A threat of additional liability.

• Author: FERRARA, RALPH
• Position: Brief Article

The SEC wants to increase the amount of information available to investors. Beware potential pitfalls.

SINCE ITS ISSUANCE in November 1998, the SEC's "Aircraft Carrier Release" -- which constitutes one of the most significant collections of reforms to the regulatory framework governing the offer and sale of securities since 1933 -- has generated controversy.

Directors should be aware of a set of proposals that would loosen the strict controls on written communications that companies are permitted to make to investors and the market around the time of an offering, but would also require that certain additional information disseminated by or on behalf of an issuer during the offering period be filed with the SEC.

The Securities Act restricts communications that issuers may make during a public offering. Under the current system, no offers or sales may be made prior to the filing of a registration statement. During the post-filing waiting period, an issuer may make oral offers, but written offers may only be made by a preliminary prospectus. After the registration statement becomes effective, issuers may use any materials to offer the securities, provided they deliver a final prospectus prior to or along with such materials.

If the Release is adopted, new registration Forms A and B would replace most of the existing registration forms. The offering-related communications that would be permitted would depend on whether the issuer files Form A or Form B. Smaller or unseasoned issuers would be required to use Form A. The disclosure obligations of Form A filers would be similar to those under the current Form S-3.

Large, seasoned issuers would be permitted to use the shorter Form B. Form B filings would not be subject to SEC review, and could become effective immediately. The SEC made two alternative proposals regarding the scope of disclosure that would be required by Form B, one of which would provide the issuer with more discretion than currently provided by Form S-1.

The Release would permit Form B registrants to make both oral and written offering communications at any time during the offering process. All written offering communications permitted under the Release would be classified as either "offering information" or "free writing" material.

Offering information, which would include much of the information currently required to be filed under Regulation S-K, would become part of the Form B registration statement. Free writings would...