[Federal Register Volume 66, Number 24 (Monday, February 5, 2001)]
[Rules and Regulations]
[Pages 8887-8897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2847]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-7943; File No. S7-30-98]
RIN 3235-AG83


Integration of Abandoned Offerings

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; solicitation of comment on Paperwork Reduction Act 
burden estimate.

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SUMMARY: The Securities and Exchange Commission is adopting new Rule 
155 under the Securities Act to provide safe harbors for a registered 
offering following an abandoned private offering, or a private offering 
following an abandoned registered offering, without integrating the 
registered and private offerings in either case. This new rule is 
intended to enhance an issuer's ability to switch from a private 
offering to a registered offering, or vice-versa, in response to 
changing market conditions.
    To facilitate reliance on the public-to-private safe harbor, we are 
amending Securities Act Rule 477 to provide automatic effectiveness for 
any application to withdraw an entire registration statement before it 
becomes effective unless the Commission objects within 15 days after 
the issuer files that application. We are amending Rules 429 and 457 to 
move provisions addressing the offset of filing fees to Rule 457. We 
also amend Rule 457 to permit filing fees to be offset from withdrawn 
registration statements and to provide other technical changes to the 
calculation of filing fees. These amendments, along with new Rule 155, 
are intended to reduce the financial risk of a registered offering that 
is withdrawn.

EFFECTIVE DATE: March 7, 2001.

FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Special Counsel, 
Office of Chief Counsel, Division of Corporation Finance, at (202) 942-
2900.

SUPPLEMENTARY INFORMATION: We are adopting new Rule 155 \1\ and 
amendments to Rules 429,\2\ 457,\3\ and 477 \4\ under the Securities 
Act of 1933.\5\
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    \1\ 17 CFR 230.155.
    \2\ 17 CFR 230.429.
    \3\ 17 CFR 230.457.
    \4\ 17 CFR 230.477.
    \5\ 15 U.S.C. 77a et seq.
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I. Executive Summary

    Securities Act registration provides investors with the benefits of 
full and fair disclosure and civil remedies for false or misleading 
disclosure and violations of the registration and prospectus delivery 
requirements. In November 1998, we published for comment proposals to 
modernize the registration process for offers and sales of securities 
under the Securities Act (the ``1998 proposals'').\6\ The 1998 
proposals recognized that the benefits of registration are furthered if 
the Commission continues to make the registration system flexible 
enough to accommodate dynamic evolution of the capital markets.
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    \6\ Release No. 33-7606A (Nov. 13, 1998) (63 FR 67174). We 
extended the comment deadline for the 1998 proposals to June 30, 
1999 in Release No. 33-7659 (64 FR 15143). The public comments we 
received are available in our Public Reference Room at 459 Fifth 
Street, NW., Washington, DC 20549, in File No. S7-30-98. Public 
comments submitted by electronic mail are on our website, at 
www.sec.gov/rules/s73098.htm.
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    One subject of the 1998 proposals was the integration of private 
and registered offerings. Because conditions in the securities markets 
may shift quickly, companies may find that the relative attractiveness 
of making a registered offering instead of a private offering has 
changed. For example, a company that files a registration statement for 
an initial public offering may find that there are too few potential 
investors to make a registered offering worthwhile. Conversely, a 
company that starts a private offering may find sufficient investor 
interest to justify making a registered offering.
    The 1998 proposals included proposed amendments to Rule 152 \7\ to 
create new safe harbors that would facilitate changing an offering from 
private to registered, or vice versa. Commenters who addressed these

[[Page 8888]]

proposals responded favorably.\8\ Noting that these proposals do not 
depend on the other 1998 proposals, some commenters \9\ urged us to 
adopt them without regard to the other 1998 proposals.\10\ We believe 
that the proposed Rule 152 amendments that we adopt in part today as 
new Rule 155 are an appropriate step in adapting the registration 
process to the rapidly changing dynamics of the capital markets.\11\ We 
are concerned particularly about reducing the capital-raising costs of 
small businesses and believe that adopting Rule 155 will advance that 
goal significantly.
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    \7\ 17 CFR 230.152. Rule 152 provides that section 4(2) (15 
U.S.C. 77d(2)) is available for a transaction not involving any 
public offering at the time of the transaction although the issuer 
later decides to make a public offering and/or files a registration 
statement.
    \8\ See, e.g., Letters of American Bar Association (``ABA''), 
American Corporate Counsel Association, American Society of 
Corporate Secretaries, The Association of the Bar of the City of New 
York (``NY City Bar''), The Business Roundtable, Cleary, Gottlieb, 
Steen & Hamilton (``Cleary''), Fried, Frank, Harris, Shriver & 
Jacobson (``Fried Frank''), Intel Corporation, National Association 
of Real Estate Investment Trusts (``NAREIT''), National Venture 
Capital Association, and Pennsylvania Securities Commission.
    \9\ Letters of ABA, Cleary and NY City Bar.
    \10\ The 1998 proposals also included proposed Rule 159, which 
we continue to consider as a separate rulemaking project. This 
proposed rule would permit all offers and sales in a negotiated 
transaction described in Rule 145 (17 CFR 230.145) to be registered 
under Section 5 notwithstanding the fact that certain target company 
shareholders sign agreements with the acquiror to vote in favor of 
the transaction prior to the filing or effective date of the 
registration statement. As provided in the 1998 proposals, 
availability of proposed Rule 159 would be subject to conditions.
    \11\ The 1998 proposals included other proposed amendments to 
Rule 152 to codify when a private offering would be deemed completed 
so that it would not be integrated with a later registered offering, 
including a registered resale of the same securities. Because we are 
not adopting those proposed amendments, Rule 152 and related staff 
interpretations as to when a private offering is deemed 
``completed'' are unaffected.
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    The new integration safe harbors that we adopt today as new Rule 
155 provide clarity and certainty regarding two common situations, and 
do not otherwise affect traditional integration analyses.\12\ Under 
Rule 155, we provide conditions under which an issuer that begins a 
private offering but sells no securities will be able to abandon it and 
begin a registered offering. Any private offering that relies on this 
integration safe harbor will need to satisfy the conditions of a 
private offering exemption, so that the private offering is bona 
fide.\13\ In addition, the issuer and any person acting on its behalf 
will need to terminate all offering activity with respect to the 
private offering. Any prospectus filed as part of the registration 
statement will need to include disclosure regarding abandonment of the 
private offering. The issuer also will need to wait 30 days after 
abandoning the private offering before filing the registration 
statement unless securities were offered in the private offering only 
to persons who were (or who the issuer reasonably believes were) 
accredited investors \14\ or sophisticated.\15\
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    \12\ These new safe harbors address only registration 
requirements under the Securities Act and are not intended to affect 
antifraud law.
    \13\ For purposes of the rule, a ``private offering'' is defined 
as an unregistered offering of securities that is exempt from 
registration under section 4(2) or 4(6) of the Securities Act (15 
U.S.C. 77d(6)) or Rule 506 of Regulation D (17 CFR 230.506). An 
offering that satisfies the conditions of Rule 506 is deemed not to 
involve a public offering for purposes of section 4(2).
    \14\ For this purpose, ``accredited investor'' is defined in 
Rule 501(a) of Regulation D (17 CFR 230.501(a)).
    \15\ For this purpose, an investor is sophisticated if the 
investor, either alone or with his or her representative, has such 
knowledge and experience in financial and business matters to be 
capable of evaluating the merits and risks of the prospective 
investment. See Rule 506(b)(2)(ii) of Regulation D.
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    New Rule 155 also provides an integration safe harbor that will 
permit an issuer that started a registered offering to withdraw the 
registration statement before any securities are sold \16\ and then 
begin a private offering. To use the safe harbor, the issuer and any 
person acting on its behalf will need to wait 30 days after the 
effective date of withdrawal of the registration statement before 
commencing the private offering. The issuer must provide each offeree 
in the private offering with information concerning withdrawal of the 
registration statement, the fact that the private offering is 
unregistered and the legal implications of its unregistered status. In 
addition, any disclosure document used in the private offering must 
disclose any changes in the issuer's business or financial condition 
that occurred after the issuer filed the registration statement that 
are material to the investment decision in the private offering.
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    \16\ Under Section 5(a) of the Securities Act (15 U.S.C. 
77e(a)), no securities may be sold in a registered offering until 
the registration statement becomes effective.
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    Rule 477 sets forth the conditions for withdrawing a Securities Act 
registration statement. We amend this rule so that an issuer's 
application to withdraw an entire pre-effective registration statement 
will become effective automatically upon filing with the Commission 
unless the Commission objects within 15 days after the issuer files the 
withdrawal application. This amendment will facilitate reliance on the 
registered-to-private safe harbor by eliminating potential 
administrative delay in withdrawing the registration statement.
    Under the amendments to Rule 457, fees paid for a withdrawn 
registration statement will be available to the issuer for use with its 
future registration statements regardless of whether the class of 
securities is the same or different. This should benefit issuers by 
reducing the financial risk of an abandoned registered offering. We 
also amend Rule 429 to move its fee provisions to Rule 457 and to 
restate it in plain English.

II. Rule 155

A. The Integration Doctrine

    The integration doctrine provides an analytical framework for 
determining whether multiple securities transactions should be 
considered part of the same offering. This analysis helps to determine 
whether registration under Section 5 of the Securities Act is required 
or an exemption is available for the entire offering. The integration 
doctrine, which has existed since 1933,\17\ prevents an issuer from 
improperly avoiding registration by artificially dividing a single 
offering so that Securities Act exemptions appear to apply to the 
individual parts where none would be available for the whole.\18\ 
Improper reliance on an exemption can harm investors by depriving them 
of the benefits of full and fair disclosure or of the civil remedies 
that flow from registration for material misstatements and omissions of 
fact.
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    \17\ See Release No. 33-97 (Dec. 28, 1933).
    \18\ Integration of an offering for which a private offering 
exemption is claimed with another offering (or offerings) would 
result in the loss of an exemption for one or more of the offerings 
unless an exemption is available for the integrated offering.
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    Whether particular securities offerings should be integrated calls 
for an analysis of the specific facts and circumstances. In the 1960s, 
we issued two interpretive releases identifying five factors to 
consider in making this determination.\19\ The new rule we adopt today 
does not modify or rescind the five-factor test set forth in those 
releases.\20\ We also have created safe harbors from integration that 
provide

[[Page 8889]]

certainty in particular circumstances.\21\ However, these integration 
safe harbors do not address a registered offering that follows an 
abandoned private offering, or a private offering that follows a 
withdrawn registered offering. New Rule 155 will facilitate the 
capital-raising process by creating safe harbors designed specifically 
for these situations.\22\
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    \19\ Release No. 33-4434 (Dec. 6, 1961) [26 FR 11896], and 
Release No. 33-4552 (Nov. 6, 1962) [27 FR 11316].
    \20\ The five factors identified as relevant to the question of 
integration are as follows:
    1. Are the offerings part of a single plan of financing?
    2. Do the offerings have the same general purpose?
    3. Are the offerings of the same class of security?
    4. Are the offerings made at or about the same time?
    5. Are the securities sold for the same type of consideration?
    The five factors also are included in Rule 502(a) of Regulation 
D [17 CFR 230.502(a)].
    \21\ For example, Rule 502(a) states that offers and sales made 
more than six months before the start of, or more than six months 
after completion of, a Regulation D offering will not be integrated 
with the Regulation D offering, as long as there are no offers and 
sales of the same or a similar class of securities (other than 
through employee benefit plans) during that period.
    Other integration safe harbors are Rule 147(b)(2) (17 CFR 
230.147(b)(2)) (for exempt intrastate offerings), Rule 251(c) (17 
CFR 230.251(c)) (for small offerings by non-reporting issuers under 
Regulation A), and Rule 701(f) (17 CFR 230.701(f)) (for non-
reporting issuers' exempt offerings to employees and consultants 
under written compensatory benefit plans).
    Equity securities issued in exempt rights offerings by foreign 
private issuers under Rule 801 (17 CFR 230.801) and securities 
issued in exempt exchange offers and business combinations involving 
foreign private issuers under Rule 801 [17 CFR 230.802] are not 
subject to integration with offerings exempt from registration under 
other provisions of the Securities Act.
    Offshore transactions made in compliance with Regulation S are 
not integrated with registered domestic offerings or domestic 
offerings that satisfy the requirements for an exemption from 
registration under the Securities Act, even if undertaken 
contemporaneously. Release No. 33-6862 (Apr. 24, 1990)
    \22\ Rule 155, like Rule 152, does not address whether two or 
more private offerings should be integrated with each other. The 
five-factor test continues to apply to this question, as does Rule 
502(a) where one or more of the private offerings relies on 
Regulation D. Moreover, the amendments adopted today do not address 
the staff's policy position with respect to concurrent private and 
registered offerings that was articulated in Black Box, Inc. (Jun. 
26, 1990) Q. 3 and Squadron, Ellenoff, Pleasant & Lehrer (Feb. 28, 
1992).
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B. Non-Exclusive Safe Harbors and Schemes to Evade

    In the public comments, we were asked to clarify that the proposed 
integration safe harbor conditions would not be exclusive.\23\ We have 
done so in the Preliminary Note to the rule. Regardless of whether an 
issuer is relying on Rule 155, the issuer also may look to the 
traditional five-factor test to determine whether integration is 
required.
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    \23\ Letters of ABA and New York City Bar.
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    Similarly, like other safe harbors,\24\ Rule 155 is not available 
to any transaction or series of transactions that, although in 
technical compliance, is part of a plan or scheme to evade the 
registration requirements of the Securities Act. As adopted, the 
Preliminary Note to Rule 155 codifies this principle as well.\25\
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    \24\ See, e.g., Preliminary Note 6 to Regulation D, and 
Preliminary Note 2 to Regulation S.
    \25\ For example, the Rule 155(b) safe harbor, described in 
Section II.D below, would not be available if, notwithstanding 
technical compliance with the rule, the issuer attempts to register 
on a primary basis a transaction that in fact was completed 
privately.
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C. Rule 155(a)--Definition of Private Offering

    As adopted, the rule defines ``private offering,'' as proposed, as 
an unregistered offering of securities that is exempt from registration 
under section 4(2) or 4(6) \26\ of the Securities Act or Rule 506 of 
Regulation D.\27\ This definition applies for purposes of both safe 
harbors under the new rule. This definition is specific to Rule 155, 
however, and does not purport to define the term ``private offering'' 
for other purposes.
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    \26\ Section 4(6) was added to the Securities Act in 1980 by the 
Small Business Issuers' Simplification Act of 1980, Sec. 602, Pub. 
L. No. 96-477, 94 Stat. 2294 (codified at 15 U.S.C. 77d(6)). Section 
4(6) exempts a transaction that does not exceed $5 million, if 
offers or sales are made only to accredited investors and other 
conditions are met.
    \27\ Rule 155(a).
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    Satisfaction of the Rule 155 non-integration conditions will not 
assure the availability of a private offering exemption. A person who 
claims an exemption from Section 5 of the Securities Act has the burden 
of proving that the offering satisfies the conditions of that 
exemption.\28\
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    \28\ Release No. 33-4552 (Nov. 6, 1962), and SEC v. Ralston 
Purina Co., 346 U.S. 119, 126 (1953).
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    Some commenters \29\ suggested that we expand the definition of 
``private offering'' to include state exemptions based on the North 
American Securities Administrators Association, Inc. Model Accredited 
Investor Exemption.\30\ These state exemptions permit general 
solicitation as long as no sales are made to non-accredited investors. 
However, we have long construed general solicitation or advertising to 
impart a public character to an offering. Thus, we do not believe that 
general solicitation or advertising is permissible in an offering under 
section 4(2).\31\ Similarly, both section 4(6) and Rule 506 expressly 
forbid general solicitation or advertising.\32\ For this reason, we 
decline to expand the term ``private offering'' in Rule 155 in the 
manner suggested.
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    \29\ Letters of North American Securities Administrators 
Association (``NASAA'') and Texas State Securities Board.
    \30\ This model exemption was adopted by NASAA on April 27, 
1997. NASAA Rep. (CCH) Para. 361. It has been adopted, in all or 
substantial part, by 25 states. Blue Sky Reporter (CCH) Para. 6471.
    \31\ Release No. 33-4552 (Nov. 6, 1962).
    \32\ Both Section 4(6) and Rule 506 have other conditions in 
addition to the prohibition of general solicitation and advertising.
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    We also decline to extend Rule 155 to offerings exempted by Rule 
505 of Regulation D,\33\ as some commenters requested.\34\ Unlike Rule 
506, Rule 505 permits sales to persons who are neither accredited nor 
financially sophisticated.\35\ Because these persons may purchase in 
Rule 505 offerings, investor protection considerations weigh against 
including Rule 505 offerings in the new safe harbors.\36\
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    \33\ 17 CFR 230.505. Rule 505 provides an exemption for 
offerings up to $5 million within a 12-month period, if certain 
conditions are met. The Commission created this exemption under 
section 3(b) of the Securities Act (15 U.S.C. 77c(b)).
    \34\ Letters of Cleary, Joseph A. Grundfest et al., NAREIT, NY 
City Bar, New York State Bar Association (``NY State Bar'').
    \35\ Investors in a Rule 505 offering who are not accredited 
must be limited to 35, but they need not be sophisticated.
    \36\ Consistent with current staff interpretations of Rule 152, 
the Rule 155 safe harbors will be available for a Rule 505 offering 
that also satisfies the requirements of Rule 506 or Section 4(6). 
The Immune Response Corp. (Nov. 2, 1987).
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D. Rule 155(b)--Abandoned Private Offering Followed by a Registered 
Offering

    An issuer that starts a private offering, abandons it before any 
securities are sold, and then files a registration statement incurs a 
risk that the registered offering could be integrated with the private 
offering under the five-factor test. If the offerings were integrated, 
the Commission or the courts could find a violation of Section 5(c) by 
virtue of the pre-filing offers.
    Recognizing that an issuer may want to take advantage of rapidly 
changing market conditions to make a registered offering instead of 
completing a private offering already started, we proposed to amend 
Rule 152 to add a safe harbor for making this switch.\37\ This 
proposal, which we adopt today with some modifications as Rule 155(b), 
enables an issuer to abandon a private offering and follow it soon with 
a registered offering, without integration concerns.
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    \37\ Proposed Rule 152(b), Release No. 33-7606A.
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    As adopted, the conditions of Rule 155(b) are as follows:
     No securities were sold in the private offering;
     The issuer and any person(s) acting on its behalf 
terminate all offering activity in the private offering before the 
issuer files the registration statement;
     Any prospectus filed as part of the registration statement 
discloses information about the abandoned private offering, including:


[[Page 8890]]


--The size and nature of the private offering,\38\
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    \38\ This disclosure should describe the amount sought to be 
raised, the type of securities offered privately, and the general 
purpose of the abandoned private offering.
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--The date on which the issuer terminated all offering activity in the 
private offering,
--That any offers to buy or indications of interest in the private 
offering were rejected or otherwise not accepted, and
--That the prospectus delivered in the registered offering supersedes 
any selling material used in the private offering; and

     The issuer does not file the registration statement until 
at least 30 calendar days after termination of all offering activity in 
the private offering unless the issuer and any person acting on its 
behalf offered securities in the private offering only to persons who 
were (or who the issuer reasonably believes were) accredited investors 
or sophisticated.
    An issuer that relies on the safe harbor must fully comply with all 
of its applicable conditions. The conditions are designed to assure 
that there is a clean break between the private and registered 
offerings and that persons who were offered securities in the abandoned 
private offering understand this break as they consider an investment 
in the registered offering.
    For example, this safe harbor will allow an issuer to switch to a 
registered offering where, based on the response to an offering that 
the issuer commenced privately, there appears to be sufficient investor 
interest in a registered offering of the securities.\39\ This should 
provide greater flexibility in matching securities offerings to market 
conditions, thereby increasing the efficiency of offerings and 
providing investors with better investment opportunities.
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    \39\ The Rule 155(b) safe harbor differs from Rule 254 of 
Regulation A (17 CFR 230.254), which allows an issuer to publish or 
otherwise disseminate materials designed to determine whether there 
is interest in a contemplated public offering exempt under 
Regulation A. Rule 254 materials must be filed with the Commission 
on or before the date of first use, and, among other things, must 
state that no money or other consideration is solicited or will be 
accepted. In Release No. 33-7188 (Jun. 27, 1995) (60 FR 35648), the 
Commission proposed a general safe harbor for ``test the waters'' 
solicitations regarding IPOs. The more comprehensive 1998 proposals 
superseded that proposal.
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    The 1998 proposals included a specific prohibition against general 
solicitation or advertising in the private offering. However, these 
practices are not permitted under sections 4(2) and 4(6) and Rule 506, 
and the safe harbor is available only where the private offering 
satisfies the conditions of one of these exemptions. Consequently, 
because the proposed prohibition would be redundant, it is not included 
in Rule 155(b) as adopted.
    The safe harbor will be available only if the issuer and any person 
acting on its behalf terminate all offering activity regarding the 
private offering before filing the registration statement. As a further 
condition, the issuer may not file the registration statement sooner 
than 30 days after termination of all offering activity in the private 
offering, unless the issuer and any person acting on its behalf offered 
the securities privately only to persons who were (or who the issuer 
reasonably believes were) accredited investors or sophisticated.\40\ We 
believe that this condition provides an additional protection against 
the possibility of issuers abusing the safe harbor with respect to 
potential investors for whom a registration statement, which requires 
full and balanced disclosure, is particularly important.
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    \40\ The 30-day period is analogous to Rule 254(d), under which 
an issuer that has a bona fide change of intention may file a 
registration statement if at least 30 calendar days have elapsed 
since the last solicitation of interest for the initially proposed 
Regulation A offering.
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    As originally proposed, the rule would have required the issuer to 
notify all private offerees that the private offering was abandoned. 
The 1998 proposals also would have required the issuer to inform all 
private offerees that the filed prospectus supersedes the prior selling 
materials and any indications of interest in the private offering are 
considered rescinded.\41\ Noting that only the private offerees who 
participate in the registered offering need to know this information, 
commenters objected to notification to all private offerees.\42\ We 
believe that limiting the disclosure provisions to persons who 
participate in the registered offering fulfills the purpose of the safe 
harbor. Under the safe harbor as adopted, the issuer will need to 
disclose prominently the information required by the rule in each 
prospectus filed as part of the registration statement and each 
prospectus delivered to investors.\43\
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    \41\ As an alternative to this disclosure, the 1998 proposals 
would have required the issuer to file all selling materials used in 
the private offering as part of the registration statement. This 
alternative condition is not adopted because, based on comments 
received, few issuers would have used it. See Letters of Joesph A. 
Grundfest et al., and New York City Bar.
    \42\ Letters of ABA, Fried Frank, Joseph A. Grundfest et al., 
NAREIT, NY City Bar, and NY State Bar.
    \43\ Thus, the information must be included in both the section 
10(a) (15 U.S.C. 77j(a)) final prospectus and any section 10 
preliminary ``red herring'' prospectus used in the registered 
offering.
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    The rule as adopted requires disclosure that the prospectus 
delivered in the registered offering supersedes any selling materials 
used in the private offering. The purpose of this provision is to 
reduce confusion among investors in the registered offering about what 
information they should rely upon to make their investment decision. 
Nevertheless, issuers are reminded that they may be liable for any 
material misstatements or omissions in the private offering under the 
antifraud provisions of the federal securities laws.\44\
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    \44\ See n.12, above.
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    Because we want to prevent misuse of the Rule 155(b) safe harbor, 
we are directing the staff to monitor its use carefully. For example, 
we expect that the staff may request supplemental information regarding 
the termination of all offering activity in the private offering. In 
acting on requests for acceleration of the effective date of the 
registration statement, we assume that the staff will consider 
carefully whether the standards of the safe harbor are met.

E. Rule 155(c)--Abandoned Registered Offering Followed by a Private 
Offering

    As discussed above, the use of general solicitation or advertising 
to offer a security would defeat a claim to an exemption from 
registration for that offer under section 4(2) or 4(6) or Rule 506.\45\ 
The public character of a registered offering \46\ may raise a question 
about the validity of a claim to a private offering exemption even if 
the registered offering is abandoned.\47\
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    \45\ See Section II.C, above.
    \46\ See Letter of John J. Huber, Director, Division of 
Corporation Finance to Michael Bradfield, General Counsel, Board of 
Governors of the Federal Reserve System, regarding Bankers Trust 
Company (Mar. 16, 1984).
    \47\ See Litigation Release No. 10241 (Dec. 19, 1983) regarding 
SEC  v. Michael A. Traiger, Traiger Energy Investments (U.S.D.C. 
C.D. Cal. Civil Action No. 83-2738-LTL Jpx).
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    Currently, unless an issuer waits six months following withdrawal 
of the registration statement before starting a private offering, the 
five-factor test applies to the question of whether the registered and 
private offerings should be integrated.\48\ An issuer may file a 
registration statement, discover insufficient investor interest to 
proceed and still need financing quickly. Recognizing that this 
presents legal uncertainty, we proposed to amend Rule 152 to add a safe 
harbor from integration to be available in this circumstance.\49\

[[Page 8891]]

We adopt this as Rule 155(c).\50\ This safe harbor should assist 
issuers by reducing the financial risk of an abandoned registered 
offering.
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    \48\ See, e.g., Rule 502(a). As an interpretive matter, the 
staff traditionally looks to the six-month non-integration safe 
harbor of Regulation D even if the private offering does not rely on 
Regulation D for an exemption.
    \49\ Proposed Rule 152(c), Release No. 33-7606A.
    \50\ The conditions of the new safe harbor will apply if the 
private offering is commenced within six months of the effective 
date of withdrawal of the registration statement. If more than six 
months elapse between these events, the issuer may avoid integration 
of the offerings in reliance on traditional staff interpretations. 
See n. 48, above. The issuer also may look to the five-factor test.
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    The rule establishes the following conditions:
     No securities were sold in the registered offering;
     The issuer withdraws the registration statement; \51\
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    \51\ If the issuer also filed a Form 8-A (17 CFR 249.208a) to 
register the class of securities under section 12 of the Exchange 
Act (15 U.S.C. 78(g)) concurrently with Securities Act registration, 
withdrawal of the Securities Act registration statement under Rule 
477 will be deemed also to withdraw the corresponding Form 8-A. In 
situations where a Securities Act registration statement is not 
withdrawn but the registered offering is not pursued, the Form 8-A 
would remain pending under General Instruction A(d)(2) of Form 8-A. 
If the Form 8-A is filed to register the class of securities under 
section 12(g), that section provides that registration will become 
effective automatically 60 days after filing with the Commission. If 
the Form 8-A is filed to register the class of securities under 
section 12(b), section 12(d) provides that registration will become 
effective 30 days after exchange authorities certify to the 
Commission that the security has been approved by the exchange for 
listing and registration.
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     The issuer and any person acting on its behalf do not 
commence the private offering earlier than 30 calendar days after the 
effective date of withdrawal of the registration statement;
     The issuer notifies each offeree in the private offering 
that:

--The offering is not registered under the Securities Act,
--The securities will be ``restricted securities'' as defined in Rule 
144 and cannot be resold without registration unless an exemption is 
available,
--Purchasers do not have the protection of section 11 \52\ of the 
Securities Act, and
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    \52\ 15 U.S.C. Sec. 77k.
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--A registration statement for the abandoned offering was filed and 
withdrawn, specifying the effective date of the withdrawal; and

     Any disclosure document used in the private offering 
discloses any changes in the issuer's business or financial condition 
that occurred after the issuer filed the registration statement that 
are material to the investment decision in the private offering.
    These conditions are designed to assure that the private offering 
is separate and distinct from the registered offering and that offerees 
in the private offering are aware that the legal benefits and 
protections in the private offering differ from those in the registered 
offering. Under Rule 155(c), the issuer will need to withdraw the 
registration statement in reliance on amended Rule 477 \53\ before the 
issuer or any person acting on its behalf offers or sells the 
securities privately. The requirement that no securities were sold in 
the registered offering will not be satisfied if the issuer, or any 
person acting on its behalf, received any money or other offering 
consideration for the securities. Placing funds in escrow will not 
avoid this prohibition.\54\
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    \53\ See Section III, below, describing amendments to Securities 
Act Rule 477.
    \54\ Under section 5(a)(1), it is illegal to enter into a 
contract of sale for a security before the effective date of the 
registration statement. The pre-effective receipt of investors' 
funds, or the segregation of those funds into an escrow account, is 
presumptive evidence of an illegal pre-effective contract of sale.
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    To avoid confusion between the offerings, offerees in the private 
offering will need to know information regarding abandonment of the 
registered offering and legal consequences related to purchasing in an 
unregistered offering. These consequences are that the securities are 
restricted and purchasers do not have the protection of Section 11. As 
proposed, the issuer would have been required to provide this 
information and notice that the offering is not registered only to 
purchasers in the private offering. Upon further consideration, because 
all of this information is significant to an investment decision, we 
include in the safe harbor a requirement that the issuer make this 
disclosure to each offeree in the private offering. We also have added 
a requirement that any disclosure document used in the private offering 
discloses any changes in the issuer's business or financial condition 
that occurred after the issuer filed the registration statement that 
are material to the investment decision in the private offering. This 
requirement reduces concerns that private offerees will be influenced 
by outdated disclosure in the prospectus filed as part of the 
registration statement.
    We believe that ordinarily an issuer would not be inclined to incur 
the costs of preparing and filing a registration statement with the 
intention to withdraw it later and commence a private offering. 
Nevertheless, we wish to assure that issuers do not use this 
integration safe harbor merely as a mechanism to avoid the private 
offering prohibition on general solicitation and advertising. At the 
time the private offering is made, in order to establish the 
availability of a private offering exemption, the issuer or any person 
acting on its behalf must be able to demonstrate that the private 
offering does not involve a general solicitation or advertising. Use of 
the registered offering to generate publicity for the purpose of 
soliciting purchasers for the private offering would be considered a 
plan or scheme to evade the registration requirements of the Securities 
Act.\55\
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    \55\ See Preliminary Note to Rule 155.
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    The 30-day waiting period is designed to reduce concerns regarding 
the validity of the issuer's claimed reliance on a private offering 
exemption. The 30-day waiting period, together with the disclosure 
applicable to offerees in the private offering, should assure that 
investors do not confuse the investment decision they are making in the 
private offering with the decision that they previously considered in 
the registered offering.
    The 1998 proposals included an alternative provision that would 
have permitted the private offering to start within 30 days after the 
registration statement was withdrawn. This alternative would have 
required the issuer and other sellers to agree that liability under 
Securities Act sections 11 and 12(a)(2) \56\ would apply in the private 
offering.\57\ Commenters objected to the conditions of this 
alternative.\58\ Based on public comment and our own analysis, we have 
decided not to adopt this alternative condition. If the issuer (or any 
person acting on its behalf) first offers the securities privately 
within 30 days following withdrawal of the registration statement, the 
safe harbor will not be available. Instead, traditional integration 
analyses, including the five-factor test, would determine whether the 
registered offering and the private offering should be integrated.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 77l.
    \57\ Specifically, the 1998 proposals for sellers' section 11 
liability to investors who purchased in the private offering during 
the 30 days following withdrawal of the registration statement. The 
1998 proposals also provided for sellers' section 12(a)(2) liability 
to private offering investors who purchased after the 30 days had 
passed, if there were purchasers during the first 30 days.
    \58\ Letters of ABA, Cleary, Joseph A. Grundfest et al., Morgan 
Stanley Dean Witter, NY City Bar, and NY State Bar.
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III. Rule 477--Registration Statement Withdrawal

    Rule 477 permits an issuer to withdraw a registration statement, or 
any amendment or exhibit to a registration statement, if the Commission 
finds withdrawal to be consistent with the public interest and the 
protection of investors and grants its consent.\59\ The amendments 
adopted today will facilitate this process.

[[Page 8892]]

Specifically, an application for withdrawal of an entire registration 
statement made before the registration statement becomes effective will 
be deemed granted upon filing unless, within 15 calendar days after the 
issuer files the application, the Commission notifies the issuer that 
the application will not be granted.\60\ This will expedite the use of 
Rule 155(c) to switch from an abandoned registered offering to a 
private offering and will provide predictability in most cases. Any 
application for withdrawal following effectiveness or application for 
withdrawal of less than an entire registration statement will continue 
to require affirmative Commission consent.\61\
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    \59\ Rule 477(a).
    \60\ Rule 477(b). The 1998 proposals included a proposed 
amendment to Rule 477(b) providing automatic effectiveness upon 
filing of any application to withdraw an entire registration 
statement that had not yet become effective. Upon further 
consideration, we believe that there are circumstances, such as 
where the Division of Enforcement has commenced an investigation 
with respect to the pending registration statement, in which 
investor protection concerns outweigh the convenience to an issuer 
of a withdrawal application's immediate effectiveness. The rule as 
adopted balances these concerns by providing the Commission a 
limited period of time to notify the issuer that withdrawal of the 
registration statement will not be granted.
    \61\ An issuer may withdraw a registration statement under Rule 
477 before effectiveness, or after effectiveness before any sale is 
made. Under section 5(a) of the Securities Act, securities may be 
sold in a registered offering following effectiveness of the 
registration statement. Due to the staff's greater need to verify 
that no securities were sold, amended Rule 477 does not provide for 
automatic effectiveness of any withdrawal application made after the 
registration statement became effective. However, the staff will 
consider these applications promptly.
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    In all cases, the registrant must sign the application for 
withdrawal and state fully in it the grounds on which withdrawal is 
requested. The registrant must include in the application a statement 
that no securities were sold in the offering. If withdrawal is sought 
in anticipation of using the registered-to-private safe harbor of Rule 
155(c), the registrant also should include in the application a 
statement that it may undertake a subsequent private offering relying 
on that safe harbor.\62\
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    \62\ Rule 477(c). This statement should not include any 
information regarding the proposed terms of the private offering to 
avoid the possibility of a general solicitation. Providing this 
statement under Rule 477(c) is not a condition of the Rule 155(c) 
safe harbor, although Rule 155(c)(2) requires the issuer to withdraw 
the registration statement under Rule 477.
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    As is the case today, the amended rule also provides that any 
withdrawn document remains in the Commission's public files, as does 
the related request for withdrawal.\63\ Documents filed on EDGAR will 
remain posted on the EDGAR website. The Rule 477 amendments adopted 
today do not affect the Commission's authority to bring an enforcement 
action against a registrant with respect to the content of a withdrawn 
registration statement.
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    \63\ Rule 477(d).
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IV. The Offset of Filing Fees and Other Technical Changes

    In 1995, we expanded Rule 429 \64\ to provide a mechanism for 
issuers to offset the payment of a registration statement filing fee 
with fees that they previously paid for an earlier filed registration 
statement.\65\ The amount available for use as an offset under Rule 429 
equals the portion of the filing fee previously paid that is associated 
with any unsold securities of the same class registered on an earlier 
registration statement.\66\ Once a filing fee has been used as an 
offset, those unsold securities on the earlier registration statement 
are deemed deregistered.\67\ This practice has benefited many issuers.
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    \64\ 17 CFR. 230.429.
    \65\ Release No. 33-7168 (May 11, 1995) [60 FR 26604]. The staff 
also has permitted fee offset between issuers and their wholly-owned 
subsidiaries with no independent operations.
    \66\ The staff has permitted an issuer to apply the offset to 
different classes of securities if the issuer is eligible to file an 
unallocated shelf registration statement.
    \67\ When filing fees have been transferred to a new 
registration statement, a post-effective amendment is necessary to 
deregister unsold shares on the original registration statement only 
if the original registration statement was filed on Form S-8. Ropes 
& Gray (Oct. 30, 1997).
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    Rule 429, however, also provides for the use of a combined 
prospectus for multiple offerings. Because the pairing of fee offset 
procedures and combined prospectus procedures in the same rule 
sometimes results in confusion as to when fee offset is available, we 
proposed to move the fee offset procedures into Rule 457, which 
addresses fee computation. We also proposed to allow an issuer to 
offset filing fees in the same manner when it withdraws a registration 
statement. We now adopt these proposals.\68\
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    \68\ The amended fee offset procedures will apply whether the 
registration statement is withdrawn under Rule 477 before 
effectiveness, or after effectiveness before any sale is made. If 
any securities have been sold under the registration statement 
following effectiveness, the issuer may not withdraw the 
registration statement. However, the issuer may post-effectively 
amend the registration statement to deregister the remaining unsold 
securities. As proposed and adopted, the Rule 457 amendment does not 
permit fee offset from unsold shares that were deregistered before 
the new registration statement is filed.
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    As adopted, the amendment requires any fee offset to occur within 
five years of the initial filing date of the earlier registration 
statement.\69\ The amendment also describes how the offset will be 
computed. Specifically, the aggregate total dollar amount of the filing 
fee associated with the unsold registered securities may be offset 
against the total filing fee due for a subsequent registration 
statement or registration statements. This will be the case whether the 
original filing fee was computed based on Rule 457(a) or Rule 457(o).
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    \69\ As proposed, a fee offset would have been permitted within 
five years of the completion or termination of the offering 
registered in the earlier registration statement. However, because 
this is not a date that is publicly available and companies 
sometimes wait a considerable period before withdrawing a 
registration statement, we concluded that the initial filing date of 
the earlier registration statement would be a better benchmark.
---------------------------------------------------------------------------

    The 1998 proposals also would have required the subsequent 
registration statement(s) to be filed by the same registrant or its 
wholly-owned subsidiary. However, as a policy matter we believe that 
the benefits of filing fee offsets should apply across broader 
categories of registrants that control, or are controlled by, the 
original registrant. As adopted, this amendment permits the subsequent 
registration statement(s) to be filed by the same registrant,\70\ its 
majority-owned subsidiary, or a parent that owns more than 50 percent 
of the original registrant's outstanding voting securities.\71\ The 
issuer will need to add a note to the ``Calculation of Registration 
Fee'' table in the subsequent registration statement(s) explaining the 
fee offset similar to the note currently required by Rule 429.
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    \70\ For this purpose, a successor issuer that satisfies the 
conditions of Securities Act Rule 405 [17 CFR 230.405] will be 
considered the same registrant.
    \71\ Rule 457(p).
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    As proposed, we also amend Rule 457 to codify the following staff 
interpretations:
     If a filing fee is paid for the registration of an 
offering and the same registration statement also covers the resale of 
the securities, no additional filing fee is required to be paid for the 
resale; \72\ and
---------------------------------------------------------------------------

    \72\ Rule 457(f)(5).
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     Payment of a filing fee is not required for the 
registration of an indeterminate amount of securities to be offered 
solely for market-making purposes by an affiliate of the issuer.\73\

    \73\ Rule 457(q).
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Finally, we also amend Rule 457 as proposed to clarify that the 
registration fee may be calculated on the basis of the maximum 
aggregate offering price of the securities, without regard to whether 
the securities are offered by the issuer or selling shareholders.\74\
---------------------------------------------------------------------------

    \74\ Rule 457(o). This amendment does not affect the obligation 
to disclose outside the calculation of fee table the amount of 
securities offered for the account of each selling security holder, 
consistent with the requirements of Item 507 of Regulations S-B and 
S-K (17 CFR 228.507 and 229.507). This amendment also does not 
change the staff's interpretation that secondary offerings under 
General Instruction I.B.3 to Form S-3 may not be included among 
securities registered on an unallocated basis in a Rule 415 
offering. Securities offered by selling shareholders may be 
registered on the same registration statement as an unallocated 
shelf offering, but a separate section in the fee table must be 
included for the selling shareholders. That section lists the 
class(es) of securities registered and allocates a dollar amount to 
each class. The Item 507 disclosure is included in the prospectus at 
the time of effectiveness.

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[[Page 8893]]

V. Transition

    Rule 155 and all of the amendments adopted today become effective 
March 7, 2001. However, to the extent that the Rule 457 amendments 
codify current staff interpretive positions, those positions continue 
to be valid before the effective date.
    The Rule 155 integration safe harbors will be available to private 
offerings that are abandoned and registered offerings for which the 
registration statements are withdrawn on or after the effective date. 
In addition, an issuer may rely on Rule 155(b) to file a registration 
statement on or after the effective date for an offering that follows a 
private offering abandoned before the effective date. Similarly, an 
issuer may rely on Rule 155(c) on or after the effective date to 
commence a private offering that follows a registered offering 
withdrawn before the effective date.

VI. Paperwork Reduction Act Analysis

    Certain provisions of Rule 155 and amended Rule 477 contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (``PRA'').\75\ The Commission will 
submit the collection of information requirements contained in these 
rules to the Office of Management and Budget for review in accordance 
with 44 U.S.C. 3507(d) and 5 CFR 1320.11.\76\ An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless the agency displays a valid OMB control number.\77\
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    \75\ 44 U.S.C. 3501-3520.
    \76\ Titles for the collecitons of information are: ``Securities 
Act Rule 155''; and ``Securities Act Rule 477''. We have requested 
OMB control numbers for rules 155 and 477.
    \77\ 44 U.S.C. 3506(c)(1)(B)(v).
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    Rule 155(b) provides a safe harbor from integration where an 
abandoned private offering is followed by a registered offering if 
specified conditions are satisfied. One of these conditions is that the 
Section 10(a) final prospectus and any Section 10 preliminary 
prospectus used in the registered offering disclose certain information 
about the abandoned private offering, so that the registered offering 
is not confused with the private offering. Preparing and sending the 
required information in a prospectus is a collection of information. We 
estimate that including this information in the prospectus will add one 
burden hour to the total burden hours applicable to the registration 
statement.
    Rule 155(c) provides a safe harbor from integration where an 
abandoned registered offering is followed by a private offering. The 
conditions for this safe harbor require, among other things, that the 
issuer notify each offeree in the private offering that the 
registration statement for the abandoned offering was withdrawn, 
specifying the effective date of the withdrawal. The issuer also must 
notify each offeree in the private offering that the offering is not 
registered, the securities are ``restricted,'' and purchasers in the 
private offering do not have the protection of Section 11. These 
conditions are designed to assure that the private offering is not 
confused with the registered offering. Preparing and delivering this 
notification involves a collection of information. We estimate that 
this will add one burden hour with respect to each private offering 
that relies on the safe harbor.\78\
---------------------------------------------------------------------------

    \78\ In this regard, we note that a private offerings issuers 
typically advise offerees of the legal consequences related to 
purchasing in an unregistered offering.
---------------------------------------------------------------------------

    To avoid confusion between the offerings, Rule 155(c) also requires 
any disclosure document used in the private offering to disclose any 
changes in the issuer's business or financial condition that occurred 
after the issuer filed the registration statement that are material to 
the investment decision in the private offering. Unlike the other Rule 
155 disclosure requirements described above, which always apply, this 
requirement will not necessarily apply to all private offerings that 
rely on Rule 155(c) and may require more disclosure in some cases than 
others where it does apply. Taking these variables into consideration, 
we estimate that this requirement will add six burden hours with 
respect to each private offering that relies on the safe harbor.
    If an issuer withdraws a registration statement in anticipation of 
reliance on Rule 155(c), amended Rule 477 provides for the issuer to 
include in the withdrawal application a statement that the registrant 
may undertake a subsequent private offering in reliance on Rule 155(c). 
This condition will permit the Commission and the public to know when 
an issuer relies on Rule 155(c). We estimate that the collection of 
this information will add one burden hour to a withdrawal application.
    Of the registration statements filed during the five-year period 
from January 1, 1995 to December 31, 1999, issuers withdrew 851 
Securities Act registration statements. These withdrawals may not 
necessarily have been followed by private offerings. We expect 
nevertheless that the number of withdrawals may increase, based on the 
availability of new Rule 155 and amendments to Rule 477. We do not have 
comparable information as to the number of private offerings that were 
abandoned. However, we believe it is reasonable to assume that this 
number may approximate the number of withdrawn registration statements, 
and also may increase based on the availability of new Rule 155.
    Assuming that on an annual basis issuers rely on Rule 155(b) for 
300 abandoned private offerings and rely on Rule 155(c) for 300 
abandoned registered offerings, the total associated additional burden 
will be 2400 hours.\79\ Of the 2400 hours, we estimate that 50% (1200 
internal burden hours) will be attributable to corporate staff, and 50% 
(1200 hours) will be attributable to external professionals retained by 
the issuers. The estimated cost of the external professional help is 
$210,000 (1200  x  $175).\80\
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    \79\ Three hundred hours are atributable to the new registration 
statement disclosure, another 300 hours are attributable to the 
notification requirement in private offerings, and 1800 hours are 
attributable to disclosure in the private offering documents of 
changes in the issuer's business or financial condition that are 
material to the investment decision in the private offering.
    \80\ We used an estimated hourly rate of $175.00 to determine 
the estimated cost to the respondent of the disclosure prepared by 
outside counsel. We arrived at that hourly rate estimate after 
consulting with several private law firms.
---------------------------------------------------------------------------

    Also assuming that on an annual basis issuers rely on amended Rule 
477 for 300 abandoned registered offerings, the total associated 
additional burden will be 300 hours. We estimate that all 300 burden 
hours will be attributable to corporate staff, and no external 
professional costs will be incurred in connection with this disclosure.
    The information collection requirements imposed by Rule 155 and 
amended Rule 477 is mandatory only for those issuers that choose to 
rely on the Rule 155 safe harbors from integration. Issuers that decide 
not to obtain the rule's safe harbor benefits are not required to 
respond. There is no mandatory retention period for the information 
disclosed. Responses to the collection of information with respect to 
Rule 155(b) and Rule 477, which will be

[[Page 8894]]

filed with the Commission, will not be kept confidential. Responses to 
the collection of information with respect to Rule 155(c) will not be 
filed with the Commission.
    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to: (i) Evaluate whether the information collected pursuant to 
new Rule 155 and revised Rule 477 is necessary for the proper 
performance of the functions of the agency, including whether the 
information will have practical utility; (ii) evaluate the accuracy of 
the Commission's estimate of the burden of the proposed collection of 
information; (iii) determine whether there are ways to enhance the 
quality, utility and clarity of the information to be collected; and 
(iv) evaluate whether there are ways to minimize the burden of 
collection on those who are to respond, including through the use of 
automated collection techniques or other forms of information 
technology.
    Persons desiring to submit comments on the collection of 
information requirements should direct them to the Office of Management 
and Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
D.C. 20503, and should also send a copy of their comments to Jonathan 
G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549 with reference to File No. S7-30-
98. Requests for materials submitted to OMB by the Commission with 
regard to this collection of information should be in writing, refer to 
File No. S7-30-98, and be submitted to the Securities and Exchange 
Commission, Records Management, Office of Filings and Information 
Services. OMB is required to make a decision concerning the collections 
of information between 30 and 60 days after publication, so a comment 
to OMB is best assured of having its full effect if OMB receives it 
within 30 days of publication.

VII. Consideration of Costs and Benefits

    As an aid to evaluate the costs and benefits of our proposals, we 
requested the views of the public and other supporting information. 
Commenters who addressed costs said that the proposed safe harbors for 
switching from private to registered offerings and vice versa would 
reduce costs,\81\ noting particularly that companies would be able to 
consider investor interest before deciding to expend resources to 
conduct a registered offering.\82\ The rules and amendments adopted 
today are designed to modernize and improve the Commission's regulatory 
system for offerings under the Securities Act, enhancing the efficiency 
of the offering process without diminishing investor protection.
---------------------------------------------------------------------------

    \81\ Letters of Investment Company Institute, national Venture 
Capital Association, and TIAA-CREF.
    \82\ Letter of National Venture Capital Association.
---------------------------------------------------------------------------

    The new rule and amendments will increase all issuers' flexibility 
to raise capital in different ways and will reduce the costs of raising 
capital because issuers will be able to adapt their financing plans 
more easily to prevailing market conditions. These benefits are 
difficult to quantify. Moreover, because the Commission generally does 
not regulate the private offering of securities, it is particularly 
difficult to estimate the impact of these rules. Rule 155(b) will allow 
an issuer that starts a private offering to switch to a registered 
offering if investor interest is substantial. Rule 155(c) will allow an 
issuer to abandon a registered offering, for example if investors show 
little interest, and instead proceed with a private offering. In either 
case, the issuer may be able to make the change more rapidly and with 
greater legal certainty than under current regulations and staff 
interpretations. Rule 155 will enable issuers more easily to avoid 
incurring the significant expense of filing a registration statement, 
only to discover later that a registered offering cannot be completed. 
This flexibility should be particularly beneficial to small business 
issuers, for whom the costs of a registered offering typically 
represent a greater proportion of resources and thus greater risk.
    Satisfaction of each safe harbor's conditions will require issuers 
to incur modest additional costs to disclose information about the 
abandoned offering. For example, under Rule 155(b) there will be the 
cost of disclosure to include in each prospectus used in the registered 
offering specified information concerning the private offering and its 
abandonment. If the issuer seeks to file the registration statement 
sooner than 30 calendar days after termination of all offering activity 
in the private offering, further costs may be incurred to establish or 
obtain legal advice that securities were offered in the private 
offering only to persons who were (or who the issuer reasonably 
believes were) ``accredited'' or ``sophisticated.'' Under Rule 155(c), 
costs will be incurred to withdraw the registration statement before 
effectiveness and to provide each offeree in the private offering 
specified information regarding abandonment of the registered offering 
and legal consequences related to purchasing in an unregistered 
offering. In some cases, further costs may be incurred to disclose in 
any disclosure document used in the private offering any changes in the 
issuer's business or financial condition that occurred after the issuer 
filed the registration statement that are material to the investment 
decision in the private offering.
    By making withdrawal of a registration statement before 
effectiveness automatic, the amendments to Rule 477 will facilitate 
reliance on Rule 155(c) by eliminating administrative delays that can 
result in increased costs to issuers. Together with the integration 
safe harbor of Rule 155(c), amended Rule 477 will allow issuers to 
access private markets more rapidly if an attempted registered offering 
is abandoned. If reliance on Rule 155(c) is anticipated, amended Rule 
477 requires an issuer to incur modest additional costs to state that 
the issuer may undertake a subsequent private offering in reliance on 
that rule.
    Under the amendments to Rule 457, the filing fee paid for a 
withdrawn registration statement will be available to the issuer for 
use with future registration statements for up to five years. This 
amendment further reduces the financial risk of an abandoned registered 
offering. Of the registration statements filed during the five-year 
period from January 1, 1995 to December 31, 1999, issuers withdrew 851 
Securities Act registration statements. The aggregate filing fees paid 
for these 851 registration statements was $19,540,257. The average 
filing fee paid for each registration statement was $22,962; the median 
filing fee was $13,646.
    The ability to offset filing fees associated with a withdrawn 
registration statement against filing fees due for a later registration 
statement on the terms provided by amended Rule 457 could represent 
substantial cost savings to qualifying issuers. A majority-owned 
subsidiary of the original registrant or a parent that owns more than 
50 percent of the original registrant's voting securities will also be 
able to offset filing fees paid with respect to unsold securities 
against filing fees due for a later registration statement, resulting 
in additional potential cost savings.
    Other amendments to Rule 457, codifying that no filing fee is 
required to register securities offered solely for market-making 
purposes by an affiliate and no separate filing fee is required to 
register a resale in tandem with the

[[Page 8895]]

registered offering of securities for which a filing fee was paid, such 
as a business combination transaction, keep costs low and provide 
benefits. None of the amendments to Rule 457 will require an issuer to 
incur any new costs.

VIII. Promotion of Efficiency, Competition and Capital Formation

    Section 2(b) of the Securities Act requires the Commission, when 
engaging in rulemaking that requires it to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.\83\
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    \83\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    New Rule 155, as well as the amendments to Rules 429, 457 and 477, 
will enable issuers to decrease many of the costs of abandoned 
offerings and accelerate their ability to obtain financing in new 
offerings. This should promote efficiency and capital formation.
    To the extent that the new and amended rules operate to lower the 
cost of raising capital in the United States, they should enhance the 
competitiveness of issuers that raise capital in U.S. capital markets. 
We believe that the new and amended rules, by reducing the financial 
risk of an abandoned registered offering, will reduce competitive 
disadvantages borne by small business issuers, for whom the costs of a 
registered offering typically represent a greater proportion of 
resources. The new rule and amendments make it easier for issuers to 
enter private markets after abandoning a registered offering, without 
sacrificing existing investor protections.

IX. Final Regulatory Flexibility Analysis

    We prepared this Final Regulatory Flexibility Analysis under 5 
U.S.C. Sec. 604 regarding the new rule and amendments adopted today.

A. Need for Rulemaking

    The purpose of Rule 155 and the amendments is to modernize, 
rationalize, and clarify the Commission's regulatory system for 
offerings under the Securities Act. In particular, Rule 155 is intended 
to provide greater certainty regarding the integration of private and 
registered offerings, and to facilitate changing an offering from 
private to registered (or vice versa), thereby promoting capital 
formation without diminishing investor protection.

B. Significant Issues Raised by Public Comment

    We invited written comments on any aspect of the Initial Regulatory 
Flexibility Analysis, but received no specific comments in response to 
our request.

C. Small Entities Subject to the Rules

    Rule 155 and the amendments will affect small entities that are 
required to file registration statements under the Securities Act. For 
purposes of the Regulatory Flexibility Act, the Securities Act defines 
a ``small business'' issuer, other than an investment company, to be an 
issuer that, on the last day of its most recent fiscal year, had total 
assets of $5 million or less.\84\
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    \84\ See 17 CFR 230.157. When used regarding an issuer tht is an 
investment company, the term is defined as an investment company and 
any related investment company with aggregate netr assets of $50 
million or less as of the end o its most recent fiscal year. See 17 
CFR 270.0-10.
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    We estimate that most of the 2,500 reporting companies with assets 
of $5 million or less are not investment companies. All of these 
companies would be able to rely on Rule 155 and the amended rules if 
they switched from a private offering to a registered offering, or vice 
versa. However, we have no reliable way to determine how many small 
businesses may switch from one kind of offering to another in the 
future, or may be affected otherwise by the new rule or the new 
amendments.

D. Reporting, Recordkeeping, and Other Compliance Requirements

    Rule 155 and the amendments modernize and clarify the regulatory 
system for offerings under the Securities Act. Small businesses will 
report and file essentially the same information as before. The 
amendments will increase all issuers' flexibility to raise capital in a 
number of ways. An issuer will be able to switch to a registered 
offering if investors show substantial interest in a private offering 
already commenced, and will be able to withdraw an unsuccessful 
registered offering more quickly than before, eliminating costly 
administrative delays.
    Issuers will be able to convert more easily and with less 
regulatory uncertainty between registered and private offerings. In 
each case, the issuer will need to provide investors disclosure 
regarding abandonment of the prior offering. When an issuer withdraws a 
registration statement, the filing fee paid with respect to the unsold 
securities will be available to offset against the filing fee due for a 
future registration statement. In most cases, the withdrawal 
application, which will need to disclose the reason for withdrawing the 
registration statement, will become effective automatically. These 
changes should benefit small business issuers.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs the Commission to consider 
alternatives that would accomplish the stated objectives, while 
minimizing any significant adverse impact on small business issuers. In 
connection with the amendments, we considered several alternatives, 
including the following:
     Establishing different compliance and reporting 
requirements, or timetables that take into account the resources of 
small businesses;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small businesses;
     Using performance rather than design standards; and
     Exempting small businesses from all or part of the 
requirements.
    Overall, the rule is designed to benefit all capital raising 
activity, by both small and large entities. The conditions imposed 
include disclosure designed to protect investors from any confusion in 
the event an entity changes how it raises money. These disclosure 
conditions are not resource intensive.
    We did not propose or adopt all of the alternatives that we 
considered. Alternatives that we proposed but did not adopt include:
     In the private-to-registered safe harbor, the issuer 
filing any selling materials used in the private offering as part of 
the registration statement; and
     In the registered-to-private safe harbor, the issuer 
agreeing in writing to liability under the standards of Securities Act 
Sections 11 and 12(a)(2) for any material misstatements or omissions in 
the offering documents used in the private offering.
    These alternatives were not adopted because commenters stated that 
they would be costly and burdensome to issuers.
    In some instances, the alternatives that we chose not to propose or 
adopt--for example exempting small issuers from the disclosure 
requirements--would be inconsistent with our statutory mandate under 
the Securities Act to require full and fair disclosure of all material 
information to investors. We believe that the amendments should apply 
equally to all entities required to disclose information, in order to 
safeguard protection of all investors.

[[Page 8896]]

    We also believe that there would be no benefit in providing 
separate requirements for small business issuers based on the use of 
performance rather than design standards. The five-factor test,\85\ 
which continues to apply, already provides a performance standard to 
resolve the question of integration. The design standards adopted in 
Rule 155 allow an issuer to switch between private and registered 
offerings more quickly and with greater certainty than under the five-
factor test. Moreover, we already have provided a separate Integrated 
Disclosure System for Small Business Issuers \86\ to simplify the 
registration requirements for small entities. Registered offerings 
filed under this system will be treated the same as any other 
registered offering for purposes of Rule 155.
---------------------------------------------------------------------------

    \85\ See n. 20, above.
    \86\ Regulation S-B, 17 CFR 228.10, et seq.
---------------------------------------------------------------------------

X. Statutory Basis and Text of Amendments

    Securities Act Rule 155 and the amendments to Securities Act Rules 
152, 429, 459 and 477 are adopted pursuant to the authority set forth 
in Sections 2(b), 6, 7, 8, 10, 19(a), and 28 of the Securities Act, as 
amended.

List of Subjects in 17 CFR Part 230

    Advertising, Investment companies, Reporting and recordkeeping 
requirements, Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. By revising the general authority citation for Part 230 to read 
as follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77sss, 77z-3, 78c, 78d, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 78mm, 
79t, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, unless 
otherwise noted.
* * * * *

    2. By adding Sec. 230.155 to read as follows:


Sec. 230.155  Integration of abandoned offerings.

    Preliminary Note: Compliance with paragraph (b) or (c) of this 
section provides a non-exclusive safe harbor from integration of 
private and registered offerings. Because of the objectives of Rule 
155 and the policies underlying the Act, Rule 155 is not available 
to any issuer for any transaction or series of transactions that, 
although in technical compliance with the rule, is part of a plan or 
scheme to evade the registration requirements of the Act.

    (a) Definition of terms. For the purposes of this section only, a 
private offering means an unregistered offering of securities that is 
exempt from registration under Section 4(2) or 4(6) of the Act (15 
U.S.C. 77d(2) and 77d(6)) or Rule 506 of Regulation D (Sec. 230.506).
    (b) Abandoned private offering followed by a registered offering. A 
private offering of securities will not be considered part of an 
offering for which the issuer later files a registration statement if:
    (1) No securities were sold in the private offering;
    (2) The issuer and any person(s) acting on its behalf terminate all 
offering activity in the private offering before the issuer files the 
registration statement;
    (3) The Section 10(a) final prospectus and any Section 10 
preliminary prospectus used in the registered offering disclose 
information about the abandoned private offering, including:
    (i) The size and nature of the private offering;
    (ii) The date on which the issuer abandoned the private offering;
    (iii) That any offers to buy or indications of interest given in 
the private offering were rejected or otherwise not accepted; and
    (iv) That the prospectus delivered in the registered offering 
supersedes any offering materials used in the private offering; and
    (4) The issuer does not file the registration statement until at 
least 30 calendar days after termination of all offering activity in 
the private offering, unless the issuer and any person acting on its 
behalf offered securities in the private offering only to persons who 
were (or who the issuer reasonably believes were):
    (i) Accredited investors (as that term is defined in 
Sec. 230.501(a)); or
    (ii) Persons who satisfy the knowledge and experience standard of 
Sec. 230.506(b)(2)(ii).
    (c) Abandoned registered offering followed by a private offering. 
An offering for which the issuer filed a registration statement will 
not be considered part of a later commenced private offering if:
    (1) No securities were sold in the registered offering;
    (2) The issuer withdraws the registration statement under 
Sec. 230.477;
    (3) Neither the issuer nor any person acting on the issuer's behalf 
commences the private offering earlier than 30 calendar days after the 
effective date of withdrawal of the registration statement under 
Sec. 230.477;
    (4) The issuer notifies each offeree in the private offering that:
    (i) The offering is not registered under the Act;
    (ii) The securities will be ``restricted securities'' (as that term 
is defined in Sec. 230.144(a)(3)) and may not be resold unless they are 
registered under the Act or an exemption from registration is 
available;
    (iii) Purchasers in the private offering do not have the protection 
of Section 11 of the Act (15 U.S.C. 77k); and
    (iv) A registration statement for the abandoned offering was filed 
and withdrawn, specifying the effective date of the withdrawal; and
    (5) Any disclosure document used in the private offering discloses 
any changes in the issuer's business or financial condition that 
occurred after the issuer filed the registration statement that are 
material to the investment decision in the private offering.

    3. By revising Sec. 230.429 to read as follows:


Sec. 230.429  Prospectus relating to several registration statements.

    (a) Where a registrant has filed two or more registration 
statements, it may file a single prospectus in the latest registration 
statement in order to satisfy the requirements of the Act and the rules 
and regulations thereunder for that offering and any other offering(s) 
registered on the earlier registration statement(s). The combined 
prospectus in the latest registration statement must include all of the 
information that currently would be required in a prospectus relating 
to all offering(s) that it covers. The combined prospectus may be filed 
as part of the initial filing of the latest registration statement, in 
a pre-effective amendment to it or in a post-effective amendment to it.
    (b) Where a registrant relies on paragraph (a) of this section, the 
registration statement containing the combined prospectus shall act, 
upon effectiveness, as a post-effective amendment to any earlier 
registration statement whose prospectus has been combined in the latest 
registration statement. The registrant must identify any earlier 
registration statement to which the combined prospectus relates by 
setting forth the Commission file number at the bottom of the facing 
page of the latest registration statement.

    4. By amending Sec. 230.457 by adding paragraphs (f)(5), (p) and 
(q) and revising the first sentence of paragraph (o) to read as 
follows:


Sec. 230.457  Computation of fee.

* * * * *

[[Page 8897]]

    (f) * * *
    (5) If a filing fee is paid under this paragraph for the 
registration of an offering and the registration statement also covers 
the resale of such securities, no additional filing fee is required to 
be paid for the resale transaction.
* * * * *
    (o) Where an issuer registers an offering of securities, the 
registration fee may be calculated on the basis of the maximum 
aggregate offering price of all the securities listed in the 
``Calculation of Registration Fee'' table. * * *
    (p) Where all or a portion of the securities offered under a 
registration statement remain unsold after the offering's completion or 
termination, or withdrawal of the registration statement, the aggregate 
total dollar amount of the filing fee associated with those unsold 
securities (whether computed under Sec. 230.457(a) or (o)) may be 
offset against the total filing fee due for a subsequent registration 
statement or registration statements. The subsequent registration 
statement(s) must be filed within five years of the initial filing date 
of the earlier registration statement, and must be filed by the same 
registrant (including a successor within the meaning of Sec. 230.405), 
a majority-owned subsidiary of that registrant, or a parent that owns 
more than 50 percent of the registrant's outstanding voting securities. 
A note should be added to the ``Calculation of Registration Fee'' table 
in the subsequent registration statement(s) stating the dollar amount 
of the filing fee previously paid that is offset against the currently 
due filing fee, the file number of the earlier registration statement 
from which the filing fee is offset, and the name of the registrant and 
the initial filing date of that earlier registration statement.
    (q) Notwithstanding any other provisions of this section, no filing 
fee is required for the registration of an indeterminate amount of 
securities to be offered solely for market-making purposes by an 
affiliate of the registrant.

    5. By amending Sec. 230.477 by adding a sentence at the end of 
paragraph (b); by revising paragraph (c); and by adding paragraph (d) 
to read as follows:


Sec. 230.477  Withdrawal of registration statement or amendment.

* * * * *
    (b) * * * Any other application for withdrawal of an entire 
registration statement made before the effective date of the 
registration statement will be deemed granted at the time the 
application is filed with the Commission unless, within 15 calendar 
days after the registrant files the application, the Commission 
notifies the registrant that the application for withdrawal will not be 
granted.
    (c) The registrant must sign any application for withdrawal and 
must state fully in it the grounds on which the registrant makes the 
application. The fee paid upon the filing of the registration statement 
will not be refunded to the registrant. The registrant must state in 
the application that no securities were sold in connection with the 
offering. If the registrant applies for withdrawal in anticipation of 
reliance on Sec. 230.155(c), the registrant must, without discussing 
any terms of the private offering, state in the application that the 
registrant may undertake a subsequent private offering in reliance on 
Sec. 230.155(c).
    (d) Any withdrawn document will remain in the Commission's public 
files, as well as the related request for withdrawal.

    Dated: January 26, 2001.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-2847 Filed 2-2-01; 8:45 am]
BILLING CODE 8010-01-P