, and therefore not a WKSI, under any of the following circumstances: It is not current in its Exchange Act reports required to be filed during the preceding 12 months (or such shorter period), with limited exceptions for certain Form 8-K events. It (or any predecessor) in the previous three years is or has been a blank check company, a shell company (other than a business combination-related shell company), or a penny stock issuer. It (or any predecessor) in the previous three years is or has been the subject of a federal bankruptcy petition or state insolvency proceeding. It has, or one of its subsidiaries at the time was found to have, violated or was made the subject of a governmental decree or order (including settlements where the entity neither admits nor denies a violation) with respect to violations of the anti-fraud provisions of the federal securities laws within the past three years. For settlements only, the three-year lookback does not extend earlier than December 1, * It is, or has been within the past three years, the subject of a refusal or stop order under the Securities Act. It is the subject of a pending stop order or cease and desist proceeding under Securities Act Section 8 or Section 8A. It has, or one of its subsidiaries at the time has, within the past three years been convicted of a felony or misdemeanor under Exchange Act Section 15(b)(4)(B) (involving crimes such as bribery, perjury, fraud, embezzlement and misappropriation). * Issuers that expect to agree to settlements on or after December 1, 2005 may wish to consider seeking a waiver of the ineligibility provisions from the SEC as part of the settlement. Volume 10, Issue 3 Page 10

11 ANNEX B FORM OF WKSI SHELF REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on December, 2005 Registration No. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [Name of WKSI Registrant] * (Exact Name of Registrant as Specified in Its Charter) [State of organization] (State or Other Jurisdiction of Incorporation or Organization) [EIN] (I.R.S. Employer Identification No.) [Address and phone number] (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) [Name, address and phone number] (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: [Name, address and phone number of outside counsel] Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. * Additional eligible registrants may be added by automatically effective post-effective amendments pursuant to Rule 462(f). Volume 10, Issue 3 Page 11

12 Title of each class of securities to be registered * Senior Debt Securities Subordinated Debt Securities Preferred Stock Common Stock, par value $ per share [Stock] Rights(2) Warrants Purchase Contracts Depositary Shares (3) Units (4) CALCULATION OF REGISTRATION FEE Amount to be registered/ Proposed maximum offering price per unit/ Proposed maximum offering price/ Amount of registration fee (1) An indeterminate aggregate initial offering price or number of the securities of each identified class is being registered as may from time to time be at indeterminate prices. Separate consideration may or may not be received for securities that are issuable on exercise, conversion or exchange of other securities or that are issued in units or represented by depositary shares. In accordance with Rules 456(b) and 457(r), the Registrant is deferring payment of all of the registration fee[, except for $ that has already been paid with respect to $ aggregate initial offering price of securities that were previously registered pursuant to Registration Statement No., and were not sold thereunder]. (2) Each share of common stock includes one shareholder protection right as described under Description of Capital Stock. (3) Each depositary share will be issued under a deposit agreement, will represent an interest in a fractional share or multiple shares of preferred stock and will be evidenced by a depositary receipt. (4) Each unit will be issued under a unit agreement or indenture and will represent an interest in two or more debt securities, warrants or purchase contracts, which may or may not be separable from one another. (1) * Additional securities (including securities to be issued by additional registrants) may be added by automatically effective post-effective amendment pursuant to Rule 413. Volume 10, Issue 3 Page 12

13 [NAME OF WKSI REGISTRANT] Senior Debt Securities Subordinated Debt Securities Preferred Stock Common Stock Warrants Purchase Contracts Depositary Shares Units [NAME OF WKSI REGISTRANT] from time to time may offer to sell senior or subordinated debt securities, preferred stock, either separately or represented by depositary shares, common stock, warrants and purchase contracts, as well as units that include any of these securities or securities of other entities. The debt securities, preferred stock, warrants and purchase contracts may be convertible into or exercisable or exchangeable for common or preferred stock or other securities of the Company or debt or equity securities of one or more other entities. The common stock of the Company is listed on the [LISTING VENUE] and trades under the ticker symbol XXX. The Company may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis. This prospectus describes some of the general terms that may apply to these securities. The specific terms of any securities to be offered will be described in a supplement to this prospectus. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Prospectus dated December, Volume 10, Issue 3 Page 13

14 TABLE OF CONTENTS Page Available Information Incorporation of Certain Information by Reference Description of Securities We May Offer Senior Debt Securities Subordinated Debt Securities Preferred Stock Common Stock Warrants Purchase Contracts Depositary Shares Units Legal Ownership and Book-Entry Issuance [Ratio of Earnings to Fixed Charges...16] Use of Proceeds Validity of the Securities Experts Page 14 Volume 10, Issue 3

15 AVAILABLE INFORMATION We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any documents filed by us at the SEC s public reference room at 100 F Street, N.E., Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public through the SEC s Internet site at [and through the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which our common stock is listed]. We have filed with the SEC a registration statement on Form S-3 relating to the securities covered by this prospectus. This prospectus is a part of the registration statement and does not contain all the information in the registration statement. Whenever a reference is made in this prospectus to a contract or other document of the Company, the reference is only a summary and you should refer to the exhibits that are a part of the registration statement for a copy of the contract or other document. You may review a copy of the registration statement at the SEC s public reference room in Washington, D.C., as well as through the SEC s Internet site. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The SEC s rules allow us to incorporate by reference information into this prospectus. This means that we can disclose important information to you by referring you to another document. Any information referred to in this way is considered part of this prospectus from the date we file that document. Any reports filed by us with the SEC after the date of this prospectus and before the date that the offering of the securities by means of this prospectus is terminated will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus. We incorporate by reference into this prospectus the following documents or information filed with the SEC (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with SEC rules): (1) [IDENTIFY EXCHANGE ACT FILINGS TO BE SPECIFICALLY INCORPORATED BY REFERENCE]; (2) [IDENTIFY 8-A FOR COMMON STOCK]; and (3) All documents filed by the Company under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or after the date of this prospectus and before the termination of this offering. We will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon his or her written or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. You can request those documents from [CONTACT FOR INVESTOR RELATIONS]. Volume 10, Issue 3 Page 15