Streamlining Disclosure Requirements Relating to Significant Business Acquisitions and Requiring Quarterly Reporting of Unregistered Equity Sales

Federal RegisterJul 10, 1995

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 228, 239 and 249

[Release Nos. 33-7189; 34-35897; International Series No. 820; File No.

S7-19-95]

RIN 3235-AG47

Streamlining Disclosure Requirements Relating to Significant

Business Acquisitions and Requiring Quarterly Reporting of Unregistered

Equity Sales

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules and forms.

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SUMMARY: In connection with its review of problematic practices

relating to Regulation S, the Commission is publishing for comment rule

revisions that reduce the need for reliance on Regulation S by

eliminating certain impediments to registered offerings of securities

under the Securities Act of 1933 by streamlining requirements with

respect to financial statements of significant acquisitions. Also, rule

revisions are proposed that would require registrants to report on a

quarterly basis recent sales of equity securities that have not been

registered under the Securities Act of 1933.

DATES: Comments should be received on or before September 8, 1995.

ADDRESSES: Comment letters should refer to File number S7-19-95 and

should be submitted in triplicate to Jonathan G. Katz, Secretary, U.S.

Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,

D.C. 20549. The Commission will make all comments available for public

inspection and copying in its Public Reference Room at the same

address.

FOR FURTHER INFORMATION CONTACT: Annemarie Tierney, (202) 942-2990,

Office of International Corporate Finance, or Douglas Tanner, (202)

942-2960, Office of Chief Accountant, Division of Corporation Finance,

U.S. Securities and Exchange Commission, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission is publishing for comment

proposed amendments to the following rules and forms under the

Securities Act of 1933 (the ``Securities Act'') 1 and the

Securities Exchange Act of 1934 (the ``Exchange Act'') 2

concerning financial statements of acquired (or to be acquired)

businesses and quarterly reporting of unregistered equity offerings:

Rule 3-05 of Regulation S-X,3 Rule 310 of Regulation S-B,4

Item 17 of Form S-4,5 Item 17 of Form F-4,6 Item 7 of Form 8-

K,7 Item 2 of Form 10-Q,8 Item 2 of Form 10-QSB,9 Item 5

of Form 10-K,10 and Item 5 of Form 10-KSB.11

\1\ 15 U.S.C. 77a et seq.

\2\ 15 U.S.C. 78a et seq.

\3\ 17 CFR 210.3-05.

\4\ 17 CFR 228.310.

\5\ 17 CFR 239.25.

\6\ 17 CFR 239.34.

\7\ 17 CFR 249.308.

\8\ 17 CFR 249.308a.

\9\ 17 CFR 249.308b.

\10\ 17 CFR 249.310.

\11\ 17 CFR 249.310b.

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I. Introduction

The Commission adopted Regulation S 12 in April 1990 in order

to clarify the extraterritorial application of the registration

requirements of the Securities Act.13 Since adoption, a number of

problematic practices have developed involving unregistered sales of

equity securities of domestic reporting companies purportedly in

reliance upon Regulation S. In a companion release,14 the

Commission is publishing its views concerning problematic practices

under Regulation S and is requesting comment as to whether Regulation S

also should be amended to impose additional restrictions on its use.

\12\ 17 CFR 230.901-904.

\13\ Release No. 33-6863 (Apr. 24, 1990) [55 FR 18306] (the

``Adopting Release'').

\14\ Release No. 33-7190.

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Commenters have suggested that companies may be compelled to sell

securities offshore, rather than in registered transactions, because of

registration disclosure requirements relating to significant

acquisitions. The Commission is proposing to streamline these

requirements to reduce regulatory impediments to the use of registered

offerings. Also, in response to commenters' suggestions that investors

need information about private or offshore placements of equity

securities that is not currently disclosed, the Commission is proposing

to require quarterly reporting of unregistered equity offerings.

Commenters have suggested this public reporting may also have the

ancillary benefit of deterring abuses of Regulation S.

II. Proposed Simplification of Registration Disclosure of Significant

Acquisitions

Domestic companies subject to the reporting requirements of the

Exchange Act are required to report significant acquisitions on Form 8-

K within 15 days after consummation of the transaction; a grace period

of up to 60 days from the filing due date is given for filing the

required audited financial statements.15 On the other hand, a

[[Page 35657]]

company that registers securities under the Securities Act must provide

information in the registration statement about significant

acquisitions, including audited financial statements, from such time as

the acquisition is probable.16 One, two or three years of audited

financial statements may be required, depending on the relative

significance of the acquired business.17 If the registrant is

unable to obtain such financial statements from the potential acquiree

for inclusion in the registration statement, the issuer would have to

resort to alternative financings. Thus, reporting companies, including

those with shelf registrations of securities, may be compelled to forgo

public offerings and to undertake private or offshore offerings. The

rules proposed today are intended generally to allow companies to

provide information about significant acquisitions in Securities Act

registration statements on the same time schedule as for Exchange Act

reporting.18

\15\ See Item 2 and Item 7 of Form 8-K [17 CFR 249.308].

\16\ See Rule 3-05 of Regulation S-X and Item 310(c) of

Regulation S-B [17 CFR 210.3-05 and 17 CFR 228.310(c)].

Registered offerings that are not primarily of a capital raising

nature are permitted to go forward without those financial

statements until 75 days following the acquisition, as permitted by

Form 8-K. Specifically, the restriction on offerings registered

under the Securities Act does not apply to (a) offerings or sales of

securities upon the conversion of outstanding convertible securities

or upon the exercise of outstanding warrants or rights; (b) dividend

or interest reinvestment plans; (c) employee benefit plans; (d)

transactions involving secondary offerings; or (e) sales of

securities pursuant to Rule 144. The restriction also applies to

certain unregistered offerings as well. See Instruction 2 to Item 7

of Form 8-K.

\17\ The significance of an acquired business is evaluated based

on (i) the amount of the issuer's investment in the acquired

business; (ii) the total assets of the acquired business; and (iii)

the pre-tax income of the acquired business, all as compared to the

registrant's most recent comparable financial items.

\18\ The amendments would also permit certain private placements

under Rules 505 and 506 of Regulation D under the Securities Act [17

CFR 230.505 and 506] to go forward under the same conditions as a

registered offering.

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In addition, the Commission is proposing to provide an automatic

waiver of the earliest year of required audited financial statements

otherwise required to be provided for a consummated business

acquisition in filings made under either the Securities Act or the

Exchange Act if those financial statements are not readily available. A

similar waiver provision was previously adopted for small business

issuers and has proved quite useful in addressing significant practical

problems for issuers engaged in acquisitions.19

\19\ The Commission has established the Advisory Committee on

the Capital Formation and Regulatory Processes (the ``Advisory

Committee''), chaired by Commissioner Steven M.H. Wallman. The

Advisory Committee is considering fundamental issues relating to the

regulatory framework governing the capital formation process,

including whether the current system of registering securities

offerings should be replaced with a company registration system. The

recommendations of the Advisory Committee may result in rule

proposals or legislative recommendations that, if endorsed by the

Commission, ultimately may address the matters discussed in this

release. Because most financing transactions that would be

undertaken within the framework of several of the company

registration models now being considered by the Advisory Committee

could be conducted primarily on the basis of disclosure provided in

a registered company's filed periodic and current reports, business

acquisition reporting generally would be rendered consistent in both

the public offering and periodic reporting contexts.

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A. Elimination of Required Financial Statements for Pending

Acquisitions and Waiver of Financial Statements for Recently Completed

Acquisitions

The Commission proposes to eliminate the requirement to provide

audited financial statements for pending business acquisitions in

Securities Act registration statements, other than registrations by

``blank check companies.'' 20 In addition, the proposed rules

would automatically waive the required financial statements for

significant acquisitions completed within 75 days of a registered

offering, if such audited financial statements are not readily

available at the time the offer commences.21 However, other than

financial statements and pro forma information presented pursuant to

Rules 3-05 and Article 11 of Regulation S-X and Item 310 of Regulation

S-B, the proposed rule changes do not change information required with

respect to significant acquisitions.

\20\ A ``blank check company'' is defined in Sec. 230.419 of

Regulation C [17 CFR 230.419(a)].

\21\ The date of an offering will be deemed to be the date of a

final prospectus or prospectus supplement relating to the offering

as filed with the Commission pursuant to Rule 424(b) [17 CFR

230.424(b)] under the Securities Act.

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Although financial statements of acquirees may be omitted under the

proposed amendments, pro forma financial information required by

Article 11 of Regulation S-X and Item 310 of Regulation S-B would

continue to be required when financial statements of the acquiree are

furnished.22 In any case, likely effects of a probable or recently

consummated business combination are required to be discussed in

Management's Discussion and Analysis, to the extent material.23

\22\ 17 CFR 210.11-01 to 11-03.

\23\ See Item 303 of Regulation S-K and S-B [17 CFR 229.303 and

228.303].

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Comments are requested concerning whether the accommodations

proposed today should only be available with respect to acquisitions

below a particular level of significance compared to the assets and

pre-tax income of the registrant. If a significance test is

appropriate, should it be, for example, 75%, 60%, 50%, 40%, 30% or 20%?

Comment is requested whether other classes of issuers, in addition to

``blank check companies,'' should be excluded from the provisions of

the proposed amendments. Is it appropriate to provide the same grace

period for offering documents as for Form 8-K reports? Should the grace

period be shorter, e.g. 15 days? Further, comment is requested

regarding whether such relief should be available to all registrants

(including new registrants) or whether minimum reporting history or

public float requirements should be established. Comment is requested

as to whether audited financial statements with respect to significant

business combinations that have not been consummated but are probable

should be required to be furnished in the prospectus if the financial

statements are readily available. Comment is requested as to whether

unaudited financial statements with respect to probable or recently

consummated business combinations should be required if they are

readily available.

Although a domestic company may proceed with a registered offering

of securities without financial statements of a recent or probable

acquiree in the circumstances described above, it will be required to

file financial statements of each significant acquired business on Form

8-K within 75 days of consummation of the acquisition. The proposed

revisions would apply to offerings of domestic and foreign issuers

alike. However, foreign private issuers are not subject to quarterly or

Form 8-K reporting rules, and are not required currently to furnish

financial statements of acquired businesses in the absence of a

registered offering of securities. Comment is requested as to whether

the rule should therefore include, as a condition for omission of the

financial statements in a registration statement, that the foreign

private issuer undertake in the registration statement to provide on

Form 6-K the audited financial statements of the acquired business

within 75 days of consummation of the business combination.

The amendments proposed today would also eliminate the significance

threshold that triggers the requirement to provide in registration

statements audited financial statements of acquired businesses that, in

the aggregate, but not individually, are significant.24 Comment

[[Page 35658]]

is requested as to whether elimination of the requirement is

appropriate or whether a significance level applicable to aggregations

of individually insignificant businesses should be maintained at the

current threshold of 20%, or increased to 40%, 50%, 60% or 75%.

\24\ In such case, the issuer must furnish audited financial

statements of the most recent fiscal year for a majority of the

individually insignificant businesses. See Rule 3-05(b)(i) of

Regulation S-X.

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No change is proposed with respect to current rules governing

financial statements required for acquired operating real estate

properties. The Commission has previously addressed the issue of

financial statements for operating real estate properties. Rule 3-14 of

Regulation S-X reflects conclusions reached regarding the appropriate

form of financial information and the number of periods for which the

financial information should be furnished.25 Comment is requested

on whether relief proposed under the proposed amendments should also be

available for operating real estate properties acquired or to be

acquired by the registrant.

\25\ Audited income statements of significant acquired or to be

acquired operating real estate properties are required to be

furnished pursuant to Rule 3-14 of Regulation S-X and Item 310(e) of

Regulation S-B [17 CFR 210.3-14 and 228.310(e)]. The income

statements are required to be presented only for the most recent

fiscal year, regardless of significance, if the property is not

acquired from a related party and the registrant is not aware of any

material factors relating to the specific property that would cause

the reported financial information not to be necessarily indicative

of future operating results. The income statements may exclude items

not comparable to the proposed future operation of the property,

such as mortgage interest, leasehold rental, depreciation, corporate

expenses and federal and state income taxes.

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Where securities are being registered in an offering to acquire a

business, audited financial statements of the business to be acquired

will still be required as provided under the current rules.26 The

proposed amendments do not cover these situations. The registrant may

rely on the proposed rules with respect to other pending or recently

completed acquisitions.

\26\ Forms S-4 and F-4 do provide certain accommodations with

respect to acquirees that are not reporting companies under the

Exchange Act. See Item 17 in each Form [17 CFR 239.25 and 33].

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Likewise, the proposed new rules would not change the financial

statement requirements of the business to be acquired for proxy

statements in which financial statements of such business are required

to be provided pursuant to Item 14 of Schedule 14A.27 Comment is

requested as to whether the relief afforded under the proposed

amendments should be available for a company being acquired if that

acquisition transaction is the subject of the registration statement or

proxy statement.

\27\ Financial statements of an acquired business are required

pursuant to Item 14 if action is to be taken with respect to

mergers, consolidations, acquisitions and similar matters [17 CFR

240.14a-101.14].

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B. Automatic Waiver of Certain Unavailable Acquiree Financial

Statements

When audited financial statements of an acquired business are

required in filings made under the Exchange Act or the Securities Act,

the number of years for which statements are mandated varies depending

on the level of significance of the acquisition relative to the assets

and income of the registrant.28 In 1992, as part of its Small

Business Initiatives,29 the Commission provided certain relief in

cases where the acquiree's audited financial statements are not readily

available. This automatic waiver is proposed to be extended to all

issuers. As proposed to be amended, Rule 3-05 would provide that, where

an acquiree's audited financial statements are not readily available,

the requirement for furnishing them would be automatically waived if

the significance of the acquired business does not exceed 20%, and the

earlier of the two years of the required financial statements would be

automatically waived where significance does not exceed 40%.30

\28\ The number of years for which audited financial statements

are required depends on the level of significance: one year at 10%,

two years at 20%, and three years at 40%. See Rule 3-05(b)(1) of

Regulation S-X.

\29\ Release No. 33-6949 (July 30, 1992) [57 FR 36442]; Release

No. 33-6996 (April 28, 1993) [58 FR 26509].

\30\ If a registrant omits financial statements in reliance on

the proposed amendments, the pro forma financial information

included in a Form 8-K relating to the acquisition could not be used

as the basis for measuring the significance of subsequent

acquisitions as otherwise permitted by Rule 3-05(b)(1) of Regulation

S-X. See proposed amendments to Rule 3-05(b)(1) of Regulation S-X.

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Comment is requested as to the appropriateness of this automatic

waiver provision. Should the Commission eliminate altogether the

requirement for financial statements of any acquisition below the 20%

significance level? Should financial statements that are not readily

available be waived automatically unless the acquisition exceeds the

50% level of significance? Comment is requested also as to whether

unaudited financial statements should be required to be filed if

audited financial statements are omitted pursuant to the automatic

waiver granted under the proposed rule.

III. Quarterly Reporting of Unregistered Equity Sales

Concerns have been raised by some commenters that while

unregistered offshore or private placements of common stock may have a

material effect on the issuer and may result in significant dilution of

existing shareholders, they frequently are not publicly disclosed.

Recognizing the market need for such information, the Commission

last year adopted Rule 135c 31 to remove any regulatory impediment

to such disclosure. The rule provides a safe harbor under Section 5 for

public announcement of unregistered offerings. Some have suggested that

mandated reporting of unregistered equity placements would assure

investors are provided with material information about such

transactions and have the additional benefit of spotlighting abuses of

Regulation S. The SEC Government-Business Forum on Small Business

Capital Formation included a recommendation that reporting of

Regulation S offerings on Form 8-K be required.32

\31\ 17 CFR 230.135c, adopted in Release No. 33-7053 (Apr. 26,

1994) [59 FR 21644].

\32\ Final Report of the SEC Government-Small Business Capital

Formation (February 1995).

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In response to these concerns and suggestions, the Commission is

proposing amendments to its annual and quarterly report forms for

domestic issuers that would require the disclosure of unregistered

sales of equity securities 33 during the previous fiscal quarter,

whether pursuant to a private placement, a Regulation S offering or

otherwise. This information would be provided in an issuer's Quarterly

Report on Form 10-Q or 10-QSB for sales during the issuer's first three

fiscal quarters and in the Annual Report on Form 10-K or 10-KSB for

offerings during the final fiscal quarter.

\33\ The term ``equity security'' would include convertible and

exchangeable securities, warrants, options and other types of

equity-related securities, as provided under Rule 3a11-1 [17 CFR

240.3a-11-1] under the Exchange Act.

The disclosure proposed 34 is that currently set forth in

Items 701 of Regulation S-K 35 and Regulation S-B,36 and

includes:

\34\ This information is currently required in registration

statements on Forms S-1, S-11 and F-1.

\35\ 17 CFR 229.701.

\36\ 17 CFR 228.701.

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The title and amount of securities sold, and the date of

the transaction.

Underwriter or placement agent.

The consideration received.37

\37\ As to consideration, Item 701 requires: ``As to securities

sold for cash, state the aggregate offering price and the aggregate

underwriting discounts or commissions. As to any securities sold

otherwise than for cash, state the nature of the transactions and

the nature and aggregate amount of consideration received by the

registrant.''

[[Page 35659]]

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Persons or classes of persons to whom the securities were

sold.

The exemption from registration claimed.

Comment is requested on investors' need for such information.

Comment is also requested as to whether the information will be

sufficiently timely, or instead, should be provided in a filing at an

earlier date, such as a mandatory Current Report on Form 8-K, or a

notice of sale similar to that used for Regulation D. Should notice be

required prior to or at the time of the sale? Some have suggested that

earlier reporting should be required unless the Regulation S restricted

period is lengthened so that a report must be filed before the end of

the restricted period. Comment also is requested as to the adequacy of

the information required; is there additional information that would be

helpful to investors; are there items that are not necessary?

The proposed requirement is limited to unregistered sales of common

equity securities (and common equity equivalents) because of the

significant market impact the issuance of such securities often has and

the current lack of public information about such sales. Comment is

requested as to whether a reporting requirement should be extended to

other types of securities or registered offerings, e.g., takedowns off

a shelf registration statement, and if so why?

IV. Cost-Benefit Analysis

To assist the Commission in its evaluation of the costs and

benefits that may result from the proposed changes to disclosure

requirements contained in this release, commenters are requested to

provide views and data relating to any costs and benefits associated

with the proposals. It is expected that the proposals relating to

financial statements of acquired businesses will decrease registrants'

costs and compliance burdens. It is expected that the proposals to

disclose sales of unregistered equity securities on a quarterly basis

will modestly increase registrants' costs and compliance burdens. This

requirement should not significantly increase the burden on company

resources, since most registrants are required to gather such

information in connection with the preparation of audited and unaudited

financial statements. To the extent this requirement results in any

additional expense, it may be justified in view of the material

information that would be available to investors.

V. Request for Comments

Any interested person wishing to submit written comments on any

aspect of the amendments to forms and rules that are subject to this

release are requested to do so. Comments should be submitted in

triplicate to Jonathan G. Katz, secretary, U.S. Securities and Exchange

Commission, 450 5th Street, N.W., Washington, D.C. 20549 and should

refer to file number S7-19-95.

VI. Summary of Initial Regulatory Flexibility Analysis

The Commission has prepared an Initial Regulatory Flexibility

Analysis pursuant to the requirements of the Regulatory Flexibility

Act,38 regarding the proposed amendments to Rule 3-05 of

Regulation S-X, Item 310 of Regulation S-B, Form S-4 and Form F-4 and

Forms 10-Q, 10-QSB, 10-K and 10-KSB. The analysis notes that these

proposed amendments relating to financial statement requirements for

acquired businesses would provide issuers greater flexibility and

efficiency in accessing the public securities markets. The proposed

amendments with respect to disclosure of recent sales of unregistered

securities are intended to provide investors with more information

regarding changes in outstanding securities of public companies.

\38\ 5 U.S.C. 603 (1988).

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As discussed more fully in the analysis, the proposed changes would

affect persons that are small entities, as defined by the Commission's

rules. It is expected that the changes primarily would decrease

reporting, recordkeeping and compliance burdens, although the

requirement to report unregistered sales would modestly increase such

burdens. The analysis also indicates that there are no current federal

rules that duplicate, overlap or conflict with the revised disclosure

provisions.

As stated in the analysis, several possible significant

alternatives to the disclosure proposals were considered, including,

among others, establishing different compliance or reporting

requirements for small entities or exempting them from all or part of

the proposed requirements. As more fully discussed in the analysis, the

alternatives were either addressed in the proposals, inconsistent with

the purposes of the federal securities laws, or otherwise without

justification.

Written comments are encouraged with respect to any aspect of the

analysis. Such comments will be considered in the preparation of the

Final Regulatory Flexibility Analysis if the proposed revisions are

adopted. A copy of the analysis may be obtained by contacting Annemarie

Tierney, Office of International Corporate Finance, Division of

Corporation Finance at (202) 942-2990, U.S. Securities and Exchange

Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

VII. Statutory Bases

The amendments to the Commission's rules and forms are being

proposed pursuant to sections 2, 3, 4 and 19 of the Securities Act of

1933 and 3(b), 4A, 12, 13, 14, 15, 16 and 23 of the Securities Exchange

Act of 1934.

Text of Proposals

In accordance with the foregoing, Title 17, Chapter II of the Code

of Federal Regulations is proposed to be amended as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL

STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF

1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT

COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF

1975--REGULATION S-X

1. The authority citation for Part 210 continues to read as

follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25),

77aa(26), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e(b), 79j(a),

79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37a, unless

otherwise noted.

2. Section 210.3-05 is amending by revising paragraph (b) to read

as follows:

Sec. 210.3-05 Financial statements of businesses acquired or to be

acquired.

(a) ***

(b) Periods to be presented. (1)(i) If securities are being

registered to be offered to the security holders of the business to be

acquired, the financial statements specified in Secs. 210.3-01 and

210.3-02 shall be furnished for the business to be acquired, except as

provided otherwise for filings on Form N-14, S-4 or F-4. In all other

cases, financial statements of the business acquired or to be acquired

shall be filed for the periods specified in this paragraph or such

shorter period as the business has been in existence. The financial

statements covering fiscal years shall be audited except as provided in

Item 14 of Schedule 14A, (Sec. 240.14a-101 of this chapter) with

respect to certain proxy statements or in

[[Page 35660]]

registration statements filed on Forms N-14, S-4 or F-4 (Sec. 239.23,

25 or 34 of this chapter). The periods for which such financial

statements are to be filed shall be determined using the conditions

specified in the definition of significant subsidiary in Sec. 210.1-

02(w) as follows:

(A) If none of the conditions exceeds 10 percent, financial

statements are not required.

(B) If any of the conditions exceeds 10 percent, but none exceed 20

percent, financial statements shall be furnished for at least the most

recent fiscal year and any interim periods specified in Secs. 210.3-01

and 210.3-02.

percent, financial statements shall be furnished for at least the two

most recent fiscal years and any interim periods specified in

Secs. 210.3-01 and 210.3-02.

(D) If any of the conditions exceeds 40 percent, the full financial

statements specified in Secs. 210.3-01 and 210.3-02 shall be furnished.

(ii) The determination shall be made by comparing the most recent

annual financial statements of each such business to the registrant's

most recent annual consolidated financial statements filed at or prior

to the date of the acquisition. However, if the registrant made a

significant acquisition subsequent to the latest fiscal year-end and

filed a report on Form 8-K which included audited financial statements

of such acquired business for the periods required by this section and

the pro forma financial information required by Sec. 210.11, such

determination may be made by using the pro forma amounts for the latest

fiscal year in the report on Form 8-K rather than by using the

historical amounts for the latest fiscal year of the registrant. The

tests may not be made by ``annualizing'' data. However, if a Form 8-K

was filed to report a significant acquisition but audited financial

statements were not furnished pursuant to the provisions of paragraph

(b)(2)(i) of this section, the determination of significance may not be

made using the pro forma amounts for the latest fiscal year.

(2) Notwithstanding the requirements in paragraph (b)(1) of this

section:

(i) If none of the conditions specified in the definition of

significant subsidiary in paragraph (b)(1) of this section exceeds 20

percent and the required audited financial statements of the acquired

business are not readily available, an automatic waiver of the required

audited financial statements is granted. If none of the conditions

specified in the definition of significant subsidiary in paragraph

(b)(1) of this section exceeds 40 percent and the required audited

financial statements are not readily available, an automatic waiver is

granted with respect to the required audited financial statements for

the fiscal year preceding the latest fiscal year.

(ii)(A) Separate financial statements of the acquired or to be

acquired business need not be presented in a proxy statement or

registration statement pursuant to this rule, if either:

(1) The consummation of the acquisition has not yet occurred; or

(2) The acquisition was consummated within 75 days of the date of

the offering under the Securities Act of 1933 [15 U.S.C. Secs. 77a et

seq.], or mailing date in the case of a proxy statement, and the

required audited financial statements of the acquired business are not

readily available at the date of the final prospectus or mailing of the

proxy.

(B) Except that the provisions of this paragraph are not applicable

to registration statements for securities issued to acquire the

business or registrations statements subject to the provisions of

Sec. 419 of Regulation C [17 CFR 230.419].

(iii) Separate financial statements of the acquired business need

not be presented once the operating results of the acquired business

have been reflected in the audited consolidated financial statements of

the registrant for a complete fiscal year unless such financial

statements have not been previously filed or unless the acquired

business is of such significance to the registrant that omission of

such financial statements would materially impair an investor's ability

to understand the historical financial results of the registrant. For

example, if, at the date of acquisition, the acquired business met at

least one of the conditions in the definition of significant subsidiary

in Sec. 210.1-02 at the 80 percent level the income statements of the

acquired business should normally continue to be furnished for such

periods prior to the purchase as may be necessary when added to the

time for which audited income statements after the purchase are filed

to cover the equivalent of the period specified in Sec. 210.3-02.

(iv) A separate audited balance sheet of the acquired business is

not required when the registrant's most recent audited balance sheet

required by Sec. 210.3-01 is for a date after the date the acquisition

was consummated.

* * * * *

3. Section 210.11-01 is amended by revising paragraph (e) to read

as follows:

Sec. 210.11-01 Pro forma financial information.

* * * * *

(e) This rule does not apply to transactions between a parent

company and its totally held subsidiary or to a transaction for which

financial statements of an acquired or to be acquired business are not

presented pursuant to Sec. 210.3-05(b)(i) and Sec. 210.3-05(b)(ii).

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

4. The authority citation for Part 228 continues to read as

follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,

77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,

78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-

11, unless otherwise noted.

5. By amending Sec. 228.310 by adding paragraph (c)(3)(iv),

removing paragraph (c)(4), redesignating paragraph (c)(5) as paragraph

(c)(4), and revising paragraph (d)(2) to read as follows:

Sec. 228.310 (Item 310) financial statements.

* * * * *

(3) * * *

(iv) Notwithstanding the requirements in paragraphs (c)(3)(i) and

(c)(3)(ii) of this Item, separate financial statements of the acquired

or to be acquired business need not be presented in a proxy statement

or registration statement pursuant to this rule, if either:

(A) The consummation of the acquisition has not yet occurred; or

(B) The acquisition was consummated within 75 days of the date of

the offering under the Securities Act of 1933 [15 U.S.C. Secs. 77a et

seq.], or mailing date in the case of a proxy statement, and the

required audited financial statements of the acquired business are not

readily available at the date of the final prospectus or mailing of the

proxy.

Except that the provisions of this paragraph are not applicable to

registration statements for securities issued to acquire the business

or registrations statements subject to the provisions of Sec. 419 of

Regulation C [17 CFR 230.419].

(4) * * *

(d) * * *

(2) The provisions of paragraph (c)(2) of this Item apply to

paragraph (d) of this Item. However, paragraph (d) of this Item does

not apply to a transaction for which financial statements of an

acquired or to be acquired business are not presented pursuant to

paragraph (c)(3)(iv) of this Item.

* * * * *

[[Page 35661]]

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1993

6. The authority citation for Part 239 continues to read in part as

follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77sss, 78c, 78l, 78m,

78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l ,79m, 79n,

79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise noted.

* * * * *

7. By revising paragraph (b)(7) of Item 17 of Form S-4 (referenced

in Sec. 239.25) to read as follows:

Note: Form S-4 does not and these amendments will not appear in

the Code of Federal Regulations.

Form S-4

* * * * *

Item 17. Information with Respect to Companies Other Than S-3 or S-

2 Companies.

* * * * *

(b) * * *

(7) Financial statements as would have been required to be

included in an annual report furnished to security holders pursuant

to Rules 14a-3(b)(1) and (b)(2) (Sec. 240.14a-3 of this chapter) or

Rules 14c-3(a)(1) and (a)(2) (Sec. 240.14c-3 of this chapter), had

the company being acquired been required to prepare such a report;

Provided, however, that the balance sheet for the year preceding the

latest full fiscal year and the income statements for the two years

preceding the latest full fiscal year need not be audited if they

have not previously been audited. In any case, such financial

statements need only be audited to the extent practicable. If this

Form is used for resales to the public by any person who with regard

to the securities being reoffered is deemed to be an underwriter

within the meaning of Rule 145(c) (Sec. 230.145(c) of this chapter),

the financial statements of such companies must be audited for the

periods required to be presented pursuant to paragraphs (b)(1) and

(b)(2)(i) of Rule 3-05 of Regulation S-X (17 CFR 210.3-05).

* * * * *

8. By revising paragraph (b)(5) of Item 17 of Form F-4 to read as

follows:

Note: Form F-4 does not and these amendments will not appear in

the Code of Federal Regulations.

Form F-4

* * * * *

Item 17. Information with Respect to Foreign Companies Other

Than F-3 or F-2 Companies.

* * * * *

(b) * * *

(5) Financial statements as would have been required to be

included in an annual report on Form 20-F (17 CFR 249.220f) had the

company being acquired been required to prepare such a report;